<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 5, 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 of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification
Number)
</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. JAMES R. WALTHER, ESQ.
JUDITH T. KITANO, ESQ. MAYER, BROWN & PLATT
MUNGER, TOLLES & OLSON 350 SOUTH GRAND AVENUE
355 SOUTH GRAND AVENUE LOS ANGELES, CALIFORNIA 90071-1503
LOS ANGELES, CALIFORNIA 90071-1560 (213) 229-9500
(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 MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED BE REGISTERED(1) PER UNIT OFFERING PRICE(2) REGISTRATION FEE
<S> <C> <C> <C> <C>
Common Stock, $1.00 par value......... 1,744,125 N/A $27,098,537 $8,211
</TABLE>
(1) This Registration Statement relates to shares of Common Stock of the
Registrant issuable to shareholders of Riverside National Bank in the
proposed merger of Riverside National Bank with and into Registrant's wholly
owned subsidiary, City National Bank. The amount to be registered is based
on the maximum number of such shoes expected to be issued in such merger,
including shares to provide for contingencies.
(2) Estimated solely for purposes of calculating the registration fee in
accordance with Rule 457(f) under the Securities Act of 1933, as amended.
Pursuant to Rule 457(f), the maximum aggregate offering price is the product
of the estimated maximum number of shares of Riverside National Bank to be
acquired in the merger (2,583,889) times the average of the bid and asked
price of the Riverside National Bank Common Stock on November 27, 1996
($17.6875), less a minimum assumed amount of cash to be paid for shares of
Riverside National Bank ($18,604,000).
--------------------------
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>
RIVERSIDE NATIONAL BANK
3484 CENTRAL AVENUE
RIVERSIDE, CALIFORNIA 92506
December _, 1996
Dear Shareholder:
You are cordially invited to attend a Special Meeting of Shareholders of
Riverside National Bank to be held at 10:00 a.m. Pacific Standard Time on
Friday, January 17, 1997, at the Mission Inn, 3649 Mission Inn Avenue,
Riverside, California.
The purpose of the Special Meeting is to vote on an Agreement and Plan of
Merger (the "Merger Agreement") pursuant to which Riverside will be merged (the
"Merger") into City National Bank, which is a wholly owned subsidiary of City
National Corporation ("CNC"). In the Merger, Riverside stockholders will have
the right, at their election, to receive $18.00 per share in cash, or shares of
CNC common stock, or a combination of the two, for their shares of Riverside
common stock, subject to the allocation procedures, adjustments and limitations
described in the attached Proxy Statement/Prospectus.
The actual amount of CNC common stock that will be issued to Riverside
shareholders who elect to receive CNC common stock for their Riverside shares,
and the initial aggregate market value of those CNC shares, will be determined
through a formula that will be based on the average per share closing price of
CNC common stock as reported on the New York Stock Exchange for the twenty
trading days ending on the third trading day immediately prior to the effective
date of the Merger. A description of this formula, which is subject to
adjustments and limitations that may result in the CNC common stock that is
issued in exchange for a Riverside share having an initial market value that is
greater or less than $18.00, together with other important information, is
contained in the accompanying Proxy Statement/Prospectus.
THE BOARD OF DIRECTORS OF RIVERSIDE NATIONAL BANK HAS UNANIMOUSLY APPROVED
THE MERGER AND RECOMMENDS THAT YOU VOTE FOR THE PROPOSAL TO APPROVE THE MERGER
AGREEMENT THAT WILL BE PRESENTED AT THE SPECIAL MEETING.
Approval of the Merger will require the affirmative vote of two-thirds of
all outstanding shares of Riverside common stock. An abstention or failure to
vote will have the same effect as a vote against the Merger. It is therefore
important that your shares be represented at the Special Meeting, whether or not
you currently plan to attend the Special Meeting in person.
Please complete, date, sign and promptly return your proxy card in the
enclosed envelope. Returning your proxy card now will not prevent you from
voting in person at the Special Meeting, but will assure that your vote is
counted if you become unable to attend.
Please vote today.
James Robinson
PRESIDENT AND CHIEF
EXECUTIVE OFFICER
IMPORTANT: IF YOUR SHARES OF RIVERSIDE COMMON STOCK ARE HELD IN THE NAME OF A
BROKERAGE FIRM OR NOMINEE, ONLY IT CAN VOTE YOUR SHARES. TO ENSURE THAT YOUR
SHARES ARE VOTED, FOLLOW THE VOTING INSTRUCTIONS PROVIDED TO YOU BY SUCH FIRM
OR NOMINEE WITH THIS PROXY STATEMENT/PROSPECTUS OR TELEPHONE THE PERSON
RESPONSIBLE FOR YOUR ACCOUNT TODAY TO OBTAIN INSTRUCTIONS ON HOW TO DIRECT HIM
OR HER TO EXECUTE A PROXY ON YOUR BEHALF. IF YOU HAVE ANY QUESTIONS OR NEED
HELP IN VOTING YOUR SHARES, PLEASE TELEPHONE CORPORATE INVESTOR
COMMUNICATIONS, INC. AT .
<PAGE>
RIVERSIDE NATIONAL BANK
3484 CENTRAL AVENUE
RIVERSIDE, CALIFORNIA 92506
------------------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD JANUARY 17, 1997
---------------------
NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders of Riverside
National Bank will be held at the Mission Inn, located at 3649 Mission Inn
Avenue, Riverside, California, on Friday, January 17, 1997, at 10:00 a.m.,
Pacific Standard Time.
The purpose of the Special Meeting is to consider and vote upon a proposal
to approve and adopt the Agreement and Plan of Merger, dated as of October 15,
1996 (the "Merger Agreement"), by and among City National Corporation ("CNC")
and City National Bank, on the one hand, and Riverside, on the other, pursuant
to which Riverside is to be merged with and into City National, as more
completely described in the enclosed Proxy Statement/Prospectus.
The Board of Directors has selected December 12, 1996 as the record date for
the Special Meeting. Only those shareholders of record at the close of business
on that date will be entitled to notice of and to vote at the Special Meeting or
any postponements or adjournments thereof.
By Order of the Board of Directors
Emanuel King
CORPORATE SECRETARY
Riverside, California
December , 1996
<PAGE>
SUBJECT TO COMPLETION, DECEMBER , 1996
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>
PROXY STATEMENT
RIVERSIDE NATIONAL BANK
SPECIAL MEETING TO BE HELD ON
JANUARY 17, 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, $1.25 par value ("Riverside Stock"), of Riverside National Bank, a
national banking association ("Riverside"), in connection with the solicitation
of proxies by the Board of Directors of Riverside for use at the special meeting
of Riverside's shareholders to be held at the Mission Inn, 3649 Mission Inn
Avenue, Riverside, California, on Friday, January 17, 1997, at 10:00 a.m.,
Pacific Standard Time, and at any adjournments thereof (the "Special Meeting").
At the Special Meeting, Riverside shareholders will be asked to consider and
vote upon a proposal to approve that certain Agreement and Plan of Merger, dated
as of October 15, 1996 (the "Merger Agreement"), by and between City National
Corporation, a Delaware corporation ("CNC"), City National Bank, a national
banking association ("City National"), and Riverside pursuant to which Riverside
will merge with and into City National (the "Merger"). See "THE MERGER." Upon
consummation of the Merger, each outstanding share of Riverside Stock (except
for shares held by Riverside shareholders properly exercising dissenters'
rights, shares held by CNC or its subsidiaries (other than shares held in a
fiduciary capacity or in satisfaction of a debt previously contracted), or
shares held by Riverside as treasury stock) will be converted into the right to
receive (1) $18.00 in cash; (2) shares of common stock of CNC, par value $1.00
per share ("CNC Stock") calculated as described in this Proxy
Statement/Prospectus; or (3) a combination of cash and CNC Stock calculated as
described in this Proxy Statement/Prospectus. See "THE MERGER--Consideration
Payable Upon Consummation of the Merger--Election and Proration Procedures."
This Proxy Statement/Prospectus also constitutes a prospectus of CNC in
respect of up to 1,744,125 shares of CNC Stock to be issued upon consummation of
the Merger pursuant to the Merger Agreement.
The outstanding shares of CNC Stock are listed on the New York Stock
Exchange ("NYSE"). The last reported sale price of CNC Stock on the NYSE
Composite Transactions Tape on December , 1996 was $ per share.
This Proxy Statement/Prospectus and the accompanying proxy card are first
being mailed to shareholders of Riverside 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 CNC STOCK OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS, DEPOSITS OR
OTHER OBLIGATIONS OF A BANK OR SAVINGS ASSOCIATION AND ARE NOT
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY
OTHER GOVERNMENTAL AGENCY.
------------------------
THE DATE OF THIS PROXY STATEMENT/PROSPECTUS IS DECEMBER , 1996.
<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 CNC and/or
Riverside to be materially different from any future results, performance, or
achievements expressed or implied by such forward-looking statements.
Specifically, CNC and Riverside caution readers that the following important
factors could affect CNC's and/or Riverside's respective businesses and cause
actual results to differ materially from those expressed in any forward-looking
statement made by, or on behalf of, CNC or Riverside in this Proxy
Statement/Prospectus:
(1) Economic Conditions. CNC's and Riverside's respective results are
strongly influenced by general economic conditions in their respective
market areas. Accordingly, a deterioration in these conditions could have a
material adverse impact on the quality of City National's or Riverside's
loan portfolio and the demand for their products and services. In
particular, changes in economic conditions in the real estate and, with
respect to CNC only, entertainment industries may affect their performance.
(2) Interest Rates. CNC anticipates that interest rate levels will
remain generally constant in 1997, but if interest rates vary substantially
from present levels, CNC's and/or Riverside's results may differ materially
from the results currently anticipated.
(3) Government Regulation and Monetary Policy. All forward-looking
statements presume a continuation of the existing regulatory environment and
United States government monetary policies. The banking industry is subject
to extensive federal and state regulations, and significant new laws or
changes in, or repeals of, existing laws may cause results to differ
materially. Further, federal monetary policy, particularly as implemented
through the Federal Reserve System, significantly affects credit conditions
for City National and Riverside, primarily through open market operations in
United States government securities, the discount rate for member bank
borrowings and bank reserve requirements, and a material change in these
conditions would be likely to have a material impact on CNC's and/or
Riverside's results.
(4) Competition. CNC and Riverside compete with numerous other domestic
and foreign financial institutions and non-depository financial
intermediaries. Results of CNC and/or Riverside may differ if circumstances
affecting the nature or level of competition change, such as the merger of
competing financial institutions or the acquisition of California
institutions by out-of-state companies.
(5) Credit Quality. A significant source of risk arises from the
possibility that losses will be sustained because borrowers, guarantors and
related parties may fail to perform in accordance with the terms of their
loans. City National and Riverside have adopted underwriting and credit
monitoring procedures and credit policies, including the establishment and
review of the allowance for credit losses, that their respective managements
believe are appropriate to minimize this risk by assessing the likelihood of
nonperformance, tracking loan performance and diversifying City National's
and Riverside's respective credit portfolios, but such policies and
procedures may not prevent unexpected losses that could materially adversely
affect CNC's and/or Riverside's results.
(6) Other Risks. From time to time, CNC and Riverside detail other
risks with respect to their respective businesses and/or their financial
results in their respective filings with the Securities and Exchange
Commission (the "SEC") and the Office of the Comptroller of the Currency
(the "OCC"), respectively.
While management of CNC and Riverside believe that their respective
assumptions regarding these and other factors on which forward-looking
statements are based are reasonable, such assumptions are necessarily
speculative in nature, and actual outcomes can be expected to differ to some
degree. Consequently, there can be no assurance that the results described in
such forward-looking statements will, in fact, be achieved.
2
<PAGE>
AVAILABLE INFORMATION
CNC and Riverside 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, in the case of CNC, the SEC, and, in the case of Riverside, the OCC. Such
reports, proxy statements and other information filed with the SEC 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, and such information filed with
the OCC can be inspected and copied at 250 E Street, S.W., Washington, D.C.
20219. 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, or from the OCC at
250 E Street, S.W., Washington, D.C. 20219, in each case at prescribed rates.
The SEC maintains a website at http:\\www.sec.gov that contains such reports,
proxy statements and other information concerning CNC. The CNC Stock is listed
on the NYSE, and such reports, proxy statements and other information concerning
CNC are also 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 CNC with the SEC under the Securities Act of
1933, as amended (the "Securities Act"), with respect to the shares of CNC 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 CNC 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 indicated above.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed with the SEC by CNC 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 OCC by Riverside are hereby
incorporated by reference in this Proxy Statement/Prospectus and made a part
hereof: (1) Riverside's Current Reports on Form 8-K, dated January 17, 1996,
April 17, 1996, July 17, 1996 and October 15, 1996; (2) Riverside's Annual
Report on Form 10-KSB for the fiscal year ended December 31, 1995; and (3)
Riverside's Quarterly Reports on Form 10-QSB for the quarters ended March 31,
1996, June 30, 1996 and September 30, 1996. Each of such documents is included
either as an Appendix to this Proxy Statement/Prospectus or as an exhibit to the
Registration Statement. This Proxy Statement/Prospectus is accompanied by copies
of Riverside's Annual Report on Form 10-KSB, and portions of its Annual Report
to Shareholders, for the year ended December 31, 1995 which are attached hereto
as Appendix F and Quarterly Report on Form 10-QSB for the quarter ended
September 30, 1996 which is attached hereto as Appendix G.
All documents filed by CNC or Riverside 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. CNC and Riverside have undertaken that each such document filed
pursuant to
3
<PAGE>
the Exchange Act by Riverside shall be filed by CNC pursuant to a Form 8-K or
other appropriate filing for purposes of such incorporation by reference into
this Proxy Statement/Prospectus. 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 CNC, 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 RIVERSIDE, OTHER
THAN CERTAIN EXHIBITS TO SUCH DOCUMENTS, ARE AVAILABLE, WITHOUT CHARGE UPON
WRITTEN OR ORAL REQUEST, TO EMANUEL KING, CORPORATE SECRETARY, RIVERSIDE
NATIONAL BANK, 3484 CENTRAL AVENUE, RIVERSIDE, CALIFORNIA 92506, TELEPHONE (909)
276-8800. IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS, ANY REQUEST
SHOULD BE MADE BY JANUARY 10, 1997.
------------------------
All information contained in this Proxy Statement/Prospectus with respect to
CNC and City National and its subsidiaries has been supplied by CNC, and all
information with respect to Riverside has been supplied by Riverside.
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN AS CONTAINED HEREIN AND, IF GIVEN OR MADE, ANY 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 CNC OR RIVERSIDE
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 CNC STOCK TO WHICH IT
RELATES.
4
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS......................... 2
AVAILABLE INFORMATION..................................................... 3
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE........................... 3
TABLE OF CONTENTS......................................................... 5
INDEX OF CERTAIN DEFINED TERMS............................................ 7
SUMMARY................................................................... 9
Parties to the Merger................................................. 9
Special Meeting of Shareholders....................................... 9
Vote Required; Record Date............................................ 9
Consideration Payable Upon Consummation of the Merger................. 10
Effect 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 the Merger................................ 11
Termination of the Merger Agreement................................... 12
Interests of Certain Persons in the Merger............................ 12
Certain Federal Income Tax Considerations............................. 13
Accounting Treatment.................................................. 13
Shareholders' Agreement............................................... 13
Stock Option Agreement................................................ 13
Dissenters' Rights.................................................... 14
Certain Differences in Shareholders' Rights........................... 14
Markets and Market Prices............................................. 14
Selected Consolidated Financial Data.................................. 14
Selected Pro Forma Condensed Combined Financial Information........... 19
Comparative Per Share Data (Unaudited)................................ 22
THE MERGER................................................................ 24
Parties to the Merger................................................. 24
Background of and Reasons for the Merger.............................. 25
Recommendation of the Riverside Board of Directors.................... 27
Opinion of Financial Advisor.......................................... 29
Effect of the Merger.................................................. 33
Consideration Payable Upon Consummation of the Merger................. 33
Effective Time........................................................ 36
Surrender of Riverside Stock Certificates............................. 36
Conditions to Consummation of the Merger.............................. 37
Regulatory Approvals.................................................. 39
Conduct of Business Pending the Merger................................ 39
No Solicitation....................................................... 40
Amendment and Termination............................................. 41
Interests of Certain Persons in the Merger............................ 42
Certain Federal Income Tax Considerations............................. 44
Accounting Treatment.................................................. 49
Expenses.............................................................. 49
MARKETS AND MARKET PRICES................................................. 50
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
PAGE
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<S> <C>
SHAREHOLDINGS OF CERTAIN BENEFICIAL OWNERS AND RIVERSIDE'S MANAGEMENT..... 51
CERTAIN RELATED TRANSACTIONS.............................................. 52
Shareholders' Agreement............................................... 52
Stock Option Agreement................................................ 52
Resale of CNC Stock................................................... 54
VOTING AND RELATED MATTERS AT THE SPECIAL MEETING......................... 55
DISSENTERS' RIGHTS........................................................ 56
Appraisal Rights of Dissenting Shareholders........................... 56
DESCRIPTION OF CAPITAL STOCK.............................................. 57
Common Stock.......................................................... 57
Preferred Stock....................................................... 58
Section 203 of the Delaware General Corporation Law................... 58
Charter and Bylaw Provisions.......................................... 59
Limitation on Director's Liability.................................... 60
COMPARISON OF RIGHTS OF HOLDERS OF RIVERSIDE STOCK AND CNC STOCK.......... 60
Payment of Dividends.................................................. 61
Special Meetings of Stockholders...................................... 61
Number of Directors................................................... 61
Rights of Stockholders to Dissent..................................... 61
Indemnification....................................................... 62
Certain Voting Rights with Respect to Mergers......................... 62
Cumulative Voting..................................................... 63
Preemptive Rights..................................................... 63
Filling Vacancies on the Board of Directors........................... 63
Shareholder Action by Written Consent................................. 63
Amendment of Certificate of Incorporation and Articles of
Association.......................................................... 63
Amendment of Bylaws................................................... 64
Classification of Board of Directors.................................. 64
Qualification of Directors............................................ 64
VALIDITY OF CNC STOCK..................................................... 64
EXPERTS................................................................... 64
PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION........................ 65
</TABLE>
<TABLE>
<S> <C>
APPENDIX A MERGER AGREEMENT
APPENDIX B SHAREHOLDERS' AGREEMENT
APPENDIX C STOCK OPTION AGREEMENT
APPENDIX D SECTION 215a
APPENDIX E FAIRNESS OPINION OF ALEX. BROWN & SONS INCORPORATED
APPENDIX F RIVERSIDE NATIONAL BANK'S ANNUAL REPORT ON FORM 10-KSB FOR THE YEAR
ENDED DECEMBER 31, 1995 (INCLUDING PORTIONS OF RIVERSIDE'S 1995
ANNUAL REPORT TO SHAREHOLDERS)
APPENDIX G RIVERSIDE NATIONAL BANK'S QUARTERLY REPORT ON FORM 10-QSB FOR THE
QUARTER ENDED SEPTEMBER 30, 1996
</TABLE>
6
<PAGE>
INDEX OF CERTAIN DEFINED TERMS
<TABLE>
<CAPTION>
PAGE
----------
<S> <C>
Adjusted Stockholders' Equity............................................. 11
Alex. Brown............................................................... 11
Alex. Brown Opinion....................................................... 29
Applicable Price.......................................................... 54
APB No. 16................................................................ 71
California Business/Niche Banks........................................... 31
California Independent Banks.............................................. 31
Cancelled Shares.......................................................... 34
Cash Election............................................................. 34
City National............................................................. 1
CNC....................................................................... 1
CNC Bylaws................................................................ 14
CNC Certificate........................................................... 14
CNC Stock................................................................. 1
Code...................................................................... 13
Combination Cash Election................................................. 34
Combination Election...................................................... 34
Combination Stock Election................................................ 34
Comparable Transactions................................................... 32
Determination Period...................................................... 10
DGCL...................................................................... 57
Dissenting Shares......................................................... 36
Election.................................................................. 34
Election Deadline......................................................... 34
Effective Time............................................................ 36
Eligible CNC Shares....................................................... 35
Employment Agreement...................................................... 43
Engagement Letter......................................................... 33
EPS....................................................................... 31
Exchange Act.............................................................. 3
Exchange Agent............................................................ 34
Exchange Ratio............................................................ 10 and 34
Exercise Event............................................................ 53
FDIC...................................................................... 62
Final CNC Stock Price..................................................... 10 and 34
GAAP...................................................................... 40
High Range................................................................ 65
hypothetical redemption of CNC stock...................................... 47
Index Price............................................................... 12
Interested Stockholder.................................................... 58
Letter of Transmittal..................................................... 34
Low Range................................................................. 65
LTM....................................................................... 31
Mailing Date.............................................................. 34
Maximum Stock Amount...................................................... 35
Medium Range.............................................................. 65
Merger.................................................................... 1
Merger Agreement.......................................................... 1
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
PAGE
----------
<S> <C>
Merger Consideration...................................................... 10
Minimum Stock Amount...................................................... 35
NYSE...................................................................... 1
OCC....................................................................... 2
October 14 Value.......................................................... 31
Option.................................................................... 42
RAP....................................................................... 40
Record Date............................................................... 9
Registration Statement.................................................... 3
Regulatory Approvals...................................................... 37
Repurchase Consideration.................................................. 54
Repurchase Event.......................................................... 54
Restricted Person......................................................... 59
Riverside................................................................. 1
Riverside Stock........................................................... 1
SEC....................................................................... 2
Section 203............................................................... 58
Section 215a.............................................................. 14
Securities Act............................................................ 3
Selected Transactions..................................................... 31
Service................................................................... 44
Severance Agreement....................................................... 43
Shareholders' Agreement................................................... 52
S&P 500................................................................... 30
Special Meeting........................................................... 1
Spread Value.............................................................. 53
Stock Election............................................................ 34
Stock Option Agreement.................................................... 13
Takeover Proposal......................................................... 41
Tax Counsel............................................................... 13
Termination Event......................................................... 42
Total Consideration....................................................... 36
Undesignated Shares....................................................... 34
Ventura................................................................... 9
Ventura Agreement......................................................... 9
Ventura High Range........................................................ 65
Ventura Low Range......................................................... 66
Ventura Medium Range...................................................... 66
Ventura Merger............................................................ 9
</TABLE>
8
<PAGE>
SUMMARY
THE FOLLOWING SUMMARY IS NOT INTENDED TO BE A COMPLETE DESCRIPTION OF ALL
MATERIAL FACTS REGARDING CNC, CITY NATIONAL, RIVERSIDE 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
CNC is a bank holding company incorporated under the laws of Delaware that
conducts a commercial banking business through City National, its wholly owned
subsidiary. The address of CNC's principal executive offices is 400 North
Roxbury Drive, Beverly Hills, California 90210 and its telephone number at that
address is (310) 888-6000.
Riverside is a national banking association that conducts a commercial
banking business in Riverside, California. The address of Riverside's principal
executive offices is 3484 Central Avenue, Riverside, California 92506 and its
telephone number at that address is (909) 276-8800.
CNC is also a party to an Agreement and Plan of Merger with Ventura County
National Bancorp ("Ventura"), dated as of September 15, 1996 (the "Ventura
Agreement"), which contemplates the merger of Ventura and CNC and the mergers of
certain subsidiaries of Ventura and CNC (the "Ventura Merger"), and the issuance
of CNC Stock and/or cash to shareholders of Ventura. Subject to the satisfaction
of a number of conditions, including regulatory and Ventura shareholder
approval, the Ventura Merger and the Merger are expected to be consummated
within several weeks of each other. The Board of Governors of the Federal
Reserve System has approved the Ventura Merger. While it is currently expected
that the Ventura Merger will be consummated prior to the Merger, there is a
possibility that the Merger will be the first of the two transactions to close.
As of September 30, 1996, Ventura had total assets of $271.7 million and total
deposits of $237.9 million.
See "THE MERGER--Parties to the Merger."
SPECIAL MEETING OF SHAREHOLDERS
The Special Meeting will be held at the Mission Inn, 3649 Mission Inn
Avenue, Riverside, California, on Friday, January 17, 1997 at 10:00 a.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 Riverside shareholders of record at the close of business on December
12, 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
at least two-thirds of the outstanding shares of Riverside Stock on that date
will be required to approve the Merger. See "THE SPECIAL MEETING--Vote
Required."
As of the Record Date, shares of Riverside Stock were
outstanding, of which directors and executive officers of Riverside, together
with their affiliates beneficially owned an aggregate of shares (not
including shares issuable upon exercise of stock options), or approximately
% of Riverside's outstanding shares as of the Record Date. All of
Riverside's directors have agreed to vote their shares in favor of the Merger
Agreement and the Merger. See "SHAREHOLDINGS OF CERTAIN BENEFICIAL OWNERS AND
RIVERSIDE'S MANAGEMENT" and "CERTAIN RELATED AGREEMENTS--Shareholders'
Agreement."
9
<PAGE>
CONSIDERATION PAYABLE UPON CONSUMMATION OF THE MERGER
Holders of Riverside Stock will have the opportunity to indicate their
preference for receiving cash, CNC Stock, or a combination of cash and CNC Stock
in the Merger. Such elections will be honored to the extent possible, provided
that the CNC Stock portion of the aggregate Merger Consideration (as defined
below) may not be less than the Minimum Stock Amount (as hereinafter defined)
and also may not (unless CNC otherwise agrees) be more than the Maximum Stock
Amount (as hereinafter defined). All shares of Riverside Stock not converted
into the right to receive CNC Stock will be converted into the right to receive
cash.
By virtue of the Merger, each such share of Riverside Stock will be
converted into the right to receive one of the following (the "Merger
Consideration"): (1) cash in the amount of $18.00; (2) a share and/or fraction
of a share of CNC Stock equal to the quotient (the "Exchange Ratio") of (A)
$18.00, divided by (B) the average of the daily closing prices of a share of CNC
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 (the "Final CNC Stock Price" and the "Determination Period");
provided, however, that (x) if the Final CNC Stock Price is between $19.50 and
$22.50, the Exchange Ratio will be based upon a Final CNC Stock Price of $19.50
and, accordingly, will be fixed at 0.923, (y) if the Final CNC Stock Price is
less than $16.00, the Exchange Ratio will be based upon a Final CNC Stock Price
of $16.00 and, accordingly, will be fixed at 1.125 and (z) if the Final CNC
Stock Price is more than $22.50, the Exchange Ratio will be determined by
dividing $20.77 by the Final CNC Stock Price; or (3) a combination of CNC Stock
(at the rate of the Exchange Ratio for a whole share of Riverside Stock) and
cash (at the rate of $18.00 for each share of Riverside Stock). The number of
shares and/or the fraction of a share of CNC Stock into which each share of
Riverside 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.
If the holders of Riverside Stock elect, in the aggregate, to convert their
shares of Riverside Stock into a number of shares of CNC Stock that exceeds the
Maximum Stock Amount, certain holders of Riverside Stock chosen by random
selection will receive a lesser number of shares of CNC Stock and a greater
amount of cash than they elected, so that the number of shares of CNC Stock
issued to Riverside shareholders is approximately equal to the Maximum Stock
Amount. If the holders of Riverside Stock elect, in the aggregate, to convert
their shares of Riverside Stock into a number of shares of CNC Stock that is
less than the Minimum Stock Amount, certain holders of Riverside Stock chosen by
random selection will receive a greater number of shares of CNC Stock and a
smaller amount of cash than they elected, so that the number of shares of CNC
Stock issued to Riverside shareholders is approximately equal to the Minimum
Stock Amount.
See "THE MERGER--Consideration Payable Upon Consummation of the Merger."
EFFECT OF THE MERGER
At the Effective Time (see "THE MERGER--Effective Time"), Riverside will
merge into City National, with City National being the surviving bank. See "THE
MERGER--Effect of the Merger." For information on how Riverside shareholders
will be able to exchange certificates representing shares of Riverside Stock for
the new certificates representing shares of CNC Stock (and cash in lieu of
fractional shares), and/or cash to be issued to them, see "THE MERGER--Surrender
of Riverside Stock Certificates."
REASONS FOR THE MERGER; RECOMMENDATION OF BOARD OF DIRECTORS
The Riverside Board of Directors has unanimously approved the Merger
Agreement as being advisable and in the best interests of Riverside and its
shareholders and recommends that the shareholders of Riverside vote for the
approval of the Merger Agreement. See "THE MERGER--Background of and
10
<PAGE>
Reasons for the Merger--Recommendation of the Riverside Board of Directors." For
information on the interests of certain officers and directors of Riverside in
the Merger, see "THE MERGER--Interests of Certain Persons in the Merger."
OPINION OF FINANCIAL ADVISOR
Alex. Brown & Sons Incorporated ("Alex. Brown") has served as financial
advisor to Riverside in connection with the Merger, and has rendered to the
Riverside Board of Directors its opinion that as of October 14, 1996, the date
of the meeting at which the Board of Directors of Riverside approved the Merger
Agreement, the consideration to be received by Riverside's shareholders as a
result of the Merger was fair, from a financial point of view, to such
shareholders. Alex. Brown has also delivered a written confirmation dated
December , 1996 of its October 14, 1996 written opinion to the Riverside Board
of Directors. For additional information, see "THE MERGER--Opinion of Financial
Advisor." The opinion of Alex. Brown 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
If the Merger is approved by the shareholders of Riverside, subject to
certain conditions described herein, the Effective Time of the Merger (as
hereinafter defined) is currently expected to occur in the first quarter of
1997. The Effective Time will occur on the date the certificate of merger is
deemed to be effective by the OCC. It is expected that the Effective Time will
be at 6:00 p.m. Pacific Time on the first Friday (unless such day is a holiday,
in which case it will be the preceding business day) that is both after
satisfaction of each of the conditions set forth in Article VII of the Merger
Agreement (see "THE MERGER--Conditions to Consummation of the Merger"), and no
less than four business days after the occurrence of the Election Deadline (as
hereinafter defined).
CONDITIONS; REGULATORY APPROVALS
Consummation of the Merger is subject to various conditions, including (1)
receipt of the shareholder approval solicited hereby; (2) receipt of required
regulatory approvals; (3) that at the close of business on the last day of the
month preceding the Effective Time, the "Adjusted Stockholders' Equity" of
Riverside shall have been not less than an amount equal to Riverside's
stockholders equity at September 30, 1996, PLUS $223,000 for each calendar month
from September 30, 1996 through the month-end immediately prior to the Effective
Time; (4) that at the close of business on the last day of the month preceding
the Effective Time, total deposits of Riverside and its subsidiaries shall be
not less than 90% of the average of total deposits for Riverside for the month
ended August 31, 1996, excluding from such deposits all deposits of title
insurance and escrow companies and similar accounts; (5) receipt of certain
opinions of counsel regarding, among other matters, certain tax aspects of the
Merger; and (6) satisfaction of certain other closing conditions. "Adjusted
Stockholders Equity" is defined as the stockholders' equity of Riverside as
reflected on the financial statement delivered pursuant to Section 7.2(e) of the
Merger Agreement subject to certain adjustments as described in that section.
The Merger is subject to prior approval by the OCC, and CNC has submitted an
application seeking such approval. See "THE MERGER--Conditions to Consummation
of the Merger," "--Regulatory Approvals," and "--Conduct of Business Pending the
Merger."
CONDUCT OF BUSINESS PENDING THE MERGER
The Merger Agreement contains certain restrictions on the conduct of
Riverside's business and the conduct of CNC's business prior to the Effective
Date. The purposes of these restrictions are (1) to ensure that Riverside is in
substantially the same condition at the Effective Time as it was in on October
15, 1996,
11
<PAGE>
the date of the Merger Agreement, (2) to ensure that the Effective Time is not
unnecessarily delayed and (3) to ensure that CNC does not impair the value of
CNC Stock.
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 Riverside, (1)
by the mutual agreement of Riverside and CNC, (2) by Riverside if both (A) the
Final CNC Stock Price is less than $13.50, and (B) the number obtained by
dividing the Final CNC Stock Price by $17.75 is more than 15% less than the
number obtained by dividing the average "Index Price" (as hereinafter defined)
during the "Determination Period" (as hereinafter defined) by the Index Price on
October 10, 1996, based on the Standard & Poor's Bank Index, (3) by CNC under
certain specified circumstances, or (4) by either CNC or Riverside under certain
specified circumstances, including the failure of the Merger to be effective by
June 30, 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 (1) the Final CNC Stock Price is
less than $13.50, and (2) the number obtained by dividing the Final CNC Stock
Price by $17.75 is more than 15% less than the number obtained by dividing the
average "Index Price" (defined as the average closing price of the banks and
bank holding companies included in the Standard & Poor's Bank Index) during the
Determination Period by the Index Price on October 10, 1996, then the Riverside
Board of Directors will have the discretion, without the necessity of a further
vote of the Riverside shareholders, to determine whether or not to proceed with
the Merger. In exercising such discretion, the Riverside 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 Riverside's right to terminate the Merger Agreement.
See "THE MERGER--Background of and Reasons for the Merger."
INTERESTS OF CERTAIN PERSONS IN THE MERGER
As of the Record Date, the directors and executive officers of Riverside
beneficially owned shares of Riverside Stock, not including shares
such persons may acquire through the exercise of vested stock options. All of
such shares will be converted into the right to receive cash or CNC Stock or
both at the Effective Time in the same manner as will the shares of Riverside
Stock held by all other Riverside shareholders. In addition, directors and
executive officers of Riverside held as of such date options to purchase 383,800
shares of Riverside Stock, which will be exercised, or will be canceled in
exchange for certain cash payments or for substitute options to purchase CNC
Stock, in connection with the Merger. Immediately after the Effective Time,
former directors and executive officers of Riverside as a group will own less
than 1% of the outstanding shares of CNC Stock.
Each Riverside employee offered employment with City National following the
Merger and each non-employee Riverside director who holds vested Riverside Stock
options will have the right to exchange such options for vested options to
purchase CNC Stock, subject to aggregate limits on the amount of such substitute
options to be issued.
The Merger Agreement provides that all rights to indemnification now
existing in favor of the directors and officers of Riverside and its
subsidiaries in effect as of the date of the Merger Agreement with respect to
matters occurring before the Effective Time of the Merger will survive the
Merger and will continue in full force and effect for a period of six years
following the Effective Time of the Merger. CNC and City National have also
agreed that during such six-year period, to the fullest extent permitted by
applicable law, regulations and their respective organizational documents or
bylaws as in effect on October 15, 1996, CNC and City National will indemnify,
defend and hold harmless individuals who were
12
<PAGE>
directors or officers of Riverside and its subsidiaries on October 15, 1996 or
immediately prior to the Effective Time of the Merger for any claim or loss
arising out of their actions while a director or officer of Riverside and that
CNC and City National will pay the expenses, including attorneys' fees, of such
individuals in advance of the final resolution of any claim, provided that such
individual first executes an undertaking acceptable to each of CNC and City
National to return such advances in the event it is finally concluded that such
indemnification is not allowed under applicable law.
Pursuant to an employment agreement to be entered into upon consummation of
the Merger, Mr. Robinson, the President and Chief Executive Officer of
Riverside, will become an Executive Vice President of City National and a member
of its Executive Committee for an initial period of two years.
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 Internal Revenue Code
of 1986, as amended (the "Code"), and accordingly, for federal income tax
purposes, (1) no gain or loss will be recognized by either Riverside, CNC or
City National as a result of the Merger and (2) in general, holders of Riverside
Stock will not recognize gain or loss to the extent that they receive solely CNC
Stock in exchange for Riverside Stock. Riverside shareholders who receive cash
in exchange for some or all of their Riverside shares will generally be required
to recognize taxable income as a result of the Merger. Riverside has received an
opinion from Munger, Tolles &, Olson, counsel to CNC ("Tax Counsel"), to the
effect that the Merger will be treated as a tax deferred reorganization under
Section 368(a) of the Code. Consummation of the Merger is conditioned upon
receipt by Riverside 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."
ACCOUNTING TREATMENT
The Merger will be accounted for by CNC under the purchase method of
accounting. See "THE MERGER--Accounting Treatment."
SHAREHOLDERS' AGREEMENT
Each of the directors of Riverside have agreed, pursuant to a Shareholders'
Agreement, to vote all shares of Riverside Stock owned or acquired by him or
her, 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 Riverside
Stock against any extraordinary corporate transactions, changes in the majority
of the Board of Riverside or certain other material changes.
See "CERTAIN RELATED AGREEMENTS--Shareholders' Agreement."
STOCK OPTION AGREEMENT
Concurrently with the execution and delivery of the Merger Agreement, and as
a condition and inducement to CNC to enter into the Merger Agreement, CNC and
Riverside entered into a Stock Option Agreement (the "Stock Option Agreement")
pursuant to which Riverside granted CNC an option to purchase up to 421,778
shares of the outstanding Riverside Stock (or such other number of shares of
Riverside Stock as shall represent 19.9% of the then outstanding Riverside
Stock) at a price per share of $14.50. The exercise of the option granted to CNC
in the Stock Option Agreement is subject to, among other things, (1) obtaining
any required regulatory approvals and (2) certain preemptive rights of Riverside
shareholders. See "CERTAIN RELATED AGREEMENTS--Stock Option Agreement."
13
<PAGE>
DISSENTERS' RIGHTS
In the event that Riverside shareholders do not wish to accept the Merger
Consideration for their shares of Riverside Stock pursuant to the Merger
Agreement, such holders have the right to dissent from the Merger and seek an
appraisal of their shares in accordance with Section 215a of Title 12 of the
United States Code ("Section 215a"), in which event such holders will be
entitled, upon compliance with the requirements thereof, to receive an amount
equal to the fair market value of their shares as of the Effective Time. Such
fair market value as determined pursuant to Section 215a may be the same as, or
may be less or more than, $18.00 per share. See "DISSENTERS' RIGHTS--Appraisal
Rights of Dissenting Shareholders."
CERTAIN DIFFERENCES IN SHAREHOLDERS' RIGHTS
Riverside shareholders' rights are currently governed by the National Bank
Act and Riverside's Articles of Association and Bylaws. Upon consummation of the
Merger, holders of Riverside Stock receiving CNC Stock will become stockholders
of CNC and their rights as such will be governed by Delaware law and the CNC
Certificate of Incorporation (the "CNC Certificate") and CNC's Bylaws (the "CNC
Bylaws"). See "COMPARISON OF RIGHTS OF HOLDERS OF RIVERSIDE COMMON STOCK AND CNC
COMMON STOCK."
MARKETS AND MARKET PRICES
The CNC Stock is listed on the NYSE under the symbol "CYN" and the Riverside
Stock is quoted in the Nasdaq National Market System under the symbol "RNRC."
The closing price per share of CNC Stock, as reported on the NYSE Composite
Tape, and the closing price per share of Riverside Stock as reported on the
Nasdaq National Market System as of October 15, 1996, the last trading day
before the day on which the Merger Agreement was publicly announced, and as of
December , 1996 were as follows:
<TABLE>
<CAPTION>
CNC STOCK RIVERSIDE STOCK
----------- ---------------
<S> <C> <C>
October 15, 1996........................ $ 17.75 $ 17.75
December , 1996.......................
</TABLE>
The shares of CNC Stock issued in connection with the Merger will be listed
on the NYSE. See "MARKETS AND MARKET PRICES."
SELECTED CONSOLIDATED FINANCIAL DATA
The following sets forth selected consolidated historical financial and
other data for CNC and its consolidated subsidiaries and Riverside 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 consolidated financial
statements and notes thereto accompanying this Proxy Statement/Prospectus and in
the documents described under "INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE."
CNC. The selected consolidated balance sheet data for the years ended
December 31, 1993, 1994 and 1995 and consolidated statement of operations data
for the years ended December 31, 1993 through 1995 are derived from the
consolidated financial statements of CNC 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 consolidated statement of operations data presented below for the years
ended December 31, 1991 and 1992, are derived from financial statements of CNC
not included
14
<PAGE>
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 selected consolidated statement of operations data for the
nine months ended September 30, 1995 and 1996 have been derived from CNC'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 full year ending December 31, 1996 or any future period.
15
<PAGE>
CNC
SELECTED FINANCIAL INFORMATION
DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA
<TABLE>
<CAPTION>
AS OF OR FOR THE
-----------------------------
NINE MONTHS ENDED
SEPTEMBER 30,
-----------------------------
1996 1995
------------- -------------
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Interest income......................... $ 208,626 $ 157,601
Interest expense........................ 61,212 38,497
------------- -------------
Net interest income..................... 147,414 119,104
Provision for credit losses(1).......... -- --
Noninterest income (other than gains and
losses on securities transactions).... 32,373 26,079
Gains (losses) on securities
transactions.......................... 322 498
Noninterest expense (other than ORE and
consolidation charge)(1).............. 104,874 87,897
Consolidation charge.................... -- --
ORE expense (income)(1)................. (227) 16
------------- -------------
Income (loss) from continuing operations
before taxes.......................... 75,462 57,768
Income taxes (benefit).................. 25,794 22,307
------------- -------------
Income (loss) from continuing
operations............................ 49,668 35,461
Income from discontinued operations..... -- --
------------- -------------
Net income (loss)....................... $ 49,668 $ 351,461
------------- -------------
------------- -------------
PER SHARE DATA:
Income (loss) per share from continuing
operations............................ $ 1.10 $ 0.77
Net income (loss) per share............. 1.10 0.77
Cash dividends declared................. 0.27 0.19
Book value per share.................... 8.78 8.00
Shares used to compute income (loss) per
share................................. 44,986,000 45,927,000
BALANCE SHEET DATA--AT PERIOD END:
Assets.................................. $ 3,946,555 $ 3,067,640
Loans(1)................................ 2,674,242 1,900,793
Securities.............................. 853,682 728,901
Inerest-earning assets(1)............... 3,661,156 2,827,860
Deposits................................ 2,940,169 2,071,527
Shareholders' equity.................... 385,383 362,919
BALANCE SHEET DATA--AVERAGE BALANCES:
Assets.................................. $ 3,770,215 $ 2,768,797
Loans(1)................................ 2,478,361 1,701,203
Securities.............................. 843,731 711,093
Interest-earning assets(1).............. 3,454,772 2,545,901
Deposits................................ 2,823,941 2,036,775
Shareholders' equity.................... 367,207 346,075
ASSET QUALITY:
Nonaccrual loans(1)..................... $ 42,616 $ 35,160
ORE(1).................................. 17,156 4,179
------------- -------------
Total nonaccrual loans and ORE...... $ 59,772 $ 39,339
------------- -------------
------------- -------------
Assets held for accelerated
disposition........................... $ -- $ --
------------- -------------
------------- -------------
PERFORMANCE RATIOS:
Return on average assets................ 1.76% 1.71%
Return on average shareholders'
equity................................ 18.07 13.70
Net interest spread(1).................. 4.49 4.92
Net interest margin(1).................. 5.86 6.31
Average shareholders' equity to average
assets................................ 9.74 12.50
Dividend payout ratio................... 23.89 24.27
ASSET QUALITY RATIOS:
Nonaccrual loans to total loans(1)...... 1.59% 1.85%
Nonaccrual loans and ORE to total
assets(1)............................. 1.51 1.28
Allowance for credit losses to total
loans(1).............................. 4.81 5.87
Allowance for credit losses to
nonaccrual loans(1)................... 301.74 317.13
Net charge offs (recoveries) to average
loans(1).............................. 0.16 (0.49)
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------------------
1995 1994 1993 1992 1991
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Interest income......................... $ 217,594 $ 181,825 $ 169,792 $ 233,049 $ 360,834
Interest expense........................ 55,331 38,414 41,996 84,433 180,319
------------- ------------- ------------- ------------- -------------
Net interest income..................... 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).... 35,162 36,180 45,810 45,365 43,332
Gains (losses) on securities
transactions.......................... (596) (3,383) -- 1,629 --
Noninterest expense (other than ORE and
consolidation charge)(1).............. 118,684 121,296 129,226 150,546 148,302
Consolidation charge.................... -- -- 12,000 -- --
ORE expense (income)(1)................. (608) (5,297) (4,489) 8,788 1,948
------------- ------------- ------------- ------------- -------------
Income (loss) from continuing operations
before taxes.......................... 78,753 52,674 (23,294) (92,602) (45,003)
Income taxes (benefit).................. 29,961 15,511 (9,260) (32,450) (22,387)
------------- ------------- ------------- ------------- -------------
Income (loss) from continuing
operations............................ 48,792 37,163 (14,034) (60,152) (22,616)
Income from discontinued operations..... -- -- 7,128 804 1,396
------------- ------------- ------------- ------------- -------------
Net income (loss)....................... $ 48,792 $ 37,163 $ (6,906) $ (59,348) $ (21,220)
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
PER SHARE DATA:
Income (loss) per share from continuing
operations............................ $ 1.06 $ 0.81 $ (0.35) $ (1.87) $ (0.70)
Net income (loss) per share............. 1.06 0.81 (0.17) (1.84) (0.66)
Cash dividends declared................. 0.26 0.05 -- -- 0.32
Book value per share.................... 8.19 7.32 6.62 7.07 8.91
Shares used to compute income (loss) per
share................................. 45,886,000 45,626,000 39,580,000 32,240,000 32,214,000
BALANCE SHEET DATA--AT PERIOD END:
Assets.................................. $ 4,157,551 $ 3,012,775 $ 3,100,626 $ 3,514,102 $ 4,571,262
Loans(1)................................ 2,346,611 1,643,918 1,628,803 2,167,992 2,662,077
Securities.............................. 975,407 749,435 904,481 443,922 731,196
Inerest-earning assets(1)............... 3,784,245 2,716,524 2,838,698 3,105,978 4,040,757
Deposits................................ 3,248,035 2,417,762 2,526,767 2,911,276 3,664,219
Shareholders' equity.................... 366,957 330,721 298,074 227,944 287,064
BALANCE SHEET DATA--AVERAGE BALANCES:
Assets.................................. $ 2,849,807 $ 2,831,471 $ 2,944,461 $ 3,918,949 $ 4,605,075
Loans(1)................................ 1,758,671 1,537,997 1,762,663 2,403,657 2,869,081
Securities.............................. 705,122 854,823 517,059 548,734 665,071
Interest-earning assets(1).............. 2,624,436 2,594,241 2,623,164 3,550,920 4,180,860
Deposits................................ 2,062,412 2341,175 2,380,106 3,133,109 3,706,621
Shareholders' equity.................... 350,551 313,196 260,649 259,629 318,776
ASSET QUALITY:
Nonaccrual loans(1)..................... $ 48,124 $ 58,801 $ 79,303 $ 253,089 $ 199,431
ORE(1).................................. 7,439 4,726 2,052 8,637 26,368
------------- ------------- ------------- ------------- -------------
Total nonaccrual loans and ORE...... $ 55,563 $ 63,527 $ 81,355 $ 261,726 $ 225,799
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
Assets held for accelerated
disposition........................... $ -- $ -- $ 17,450 $ -- $ --
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
PERFORMANCE RATIOS:
Return on average assets................ 1.71% 1.31% (0.23)% (1.51)% (0.46)%
Return on average shareholders'
equity................................ 13.92 11.87 (2.65) (22.84) (6.65)
Net interest spread(1).................. 4.84 4.60 4.12 3.44 3.30
Net interest margin(1).................. 6.26 5.57 4.92 4.30 4.47
Average shareholders' equity to average
assets................................ 12.30 11.06 8.85 6.62 6.92
Dividend payout ratio................... 24.53 6.17 -- -- (2)
ASSET QUALITY RATIOS:
Nonaccrual loans to total loans(1)...... 2.05% 3.58% 4.87% 11.67% 7.49%
Nonaccrual loans and ORE to total
assets(1)............................. 1.34 2.11 2.62 7.45 4.94
Allowance for credit losses to total
loans(1).............................. 5.60 6.41 6.78 6.28 4.72
Allowance for credit losses to
nonaccrual loans(1)................... 273.28 179.15 139.34 53.77 63.06
Net charge offs (recoveries) to average
loans(1).............................. (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.
16
<PAGE>
RIVERSIDE. The selected consolidated balance sheet data presented below for
the years ended December 31, 1994 and 1995 and consolidated statement of
operations data presented below for the years ended December 31, 1994 and 1995
are derived from the consolidated financial statements of Riverside incorporated
in Riverside's Annual Report on Form 10-KSB for the year ended December 31, 1995
provided with this Proxy Statement/Prospectus, which financial statements have
been audited by McGladrey & Pullen, LLP, independent certified public
accountants. The selected consolidated balance sheet data presented below as of
December 31, 1993 and the related consolidated statement of operations data are
derived from financial statements of Riverside not included herein which have
been audited by McGladrey & Pullen, LLP, independent certified public
accountants. The selected consolidated balance sheet data presented below as of
December 31, 1991 and 1992 and consolidated statement of operations data
presented below for the years ended December 31, 1991 and 1992 are derived from
financial statements of Riverside not included herein which have been audited by
other independent certified public accountants. The selected consolidated
balance sheet data as of September 30, 1996 and 1995 and consolidated statement
of operations data for the nine months ended September 30, 1995 and 1996 have
been derived from Riverside'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 full year ending December
31, 1996 or any future period.
17
<PAGE>
RIVERSIDE
SELECTED FINANCIAL INFORMATION
DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA
<TABLE>
<CAPTION>
AS OF OR FOR THE
---------------------------------------------------------------------------
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.............................. $ 12,689 $ 12,235 $ 16,420 $ 13,866 $ 13,249 $ 16,894 $ 20,530
Interest expense............................. 3,851 3,700 4,988 3,763 3,723 5,669 9,055
--------- --------- --------- --------- --------- --------- ---------
Net interest income.......................... 8,838 8,535 11,432 10,103 9,526 11,225 11,475
Provision for credit losses.................. 75 135 180 270 1,257 2,030 340
Noninterest income (other than gains and
losses on securities transactions)......... 1,704 2,279 2,885 3,186 3,696 5,025 2,753
Gains (losses) on securities transactions.... -- -- (15) -- -- -- --
Noninterest expense (other than ORE)......... 6,749 7,476 9,806 10,766 14,555 11,127 10,141
ORE expense (income)......................... 55 183 268 185 1,810 775 150
--------- --------- --------- --------- --------- --------- ---------
Income (loss) before taxes................... 3,663 3,020 4,048 2,068 (4,400) 2,318 3,597
Income taxes (benefit)....................... 1,431 1,031 1,420 715 (1,701) 872 1,354
--------- --------- --------- --------- --------- --------- ---------
Net income (loss)............................ $ 2,232 $ 1,989 $ 2,628 $ 1,353 $ (2,699) $ 1,446 $ 2,243
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
PER SHARE DATA:
Net income (loss) per share.................. $ 0.96 $ 0.91 $ 1.19 $ 0.64 $ (1.28) $ 0.68 $ 1.05
Cash dividends declared...................... 0.42 0.25 0.37 -- 0.25 0.25 0.25
Book value per share......................... 10.40 9.60 10.01 8.73 8.38 9.82 9.37
Shares used to compute income (loss) per
share...................................... 2,287,000 2,231,000 2,204,000 2,105,000 2,105,000 2,138,000 2,142,000
BALANCE SHEET DATA--AT PERIOD END:
Assets....................................... $ 248,358 $ 218,097 $ 222,391 $ 203,459 $ 204,877 $ 223,018 $ 229,816
Loans........................................ 167,015 135,314 144,012 137,129 139,953 139,937 152,886
Securities................................... 29,798 39,828 36,543 37,825 30,535 38,530 26,176
Interest-earning assets...................... 213,813 190,142 189,555 174,954 176,408 187,967 196,062
Deposits..................................... 219,425 192,060 198,420 182,365 175,018 193,157 200,287
Shareholders' equity......................... 22,629 20,245 21,216 18,375 17,646 20,674 20,076
BALANCE SHEET DATA--AVERAGE BALANCES:
Assets....................................... $ 220,084 $ 210,208 $ 211,100 $ 203,613 $ 204,668 $ 226,116 $ 229,969
Loans........................................ 148,299 133,718 134,852 132,709 131,048 143,353 157,386
Securities................................... 33,821 38,833 38,964 32,480 32,096 30,462 21,442
Interest-earning assets...................... 190,747 183,072 183,766 175,238 174,674 196,380 200,664
Deposits..................................... 194,679 187,251 187,838 180,005 176,216 196,359 200,607
Shareholders' equity......................... 21,789 19,369 19,634 17,979 19,619 20,839 19,164
ASSET QUALITY:
Nonaccrual loans............................. $ 1,651 $ 3,393 $ 2,329 $ 2,933 $ 3,033 $ 5,152 $ 1,029
ORE.......................................... 3,153 2,068 2,901 1,512 3,840 3,525 2,250
--------- --------- --------- --------- --------- --------- ---------
Total nonaccrual loans and ORE............... $ 4,804 $ 5,461 $ 5,230 $ 4,445 6,873 $ 8,677 $ 3,279
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
PERFORMANCE RATIOS:
Return on average assets..................... 1.35% 1.27% 1.24% 0.66% (1.32)% 0.64% 0.98%
Return on average shareholders' equity....... 13.68 13.73 13.38 7.53 (13.76) 6.94 11.70
Net interest spread.......................... 5.12 5.25 5.23 4.92 4.66 4.81 4.36
Net interest margin.......................... 6.19 6.23 6.23 5.78 5.49 5.79 5.82
Average shareholders' equity to average
assets..................................... 9.90 9.21 9.30 8.83 9.59 9.22 8.33
ASSET QUALITY RATIOS:
Nonaccrual loans to total loans.............. 0.99% 2.51% 1.62% 2.14% 2.17% 3.68% 0.67%
Nonaccrual loans and ORE to total assets..... 1.93 2.50 2.35 2.18 3.35 3.89 1.43
Allowance for credit losses to total loans... 1.58 1.88 1.80 1.94 2.09 2.40 1.39
Allowance for credit losses to nonaccrual
loans...................................... 159.90 75.07 111.21 90.56 96.60 65.16 207.00
Net charge offs (recoveries) to average
loans...................................... 0.02 0.24 0.18 0.41 1.29 0.56 0.05
</TABLE>
18
<PAGE>
SELECTED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
The following tables present selected pro forma condensed 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 Ventura 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 Merger and the Ventura Merger being
completed at an assumed Final CNC Stock Price equal to $13.50 per share, $17.475
per share, and $19.50 per share with respect to the Ventura Merger and $13.90
per share, $17.475 per share and $19.10 per share with respect to the Merger.
Actual results within each of the Low, Medium and High Ranges will vary from
those presented if the Final CNC 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 illustrative purposes only and are not necessarily indicative of
the future financial positions or future results of operations of CNC after the
Merger and the Ventura Merger or of the financial position or results of
operations that would have actually occurred had the Merger and the Ventura
Merger been in effect as of the dates or the period presented.
19
<PAGE>
CNC AND RIVERSIDE
<TABLE>
<CAPTION>
LOW RANGE (1) MEDIUM RANGE (1)
----------------------------- -----------------------------
AT OR FOR THE AT OR FOR THE
NINE MONTHS FOR THE YEAR NINE MONTHS FOR THE YEAR
ENDED ENDED ENDED ENDED
SEPTEMBER 30, DECEMBER 31, SEPTEMBER 30, DECEMBER 31,
1996 1995 1996 1995
------------- ------------- ------------- -------------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets...................................... $ 4,180,112 $ 4,185,394
Net loans......................................... 2,710,027 2,710,027
Securities........................................ 883,481 883,481
Deposits.......................................... 3,159,594 3,159,594
Stockholders' equity.............................. 393,211 398,493
STATEMENT OF INCOME DATA:
Total interest income............................. $ 220,230 $ 232,303 $ 220,230 $ 232,445
Total interest expense............................ 65,063 60,319 65,063 60,319
Provision for loan losses......................... 75 180 75 180
------------- ------------- ------------- -------------
Net interest income after provision for loan
losses.......................................... 154,994 171,804 155,092 171,946
Other income...................................... 34,399 37,436 34,399 37,436
Other expense..................................... 113,440 130,802 113,660 131,096
------------- ------------- ------------- -------------
Income before income taxes........................ 75,953 78,438 75,831 78,286
Income tax expense................................ 26,167 29,974 26,208 30,034
------------- ------------- ------------- -------------
Net income........................................ $ 49,786 $ 48,464 $ 49,623 $ 48,252
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Cash dividend paid................................ $ 12,110 $ 11,968 $ 12,181 $ 12,030
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
PRO FORMA PER SHARE DATA:
Net income per share.............................. $ 1.09 $ 1.04 $ 1.08 $ 1.03
Cash dividend per share........................... .27 .26 .27 .26
Book value per share.............................. 8.84 -- 8.93 --
PRO FORMA EQUIVALENT PER SHARE DATA:
Net income per share.............................. $ 1.14 $ 1.16 $ 1.11 $ 1.06
Cash dividends per share.......................... .30 .29 .28 .27
Book value per share.............................. 9.95 -- 9.20 --
<CAPTION>
HIGH RANGE (1)
-----------------------------
AT OR FOR THE
NINE MONTHS FOR THE YEAR
ENDED ENDED
SEPTEMBER 30, DECEMBER 31,
1996 1995
------------- -------------
<S> <C> <C>
BALANCE SHEET DATA:
Total assets...................................... $ 4,189,337
Net loans......................................... 2,710,027
Securities........................................ 883,481
Deposits.......................................... 3,159,594
Stockholders' equity.............................. 402,436
STATEMENT OF INCOME DATA:
Total interest income............................. $ 220,394 $ 232,682
Total interest expense............................ 65,063 60,319
Provision for loan losses......................... 75 180
------------- -------------
Net interest income after provision for loan
losses.......................................... 155,256 172,183
Other income...................................... 34,399 37,436
Other expense..................................... 113,660 131,096
------------- -------------
Income before income taxes........................ 75,995 78,523
Income tax expense................................ 26,278 30,134
------------- -------------
Net income........................................ $ 49,717 $ 48,389
------------- -------------
------------- -------------
Cash dividend paid................................ $ 12,233 $ 12,075
------------- -------------
------------- -------------
PRO FORMA PER SHARE DATA:
Net income per share.............................. $ 1.08 $ 1.03
Cash dividend per share........................... .27 .25
Book value per share.............................. 8.99 --
PRO FORMA EQUIVALENT PER SHARE DATA:
Net income per share.............................. $ 1.00 $ .95
Cash dividends per share.......................... .25 .23
Book value per share.............................. 8.30 --
</TABLE>
- ------------------------------
(1) The Low Range, Medium Range and High Range pro forma results reflect a Final
CNC Stock Price equal to $13.50, $17.475 and $19.50, respectively, to
reflect the range of possible consideration values contemplated in the
Merger Agreement. See "PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION."
20
<PAGE>
CNC, RIVERSIDE AND VENTURA
<TABLE>
<CAPTION>
LOW RANGE (1) MEDIUM RANGE (1)
----------------------------- -----------------------------
AT OR FOR THE AT OR FOR THE
NINE MONTHS FOR THE YEAR NINE MONTHS FOR THE YEAR
ENDED ENDED ENDED ENDED
SEPTEMBER 30, DECEMBER 31, SEPTEMBER 30, DECEMBER 31,
1996 1995 1996 1995
------------- ------------- ------------- -------------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets...................................... $ 4,447,244 $ 4,455,381
Net loans......................................... 2,875,474 2,875,474
Securities........................................ 940,160 940,160
Deposits.......................................... 3,397,524 3,397,524
Stockholders' equity.............................. 415,887 424,024
STATEMENT OF INCOME DATA:
Total interest income............................. $ 235,229 $ 251,841 $ 235,327 $ 251,983
Total interest expense............................ 69,890 66,680 69,890 66,680
Provision for loan losses......................... 75 590 75 590
------------- ------------- ------------- -------------
Net interest income after provision for loan
losses.......................................... 165,264 184,571 165,362 184,713
Other income...................................... 36,174 39,682 36,174 39,682
Other expense..................................... 128,640 148,608 129,075 149,188
------------- ------------- ------------- -------------
Income before income taxes........................ 72,798 75,645 72,461 75,207
Income tax expense................................ 25,000 26,139 25,041 26,209
------------- ------------- ------------- -------------
Net income........................................ $ 47,798 $ 49,506 $ 47,420 $ 48,998
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Cash dividend paid................................ $ 12,110 $ 11,968 $ 12,181 $ 12,030
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
PRO FORMA PER SHARE DATA:
Net income per share.............................. $ 1.01 $ 1.03 $ 1.00 $ 1.02
Cash dividend per share........................... .26 .25 .26 .26
Book value per share.............................. 9.02 -- 9.20 --
PRO FORMA EQUIVALENT PER SHARE DATA:
Net income per share.............................. $ 1.14 $ 1.16 $ 1.03 $ 1.05
Cash dividends per share.......................... .29 .28 .27 .27
Book value per share.............................. 10.15 -- 9.48 --
<CAPTION>
HIGH RANGE (1)
-----------------------------
AT OR FOR THE
NINE MONTHS FOR THE YEAR
ENDED ENDED
SEPTEMBER 30, DECEMBER 31,
1996 1995
------------- -------------
<S> <C> <C>
BALANCE SHEET DATA:
Total assets...................................... $ 4,459,324
Net loans......................................... 2,875,474
Securities........................................ 940,160
Deposits.......................................... 3,397,524
Stockholders' equity.............................. 427,967
STATEMENT OF INCOME DATA:
Total interest income............................. $ 235,491 $ 252,220
Total interest expense............................ 69,890 66,680
Provision for loan losses......................... 75 590
------------- -------------
Net interest income after provision for loan
losses.......................................... 165,526 184,950
Other income...................................... 36,174 39,682
Other expense..................................... 129,075 149,188
------------- -------------
Income before income taxes........................ 72,625 75,444
Income tax expense................................ 25,111 26,309
------------- -------------
Net income........................................ $ 47,514 $ 49,135
------------- -------------
------------- -------------
Cash dividend paid................................ $ 12,233 $ 12,075
------------- -------------
------------- -------------
PRO FORMA PER SHARE DATA:
Net income per share.............................. $ 1.00 $ 1.02
Cash dividend per share........................... .27 .25
Book value per share.............................. 9.28 --
PRO FORMA EQUIVALENT PER SHARE DATA:
Net income per share.............................. $ .92 $ .94
Cash dividends per share.......................... .25 .23
Book value per share.............................. 8.57 --
</TABLE>
- ------------------------------
(1) The Low Range, Medium Range and High Range pro forma results reflect a Final
CNC Stock Price equal to $13.50, $17.475 and $19.50, respectively, for the
Merger; and $13.90, $17.475 and $19.10 for the Ventura Merger, respectively,
to reflect the range of possible consideration values contemplated in the
Merger Agreement and the Ventura Merger Agreement. See Appendix A and "PRO
FORMA CONDENSED COMBINED FINANCIAL INFORMATION."
21
<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 CNC and Riverside, (2) on a pro forma
combined basis per share of CNC Stock giving effect to the Merger, (3) on a pro
forma combined basis per share of CNC Stock giving effect to both the Merger and
the Ventura Merger and (4) on an equivalent pro forma basis per share of
Riverside Stock giving effect to the Merger and the Ventura Merger. The pro
forma combined information and the Riverside pro forma equivalent information
give effect to the Merger and the Ventura Merger on a purchase accounting basis
and reflect the Low Range, Medium Range and High Range assumed for the Final CNC
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 CNC
Stock will be if and when the Merger and the Ventura Merger are consummated. See
"MARKETS AND MARKET PRICES." For a description of purchase accounting with
respect to the Merger, see "THE MERGER--Accounting Treatment" and "PRO FORMA
CONDENSED COMBINED FINANCIAL INFORMATION." The information shown below is for
information purposes only and should be read in conjunction with the historical
consolidated financial statements of Riverside and CNC, including the respective
notes thereto, which, in the case of Riverside, appear as Appendix F to this
Proxy Statement/Prospectus, and in the case of CNC, 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 Riverside and CNC 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 occured had the Merger and/or the Ventura Merger been consummated on the
date indicated or that may be obtained in the future. See "INCORPORATION OF
CERTAIN INFORMATION BY REFERENCE."
22
<PAGE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEAR ENDED
SEPTEMBER 30, 1996 DECEMBER 31, 1995
------------------- -------------------
<S> <C> <C>
NET INCOME PER COMMON SHARE:
CNC Historical........................................................... $ 1.10 $ 1.06
Riverside Historical..................................................... 0.96 1.19
Pro Forma Final CNC Stock Price @ Low Range
CNC and Riverside Combined(1)............................................ 1.09 1.04
CNC, Riverside and Ventura Combined(2)................................... 1.01 1.03
Riverside pro forma equivalent(3)........................................ 1.14 1.16
Pro Forma Final CNC Stock Price @ Medium Range
CNC and Riverside Combined(1)............................................ 1.08 1.03
CNC, Riverside and Ventura Combined(2)................................... 1.00 1.02
Riverside pro forma equivalent(3)........................................ 1.03 1.05
Pro Forma Final CNC Stock Price @ High Range
CNC and Riverside Combined(1)............................................ 1.08 1.05
CNC, Riverside and Ventura Combined(2)................................... 1.00 1.02
Riverside pro forma equivalent(3)........................................ 0.92 0.94
CASH DIVIDEND PAID PER COMMON SHARE(4):
CNC Historical........................................................... 0.27 0.26
Riverside Historical..................................................... 0.42 0.37
Pro Forma Final CNC Stock Price @ Low Range
CNC and Riverside Combined(5)............................................ 0.27 0.26
CNC, Riverside and Ventura Combined(2)................................... 0.26 0.25
Pro Forma Final CNC Stock Price @ Medium Range
CNC and Riverside Combined(5)............................................ 0.27 0.26
CNC, Riverside and Ventura Combined(2)................................... 0.26 0.25
Pro Forma Final CNC Stock Price @ High Range
CNC and Riverside Combined(5)............................................ 0.27 0.25
CNC, Riverside and Ventura Combined(2)................................... 0.27 0.25
BOOK VALUE PER COMMON SHARE (END OF PERIOD):
CNC Historical........................................................... 8.78 8.19
Riverside Historical..................................................... 10.40 10.01
Pro Forma Final CNC Stock Price @ Low Range
CNC and Riverside Combined(6)............................................ 8.84
CNC, Riverside and Ventura Combined(7)................................... 9.02
Riverside pro forma equivalent(3)........................................ 10.15
Pro Forma Final CNC Stock Price @ Medium Range
CNC and Riverside Combined(6)............................................ 8.93
CNC, Riverside and Ventura Combined(7)................................... 9.20
Riverside pro form equivalent(3)......................................... 9.48
Pro Forma Final CNC Stock Price @ High Range
CNC and Riverside Combined(6)............................................ 8.99
CNC, Riverside and Ventura Combined(7)................................... 9.28
Riverside pro forma equivalent(3)........................................ 8.57
</TABLE>
- --------------------------
(1) Represents the pro forma combined information of CNC and Riverside 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 CNC, Riverside and Ventura
as if the Merger and the Ventura Merger were consummated on January 1, 1996
and January 1, 1995.
(3) Represents the pro forma combined information of CNC, Riverside and Ventura
multiplied by the exchange ratio of a share of CNC Stock for 48% of the
shares of Riverside Stock for the respective time periods and the Final CNC
Stock Price.
(4) See "MARKETS AND MARKET PRICES."
(5) Represents the historical dividends paid by CNC divided by pro forma shares
outstanding, including the shares of Riverside Stock which would become CNC
Stock.
(6) Represents the pro forma combined information of CNC and Riverside as if the
Merger were consummated on September 30, 1996 and accounted for as a
purchase.
(7) Represents the pro forma combined information of CNC, Riverside and Ventura
as if the Merger and the Ventura Merger were consummated on September 30,
1996 and accounted for as a purchase.
23
<PAGE>
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. RIVERSIDE SHAREHOLDERS ARE URGED TO READ THE MERGER AGREEMENT
CAREFULLY.
PARTIES TO THE MERGER
CNC. CNC, a Delaware corporation, is a bank holding company which conducts
a commercial banking business through its wholly owned subsidiary, City
National, which is a national banking association. City National, 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, CNC and City National 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 is a business and private bank primarily serving middle-market
companies, professional and business borrowers and associated individuals with
commercial banking and fiduciary needs.
CNC is also a party to the Ventura Agreement, which contemplates the merger
of Ventura with and into CNC and the mergers of certain subsidiaries of Ventura
and CNC. CNC will be the surviving entity in the Ventura Merger. Holders of
Ventura common stock will receive CNC Stock and/or cash in the Ventura Merger.
See "PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION."
The consummation of the Ventura Merger is subject to a number of conditions,
including regulatory approval and the approval of Ventura's shareholders. The
Board of Governors of the Federal Reserve System has approved the Ventura
Merger. Subject to the satisfaction of such conditions, the Ventura Merger and
the Merger are expected to be consummated within several weeks of each other.
While it is currently expected that the Ventura Merger will be consummated prior
to the Merger, there is a possibility that the Merger will be the first of the
two transactions to close.
CNC's executive offices are located at 400 North Roxbury Drive, Beverly
Hills, California 90210, and its telephone number is (310) 888-6000. Additional
information about CNC and City National is included in documents incorporated by
reference into this Proxy Statement/Prospectus. See "INCORPORATION OF CERTAIN
DOCUMENTS BY REFERENCE."
RIVERSIDE. Riverside National Bank is a national banking association that
conducts a commercial banking business in Riverside County, California.
Riverside was founded in 1965 and currently operates four full service banking
offices in the City of Riverside, California. As of September 30, 1996,
Riverside had total assets of approximately $248.4 million, total deposits of
approximately $219.4 million and shareholders' equity of approximately $22.6
million.
Riverside offers a full range of commercial banking services primarily to
the business and professional community and to individuals located in Riverside
County. Its loan portfolio consists of commercial loans and lines of credit,
real estate construction financing, commercial and residential real estate loans
and consumer loans and credit lines. Riverside's commercial loans consist
predominately of loans to small and medium-sized businesses, most of which are
located or headquartered in Riverside County. Its real estate loan portfolio
consists of loans to businesses and individuals to finance real estate and loans
for other purposes secured primarily by real estate.
Riverside's executive offices are located at 3484 Central Avenue, Riverside,
California 92506, and its telephone number is (909) 276-8800. Additional
information about Riverside is included in (1) Riverside's Annual Report on Form
10-KSB and portions of its Annual Report to Shareholders for the year ended
December 31, 1995 attached as Appendix F hereto and incorporated into this Proxy
Statement/Prospectus and (2) its Quarterly Report on Form 10-QSB for the period
ended September 30, 1996 attached as
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Appendix G hereto and incorporated into this Proxy Statement/Prospectus. See
"INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE."
BACKGROUND OF AND REASONS FOR THE MERGER
In June 1994, the Riverside Board of Directors established the Shareholder
Value Committee of the Board for the purpose of considering various means of
increasing shareholder value, including evaluation of possible business
combination transactions. Shortly after formation of the Shareholder Value
Committee, Riverside interviewed several investment banking firms and ultimately
selected one such firm to assist Riverside in evaluating possible business
combinations and to provide general financial advisory services to Riverside.
Over approximately the following six months, the selected firm contacted
several financial institutions regarding the possible sale of Riverside to such
institutions. While continuing discussions and some exchanges of financial
information occurred with two institutions (one of which institutions was itself
acquired by another bank), ultimately none of the institutions that were
contacted expressed more than preliminary indications of interest in Riverside.
At that time, no institution indicated that it might be willing to pay more than
1.6 times book value for Riverside. Because the potential price ranges indicated
were considered by the Riverside Board of Directors to be inadequate, the Board
decided ultimately not to pursue a combination with any of such institutions.
Among the factors affecting the Board's decision at that time was the belief
that while Riverside's results of operations and asset quality had been
improving since their low point in 1992, further substantial improvements were
expected and the Board believed that such improvements could reasonably be
expected to result in greater shareholder value, either from continued
operations as an independent bank or from a sale of Riverside after such further
improvements had been attained.
On April 17, 1996, Alex. Brown met with the Riverside Board of Directors and
made a presentation to the Board regarding the state of the market for bank
acquisitions and general bank valuation information. The presentation was not
directed toward any particular sale transaction and did not provide a specific
valuation of Riverside. As part of its presentation, Alex. Brown reviewed the
market valuation of the Riverside Stock, as compared to that of certain other
California independent banks. Alex. Brown noted that the market valuation of the
Riverside Stock lagged that of the comparison group and that Riverside might
benefit from the use of a financial advisor, such as Alex. Brown, to assist it
in meeting with institutional investors to heighten its visibility in the
general securities investment markets. At the request of the Board, Alex. Brown
began to work on an informal basis to provide general financial advisory
services, primarily including assistance in preparing for presentations to be
made to investment analysts in order to increase its visibility in the
investment marketplace, with the objective of having its market price more
adequately reflect Riverside's financial results.
From April 1996 through August 1996, Alex. Brown had informal contacts with
several financial institutions and their holding companies that it believed
might have interest in a business combination involving Riverside, including
relatively large commercial banking companies, smaller independent banks and two
thrift institutions, regarding their general financial views and strategies,
including their interest in possible business combination transactions. Based on
these contacts, Alex. Brown reported to the Riverside Board that it believed
that it was able to gauge the possible interest of the entities contacted in a
business combination transaction with Riverside, although it had not made any
formal presentations or proposals to any of such entities. Of the entities
contacted, not including CNC, only three of such entities, two commercial
banking companies and one thrift institution, expressed interest in a possible
business combination with Riverside. However, each of these three entities
stated that it would not be able to proceed at that time due to the pendency of
other transactions in which the contacted institution was then involved or for
other reasons. Thus, none of the three entities was willing to undertake a
detailed examination of Riverside or to enter into merger discussions at that
time and instead indicated that they might be interested at a point six months
or longer in the future.
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CNC first indicated to Riverside's President, James Robinson, that CNC was
interested in pursuing a business combination with Riverside on July 10, 1996,
at which time CNC requested that Riverside provide it with certain summary
financial information regarding Riverside. On August 2, 1996, Mr. Robinson met
with representatives of CNC to discuss a possible combination of CNC and
Riverside. At this meeting, Mr. Robinson delivered certain preliminary financial
and business materials to CNC and CNC signed a confidentiality agreement
pursuant to which it agreed to maintain the confidentiality of such information
and to return it promptly in the event either party decided not to continue
discussions. Over the next month, Mr. Robinson met with representatives of CNC
on various occasions to provide further information regarding Riverside's
business and markets and to discuss further the possibility of an acquisition of
Riverside by CNC. All of such discussions were preliminary in nature and did not
result in a general agreement being reached for the acquisition of Riverside by
CNC.
On August 21, 1996, Alex. Brown met with Riverside's Board of Directors
regarding the general subject of valuation of banks in the acquisition market
and regarding the specific subject of a possible transaction with CNC. In this
meeting, Alex. Brown presented its analysis of a strategic merger with CNC and
discussed various approaches to valuation that an acquiror might use and
potential ranges of valuation for Riverside in such a transaction. Alex. Brown
noted that because CNC and Riverside have similar business profiles and
strategic plans, a combination of the two entities would be a good fit and would
likely produce certain business synergies. Alex. Brown also indicated that an
acquisition of Riverside by CNC would provide Riverside shareholders who receive
CNC Stock in such a combination with a much more liquid, actively traded stock
than their existing Riverside shares or the shares of any of the other entities
that had expressed possible future interest in Riverside. At that meeting, the
Board selected Alex. Brown to advise Riverside in the negotiation process with
CNC and to deliver a fairness opinion in the event a transaction was
successfully negotiated. A formal engagement letter retaining Alex. Brown as
Riverside's financial advisor, dated August 30, 1996, was subsequently executed.
On August 23, 1996, a general agreement was reached between CNC and
Riverside to begin preliminary negotiations for the acquisition of Riverside by
CNC. Over the next several weeks, officers of CNC and Riverside, their counsel
and financial advisors engaged in numerous telephone discussions and had several
meetings in order to perform further business reviews, consider organizational
issues and negotiate the terms of a definitive merger agreement and related
documents. During these early negotiations, CNC indicated that it was initially
willing to pay $17.00 (subsequently increased to $17.50) per share of Riverside
Stock, subject to a satisfactory due diligence review.
On September 13, 1996, Alex. Brown met with officers of CNC. At that
meeting, CNC indicated that it was willing to pay as much as $18.00 per share of
Riverside Stock, subject to resolution of other terms and conditions. On
September 18, 1996, Alex. Brown again met with the Riverside Board of Directors
to discuss the possible transaction with CNC. At the conclusion of the meeting
the Riverside Board authorized Alex. Brown to proceed with negotiations of a
definitive acquisition agreement at a price of not less than $18.00 per share of
Riverside Stock, which would be approximately equal to 1.8x the June 30, 1996
book value of Riverside. After several more weeks of negotiation, which included
negotiations regarding price, the maximum amount of stock (including stock
options) that CNC would be willing to issue in connection with the Merger,
whether a termination fee would be payable by Riverside in the event it
terminated the Merger Agreement in favor of any other transaction (CNC
ultimately agreed not to insist on such a termination fee), and the terms of the
Stock Option Agreement described herein and attached as Appendix C hereto that
CNC required as a condition to entering into the Merger Agreement, CNC and
Riverside agreed to the terms of a definitive Merger Agreement at a purchase
price of $18.00 per share of Riverside Stock.
The Riverside Board of Directors considered and approved the Merger
Agreement and the related transactions on the terms described herein at a
meeting held on October 14, 1996. At that meeting, Riverside's financial and
legal advisors extensively reviewed with the Board of Directors, among other
things, the background of the proposed transaction, the potential benefits of
the transaction, financial and
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valuation analyses of the transaction and the terms of the proposed agreement.
Alex. Brown further indicated that it was prepared to issue its opinion as
financial advisor that the Merger Consideration to be received by the Riverside
shareholders pursuant to the Merger Agreement was fair to the Riverside
shareholders from a financial point of view and discussed the form of such
opinion with the Board. The Merger Agreement was executed on October 15, 1996.
RECOMMENDATION OF THE RIVERSIDE BOARD OF DIRECTORS
The Riverside Board of Directors believes that the terms of the Merger,
which are the product of arm's length negotiations between representatives of
CNC and Riverside, are fair and in the best interests of Riverside and its
shareholders. In the course of reaching its determination, the Riverside Board
of Directors consulted with legal counsel with respect to the legal duties of
the Riverside Board of Directors, the terms of the Merger Agreement and the
issues related thereto; with Alex. Brown with respect to the financial aspects
and fairness of the transaction; and with senior management regarding, among
other things, operational, competitive, personnel and other business matters,
including Riverside's future business prospects.
In reaching its determination to approve the Merger Agreement and related
transactions, the Riverside Board of Directors considered the following factors
that it deemed material:
1. The Riverside Board of Directors analyzed information with respect
to the financial condition, results of operations, cash flow, business and
prospects of Riverside. In this regard, the Riverside Board of Directors
also discussed the strategic alternatives of selling Riverside at the
present time, growth through acquisition and sale at a future date, or
continuing operations on a stand-alone basis.
2. The Riverside Board of Directors considered the written opinion of
Alex. Brown that, as of October 14, 1996, the Merger Consideration to be
received by the Riverside shareholders pursuant to the Merger Agreement was
fair to Riverside's shareholders from a financial point of view. See "The
Merger--Opinion of Financial Advisor."
3. The Riverside Board of Directors considered the recent market prices
for Riverside Stock and CNC Stock, the relationship between such prices and
certain financial data relating to the respective companies and that the
Merger Consideration to be received by Riverside shareholders in the Merger
represented premiums over Riverside's recent stock market prices and the per
share book value. See "The Merger--Opinion of Financial Advisor." Among
other things, the Directors noted that the negotiated per share Merger
Consideration of $18.00 compared favorably with the $12.125 to $14.00 range
of prices at which the outstanding stock of Riverside had traded in the
twelve months ended September 30, 1996 and also compared favorably with the
closing bid prices of $13.125 and $17.75 for Riverside's stock as of
September 13, 1996 and October 15, 1996, which dates were, respectively, 32
days and one day prior to the first public announcement of the proposed
transaction.
4. The Riverside Board of Directors also considered that a significant
portion of Riverside's shareholders would have the opportunity to
participate in the combined company which the Riverside Board of Directors
expected to have a significant potential for growth, and that there were a
number of benefits that could reasonably be expected to be realized by
Riverside shareholders from their continuing interest in the combined
company and the expected benefits of the strategic alliance, including, but
not limited to: (A) the future stock value and earnings per share prospects
of the combined company, (B) the combined company's financial strength and
its consequent enhanced ability to develop Riverside's business, (C) the
business synergies that might be realized and consequent cost savings, and
(D) the potential effect of the Merger on the perception of the combined
company's business by the financial markets and the potential desirability
of the combined company as a future acquisition candidate.
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5. The Riverside Board of Directors considered the financial condition,
businesses and prospects of CNC, including, but not limited to, information
with respect to its recent and historic stock price and earnings
performance, and asset quality. In this connection, the Board considered,
among other things, the fact that in recent periods Riverside has paid a
larger cash dividend, on a per share basis and as a percentage of net
earnings, than has CNC. See "SUMMARY--Comparative Per Share Data". The Board
also considered, however, the respective prospects for growth in dividends
of Riverside and CNC, including whether Riverside could continue to pay
dividends at its existing rate or at any higher rate and CNC's publicly
announced objective to increase cash dividends to the extent prudent and
consistent with increases in its net earnings. The Directors also discussed
the fact that individual shareholders have differing views regarding the
desirability of current cash dividends, as compared with potential future
increases in stock price, and the further fact that some shareholders may
prefer to receive cash for their Riverside shares and to reinvest such cash
in other investments yielding differing combinations of current income and
possibilities for future growth in value.
6. The Riverside Board of Directors considered the current operating
environment, including, but not limited to, the continued consolidation and
increasing competition in the banking and financial services industries, the
prospect for further changes in these industries and the increasing
importance of financial resources in these industries. In this connection,
the Board of Directors considered the substantial improvements in results of
operations, asset quality and financial condition that Riverside had
achieved over the period since 1992, as well as the potential uncertainties
regarding Riverside's ability to continue such improvements and to sustain
continuing growth in its operations arising from the increasing levels of
competition faced by small to medium size banking organizations as well as
the cyclical nature of business markets and the economy in general,
including that of the Inland Empire Region of Southern California in which
the Bank primarily competes.
7. The Riverside Board of Directors considered the other terms of the
Merger Agreement and the Stock Option Agreement, including that: (A) the
Merger would generally be tax-free to Riverside shareholders to the extent
they receive CNC Stock in the Merger, but would also permit those Riverside
shareholders who prefer to receive cash for their Riverside shares to do so
without payment of brokerage commissions; (B) the pricing provisions of the
Merger Agreement permit Riverside shareholders, to the extent they receive
CNC Stock in the Merger, to benefit from increases in CNC's stock price, but
are exposed to decreases in such stock price during the valuation period for
determining the amount of the consideration to be paid to Riverside
shareholders, subject in both cases to the limitations set forth in the
Merger Agreement; (C) the Merger Agreement provides Riverside with the
ability to terminate the Merger Agreement if the CNC Final Market Price is
less than $13.50 and the number obtained by dividing the Final CNC Stock
Price by $17.75 is more than 15% less than the number obtained by dividing
the average Index Price during the Determination Period by the Index Price
on October 10, 1996; and (D) although CNC required the Stock Option
Agreement as a condition to entering into the Merger Agreement, neither such
agreement nor the Merger Agreement would prevent another party from making a
proposal to acquire Riverside or prohibit the Riverside Board of Directors
from entertaining, or from recommending that Riverside shareholders
consider, any such proposal if the Riverside Board of Directors determines,
with the advice of legal counsel, that any such action is required in the
exercise of its fiduciary duties.
8. The Riverside Board of Directors considered the detailed financial
analyses, pro forma and other information with respect to Riverside and CNC
presented by Alex. Brown, as well as the Riverside Board of Directors' own
knowledge of the business and prospects of Riverside.
9. The Riverside Board of Directors considered the effect on Riverside
shareholder value of Riverside's continuing as a stand-alone entity as
compared with the effect on such value of combining with CNC in light of the
factors summarized above with respect to the financial condition and
prospects of the two companies on a standalone basis and of the combined
company and the current
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economic and financial environment, including, but not limited to, other
possible strategic alternatives, the results of the contacts and discussions
between Riverside and its financial advisors and various third parties and
the belief of the Riverside Board of Directors and management that the
Merger offered the best transaction available to Riverside and its
shareholders.
10. The Riverside Board of Directors considered the prospects of the
Merger being approved by the appropriate regulatory authorities, which the
Riverside Board of Directors considered to be favorable. See "The
Merger--Regulatory Approvals."
The above summary of the information and factors considered by the Riverside
Board of Directors is not intended to be exhaustive, but is believed to include
the material factors considered by the Riverside Board of Directors. In reaching
its determination to approve and recommend the Merger, the Riverside Board of
Directors did not assign any relative or specific weights to the foregoing
factors. In addition, individual members of the Riverside Board of Directors had
differing views regarding one or more of the subjects summarized above. After
deliberating with respect to the Merger and the other transactions contemplated
by the Merger Agreement, considering, among other things, the matters discussed
above and the opinion of Alex. Brown referred to above, the Riverside Board of
Directors unanimously approved and adopted the Merger Agreement and the
transactions contemplated thereby, including the Stock Option Agreement, as
being in the best interest of Riverside and its shareholders.
FOR THE REASONS SET FORTH ABOVE, THE RIVERSIDE BOARD OF DIRECTORS HAS
UNANIMOUSLY APPROVED THE MERGER AGREEMENT AS ADVISABLE AND IN THE BEST INTERESTS
OF RIVERSIDE AND RIVERSIDE SHAREHOLDERS AND RECOMMENDS THAT THE SHAREHOLDERS OF
RIVERSIDE VOTE FOR THE APPROVAL OF THE MERGER AGREEMENT.
OPINION OF FINANCIAL ADVISOR
Riverside retained Alex. Brown on August 30, 1996 to act as Riverside's
financial advisor in connection with the Merger and related matters, including
rendering its opinion to the Board of Directors of Riverside as to the fairness,
from a financial point of view, of the Merger Consideration to be received by
the shareholders of Riverside pursuant to the Merger Agreement.
At the October 14, 1996 meeting of the Riverside Board of Directors,
representatives of Alex. Brown made a presentation with respect to the Merger
and rendered to the Board its opinion (the "Alex. Brown Opinion") that, as of
such date, and subject to the assumptions made, matters considered and
limitations set forth in such opinion and summarized below, the consideration to
be received by the shareholders of Riverside was fair, from a financial point of
view, to such shareholders. The opinion was updated by delivery of a written
opinion dated as of the date of this Proxy Statement/Prospectus. No procedures
were prescribed or limitations were imposed by the Board upon Alex. Brown with
respect to the investigations made or procedures followed by it in rendering its
opinion. The Alex. Brown Opinion was only one of many factors considered by the
Riverside Board in determining to approve the Merger Agreement and the Merger.
The amount of consideration payable to Riverside shareholders in the Merger was
determined by arm's-length negotiations between Riverside and CNC, in
consultation with their respective financial advisors and other representatives.
THE FULL TEXT OF THE ALEX. BROWN OPINION, WHICH SETS FORTH, AMONG OTHER
THINGS, ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITATIONS ON THE REVIEW
UNDERTAKEN, IS ATTACHED HERETO AS APPENDIX E AND IS INCORPORATED HEREIN BY
REFERENCE. RIVERSIDE SHAREHOLDERS ARE URGED TO READ THE ALEX. BROWN OPINION IN
ITS ENTIRETY. THE ALEX. BROWN OPINION IS DIRECTED TO THE RIVERSIDE BOARD,
ADDRESSES ONLY THE FAIRNESS, FROM A FINANCIAL POINT OF VIEW, OF THE MERGER
CONSIDERATION TO BE RECEIVED BY THE SHAREHOLDERS OF RIVERSIDE, AND DOES NOT
CONSTITUTE A RECOMMENDATION TO ANY RIVERSIDE SHAREHOLDER AS TO HOW SUCH
SHAREHOLDER SHOULD VOTE AT THE SPECIAL MEETING. THE ALEX. BROWN OPINION WAS
RENDERED TO THE RIVERSIDE BOARD FOR ITS CONSIDERATION IN DETERMINING WHETHER TO
APPROVE THE MERGER AGREEMENT. THE
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DISCUSSION OF THE ALEX. BROWN OPINION IN THIS PROXY STATEMENT/PROSPECTUS IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF THE ALEX. BROWN
OPINION.
In connection with the Alex. Brown Opinion, Alex. Brown reviewed certain
publicly available financial information and other information concerning
Riverside and CNC and certain internal financial analyses and other information
furnished to it by Riverside. Alex. Brown also held discussions with members of
the senior managements of Riverside and CNC regarding the businesses and
prospects of their respective companies and the joint prospects of a combined
company. In addition, Alex. Brown (i) reviewed the reported prices and trading
activity for the common stock of both Riverside and CNC, (ii) compared certain
financial and stock market information for Riverside and CNC with similar
information for certain banking institutions whose securities are publicly
traded (see "--Analysis of Selected Publicly Traded Companies" below), (iii)
reviewed the financial terms of selected business combinations which it deemed
relevant, in whole or in part (see "--Analysis of Selected Precedent
Transactions" below), (iv) reviewed the terms of the Merger Agreement and the
Stock Option Agreement, and (v) performed such other studies and analyses and
considered such other factors as it deemed appropriate.
In conducting its review and arriving at the Alex. Brown Opinion, Alex.
Brown assumed and relied upon, without independent verification, the accuracy,
completeness and fairness of the information furnished to or otherwise reviewed
or discussed with it for purposes of rendering the Alex. Brown Opinion. With
respect to the financial projections and other information reviewed by Alex.
Brown relating to the prospects of each company (including, without limitation,
projected cost savings from the Merger), Alex. Brown assumed that such financial
projections and other information were reasonably prepared and reflected the
best currently available judgments and estimates of the respective managements
of Riverside and CNC as to the likely future financial performance of their
respective companies. Alex. Brown assumed that the Merger will have the tax,
accounting and legal effects (including, without limitation, that the Merger
will be accounted for as a purchase) described in the Merger Agreement. Alex.
Brown did not make and it was not provided with an independent evaluation or
appraisal of the assets or liabilities of Riverside or CNC, nor did it review
any individual loan files of Riverside or CNC. Alex. Brown is not an expert in
the evaluation of allowances for credit losses, has not made an independent
evaluation of the adequacy of the allowance for credit losses set forth in the
balance sheets of Riverside and CNC and has assumed such allowances were
adequate and complied fully with applicable law, regulatory policy and sound
banking practice as of the date of such financial statements. The Alex. Brown
Opinion is based on market, economic and other conditions as they existed and
could be evaluated as of the date of such opinion letter.
In arriving at its opinion, Alex. Brown was not authorized to solicit, and
did not solicit, interest from any party with respect to the acquisition of
Riverside or any of its assets.
The following is a summary of the analyses performed and factors considered
by Alex. Brown in connection with rendering the Alex. Brown Opinion.
HISTORICAL FINANCIAL POSITION. In rendering its opinion, Alex. Brown
reviewed and analyzed the historical and current financial condition of
Riverside and CNC, which included (1) a review of each company's historical and
recent financial statements; (2) an analysis of each company's income, growth
and operating performance trends from December 31, 1992 to June 30, 1996, as
well as for the first six months of 1996; and (3) an assessment of each
company's capital, asset quality and loan loss reserve levels.
HISTORICAL STOCK PERFORMANCE. Alex. Brown reviewed and analyzed the average
weekly closing market prices and trading volume for Riverside and CNC Stock from
October 6, 1995 to October 9, 1996. Although Alex. Brown reviewed the trading
volume of Riverside and CNC Stock, it primarily focused on the relative stock
price movements of the two companies. Alex. Brown compared the movement of the
average weekly closing market prices of Riverside Stock and CNC Stock with the
movement of the Standard & Poors 500 (the "S&P 500") composite average over the
period from October 6, 1995 to October 9, 1996. Alex. Brown noted that, on a
relative basis, Riverside generally underperformed the S&P
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500 composite average and that CNC, in the most recent approximate six-month
period, had outperformed the S&P 500 composite average. Alex. Brown also
compared the movement of the average weekly closing market prices of Riverside
and CNC Stock with the movement of a composite average of selected publicly
trade banking institutions (see "--Analysis of Selected Publicly Traded
Companies" below) over the same period. On a relative basis, Riverside generally
underperformed the California Independent Banks composite average (defined
below), and CNC, in the most recent approximate six-month period, performed in
line with the California Independent Banks composite average and outperformed
the California Business/Niche Banks composite average. This information was
presented to give the Board background information regarding the respective
stock prices of Riverside and CNC over the periods indicated. Alex. Brown
further reviewed the liquidity of CNC Stock, noting that its average daily and
weekly trading volume was significantly greater (as a percentage of shares
outstanding) than that of the Riverside Stock.
ANALYSIS OF SELECTED PUBLICLY TRADED COMPANIES. This analysis examines a
company's valuation in the public markets as compared with the valuation of
other selected publicly traded banking institutions. Alex. Brown, using publicly
available information, compared certain financial and stock market information
(based on the most commonly used valuation measurements described below)
relating to Riverside and CNC with certain corresponding information from a
group of publicly traded banking institutions deemed similar to Riverside and/or
CNC. Such financial and stock market information included, among other things,
the composition of earning assets, asset quality ratios, loan loss reserve
levels, net interest margin, the ratio of fee income to total revenue, the ratio
of general and administrative expenses to average assets, the efficiency ratio,
the ratio of net income to average assets and average equity, capitalization
ratios, and the multiple of market price to latest twelve months' ("LTM")
earnings per share ("EPS") and market price to book value per share.
The selected group of banking institutions comprised, in the case of the
Riverside comparison, 11 California independent banks with total assets of
between $390.0 million and $2.5 billion as of June 30, 1996 (the "California
Independent Banks"). In the CNC comparison, CNC was compared against both the
California Independent Banks group, as well as a second group consisting of
three California banking institutions with a business banking orientation (the
"California Business/Niche Banks"). Alex. Brown noted that the multiple of price
to LTM EPS was 11.3x for Riverside and 13.8x for CNC, compared to a range of
10.1x to 32.3x, with a mean of 13.1x for the California Independent Banks, and a
range of 9.8x to 13.3x, with a mean of 12.1x for the California Business/Niche
Banks. Alex. Brown further noted that the multiple of price to book value per
share was 133.1% for Riverside and 210.8% for CNC, compared to a range of 109.8%
to 208.4%, with a mean of 152.2% for the California Independent Banks, and a
range of 129.2% to 230.3%, with a mean of 175.2% for the California
Business/Niche Banks. Based on the foregoing ratios, Alex. Brown noted that the
multiples for Riverside were within the range of the multiples for California
Independent Banks (based on the closing price of Riverside Stock as of September
9, 1996). Alex. Brown further noted that the multiples of CNC were generally
within, or slightly higher, in certain instances, than the range of the
multiples for the California Independent Banks and the California Business/Niche
Banks.
ANALYSIS OF SELECTED PRECEDENT TRANSACTIONS. Alex. Brown reviewed the
financial terms, to the extent publicly available, of certain pending or
completed mergers and acquisitions for acquired banking institutions since
January 1, 1993 which it deemed comparable in whole or in part to the Merger
(the "Selected Transactions"). Alex. Brown reviewed various financial multiples
and premiums based on certain publicly available information for each of the
Selected Transactions and compared them to the corresponding financial multiples
and premiums for the Merger, based on the value of the consideration to be
received in the Merger assuming an effective date as of October 14, 1996 (the
"October 14 Value"). These transactions were analyzed based upon both the
financial characteristics of the acquired banks and the acquisition price
relative to the acquired bank's LTM EPS, book value, tangible book value, core
deposits, assets and market value. The analysis included a review and comparison
of the mean, median, high and low multiples represented by a sample of pending
or completed bank acquisitions in California having
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transaction values less than $500 million that were announced since January 1,
1993, which data was further analyzed to review the multiples for (1) Southern
California transactions; (2) California transactions for banking institutions
with a return on average assets in excess of 1.00%; and (3) Southern California
transactions for banking institutions with a return on average assets in excess
of 1.00%. Alex. Brown determined that the Southern California transactions for
banking institutions with a return on average assets in excess of 1.00% were the
most relevant group against which to compare the Merger (the "Comparable
Transactions"). The average price to LTM EPS, price to book value, price to
tangible book value, premium to core deposits, price to assets and price to
market value implied by the merger consideration for the Comparable Transactions
were 14.3x, 160.8%, 160.8%, 8.5%, 17.8% and 49.6%, respectively. The October 14
Value implied a multiple of 15.1x, 177.6%, 180.9%, 10.3%, 16.2% and 33.3% (based
on the closing price of Riverside Stock as of September 9, 1996), respectively.
Alex. Brown noted that each of these multiples was within the range of multiples
paid in the Comparable Transactions.
DISCOUNTED CASH FLOW ANALYSIS. Using a discounted cash flow analysis, Alex.
Brown prepared an estimated valuation of Riverside based on the present value of
the future dividend streams and the terminal value that Riverside could produce
over a four and one-half year period. The discounted cash flow approach values a
business based on the current value of the future cash flow that the business
will generate plus the estimated value of the business at some future date.
Alex. Brown used estimates of projected financial performance for Riverside for
the years 1996 through 2000 prepared by Riverside's management. Such estimates
were based upon various factors end assumptions, many of which are beyond the
control of Riverside. These projections are, by their nature, forward-looking
and may differ materially from the actual values or actual future results, which
may be significantly more or less favorable than suggested by such projections.
Such projections were also modified to present an "adjusted" case for Riverside.
The implied future dividend stream projection was based upon the assumption
that Riverside would maximize yearly dividend payments, subject to maintaining a
constant year-end ratio of shareholders' equity to total assets of 7.0%.
Estimated terminal values were calculated by applying multiples ranging from
10.0x to 12.0x projected net income. The dividend streams and terminal values
were discounted to present values using a range of discount rates from 12.5% to
15.0%. The discounted cash flow analysis produced a range of net present values
per share of Riverside Stock of approximately $14.00 to $17.00 in the expected
case and approximately $13.25 to $15.75 in the adjusted case. Alex. Brown noted
that discounted cash flow analysis is a widely used valuation methodology, but
that such analysis relies on numerous assumptions, including dividend payout
rates, terminal values and discount rates, the future values of which may differ
significantly from such estimates.
No company used in the analysis of selected publicly traded companies nor
any transaction used in the analysis of selected precedent transactions
summarized above is identical to Riverside, CNC or the Merger. Accordingly, such
analyses must take into account differences in the financial and operating
characteristics of the selected companies and the Selected Transactions and
other factors that would affect the public trading value and acquisition value
of the selected companies and the Selected Transactions, respectively.
While the foregoing summary describes all analyses and factors that Alex.
Brown deemed material in its presentation to the Riverside Board, it is not a
comprehensive description of all analyses and factors considered by Alex. Brown.
The preparation of a fairness opinion is a complex process involving various
determinations as to the most appropriate and relevant methods of financial
analysis and the application of these methods to the particular circumstances
and, therefore, such an opinion is not readily susceptible to summary
description. Alex. Brown believes that its analyses must be considered as a
whole and that selecting portions of its analyses and of the factors considered
by it, without considering all analyses and factors, could create an incomplete
view of the evaluation process underlying the Alex. Brown Opinion. None of the
analyses performed by Alex. Brown was assigned a greater significance than any
other. In performing its analyses, Alex. Brown considered general economic,
market and financial conditions and
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other matters, many of which are beyond the control of Riverside and CNC. The
analyses performed by Alex. Brown are not necessarily indicative of actual
values or future results, which may be significantly more or less favorable than
suggested by such analyses. Accordingly, such analyses and estimates are
inherently subject to substantial uncertainty. Additionally, analyses relating
to the value of a business do not purport to be appraisals or to reflect the
prices at which the business may actually be sold. Furthermore, no opinion is
being expressed as to the prices at which shares of CNC Stock may trade at any
future time.
Pursuant to the terms of a letter agreement dated August 30, 1996 (the
"Engagement Letter"), Riverside will pay Alex. Brown an aggregate fee of
approximately $300,000 for acting as Financial Advisor in connection with the
Merger, including rendering the Alex. Brown Opinion, against which was credited
a $10,000 retainer fee paid upon execution of the Engagement Letter. Of the fee,
$90,000 was paid on the delivery of the Alex. Brown Opinion, with the remainder
of the fee payable upon closing of the Merger. Whether or not the Merger is
consummated, Riverside also has agreed to reimburse Alex. Brown for its
reasonable out-of-pocket expenses incurred in connection with rendering
financial advisory services, including fees and disbursements of its legal
counsel. Riverside has agreed to indemnify Alex. Brown and its directors,
officers, agents, employees and controlling persons, for certain costs,
expenses, losses, claims, damages and liabilities related to or arising out of
its rendering of services under its engagement as financial advisor.
Riverside retained Alex. Brown to act as its advisor based upon Alex.
Brown's qualifications, reputation, experience and expertise. Alex. Brown, as a
customary part of its investment banking business, is engaged in the valuation
of businesses and their securities in connection with mergers and acquisitions,
negotiated underwritings, private placements and valuations for estate,
corporate and other purposes. Alex. Brown regularly publishes research reports
regarding the financial services industry and the businesses and securities of
publicly traded companies in the banking industry.
EFFECT OF THE MERGER
At the Effective Time, Riverside will merge into City National and City
National will be the surviving bank. At the Effective Time, the Articles of
Association and Bylaws of City National as in effect immediately prior thereto
will be the Articles of Association and Bylaws of the surviving bank. 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
bank.
CONSIDERATION PAYABLE UPON CONSUMMATION OF THE MERGER
CONVERSION OF RIVERSIDE STOCK. Holders of Riverside Stock will have the
opportunity to indicate their preferences for receiving stock, cash or a
combination of stock and cash in the Merger pursuant to the election procedure
described below (see "Election and Allocation Procedure"). Such elections will
be honored to the extent possible, subject to the limitations described herein.
All shares of Riverside Stock not converted into the right to receive CNC Stock
will be converted into the right to receive cash.
In no event will the number of shares of CNC Stock to be issued in the
Merger be less than the Minimum Stock Amount. The Minimum Stock Amount
requirement is intended to ensure that at least 48% (by value, as determined
under the definition of "Minimum Stock Amount") of the "Total Consideration" (as
defined below under "Election and Allocation Procedure") will be CNC Stock.
Under some circumstances, more than 48% of the Total Consideration may be
required to be paid in the form of CNC Stock in order to satisfy the Minimum
Stock Amount.
In addition, CNC is not required to provide more CNC Stock than the Maximum
Stock Amount as consideration for the Merger. However, CNC may issue more CNC
Stock than the Maximum Stock Amount if necessary to satisfy the Minimum Stock
Amount.
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Each such share of Riverside Stock will, by virtue of the Merger, be
converted into the right to receive:
(1) a share and/or fraction of a share of CNC Stock equal to the
quotient (such quotient, the "Exchange Ratio") obtained by dividing (i)
$18.00 by (ii) the average of the daily closing prices of a share of CNC
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 CNC Stock Price"); provided,
however, that if the Final CNC Stock Price is more than $19.50 but not more
than $22.50, the Exchange Ratio will be based on a Final CNC Stock Price of
$19.50 and, accordingly, will be fixed at 0.923; if the Final CNC Stock
Price is less than $16.00, the Exchange Ratio will be based on a Final CNC
Stock Price of $16.00 and, accordingly, will be fixed at 1.125; and if the
Final CNC Stock Price is more than $22.50, the Exchange Ratio will be
determined by dividing $20.77 by the Final CNC Stock Price; or
(2) cash in the amount of $18.00; or
(3) a combination of CNC Stock (at the rate of the Exchange Ratio for
each share of Riverside Stock) and cash (at the rate of $18.00 for each
share of Riverside Stock).
At the Effective Time, shares of Riverside Stock ("Cancelled Shares") that
may be owned by Riverside as treasury stock or by any of its wholly owned
subsidiaries or by CNC or any of its wholly owned subsidiaries, other than
shares held in a fiduciary capacity or in satisfaction of a debt previously
contracted, will be cancelled, retired and cease to exist, and no exchange or
payment will be made with respect thereto. Any shares of CNC Stock owned by
Riverside (other than shares held in a fiduciary capacity or in satisfaction of
a debt previously contracted) will become treasury stock of CNC.
NO FRACTIONAL SHARES. Notwithstanding the foregoing, each holder of shares
of Riverside Stock exchanged pursuant to the Merger who would otherwise have
been entitled to receive a fraction of a share of CNC Stock (after taking into
account all certificates delivered by such holder) will receive, cash (without
interest) in lieu thereof, in an amount equal to such fractional part of a share
of CNC Stock multiplied by the Final CNC 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 CNC Stock.
ELECTION AND ALLOCATION PROCEDURE. A form of transmittal letter ("Letter of
Transmittal") will be mailed by IBJ Schroder Bank & Trust Company (the "Exchange
Agent") at least thirty-five days prior to the anticipated Effective Time or on
such other date as Riverside and CNC mutually agree (the "Mailing Date") to each
holder of Riverside Stock of record 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 CNC Stock (a "Stock Election") with respect to all
of such holder's Riverside Stock, cash (a "Cash Election") with respect to all
of such holder's Riverside Stock, or a combination of shares of CNC Stock and
cash (a "Combination Election") in the proportions specified on the Letter of
Transmittal. The stock and cash components of Combination Elections are referred
to in the Merger Agreement and in the following description as "Combination
Stock Elections" and "Combination Cash Elections" respectively. Any Riverside
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 hereinafter defined) will be deemed to be
"Undesignated Shares."
An Election will be deemed 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 the 30th day following the Mailing Date (or such other time and
date as CNC and Riverside mutually agree) (the "Election Deadline"). The
Election Deadline will be specified in the Letter of Transmittal. A Letter of
Transmittal will be deemed properly completed only if an Election is indicated
for each share of Riverside Stock covered by such Letter of Transmittal 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
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certificates) representing all shares of Riverside 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 Riverside 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.
If the aggregate number of shares of Riverside Stock as to which Stock
Elections and Combination Stock Elections have been effectively made multiplied
by the Exchange Ratio exceeds the Maximum Stock Amount (as defined below), then,
to the extent necessary so that the number of shares of CNC Stock to be issued
shall not be greater than the Maximum Stock Amount and the number of Eligible
CNC Shares (as defined below) to be issued shall be at least equal to the
Minimum Stock Amount, (1) all Cash Elections will be accepted, (2) all
Undesignated Shares and Dissenting Shares will be deemed to have made Cash
Elections, and (3) the Exchange Agent will select by random selection, first
from holders of Riverside Stock for which Stock Elections or Combination Stock
Elections have been made that, if converted into shares of CNC Stock, would not
constitute Eligible CNC Shares, and second (if necessary) from among the holders
of remaining shares of Riverside Stock for which Stock Elections and Combination
Stock Elections have been made, shares that shall be designated as "Cash
Designated Shares," and Cash Elections will be deemed to have been made with
respect to all such shares.
Correspondingly, if the aggregate number of shares of Riverside Stock as to
which Stock Elections and Combination Stock Elections have been effectively made
multiplied by the Exchange Ratio would not result in a number of Eligible CNC
Shares being issued that is at least equal to the Minimum Stock Amount, then, to
the extent necessary so that the number of Eligible CNC Shares to be issued will
be at least equal to the Minimum Stock Amount (as defined below), the Exchange
Agent will select by random selection, first from holders of Undesignated Shares
and then (if necessary) from holders of Riverside Stock who have made Cash
Elections and Combination Cash Elections, such number of such shares to receive
CNC Stock as shall be necessary so that the number of Eligible CNC Shares that
will be issued will equal the Minimum Stock Amount.
For purposes of the allocation of CNC Stock and cash, the following
definitions (which are more fully set forth in the Merger Agreement) will apply:
1. "MINIMUM STOCK AMOUNT" means the lowest whole number of Eligible CNC
Shares which, if multiplied by the Final CNC Stock Price, results in a
dollar amount at least equal to 48% of the Total Consideration;
2. "MAXIMUM STOCK AMOUNT" means the excess of (A) the number of shares
of CNC Stock that would be issuable under the terms hereof as 60% of the
Total Consideration, based on the Exchange Ratio, over (B) the number of
options to purchase CNC Stock granted to Riverside employees and directors
in exchange for their options to purchase Riverside Stock, which number
shall not exceed 216,000;
3. "ELIGIBLE CNC SHARES" means all shares of CNC Stock to be issued in
the Merger other than shares of CNC Stock issued (A) to any holder of five
percent or more of the total outstanding shares of Riverside Stock who does
not provide to the Exchange Agent certain representations concerning the
absence of any intent on the part of such person to enter into certain sale
or other transactions concerning the CNC Stock to be received by such holder
in the Merger as required by the Merger Agreement, or as to which the
management of Riverside is unable as of the Effective Time to make certain
representations concerning the absence of any intent on the part of such
person to enter into certain sale or other transactions concerning the CNC
Stock to be received by them in the Merger, as required by the Merger
Agreement, (B) to any holder of less than five percent of the total
outstanding shares of Riverside Stock as to which the management of
Riverside is unable as of the Effective Time
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to make certain representations concerning the absence of any intent on the
part of such person to enter into certain sale or other transactions
concerning the CNC Stock to be received by them in the Merger as required by
the Merger Agreement, or (C) with respect to any shares of Riverside Stock
that were obtained by the holder thereof upon the exercise of options if
such exercise shall have occurred subsequent to August 2, 1996 for directors
and October 15, 1996 for other employees.
4. "TOTAL CONSIDERATION" means the sum of (A) the product of (i) the
Final CNC Stock Price and (ii) the number of shares of CNC Stock actually
issued to holders of Riverside Stock in the Merger, (B) the amount of cash
actually issued to holders of Riverside Stock in the Merger pursuant to Cash
Elections and Combination Elections, (C) the amount of cash actually issued
to holders of Riverside Stock in the Merger in lieu of fractional shares of
CNC Stock, and (D) an amount equal to the number of Dissenting Shares as to
which the holder's demand to exercise dissenter's rights shall not have been
withdrawn as of the Effective Time multiplied by the greater of (x) the
product of the Exchange Ratio and the Final CNC Stock Price and (y) $18.00.
5. "DISSENTING SHARES" means shares with respect to which appraisal
rights have been perfected in accordance with Section 215a.
AS A RESULT OF THESE MAXIMUM AND MINIMUM LIMITATIONS ON THE AMOUNT OF CNC
STOCK TO BE ISSUED, THERE IS NO ASSURANCE THAT HOLDERS OF RIVERSIDE STOCK WILL
RECEIVE THE PRECISE ALLOCATIONS OF CNC STOCK AND/OR CASH INDICATED BY SUCH
HOLDER'S ELECTION.
For a more complete discussion of the foregoing allocation procedure see
Section 2.3 of the Merger Agreement.
For a discussion of the rights of dissenting shareholders of Riverside, see
"DISSENTERS' RIGHTS."
EFFECTIVE TIME
The effective time of the Merger will occur when the certificate of merger
is deemed to be effective by the OCC (the "Effective Time"). It is expected that
the Effective Time will be at 6:00 p.m. Pacific Time on the first Friday (unless
such day is a holiday, in which case it will be the preceding business day) that
is both after satisfaction of each of the conditions set forth in Article VII of
the Merger Agreement (see "THE MERGER--Conditions to Consummation of the
Merger"), and no less than four business days after the occurrence of the
Election Deadline.
If the Merger is approved by the shareholders of Riverside, subject to the
satisfaction or waiver of certain conditions described herein and the receipt of
all Regulatory Approvals (as defined below), the Effective Time currently is
expected to occur during the first quarter of 1997.
SURRENDER OF RIVERSIDE STOCK CERTIFICATES
After the allocation procedures described above are completed, each holder
of Riverside Stock who submits (or has submitted) a properly completed Letter of
Transmittal shall be issued a certificate or certificates representing the
number of shares of CNC Stock to which such holder is entitled, if any (and, if
applicable, a check for the amount to be paid in lieu of any fractional share of
CNC Stock), and/or the amount of cash to which such holder is entitled, if any.
Holders of Riverside 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 Riverside Stock to the Exchange Agent
in order to receive the Merger Consideration payable in respect of such shares.
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After the Effective Time, there will be no transfers on Riverside's stock
transfer books of shares of Riverside Stock issued and outstanding immediately
prior to the Effective Time. If certificates representing shares of Riverside
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 CNC Stock and/or cash, if any,
deliverable in respect thereof.
No dividend or other distribution declared or made with respect to CNC Stock
with a record date after the Effective Time will be paid to the holder of any
unsurrendered certificate of Riverside 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 CNC 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 CNC Stock
and (2) 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 CNC Stock.
None of CNC, City National, Riverside, the Exchange Agent or any other
person will be liable to any former holder of Riverside Stock for any shares of
CNC 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 Riverside 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 set forth in Appendix D to this Proxy Statement/Prospectus.
CONDITIONS TO CONSUMMATION OF THE MERGER
CONDITIONS TO EACH PARTY'S OBLIGATIONS. The respective obligations of CNC,
City National and Riverside 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 Riverside solicited
hereby;
(2) Receipt of all required approvals, consents or waivers of
governmental authorities (the "Regulatory Approvals"), without any condition
or requirement that would, in the good faith determination of CNC, be
materially burdensome to CNC;
(3) The absence of any order, injunction or decree that enjoins or
prohibits the consummation of the Merger 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 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 CNC Stock to be issued in the Merger shall have been
approved for listing on the NYSE, subject to notice of issuance.
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For a discussion of the regulatory approvals required for consummation of
the Merger, see "THE MERGER--Regulatory Approvals."
CNC AND CITY NATIONAL CONDITIONS. The obligation of CNC and 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 Riverside
contained in the Merger Agreement, in all material respects, at the
Effective Time as if made on such date; the receipt by CNC and City National
of an updated and current disclosure schedule; the performance by Riverside,
in all material respects, of its covenants and agreements contained in the
Merger Agreement; and the receipt by CNC and City National of an officer's
certificate of Riverside to the foregoing effect;
(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 CNC and City National of the opinion of Mayer, Brown &
Platt, special counsel to Riverside as to certain legal matters;
(4) Receipt by CNC and City National of the final calculation of
Riverside's fees and expenses incurred in connection with the Merger, which
shall have been accrued and paid by Riverside;
(5) At the close of business on the last day of the month preceding the
Effective Time, the Adjusted Stockholders' Equity of Riverside shall have
been not less than an amount equal to Riverside's stockholders' equity at
September 30, 1996, PLUS $223,000 for each calendar month from September 30,
1996 through the month-end immediately prior to the Effective Time.
"Adjusted Stockholders' Equity" means the stockholders' equity of Riverside
as reflected on the financial statement delivered pursuant to Section 7.2(e)
of the Merger Agreement PLUS severance benefits, payments for cancellation
of options, certain payments in connection with vendor contracts, permitted
dividends, and reasonable transaction costs, MINUS the exercise price of
options exercised between September 30, 1996 and the month-end immediately
prior to the Effective Time, PLUS decreases and MINUS increases in the
market value of securities held for sale from September 30, 1996 through the
month-end immediately prior to the Effective Time, in each case net of
applicable taxes;
(6) At the close of business on the last day of the month preceding the
Effective Time, total deposits of Riverside shall be not less than 90% of
the average of total deposits for Riverside during the month ended August
31, 1996, excluding from such deposits at both dates all deposits of title
insurance and escrow companies and similar accounts;
(7) There shall not have occurred any event related to the business
condition (financial or otherwise), prospects, operations or properties of
Riverside and its subsidiaries which would have a material adverse effect on
the business, financial condition, or results of operations of Riverside;
(8) Receipt by CNC, City National and their directors and officers of
letters of Riverside's independent certified public accountants relating to
the registration statement of which this Proxy Statement is a part, dated as
of (A) the date of the mailing of this Proxy Statement/Prospectus to
Riverside's shareholders, and (B) shortly prior to the Effective Time, with
respect to certain financial information regarding Riverside in the form
customarily issued by such accountants at such time in transactions of this
type; and
(9) Dissenter's rights shall not have been preserved with respect to
more than 5% of the outstanding shares of Riverside Stock.
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RIVERSIDE CONDITIONS. The obligation of Riverside 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 CNC and
City National contained in the Merger Agreement, in all material respects,
at the Effective Time as if made on such date, the performance by CNC and
City National, in all material respects, of their respective covenants and
agreements contained in the Merger Agreement, and the receipt by Riverside
of an officer's certificate of CNC and 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 Riverside of an opinion from Richard H. Sheehan, Jr.,
counsel to CNC and City National as to certain legal matters;
(4) Receipt by Riverside of an opinion from Munger, Tolles & Olson,
special counsel to CNC and City National; and
(5) 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 a material adverse effect on CNC.
REGULATORY APPROVALS
The Merger is subject to prior approval by 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 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,
the 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 the 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 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
approval of the Merger by the OCC has been submitted. No assurances can be
given, however, that such approval will be received or that the Merger will be
consummated.
CNC, City National and Riverside are not aware of any other material
governmental approvals or actions that are required for consummation of the
Merger.
CONDUCT OF BUSINESS PENDING THE MERGER
RIVERSIDE. The Merger Agreement contains certain restrictions on the
conduct of Riverside's business pending consummation of the Merger.
In particular, prior to the Effective Time, the Merger Agreement requires
Riverside to (1) conduct its business in the usual, regular and ordinary course,
consistent with past practice; (2) use its best 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) 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
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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) maintain the Allowance for Loan and
Lease Losses in accordance with past practices, GAAP and RAP, (8) substantially
comply with all federal and state laws and rules, regulations or orders; and (9)
take no action which would reasonably be expected adversely to 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 CNC, Riverside may not take certain
specified actions, including, without limitation, 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 $18.00 and the exercise price of any such
option); or declare or pay dividends (other than regular quarterly dividends for
the fourth quarter of 1996 and the first quarter of 1997 subject to certain
restrictions); (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 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 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 (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; (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) hire
additional officers or employees, or enter into new employment arrangements or
relationships; (11) sell securities; (12) terminate, or suggest termination of,
any deposit relationship with a title, escrow or mortgage company customer, or
any major customer; (13) purchase securities other than United States treasury
or agency securities maturing within three years; (14) amend its charter
documents; (15) change in any material respect, or introduce services, products
or campaigns or open or close any branch or facility; (16) 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 (17) reallocate or
reduce any material accrual or reserve.
CNC AND CITY NATIONAL. CNC and City National have each agreed not to (1)
take any action which would reasonably be expected to delay or adversely affect
the ability of CNC, City National or Riverside 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 CNC
Certificate in any respect that materially and adversely affects the rights and
privileges attendant to the CNC Stock; or (3) agree to, or make any commitment
to, do any of the foregoing.
NO SOLICITATION
Riverside 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
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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 Riverside'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. Riverside 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 CNC with respect to any of the foregoing. Riverside has also
agreed to advise CNC immediately 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 herein, "Takeover Proposal" means, with respect to any person, any
tender or exchange offer, proposal for a merger, consolidation or other business
combination involving Riverside 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, Riverside 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 Riverside, any
amendment which reduces the amount or changes the form of the consideration to
be delivered to the Riverside shareholders in the Merger will not be valid
without approval of the shareholders of Riverside.
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
Riverside as follows: (1) by mutual agreement of CNC and Riverside; (2) by CNC
or Riverside 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 CNC or Riverside 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 CNC
or Riverside in the event that the Merger is not consummated by June 30, 1997;
(5) by CNC or Riverside if any required vote of the shareholders of Riverside
approving the Merger is not obtained at a duly held meeting of shareholders; (6)
by CNC if the Board of Directors of Riverside shall have withdrawn, modified or
changed in a manner adverse to CNC its approval or recommendation of the Merger
Agreement and the Merger; (7) by Riverside, if both (A) the Final CNC Stock
Price is less than $13.50, and (B) the number obtained by dividing the Final CNC
Stock Price by $17.75 is more than 15% less than the number obtained by dividing
the average Index Price during the Determination Period by the Index Price on
October 10, 1996; (8) by CNC, if (A) Riverside 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 of such Takeover Proposal;
or (B) a Takeover Proposal that is publicly disclosed shall have been commenced,
publicly proposed or communicated to Riverside which contains a proposal as to
price (without regard to the specificity of such price proposal) and Riverside
shall not have rejected such proposal within 10 business days of its receipt or
the date its existence first becomes publicly disclosed, if earlier.
As discussed above if (A) the Final CNC Stock Price is less than $13.50 and
(B) the number obtained by dividing the Final CNC Stock Price by $17.75 is more
than 15% less than the number obtained by dividing the average Index Price
during the Determination Period by the Index Price on October 10, 1996, the
Riverside Board of Directors may, in its discretion, terminate the Merger
Agreement. On December , 1996, the closing price for the CNC Stock was
$ . In making any such determination, the Riverside Board of
Directors anticipates that it would review current information relating to CNC
and Riverside, receive presentations from its officers, financial advisor and
legal counsel and consider a variety
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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 Riverside stock, the Board of Directors of Riverside will
have the power and authority, without the necessity of a further vote of the
Riverside 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 its right to so terminate the Merger Agreement.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Certain members of Riverside's management and the Riverside Board of
Directors may be deemed to have certain interests in the Merger that are in
addition to their interests as shareholders of Riverside generally.
INDEMNIFICATION OF DIRECTORS AND OFFICERS. The Merger Agreement provides
that all rights to indemnification or exculpation now existing in favor of the
directors, officers, employees and agents of Riverside and its subsidiaries as
provided in their respective articles of association or articles of
incorporation, bylaws, indemnification agreements or otherwise in effect as of
October 15, 1996 with respect to matters occurring before the Effective Time of
the Merger will survive the Merger and will continue in full force and effect
for a period of six years following the Effective Time of the Merger. The Merger
Agreement also provides that during such six-year period, to the greatest extent
permitted by applicable law, regulations and their respective organizational
documents or bylaws as in effect on October 15, 1996, CNC and City National will
indemnify, defend and hold harmless those individuals who were officers and
directors of Riverside and its subsidiaries on October 15, 1996 or immediately
prior to the Effective Time of the Merger for any claim or loss arising out of
their actions while an officer or director, including any acts relating to the
Merger Agreement, and that CNC and City National will pay, as and when incurred,
the expenses, including attorneys' fees, of such individuals in advance of the
final resolution of any claim, provided that such individuals must first execute
an undertaking acceptable to each of CNC and City National to return such
advances in the event it is finally concluded that such indemnification is not
permissible under applicable law.
STOCK OPTIONS. The stock options granted to Riverside officers, directors
and employees under Riverside's existing shareholder approved stock option plans
provide that any options granted prior to the dissolution or liquidation of
Riverside, or a reorganization, merger or consolidation of Riverside with one or
more corporations as a result of which Riverside will not be the surviving or
resulting entity (each a "Terminating Event") become exercisable in full thirty
days prior to the completion of any such Terminating Event whether or not then
vested. The Merger Agreement provides that the outstanding Riverside stock
options (each an "Option") will be treated as follows:
In the case of Options held by Riverside employees who are not offered a
position with City National following the Merger, and for each Option that
vests prior to the Effective Time of the Merger solely as the result of the
fact that the Merger will constitute a Terminating Event, Riverside will
offer to cancel each such Option that is outstanding and unexercised at the
Effective Time, whether or not then vested, in exchange for the payment to
the holder of such Option of an aggregate amount in cash equal to the
positive difference between (1) $18.00 multiplied by the number of shares of
Riverside Stock covered by such Option, and (2) the aggregate exercise price
of such Option.
Each Riverside employee offered employment with City National following
the Merger and each non-employee Riverside director who holds Options that
have vested other than solely as the result of the fact that the Merger will
constitute a Terminating Event will be entitled to elect to: (1) receive
cash under the same terms as employees who are not offered a position with
City National or (2) in exchange for terminating such Option, receive a
fully vested option to purchase CNC Stock; provided, that the aggregate
number of shares of CNC Stock represented by all of such substitute options
may
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not exceed 216,000, of which 166,000 shares will initially be reserved for
Riverside employees and 50,000 shares will initially be reserved for
non-employee directors. The number of shares of CNC Stock for which each
such substitute option will be exercisable will be equal to the number of
shares of Riverside Stock that was subject to the related Riverside stock
option immediately prior to the Effective Time multiplied by the Exchange
Ratio; and the per share exercise price of such substitute options will be
determined by dividing the per share exercise price under the related
Riverside option by the Exchange Ratio. The substitute options will have
terms of one year in the case of options issued to non-employee directors of
Riverside and terms of three years in the case of options issued to
Riverside employees, and will otherwise contain terms and conditions
substantially identical to options issued by CNC to its other employees
pursuant to the CNC stock option plan.
EMPLOYEE BENEFIT PLANS. All employees of Riverside continuing in the employ
of CNC or City National will be entitled to participate in stock plans, bonus
plans and all other benefit plans of CNC or City National on the same basis as
other similarly situated employees of CNC or City National. Each of these
employees will be credited for eligibility, participation, vesting and benefit
accrual purposes (subject to certain limitations) with such employee's
respective years of past service with Riverside as though they had been
employees of CNC or City National.
Pursuant to the Merger Agreement, CNC and City National have agreed to
permit Riverside to amend its severance policies to provide for enhanced
severance payments. Riverside will be responsible for paying the severance
payments as set forth in the amended severance policies to employees of
Riverside who are not offered continued employment in an equivalent or
substantially similar position with CNC or City National following the Effective
Time of the Merger.
SEVERANCE AGREEMENT AND EMPLOYMENT AGREEMENT. Riverside entered into a
Severance Agreement with Mr. James A. Robinson in July 1996 (the "Severance
Agreement"), which agreement was a continuation on substantially similar terms
of the severance agreement entered into between Mr. Robinson and Riverside in
November 1993. Upon a "Change in Control" Mr. Robinson is entitled under his
Severance Agreement to receive two full years of compensation at his then
current annual rate of compensation plus two times the average of his annual
bonus for the two full years preceding such "Change in Control." The amount that
would be payable under the terms of the Severance Agreement upon completion of
the Merger is $840,000 . At the request of CNC, Mr. Robinson has agreed to enter
into an employment agreement (the "Employment Agreement") with City National
pursuant to which Mr. Robinson would be employed by City National in the
capacity of Executive Vice President of City National and a member of its
Executive Committee for an initial term of two years. It is expected that Mr.
Robinson will also serve as Chairman of the City National Inland Empire Board of
Advisors, which is an advisory board to be comprised of business persons in
Riverside County and other portions of the Inland Empire Region that City
National intends to establish in connection with its acquisition of Riverside.
Pursuant to the Employment Agreement, Mr. Robinson would agree to deferral of
the payment to him of the severance amount to which he is entitled under his
Severance Agreement with Riverside and would receive salary for his service with
City National at an annual rate of $140,000 per year. He would also be entitled
to incentive compensation of up to an additional $140,000 in each of the two
years of his employment agreement with City National, provided that no incentive
compensation will be payable to Mr. Robinson unless he remains with City
National for the two-year period of his proposed Employment Agreement. Mr.
Robinson would also be entitled to such fringe benefits and perquisites as are
provided to other officers of City National with positions of similar authority
and responsibility.
With respect to Mr. Robinson's options to purchase shares of Riveside Stock,
CNC and Mr. Robinson have agreed as follows: (1) each of the 105,000 options to
purchase shares of Riverside Stock which will be exercisable at the Effective
Time will be converted into an option and/or fraction of an option to purchase
CNC Stock in accordance with the Exchange Ratio; (2) 22,500 of Mr. Robinson's
remaining options to purchase CNC Stock will each be converted into an option
and/or fraction of an option to purchase CNC Stock in accordance with the
Exchange Ratio and will vest on the first anniversary of the Effective Time;
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(3) the remaining 22,500 of Mr. Robinson's options to purchase CNC Stock will
each be converted into the option and/or fraction of an option to purchase CNC
Stock in accordance with the Exchange Ratio and will vest on the second
anniversary of the Effective Time; (4) each of the above-mentioned 150,000
options to purchase Riverside Stock which will be converted into a number of
options to purchase CNC Stock calculated in accordance with the Exchange Ratio
will expire on the third anniversary of the Effective Time; and (5) as an
employee of City National, Mr. Robinson will have the opportunity to participate
in City National's stock option plan at a level commensurate with his title and
position.
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 the
individual circumstances of particular Riverside shareholders such as financial
institutions, broker-dealers, life insurance companies, tax-exempt
organizations, investment companies, foreign taxpayers, any Riverside
shareholders who, at the Effective Time, already own CNC Stock, persons who
acquired their Riverside shares pursuant to the exercise of employee stock
options, and other special status taxpayers. 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. Riverside shareholders who are individuals
should be aware that the federal income tax rate on long-term capital gains of
individuals is significantly lower than the tax rate that may apply to ordinary
income or short-term capital gains of individuals, and that the amount of
long-term capital gain, short-term capital gain or ordinary income that may be
realized by a particular Riverside shareholder as a result of the Merger may
vary depending on a shareholder's particular circumstances. Each Riverside
shareholder is advised to consult his or her own tax advisor concerning the
specific tax consequences of the Merger to such shareholder.
No ruling has been requested from the Internal Revenue Service (the
"Service") with respect to any of the matters discussed in this summary.
It is a condition to the obligation of Riverside to consummate the Merger
that Riverside receive an opinion from Tax Counsel concluding that the Merger
qualifies as a tax-deferred reorganization within the meaning of Section 368(a)
of the Code. Riverside has received such an opinion from Tax Counsel, subject to
confirmation at the Effective Time. The tax consequences discussed below are
based on the assumption that the Merger does so qualify. Riverside shareholders
should be aware that the opinion of Tax Counsel represents the best judgment of
such counsel, but is not binding on the Service or the courts.
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 Riverside, certain
shareholders of Riverside, CNC and City National with respect to the Merger,
including representations regarding intended actions of CNC and certain
Riverside shareholders following the Merger. If any of these factual assumptions
or representations is 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 Riverside maintain a
sufficient continuity of stock ownership interest in CNC after the Merger. Prior
to its adoption of its current policy that it will not issue "comfort rulings"
regarding certain corporate reorganizations, the Service took the position for
purposes of issuing advance rulings under Section 368(a)(1)(A) of the Code that
the shareholders of an acquired corporation (such as Riverside) had to maintain
a continuing equity ownership interest in the acquiring corporation (such as
CNC) 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 advance rulings standard, which expressly did not define the lower
limits of "continuity of interest" as a matter of substantive law. Tax Counsel's
opinion relies on the continuity of shareholder interest standard under the
decided cases rather than the Service's
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advance rulings standard. It is anticipated that the Merger will satisfy the
continuity of shareholder interest requirement as reflected in the case law, but
it is possible that post-merger sales, exchanges or other transactions affecting
CNC Stock undertaken by the former Riverside 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 Riverside and its shareholders and City National would succeed to
Riverside'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 Riverside will depend on whether
the shareholder receives cash, shares of CNC Stock, or both in exchange for his
or her shares of Riverside Stock. The consideration to be received in the Merger
by each Riverside shareholder will depend, in part, on certain elections
available to the shareholders. If a shareholder of Riverside (who does not
otherwise actually or constructively own any stock of CNC) receives cash in
exchange for all shares of Riverside Stock actually owned by him or her, the
federal income tax consequences will also depend on whether any shares of
Riverside 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 CNC Stock. The federal income tax consequences of the Merger to
a Riverside shareholder who receives only cash in the Merger but who also owns
CNC Stock (either actually or constructively pursuant to Section 318 of the
Code), or who receives both cash and CNC Stock in the Merger, may depend on
whether the distribution of cash to such shareholder has the effect of the
distribution of a dividend to such shareholder (see "Impact of Section 302 of
the Code"). In short, the tax consequences of the Merger to a Riverside
shareholder who receives only cash in the Merger may depend on (1) the nature of
the consideration received in the Merger by certain individuals and entities
owning Riverside shares if the shares owned by such persons are attributed to
the Riverside shareholder (as described under "Constructive Ownership" below),
and (2) whether the particular Riverside shareholder owns any CNC Stock, either
actually or constructively (as described under "Constructive Ownership"), other
than as a result of participating in the Merger.
RECEIPT OF CNC STOCK FOR ALL RIVERSIDE STOCK ACTUALLY OWNED. A shareholder
of Riverside who receives shares of CNC Stock in exchange for all the shares of
Riverside Stock actually owned by that shareholder 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 CNC Stock received by that shareholder
(including any fractional interests deemed received) will be the same as the
basis of the shares of the Riverside Stock exchanged therefor, and the holding
period of those shares of CNC Stock will include the holding period of the
Riverside Stock surrendered in the exchange, provided the latter shares were
held by the shareholder as a capital asset at the Effective Time. The foregoing
result will be obtained 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 RIVERSIDE STOCK ACTUALLY OWNED. If cash is received
for all shares of Riverside Stock actually owned by a shareholder of Riverside,
that shareholder will recognize gain or loss in an amount equal to the
difference between the amount of cash received by the shareholder and his or her
tax basis for the shares of Riverside Stock exchanged. That gain or loss
generally will be capital gain or loss if the shares of Riverside Stock are held
as a capital asset at the Effective Time and will be long-term capital gain or
capital loss if the Riverside shareholder's holding period for his or her
Riverside shares is more than one year at the Effective Time. The Code imposes
significant limitations on the ability of an individual holder to offset capital
losses against ordinary income, and corporate holders may not offset capital
losses against ordinary income to any extent. If, however, any such shareholder
of Riverside constructively owns shares of Riverside Stock (pursuant to the
constructive ownership rules of Section 318 of the Code) that are exchanged for
shares of CNC Stock in the Merger or owns shares of CNC Stock actually or
constructively after the Merger, the consequences to such shareholder may be
similar to the consequences described below under the heading "RECEIPT OF BOTH
SHARES OF CNC STOCK AND CASH FOR RIVERSIDE STOCK ACTUALLY OWNED," except that
the amount of consideration, if any, treated as a dividend may
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not be limited to the amount of such shareholder's gain. Because the tax
treatment applicable to a shareholder in the situation described in the
immediately preceding sentence is not free from doubt, a shareholder in that
situation is urged to consult his or her own tax advisor regarding the tax
consequences to such shareholder.
RECEIPT OF BOTH SHARES OF CNC STOCK AND CASH FOR RIVERSIDE STOCK ACTUALLY
OWNED. A shareholder of Riverside who, in the Merger, receives both shares of
CNC Stock and cash (other than cash received in lieu of a fractional share of
CNC Stock) in exchange for all of the shares of Riverside 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; and (2) the gain realized (i.e., the
amount by which the sum of the amount of cash so received and the fair market
value on the date of the Merger of the shares of CNC Stock received, including
any fractional interest, exceeds that shareholder's basis for the shares of
Riverside Stock surrendered). For this purpose, gain or loss must be calculated
separately for each identifiable block of shares surrendered in the exchange,
and a loss realized on a particular block of shares of Riverside Stock cannot be
used to offset a gain recognized on another block of shares of Riverside Stock.
Any shareholder who holds shares of Riverside Stock with differing tax bases is
urged to consult his, her or its own tax advisor regarding the tax consequences
of the Merger.
The characterization of any recognized gain as capital gain or ordinary
(dividend) income 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 CNC 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 Riverside 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 earnings and profits of Riverside (or possibly the earnings
and profits of Riverside and CNC) accumulated through the date of the Merger,
and any remaining amount of recognized gain will be characterized in accordance
with the preceding sentence. The tax basis of the shares of CNC Stock received
by such a shareholder will be the same as the tax basis of the shares of
Riverside 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 CNC Stock, and by any basis allocable to such a fractional share of CNC
Stock. The holding period of the shares of CNC Stock received by that
shareholder in the Merger will include the holding period of the shares of
Riverside Stock exchanged therefor, provided the shares of Riverside Stock are
held as a capital asset at the time of the Merger.
IMPACT OF SECTION 302 OF THE CODE. The manner in which Section 302 of the
Code is applied depends upon whether a Riverside shareholder receives only cash
or both cash and shares of CNC Stock in exchange for the shares of Riverside
Stock actually owned by that shareholder and on whether such Riverside
shareholder constructively owns (1) other shares of Riverside Stock that are
exchanged for CNC Stock in the Merger or (2) other shares of CNC Stock, or
actually owns other shares of CNC Stock. The receipt of cash by a shareholder of
Riverside who receives only cash in exchange for his or her shares of Riverside
Stock 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: (A) "not essentially equivalent to a
dividend," (B) a "substantially disproportionate redemption" with respect to
that shareholder, or (C) a "complete termination" of the "shareholder's
interest" in all the shares of Riverside Stock actually and constructively owned
by that shareholder.
The determination of 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 Riverside Stock actually and constructively
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owned by the shareholder had been exchanged solely for shares of CNC Stock, and
the shares of CNC Stock that were not in fact received had then been redeemed by
CNC for cash (the "hypothetical redemption of CNC Stock"). The rules of Section
302 are then applied by comparing a shareholder's hypothetical stock ownership
in CNC before the hypothetical redemption of CNC Stock with that shareholder's
stock ownership in CNC after the Merger.
Whether the receipt of cash by a shareholder of Riverside will be "not
essentially equivalent to a dividend" depends on the facts and circumstances of
the individual shareholder of Riverside. The receipt of cash by a Riverside
shareholder in exchange for the shares of Riverside Stock actually owned by that
shareholder should not be taxable as a dividend if the shareholder's relative
stock interest in CNC is minimal, the shareholder exercises no control over
CNC's affairs, and the hypothetical redemption of CNC shares described above
causes the shareholder to undergo some reduction in equity interest in CNC
(taking into account the hypothetical redemption of CNC Stock) in relation to
all CNC 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 Riverside 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 Riverside 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 CNC Stock entitled to vote.
Second, the ratio that the voting stock of CNC owned, both actually and
constructively, by the shareholder immediately after the hypothetical redemption
bears to all the voting stock of CNC outstanding at that time must be less than
80% of the ratio that the voting stock of CNC owned, both actually and
constructively, by the shareholder immediately before the hypothetical
redemption of CNC Stock described above bears to all the voting stock of CNC
outstanding at that time. In making the calculations required to determine
whether the hypothetical redemption of CNC Stock is "substantially
disproportionate," the constructive ownership rules described below apply. See
"Constructive Ownership" below.
The receipt of cash by a shareholder of Riverside will be a "complete
termination of interest" only if the shareholder receives cash for all of the
shares of Riverside Stock actually and constructively owned by that shareholder
at the Effective Time. 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 Riverside shareholder will
not be deemed to own shares of Riverside 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 Merger Agreement permits Riverside shareholders to make certain
elections regarding their preference for receiving cash and CNC Stock in the
Merger. In planning which election to make, shareholders of Riverside 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.
47
<PAGE>
CONSTRUCTIVE OWNERSHIP. Under Section 318 of the Code, a shareholder of
Riverside will be deemed to own Riverside 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 Riverside 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 CNC, including a
former shareholder of Riverside after the Merger, will be deemed to own CNC
Stock that is owned or deemed to be owned as described in the preceding
sentence, including any CNC Stock received in exchange for Riverside 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 Riverside, 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 Riverside who receives cash in lieu
of a fractional share of CNC Stock will be treated as if that shareholder had
received the fractional share of CNC Stock in the Merger, and such fractional
share was then redeemed by CNC.
OTHER CONSIDERATIONS APPLICABLE TO SHAREHOLDERS OF RIVERSIDE. Shareholders
of Riverside 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. If a Riverside
shareholder is subject to backup withholding, tax will be withheld at the rate
of 31% on the cash consideration received by such shareholder in the Merger. Any
amount paid as backup withholding will be credited against the holder's federal
income tax liability. Riverside shareholders who receive CNC Stock must also
comply with the information reporting requirements of the Treasury regulations
under Section 368 of 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 Riverside who acquired shares of Riverside
Stock: (1) pursuant to the exercise of any incentive stock option that was
granted less than two years prior to the Effective Time; (2) pursuant to the
exercise of an incentive stock option that was exercised less than one year
prior to the Effective Time; or (3) in connection with the performance of
services where the shares of Riverside Stock continue to be subject to a
"substantial risk of forfeiture" (or are substantially non-vested), as of the
Effective Time. Such a shareholder of Riverside 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.
FEDERAL INCOME TAX TREATMENT OF DISSENTERS. Any shareholder of Riverside
who effectively dissents from the Merger (see "DISSENTERS' RIGHTS--Appraisal
Rights of Dissenting Shareholders," below) 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 actually owns CNC Stock or is deemed to own shares of Riverside Stock
or CNC 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, or
to own shares of CNC Stock, with the possible result that the cash received upon
the exercise of the dissenter's rights could be treated as a dividend received
pursuant to a corporate distribution rather than as an amount received pursuant
to a sale or exchange of Riverside Stock. See "Certain Federal Income Tax
Consequences-- Constructive Ownership."
48
<PAGE>
The foregoing discussion of the expected federal income tax consequences of
the Merger is based on the Code, Treasury regulations promulgated thereunder,
and applicable judicial and administrative authorities, all as in effect on the
date hereof. 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 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 CNC 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 of the Merger. Income of the
combined company will not include income (or loss) of Riverside prior to the
closing of the Merger. 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. All filing and other fees paid to the SEC
in connection with the issuance of CNC Stock in the Merger will be borne by CNC.
49
<PAGE>
MARKETS AND MARKET PRICES
The CNC Stock is listed on the NYSE under the symbol "CYN" and the Riverside
Stock is quoted on the Nasdaq National Market System under the symbol "RNRC."
The following table sets forth the high and low closing price per share of CNC
Stock, as reported on the NYSE Composite Tape, and the high and low closing
price per share of Riverside Stock, as reported on the Nasdaq National Market
System for each of the periods indicated.
<TABLE>
<CAPTION>
CNC STOCK RIVERSIDE STOCK
-------------------- --------------------
QUARTER ENDED HIGH LOW HIGH LOW
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
1994
March 31....................................... $ 9.25 $ 7.13 $ 6.75 $ 5.75
June 30........................................ 11.75 8.00 7.63 5.75
September 30................................... 12.13 9.88 8.75 7.00
December 31.................................... 11.63 8.25 8.50 6.75
1995
March 31....................................... 12.38 10.00 8.75 6.75
June 30........................................ 11.75 9.75 10.75 8.25
September 30................................... 15.38 11.25 13.75 9.63
December 31.................................... 14.25 12.63 13.88 13.00
1996
March 31....................................... 14.13 12.63 14.00 13.50
June 30........................................ 16.50 13.13 14.00 13.00
September 30................................... 19.00 14.63 14.38 12.13
December 31 (through December )..............
</TABLE>
The closing price per share of CNC Stock, as reported on the NYSE Composite
Tape, and the closing price per share of Riverside Stock, as reported on the
Nasdaq National Market System as of October 15, 1996, the last trading day
before the day on which the Merger Agreement was first publicly announced, and
on December , 1996 were as follows:
<TABLE>
<CAPTION>
CNC STOCK RIVERSIDE STOCK
----------- ---------------
<S> <C> <C>
October 15, 1996................................................. $ 17.75 $ 17.75
December , 1996................................................
</TABLE>
50
<PAGE>
SHAREHOLDINGS OF CERTAIN BENEFICIAL OWNERS
AND RIVERSIDE MANAGEMENT
The following table sets forth certain information regarding beneficial
ownership of Riverside Stock as of December , 1996, (i) by each person who is
known to Riverside to own beneficially more than five percent of the outstanding
shares of Riverside Stock, (ii) by each of Riverside's directors, (iii) by
Riverside's Chief Executive Officer and each of Riverside's three most highly
compensated executive officers who served as executive officers at December 31,
1995, and (iv) by all Riverside directors and executive officers as a group.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF PERCENT OF
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIAL OWNER(1) CLASS(2)
- ------------------------------------------------------------------------------ --------------------- -------------
<S> <C> <C>
PRINCIPAL SHAREHOLDERS
The Midwest Bank Fund II, L.P., Banc Fund III L.P., Bank Fund III Trust, Banc
Fund IV L.P. and Banc Fund IV Trust(3)...................................... 115,026 5.26%
DIRECTORS(4)
Maryann Archaumbault.......................................................... 42,332 1.94
George R. Freeman............................................................. 65,047 2.97
Dolores M. Magnuson........................................................... 86,686 3.96
James A. Robinson(5).......................................................... 120,000 5.49
Leon Sigerman(6).............................................................. 26,469 1.21
Everett L. Spriggs............................................................ 199,125 9.10
Jerome H. Thompson............................................................ 105,191 4.81
Roy E. Whitehead(7)........................................................... 90,000 4.11
EXECUTIVE OFFICERS(4)(8)
Richard Bissel................................................................ 2,600 0.12
Michael T. Vanderpool......................................................... 9,000 0.41
Bruce Wachtel................................................................. 11,400 0.52
ALL DIRECTORS AND EXECUTIVE OFFICERS AS A GROUP (11 PERSONS).................. 757,850 34.65%
</TABLE>
- ------------------------
(1) The number of shares for each of the directors, except Mr. Robinson, Mr.
Sigerman and Mr. Whitehead, includes 25,000 shares which each has the right
to acquire by exercise of options vested pursuant to Riverside's 1991 Stock
Option Plan.
(2) Based on 2,187,289 shares of Riverside Stock outstanding as of December ,
1996.
(3) On August 20, 1996 a Schedule 13D was filed reporting ownership of Riverside
Stock by the following entities: The Midwest Bank Fund II, L.P. (15,000),
Banc Fund III L.P. (19,163), Bank Fund III Trust (58,735), Banc Fund IV L.P.
(5,073) and Banc Fund IV Trust (17,055). Each of the above entities
disclaimed or did not affirm the existence of a group. The address for each
of the above entities is 208 S. LaSalle Street, Chicago, Illinois 60604.
(4) The address for each of the directors and executives officers is: c/o
Riverside National Bank, 3484 Central Avenue, Riverside, California 92506.
(5) Mr. Robinson is the beneficial owner of 45,000 shares as of December ,
1996. Mr. Robinson was granted options in 1992, 1993, 1994 and 1995 for an
aggregate of 150,000 shares, of which 75,000 are currently vested and can be
exercised.
(6) Mr. Sigerman has the right to acquire 15,000 shares through the exercise of
vested options under Riverside's 1991 Stock Option Plan.
(7) Mr. Whitehead beneficially owns 75,000 shares and has the right to acquire
15,000 shares through the exercise of vested options under Riverside's 1991
Stock Option Plan.
(8) The amount of shares for each of the non-director executive officers
consists entirely of shares which they have the right to acquire by exercise
of options vested pursuant to Riverside's Stock Option Plans.
51
<PAGE>
CERTAIN RELATED TRANSACTIONS
SHAREHOLDERS' AGREEMENT
In connection with the Merger Agreement, each of the directors of Riverside,
together holding an aggregate of 531,725 shares of Riverside Stock
(approximately 24.4% of the shares of Riverside Stock outstanding on the Record
Date), have entered into a Shareholders' Agreement with CNC dated as of October
15, 1996 (the "Shareholders' Agreement") attached hereto as Appendix B. Pursuant
to the Shareholders' Agreement, such persons have agreed to vote or cause to be
voted all shares of Riverside 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 their shares of Riverside Stock, except with the prior written consent of
CNC, against the following actions (other than the Merger and the transactions
contemplated by the Merger Agreement): (1) any extraordinary corporate
transactions, such as a merger, consolidation or other business combination
involving CNC or its subsidiaries; (2) any sale, lease or transfer of a material
amount of the assets of Riverside or its subsidiaries; (3) any change in the
majority of the board of Riverside (4) any material change in the present
capitalization of Riverside; (5) any amendment of the Articles of Association of
Riverside; (6) any other material change in Riverside's corporate structure or
business; or (7) 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 CNC of the Merger or the
transactions contemplated by the Merger Agreement or the Stock Option Agreement.
Such persons also have agreed not to enter into any agreement or understanding
with any person or entity prior to the Termination Date (as defined below) to
vote or give instructions after the Termination Date in any manner inconsistent
with such persons' obligation to vote in accordance with the above-referenced
guidelines. For the purposes of this paragraph, "Termination Date" means the
date that any obligation of such person under the Shareholders Agreement
terminates in accordance therewith.
Such persons also have agreed not to sell, transfer, assign or otherwise
dispose of any of their shares of Riverside Stock without the prior written
consent of CNC, other than shares of Riverside Stock sold or surrendered to pay
the exercise price of any stock options or to pay taxes or satisfy Riverside's
withholding obligations with respect to any taxes resulting from such exercise
or pledge, mortgage or encumber such shares of Riverside Stock.
In addition, such persons also have indicated that their current intention
is to maintain such persons' (including their affiliates') banking relationship
with City National for a period of at least three years after the Merger,
subject to certain exceptions.
CNC is considering the establishment of a City National Inland Empire Board
of Advisors, or a similar advisory and community liaison group, in order that
City National will be able to continue visibility in Riverside County and to
provide service to the community. City National's current intention is that one
or more former directors of Riverside initially serve on such Board of Advisors,
and each director has agreed to give due consideration to a request by CNC or
City National that he or she serve on such body.
STOCK OPTION AGREEMENT
GENERAL. Concurrently with the execution and delivery of the Merger
Agreement, and as a condition and inducement to CNC to enter into the Merger
Agreements, CNC and Riverside entered into the Stock Option Agreement, pursuant
to which Riverside granted CNC an option to purchase up to 421,778 shares of the
outstanding Riverside Stock (or such other number of shares of Riverside Stock
as shall represent 19.9% of the then outstanding Riverside Stock) at a price per
share of $14.50 (the "Option"). The consummation of a purchase or a repurchase
(as described below) pursuant to the Stock Option Agreement will be subject to,
among other things, obtaining any required regulatory approvals and compliance
with the preemptive rights of Riverside shareholders.
52
<PAGE>
The following is a summary of certain provisions of the Stock Option
Agreement which is attached hereto as Appendix C to this Proxy
Statement/Prospectus and is incorporated herein by reference. The following
summary is qualified in its entirety by reference to the Stock 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 Riverside or any of 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 Riverside or any of its subsidiaries; or
(3) the acquisition by any person or group of beneficial ownership of
20% or more of the then-outstanding shares of Riverside Stock;
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
Riverside if the Final CNC Stock Price is less than $13.50 and the number
obtained by dividing the Final CNC Stock Price by $17.75 is more than 15% less
than the number obtained by dividing the average Index Price during the
Determination Period by the Index Price on October 10, 1996 or (3) provided an
Exercise Event or certain preliminary acquisitions 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 June 30, 1997, or termination by CNC due to withdrawal
of the endorsement of the Merger Agreement by the Riverside 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. CNC may not realize Spread Value (as described
below) in excess of $2,000,000. In the event the Spread Value exceeds $2,000,000
upon the exercise of the Option, the number of shares which CNC 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 Section 11(b) of the Stock Option
Agreement, but is intended to approximate the excess of the market value of
Riverside Stock subject to the Option (based on the Nasdaq National Market
System closing price of Riverside Stock just prior to the date of exercise) over
the option exercise price of $14.50 per share of Riverside Stock.
ADJUSTMENT OF NUMBER OF SHARES. The number and type of securities subject
to the Options and the purchase price of the shares of Riverside Stock are
subject to adjustment upon any change in the Riverside Stock by reason of
dividend, stock split, recapitalization, combination, exchange of shares or
other similar transactions or events such that CNC 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 Riverside Stock subject to the Option will also be adjusted
in the event Riverside issues additional shares of Riverside Stock, such that
the number of shares of Riverside Stock subject to the option represents 19.9%
of Riverside's Stock then outstanding.
SUBSTITUTE OPTION. In the event of certain mergers or consolidations
involving Riverside or its subsidiaries or the sale or transfer of substantially
all of Riverside's assets, CNC has the right to cause the option to convert into
or be exchanged for a substitute option. This substitute option would be subject
to
53
<PAGE>
exercise by CNC and repurchase by the issuer at the request of CNC, at prices,
and subject to conditions, specified in the Stock Option Agreement.
REPURCHASE AT THE OPTION OF CNC. During the 12 month period following
specified "Repurchase Events," CNC has the right to require Riverside to
repurchase the option and, to the extent permitted by applicable law, all shares
of Riverside Stock purchased by CNC pursuant to a previous exercise of the
Option. A "Repurchase Event" under the Stock Option Agreement includes: (1) 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
Riverside Stock, (2) the consummation of a transaction causing a substitute
option to be issued, or (3) following an Exercise Event, the receipt by CNC 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 Stock Option Agreement as
the "Repurchase Consideration." Generally, the Repurchase Consideration equals
the sum of (1) the option price paid by CNC upon exercises of the Option, (2)
the excess of the Applicable Price over $14.50, multiplied by the number of
shares of Riverside Stock with respect to which the Option has not been
exercised or with respect to which the Option has been exercised but CNC still
has beneficial ownership of the shares of Riverside Stock, multiplied by the
number of all of such shares. The portion of the Repurchase Consideration in
excess of the exercise price paid by CNC is limited to $2,000,000.
Under the Stock Option Agreement, the "Applicable Price" generally refers to
the highest price per share of Riverside Stock (1) paid by another party in
certain Repurchase Events, (2) received by Riverside shareholders in any
transaction which caused a substitute option to be issued, or (3) in the market
during a specified period prior to CNC's exercise of its repurchase right. In
the event of a sale of less than all of Riverside's assets, "Applicable Price"
is defined with respect to market value of Riverside's remaining assets.
REGISTRATION RIGHTS. CNC has certain rights to require registration of any
shares of Riverside Stock purchased pursuant to the Stock Option Agreement under
the securities laws if necessary to enable CNC to sell such shares.
EFFECT OF STOCK OPTION AGREEMENT. The Stock 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 Stock 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 Riverside from considering or proposing such an acquisition, even if such
persons were prepared to offer higher consideration per share for Riverside
Stock than the consideration set forth in the Merger Agreement.
RESALE OF CNC STOCK
The shares of CNC 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 Riverside for purposes of
Rule 145 under the Securities Act as of the date of the Special Meeting.
Affiliates may not sell their shares of CNC 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 Riverside generally include individuals or entities that control, are
controlled by or are under common control with Riverside and may include certain
officers and directors of Riverside as well as principal shareholders of
Riverside.
Certain persons who Riverside believes to be affiliates of Riverside have
entered into an agreement providing that such persons will not sell, assign,
transfer or otherwise dispose of, or offer to sell, transfer or
54
<PAGE>
otherwise dispose of the CNC 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 CNC, is exempt from
registration under the Act. See "Certain Related Transactions--Shareholders'
Agreement."
VOTING AT THE SPECIAL MEETING AND RELATED MATTERS
The Board of Directors of Riverside has selected December 12, 1996 as the
Record Date for the determination of the stockholders of Riverside entitled to
notice of and to vote at the Special Meeting, including any postponements or
adjournments thereof. Only those holders of shares of Riverside Stock of record
at the close of business on the Record Date will be entitled to vote at the
Special Meeting. shares of Riverside Stock were issued and outstanding at
the close of business on the Record Date.
Riverside shareholders are entitled to one vote for each share of Riverside
Stock held of record by them on the Record Date. Votes may be cast in person or
by proxy.
The presence, in person or by proxy, of the holders of a majority of the
outstanding shares of Riverside Stock entitled to vote at the Special Meeting
will be necessary to constitute a quorum for the transaction of business at the
Special Meeting. Abstentions and broker non-votes will be treated as shares that
are present and entitled to vote for purposes of determining a quorum, but as
unvoted for purposes of determining the approval of any matter submitted for a
vote of the shareholders.
The affirmative vote of the holders of at least two-thirds of the total
number of outstanding shares of Riverside Stock entitled to vote at the Special
Meeting will be required to approve the Merger. Abstentions and broker non-votes
will have the same effect as a vote against the Merger. A majority of the shares
of Riverside Stock present at the Special Meeting, in person or by proxy,
whether or not constituting a quorum, may vote to, and the Riverside Board of
Directors in its discretion may, adjourn the Special Meeting from time to time
without further notice, including for the purpose of soliciting additional
proxies.
Proxies containing a vote against the Merger Agreement will not be used to vote
in favor of any such adjournment.
As of the Record Date, directors, executive officers and affiliates of such
directors and executive officers of Riverside beneficially owned an aggregate of
shares of Riverside Stock (not including shares issuable upon
exercise of stock options) or approximately % of the shares outstanding as
of the Record Date. All of Riverside's directors have agreed to vote their
approximately 531,725 shares (approximately 24.4% of the outstanding Riverside
Stock) in favor of the Merger Agreement and the Merger. See "CERTAIN RELATED
AGREEMENTS--Shareholder's Agreement."
Proxies in the accompanying form that are properly executed and returned to
Riverside will be voted at the Special Meeting in accordance with the
shareholders' instructions contained on such proxies and may be voted in the
discretion of the proxy holders named therein, on such other matters, if any, as
may properly come before the Special Meeting. If a shareholder returns a proxy
that is signed, dated and not marked, that shareholder will be deemed to have
voted FOR the Merger.
An executed proxy may be revoked at any time prior to its exercise by filing
an instrument revoking it or a duly executed proxy bearing a later date with the
Secretary of Riverside. In addition, the powers of the proxy holders will be
suspended if the person executing the proxy is present at the Special Meeting
and elects to vote in person. A revocation may be in any written form validly
signed by the record holder as long as it clearly states that the proxy
previously given is no longer effective. Shareholders whose shares of Riverside
Stock are not registered in their own name will need a proxy or other
appropriate documentation from the record holder of such shares to vote in
person at the Special Meeting.
The expenses related to this solicitation of proxies for the Special Meeting
will be borne by Riverside. Proxies will be solicited by mail and may also be
solicited by telephone or other means of communication.
55
<PAGE>
Officers and regular employees of Riverside may solicit proxies personally or by
telephone or other means of communication, but will not receive any special
compensation for such solicitation. In addition, Riverside has engaged Corporate
Investor Communications, Inc. to assist in the solicitation of proxies for a fee
of $3,500, plus reimbursement of reasonable expenses. Banks, trust companies,
brokerage firms and other custodians, nominees and fiduciaries will be
reimbursed for their reasonable expenses in forwarding these proxy materials to
their principals.
DISSENTERS' RIGHTS
Under Section 215a, Riverside shareholders who do not wish to accept the
Merger Consideration for their shares of Riverside Stock pursuant to the Merger
have the right to dissent from the Merger and to seek an appraisal of their
shares, provided that such shareholders comply with each of the relevant
provisions of Section 215a.
The following is intended as a brief summary of the material statutory
procedures to be followed by Riverside shareholders in order to dissent from the
Merger and perfect their appraisal rights under Section 215a. This summary is
not a complete statement of all applicable requirements and is qualified in its
entirety by reference to Section 215a, the full text of which is set forth in
Appendix D hereto. Failure to follow the steps required by Section 215a for
perfecting the appraisal rights provided for therein may result in the loss of
such rights. Shareholders who wish to dissent from the Merger and to pursue
their appraisal rights should consult their legal advisors.
Pursuant to Section 215a(b), any Riverside shareholder who desires to
exercise his or her appraisal rights must either: (1) vote against the Merger at
the Special Meeting, or (2) give notice in writing to the Corporate Secretary of
Riverside at Riverside National Bank, 3484 Central Avenue, Riverside, California
92506, at or prior to the Special Meeting that such shareholder dissents from
the Merger. Upon satisfying either of the two conditions above and complying
with the other procedures for the exercise of dissenters' rights set forth in
Section 215a, a shareholder will be entitled to receive the value of his or her
shares of Riverside Stock when the Merger is approved by the OCC upon written
request made to City National Corporation, at 400 North Roxbury Drive, Beverly
Hills, California 90210-5021. Attn: Richard H. Sheehan, Jr., Esq. at any time
before thirty days following consummation of the Merger. To be effective, any
such notice must be accompanied by the surrender of his or her stock
certificates representing the shares of Riverside Stock as to which appraisal
rights are sought. If a shareholder fails to comply with either of these
conditions and the Merger becomes effective, the shareholder will be entitled to
receive the Merger Consideration as provided for in the Merger Agreement but
will have no dissenters' rights with respect to his or her shares of Riverside
Stock.
Section 215a(c) provides that the value of the shares of dissenting
shareholders who comply with the above requirements is to be ascertained as of
the Effective Time of the Merger by an appraisal made by a committee of three
persons composed of: (1) one person selected by the majority of the shares owned
by all dissenting shareholders, (2) one person selected by the Board of
Directors of the "receiving association," which in the case of the Merger will
be deemed to be CNC, and (3) one person selected by the two appraisers selected
as provided above. The valuation agreed upon by any two of the foregoing three
appraisers will govern. If such valuation is not satisfactory to any dissenting
shareholder, such shareholder may appeal to the OCC within five days after being
notified of the appraised value so determined for such shareholder's shares. The
OCC is thereupon required under Section 215a(c) to cause a reappraisal to be
made of such shares, which reappraisal will be final and binding as to the value
of such shares.
If, within 90 days from the date of consummation of the Merger, one or more
of the appraisers has not been selected as described above for any reason, or
the appraisers fail to determine the value of such shares, the OCC must, upon
written request of any interested party, cause an appraisal to be made, and such
appraisal will be final and binding on all parties. The expenses of the OCC in
making the appraisal or reappraisal, as the case may be, are required to be paid
by the "receiving association." Unless CNC or the
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dissenting shareholders seek judicial review of the appraisal, the appraised
value of the shares must be promptly paid to the dissenting shareholders by CNC
out of the funds deposited in an escrow account established therefor.
Section 215a further provides that the stock of the "receiving association"
(CNC) which would have been delivered to dissenting shareholders had they not
requested payment pursuant to their dissenters' appraisal rights under Section
215a, must be sold at an advertised public auction. If such shares are sold at
the public auction at a price greater than the amount paid to the dissenting
shareholders, the excess of such sale price is required to be paid to the
dissenting shareholders. CNC would, under Section 215a be entitled to purchase
any of such shares at such public auction if it is the highest bidder therefor,
for the purpose of reselling such shares within 30 days thereafter to such
person or persons and at such price not less than the par value thereof as its
Board of Directors may determine.
In determining fair value, the OCC uses various methods to establish the
market value of the shares being appraised. Shareholders considering seeking
appraisal should be aware that the fair value of their shares as determined
under Section 215a could be the same as, less than or more than the Merger
Consideration that would be payable to them as provided for in the Merger
Agreement if they do not seek appraisal of their shares, and that investment
banking opinions as to fairness from a financial point of view, including the
Alex. Brown Opinion described in and attached to this Proxy
Statement/Prospectus, are not opinions as to fair value under Section 215a.
To be effective, a demand for appraisal of a Riverside shareholder's shares
must be made by or in the name of the registered holder of such shares, fully
and correctly, as the shareholder's name appears on his or her stock
certificate(s) and cannot be made by the beneficial owner of such shares if such
beneficial owner does not also hold the shares as the registered holder of
record. The beneficial owner must, in such cases, have the registered owner
submit the required demand in respect of such shares. Persons who hold their
shares of Riverside Stock in brokerage accounts or in other nominee forms and
who wish to exercise appraisal rights should therefore consult with their
brokers or such other nominees to determine the appropriate procedures for the
making of a demand for appraisal by such nominee.
If shares are owned of record in a fiduciary capacity, such as by a trustee,
guardian or custodian, execution of a demand for appraisal should be made in
such capacity. If the shares are owned of record by more than one person, as in
a joint tenancy or tenancy in common, the demand should be executed by or for
all joint owners. An authorized agent, including one for two or more joint
owners, may execute the demand for appraisal for a shareholder of record;
however the agent must identify the record owner or owners and expressly
disclose the fact that, in executing the demand, he or she is acting as agent
for the record owner. A record owner, such as a broker, who holds shares as
nominee for others, may exercise his or her right of appraisal with respect to
the shares held for one or more beneficial owners, while not exercising this
right for other beneficial owners. In such case, the written demand should state
the number of shares as to which appraisal is being sought. Where no number of
shares is expressly mentioned, the demand will be presumed to cover all shares
held in the name of such record owner.
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 General Corporation Law
("DGCL") and the CNC Certificate. For a more complete discussion of certain
rights associated with the CNC Stock, see "COMPARISON OF RIGHTS OF HOLDERS OF
CNC STOCK AND RIVERSIDE STOCK."
COMMON STOCK
CNC has 75,000,000 authorized shares of common stock, of which approximately
43,893,542 were issued and outstanding as of November 30, 1996 and an additional
3,576,914 shares were subject to stock
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options. Up to an additional 216,000 options to purchase CNC Stock may be issued
in connection with the Merger. CNC Stock is traded on the NYSE under the symbol
"CYN."
The holders of CNC Stock are entitled to one vote per share on all matters
requiring stockholder action. The CNC Certificate does not permit cumulative
voting for directors. The holders of CNC Stock have no preemptive or other
subscription rights and there are no redemption, sinking fund or conversion
privileges applicable thereto. The holders of CNC 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 CNC, holders of CNC Stock are entitled
to share ratably in all assets remaining after payment of liabilities. All
outstanding shares of CNC Stock are fully paid and nonassessable.
The registrar and transfer agent for the CNC Stock is Continental Stock
Transfer Trust Company.
PREFERRED STOCK
CNC has 5,000,000 authorized shares of preferred stock, of which none were
issued and outstanding as of November 30, 1996. The CNC 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 CNC'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 the CNC
Certificate 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 CNC.
SECTION 203 OF THE DELAWARE GENERAL CORPORATION LAW
Section 203 ("Section 203") of the DGCL 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 becomes 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 are also officers and 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) following the date on which such person became an Interested Stockholder,
the Business Combination is approved by the board of directors of the
corporation and 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 Interested Stockholder.
Under Section 203, the restrictions described above apply to CNC unless,
among other things, (1) by the affirmative vote of a majority of shares entitled
to vote, it adopts an amendment to the CNC Certificate or the CNC 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 CNC and any person who became an Interested
Stockholder on the date of such adoption); or (2) no class of CNC's voting stock
is (A) listed on a national securities exchange, (B) authorized for quotation on
an inter-dealer quotation system of a registered national securities association
or (C) held of record by more
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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).
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 or 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 CNC 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 CNC 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).
As permitted under the DGCL, the CNC Certificate provides that the CNC Board
of Directors shall consist of three classes of directors. The directors in each
class serve on the CNC Board of Directors for approximately three years each.
Notwithstanding the foregoing, the directors who currently serve in class one
will serve through the 1997 CNC shareholders' meeting, the directors who
currently serve in class two will serve through the 1998 CNC shareholders'
meeting and the directors who currently serve in class three will serve through
the 1999 CNC 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 the CNC Bylaws, a special meeting of stockholders may be called
only by the President of CNC or by a majority of the Board of Directors.
The CNC Certificate requires the approval of the holders of at least 70% of
the outstanding Common Stock of CNC for certain "Business Combinations" between
CNC 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 CNC 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 CNC'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 CNC 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
CNC, 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 CNC, 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
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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 Delaware law, a corporation's certificate of incorporation can be
amended by a majority of shares entitled to vote thereon, except as the
certificate of incorporation may otherwise provide or if the amendment relates
to provision requiring a greater vote. The foregoing provision contained in the
CNC Certificate 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 CNC Stock at a meeting called for such
purpose, excluding CNC Stock owned or controlled by a "Restricted Person" or its
affiliates.
The foregoing provisions of the CNC Certificate, the CNC 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
CNC Stock are treated fairly in a multi-step acquisition.
The provisions are intended to encourage persons seeking to acquire control
of CNC to initiate such an acquisition through arm's-length negotiations with
CNC'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 CNC, even though such an attempt might be beneficial to CNC and its
stockholders.
LIMITATION ON DIRECTOR'S LIABILITY
CNC has entered into indemnification agreements with certain officers and
directors of CNC which provide that CNC agrees to indemnify and hold harmless
such officer of director to the fullest extent permissible under the CNC
Certificate, its Bylaws and applicable law. The indemnification agreements
provide that rights granted thereunder cannot be eliminated or lessened by
amendment to the CNC Certificate or the CNC Bylaws.
In addition, the CNC Certificate and City National's Articles of Association
provide that, in the case of CNC, to the fullest extent permitted by the DGCL
and, in the case of City National, except as prohibited by rules of the OCC, a
director of CNC or City National shall not be liable to CNC or City National or
their respective stockholders for monetary damages for breach of fiduciary duty
as a director. The DGCL 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 dividend or unlawful stock purchase or
redemption or any transaction from which the director derived an improper
personal benefit.
COMPARISON OF RIGHTS OF HOLDERS OF RIVERSIDE STOCK AND CNC STOCK
If, pursuant to the terms of the Merger Agreement, a shareholder of
Riverside receives CNC Stock, such shareholder will become a stockholder of CNC.
Riverside is a national banking association regulated by the OCC and the rights
of holders of Riverside Stock derive from Riverside's Articles of Association
and Bylaws and from the National Bank Act. CNC is a Delaware corporation and the
rights of holders of CNC Stock derive from the CNC Certificate and the CNC
Bylaws and from the DGCL. Certain differences between the rights of holders of
shares of CNC Stock and shares of Riverside Stock are summarized below.
The following summary does not purport to be a complete statement of the
rights of Riverside shareholders and CNC stockholders. The summary is qualified
in its entirety by reference to the governing corporate instruments, including
the aforementioned instruments of Riverside and CNC and applicable law.
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PAYMENT OF DIVIDENDS
The DGCL provides that dividends may be paid either out of a corporation's
surplus (defined as the excess of the net assets of the corporation over the
stated capital of the corporation), or in the event that no surplus exists, out
of the net profits for the fiscal year in which the dividend is declared and/or
its net profits for the preceding fiscal year, subject to certain limitations
for the benefit of certain preference shares. The CNC Bylaws provide that the
Board of Directors may, in accordance with applicable law, declare dividends.
The ability of national banking associations, such as City National and
Riverside, to pay dividends is restricted by the National Bank Act. Under the
National Bank Act, dividends may be paid by an association out of an
association's undivided profits, except that until the surplus of an association
equals its common capital, no dividends may be declared unless there has been
carried to surplus not less than one-tenth of an association's net income for
the preceding half year in the case of quarterly and semiannual dividends, or
not less than one-tenth of an association's net income for the preceding two
consecutive half-year periods in the case of annual dividends. An association
must obtain the prior approval of the OCC if the total of all dividends declared
by an association in any calendar year exceeds the total of its net income of
such year combined with its retained total income for the preceding two years,
less any required transfers to surplus or a fund for the retirement of any
preferred stock.
SPECIAL MEETINGS OF STOCKHOLDERS
Under the DGCL, special meetings of the stockholders may be called by the
Board of Directors or such other persons as may be authorized by the certificate
of incorporation or bylaws. The CNC 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. Riverside's Bylaws
provide that special meetings may be called for any purpose at any time by the
Board of Directors or by any three or more shareholders owning, in the
aggregate, not less than 25% of the stock of Riverside.
NUMBER OF DIRECTORS
Under the DGCL, the number of directors is fixed by, or in the manner
provided in the bylaws, unless the certificate of incorporation fixes the number
of directors, in which case, a change in the number of directors can be made
only by an amendment to the certificate of incorporation. The CNC Certificate
provides that the CNC Board of Directors will consist of not less than five nor
more than fourteen directors and that the Board of Directors will determine by
resolution the actual number of directors. Currently CNC's Board of Directors
consists of eleven directors. The National Bank Act provides that the number of
directors of a national banking association shall not be less than five nor more
than twenty-five. Riverside's Bylaws fix the number of directors of Riverside at
nine. Currently, Riverside has eight directors.
RIGHTS OF STOCKHOLDERS TO DISSENT
Under the DGCL, 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; and further provided that no
appraisal rights are available to stockholders of the surviving corporation if
the merger did not require their approval. Notwithstanding the foregoing,
appraisal rights are available for such class or series if the holders thereof
receive in the merger or consolidation anything except: (A) shares of stock of
the corporation surviving or resulting from such merger or consolidation; (B)
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; (C) cash in lieu of fractional
shares; or (D) any combination of the foregoing. Dissenters' appraisal rights
under the National Bank Act are described in detail herein under "--Dissenting
Shareholders' Rights."
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INDEMNIFICATION
The CNC Bylaws provide for the indemnification of directors and officers to
the maximum extent permitted by the DGCL. Section 145 of the DGCL authorizes CNC
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. In addition, the CNC
Certificate provides that CNC shall eliminate the personal liability of its
directors to the fullest extent permitted by the DGCL, and CNC has entered into
indemnification agreements with certain of its directors providing for
additional indemnification.
Certain Federal Deposit Insurance Corporation ("FDIC") regulations prohibit
CNC 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 CNC 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 CNC for any indemnification payments
that become impermissible as a result of the final outcome of the action, other
than those for which CNC is reimbursed by insurance.
The Articles of Association of Riverside provide that any person may be
indemnified or reimbursed by Riverside, for any and all liability and reasonable
expenses including, but not limited to, counsel fees, disbursements, and amounts
paid in settlement or in satisfaction of judgments in connection with any
action, suit or proceeding, administrative or investigative, including any
appeal relating thereto, in which such person may be involved or threatened to
be involved as a party or otherwise by reason of such person being or having
been a director, officer or employee of Riverside or any person who served in
any capacity in any firm, corporation, or organization at the request of
Riverside; provided, however, that such person acted in good faith and for a
purpose which such person reasonably believed to be in the best interest of
Riverside or such other company, as the case may be; and, provided, further,
that no person shall be indemnified who has been adjudged guilty of or liable
for willful misconduct, gross negligence of duty or criminal acts.
Indemnification will be made by Riverside if (i) authorized by the Board of
Directors of Riverside acting as a quorum of directors who are not parties to
such action or proceeding upon a finding that the party to be indemnified has
met the preceding standard of conduct, or (ii) by the Board of Directors of
Riverside upon receipt of a written legal opinion of independent counsel, other
than regular counsel of Riverside, that the indemnification is proper under the
circumstances because the applicable standard of conduct has been met. The
termination of any claim, action, suit or proceeding, civil, administrative or
investigative, by judgment, settlement (whether with or without court approval),
will not create a presumption that a director, officer or employee has not met
the preceding standard of conduct.
CERTAIN VOTING RIGHTS WITH RESPECT TO MERGERS
Under the DGCL, 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 required a higher percentage)
of the outstanding shares of such corporation entitled to vote thereon. The CNC
Certificate does not require a higher percentage, except with respect to certain
"business combinations" with restricted persons as more particularly described
below. The National Bank Act requires the affirmative vote of at least
two-thirds of the outstanding capital stock of a national banking association to
approve a merger, consolidation or sale of substantially all of the assets of a
national banking association. Riverside's Articles of Association do not require
a higher percentage.
Notwithstanding the foregoing, the CNC Certificate requires the approval of
the holders of at least 70% of the outstanding shares of CNC Stock for certain
"business combinations" between CNC 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
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of CNC 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 CNC'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 CNC 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 CNC, 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 CNC, 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.
CUMULATIVE VOTING
The regulations of the OCC provide that a stockholder of a national banking
association may cumulate votes in the election of directors. The CNC Certificate
does not provide for cumulative voting.
PREEMPTIVE RIGHTS
The Riverside Articles of Association provide that holders of Riverside
Stock have preemptive rights in the event Riverside elects to issue additional
shares, except pursuant to options for shares granted to directors and
employees. The CNC Certificate does not provide for preemptive rights.
FILLING VACANCIES ON THE BOARD OF DIRECTORS
Under the DGCL (unless otherwise provided in the certificate 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 CNC Certificate nor the CNC
Bylaws provide otherwise. The National Bank Act provides that vacancies,
including those resulting from an increase in the number of directors, may be
filled by the shareholders, a majority of the board of directors remaining in
office, or, if the directors remaining in office constitute less than a quorum
by an affirmative vote of a majority of all the directors remaining in office.
SHAREHOLDER ACTION BY WRITTEN CONSENT
The DGCL provides that (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 CNC 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. Neither the National Bank Act nor Riverside's Articles of
Association or Bylaws provide for stockholder action by written consent.
AMENDMENT OF CERTIFICATE OF INCORPORATION AND ARTICLES OF ASSOCIATION
Under the DGCL, the CNC Certificate may be amended only if the amendment is
first proposed by the CNC Board of Directors and is thereafter approved by 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
provisions of the charter. Under the National Bank Act, Riverside's Articles of
Association may be amended if the amendment is approved by the holders of a
majority of the voting shares of stock of Riverside.
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AMENDMENT OF BYLAWS
Under the DGCL, the power to adopt, amend or repeal bylaws is vested solely
in the stockholders unless the certificate of incorporation confers the power to
adopt, amend or repeal bylaws upon the directors as well. The CNC Certificate
provides that the CNC Bylaws may be made, altered, amended or repealed by the
Board of Directors. Riverside's Bylaws provide that the Bylaws may be amended,
altered or repealed, at any properly called meeting of the Board of Directors,
by vote of the majority of Riverside's directors.
CLASSIFICATION OF BOARD OF DIRECTORS
Under the DGCL, CNC 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 CNC Certificate provides that the CNC
Board of Directors consists of three classes. The directors in each class serve
on the CNC Board of Directors for approximately three years each.
Notwithstanding the foregoing, the directors who currently serve in class one
will serve through the 1997 CNC shareholders' meeting, the directors who
currently serve in class two will serve through the 1998 CNC shareholders'
meeting and the directors who currently serve in class three will serve through
the 1999 CNC shareholders' meeting. Neither the National Bank Act nor
Riverside's Articles of Association or Bylaws provide for a classified board of
directors.
QUALIFICATION OF DIRECTORS
The National Bank Act provides that directors of a national banking
association must, among other qualifications, be a citizen of the United States
and must own shares of capital stock of the association the aggregate par value
of which is not less than $1,000. In addition, the Bylaws of Riverside provide
that a person is not eligible to be a director or nominee for director if such
person has defaulted in an obligation owing to Riverside or to any other
financial institution. Neither the DGCL nor the CNC Certificate or the CNC
Bylaws contain qualifications for directors.
VALIDITY OF CNC STOCK
Certain legal matters concerning the CNC Stock will be passed upon for CNC
by Richard H. Sheehan, Jr., Senior Vice President and General Counsel of CNC. As
of November 30, 1996, Mr. Sheehan owned beneficially, directly or indirectly,
approximately 2,000 shares of CNC Stock and owned options exercisable for 5,375
shares of such stock.
EXPERTS
The financial statements of Riverside incorporated by reference in this
Proxy Statement/Prospectus have been audited by McGladrey & Pullen LLP,
independent auditors, for the periods indicated in their report thereon which is
included in Riverside's Annual Report on Form 10-KSB for the year ended December
31, 1995. The financial statements audited by McGladrey & Pullen 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
McGladrey & Pullen 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 CNC 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.
64
<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
CNC, Riverside and Ventura as if the Merger and the Ventura 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 CNC, Riverside and Ventura for the nine
months ended September 30, 1996 and the year ended December 31, 1995 as if the
Merger and the Ventura 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, Riverside shareholders receiving CNC Stock will
receive for each share of Riverside Stock held by them that fraction of a share
(or number of shares) of CNC Stock equal to the Exchange Ratio. The Exchange
Ratio is determined by dividing $18.00 by the Final CNC Stock Price for
Riverside, provided in the event the Final CNC Stock Price is between $19.50 and
$22.50, the Exchange Ratio will be based upon a Final CNC Stock Price of $19.50
and, accordingly, will be fixed at .923 (the "High Range"). In the event the
Final CNC Stock Price is above $22.50, the Exchange Ratio is determined by
dividing $20.77 by the Final CNC Stock Price. In the event the Final CNC Stock
Price is less than $16.00, the Exchange Ratio will be based upon a Final CNC
Stock Price of $16.00 and, accordingly, will be fixed at 1.125. Riverside has
the right to terminate the Merger if the Final CNC Stock Price is less than
$13.50 and the number obtained by dividing the Final CNC Stock Price by $17.75
is more than 15% less than the number obtained by dividing the average Index
Price during the Determination Period by the Index Price on October 10, 1996
(the "Low Range"). The Exchange Ratio based on the average of the closing CNC
Stock prices on the twenty business days ending three business days before
September 30, 1996 was 1.03 (the "Medium Range"). Pursuant to the Merger
Agreement, not less than 48% of the aggregate number of issued and outstanding
shares of Riverside Stock as of the Effective Time will be converted into shares
of CNC Stock.
The Low Range Pro Forma Condensed Combined Financial Statements reflect the
purchase being completed at a Final CNC Stock Price of $13.50 and an Exchange
Ratio of 1.125. If the Final CNC Stock Price 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
CNC Stock and the lowest purchase price payable prior to Riverside having a
unilateral right to terminate the Merger Agreement.
The Medium Range Pro Forma Condensed Combined Financial Statements reflect
the purchase being completed at a Final CNC Stock Price of $17.475 and an
Exchange Ratio of 1.03.
At a Final CNC Stock Price above $19.50, the consideration received by
Riverside shareholders who receive CNC Stock and the purchase price continue to
increase to a maximum $22.50. If the Final CNC Stock Price is more than $22.50,
the Exchange Ratio will be determined by dividing $20.77 by the Final CNC Stock
Price. The High Range Pro Forma Condensed Combined Financial Statements reflect
the purchase being completed at a Final CNC Stock Price of $19.50 a share and an
Exchange Ratio of .923 which results in the lowest purchase price payable in the
High Range.
Under the Ventura Agreement, Ventura shareholders receiving CNC Stock will
receive for each share of Ventura common stock held by them, that fraction of a
share of CNC Stock equal to the Ventura Exchange Ratio. The Ventura Exchange
Ratio is determined by dividing $5.03 by the Final CNC Stock Price, provided in
the event the Final CNC Stock Price for Ventura is more than $19.10, the Ventura
Exchange Ratio will be based upon a Final CNC Stock Price for Ventura of $19.10
and, accordingly, will be fixed at .2634 (the "Ventura High Range") and in the
event the Final CNC Stock Price for Ventura is less
65
<PAGE>
than $15.65, the Ventura Exchange Ratio will be based upon a Final CNC Stock
Price for Ventura of $15.65 and, accordingly, will be fixed at .3214. Ventura
has the right to terminate the Ventura Merger if the Final CNC Stock Price is
less than $13.90 (the "Ventura Low Range"). The exchange ratio is based on the
average of the closing CNC Stock prices on the twenty business days ending three
business days before September 30, 1996 was 0.2878 (the "Ventura Medium Range").
Pursuant to the Ventura Agreement, 55% of the aggregate number of issued and
outstanding shares of Ventura common stock as of the effective time for the
Ventura Merger will be converted into shares of CNC Stock.
The Low Range Pro Forma Condensed Combined Financial Statements reflect the
purchase being completed at a Final CNC Stock Price for Ventura of $13.90 and a
Ventura Exchange Ratio of .3214. If the Final CNC Stock Price for Ventura was
below $13.90 per share, Ventura would have the right to terminate the Ventura
Agreement, without payment of consideration. Accordingly, this Ventura Low Range
scenario reflects the lowest consideration received by those Ventura
shareholders who receive CNC Stock and the lowest purchase price payable prior
to Ventura having a unilateral right to terminate the Ventura Agreement.
However, if the Ventura Board of Directors does not exercise its right to
terminate the Ventura Agreement in the event that the Final CNC 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 CNC Stock Price for Ventura of $17.475
and a Ventura Exchange Ratio of 0.2878.
At a Final CNC Stock Price for Ventura above $19.10, the consideration
received by Ventura shareholders who receive CNC 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 CNC Stock
Price for Ventura of $19.10 and a Ventura Exchange Ratio of .2634 which results
in the lowest purchase price payable within the Ventura 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 CNC 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 Riverside's and Ventura's assets and liabilities have been combined
with the recorded values of the assets and liabilities of CNC. 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 Riverside and Ventura
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 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 Ventura Merger been in
effect as of the date or for the periods presented. The unaudited pro forma
condensed financial statements of CNC, Riverside and Ventura should be read in
conjunction with the historical and other pro forma information, including the
respective notes thereto, which in the case of CNC, are incorporated by
reference in this Proxy Statement/Prospectus, and in the case of Riverside, are
attached to this Proxy Statement/Prospectus.
66
<PAGE>
LOW RANGE
PRO FORMA CONDENSED COMBINED BALANCE SHEET
SEPTEMBER 30, 1996
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
COMBINED
CNC RIVERSIDE PRO FORMA WITH
HISTORICAL HISTORICAL ADJUSTMENTS RIVERSIDE
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
ASSETS
Cash and due from banks................. $ 245,706 $ 24,622 $ (1,666) $ 268,262
(400)
Interest-bearing deposits in other
banks................................. 30,206 30,206
Federal funds sold and securities
purchased under resale agreements..... 80,000 17,000 (20,351) 68,626
(8,023)
Securities.............................. 853,682 29,799 883,481
Trading account securities.............. 23,026 23,026
Loans................................... 2,674,242 167,014 2,841,256
Less allowance for credit losses........ 128,589 2,640 131,229
------------ ------------ ------------ ------------
Net loans............................. 2,545,653 164,374 2,710,027
Premises and equipment, net............. 23,364 5,888 (400) 28,852
Customers' acceptance liability......... 3,654 3,654
Other real estate....................... 17,156 3,153 20,309
Deferred tax asset...................... 65,147 477 (5,202) 60,422
Goodwill................................ 8,941 8,941
Other intangible assets................. 11,764 387 12,300 24,451
Other assets............................ 47,197 2,658 49,855
------------ ------------ ------------ ------------
Total assets.......................... $ 3,946,555 $ 248,358 $ (14,801) $ 4,180,112
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
LIABILITIES
Demand deposits......................... $ 1,274,831 $ 70,422 $ 1,345,253
Interest bearing deposits............... 1,665,338 149,003 1,814,341
------------ ------------ ------------
Total deposits........................ 2,940,169 219,425 3,159,594
Federal funds purchased and securities
sold under repurchase agreements...... 203,051 203,051
Other short-term borrowings............. 328,632 4,073 332,705
Long-term debt.......................... 34,800 34,800
Other liabilities....................... 50,866 2,231 1,500 53,097
(1,500)
Acceptances outstanding................. 3,654 3,654
------------ ------------ ------------ ------------
Total liabilities..................... 3,561,172 225,729 -- 3,786,901
------------ ------------ ------------ ------------
SHAREHOLDERS' EQUITY
Preferred Stock......................... -- -- -- --
Common stock............................ 414,327 22,629 (22,391) 414,565
Treasury shares, at cost................ (28,944) 7,590 (21,354)
------------ ------------ ------------ ------------
Total shareholders' equity............ 385,383 22,629 (14,801) 393,211
------------ ------------ ------------ ------------
Total liabilities and shareholders'
equity.............................. $ 3,946,555 $ 248,358 $ (14,801) $ 4,180,112
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
<CAPTION>
COMBINED
WITH
VENTURA PRO FORMA VENTURA &
HISTORICAL ADJUSTMENTS RIVERSIDE
------------ ------------ ------------
<S> <C> <C> <C>
ASSETS
Cash and due from banks................. $ 10,588 $ (582) $ 277,668
(600)
Interest-bearing deposits in other
banks................................. 30,206
Federal funds sold and securities
purchased under resale agreements..... 27,950 (20,889) 75,687
Securities.............................. 56,679 940,160
Trading account securities.............. 23,026
Loans................................... 170,397 3,011,653
Less allowance for credit losses........ 4,950 136,179
------------ ------------ ------------
Net loans............................. 165,447 2,875,474
Premises and equipment, net............. 2,110 (500) 30,462
Customers' acceptance liability......... 3,654
Other real estate....................... 2,437 22,746
Deferred tax asset...................... 1,170 (7,149) 54,443
Goodwill................................ 8,232 17,173
Other intangible assets................. 14,400 41,351
2,500
Other assets............................ 5,339 55,194
------------ ------------ ------------
Total assets.......................... $ 271,720 $ (4,588) $ 4,447,244
------------ ------------ ------------
------------ ------------ ------------
LIABILITIES
Demand deposits......................... $ 73,256 $ 1,418,509
Interest bearing deposits............... 164,674 1,979,015
------------ ------------
Total deposits........................ 237,930 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....................... 4,445 4,400 59,623
(2,319)
Acceptances outstanding................. 3,654
------------ ------------ ------------
Total liabilities..................... 242,375 2,081 4,031,357
------------ ------------ ------------
SHAREHOLDERS' EQUITY
Preferred Stock......................... -- -- --
Common stock............................ 29,345 (28,023) 415,887
Treasury shares, at cost................ 21,354 0
------------ ------------ ------------
Total shareholders' equity............ 29,345 (6,669) 415,887
------------ ------------ ------------
Total liabilities and shareholders'
equity.............................. $ 271,720 $ (4,588) $ 4,447,244
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
See accompanying Notes to Unaudited Low Range Pro Forma Condensed Combined
Financial Statements.
67
<PAGE>
LOW RANGE
PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
COMBINED WITH
CNC RIVERSIDE PRO FORMA PRO FORMA VENTURA 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 $ 10,688 $ 175,717 $ 12,374 $ 188,091
Interest on federal funds sold
and securities purchased
under resale agreements...... 2,958 343 (1,183) 2,118 1,162 (871) 2,409
Interest on securities......... 39,238 1,658 40,896 2,432 43,328
Interest on trading account
securities................... 1,401 1,401 1.401
----------- ----------- ------------- ------------ ----------- ------------- --------------
Total........................ 208,626 12,689 (1,183) 220,132 15,968 (871) 235,229
----------- ----------- ------------- ------------ ----------- ------------- --------------
INTEREST EXPENSE:
Interest on deposits........... 40,409 3,800 44,209 4,827 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 51 9,239 9,239
Interest on long-term debt..... 1,439 1,439 1,439
----------- ----------- ------------- ------------ ----------- ------------- --------------
Total........................ 61,212 3,851 65,063 4,827 69,890
----------- ----------- ------------- ------------ ----------- ------------- --------------
NET INTEREST INCOME............ 147,414 8,838 (1,183) 155,069 11,141 (871) 165,339
PROVISION FOR CREDIT LOSSES.... 0 75 0 75 0 0 75
----------- ----------- ------------- ------------ ----------- ------------- --------------
Net interest income after
provision for credit
losses....................... 147,414 8,763 (1,183) 154,994 11,141 (871) 165,264
----------- ----------- ------------- ------------ ----------- ------------- --------------
NONINTEREST INCOME............... 32,695 1,704 34,399 1,775 36,174
NONINTEREST EXPENSE.............. 104,647 6,804 1,989 113,440 13,040 2,160 128,640
----------- ----------- ------------- ------------ ----------- ------------- --------------
Income before taxes.............. 75,462 3,663 (3,172) 75,953 (124) (3,031) 72,798
Income taxes..................... 25,794 1,431 (1,058) 26,167 (146) (1,021) 25,000
----------- ----------- ------------- ------------ ----------- ------------- --------------
NET INCOME....................... $ 49,668 $ 2,232 $ (2,114) $ 49,786 $ 22 $ (2,010) $ 47,798
----------- ----------- ------------- ------------ ----------- ------------- --------------
----------- ----------- ------------- ------------ ----------- ------------- --------------
NET INCOME PER SHARE............. $ 1.10 $ 1.09 $ 1.01
----------- ------------ --------------
----------- ------------ --------------
Shares (in thousands) used to
compute Net Income/Share....... 44,986 690 45,676 1,631 47,307
----------- ------------- ------------ ------------- --------------
----------- ------------- ------------ ------------- --------------
</TABLE>
See accompanying Notes to Unaudited Low Range Pro Forma Condensed Combined
Financial Statements.
68
<PAGE>
LOW RANGE
PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
CNC RIVERSIDE PRO FORMA PRO FORMA
HISTORICAL HISTORICAL ADJUSTMENTS COMBINED
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans............ $ 168,862 $ 13,354 $ 182,216
Interest on federal funds sold and
securities purchased under resale
agreements.......................... 7,013 572 (1,711) 5,874
Interest on securities................ 39,704 2,494 42,198
Interest on trading account
securities.......................... 2,015 2,015
------------ ------------ ------------ ------------
Total............................... 217,594 16,420 (1,711) 232,303
------------ ------------ ------------ ------------
INTEREST EXPENSE:
Interest on deposits.................. 32,039 4,905 36,944
Interest on federal funds purchased
and securities sold under repurchase
agreements.......................... 17,855 1 17,856
Interest on other short-term
borrowings.......................... 4,378 82 4,460
Interest on long-term debt............ 1,059 1,059
------------ ------------ ------------ ------------
Total............................... 55,331 4,988 60,319
------------ ------------ ------------ ------------
NET INTEREST INCOME................... 162,263 11,432 (1,711) 171,984
PROVISION FOR CREDIT LOSSES........... 0 180 0 180
------------ ------------ ------------ ------------
Net interest income after provision
for credit losses................... 162,263 11,252 (1,711) 171,804
------------ ------------ ------------ ------------
NONINTEREST INCOME...................... 34,566 2,870 37,436
NONINTEREST EXPENSE..................... 118,076 10,074 2,652 130,802
------------ ------------ ------------ ------------
Income before taxes..................... 78,753 4,048 (4,363) 78,438
Income taxes............................ 29,961 1,420 (1,407) 29,974
------------ ------------ ------------ ------------
NET INCOME.............................. $ 48,792 $ 2,628 $ (2,956) $ 48,464
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
NET INCOME PER SHARE.................... $ 1.06 $ 1.04
------------ ------------
------------ ------------
Shares (in thousands) used to compute
Net Income/Share...................... 45,886 690 46,576
------------ ------------ ------------
------------ ------------ ------------
<CAPTION>
PRO FORMA
COMBINED
WITH
VENTURA PRO FORMA VENTURA &
HISTORICAL ADJUSTMENTS RIVERSIDE
------------ ------------ ------------
<S> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans............ $ 16,375 $ 198,591
Interest on federal funds sold and
securities purchased under resale
agreements.......................... 1,816 (1,260) 6,430
Interest on securities................ 2,607 44,805
Interest on trading account
securities.......................... 2,015
------------ ------------ ------------
Total............................... 20,798 (1,260) 251,841
------------ ------------ ------------
INTEREST EXPENSE:
Interest on deposits.................. 6,357 43,301
Interest on federal funds purchased
and securities sold under repurchase
agreements.......................... 17,856
Interest on other short-term
borrowings.......................... 4 4,464
Interest on long-term debt............ 1,059
------------ ------------ ------------
Total............................... 6,361 66,680
------------ ------------ ------------
NET INTEREST INCOME................... 14,437 (1,260) 185,161
PROVISION FOR CREDIT LOSSES........... 410 0 590
------------ ------------ ------------
Net interest income after provision
for credit losses................... 14,027 (1,260) 184,571
------------ ------------ ------------
NONINTEREST INCOME...................... 2,246 39,682
NONINTEREST EXPENSE..................... 14,937 2,869 148,608
------------ ------------ ------------
Income before taxes..................... 1,336 (4,129) 75,645
Income taxes............................ (2,432) (1,403) 26,139
------------ ------------ ------------
NET INCOME.............................. $ 3,768 $ (2,726) $ 49,506
------------ ------------ ------------
------------ ------------ ------------
NET INCOME PER SHARE.................... $ 1.03
------------
------------
Shares (in thousands) used to compute
Net Income/Share...................... 1,631 48,207
------------ ------------
------------ ------------
</TABLE>
See accompanying Notes to Unaudited Low Range Pro Forma Condensed Combined
Financial Statements.
69
<PAGE>
NOTES TO THE UNAUDITED LOW RANGE PRO FORMA CONDENSED COMBINED FINANCIAL
STATEMENTS
RIVERSIDE BALANCE SHEET
Assuming a Final CNC Stock Price for Riverside 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 CNC 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 CNC Stock
Price for Riverside which is the average of the CNC 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 CNC Stock held as treasury stock as of September 30, 1996 and
the purchase of an additional 594,284 shares of CNC 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 Merger 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 $8,941,000 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................................................................. $ (2,066)
Core deposit intangibles............................................. 12,300
Fixed assets......................................................... (400)
Deferred taxes created by core deposit intangibles................... (5,202)
Shareholders' equity for option payment, net of tax.................. (959)
Remaining unallocated purchase price (Goodwill)...................... $ 8,941
</TABLE>
Included in the purchase price 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 $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 (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
period and 12-month periods beginning January 1, 1996 and January 1, 1995,
respectively.
70
<PAGE>
(b) Non-interest expense includes the amortization of core deposit
intangibles and goodwill for the nine-month period beginning January 1, 1996 of
$1,318,000 and $671,000, respectively and for the 12-month periods beginning
January 1, 1995 of $1,758,000 and $894,000, respectively.
(c) Additional income tax expense is computed using a 42.3% tax rate. The
tax attributes of Riverside will carry over to CNC including all assets and
liabilities and are recorded at amounts previously reflected, adjusted for
purchase price allocations.
(d) The pro forma combined net income per common share data are based on
(i) combined historical income of Riverside and CNC assuming the Merger and the
Ventura Merger are accounted for as a purchase and (ii) pro forma combined
equivalent of the Riverside Stock converted (as adjusted for an exchange ratio
of 1.125 of a share of CNC Stock for each share of Riverside Stock) and CNC
Stock as of September 30, 1996 and December 31, 1995.
VENTURA BALANCE SHEET
Assuming a Final CNC Stock Price for Ventura of $13.90, the total
consideration value paid to existing Ventura shareholders is $43,305,000, with
total cash consideration of $20,889,000 and the balance in CNC 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 CNC Stock
Price for Ventura which is the average of the CNC Stock closing price in the
twenty business day period ending three business days before the effective time
of the Ventura Merger. 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 CNC 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 $8,232,000 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)...................... $ 8,232
</TABLE>
Included in the purchase price is $600,000 in direct costs to be paid
immediately prior to the effective time of the Ventura Merger 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
71
<PAGE>
made immediately prior to the effective time of the Ventura Merger 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
period 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-month period beginning January 1, 1996 of
$1,543,000 and $617,000, respectively and for the 12-month period beginning
January 1, 1995 of $2,046,000 and $823,000, respectively.
(c) Additional income tax expense is computed using a 42.3% tax rate. The
tax attributes of Ventura will carry over to CNC including all assets and
liabilities and are recorded at amounts previously reflected, adjusted for
purchase price allocations.
72
<PAGE>
MEDIUM RANGE
PRO FORMA CONDENSED COMBINED BALANCE SHEET
SEPTEMBER 30, 1996
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
COMBINED
CNC RIVERSIDE PRO FORMA WITH
HISTORICAL HISTORICAL ADJUSTMENTS RIVERSIDE
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
ASSETS
Cash and due from banks................. $ 245,706 $ 24,622 $ (1,666) $ 268,262
(400)
Interest-bearing deposits in other
banks................................. 30,206 30,206
Federal funds sold and securities
purchased under resale agreements..... 80,000 17,000 (20,351) 70,973
(5,676)
Securities.............................. 853,682 29,799 883,481
Trading account securities.............. 23,026 23,026
Loans................................... 2,674,242 167,014 2,841,256
Less allowance for credit losses........ 128,589 2,640 131,229
------------ ------------ ------------ ------------
Net loans............................. 2,545,653 164,374 2,710,027
Premises and equipment, net............. 23,364 5,888 (400) 28,852
Customers' acceptance liability......... 3,654 3,654
Other real estate....................... 17,156 3,153 20,309
Deferred tax asset...................... 65,147 477 (5,202) 60,422
Goodwill................................ 11,876 11,876
Other intangible assets................. 11,764 387 12,300 24,451
Other assets............................ 47,197 2,658 49,855
------------ ------------ ------------ ------------
Total assets.......................... $ 3,946,555 $ 248,358 $ (9,519) $ 4,185,394
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
LIABILITIES
Demand deposits......................... $ 1,274,831 $ 70,422 $ 1,345,253
Interest bearing deposits............... 1,665,338 149,003 1,814,341
------------ ------------ ------------
Total deposits........................ 2,940,169 219,425 3,159,594
Federal funds purchased and securities
sold under repurchase agreements...... 203,051 203,051
Other short-term borrowings............. 328,632 4,073 332,705
Long-term debt.......................... 34,800 34,800
Other liabilities....................... 50,866 2,231 1,500 53,097
(1,500)
Acceptances outstanding................. 3,654 3,654
------------ ------------ ------------ ------------
Total liabilities..................... 3,561,172 225,729 -- 3,786,901
------------ ------------ ------------ ------------
SHAREHOLDERS' EQUITY
Preferred Stock......................... -- -- -- --
Common stock............................ 414,327 22,629 (19,339) 417,617
Treasury shares, at cost................ (28,944) 9,820 (19,124)
------------ ------------ ------------ ------------
Total shareholders' equity............ 385,383 22,629 (9,519) 398,493
------------ ------------ ------------ ------------
Total liabilities and shareholders'
equity................................ $ 3,946,555 $ 248,358 $ (9,519) $ 4,185,394
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
<CAPTION>
COMBINED
VENTURA PRO FORMA WITH VENTURA
HISTORICAL ADJUSTMENTS & RIVERSIDE
------------ ------------ ------------
<S> <C> <C> <C>
ASSETS
Cash and due from banks................. $ 10,588 $ (582) $ 277,668
(600)
Interest-bearing deposits in other
banks................................. 30,206
Federal funds sold and securities
purchased under resale agreements..... 27,950 (20,889) 78,034
Securities.............................. 56,679 940,160
Trading account securities.............. 23,026
Loans................................... 170,397 3,011,653
Less allowance for credit losses........ 4,950 136,179
------------ ------------ ------------
Net loans............................. 165,447 2,875,474
Premises and equipment, net............. 2,110 (500) 30,462
Customers' acceptance liability......... 3,654
Other real estate....................... 2,437 22,746
Deferred tax asset...................... 1,170 (7,149) 54,443
Goodwill................................ 11,087 22,963
Other intangible assets................. 14,400 41,351
2,500
Other assets............................ 5,339 55,194
------------ ------------ ------------
Total assets.......................... $ 271,720 $ (1,733) $ 4,455,381
------------ ------------ ------------
------------ ------------ ------------
LIABILITIES
Demand deposits......................... $ 73,256 $ 1,418,509
Interest bearing deposits............... 164,674 1,979,015
------------ ------------
Total deposits........................ 237,930 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....................... 4,445 4,400 59,623
(2,319)
Acceptances outstanding................. 3,654
------------ ------------ ------------
Total liabilities..................... 242,375 2,081 4,031,357
------------ ------------ ------------
SHAREHOLDERS' EQUITY
Preferred Stock......................... -- -- --
Common stock............................ 29,345 (22,938) 424,024
Treasury shares, at cost................ 19,124 0
------------ ------------ ------------
Total shareholders' equity............ 29,345 (3,814) 424,024
------------ ------------ ------------
Total liabilities and shareholders'
equity................................ $ 271,720 $ (1,733) $ 4,455,381
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
See accompanying Notes to Unaudited Medium Range Pro Forma Condensed Combined
Financial Statements.
73
<PAGE>
MEDIUM RANGE
PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
CNC RIVERSIDE PRO FORMA PRO FORMA
HISTORICAL HISTORICAL ADJUSTMENTS COMBINED
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Interest income:
Interest and fees on loans............ $ 165,029 $ 10,688 $ 175,717
Interest on federal funds sold and
securities purchased under resale
agreements.......................... 2,958 343 (1,085) 2,216
Interest on securities................ 39,238 1,658 40,896
Interest on trading account
securities.......................... 1,401 1,401
------------ ------------ ------------ ------------
Total............................... 208,626 12,689 (1,085) 220,230
------------ ------------ ------------ ------------
Interest expense:
Interest on deposits.................. 40,409 3,800 44,209
Interest on federal funds purchased
and securities sold under repurchase
agreements.......................... 10,176 10,176
Interest on other short-term
borrowings.......................... 9,188 51 9,239
Interest on long-term debt............ 1,439 1,439
------------ ------------ ------------ ------------
Total............................... 61,212 3,851 65,063
------------ ------------ ------------ ------------
Net interest income................... 147,414 8,838 (1,085) 155,167
Provision for credit losses........... 0 75 0 75
------------ ------------ ------------ ------------
Net interest income after provision
for credit losses................... 147,414 8,763 (1,085) 155,092
------------ ------------ ------------ ------------
Noninterest income...................... 32,695 1,704 34,399
Noninterest expense..................... 104,647 6,804 2,209 113,660
------------ ------------ ------------ ------------
Income before taxes..................... 75,462 3,663 (3,294) 75,831
Income taxes............................ 25,794 1,431 (1,017) 26,208
------------ ------------ ------------ ------------
Net income.............................. $ 49,668 $ 2,232 $ (2,277) $ 49,623
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Net income per share.................... $ 1.10 $ 1.08
------------ ------------
------------ ------------
Shares (in thousands) used to compute
Net Income/Share...................... 44,986 874 45,860
------------ ------------ ------------
------------ ------------ ------------
<CAPTION>
PRO FORMA
COMBINED
VENTURA PRO FORMA WITH VENTURA
HISTORICAL ADJUSTMENTS & RIVERSIDE
------------ ------------ ------------
<S> <C> <C> <C>
Interest income:
Interest and fees on loans............ $ 12,374 $ 188,091
Interest on federal funds sold and
securities purchased under resale
agreements.......................... 1,162 (871) 2,507
Interest on securities................ 2,432 43,328
Interest on trading account
securities.......................... 1,401
------------ ------------ ------------
Total............................... 15,968 (871) 235,327
------------ ------------ ------------
Interest expense:
Interest on deposits.................. 4,827 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............................... 4,827 69,890
------------ ------------ ------------
Net interest income................... 11,141 (871) 165,437
Provision for credit losses........... 0 0 75
------------ ------------ ------------
Net interest income after provision
for credit losses................... 11,141 (871) 165,362
------------ ------------ ------------
Noninterest income...................... 1,775 36,174
Noninterest expense..................... 13,040 2,375 129,075
------------ ------------ ------------
Income before taxes..................... (124) (3,246) 72,461
Income taxes............................ (146) (1,021) 25,041
------------ ------------ ------------
Net income.............................. $ 22 $ (2,225) $ 47,420
------------ ------------ ------------
------------ ------------ ------------
Net income per share.................... $ 1.00
------------
------------
Shares (in thousands) used to compute
Net Income/Share...................... 1,461 47,321
------------ ------------
------------ ------------
</TABLE>
See accompanying Notes to Unaudited Medium Range Pro Forma Condensed Combined
Financial Statements.
74
<PAGE>
MEDIUM RANGE
PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1995
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
CNC RIVERSIDE PRO FORMA PRO FORMA
HISTORICAL HISTORICAL ADJUSTMENTS COMBINED
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Interest income:
Interest and fees on loans............ $ 168,862 $ 13,354 $ 182,216
Interest on federal funds sold and
securities purchased under resale
agreements.......................... 7,013 572 (1,569) 6,016
Interest on securities................ 39,704 2,494 42,198
Interest on trading account
securities.......................... 2,015 2,015
------------ ------------ ------------ ------------
Total............................... 217,594 16,420 (1,569) 232,445
------------ ------------ ------------ ------------
Interest expense:
Interest on deposits.................. 32,039 4,905 36,944
Interest on federal funds purchased
and securities sold under repurchase
agreements.......................... 17,855 1 17,856
Interest on other short-term
borrowings.......................... 4,378 82 4,460
Interest on long-term debt............ 1,059 1,059
------------ ------------ ------------ ------------
Total............................... 55,331 4,988 60,319
------------ ------------ ------------ ------------
Net interest income................... 162,263 11,432 (1,569) 172,126
Provision for credit losses........... 0 180 0 180
------------ ------------ ------------ ------------
Net interest income after provision
for credit losses................... 162,263 11,252 (1,569) 171,946
------------ ------------ ------------ ------------
Noninterest income...................... 34,566 2,870 37,436
Noninterest expense..................... 118,076 10,074 2,946 131,096
------------ ------------ ------------ ------------
Income before taxes..................... 78,753 4,048 (4,515) 78,286
Income taxes............................ 29,961 1,420 (1,347) 30,034
------------ ------------ ------------ ------------
Net income.............................. $ 48,792 $ 2,628 $ (3,168) $ 48,252
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Net income per share.................... $ 1.06 $ 1.03
------------ ------------
------------ ------------
Shares (in thousands) used to compute
Net Income/Share...................... 45,886 874 46,760
------------ ------------ ------------
------------ ------------ ------------
<CAPTION>
PRO FORMA
COMBINED
VENTURA PRO FORMA WITH VENTURA
HISTORICAL ADJUSTMENTS & RIVERSIDE
------------ ------------ ------------
<S> <C> <C> <C>
Interest income:
Interest and fees on loans............ $ 16,375 $ 198,591
Interest on federal funds sold and
securities purchased under resale
agreements.......................... 1,816 (1,260) 6,572
Interest on securities................ 2,607 44,805
Interest on trading account
securities.......................... 2,015
------------ ------------ ------------
Total............................... 20,798 (1,260) 251,983
------------ ------------ ------------
Interest expense:
Interest on deposits.................. 6,357 43,301
Interest on federal funds purchased
and securities sold under repurchase
agreements.......................... 17,856
Interest on other short-term
borrowings.......................... 4 4,464
Interest on long-term debt............ 1,059
------------ ------------ ------------
Total............................... 6,361 66,680
------------ ------------ ------------
Net interest income................... 14,437 (1,260) 185,303
Provision for credit losses........... 410 0 590
------------ ------------ ------------
Net interest income after provision
for credit losses................... 14,027 (1,260) 184,713
------------ ------------ ------------
Noninterest income...................... 2,246 39,682
Noninterest expense..................... 14,937 3,155 149,188
------------ ------------ ------------
Income before taxes..................... 1,336 (4,415) 75,207
Income taxes............................ (2,432) (1,393) 26,209
------------ ------------ ------------
Net income.............................. $ 3,768 $ (3,022) $ 48,998
------------ ------------ ------------
------------ ------------ ------------
Net income per share.................... $ 1.02
------------
------------
Shares (in thousands) used to compute
Net Income/Share...................... 1,461 48,221
------------ ------------
------------ ------------
</TABLE>
See accompanying Notes to Unaudited Medium Range Pro Forma Condensed Combined
Financial Statements.
75
<PAGE>
NOTES TO THE UNAUDITED MEDIUM RANGE PRO FORMA CONDENSED COMBINED FINANCIAL
STATEMENTS
RIVERSIDE BALANCE SHEET
Assuming a Final CNC 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 CNC 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 CNC Stock
Price which is the average of the CNC Stock closing price in the twenty 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 comprised of the issuance of the remaining 750,199 shares
of CNC Stock held as treasury stock as of September 30, 1996 and the purchase of
an additional 324,809 shares of CNC 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 $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 $11,876,000 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........................................................................... $ (2,066)
Core deposit intangibles....................................................... 12,300
Fixed assets................................................................... (400)
Deferred taxes created by core deposit intangibles............................. (5,202)
Shareholders' equity for option payment, net of tax............................ (959)
Remaining unallocated purchase price (Goodwill)................................ $ 11,876
</TABLE>
Included in the purchase price 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 $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 (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 $1,596,000 for the nine-month
period and 12-month period beginning January 1, 1996 and January 1, 1995,
respectively.
76
<PAGE>
(b) Non-interest expense includes the amortization of core deposit
intangibles and goodwill for the nine-month period beginning January 1, 1996 of
$1,318,000 and $891,000, respectively and for the 12-month period beginning
January 1, 1995 of $1,758,000 and $1,188,000, respectively.
(c) Additional income tax expense is computed using a 42.3% tax rate. The
tax attributes of Riverside will carry over to CNC including all assets and
liabilities and are recorded at amounts previously reflected, adjusted for
purchase price allocations.
(d) The pro forma combined net income per common share data are based on (i)
combined historical income of Riverside and CNC assuming the Merger and the
Ventura Merger are accounted for as a purchase and (ii) pro forma combined
equivalent of the Riverside Stock converted (as adjusted for an exchange ratio
of 1.03 of a share of CNC Stock for each share of Riverside Stock) and CNC Stock
as of September 30, 1996 and December 31, 1995.
VENTURA BALANCE SHEET
Assuming a Final CNC 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 CNC 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 CNC Stock
Price for Ventura which is the average of the CNC Stock closing price in the
twenty business day period ending three business days before the effective time
of the Ventura Merger. 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 CNC 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 $11,087,000 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)................................. $ 11,087
</TABLE>
Included in the purchase price 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
77
<PAGE>
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
period and 12-month period beginning January 1, 1996 and January 1, 1995,
respectively.
(b) Non-interest expense includes the amortization of core deposits
intangibles and goodwill for the nine-month period beginning January 1, 1996 of
$1,543,000 and $832,000 respectively and for the 12-month period beginning
January 1, 1995 of $2,046,000 and $1,109,000 respectively.
(c) Additional income tax expense is computed using a 42.3% tax rate. The
tax attributes of Ventura will carry over to CNC including all assets and
liabilities and are recorded at amounts previously reflected, adjusted for
purchase price allocations.
78
<PAGE>
HIGH RANGE
PRO FORMA CONDENSED COMBINED BALANCE SHEET
SEPTEMBER 30, 1996
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
COMBINED
CNC RIVERSIDE PRO FORMA WITH
HISTORICAL HISTORICAL ADJUSTMENTS RIVERSIDE
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
ASSETS
Cash and due from banks................. $ 245,706 $ 24,622 $ (1,666) $ 268,262
(400)
Interest-bearing deposits in other
banks................................. 30,206 30,206
Federal funds sold and securities
purchased under resale agreements..... 80,000 17,000 (20,351) 74,916
(1,733)
Securities.............................. 853,682 29,799 883,481
Trading account securities.............. 23,026 23,026
Loans................................... 2,674,242 167,014 2,841,256
Less allowance for credit losses........ 128,589 2,640 131,229
------------ ------------ ------------ ------------
Net loans........................... 2,545,653 164,374 2,710,027
Premises and equipment, net............. 23,364 5,888 (400) 28,852
Customers' acceptance liability......... 3,654 3,654
Other real estate....................... 17,156 3,153 20,309
Deferred tax asset...................... 65,147 477 (5,202) 60,422
Goodwill................................ 11,876 11,876
Other intangible assets................. 11,764 387 12,300 24,451
Other assets............................ 47,197 2,658 49,855
------------ ------------ ------------ ------------
Total assets........................ $ 3,946,555 $ 248,358 $ (5,576) $ 4,189,337
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
LIABILITIES
Demand deposits......................... $ 1,274,831 $ 70,422 $ 1,345,253
Interest bearing deposits............... 1,665,338 149,003 1,814,341
------------ ------------ ------------
Total deposits...................... 2,940,169 219,425 3,159,594
Federal funds purchased and securities
sold under repurchase agreements...... 203,051 203,051
Other short-term borrowings............. 328,632 4,073 332,705
Long-term debt.......................... 34,800 34,800
Other liabilities....................... 50,866 2,231 1,500 53,097
(1,500)
Acceptances outstanding................. 3,654 3,654
------------ ------------ ------------ ------------
Total liabilities................... 3,561,172 225,729 -- 3,786,901
------------ ------------ ------------ ------------
SHAREHOLDERS' EQUITY
Preferred stock......................... -- -- -- --
Common stock............................ 414,327 22,629 (17,023) 419,933
Treasury shares, at cost................ (28,944) 11,447 (17,497)
------------ ------------ ------------ ------------
Total shareholders' equity.......... 385,383 22,629 (5,576) 402,436
------------ ------------ ------------ ------------
Total liabilities and shareholders'
equity............................ $ 3,946,555 $ 248,358 $ (5,576) $ 4,189,337
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
<CAPTION>
COMBINED
VENTURA PRO FORMA WITH VENTURA
HISTORICAL ADJUSTMENTS & RIVERSIDE
------------ ------------ ------------
<S> <C> <C> <C>
ASSETS
Cash and due from banks................. $ 10,588 $ (582) $ 277,668
(600)
Interest-bearing deposits in other
banks................................. 30,206
Federal funds sold and securities
purchased under resale agreements..... 27,950 (20,889) 81,977
Securities.............................. 56,679 940,160
Trading account securities.............. 23,026
Loans................................... 170,397 3,011,653
Less allowance for credit losses........ 4,950 136,179
------------ ------------ ------------
Net loans........................... 165,447 2,875,474
Premises and equipment, net............. 2,110 (500) 30,462
Customers' acceptance liability......... 3,654
Other real estate....................... 2,437 22,746
Deferred tax asset...................... 1,170 (7,149) 54,443
Goodwill................................ 11,087 22,963
Other intangible assets................. 14,400 41,351
2,500
Other assets............................ 5,339 55,194
------------ ------------ ------------
Total assets........................ $ 271,720 $ (1,733) $ 4,459,324
------------ ------------ ------------
------------ ------------ ------------
LIABILITIES
Demand deposits......................... $ 73,256 $ 1,418,509
Interest bearing deposits............... 164,674 1,979,015
------------ ------------
Total deposits...................... 237,930 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....................... 4,445 4,400 59,623
(2,319)
Acceptances outstanding................. 3,654
------------ ------------ ------------
Total liabilities................... 242,375 2,081 4,031,357
------------ ------------ ------------
SHAREHOLDERS' EQUITY
Preferred stock......................... -- -- --
Common stock............................ 29,345 (21,311) 427,967
Treasury shares, at cost................ 17,497 0
------------ ------------ ------------
Total shareholders' equity.......... 29,345 (3,814) 427,967
------------ ------------ ------------
Total liabilities and shareholders'
equity............................ $ 271,720 $ (1,733) $ 4,459,324
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
See accompanying Notes to Unaudited High Range Pro Forma Condensed Combined
Financial Statements.
79
<PAGE>
HIGH RANGE
PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
CNC RIVERSIDE PRO FORMA PRO FORMA
HISTORICAL HISTORICAL ADJUSTMENTS COMBINED
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans............ $ 165,029 $ 10,688 $ 175,717
Interest on federal funds sold and
securities purchased under resale
agreements.......................... 2,958 343 (921) 2,380
Interest on securities................ 39,238 1,658 40,896
Interest on trading account
securities.......................... 1,401 1,401
------------ ------------ ------------ ------------
Total............................... 208,626 12,689 (921) 220,394
------------ ------------ ------------ ------------
INTEREST EXPENSE:
Interest on deposits.................. 40,409 3,800 44,209
Interest on federal funds purchased
and securities sold under repurchase
agreements.......................... 10,176 10,176
Interest on other short-term
borrowings.......................... 9,188 51 9,239
Interest on long-term debt............ 1,439 1,439
------------ ------------ ------------ ------------
Total............................... 61,212 3,851 65,063
------------ ------------ ------------ ------------
NET INTEREST INCOME................... 147,414 8,838 (921) 155,331
PROVISION FOR CREDIT LOSSES........... 0 75 0 75
------------ ------------ ------------ ------------
Net interest income after provision
for credit losses................... 147,414 8,763 (921) 155,256
------------ ------------ ------------ ------------
NONINTEREST INCOME...................... 32,695 1,704 34,399
NONINTEREST EXPENSE..................... 104,647 6,804 2,209 113,660
------------ ------------ ------------ ------------
Income before taxes..................... 75,462 3,663 (3,130) 75,995
Income taxes benefit.................... 25,794 1,431 (947) 26,278
------------ ------------ ------------ ------------
NET INCOME.............................. $ 49,668 $ 2,232 $ (2,183) $ 49,717
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
NET INCOME PER SHARE.................... $ 1.10 $ 1.08
------------ ------------
------------ ------------
Shares (in thousands) used to compute
Net Income/Share...................... 44,986 985 45,971
------------ ------------ ------------
------------ ------------ ------------
<CAPTION>
PRO FORMA
COMBINED
VENTURA PRO FORMA WITH VENTURA
HISTORICAL ADJUSTMENTS & RIVERSIDE
------------ ------------ ------------
<S> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans............ $ 12,374 $ 188,091
Interest on federal funds sold and
securities purchased under resale
agreements.......................... 1,162 (871) 2,671
Interest on securities................ 2,432 43,328
Interest on trading account
securities.......................... 1,401
------------ ------------ ------------
Total............................... 15,968 (871) 235,491
------------ ------------ ------------
INTEREST EXPENSE:
Interest on deposits.................. 4,827 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............................... 4,827 69,890
------------ ------------ ------------
NET INTEREST INCOME................... 11,141 (871) 165,601
PROVISION FOR CREDIT LOSSES........... 0 0 75
------------ ------------ ------------
Net interest income after provision
for credit losses................... 11,141 (871) 165,526
------------ ------------ ------------
NONINTEREST INCOME...................... 1,775 36,174
NONINTEREST EXPENSE..................... 13,040 2,375 129,075
------------ ------------ ------------
Income before taxes..................... (124) (3,246) 72,625
Income taxes benefit.................... (146) (1,021) 25,111
------------ ------------ ------------
NET INCOME.............................. $ 22 $ (2,225) $ 47,514
------------ ------------ ------------
------------ ------------ ------------
NET INCOME PER SHARE.................... $ 1.00
------------
------------
Shares (in thousands) used to compute
Net Income/Share...................... 1,337 47,308
------------ ------------
------------ ------------
</TABLE>
See accompanying Notes to Unaudited High Range Pro Forma Condensed Combined
Financial Statements.
80
<PAGE>
HIGH RANGE
PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1995
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
CNC RIVERSIDE PRO FORMA PRO FORMA
HISTORICAL HISTORICAL ADJUSTMENTS COMBINED
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Interest income:
Interest and fees on loans............ $ 168,862 $ 13,354 $ 182,216
Interest on federal funds sold and
securities purchased under resale
agreements.......................... 7,013 572 $ (1,332) 6,253
Interest on securities................ 39,704 2,494 42,198
Interest on trading account
securities.......................... 2,015 2,015
------------ ------------ ------------ ------------
Total............................... 217,594 16,420 (1,332) 232,682
------------ ------------ ------------ ------------
Interest expense:
Interest on deposits.................. 32,039 4,905 36,944
Interest on federal funds purchased
and securities sold under repurchase
agreements.......................... 17,855 1 17,856
Interest on other short-term
borrowings.......................... 4,378 82 4,460
Interest on long-term debt............ 1,059 1,059
------------ ------------ ------------ ------------
Total............................... 55,331 4,988 60,319
------------ ------------ ------------ ------------
Net interest income................... 162,263 11,432 (1,332) 172,363
Provision for credit losses........... 0 180 0 180
------------ ------------ ------------ ------------
Net interest income after provision
for credit losses................... 162,263 11,252 (1,332) 172,183
------------ ------------ ------------ ------------
Noninterest income...................... 34,566 2,870 37,436
Noninterest expense..................... 118,076 10,074 2,946 131,096
------------ ------------ ------------ ------------
Income before taxes..................... 78,753 4,048 (4,278) 78,523
Income taxes............................ 29,961 1,420 (1,247) 30,134
------------ ------------ ------------ ------------
Net income.............................. $ 48,792 $ 2,628 $ (3,031) $ 48,389
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Net income per share.................... $ 1.06 $ 1.03
------------ ------------
------------ ------------
Shares (in thousands) used to compute
Net Income/Share...................... 45,886 985 46,871
------------ ------------ ------------
------------ ------------ ------------
<CAPTION>
PRO FORMA
COMBINED
VENTURA PRO FORMA WITH VENTURA
HISTORICAL ADJUSTMENTS & RIVERSIDE
------------ ------------ ------------
<S> <C> <C> <C>
Interest income:
Interest and fees on loans............ $ 16,375 $ 198,591
Interest on federal funds sold and
securities purchased under resale
agreements.......................... 1,816 $ (1,260) 6,809
Interest on securities................ 2,607 44,805
Interest on trading account
securities.......................... 2,015
------------ ------------ ------------
Total............................... 20,798 (1,260) 252,220
------------ ------------ ------------
Interest expense:
Interest on deposits.................. 6,357 43,301
Interest on federal funds purchased
and securities sold under repurchase
agreements.......................... 17,856
Interest on other short-term
borrowings.......................... 4 4,464
Interest on long-term debt............ 1,059
------------ ------------ ------------
Total............................... 6,361 66,680
------------ ------------ ------------
Net interest income................... 14,437 (1,260) 185,540
Provision for credit losses........... 410 0 590
------------ ------------ ------------
Net interest income after provision
for credit losses................... 14,027 (1,260) 184,950
------------ ------------ ------------
Noninterest income...................... 2,246 39,682
Noninterest expense..................... 14,937 3,155 149,188
------------ ------------ ------------
Income before taxes..................... 1,336 (4,415) 75,444
Income taxes............................ (2,432) (1,393) 26,309
------------ ------------ ------------
Net income.............................. $ 3,768 $ (3,022) $ 49,135
------------ ------------ ------------
------------ ------------ ------------
Net income per share.................... $ 1.02
------------
------------
Shares (in thousands) used to compute
Net Income/Share...................... 1,337 48,208
------------ ------------
------------ ------------
</TABLE>
See accompanying Notes to Unaudited High Range Pro Forma Condensed Combined
Financial Statements.
81
<PAGE>
NOTES TO THE UNAUDITED HIGH RANGE PRO FORMA CONDENSED COMBINED FINANCIAL
STATEMENTS
RIVERSIDE BALANCE SHEET
Assuming a Final CNC Common 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 CNC 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 CNC Stock
Price which is the average of the CNC Stock closing price in the twenty 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 comprised of the issuance of the remaining 874,498 shares
of CNC Stock held as treasury stock as of September 30, 1996 and the purchase of
an additional 88,874 shares of CNC 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 $11,876,000 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............................................................................ $ (2,066)
Core deposit intangibles........................................................ 12,300
Fixed assets.................................................................... (400)
Deferred taxes created by core deposit intangibles.............................. (5,202)
Shareholders' equity for option payment, net of tax............................. (959)
Remaining unallocated purchase price (Goodwill)................................. $ 11,876
</TABLE>
Included in the purchase price 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 $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 (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
period and 12-month period beginning January 1, 1996 and January 1, 1995,
respectively.
82
<PAGE>
(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 $891,000, respectively and for the 12-month period beginning
January 1, 1995 of $1,758,000 and $1,188,000, respectively.
(c) Additional income tax expense is computed using a 42.3% tax rate. The
tax attributes of Riverside will carry over to CNC including all assets and
liabilities and are recorded at amounts previously reflected, adjusted for
purchase price allocations.
(d) The pro forma combined net income per common share data are based on (i)
combined historical income of Riverside and CNC assuming the Merger and the
Ventura Merger are accounted for as a purchase and (ii) pro forma combined
equivalent of the Riverside Stock converted (as adjusted for an exchange ratio
of 0.923 of a share of CNC Stock for each share of Riverside Stock) and CNC
Stock as of September 30, 1996 and December 31, 1995.
VENTURA BALANCE SHEET
Assuming a Final CNC 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 CNC 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 CNC Stock
Price for Ventura which is the average of the CNC Stock closing price in the
twenty business day period ending three business days before the effective time
of the Ventura Merger. 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 CNC 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 $11,087,000 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)................................. $ 11,087
</TABLE>
Included in the purchase price is $600,000 in direct costs to be paid
immediately prior to the effective time of the Ventura Merger 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
83
<PAGE>
made immediately prior to the effective time of the Ventura Merger 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
period 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-month period beginning January 1, 1996 of
$1,543,000 and $832,000 respectively and for the 12-month period beginning
January 1, 1995 of $2,046,000 and $1,109,000 respectively.
(c) Additional income tax expense is computed using a 42.3% tax rate. The
tax attributes of Ventura will carry over to CNC including all assets and
liabilities and are recorded at amounts previously reflected, adjusted for
purchase price allocations.
84
<PAGE>
APPENDIX A
AGREEMENT AND PLAN OF MERGER
BETWEEN
CITY NATIONAL CORPORATION
CITY NATIONAL BANK
AND
RIVERSIDE NATIONAL BANK
OCTOBER 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-2
1.3 Effective Time............................................................................................ A-2
1.4 Effects of the Merger..................................................................................... 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
(a) Common Stock of CNC................................................................................. A-2
(b) Common Stock of RNB................................................................................. A-2
(c) Dissenting Common Stock............................................................................. A-2
(d) Cancellation of Certain Shares...................................................................... A-2
2.2 Conversion of RNB Common Stock............................................................................ A-2
2.3 Election and Proration Procedures......................................................................... A-3
(a) Election Forms and Types of Elections............................................................... A-3
(b) Proper and Timely Election.......................................................................... A-4
(c) Definitions......................................................................................... A-4
(d) Allocation of Aggregate Merger Consideration Among RNB Shareholders................................. A-5
(e) Calculations........................................................................................ A-7
(f) No Fractional Shares................................................................................ A-7
2.4 Stock Options............................................................................................. A-7
2.5 Adjustments for Dilution and Other Matters................................................................ A-8
2.6 Conversion of Dissenting Common Stock..................................................................... A-8
ARTICLE III EXCHANGE OF SHARES...................................................................................... A-9
3.1 Exchange Procedures....................................................................................... A-9
(a) Exchange Agent...................................................................................... A-9
(b) Exchange of Certificates and Cash................................................................... A-9
(c) Affiliates.......................................................................................... A-9
3.2 Voting and Dividends...................................................................................... A-9
3.3 No Liability.............................................................................................. A-10
3.4 Withholding Rights........................................................................................ A-10
ARTICLE IV CONDUCT PENDING THE MERGER............................................................................... A-10
4.1 Conduct of RNB's Business Prior to the Effective Time..................................................... A-10
4.2 Forbearance by RNB and its Subsidiaries................................................................... A-11
4.3 Timeliness of CNC's Consent............................................................................... A-13
4.4 Conduct by CNC and CNB Prior to the Effective Time........................................................ A-13
ARTICLE V REPRESENTATIONS AND WARRANTIES............................................................................ A-14
5.1 Representations and Warranties of RNB..................................................................... A-14
(a) RNB Capital Stock................................................................................... A-14
(b) Authority........................................................................................... A-14
(c) Subsidiaries........................................................................................ A-14
(d) Approvals........................................................................................... A-14
(e) No Violations....................................................................................... A-15
(f) Community Reinvestment Act.......................................................................... A-15
(g) Reports............................................................................................. A-15
(h) Financial Statements................................................................................ A-15
</TABLE>
A-i
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C> <C>
(i) Absence of Certain Changes or Events................................................................ A-16
(j) Taxes............................................................................................... A-16
(k) Absence of Claims; Litigation....................................................................... A-16
(l) Regulatory Actions.................................................................................. A-16
(m) Certain Agreements.................................................................................. A-17
(n) Labor Matters....................................................................................... A-17
(o) Employee Benefit Plans.............................................................................. A-17
(p) Insider Loans; Other Transactions................................................................... A-18
(q) Title to Assets..................................................................................... A-18
(r) Knowledge as to Conditions.......................................................................... A-18
(s) Compliance with Laws................................................................................ A-18
(t) Fees................................................................................................ A-19
(u) Environmental....................................................................................... A-19
(v) Allowance for Possible Loan Losses.................................................................. A-20
(w) Performance of Obligations.......................................................................... A-20
(x) Insurance........................................................................................... A-21
(y) Listing of Loans.................................................................................... A-21
(z) Derivative Transactions............................................................................. A-21
(aa) Trust Administration................................................................................ A-21
(bb) Contingent Liabilities.............................................................................. A-21
(cc) Statements True and Correct......................................................................... A-21
(dd) Additional Tax Representation....................................................................... A-22
5.2 Representations and Warranties of CNC and CNB............................................................. A-22
(a) CNC Capital Stock................................................................................... A-22
(b) CNB Capital Stock................................................................................... A-23
(c) Authority........................................................................................... A-23
(d) Approvals........................................................................................... A-23
(e) No Violations....................................................................................... A-23
(f) Financial Statements................................................................................ A-24
(g) Absence of Certain Changes or Events................................................................ A-24
(h) Absence of Claims; Litigation....................................................................... A-24
(i) Regulatory Actions.................................................................................. A-24
(j) Knowledge as to Conditions.......................................................................... A-24
(k) Compliance with Laws................................................................................ A-24
(l) Fees................................................................................................ A-25
(m) Community Reinvestment Act.......................................................................... A-25
(n) Statements True and Correct......................................................................... A-25
(o) Tax Representation.................................................................................. A-25
(p) CNC Common Stock.................................................................................... A-26
ARTICLE VI COVENANTS................................................................................................ A-26
6.1 Regulatory Matters........................................................................................ A-26
6.2 Stockholders' Approvals................................................................................... A-27
6.3 Legal Conditions to Merger................................................................................ A-27
6.4 Information............................................................................................... A-27
(a) CNC's Right to Access and Information............................................................... A-27
(b) RNB's Right to Access and Information............................................................... A-28
(c) Customer Calls...................................................................................... A-28
(d) Confidentiality..................................................................................... A-28
6.5 Employee Benefits......................................................................................... A-28
</TABLE>
A-ii
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C> <C>
6.6 Certain Filings, Consents and Arrangements................................................................ A-29
6.7 Timeliness and Compliance of RNB Reports and Filings...................................................... A-29
6.8 Timeliness and Compliance of CNC and CNB Reports and Filings.............................................. A-29
6.9 Additional Agreements; Parties............................................................................ A-29
6.10 Publicity................................................................................................. A-29
6.11 Notification of Certain Matters........................................................................... A-30
6.12 Pre-Closing Adjustments................................................................................... A-30
6.13 Director Resignations..................................................................................... A-30
6.14 Human Resources Issues.................................................................................... A-30
6.15 Assistance with Third-Party Agreements.................................................................... A-30
6.16 Notices and Communications................................................................................ A-31
6.17 Insurance Policies Assignment............................................................................. A-32
6.18 Additional Agreements; Officers and Directors............................................................. A-32
6.19 Affiliates and Five Percent Shareholders.................................................................. A-32
6.20 Cooperation............................................................................................... A-32
6.21 Indemnification of Directors and Officers................................................................. A-32
6.22 Shareholders' Agreement................................................................................... A-32
6.23 Coordination of Dividends................................................................................. A-33
6.24 Sale of Certain Securities................................................................................ A-33
6.25 Vacation Time and Accrual................................................................................. A-33
ARTICLE VII CONDITIONS TO CONSUMMATION.............................................................................. A-33
7.1 Conditions to Each Party's Obligations.................................................................... A-33
7.2 Conditions to Obligations of CNC and CNB.................................................................. A-34
7.3 Conditions To Obligations of RNB.......................................................................... A-35
ARTICLE VIII TERMINATION............................................................................................ A-36
8.1 Termination............................................................................................... A-36
8.2 Effect of Termination..................................................................................... A-37
ARTICLE IX OTHER MATTERS............................................................................................ A-37
9.1 Certain Definitions; Interpretations...................................................................... A-37
9.2 Non-Survival of Representations, Warranties and Covenants................................................. A-38
9.3 Waiver and Modification................................................................................... A-38
9.4 Counterparts.............................................................................................. A-39
9.5 Governing Law, Jurisdiction and Venue..................................................................... A-39
9.6 Notices................................................................................................... A-39
9.7 Entire Agreement.......................................................................................... A-40
9.8 Binding Effect; Assignment................................................................................ A-40
9.9 Severability.............................................................................................. A-40
9.10 No Third Party Beneficiaries.............................................................................. A-40
9.11 Specific Performance...................................................................................... A-40
9.12 Expenses.................................................................................................. A-40
</TABLE>
A-iii
<PAGE>
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER, dated as of the 15th day of October, 1996
(the "AGREEMENT"), by and between City National Corporation, a Delaware
corporation ("CNC"), City National Bank, a national banking association formed
pursuant to the laws of the United States ("CNB"), and Riverside National Bank,
a national banking association formed pursuant to the laws of the United States
("RNB"), is entered into with reference to the following:
A. CNC is a bank holding company 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"); and CNB and RNB are national banking associations
subject to primary regulation by the Office of the Comptroller of the
Currency ("OCC");
B. The Boards of Directors of CNC, CNB and RNB 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 RNB will be merged
into CNB and that CNB will be the surviving association in the Merger;
D. As a condition and inducement to CNC and CNB's willingness to enter
into this Agreement, RNB 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 and substantially in the form of
Exhibit A hereto, pursuant to which RNB shall grant to CNC an option to
purchase shares of the common stock, $1.25 par value per share, of RNB (the
"RNB 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 hereto that CNC and CNB by reason of this Agreement
shall not, until consummation of the Merger, control, and shall not be
deemed to control, RNB or any of its Subsidiaries (as defined in Section
9.1), directly or indirectly, and shall not exercise or be deemed to
exercise, directly or indirectly, a controlling influence over the
management or policies of RNB 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,
RNB will merge with and into CNB, with CNB being the surviving corporation
(hereinafter sometimes called the "SURVIVING BANK"), pursuant to the provisions
of, and with the effect provided in, all applicable banking laws of the United
States and shall continue its corporate existence under the laws of the United
States. The name of the Surviving Bank shall be "CITY NATIONAL BANK."
A-1
<PAGE>
SECTION 1.2 CLOSING. The closing of the Merger (the "CLOSING") will take
place as of 6:00 P.M. Pacific time, on the first Friday (unless such date is a
holiday, in which case it will be the preceding Business Day (as defined in
Section 9.1)) that is both (a) after satisfaction or waiver 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 OCC 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) RNB shall be merged with and into CNB and the
separate corporate existence of RNB shall cease, (ii) the Articles of
Association of CNB as in effect immediately prior to the Effective Time shall be
the Articles of Association of Surviving Bank, and (iii) the Bylaws of CNB as in
effect immediately prior to the Effective Time shall be the Bylaws of Surviving
Bank.
(b) At and after the Effective Time, the Merger will have the effects set
forth in the applicable federal banking laws.
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 RNB, CNC and CNB:
(a) COMMON STOCK OF CNC. Each share of the 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 CNC Common Stock, and shall not be affected by the
Merger;
(b) COMMON STOCK OF RNB. Each share of RNB Common Stock issued and
outstanding immediately prior to the Effective Time, shall be converted into
the right to receive CNC Common Stock and/or cash as provided in Section
2.2(a);
(c) DISSENTING COMMON STOCK. Each share of RNB Common Stock that is a
dissenting share pursuant to the provisions of Section 215a of the National
Bank Act ("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 Common Stock, at
which time such shares shall be converted into cash and/or CNC Common Stock
pursuant to Section 2.6 hereof. The purchase of Dissenting Common Stock, if
any, shall be made pursuant to the provisions of Section 215a of the
National Bank Act.
(d) CANCELLATION OF CERTAIN SHARES. Any shares of RNB Common Stock
held by CNC (or any of its wholly owned Subsidiaries) or RNB (or any of its
wholly owned Subsidiaries), other than those held in a 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 RNB COMMON STOCK.
(a) Subject to the other provisions of this Article II, each share of RNB
Common Stock issued and outstanding immediately prior to the Effective Time
(other than Dissenting Common Stock and Common
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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 share and/or fraction of a share of CNC Common Stock per share of
RNB Common Stock equal to the quotient (such quotient, the "EXCHANGE RATIO")
of (A) $18.00, divided by (B) 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 and
including the third trading day immediately prior to the Effective Time
(such average, the "FINAL CNC STOCK PRICE" and such period, the
"DETERMINATION PERIOD"); provided, that in the event that the Final CNC
Stock Price shall be more than $19.50 but equal to or less than $22.50 (the
"INTERIM CEILING PRICE"), the Exchange Ratio shall be 0.923, and in the
event that the Final CNC Stock Price shall be less than $16.00 ("FLOOR
PRICE"), the Exchange Ratio shall be 1.125; and provided further, that in
the event that the Final CNC Stock Price shall be more than $22.50, the
Exchange Ratio shall be $20.77 divided by the Final CNC Stock Price; or
(ii) cash in the amount of $18.00 per share of RNB Common Stock (such
amount, the "PER SHARE CASH CONSIDERATION"); or
(iii) a combination of CNC Common Stock and cash in the per share
amounts set forth in Subsections 2.2(a)(i) and (a)(ii) above;
(b) At the Effective Time, the stock transfer books of RNB shall be closed
as to holders of RNB Common Stock immediately prior to the Effective Time and no
transfer of RNB 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 RNB
Common Stock represented thereby was converted in the Merger, plus payment for
any fractional share of CNC Common Stock that the holder of such certificates
would have otherwise been entitled to receive as a result of such conversion.
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 RNB Common Stock shall pass, only upon proper
delivery of such certificates to an exchange agent selected by CNC and
reasonably acceptable to RNB (the "EXCHANGE AGENT")) in such form as CNC and RNB
shall mutually agree ("ELECTION FORM") shall be mailed no less than 35 days
prior to the anticipated Effective Time or on such other date as RNB and CNC
shall mutually agree ("MAILING DATE") to each holder of record of RNB 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, as defined in
Section 9.1) of RNB Common Stock after the Election Form Record Date and prior
to the Election Deadline (as defined below), and RNB 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 RNB Common Stock, (ii)
cash (a "CASH ELECTION") with respect to all of such holder's RNB Common Stock,
or (iii) a specified number of shares of RNB Common Stock to receive CNC Common
Stock (a "COMBINATION STOCK ELECTION") and a specified number of shares of RNB
Common Stock to receive cash (a "COMBINATION CASH ELECTION"). Any RNB 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. Pacific Time on or before the 30th day
following the Mailing Date, or such other time and date as CNC and RNB may
mutually agree (the "ELECTION DEADLINE"). An Election Form shall be deemed
properly completed only if an Election is indicated for each share of RNB 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 RNB 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 RNB 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 RNB 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 RNB
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) DEFINITIONS. For purposes of this Section 2.3, the following
definitions shall apply:
(i) "TOTAL CONSIDERATION" shall mean the sum of (A) the product of (1)
the Final CNC Stock Price and (2) the number of shares of CNC Common Stock
actually issued to holders of RNB Common Stock in the Merger, (B) the amount
of cash actually issued to holders of RNB Common Stock in the Merger
pursuant to Cash Elections and Combination Cash Elections, (C) the amount of
cash actually issued to holders of RNB Common Stock in the Merger in lieu of
fractional shares of CNC Common Stock, and (D) an amount equal to the number
of shares of Dissenting Common Stock as to which the holder's demand to
exercise dissenter's rights shall not have been withdrawn as of the
Effective Time multiplied by the greater of (1) the product of the Exchange
Ratio and the Final CNC Stock Price and (2) the Per Share Cash
Consideration.
(ii) "MINIMUM STOCK AMOUNT" shall mean the lowest whole number of
Eligible CNC Shares which, if multiplied by the Final CNC Stock Price,
results in a dollar amount at least equal to 48 percent of the Total
Consideration.
(iii) "MAXIMUM STOCK AMOUNT" shall mean the excess of (A) the number
of shares of CNC Common Stock that would be issuable under the terms hereof
for 60 percent of the Total Consideration, based on the Exchange Ratio, over
(B) the number of Substitute Options granted.
(iv) "ELIGIBLE CNC SHARES" shall mean all shares of CNC Common Stock
to be issued in the Merger other than shares of CNC Common Stock issued (A)
to any holder of five percent or more of the total outstanding shares of RNB
Common Stock who does not provide to the Exchange Agent a representation in
the form set forth in Exhibit B hereof, or as to which the management of RNB
is unable as of the Effective Time to make the representation set forth in
Section 5.1(dd)(ii), (B) to any holder of less than five percent of the
total outstanding shares of RNB Common Stock as to which the management of
RNB is unable as of the Effective Time to make the representation set forth
in Section 5.1(dd)(ii) hereto, or (C) with respect to any shares of RNB
Common Stock which were obtained by the holder thereof upon the exercise of
Employee Options or Director Options if such exercise shall have occurred
subsequent to August 2, 1996 for directors and October 15, 1996 for other
employees.
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(d) ALLOCATION OF AGGREGATE MERGER CONSIDERATION AMONG RNB
SHAREHOLDERS. As promptly as practicable but not later than two business days
after the Effective Time, CNC and CNB shall cause the Exchange Agent to effect
the allocation among the holders of RNB Common Stock of rights to receive CNC
Common Stock or cash in the Merger as follows:
(i) If the product of (A) the aggregate number of shares of RNB Common
Stock for which Stock Elections and Combination Stock Elections shall have
effectively been made, and (B) the Exchange Ratio, exceeds the Maximum Stock
Amount, then, to the extent necessary so that the number of shares of CNC
Common Stock to be issued in the Merger shall be not greater than the
Maximum Stock Amount and the number of Eligible CNC Shares to be issued in
the Merger shall be at least equal to the Minimum Stock Amount, the Exchange
Agent shall make the following allocations and adjustments in the following
order:
(1) shares of RNB Common Stock for which Cash Elections or
Combination Cash Elections have been made and all Undesignated Shares
shall be converted into the right to receive cash in an amount equal to
the Per Share Cash Consideration;
(2) the Exchange Agent shall select by random selection (as described
in subsection (v) of this Section 2.3(d)), first from among the holders
of RNB Common Stock for which Stock Elections or Combination Stock
Elections have been made which, if converted into shares of CNC Common
Stock, would not constitute Eligible CNC Shares, and second (if
necessary) from among the holders of the remaining shares of RNB Common
Stock for which Stock Elections and Combination Stock Elections have been
made shares that shall be designated as "Cash Designated Shares," and all
such Cash Designated Shares shall be converted into the right to receive
cash in an amount equal to the Per Share Cash Consideration; provided
that no particular holder of RNB Common Stock for which Stock Elections
or Combination Stock Elections have been made shall be deemed to hold
Cash Designated Shares if such designation would prevent the satisfaction
of any of the conditions set forth in Article VII hereof; and
(3) Any shares of RNB Common Stock for which Stock Elections or
Combination Stock Elections have been made which are not Cash Designated
Shares after completion of the foregoing selection process shall be
converted into the right to receive a number of shares of CNC Common
Stock determined by multiplying the number of such shares of RNB Common
Stock by the Exchange Ratio.
(ii) If the conversion of the shares of RNB Common Stock for which Stock
Elections and Combination Stock Elections shall have effectively been made
(based upon the Exchange Ratio), would not result in a number of Eligible
CNC Shares being issued that is at least equal to the Minimum Stock Amount
(which shall be determined for this purpose on the assumption that all
shares of RNB Common Stock other than those for which Stock Elections or
Combination Stock Elections have been made would be entitled to receive the
Per Share Cash Consideration), then, to the extent necessary so that the
number of Eligible CNC Shares to be issued in the Merger shall be at least
equal to the Minimum Stock Amount, the Exchange Agent shall make the
following allocations and adjustments in the following order:
(1) all shares of RNB Common Stock for which Stock Elections and
Combination Stock Elections have been made shall be converted into the
right to receive shares of CNC Common Stock; provided, however, that to
the extent that the issuance of shares of CNC Common Stock that would not
qualify as Eligible CNC Shares to holders of RNB Common Stock pursuant to
such elections would cause the total number of shares of CNC Common Stock
issued in the Merger to exceed the Maximum Stock Amount, such holders
shall instead be deemed to have made Cash Elections and shall be entitled
to receive the Per Share Cash Consideration for such shares of RNB Common
Stock;
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(2) the Exchange Agent shall select, by random selection (as
described in subsection (v) of this Section 2.3(d)), first from among the
holders of Undesignated Shares and then (if necessary) from among holders
of Cash Election Shares and Combination Cash Election Shares a sufficient
number of such shares ("STOCK DESIGNATED SHARES") until the number of
Eligible CNC Shares that will be issued in the Merger upon the conversion
of such Stock Designated Shares equals the Minimum Stock Amount, and all
Stock Designated Shares shall be converted into the right to receive CNC
Common Stock based on the Exchange Ratio; provided, that no particular
holder of Undesignated Shares, Cash Election Shares or Combination Cash
Election Shares who holds Stock Designated Shares shall be deemed to hold
Stock Designated Shares if such designation would prevent the
satisfaction of any of the conditions set forth in Article VII hereof;
and
(3) After completion of the foregoing selection process, the
Undesignated Shares and Cash Election Shares not treated as Stock
Designated Shares shall be converted into the right to receive the Per
Share Cash Consideration.
(iii) If the product of (A) the aggregate number of shares of RNB Common
Stock for which Stock Elections and Combination Stock Elections shall have
effectively been made, and (B) the Exchange Ratio, does not exceed the
Maximum Stock Amount, and the conversion of such shares of RNB Common Stock
would result in a number of Eligible CNC Shares being issued that is at
least equal to the Minimum Stock Amount (which shall be determined for this
purpose on the assumption that all shares of RNB Common Stock other than
those for which Stock Elections or Combination Stock Elections have been
made would be entitled to receive the Per Share Cash Consideration),
(1) the shares of RNB Common Stock for which Stock Elections and
Combination Stock Elections have been made shall be converted into the
right to receive CNC Common Stock;
(2) the shares of RNB Common Stock for which Cash Elections and
Combination Cash Elections have been made shall be converted into the
right to receive the Per Share Cash Consideration; and
(3) the Undesignated Shares shall be converted into the right to
receive CNC Common Stock or cash (based on the Exchange Ratio or the Per
Share Cash Consideration, as the case may be), in the discretion of CNC,
subject to the requirement of subsection (iv) of this Section 2.3(d).
(iv) Notwithstanding any other provision of this Agreement, if, after
applying the allocation rules set forth in the preceding subsections of this
Section 2.3(d), the aggregate value of the Eligible CNC Shares that would be
issued pursuant to the Merger (valued at the Final CNC Stock Price) is less
than 48 percent of the Total Consideration, RNB and CNC shall be authorized
to reallocate shares of CNC Common Stock and cash among the holders of the
RNB Common Stock, or to vary the number of shares of CNC Common Stock to be
issued in the Merger, in a manner such that the number of Eligible CNC
Shares to be issued in the Merger shall be not less than the Minimum Stock
Amount.
(v) The random selection process referred to in subsections (i) and (ii)
of this Section 2.3(d) shall consist of such selection processes as CNC and
RNB shall determine, after consultation with the Exchange Agent, to be fair
to the holders of RNB Common Stock (by giving each such holder an equal
likelihood of being selected) and practicable to implement, and may include
a process under which share lots comprising a fixed number of shares that
may be less than all of an individual holder's shares may be selected,
provided that such process is applied on a uniform basis.
(vi) Notwithstanding any other provision of this Agreement (other than
Section 2.3(d)(iv) hereof), if any share of Dissenting Common Stock loses
its status as Dissenting Common Stock pursuant to Section 215a of the
National Bank Act, then, as of the later of the Effective Time or the
occurrence of such loss of status, such share of Dissenting Common Stock
shall
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automatically be converted into and represent the right to receive the
consideration for such shares provided in this Agreement, without interest
thereon. The consideration payable for any such shares of Dissenting Common
Stock shall be payable in cash, in shares of CNC Common Stock, or in such
combination of cash and CNC Common Stock as shall be determined by CNC as
being necessary or appropriate to preserve the status of the Merger as a
"reorganization" within the meaning of section 368(a) of the Code.
(e) CALCULATIONS. The calculations required by Subsection 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 RNB
for its review and approval at least 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. The number of shares of CNC Common Stock to be issued as consideration in
the Merger shall be deemed to be in compliance with the Maximum Stock Amount
limitations set forth in this Section 2.3 if such number is an amount issuable
(based on the Exchange Ratio) in exchange for not more than 10,000 shares of RNB
Common Stock of the Maximum Stock Amount.
(f) NO FRACTIONAL SHARES. Notwithstanding any other provisions of this
Agreement, each holder of shares of RNB 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. 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. At least 30 days prior to the anticipated
Effective Time, CNC shall notify each employee of RNB whether such employee is
or is not being offered employment with CNB following the Effective Time.
Options granted to employees and directors of RNB (each such option a "RNB
OPTION") pursuant to the 1987 Stock Option Plan, the 1991 Stock Option Plan and
the 1994 Stock Option Plan (collectively the "OPTION PLANS") shall be treated as
follows:
(a) For RNB Options held by each RNB employee not offered a position
with CNB following the Merger, and for each RNB option that vests prior to
the Effective Time solely as a result of the Change In Control (as defined
in the option plan or agreement relevant to such RNB Option), RNB shall take
appropriate action such that each RNB Option held by such persons that is
outstanding and unexercised at the Effective Time (whether or not such RNB
Option has then vested) shall be cancelled by RNB in consideration of the
payment by RNB to each holder of such RNB Options of an aggregate amount in
cash equal to the positive difference, if any, between (i) the Per Share
Cash Consideration amount multiplied by the number of shares of RNB Common
Stock as to which such holder has RNB Options, and (ii) the aggregate
exercise price of such RNB Options. At the Effective Time, each RNB Option
shall terminate and be of no further force or effect, and any rights
thereunder to purchase shares of RNB Common Stock or CNC Common Stock shall
also terminate and be of no further force or effect; and
(b) Subject to the limitations contained herein, each RNB employee
offered employment with CNB following the Merger and each non-employee RNB
director at the Effective Time who holds RNB Options will be entitled to
elect, on a form to be distributed to each such employee no later than 20
days prior to the anticipated Effective Time, which form must be returned to
CNC no later than 10 days prior to the anticipated Effective Time, to: (i)
receive cash under the same terms as described in Subsection (a) above; or
(ii) in exchange for terminating such RNB Option, receive a fully vested
option (a "SUBSTITUTE OPTION") to purchase CNC Common Stock. The aggregate
number of shares of CNC Common Stock represented by Substitute Options shall
not exceed 216,000, of which 166,000 shares shall be initially reserved for
RNB employees offered employment by CNB following the
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Merger, and 50,000 shares shall be initially reserved for non-employee
directors of RNB, and shall not cause CNC to exceed the Maximum Stock
Amount. If the persons in either group do not elect to receive the maximum
number of Substitute Options initially allocated to such group, persons in
the other group shall be permitted (on a pro rata basis) to elect to receive
the unused Substitute Options in exchange for any unexchanged RNB Options
held by them. To the extent that persons in either group elect to receive
more than the maximum number of Substitute Options allocated to such group,
or otherwise available to such group as provided herein, the persons in that
group shall be deemed to have elected, with respect to the excess over the
maximum allocation, to receive (on a pro rata basis) cash pursuant to
Section 2.4(a) above, in order to ensure that the group as a whole does not
receive more than its allocated and available share of Substitute Options.
(c) The number of shares of CNC Common Stock subject to each Substitute
Option shall be equal to the number of shares of RNB Common Stock subject to
the related RNB Option immediately prior to the Effective Time, multiplied
by the Exchange Ratio; and the per share exercise price under each such
Substitute Option shall be determined by dividing the per share exercise
price under the related RNB Option by the Exchange Ratio and rounding down
to the nearest cent; provided, however, that the number of shares or other
securities, property or cash for which each such Substitute Option is
exercisable and/or the exercise price of each such Substitute Option shall,
in accordance with its terms, be subject to further adjustment as
appropriate to reflect any stock split, stock dividend, recapitalization or
other similar transaction subsequent to the Effective Time. Substitute
Options shall have a term of one year in the case of such options issued to
non-employee directors of RNB and a term of three years in the case of such
options issued to RNB employees, and shall otherwise contain terms and
conditions substantially identical to options issued to CNC or CNB employees
pursuant to CNC's option plan.
SECTION 2.5 ADJUSTMENTS FOR DILUTION AND OTHER MATTERS. If, prior to the
Effective Time, (a) RNB shall declare a stock dividend or distribution on the
RNB Common Stock, or subdivide, split up, reclassify or combine the RNB Common
Stock, or declare a dividend, or make a distribution, on the RNB Common Stock,
in any security convertible into RNB Common Stock (provided that no such action
may be taken by RNB 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, as mutually agreed by CNC and RNB, shall be made to
the Exchange Ratio, the Final CNC Stock Price, the Interim Ceiling Price and the
Floor Price.
SECTION 2.6 CONVERSION OF DISSENTING COMMON STOCK.
(a) RNB shall give CNC prompt notice upon receipt by RNB of any written
demands for appraisal rights, withdrawal of such demands, and any other
documents received or instruments served relating to Dissenting Common Stock and
shall give CNC the opportunity to direct all negotiations and proceedings with
respect to such demands. RNB 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 RNB
Common Stock who becomes entitled, pursuant to Section 215a of the National Bank
Act, to payment for his or her shares of Dissenting Common Stock shall receive
payment therefor from CNC or CNB out of its historic assets and such shares of
RNB Common Stock shall be canceled.
(b) If prior to the Election Deadline any shareholder of RNB shall fail to
perfect, or shall effectively withdraw or lose, his or her rights under Section
215a of the National Bank Act, the Dissenting Common Stock of such holder shall
be treated for purposes of this Article II as any other shares of outstanding
RNB Common Stock. If, after the Election Deadline, any holder of RNB 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
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Common Stock under Section 215a of the National Bank Act, each share of
Dissenting Common Stock of such holder shall be converted into the right to
receive the Per Share Cash Consideration or such number of shares of CNC Common
Stock calculated pursuant to Subsection 2.2(a)(i) as shall be determined by CNC
to be necessary or appropriate to preserve the status of the Merger as a
"reorganization" within the meaning of Section 368(a) of the Code.
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 RNB 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
RNB 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 RNB Common Stock
certificate upon compliance with such reasonable and customary terms and
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 RNB 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 RNB
Common Stock is entitled as a result of the Merger until such holder surrenders
his or her certificate or certificates representing shares of RNB 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 RNB 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
6.19.
SECTION 3.2 VOTING AND DIVIDENDS. Former shareholders of record of RNB
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 RNB Common Stock are converted, regardless of whether such
holders have exchanged their certificates representing RNB 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 RNB Common Stock (other than shares to be canceled pursuant to
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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 RNB Common Stock
with respect to the shares of CNC Common Stock represented thereby, until the
holder of such certificate of RNB Common Stock shall surrender such certificate.
Subject to the effect of applicable laws, following surrender of any such
certificates of RNB 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,
(a) 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 (b) 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, RNB nor the Exchange Agent shall be
liable to any holder of shares of RNB 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 RNB 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 RNB Common
Stock in respect of which such deduction and withholding was made by CNC or the
Exchange Agent.
ARTICLE IV
CONDUCT PENDING THE MERGER
SECTION 4.1 CONDUCT OF RNB'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, RNB shall (a) conduct its business in the
usual, regular and ordinary course, consistent with past practices and
consistent with prudent banking practices; (b) use its best 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 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) 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
(as defined in Section 5.1(i)), RAP (as defined in Section 9.1) or applicable
law or regulation, classified as "loss" or as directed by its regulators; (g)
maintain the ALLL (as defined in Section 9.1) 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 adversely to affect or delay
the ability of CNC, CNB or RNB 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.
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SECTION 4.2 FORBEARANCE BY RNB 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, RNB shall not,
and shall cause each of its 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 (i) in connection with banking
transactions with banking customers in the ordinary course of business, or
(ii) for short-term borrowings (A) not in excess of the longer of thirty
days or until June 30, 1997, (B) in amounts not greater than $12,500,000 in
the aggregate for RNB 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 (other than quarterly cash dividends on
the RNB Common Stock not exceeding $0.15 per share, for the fourth quarter
of 1996 and the first quarter of 1997 only, payable out of the dividendable
earnings of RNB, and in accordance with Section 6.23); 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 RNB 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 Plans, issue RNB
Common Stock pursuant to exercise of an exercisable option granted pursuant
to the Option Plans, and receive or redeem shares of RNB 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 September 30, 1996;
(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 the purchase of collateral for existing RNB loans
in foreclosure or trustee's sales consistent with past practice.
(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,
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; 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;
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or voluntarily accelerate the vesting of any employee benefits, except for
the acceleration of the vesting of options granted pursuant to the Option
Plans;
(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; provided, however, that in the event CNC withholds
consent to any settlement, CNC shall indemnify and hold harmless RNB from
any liability with respect to any such claim, action or proceeding that
exceeds the amount provided for in such settlement relating thereto, which
indemnity obligation shall survive any termination of this Agreement;
(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) other than pursuant to a customer request, terminate, materially
modify or suggest to a title, escrow or mortgage company customer, or to any
major customer, the termination or material modification of any deposit
relationship without first consulting with a designated CNC representative
as to whether such relationship should be retained;
(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;
(n) amend its 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
or applicable law);
(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 loans are rated "pass," $1,000,000 for unsecured obligations or
$2,000,000 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 RNB'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, including,
without limitation, any contingency reserve, litigation reserve, tax
reserve, or the ALLL, by reversal or booking a negative
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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
provided, however, that if after making a good-faith effort to obtain CNC's
consent to the filing of any return, RNB must file such return by the date
on which it is due (taking into account any applicable automatic extension
of time to file returns), then RNB may do so without obtaining CNC's prior
consent;
(t) take any action that would reasonably be expected to adversely
affect RNB'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 directly or indirectly to solicit, initiate or encourage any
inquiries relating to, or the making of any proposal which constitutes a
Takeover Proposal (as defined below), or to recommend or endorse any
Takeover Proposal, or to participate in any discussions or negotiations, or
to 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 RNB 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 written 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. RNB 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. RNB
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 RNB 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, RNB or any of
its Subsidiaries other than the transactions contemplated or permitted by
this Agreement; and
(x) 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 five Business Days after the time RNB shall have requested such
consent in writing, unless during such five-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 three Business Days after the time such
reasonably requested information has been furnished.
SECTION 4.4 CONDUCT BY CNC AND CNB 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 and CNB shall (a) not take any action which
would reasonably be expected adversely to affect or delay the ability of CNC,
CNB or RNB to obtain any necessary approvals, consents or waivers of any
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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 or Articles of
Association, respectively, 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 RNB. Prior to the date
hereof, RNB has delivered to CNC a Disclosure Schedule (including exhibits
thereto) setting forth, among other things, facts, circumstances and events the
disclosure of which is required or appropriate in relation to its
representations and warranties. The mere inclusion of a fact, circumstance or
event in the Disclosure Schedule shall not be deemed an admission that such item
represents a material exception or that the absence of such item would cause the
representation or warranty to which it relates to be untrue or incorrect.
RNB represents and warrants to CNC that, except as set forth in the
Disclosure Schedule:
(a) RNB CAPITAL STOCK. RNB is authorized to issue 2,700,000 shares of RNB
Common Stock, $1.25 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 RNB can vote. As of the
date hereof, 2,176,089 shares of RNB Common Stock are issued. No shares are
reserved for issuance under the 1987 Stock Option Plan and a total of 459,000
shares are reserved for issuance under the 1991 Stock Option Plan and the 1994
Stock Option Plan. No shares are reserved for issuance pursuant to any other
stock option, restricted stock, stock appreciation rights, dividend reinvestment
or similar plan or plans. All outstanding shares of capital stock of RNB are
duly authorized, validly issued and outstanding, fully paid and nonassessable.
(b) AUTHORITY. RNB 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 (as defined in Section 9.1) on RNB), to carry on
its business as it is now being conducted and to own all of its material
properties and assets. RNB 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 RNB.
(c) SUBSIDIARIES. RNB's only subsidiaries are Inland Data Services, Inc.
and Trust Deed Services, Inc., each of which is a wholly owned subsidiary of
RNB. RNB does not own, directly or indirectly, any equity portion or voting
interest in any other corporation, partnership or other entity, except as
received in satisfaction of a debt previously contracted in good faith.
(d) APPROVALS. The execution by RNB 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 RNB) subject to
adoption of this Agreement by the affirmative vote of the holders of two-thirds
of the outstanding shares of RNB. 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 RNB,
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 (including
those of federally insured financial institutions) and general equitable
principles, regardless of whether such enforcement is considered in a proceeding
in equity or at law.
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(e) NO VIOLATIONS. The execution, delivery and performance of this
Agreement by RNB 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 RNB, or to which
it (or any of its respective properties) is subject, which breach, violation or
default would have a Material Adverse Effect on RNB or would materially hinder
or delay the Merger, or (ii) a breach or violation of, or a default under, its
Articles of Association 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 RNB or would not materially hinder or delay the
Merger.
(f) COMMUNITY REINVESTMENT ACT. RNB received a rating of "satisfactory" in
its most recent examination or interim review with respect to the Community
Reinvestment Act. RNB has not been advised of any supervisory concerns regarding
compliance with the Community Reinvestment Act.
(g) REPORTS. RNB and each of its Subsidiaries has 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 OCC, (ii) any state regulatory authority, (iii) the
Securities and Exchange Commission (the "SEC"), (iv) the Federal Deposit
Insurance Corporation (the "FDIC") and (v) any self-regulatory organization
(collectively, "GOVERNMENTAL AUTHORITIES") and has 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
RNB, (x) no Governmental Authority has initiated any proceeding or, to the best
knowledge of RNB, investigation, into the business or operations of RNB since
January 1, 1991 and (y) RNB is not 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. 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 RNB by any Governmental
Authority with respect to any report or statement relating to any examinations
of RNB. The deposits of RNB are insured by the FDIC in accordance with the
Federal Deposit Insurance Act, up to applicable limits.
(h) FINANCIAL STATEMENTS. As of their respective dates, none of RNB's
Annual Report on Form 10-KSB for the fiscal year ended December 31, 1995 (the
"1995 10-K") or Quarterly Report on Form 10-QSB for the quarters ended March 31,
1996 and June 30, 1996 (the "JUNE 30 10-Q"), nor any other document filed or to
be filed prior to the Effective Time 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 OCC and as amended (collectively, the "RNB REPORTS"), contained or will
contain at the time of filing 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 RNB Reports (including any related
notes and schedules) fairly presents 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 RNB Reports (including any related
notes and schedules) fairly presents the results of operations, retained
earnings and cash flows, as the case may be, of the entity
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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 the OCC and generally accepted
accounting principles ("GAAP") consistently applied and applicable to banks
during the periods involved, except as may be noted therein. The books and
records of RNB 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.
(i) ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as set forth in the June
30 10-Q or the Disclosure Schedule, since December 31, 1995, there have not been
(i) any changes in the business, assets, financial condition or results of
operations of RNB and its Subsidiaries that, individually or in the aggregate,
have had a Material Adverse Effect on RNB and its Subsidiaries; (ii) any
amendments to the Articles of Association or Bylaws of RNB; (iii) any
declarations, setting aside or payment of any dividend or any other distribution
in respect of the capital stock of RNB; or (iv) any changes by RNB 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 RNB.
(j) TAXES. Subject to Section 4.2(s), RNB has, or will have, timely filed
all Tax Returns (as defined in Section 9.1) 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. RNB has delivered
or made available to CNC true and complete copies of all such Tax Returns for
1993, 1994 and 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 (as defined in Section 9.1) 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 RNB's knowledge, RNB 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 has been proposed, asserted or assessed against RNB that has not been
settled and paid. Except as set forth in the Disclosure Schedule, no extension
of the time within which any Tax may be assessed is in effect or pending. To
RNB's knowledge, RNB has no liability for Taxes, including employment taxes, of
any other person under Treasury Regulation Section1.1502-6, as a transferee or
successor, or otherwise. Except as set forth in the Disclosure Schedule, RNB 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.
(k) 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 RNB's knowledge, threatened,
against RNB which are reasonably likely, individually or in the aggregate, to
have a Material Adverse Effect on RNB or materially to hinder or delay
consummation of the Merger. RNB is not 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
RNB's knowledge, threatened against RNB as of September 30, 1996, to which RNB
is a party and which names RNB as a defendant or cross-defendant and the amount
reserved for litigation matters in the aggregate.
(l) REGULATORY ACTIONS. As of the date hereof and to RNB's knowledge, RNB
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 (as defined in Section 5.1(s)). Except as
set forth in the Disclosure Schedule, to the knowledge of RNB, each material
violation, criticism, or exception by any governmental authority with respect to
any examinations of RNB has been resolved or is in the process of resolution.
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(m) CERTAIN AGREEMENTS. RNB is not 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 RNB 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 RNB
and each of its Subsidiaries, and the names of all persons, if any, holding tax
or other powers of attorney for the RNB and each of its Subsidiaries.
(n) LABOR MATTERS. Neither RNB 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 RNB
or any of its Subsidiaries. RNB considers its employee relations and those of
each of its Subsidiaries to be satisfactory.
(o) EMPLOYEE BENEFIT PLANS. A list of all Employee Plans (as hereinafter
defined) is set forth in the Disclosure Schedule. RNB 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.
Except as set forth in the Disclosure Schedule:
(i) each of the Employee Plans has been administered in substantial
compliance with any 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 RNB 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
RNB 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 RNB's knowledge, neither RNB 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 RNB 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;
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(v) neither RNB 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 RNB 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 Section 3(3) of ERISA) as well as any other material
written or formal plan or contract involving direct or indirect compensation
under which RNB 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 rights 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.
(p) INSIDER LOANS; OTHER TRANSACTIONS. RNB has previously provided CNC
with a listing, current as of September 30, 1996, of all extensions of credit
made to RNB 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 RNB 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 RNB 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).
(q) TITLE TO ASSETS. RNB 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 previously contracted), including, without limitation,
all personal and intangible properties reflected in the audited financial
statements included in the 1995 10-K and the June 30 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, the June 30 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 and the June 30
10-Q, (5) defect 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, RNB 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.
(r) KNOWLEDGE AS TO CONDITIONS. Each of RNB and 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.
(s) COMPLIANCE WITH LAWS. Neither RNB 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
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properties may be bound, except such violations as would not have a Material
Adverse Effect on RNB. Without limiting the scope of the previous sentence, each
of RNB and 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.
Section 1691, ET SEQ.), the Fair Housing Act (420 U.S.C. Section 3601, ET SEQ.),
the Bank Secrecy Act (31 U.S.C. Section 5322, ET SEQ.), the Home Mortgage
Disclosure Act (12 U.S.C. Section 2801, 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. Section 1956) or
engaging in monetary transactions in property derived from specified unlawful
activity (18 U.S.C. Section 1957).
(t) FEES. Other than financial advisory services performed for RNB by
Alex. Brown & Sons Incorporated, neither RNB 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.
(u) ENVIRONMENTAL.
(i) To RNB's knowledge, all of the properties and operations of RNB 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 RNB's knowledge, RNB and each of its Subsidiaries has obtained
all material permits, licenses, and authorizations which are required for
RNB's operations under Environmental Laws.
(iii) Except as set forth in the Disclosure Schedule, to RNB'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 RNB or any of its Subsidiaries except in
accordance in all material respects with Environmental Laws. Neither RNB nor
any of its Subsidiaries has any 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 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
RNB 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 RNB or any of its Subsidiaries, threatened
against RNB or any of its Subsidiaries relating in any way to any material
violation of any applicable Environmental Law. To the knowledge of RNB, none
of RNB 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,
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without limitation, the Comprehensive Environmental Response Compensation
and Liability Act of 1980, 42 U.S.C. Section 9601, ET SEQ. ("CERCLA"), the
Resource Conservation and Recovery Act of 1975, 42 U.S.C. Section 6901, ET
SEQ. ("RCRA"), the Occupational Safety and Health Act, 29 U.S.C. Section
651, ET SEQ. (as it relates to the use of, or exposure to, Hazardous
Substances), the Clean Air Act, 42 U.S.C. Section 7401, ET SEQ., the Clean
Water Act, 33 U.S.C. Section 1251, ET SEQ., the Toxic Substance Control Act,
15 U.S.C. Section 2601, ET SEQ., the Carpenter-Presley-Tanner Hazardous
Substance Account Act, as amended, Chapter 6.8 of the California Health and
Safety Code, Section 25300, ET SEQ., and the Hazardous Waste Control Law,
Chapter 6.5 of the California Health and Safety Code, Section 25100, 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 RNB 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 RNB and each of
its Subsidiaries, property as to which RNB or any of its Subsidiaries holds
any security interest, deed of trust, mortgage or other lien, and any
property to which RNB 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
(A) 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; (B) any "hazardous substance" as such term is
defined by CERCLA; (C) any "regulated substance" as defined by the State
Acts; (D) asbestos requiring abatement, removal or encapsulation pursuant to
the requirements of Governmental Authorities; (E) polychlorinated biphenyls;
(F) petroleum products; (G) "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, as amended; (H) 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; (I) any substance that requires
reporting, registration, notification, removal, abatement and/or special
treatment, storage, handling or disposal, under Sections 6, 7 and 8 of the
Toxic Substance Control Act (15 U.S.C. Section 2601); (J) 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 (K) any (1) "hazardous
waste," (2) "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, (3) "solid waste" that is
capable of causing a "hazardous substance incident," (4) "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. Sections 1251-1376, as amended, by Public Law 100-4, February 4,
1987, and the regulations promulgated thereunder, including 40 C.F.R.
Sections 122.1 and 122.26.
(v) ALLOWANCE FOR POSSIBLE LOAN LOSSES. The ALLL for RNB is adequate in
accordance with GAAP and RAP.
(w) PERFORMANCE OF OBLIGATIONS. RNB 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 material default under, or in material
breach of, any term or provision of any contract, lease, indenture or any other
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 RNB and each of its Subsidiaries is a party, except
for contracts terminable
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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.
(x) INSURANCE. RNB 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. RNB has
made available to CNC copies of all policies of insurance and bonds carried and
owned by RNB 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 RNB 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.
(y) LISTING OF LOANS. Copies, in writing, have been made available to CNC
of the detailed listing of all loans and notes receivable of RNB and each of its
Subsidiaries as of September 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.
(z) DERIVATIVE TRANSACTIONS. Neither RNB nor any of its Subsidiaries is a
party to a transaction in or involving forwards, futures, options on futures,
swaps or other derivative instruments.
(aa) TRUST ADMINISTRATION. Neither RNB 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 seven years prior
to the date hereof. The term "trusts" as used in this Subsection 5.1(aa)
includes (i) any and all common law or other trusts between an individual,
corporation or other entities and RNB 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 RNB
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 RNB 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
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 RNB 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.
(bb) CONTINGENT LIABILITIES. RNB has no actual knowledge of any facts,
other than those reflected in the financial statements included in the RNB
Reports or the contracts, litigation and other matters listed in the Disclosure
Schedules, that indicate the existence of a contingent liability of RNB or any
of its Subsidiaries (whether or not disclosure or accrual is required pursuant
to GAAP) as to which there is a reasonable possibility of a Material Adverse
Effect on RNB.
(cc) STATEMENTS TRUE AND CORRECT. None of the information supplied or to
be supplied by RNB for inclusion in the S-4 or the Proxy Statement/Prospectus
(each 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 RNB, 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 shareholders of
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RNB, 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 for the
RNB shareholders' meeting.
(dd) ADDITIONAL TAX REPRESENTATION.
(i) The terms of this Agreement reflect arm's length negotiations
between unrelated parties, and, accordingly, RNB believes that the fair
market value of the CNC Common Stock and other consideration to be received
by each RNB shareholder in the Merger will be approximately equal to the
fair market value of the RNB stock surrendered in the exchange.
(ii) To the best of the knowledge of the management of RNB, and after
due inquiry of each shareholder of RNB who owns 5% or more of the stock of
RNB, there is no plan or intention on the part of the shareholders of RNB to
sell, exchange or otherwise dispose of any shares of CNC Common Stock
received in the Merger.
(iii) CNB will acquire at least 90 percent of the fair market value of
the net assets and at least 70 percent of the fair market value of the gross
assets held by RNB immediately prior to the Merger. For purposes of this
representation, any amounts paid by RNB to dissenters, amounts paid by RNB
to shareholders who receive cash or other property, RNB assets used to pay
its reorganization expenses, all redemptions and distributions (except for
regular, normal dividends) made by RNB immediately preceding the Merger and
all assets disposed of by RNB prior to or contemporaneously with the Merger
and in contemplation thereof (including, without limitation, any asset
disposed of by RNB, other than in the ordinary course of business or other
than in exchange for cash which will be transferred to CNB in the Merger,
pursuant to a plan or intent existing during the period beginning with the
commencement of negotiations (whether formal or informal) with CNC and CNB
regarding the Merger and ending on the effective date of the Merger), will
be included as assets of RNB held immediately prior to the Merger.
(iv) The liabilities of RNB to be assumed by CNB in the Merger and the
liabilities to which the transferred assets of RNB are subject were incurred
by RNB in the ordinary course of its business.
(v) RNB and the shareholders of RNB will pay their respective expenses,
if any, incurred in connection with the Merger.
(vi) There is no intercorporate indebtedness existing between CNC and
RNB or between CNB and RNB.
(vii) RNB is not an investment company as defined in Section
368(a)(2)(F)(iii) and (iv) of the Code.
(viii) RNB is not under the jurisdiction of a court in a Title 11 or
similar case within the meaning of Section 368(a)(3)(A) of the Code.
(ix) The fair market value of the assets of RNB to be transferred to CNB
in the Merger will equal or exceed the sum of the liabilities assumed by
CNB, plus the amount of liabilities, if any, to which the transferred assets
are subject.
(x) RNB operates at least one significant historic line of business, or
owns at least a significant portion of its historic business assets, in each
case within the meaning of Treasury Regulation Section1.368-1(d).
SECTION 5.2 REPRESENTATIONS AND WARRANTIES OF CNC AND CNB. CNC and, as
applicable, CNB, represent and warrant to RNB that:
(a) CNC CAPITAL STOCK. CNC is authorized to issue 75,000,000 shares of
CNC Common Stock, $1.00 par value, 5,000,000 shares of preferred stock, no
par value, and is not authorized to issue any
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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 CNC
can vote. As of August 31, 1996, 46,088,181 shares of CNC Common Stock were
issued and outstanding, 2,211,200 shares of CNC Common Stock were held as
treasury stock, and no shares of preferred stock were outstanding. 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
preemptive rights. CNC has provided RNB with true and correct copies of its
Certificate of Incorporation and Bylaws, including any amendments thereto or
restatements thereof.
(b) CNB CAPITAL STOCK. CNB is authorized to issue 900,000 shares of
common stock, $100 par value per share, and is not authorized to issue any
other class or series of capital stock or any other securities or options
convertible into or exercisable or exchangeable for common stock of CNB. As
of October 11, 1996, CNB has outstanding 900,000 shares of common stock, all
of which are owned by CNC. Immediately prior to the Effective Time, CNC will
be in "control" of CNB within the meaning of section 368(c)(1) of the Code.
CNB has no present plan or intent to issue additional shares of its stock in
a manner that would result in CNC's losing "control" of CNB within the
meaning of Section 368(c)(1) of the Code.
(c) AUTHORITY. CNC and CNB have the power and authority, and each 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 or CNB,
respectively), to carry on their businesses as they are now being conducted
and to own all of their material properties and assets. Each of CNC and CNB
has all federal, state, local and foreign governmental authorizations
necessary for it to own or lease its respective properties and assets and to
carry on its respective businesses as these are 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 or CNB,
respectively.
(d) APPROVALS. The execution by CNC and CNB of this Agreement have
been authorized by all necessary corporate actions of CNC and CNB,
including, but not limited to, a vote by their boards of directors. No vote,
consent or approval of the shareholder of CNB 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 and CNB enforceable against CNC and CNB
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, and general equity
principles.
(e) NO VIOLATIONS. The execution, delivery and performance of this
Agreement by CNC and CNB 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 CNB, or to which CNC or CNB (or their properties) 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 or the Articles of Association or Bylaws of CNB; 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 (A) the required
approvals, consents and waivers of Governmental Authorities referred to in
Section 7.1(b); and (B) 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 CNB or would not materially hinder or
delay the Merger.
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(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 or to be filed prior to the Effective
Time 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 or will omit 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 presents 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 presents 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 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; LITIGATION. No legal, administrative,
arbitration or other proceedings, claims, actions or governmental or
regulatory investigations of any nature are pending or to CNC's knowledge,
threatened against CNC or its Subsidiaries which are reasonably likely,
individually or in the aggregate, to have a Material Adverse Effect on CNC
or materially to hinder or delay consummation of the Merger.
(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 knowledge, neither CNC nor
CNB 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. Each material violation, criticism, or
exception by any Governmental Authority with respect to any examinations of
CNC or CNB has been resolved or is in the process of resolution.
(j) KNOWLEDGE AS TO CONDITIONS. Neither CNC nor CNB knows of any
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 or CNB. 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 Board of Governors of the Federal Reserve System, the Fair
Lending Acts, or those provisions of the United States Code
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providing penalties for the laundering of monetary instruments (18 U.S.C.
1956) 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 Subsidiaries, officers,
directors, employees or agents, has employed any broker or finder or
incurred any liability for any 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 its 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 or the Proxy
Statement/Prospectus (each 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 RNB, 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 RNB, 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 for the RNB shareholders'
meeting.
(o) TAX REPRESENTATION. Neither CNC nor any subsidiary or affiliate
thereof has any present plan or intention to reacquire any of the shares of
CNC Common Stock to be issued pursuant to the Merger, whether in a private
transaction or otherwise; provided, however, that CNC does intend to
repurchase shares of CNC Common Stock in the open market from time to time.
CNC has no plan or intention to liquidate CNB, to merge CNB with and into
any other corporation in a transaction that would have the effect of
disqualifying the Merger as a "reorganization" within the meaning of Section
368(a) of the Code, to sell or otherwise dispose of the stock of CNB, or to
cause CNB to sell or otherwise dispose of any of the assets of RNB acquired
in the Merger, except for dispositions made in the ordinary course of
business or transfers described in Section 368(a)(2)(C) of the Code.
Following the Merger, CNB will continue the historic business of RNB or use
a significant portion of RNB's business assets in a business, in each case
within the meaning of Treasury Regulation Section 1.368-1(d). CNC and CNB
will pay their respective expenses incurred in connection with the Merger.
There is no intercorporate indebtedness existing between CNC and RNB or
between CNB and RNB. Neither CNC nor CNB is an investment company as defined
in Section 368(a)(2)(F)(iii) and (iv) of the Code. No stock of CNB will be
issued in the Merger. The CNC Common Stock and other consideration to be
issued to RNB shareholders pursuant to the Merger will be issued solely on
account of each RNB shareholder's interest in his, her or its RNB stock, and
no part of such consideration will represent payment in respect of
indebtedness, compensation, or any purpose other than payments for RNB
Common Stock. None of the compensation paid or to be paid by CNB or CNC to
any employee will be separate consideration for, or allocable to, any such
employee's shares of RNB stock exchanged in the Merger; rather, the
compensation paid to any shareholder-employee will be for services actually
rendered and will be commensurate with amounts paid to third parties
bargaining at arm's length for similar services. None of the shares of CNC
Common Stock to be issued to any shareholder-employee in the Merger will be
separate consideration for, or allocable to, any employment agreement.
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(p) CNC COMMON STOCK. The outstanding shares of CNC Common Stock are
registered with the SEC pursuant to the Securities Exchange Act of 1934, and
are listed for trading on the New York Stock Exchange (the "NYSE") pursuant
to the listing rules of the NYSE. CNC has filed with the NYSE all material
forms and reports required to be filed by CNC with the NYSE, which forms and
reports, taken as a whole, are true and correct in all material respects,
and do not 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 made therein, in light of the circumstances under which they were
made, not misleading.
ARTICLE VI
COVENANTS
SECTION 6.1 REGULATORY MATTERS.
(a) CNC and RNB 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 RNB 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 RNB 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. RNB shall furnish all
information concerning RNB and the holders of RNB 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 promptly to 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 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 RNB 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.
(c) CNC and RNB 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, RNB or any of their
respective Subsidiaries to any Governmental Authority in connection with the
transactions contemplated by this Agreement.
(d) CNC and RNB 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 June 30, 1997.
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SECTION 6.2 STOCKHOLDERS' APPROVALS. RNB 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, RNB shall, through its Board of Directors,
unanimously recommend to its stockholders approval of such matters. RNB'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 written 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 RNB 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 RNB 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 RNB 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, RNB
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 copies of such documents or such information with respect to
its businesses and affairs as CNC may reasonably request and that RNB and its
Subsidiaries may provide without violation of applicable law or regulation or
jeopardy to any attorney-client or similar privilege to which RNB may be
entitled as against third parties other than CNC. Without limiting the
foregoing, RNB 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 RNB 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. RNB shall provide CNC with as much information concerning
any exit interview or similar meetings held in connection with any regulatory
examinations of RNB and its Subsidiaries and, with respect to the examination
findings and results, as RNB can provide without violation of law. Without
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limiting the generality of the foregoing, CNC shall have the right to (x)
conduct a full due diligence review of the operations and assets of RNB and its
Subsidiaries, (y) conduct a full credit review of RNB and its Subsidiaries and
(z) conduct a specific credit review of RNB and its Subsidiaries during the
thirty days prior to the Effective Time.
(b) RNB'S RIGHT TO ACCESS AND INFORMATION. Upon reasonable request by RNB,
each of CNC and CNB shall (i) make its Chief Financial Officer and Controller
available to discuss with RNB and its representatives CNC's ongoing diligence
and review of RNB's operations and (ii) shall provide RNB with written
information which is (A) similar to the written information that RNB reviewed in
connection with this Agreement, and (B) related to CNC's and CNB'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 RNB, if accompanied
by representatives of RNB, 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 RNB
not otherwise a customer of CNC or CNB 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 RNB continuing in the employ of CNC or CNB shall be
entitled to participate in stock plans, bonus plans and all other benefit plans
of CNC or CNB on the same basis as other similarly situated employees of CNC or
CNB. 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 or CNB's sick leave program), with such
employee's respective years of past service with RNB (or other prior service so
credited by RNB) as though they had been employees of CNC.
(b) RNB 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 employment in an equivalent or
substantially similar position by CNC or CNB following the Effective Time. CNC
consents to RNB amending these policies to provide enhanced severance payments
consistent with policies previously provided by CNC to RNB. To the extent CNC or
CNB fails to offer an employee identified on such schedule continued employment
in an equivalent or substantially similar position following the Effective Time,
RNB shall be responsible for paying the severance payments due such employee as
set forth in its amended severance policies.
(c) Current RNB employees who are hired by CNC following the Effective Time
and who are subsequently terminated shall be entitled to severance benefits in
accordance with CNC's normal severance policy for its employees.
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SECTION 6.6 CERTAIN FILINGS, CONSENTS AND ARRANGEMENTS. CNC, RNB 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, the SEC, the NYSE 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 TIMELINESS AND COMPLIANCE OF RNB REPORTS AND FILINGS. RNB
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 RNB and/or any of its Subsidiaries will fairly
present the financial position of such entities or entity and will be prepared
in accordance with GAAP or RAP consistently applied during the periods involved.
Notwithstanding anything to the contrary set forth in this Section 6.7, RNB
makes no representation or warranty with respect to any information supplied by
CNC or CNB or any of the CNC Reports.
SECTION 6.8 TIMELINESS AND COMPLIANCE OF CNC AND CNB REPORTS AND
FILINGS. CNC and CNB agree that through the Effective Time of the Merger, each
of their 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 CNB will fairly present the financial
position of CNC and CNB, will be prepared in accordance with GAAP or RAP
consistently applied during the periods involved. Notwithstanding anything to
the contrary set forth in this Section 6.8, CNC makes no representation or
warranty with respect to any information supplied by RNB or RNB's Subsidiaries
or any of the RNB Reports.
SECTION 6.9 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 6.10 PUBLICITY. The initial press release announcing this
Agreement shall be a joint press release and thereafter CNC and RNB 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 or by any
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applicable self-regulatory organization, 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.
SECTION 6.11 NOTIFICATION OF CERTAIN MATTERS. RNB shall give CNC, and CNC
shall give RNB, 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 6.12 PRE-CLOSING ADJUSTMENTS. At or before the Effective Time, RNB
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 following the Effective Time or
to reflect expenses and costs related to the Merger; provided, however, that (a)
RNB 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 RNB 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 RNB or its Subsidiaries, or (iii)
otherwise materially disadvantage RNB or its Subsidiaries if the Merger were not
consummated; provided that in any event, no accrual or reserve made by RNB or
its Subsidiaries pursuant to this Section 6.12, 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 RNB's or its Subsidiaries'
management with any such adjustments, and shall not affect the Exchange Ratio or
the Per Share Cash Consideration.
SECTION 6.13 DIRECTOR RESIGNATIONS. RNB shall use reasonable efforts to
cause to be delivered to CNC at the Effective Time, the resignations of the
members of the Boards of Directors of RNB and its Subsidiaries.
SECTION 6.14 HUMAN RESOURCES ISSUES. RNB 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 6.15 ASSISTANCE WITH THIRD-PARTY AGREEMENTS.
(a) RNB and its Subsidiaries shall cooperate with and use all reasonable
efforts to assist CNC in (i) 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, and (ii) obtaining the
cooperation of such third parties in a smooth transition in accordance with
CNC's timetable at or after the Effective Time.
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(b) Without limiting Section 6.15(a), RNB and its Subsidiaries shall use all
commercially 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. All incremental out-of-pocket
costs incurred by RNB in complying with this section shall be reimbursed by CNC.
Among other things, RNB and its Subsidiaries shall:
(i) cooperate with CNC to establish a mutually agreeable project plan to
effectuate the conversion;
(ii) use their commercially reasonable efforts to have RNB'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 reasonably practicable;
(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, RNB shall not be required to give any notice
of termination required by this Section 6.15, (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 RNB 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 RNB for the incremental costs
of obtaining a replacement contract in the event that the Merger is not
consummated other than due solely to breaches of this Agreement by RNB; and (2)
to terminate any of RNB's outside data processing contracts (the "DP CONTRACTS")
if (A) CNC provides an undertaking to RNB in form and substance reasonably
satisfactory to RNB to the effect that CNC shall, in the event that the Merger
is not consummated, indemnify RNB against all losses, claims, damages or
liabilities resulting from such action, and (B) CNC agrees to compensate RNB for
arrangements through a third-party provider reasonably acceptable to RNB
providing service levels reasonably comparable to those provided under the DP
Contracts under terms no more burdensome and at a price no higher to RNB 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 solely to breaches of this
Agreement by RNB 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 RNB 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 6.15 shall be
taken in a manner intended to minimize disruption to the customary business
activities of RNB and its Subsidiaries.
SECTION 6.16 NOTICES AND COMMUNICATIONS. RNB 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 prepared by CNC, and
reasonably acceptable to RNB, 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
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Adjustment and Retraining Notification Act, as amended (12 U.S.C Section 2101,
et seq.), with respect to all employees of RNB 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 6.17 INSURANCE POLICIES ASSIGNMENT. RNB and its Subsidiaries agree
to make commercially reasonable efforts to obtain consent to partial or complete
assignments of any of their insurance 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 RNB and its Subsidiaries. RNB 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 6.18 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 CNC with full title to all
properties, assets, rights, approvals, immunities and franchises of RNB, the
proper officers and directors of each party to this Agreement shall take all
necessary or appropriate action.
SECTION 6.19 AFFILIATES AND FIVE PERCENT SHAREHOLDERS.
(a) At least 40 days prior to the Effective Time, RNB shall deliver to CNC a
letter identifying all persons who are, at the time this Agreement is submitted
for approval to the stockholders of RNB, "affiliates" of RNB for purposes of
Rule 145 under the Securities Act. RNB 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, RNB shall use commercially reasonable
efforts to cause each person, or "group" of persons (as described in Section
13(d) of the 1934 Act and the regulations adopted thereunder), who holds more
than five percent (5%) of the outstanding RNB Common Stock (regardless of
whether such person is an "affiliate") to deliver to the law firm of Munger,
Tolles and Olson, 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,
she or they will receive in the Merger.
SECTION 6.20 COOPERATION. RNB shall cooperate with CNC and CNB in all
reasonable respects in accomplishing the Bank Mergers.
SECTION 6.21 INDEMNIFICATION OF DIRECTORS AND OFFICERS. CNC and CNB agree
that all rights to indemnification or exculpation now existing in favor of the
directors, officers, employees and agents of RNB and its Subsidiaries as
provided in their respective articles of association, 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 shall continue in full force and effect for a period of six (6) years
following the Effective Time. CNC and CNB further agree that, during such six
(6) year period, to the greatest extent permitted by applicable law, regulations
and their respective organizational documents or bylaws as in effect of the date
hereof, they shall indemnify, defend and hold harmless individuals who were
officers and directors of RNB 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, as and when incurred, 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 each of CNC and CNB to return such advances in the event it has finally
concluded such indemnification is not allowed under applicable law.
SECTION 6.22 SHAREHOLDERS' AGREEMENT. RNB will use all reasonable efforts
to cause the directors of RNB, to execute and deliver to CNC simultaneous with
the execution of this Agreement, one or more shareholders' agreements
substantially in the form of Exhibit C hereto, committing such persons, among
other things, to vote their shares of RNB 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
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representations and covenants concerning the ownership of RNB Common Stock and
the CNC Common Stock to be received in the Merger.
SECTION 6.23 COORDINATION OF DIVIDENDS. RNB shall coordinate with CNC the
declaration of any dividends that may be allowed hereunder in respect of RNB
Common Stock and the record date and payment dates relating thereto, it being
the intention of the parties that holders of RNB Common Stock shall not receive
two dividends, or fail to receive one dividend, for any single calendar quarter
with respect to their shares of RNB Common Stock and any shares of CNC Common
Stock any such holder will receive in exchange therefor in the Merger.
SECTION 6.24 SALE OF CERTAIN SECURITIES. During the period between the
time the conditions required by Sections 7.1(a), (b) and (e) are met, and the
Effective Time, RNB, upon the written request of CNC, shall sell such securities
in its held-for-sale portfolio as CNC shall reasonably request, upon terms and
conditions and for a price, reasonably satisfactory to both parties.
SECTION 6.25 VACATION TIME AND ACCRUAL.
(a) Prior to December 31, 1996, RNB shall use its reasonable best efforts to
cause each of its, and each of its subsidiaries', employees to use all of their
accrued vacation time for all times prior to December 31, 1996.
(b) Commencing January 1, 1997, RNB shall, and shall cause each of its
Subsidiaries to, accrue vacation pay for each of its and their employees in
accordance with GAAP.
ARTICLE VII
CONDITIONS TO CONSUMMATION
SECTION 7.1 CONDITIONS TO EACH PARTY'S OBLIGATIONS. The respective
obligations of CNC and CNB on the one hand, and of RNB 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 RNB and CNC
in accordance with applicable law, including the approval and adoption by
the requisite affirmative votes of the holders of RNB 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
of a court or agency of competent jurisdiction which enjoins or prohibits
the consummation of the Merger 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 or
any other transactions contemplated by this Agreement.
(e) The 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 S-4 shall have been issued
and no proceedings for that purpose shall have been initiated.
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(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 AND CNB. The obligations of
CNC and CNB 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 RNB 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 is 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. RNB
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 RNB, at the Effective Time, to the foregoing effect.
(b) No litigation or proceeding shall be pending against RNB 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 Mayer, Brown & Platt, special
counsel to RNB, in form and substance reasonably satisfactory to CNC, to the
effect that this Agreement has been duly authorized, executed and delivered
by RNB, and constitutes the valid and legally binding obligation of RNB
enforceable in accordance with its terms, subject to customary exceptions.
(d) At least two days prior to the Effective Time, all attorneys,
accountants, investment bankers and other advisors and agents for RNB and
its Subsidiaries shall have submitted to RNB (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, RNB 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 RNB and its Subsidiaries for services
rendered, with a copy to be delivered to CNC, and based on such summary, RNB
shall have prepared and submitted to CNC a final calculation of such fees
and expenses and (ii) RNB 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. CNC shall not be
liable for any such fees and expenses in the event that the Effective Time
does not occur.
(e) At least five Business Days prior to the Effective Time, RNB shall
provide CNC with RNB'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
Adjusted Stockholders' Equity of RNB shall be not less than the sum of (i)
RNB's stockholders' equity as shown on its financial statements at September
30, 1996 PLUS (ii) $223,000 for each calendar month from September 30, 1996
through the last day of the month preceding the Effective Time. "ADJUSTED
STOCKHOLDERS' EQUITY" shall mean the stockholders' equity of RNB as
reflected on the financial statement delivered pursuant to this Section
7.2(e),
(x) PLUS the sum of (1) all severance benefits paid or accrued
pursuant to Section 6.5(b), (2) all amounts paid or accrued in connection
with the cancellation of options granted pursuant
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to the Option Plans as permitted by Section 2.4 and 4.2(b), (3) all
amounts paid or accrued in connection with taking any actions pursuant to
Section 6.15, (4) the amount of dividends paid as permitted by Section
4.2(b), and (5) reasonable expenses of all attorneys, accountants,
investment bankers and other advisors and agents for RNB for services
rendered solely in connection with the transactions contemplated by this
Agreement,
(y) MINUS the exercise price of all options to purchase shares of RNB
Common Stock exercised between September 30, 1996 and the date of the
financial statement delivered pursuant to this Section 7.2(e), and
(z) PLUS the amount of any decreases, and MINUS the amount of any
increases, in the market value in securities held throughout the period
from September 30, 1996 to the date of the financial statement delivered
pursuant to this Section 7.2(e) that are marked to market in accordance
with GAAP or RAP,
in each case, net of applicable taxes.
(f) At the close of business on the last day of the month preceding the
Effective Time, total deposits of RNB, calculated pursuant to RAP and GAAP,
shall be not less than ninety percent (90%) of the average of total deposits
for RNB for the month ended August 31, 1996, excluding deposits relating to
the title insurance and escrow company accounts indicated on the Disclosure
Schedule, and deposits in any similar deposit accounts added between August
31, 1996 and the Effective Time.
(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 RNB and its
Subsidiaries that has had a Material Adverse Effect on RNB.
(h) CNC and its directors and officers who sign the S-4 shall have
received from RNB's independent certified public accountants "cold comfort"
letters, dated (i) the date of the mailing of the Proxy Statement/Prospectus
to RNB's shareholders, and (ii) shortly prior to the Effective Time, with
respect to certain financial information regarding RNB in the form
customarily issued by such accountants at such times in transactions of this
type.
(i) Dissenters' rights shall not have been preserved with respect to
more than 5% of the outstanding shares of RNB Common Stock.
SECTION 7.3 CONDITIONS TO OBLIGATIONS OF RNB. The obligations of RNB
hereunder shall be subject to the satisfaction or waiver prior to the Effective
Time of the following additional conditions:
(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 RNB 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) RNB shall have received the opinion of Richard H. Sheehan, General
Counsel to CNC, in form and substance reasonably satisfactory to RNB, 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, (ii) the shares of CNC Common Stock issued as consideration in
the Merger have been duly authorized, validly issued, fully paid and
non-assessable, and (iii) the S-4 has been declared effective by the SEC.
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(d) RNB shall have received the opinion of Munger, Tolles & Olson,
special counsel to CNC, no later than thirty (30) days from the date hereof,
in form and substance reasonably satisfactory to RNB, and confirmed
immediately prior to the Effective Time by such counsel, 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 and which assumptions may include the fact that the
terms of the Merger, including the Exchange Ratio and the Per Share Cash
Consideration, were negotiated by independent parties dealing at arm's
length, and that the value of the consideration to be received by each RNB
shareholder in the Merger will be approximately equal to the fair market
value of the RNB shares exchanged by such shareholder, that (i) the Merger
will qualify as a reorganization under Section 368 of the Code; (ii) CNC,
CNB and RNB will each be a party to such reorganization within the meaning
of Section 368(b) of the Code; (iii) no gain or loss will be recognized by
holders of RNB Common Stock to the extent that they receive solely shares of
CNC Common Stock solely in exchange for shares of RNB Common Stock; (iv) the
gain, if any, to be realized by holders of RNB Common Stock who exchange
their RNB Common Stock for CNC Common Stock and cash will be the excess of
(A) the amount of cash received plus the fair market value at the Effective
Time of the CNC Common Stock received over (B) the basis of the RNB Common
Stock surrendered in the exchange, and such gain will be recognized on the
exchange to the extent of the cash received; (v) the basis of the shares of
CNC Common Stock to be received by holders of RNB Common Stock will be the
same as the basis of the RNB Common Stock surrendered in exchange therefor,
adjusted as provided in Section 358(a) of the Code in the event any cash is
received; and (vi) the holding period of CNC Common Stock to be received by
holders of RNB Common Stock will include the holding period of the RNB
Common Stock surrendered in exchange therefor, provided that the holders of
RNB Common Stock held such stock as a capital asset.
(e) RNB shall have received an updated fairness opinion of Alex. Brown &
Sons Incorporated within five (5) days prior to the mailing of the Proxy
Statement/Prospectus to the shareholders of RNB confirming that the
consideration to be paid to the RNB 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 RNB and CNC, if the board of directors,
or duly authorized committee thereof, or duly authorized officers, of each
so determines;
(b) by CNC or RNB 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 RNB 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 RNB in the event that the Merger is not consummated by
June 30, 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 RNB if any approval of the stockholders of RNB
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 RNB shall have withdrawn,
modified or changed in a manner adverse to CNC its approval or
recommendation of this Agreement and the Merger;
(g) by RNB, if both (a) the Final CNC Stock Price is less than $13.50;
and (b) the number obtained by dividing the Final CNC Stock Price by $17.75
is more than 15% less than the number obtained by dividing the average Index
Price for the Determination Period by the Index Price on October 10, 1996.
The "Index Price" shall be the average closing price of the banks and bank
holding companies included in the Standard & Poor's Bank Index.
(h) by CNC, if (i) RNB 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 RNB which contains a
proposal as to price (without regard to the specificity of such price
proposal) and RNB shall not have rejected such proposal within 10 Business
Days of its receipt or the date its existence first becomes publicly
disclosed, if earlier.
SECTION 8.2 EFFECT OF TERMINATION. In the event of the termination of this
Agreement by either CNC or RNB, 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 senior vice president, chief financial officer,
controller (and, after the date of this Agreement, shall also include any 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.
"BENEFICIAL OWNER" shall have the meaning ascribed thereto in Section 13d-e
of the 1934 Act.
"BURDENSOME CONDITION" shall mean any condition or requirement included in
any required regulatory approval, consent or waivers of Government Authorities
which imposes 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.
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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, except as otherwise provided herein, have the meaning
ascribed thereto in Section 2(a) of the BHCA.
"KNOWLEDGE" or "BEST KNOWLEDGE" shall mean facts and other information which
as of the date of this Agreement any senior vice president, chief financial
officer, superior officer, controller (and, after the date of this Agreement,
shall also include any 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 such an 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 RNB (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 transactions contemplated by this Agreement.
"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 2.4, 4.2(h), 5.2(b),
5.2(o), 5.2(p), 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.
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 RNB
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Shareholders in the Merger shall not be valid after the Agreement is approved by
the stockholders of RNB without any subsequent approval by the stockholders of
RNB.
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 RNB to:
Riverside National Bank
3484 Central Avenue
Riverside, California 92506
Telecopy: (909) 686-0135
Attention: James A. Robinson
with a copy to:
James R. Walther, Esq.
Mayer Brown & Platt
350 South Grand Avenue, 25th Floor
Los Angeles, California 90071
Telecopy: (213) 625-0248
If to CNC or CNB, to:
City National Corporation
400 North Roxbury Drive
Beverly Hills, California 90210-5021
Telecopy: (310) 888-6704
Attention: Frank P. Pekny
with copies to:
Richard H. Sheehan
General Counsel
City National Corporation
400 North Roxbury Drive
Beverly Hills, California 90210-5021
Telecopy: (310) 888-6232
and
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William L. Cathey, Esq.
Munger, Tolles & Olson
355 South Grand Avenue, 35th Floor
Los Angeles, California 90071
Telecopy: (213) 687-3702
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 Agreement between CNC and RNB
dated August 2, 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, that 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
2.4, 6.5 and 6.19 which are intended to benefit the officers and employees of
RNB 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, and except as
otherwise provided herein, 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.
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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>
RIVERSIDE NATIONAL BANK CITY NATIONAL CORPORATION
By: /s/ JAMES A. ROBINSON By: /s/ RUSSELL GOLDSMITH
------------------------------ ------------------------------------
PRESIDENT AND CHIEF EXECUTIVE VICE CHAIRMAN AND CHIEF EXECUTIVE
OFFICER OFFICER
CITY NATIONAL BANK
By: /s/ RUSSELL GOLDSMITH
------------------------------------
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
</TABLE>
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APPENDIX B
SHAREHOLDERS' AGREEMENT
THIS SHAREHOLDERS' AGREEMENT ("Agreement") is made and entered into as of
October 15, 1996 by and between City National Corporation, a Delaware
corporation ("CNC"), and each of the other persons signatory hereto (each a
"Shareholder" and collectively the "Shareholders").
WHEREAS, CNC, City National Bank, a national banking association ("CNB"),
and Riverside National Bank, a national banking association ("RNB"), have
entered into that certain Agreement and Plan of Merger (the "Merger Agreement"),
dated as of even date herewith, pursuant to which RNB will be merged with and
into CNB (the "Merger"), and whereupon each share of Common Stock of RNB ("RNB
Stock") will be converted into the right to receive Common Stock of CNC ("CNC
Stock"), cash, or a combination of CNC Stock and cash; and
WHEREAS, as a condition to its willingness to enter into the Merger
Agreement, CNC has required that each Shareholder enter into, and each such
Shareholder has agreed to enter into, this Agreement;
NOW, THEREFORE, in consideration of the foregoing, for good and valuable
consideration, the parties hereby agree as follows:
1. REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS. Each Shareholder
hereby, severally only and not for another or jointly, represents and warrants
to CNC as follows:
(a) AUTHORITY; NO VIOLATION. Such Shareholder has all necessary power
and authority to enter into and perform all of such Shareholder's
obligations hereunder. The execution, delivery and performance of this
Agreement by such Shareholder will not violate any other agreement to which
such Shareholder is a party, including any voting agreement, shareholders'
agreement, trust agreement or voting trust. This Agreement has been duly and
validly executed and delivered by such Shareholder (and such Shareholder's
spouse, if the Shares constitute community property) and constitutes a valid
and binding agreement of such Shareholder and such spouse, enforceable
against such Shareholder and such spouse in accordance with its terms.
(b) OWNERSHIP OF SHARES. Such Shareholder is the beneficial owner or
record holder of the number of shares of common stock of RNB indicated under
such Shareholder's name on the signature page hereto (the "Existing Shares",
and together with any shares of RNB Stock acquired by such Shareholder after
the date hereof, the "Shares") and, as of the date hereof, the Existing
Shares constitute all the shares of RNB Stock owned of record or
beneficially by the Shareholder. With respect to the Existing Shares,
subject to applicable community property laws, such Shareholder has sole
voting power and sole power to issue instructions with respect to the
matters set forth in Section 2 hereof, sole power of disposition, sole power
to demand appraisal rights and sole power to engage in actions set forth in
Section 2 hereof, with no restrictions on the voting rights, rights of
disposition or otherwise, subject to applicable laws and the terms of this
Agreement.
(c) NO CONFLICTS. Neither the execution and delivery of this Agreement
nor the consummation by such Shareholder of the transactions contemplated
hereby will conflict with or constitute a violation of or default under any
contract, commitment, agreement, arrangement or restriction of any kind to
which such Shareholder is a party or by which such Shareholder is bound.
(d) NO INTENTION TO SELL. Such Shareholder has no present plan or
intention, directly or indirectly, to sell, exchange or otherwise dispose
of, reduce the risk of loss by short sale or otherwise, or enter into any
contract or other arrangement with respect to, or consent to the sale,
exchange or other disposition of, any interest in the CNC Stock, if any, to
be received by such Shareholder pursuant to the Merger. Such Shareholder
will give this representation to enable Munger, Tolles & Olson (or such
other counsel as permitted by the Merger Agreement) to opine, if required by
the
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Merger Agreement, that the Merger constitutes a reorganization within the
meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended,
and further recognizes that significant adverse tax consequences might
result if such representation is not true. Such Shareholder understands and
agrees that, in connection with the Merger, such Shareholder will be
required to restate the foregoing representation on or about the Effective
Time of the Merger.
2. VOTING AGREEMENT, PROXY AND AGREEMENT NOT TO TRANSFER.
(a) Each Shareholder hereby severally agrees to vote all of the Shares
held by such Shareholder (i) in favor of the Merger, the Merger Agreement
and the transactions contemplated by the Merger Agreement; and (ii) except
with the prior written consent of CNC, 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 the Company or its
subsidiaries; (B) any sale, lease or transfer of a material amount of the
assets of RNB or its subsidiaries; (C) any change in the majority of the
board of RNB (D) any material change in the present capitalization of RNB;
(E) any amendment of RNB's Articles of Association; (F) any other material
change in RNB'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 CNC of the Merger or the transactions
contemplated by the Merger Agreement or the Option Agreement. Such
Shareholder shall not enter into any agreement or understanding with any
person or entity prior to the Termination Date to vote or give instructions
after the Termination Date in any manner inconsistent with clauses (i), (ii)
or (iii) of the preceding sentence.
(b) Each Shareholder hereby severally grants to CNC, and appoints
Russell Goldsmith, Chief Executive Officer of CNC, and Frank Pekny, Chief
Financial Officer of CNC, in their respective capacities as officers of CNC,
and any individual who shall succeed to any such office of CNC, and any
other designee of CNC, and each of them, as such Shareholder's irrevocable
proxy and attorney-in-fact (with full power of substitution and
resubstitution) to vote the Shares with respect to the Merger. Such
Shareholder intends this proxy to be irrevocable and coupled with an
interest, and will take such further action and execute such other
instruments as may be necessary to effectuate the intent of this proxy and
hereby revokes any proxy previously granted by such Shareholder with respect
to the Shares.
(c) Each Shareholder hereby severally agrees not to (i) sell, transfer,
assign or otherwise dispose of any of his or her Shares without the prior
written consent of CNC, other than Shares sold or surrendered to pay the
exercise price of any stock options or to pay taxes or satisfy RNB's
withholding obligations with respect to any taxes resulting from such
exercise or (ii) pledge, mortgage or encumber such Shares. Any permitted
transferee of Shares must become a party to this Agreement and any purported
transfer of Shares to a person or entity that has not become a party hereto
shall be null and void.
3. AGREEMENT TO MAINTAIN BANKING RELATIONSHIPS. Each Shareholder hereby
severally expresses his or her intent to maintain his or her, and his or her
affiliated business', banking relationships with RNB after the Merger and, after
the occurrence of the Bank Merger, with CNB, for a period of at least three
years in a manner consistent with past practices, to the extent, in each case,
that such Shareholder remains in an area then served by CNB, and further
provided that the types, quality and pricing of services provided by CNB
continue to be comparable to those currently provided.
4. COMMUNITY BOARD OF ADVISORS. Following the Merger, CNC shall establish
a Riverside County Board of Advisors, or similar advisory and community liaison
group of prominent Riverside County citizens, in order that RNB and, following
the Bank Merger, CNB, will be able to continue visibility in Riverside County
and provide service to the community. CNC's current intention is that the Board
of Advisors initially be comprised of approximately 6 to 8 members (including a
director of CNC and one or
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more former directors of RNB) who will meet regularly during the year, to focus
on issues relevant to the Riverside County area, and its business community and
residents. If invited to join the Riverside County Board of Advisors,
Shareholder agrees that he/she will meet with a representative of CNC and give
due consideration to committing to participate as a member of the Board of
Advisors for at least a one-year term.
5. AFFILIATE STATUS.
(a) Each Shareholder hereby severally acknowledges that he/she may be
deemed an "affiliate" of RNB within the meaning of Rule 145 ("Rule 145")
promulgated under the Securities Act of 1933 (the "Act"), although nothing
contained herein shall be construed as an admission that such Shareholder
has such status. Each Shareholder represents to and covenants with CNC that
he/she will not sell, assign, transfer or otherwise dispose of, or offer to
sell, transfer or otherwise dispose of, the CNC Shares he/she receives in
the Merger, if any, except (i) in conformity with Rule 145 of the Securities
and Exchange Commission, (ii) pursuant to an effective registration
statement under the Act, or (iii) in a transaction that, in the opinion of
independent counsel reasonably satisfactory to CNC, is exempt from
registration under the Act.
(b) Each Shareholder severally acknowledges and agrees that, shortly
before the Effective Time, he/she will deliver to CNC a letter that makes
the representations set forth in Section 5(a) hereof.
6. COOPERATION. Shareholder severally agrees that he/she 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 RNB or
any of its subsidiaries, or the acquisition of voting securities of RNB or any
subsidiary of RNB or any business combination between RNB or any subsidiary of
RNB and any person other than CNC.
7. STOCKHOLDER CAPACITY. Each Shareholder is entering this Agreement in
his capacity as the record or beneficial owner of such Shareholder's Shares, and
not in his or her capacity as a director of RNB. Nothing in this Agreement shall
be deemed in any manner to limit the discretion of any Shareholder to take any
action, or fail to take any action, in his or her capacity as a director of RNB,
that may be required of such Shareholder in the exercise of such Shareholder's
duties and responsibilities as a director of RNB.
8. TERMINATION. The obligations of the Shareholders, other than those set
forth in Sections 3, 4 and 5 hereof, shall terminate upon the consummation of
the Merger. If the Merger is not consummated, the obligations of the
Shareholders hereunder shall terminate upon the termination of the Merger
Agreement, other than those obligations set forth in Sections 2(a)(ii),
2(a)(iii)(G) and the last sentence of 2(a) hereof, and such further obligations
shall survive until the Option Agreement shall have terminated or been fully
performed. The "Termination Date" for any particular provision hereunder shall
be the date of termination of the Shareholders' obligations for such provision.
9. SPECIFIC PERFORMANCE. The Shareholders each acknowledge that damages
would be an inadequate remedy to CNC for an actual or prospective breach of this
Agreement and that the obligations of each of the Shareholders hereto shall be
specifically enforceable.
10. MISCELLANEOUS.
(a) DEFINITIONAL MATTERS.
(i) Unless the context otherwise requires, "person" shall mean a
corporation, association, partnership, joint venture, organization,
business, individual, trust, estate or any other entity or group (within
the meaning of Section 13(d)(3) of the Exchange Act).
(ii) All capitalized terms used but not defined in this Agreement
shall have the respective meanings that the Merger Agreement ascribes to
such terms.
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(iii) 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.
(b) ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the parties hereto with respect to the subject matter hereof and
supersedes all other prior agreements and understandings, both written and
oral, among the parties, or any of them, with respect to the subject matter
hereof.
(c) PARTIES IN INTEREST. This Agreement shall be binding upon and
inure solely to the benefit of each party hereto and their respective
successors, assigns, heirs, executors, administrators and other legal
representatives. Nothing in this Agreement, express or implied, is intended
to confer upon any other person any rights or remedies of any nature
whatsoever under or by reason of this Agreement.
(d) ASSIGNMENT. This Agreement shall not be assigned without the prior
written consent of the other party hereto, except that CNC may assign, in
its sole discretion, all or any of its rights, interests and obligations
hereunder to any direct or indirect wholly owned subsidiary of CNC.
(e) MODIFICATIONS. This Agreement shall not be amended, altered or
modified in any manner whatsoever, except by a written instrument executed
by the parties hereto.
(f) GOVERNING LAW. This Agreement shall be governed in all respects,
including validity, interpretation and effect, by the laws of the State of
Delaware (without giving effect to the provisions thereof relating to
conflicts of law).
(g) VALIDITY. The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, each of which shall remain in full force and
effect.
(h) COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original, but all of
which shall constitute one and the same agreement.
(i) NOTICES. Any notices or other communications required or permitted
hereunder shall be in writing and shall be deemed duly given upon (i)
transmitter's confirmation of a receipt of a facsimile transmission, (ii)
confirmed delivery by a standard overnight carrier or (iii) 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, to:
City National Corporation
400 North Roxbury Drive
Beverly Hills, California 90210-5021
Telephone No.: (310) 888-6704
Attention: Mr. Frank P. Pekny
If to any of the Shareholders, to the respective addresses noted on the
signature page hereto.
11. FURTHER ASSURANCES. Each Shareholder shall execute and deliver all
such further documents and instruments and take all such further actions as may
be necessary in order to consummate the transactions contemplated hereby.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
CITY NATIONAL CORPORATION
By: /s/ RUSSELL GOLDSMITH
-----------------------------------
Russell Goldsmith
CHIEF EXECUTIVE OFFICER
AND VICE CHAIRMAN
SHAREHOLDERS:
__________EVERETT L. SPRIGGS__________
Number of Shares: 180,000_____________
Address for Notices: c/o Kinkle,
Rodiger &
Spriggs_
3333 Fourteenth
Street___________
Riverside, CA
92501____________
Spouse: /s/_BETTY M. SPRIGGS__________
Spouse's Name: /s/_EVERETT L.
SPRIGGS________________
__________JAMES A. ROBINSON &_________
__________BARBARA L. ROBINSON_________
Number of Shares: 28,500______________
Address for Notices: Merrill Lynch____
P.O. Box 472_____
Riverside, CA
92502____________
_________/s/_JAMES A. ROBINSON________
Spouse: /s/_BARBARA L. ROBINSON_______
Spouse's Name: Barbara L. Robinson____
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_________JAMES A. ROBINSON IRA________
Number of Shares: 16,500______________
Address for Notices: Merrill Lynch____
P.O. Box 472_____
Riverside, CA
92502____________
_________/s/_JAMES A. ROBINSON________
Spouse: /s/_BARBARA L. ROBINSON_______
Spouse's Name: Barbara L. Robinson____
____JAMES A. ROBINSON ROLLOVER IRA____
Number of Shares: 2,000_______________
Address for Notices: A.G. Edwards &
Sons, Inc.__
3737 Main Street,
#103_____________
Riverside, CA
92501____________
_________/s/_JAMES A. ROBINSON________
Spouse: /s/_BARBARA L. ROBINSON_______
Spouse's Name: Barbara L. Robinson____
___________GEORGE R. FREEMAN__________
Number of Shares: 40,047______________
Address for Notices: P.O. Box 506_____
Riverside, CA
92502____________
__________/s/_GEORGE FREEMAN__________
Spouse: /s/_SHIRLEY FREEMAN___________
Spouse's Name: Shirley Freeman________
__________DOLORES M. MAGNUSON_________
Number of Shares: 11,995______________
Address for Notices: 5930 Maybrook
Circle___________
Riverside, CA
92506____________
Spouse: ______________--______________
Spouse's Name: ___________--__________
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________/s/_DOLORES M. MAGNUSON_______
_________/s/_JAMES L. MAGNUSON________
___/s/_ROLLIN E. MAGNUSON, JT. TEN.___
Number of Shares: 49,691______________
Address for Notices: 5930 Maybrook
Circle___________
Riverside, CA
92506____________
Spouse: ______________--______________
Spouse's Name: ___________--__________
________/s/_DOLORES M. MAGNUSON_______
_____________LEON SIGERMAN____________
__DOLORES M. MAGNUSON TR UA 8/21/73__
______LEON SIGERMAN FAMILY TRUST______
Number of Shares: 5,469_______________
Address for Notices: 1279 Prima Vera
Drive____________
Palm Springs, CA
92264____________
___________/s/_LEON SIGERMAN__________
Spouse: /s/_MARILYN SIGERMAN__________
Spouse's Name: Marilyn Sigerman_______
___________ROY E. WHITEHEAD___________
Number of Shares: 10,000______________
Address for Notices: 15900 Calumet
Ct.______________
Riverside, CA
92506____________
_________/s/_ROY E. WHITEHEAD_________
Spouse: /s/_VERA LORENE WHITEHEAD_____
Spouse's Name: Vera Lorene Whitehead__
_____VERNA LORENE WHITEHEAD TRUST_____
Number of Shares: 50,000______________
Address for Notices: 15900 Calumet
Ct.______________
Riverside, CA
92506____________
Spouse: /s/_ROY E. WHITEHEAD__________
Spouse's Name: /s/_VERA LORENE
WHITEHEAD______________
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________ROY E. WHITEHEAD TRUST________
Number of Shares: 15,000______________
Address for Notices: 15900 Calumet
Ct.______________
Riverside, CA
92506____________
_________/s/_ROY E. WHITEHEAD_________
Spouse: /s/_VERA LORENE WHITEHEAD_____
Spouse's Name: Vera Lorene Whitehead__
__________JEROME H. THOMPSON__________
Number of Shares: 105,191_____________
Address for Notices: 5175 Myrtle
Ave._____________
Riverside, CA
92506____________
________/s/_JEROME H. THOMPSON________
Spouse: /s/_BONNY L. THOMPSON_________
Spouse's Name: Bonny L. Thompson______
_____________MARYANN HOGAN____________
Number of Shares: 16,523______________
Address for Notices: 4123 Miramonte
Place____________
Riverside, CA
92501____________
_____/s/_MARYANN HOGAN ARCHAMBAULT____
Spouse: /s/_ANTHONY E. ARCHAMBAULT____
Spouse's Name: Anthony E.
Archambault____________
________ANTHONY E. ARCHAMBAULT________
____& MARYANN ARCHAMBAULT, JT. TN.____
Number of Shares: 809_________________
Address for Notices: 4123 Miramonte
Place____________
Riverside, CA
92501____________
Spouse: /s/_ANTHONY E. ARCHAMBAULT____
Spouse's Name: /s/_MARYANN HOGAN
ARCHAMBAULT____________
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APPENDIX C
STOCK OPTION AGREEMENT
THIS STOCK OPTION AGREEMENT, dated as of October 15, 1996 (the "AGREEMENT"),
is made and entered into by and between City National Corporation, a Delaware
corporation ("CNC"), and Riverside National Bank, a California corporation
("RNB").
WHEREAS, CNC, City National Bank ("CNB") and RNB are concurrently herewith
entering into an Agreement and Plan of Merger with respect to a business
combination of CNB and RNB (the "MERGER AGREEMENT"); and
WHEREAS, as a condition to its willingness to enter into the Merger
Agreement, CNC has requested that RNB agree, and in order to induce CNC to enter
into the Merger Agreement, RNB has agreed, to grant an option to CNC to purchase
certain shares of common stock, $1.25 par value, of RNB (the "RNB 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. RNB hereby grants to CNC an irrevocable option (the
"OPTION") to purchase, subject to the terms hereof, up to 421,778 fully paid and
nonassessable shares (the "OPTION SHARES") of RNB Common Stock, exercisable as
set forth herein by payment of the Option Price, as defined in Section 4 hereof.
The number of shares of RNB Common Stock that may be received upon the exercise
of the Option and the Option Price is 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 have a right to purchase under the terms of this Agreement
more than the number of Option Shares that has a Spread Value of $2,000,000. In
the event that the Spread Value exceeds $2,000,000 at the time CNC wishes to
exercise the Option, the number of Option Shares that CNC is entitled to
purchase on the date of the Closing (as defined herein) shall be reduced to the
extent necessary to reduce the Spread Value following such reduction to an
amount 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 herein or 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 (such earliest date, the "EXPIRATION DATE") of (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 RNB
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.
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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 RNB, specifying the number of Option Shares to be
purchased and a place and date not earlier than three 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 RNB for the Option Shares so
purchased at such date by delivery of immediately available funds to RNB of
$14.50 per Option Share (the "OPTION PRICE"). If the Option is exercised in part
only, CNC shall also deliver all originally executed copies of this Agreement to
RNB at the Closing in exchange for a new agreement duly authorized and executed
by RNB identical to this Agreement evidencing the right to purchase the
remaining balance of the Option Shares.
(c) Upon payment of the Option Price, RNB 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 RNB 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 RNB, 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, RNB 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 RNB,
addressed to CNC and which shall be reasonably satisfactory in form and
substance to CNC and its counsel, registration is not required for such
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proposed disposition of the Option Shares. Notwithstanding the foregoing, RNB
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 RNB (i) is involved in a material transaction,
(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 RNB or would require disclosure of
information, the premature disclosure of which could materially adversely affect
RNB or any transaction under active consideration by RNB, or (iii) reasonably
requires such delay in order to prepare audited financial statements required to
be included in such registration statement. For purposes of this Agreement, the
term "material transaction" shall mean a transaction which would require RNB to
file a current report on Form 8-K with the SEC. RNB 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 by RNB in
connection with the registration of the Option Shares pursuant to this Section 5
shall be borne and paid by RNB. RNB 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, other than
any losses, claims, damages, liabilities and expenses arising out of or based
upon an untrue statement or alleged untrue statement or omission or alleged
omission made in such registration statement or prospectus in reliance upon
information furnished to RNB by CNC.
(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. RNB 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 RNB. RNB hereby represents and
warrants to, and agrees with, CNC as follows:
(a) AUTHORITY RELATIVE TO THIS AGREEMENT. RNB 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 RNB and no
other corporate proceedings on the part of RNB are necessary to authorize
this Agreement or to consummate the transactions so contemplated. This
Agreement has been duly and validly executed and delivered by RNB 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 RNB, enforceable against RNB in accordance with its terms.
(b) OPTION SHARES. RNB 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, 421,778 shares of RNB 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. RNB 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. RNB will not take, and will
refrain from taking, any action which could reasonably have the effect of
preventing or disabling RNB from (i) delivery of the Option Shares to CNC
upon exercise of the Option or (ii) from otherwise performing its
obligations under this Agreement.
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(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
Association or Bylaws of RNB, or of any material agreement, instrument,
judgment, decree, order, statute, rule or governmental regulation applicable
to RNB. 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 RNB
in connection with the execution and delivery by RNB of this Agreement or
the consummation by RNB of the transactions contemplated hereby.
(d) NOTICE. RNB shall give notice to CNC promptly, but in any event
within two business days, of RNB's first obtaining knowledge of any Exercise
Event or Repurchase Event.
7. REPRESENTATIONS AND WARRANTIES OF CNC. CNC hereby represents and
warrants to RNB 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 RNB, 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, RNB shall give
CNC thirty business days' (or such shorter time as is possible under the
circumstances) prior written notice of any record date, for determining the
holders of record of RNB 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
RNB 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 RNB for any
shareholders' meeting, then RNB 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 RNB 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 RNB Common Stock if the Option had been
exercised immediately prior to such event, or the record date therefor, as
applicable. If any shares of RNB 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 RNB Common Stock subject to the
Option
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shall be adjusted so that, after such issuance, it, together with any shares of
RNB Common Stock previously issued to CNC pursuant hereto, equals 19.9% of the
number of shares of RNB 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 RNB 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 RNB and RNB shall be the
continuing or surviving corporation, but, in connection with such merger, the
then outstanding shares of RNB Common Stock shall be changed into or exchanged
for stock or other securities of RNB or any other person or cash or any other
property or the outstanding shares of RNB Common Stock immediately prior to such
merger shall after such merger represent less than 50% of the outstanding shares
and share equivalents of the 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), RNB (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 or regulatory
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 RNB
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 RNB 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 RNB (if other than RNB), (y)
RNB in a merger in which RNB is the continuing or surviving person, and (z)
the transferee of all or any substantial part of RNB'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 RNB Common Stock at which a Tender Offer or Exchange Offer therefor
has been made by any person (other than CNC or its Subsidiaries or
affiliates), (y) the price per share of the RNB Common Stock to be paid by
any person (other than CNC or its Subsidiaries or affiliates) pursuant to an
agreement with RNB, and (z) the highest closing sale price per share of RNB
Common Stock quoted on the Nasdaq National Market (or if RNB 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
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period immediately preceding the agreement; provided, that in the event of a
sale of less than all of RNB'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 RNB as determined in good faith by a nationally
recognized investment banking firm selected by CNC and reasonably acceptable
to RNB, divided by the number of shares of the RNB Common Stock outstanding
at the time of such sale. In the event that an Exchange Offer is made for
the RNB 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 RNB
Common Stock shall be determined in good faith by a nationally recognized
investment banking firm mutually selected by CNC and RNB (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.
(iv) "AVERAGE PRICE" shall mean the average closing price of a share of
the Substitute Common Stock for the one-year period 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 RNB is the
issuer of the Substitute Option, the Average Price shall be computed with
respect to a share of common stock issued by RNB, the person merging into
RNB 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) RNB 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 RNB 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)), RNB shall
repurchase from CNC the Option and, to the extent permitted by applicable law,
all shares of RNB 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 RNB 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 RNB Common Stock over (y) the Option Price (subject to
adjustment pursuant to Section 9), multiplied by the number of shares of RNB
Common Stock with respect to which the Option has not been exercised; and
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(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 has not occurred, payable) by CNC for each share of RNB 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, RNB 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 RNB the Option and the certificates evidencing the shares of RNB
Common Stock purchased thereunder with respect to which CNC then has Beneficial
Ownership, and CNC shall represent and warrant that it has sole record and
Beneficial Ownership of such shares, that it has not granted any rights to
purchase or otherwise acquire such shares to any person, 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 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 RNB 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 application and the obtaining of any such approval). If the Federal
Reserve Board, the OCC or any other regulatory authority disapproves of any part
of RNB's proposed repurchase pursuant to this Section 10, RNB 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 RNB 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 RNB Common Stock paid for any such share
by the person or groups described in Section 10(d)(i), (ii) the price per share
of RNB Common Stock received by holders of RNB Common Stock in connection with
any merger or other business combination transaction described in Section
9(b)(i), (ii) or (iii) or (iii) the highest closing sales price per share of RNB
Common Stock quoted on the Nasdaq National Market (or if RNB 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 RNB'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 RNB as determined in good faith by an independent national
recognized investment banking firm selected by CNC and reasonably acceptable to
RNB (which determination shall be conclusive for all purposes of this
Agreement), divided by the number of shares of the RNB 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
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determined in good faith by an independent nationally recognized investment
banking firm selected by CNC and reasonably acceptable to RNB, 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 or affiliate 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 RNB 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.
(b) The following definitions shall have the meanings set forth herein.
"ACQUISITION TRANSACTION" shall mean:
(i) a merger, consolidation or similar transaction involving RNB or any
of its Subsidiaries (other than internal transactions solely involving RNB
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 RNB or any
of its Subsidiaries representing 50% or more of the consolidated assets of
RNB 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 RNB or any of its
Subsidiaries; or
(iv) the acquisition by any person or group of persons (other than by
CNC or any of its Subsidiaries or affiliates) of Beneficial Ownership of, or
the right to acquire beneficial ownership of, 20% or more of the
then-outstanding shares of RNB Common Stock.
"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 or
affiliate of CNC) of, or the filing by any person (other than CNC or any
Subsidiary or affiliate of CNC) of a registration statement under the
Securities Act with respect to, a tender offer or exchange offer to purchase
shares of RNB Common Stock such that, upon consummation of such offer, such
person would own or control 20% or more of the then-outstanding shares of
RNB Common Stock (such an offer being referred to herein as a "TENDER OFFER"
or an "EXCHANGE OFFER," respectively); or
(ii) the shareholders of RNB 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 RNB's Board of Directors of the Merger and/or the Merger
Agreement that the shareholders of RNB 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 or affiliate 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,
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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 RNB of an
Acquisition Transaction; (iii) a public announcement by RNB 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 RNB of any agreement with any person or group of persons to
effect an Acquisition Transaction; or (v) the termination by RNB 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 RNB
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 on the day of the Closing
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. RNB 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
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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 90210-5021
Telecopy No. (310) 888-6704
Attention: Frank P. Pekny
with a copy to:
City National Corporation
400 North Roxbury Drive
Beverly Hills, California 90210-5021
Telecopy No. (310) 888-6232
Attention: Richard H. Sheehan, Esq.
If to RNB:
Riverside National Bank
3484 Central Avenue
Riverside, California 92506
Telecopy No. (909) 686-0135
Attention: James A. Robinson
With a copy to:
Mayer Brown & Platt
350 South Grand Avenue, 25th Floor
Los Angeles, California 90071
Telecopy No. (213) 625-0248
Attention: James R. Walther, Esq.
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.
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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
------------------------------------------
RIVERSIDE NATIONAL BANK
a national banking association
By: /s/ JAMES A. ROBINSON
------------------------------------------
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APPENDIX D
SECTION 215a
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SECTION 215a OF TITLE 12 OF THE UNITED STATES CODE
MERGER OF NATIONAL BANKS OR STATE BANKS INTO NATIONAL BANKS
(a) APPROVAL OF COMPTROLLER, BOARD AND SHAREHOLDERS; MERGER AGREEMENT; NOTICE;
CAPITAL STOCK; LIABILITY OF RECEIVING ASSOCIATION
One or more national banking associations or one more State banks, with the
approval of the Comptroller, under an agreement not inconsistent with this
subchapter, may merge into a national banking association located within the
same State, under the character of the receiving association. The merger
agreement shall--
(1) be agreed upon in writing by a majority of the board of directors of
each association or State bank participating in the plan of merger;
(2) be ratified and confirmed by the affirmative vote of the
shareholders of each such association or State bank owning at least
two-thirds of its capital stock outstanding, or by a greater proportion of
such capital stock in the case of a State bank if the laws of the State
where it is organized so require, at a meeting to be held on the call of the
directors, after publishing notice of the time, place, and object of the
meeting for four consecutive weeks in a newspaper of general circulation
published in the place where the association or State bank is located, or,
if there is no such newspaper, then in the newspaper of general circulation
published nearest thereto, and after sending such notice to each shareholder
of record by certified or registered mail at least ten days prior to the
meeting, except to those shareholders who specifically waive notice, but any
additional notice shall be given to the shareholders of such State bank
which may be required by the laws of the State where it is organized.
Publication of notice may be waived, in cases where the Comptroller
determines that an emergency exists justifying such waiver, by unanimous
action of the shareholders of the association or State banks;
(3) specify the amount of the capital stock of the receiving
association, which shall not be less than that required under existing law
for the organization of a national bank in the place in which it is located
and which will be outstanding upon completion of the merger, the amount of
stock (if any) to be allocated, and cash (if any) to be paid, to the
shareholders of the association or State bank being merged into the
receiving association; and
(4) provide that the receiving association shall be liable for all
liabilities of the association or State bank being merged into the receiving
association.
(b) DISSENTING SHAREHOLDERS
If a merger shall be voted for at the called meetings by the necessary
majorites of the shareholders of each association or State bank participating in
the plan of merger, and thereafter the merger shall be apporved by the
Comptroller, any shareholder of any association or State bank to be merged into
the receiving association who has voted against such merger at the meeting of
the association or bank of which he is a stockholder, or has given notice in
writing at or prior to such meeting to the presiding officer that he dissents
from the plan of merger, shall be entitled to receive the value of the shares so
held by him when such merger shall be approved by the Comptroller upon written
request made to the receiveing association at any time before thirty days after
the date of consummation of the merger, accompanied by the surrender of his
stock certificates.
(c) VALUATION OF SHARES
The value of the shares of any dissenting shareholder shall be ascertained,
as of the effective date of the merger, by an appraisal made by a committee of
three persons, composed of (1) one selected by the vote of the holders of the
majority of the stock, the owners of which are entitled to payment in cash;
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(2) one selected by the directors of the receiving association; and (3) one
selected by the two so selected. The valuation agreed upon by any two of the
three appraisers shall govern. If the value so fixed shall not be satisfactory
to any dissenting shareholder who has requested payment, that shareholder may,
within five days after being notified of the appraised value of his shares,
appeal to the Comptroller, who shall cause a reappraisal to be made which shall
be final and binding as to the value of the shares of the appellant.
(d) APPLICATION TO SHAREHOLDERS OF MERGING ASSOCIATIONS; APPRAISAL BY
COMPTROLLER; EXPENSES OF RECEIVING ASSOCIATION; SALE AND RESALE OF SHARES;
STATE APPRAISAL AND MERGER LAW
If, within ninety days from the date of consummation of the merger, for any
reason one or more of the appraisers is not selected as herein provided, or the
appraisers fail to determine the value of such shares, the Comptroller shall
upon written request of any interested party cause an appraisal to be made which
shall be final and binding on all parties. The expenses of the Comptroller in
making the reappraisal or the appraisal, as the case may be, shall be paid by
the receiving association. The value of the shares ascertained shall be promptly
paid to the dissenting shareholders by the receiving association. The shares of
stock of the receiving association which would have been delivered to such
dissenting shareholders had they not requested payment shall be sold by the
receiving association at an advertised public auction, and the receiving
association shall have the right to purchase any of such shares at such public
auction, if it is the highest bidder therefor, for the purpose of reselling such
shares within thirty days thereafter to such person or persons and at such price
not less than par as its board of directors by resolution may determine. If the
shares are sold at public auction at a price greater than the amount paid to the
dissenting shareholders, the excess in such sale price shall be paid to such
dissenting shareholders. The appraisal of such shares of stock in any State bank
shall be determined in the manner prescribed by the law of the State in such
cases, rather than as provided in this section, if such provision is made in the
State law; and no such merger shall be in contravention of the law of the State
under which such bank is incorporated. The provisions of this subsection shall
apply only to shareholders of (and stock owned by them in) a bank or association
being merged into the receiving association.
(e) STATUS OF RECEIVING ASSOCIATION; PROPERTY RIGHTS AND INTERESTS VESTED AND
HELD AS FIDUCIARY
The corporate existence of each of the merging banks or banking associations
participating in such merger shall be merged into and continued in the receiving
association and such receiving association shall be deemed to be the same
corporation as each bank or banking association participating in the merger. All
rights, franchises, and interests of the individual merging banks or banking
associations in and to every type of property (real, personal, and mixed) and
choses in action shall be transferred to and vested in the receiving association
by virtue of such merger without any deed or other transfer. The receiving
association, upon the merger and without any order or other action on the part
of any court or otherwise, shall hold and enjoy all rights of property,
franchises, and interests, including appointments, designations, and
nominations, and all other rights and interests as trustee, executor,
administrator, registrar of stocks and bonds, guardian of estates, assignee,
receiver, and committee of estates of lunatics, and in every other fiduciary
capacity, in the same manner and to the same extent as such rights, franchises,
and interests were held or enjoyed by any one of the merging banks or banking
associations at the time of the merger, subject to the conditions hereinafter
provided.
(f) REMOVAL AS FIDUCIARY; DISCRIMINATION
Where any merging bank or banking association, at the time of the merger,
was acting under appointment of any court as trustee, executor, administrator,
registrar of stocks and bonds, guardian of estates, assignee, receiver, or
committee of estates of lunatics, or in any other fiduciary capacity, the
receiving association shall be subject to removal by a court of competent
jurisdiction in the same manner and to the same extent as was such merging bank
or banking association prior to the merger. Nothing contained in this section
shall be considered to impair in any manner the right of any court to remove the
D-2
<PAGE>
receiving association and to appoint in lieu thereof a substitute trustee,
executor, or other fiduciary, except that such right shall not be exercised in
such a manner as to discriminate against national banking associations, nor
shall any receiving association be removed solely because of the fact that it is
a national banking association.
(g) ISSUANCE OF STOCK BY RECEIVING ASSOCIATION; PREEMPTIVE RIGHTS
Stock of the receiving association may be issued as provided by the terms of
the merger agreement, free from any preemptive rights of the shareholders of the
respective merging banks.
D-3
<PAGE>
APPENDIX E
[LETTERHEAD]
October 14, 1996
The Board of Directors
Riverside National Bank
3484 Central Avenue
Riverside, CA 92506
Dear Sirs and Madams:
City National Corporation ("City") and Riverside National Bank ("Riverside")
have entered into an Agreement and Plan of Merger dated as of October 14, 1996
(the "Agreement") providing for the merger of Riverside with and into City
National Bank (the "Merger"). Pursuant to the Agreement, each share of Riverside
common stock, par value $1.25 per share ("Riverside Common Stock"), will be
converted into $18.00 per share in cash, or, to the extent Riverside
shareholders elect to receive some or all of the consideration in City common
stock, par value $1.00 per share ("City Common Stock"), into approximately
$18.00 in value of City Common Stock, subject to certain adjustments and
limitations set forth in the Agreement. You have requested our opinion as to
whether the consideration to be received by the holders of Riverside Common
Stock is fair, from a financial point of view, to such holders.
Alex. Brown & Sons Incorporated ("Alex. Brown"), as a customary part of its
investment banking business, is engaged in the valuation of businesses and their
securities in connection with mergers and acquisitions, negotiated
underwritings, private placements and valuations for estate, corporate and other
purposes. We have acted as financial advisor to the Board of Directors of
Riverside in connection with the transaction described above and will receive a
fee for our services, a portion of which is contingent upon consummation of the
Merger. Alex. Brown regularly publishes research reports regarding the financial
services industry and the businesses and securities of publicly owned companies
in that industry.
In connection with this opinion, we have reviewed certain publicly available
financial information concerning Riverside and City and certain internal
financial analyses and other information furnished to us by Riverside and City.
We have also held discussions with members of the senior management of Riverside
and City regarding the business and prospects of their respective financial
institutions. In addition, we have (i) reviewed the reported price and trading
activity of the Riverside Common Stock and the City Common Stock, (ii) compared
certain financial and stock market information of Riverside and City,
respectively, with similar information of certain comparable companies whose
securities are publicly traded, (iii) reviewed the Agreement, (iv) reviewed the
financial terms of certain recent business combinations which we deemed
comparable in whole or in part, (v) reviewed the potential pro forma impact of
the Merger on City's financial condition, operating results and per share
figures and (vi) performed such other studies and analyses and considered such
other factors as we deemed appropriate.
We have not independently verified the information described above and for
purposes of this opinion have assumed the accuracy, completeness and fairness
thereof. With respect to information relating to the prospects of Riverside and
City (including, without limitation, projected cost savings from the Merger), we
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have assumed that such information reflects the best currently available
estimates and judgments of the respective managements of Riverside and City as
to the likely future financial performance of Riverside and City. In addition,
we have not made an independent evaluation or appraisal of the assets or
liabilities of Riverside or City, nor have we been furnished with any such
evaluation or appraisal. Our opinion is based on market, economic and other
conditions as they exist and can be evaluated as of the date of this letter.
In arriving at our opinion, we were not authorized to solicit, and did not
solicit, interest from any party with respect to the acquisition of the Company
or any of its assets.
Our opinion expressed herein was prepared for the use of the Board of
Directors of Riverside and does not constitute a recommendation to Riverside's
shareholders as to how they should vote at the shareholders' meeting in
connection with the Merger. We hereby consent, however, to the inclusion of this
opinion as an exhibit to any proxy or registration statement distributed in
connection with the Merger.
Based upon and subject to the foregoing, it is our opinion that, as of the
date of this letter, the consideration to be received by the holders of
Riverside Common Stock pursuant to the Agreement is fair, from a financial point
of view, to such holders.
Very truly yours,
ALEX. BROWN & SONS INCORPORATED
By: /s/ JEAN-LUC SERVAT
--------------------------------------
Jean-Luc Servat
Managing Director
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APPENDIX F
RIVERSIDE NATIONAL BANK'S ANNUAL REPORT ON FORM 10-KSB
FOR THE YEAR ENDED DECEMBER 31, 1995
<PAGE>
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OFFICE OF THE COMPTROLLER OF THE CURRENCY
Washington, D.C. 20919
------------------------
FORM 10-KSB
ANNUAL REPORT UNDER SECTION 13 OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995
------------------------
RIVERSIDE NATIONAL BANK
(Exact name of bank as specified in charter)
A National Banking Association
<TABLE>
<S> <C>
3484 Central Avenue, Riverside, California 92506 95-2312456
(Address of principal executive office) (Zip code) (IRS Employer
Bank's telephone number, including area code (909) 276-8800 Identification No.)
</TABLE>
------------------------
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, Par Value $1.25
(Title of Class)
------------------------
Check whether the Bank (1) has filed all reports required to be filed by
Section 13 of the Securities Exchange Act of 1934 during the past 12 months (or
for such shorter period that the Bank was required to file such reports), and
(2) has been subject to filing requirements for the past 90 days.
YES /X/ NO / /
Check if no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is contained in this form, and no disclosure will be contained,
to the best of Bank's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB, or any amendment to
this Form 10-KSB. / /
Bank's revenues for fiscal year ended December 31, 1995: $19,305,000.
As of February 29, 1996, the aggregate market value of the common stock held
by non-affiliates of the Bank was approximately $22,479,000.
Number of shares of Bank common stock outstanding as of February 29, 1996:
2,129,489
The 1995 Annual Report to shareholders, a copy of which is attached hereto,
is incorporated into Parts II and III of this Form 10-KSB.
The Proxy Statement for the 1996 Annual Shareholders Meeting, to be mailed
on or about April 11, 1996, is incorporated into Part III of this Form 10-KSB.
- --------------------------------------------------------------------------------
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F-1
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
--------------------------------------------
YEAR 1995 YEAR 1995 APRIL 11, 1996
ITEM FORM 10KSB ANNUAL REPORT PROXY STATEMENT
- ------------------------------------------------------------------- ------------ ------------- ---------------
<S> <C> <C> <C>
PART I
1. Business...................................................... 3-8 5, 20 --
2. Properties.................................................... 7 -- --
3. Legal Proceedings............................................. 8 -- --
4. Submission of Matters to a Vote of Security Holders........... 8 -- --
PART II
5. Market for the Bank's Common Stock and Related Security Holder
Matters........................................................ 8-9 5-6, 37 --
6. Management's Discussion and Analysis of Financial Condition
and Results of Operation....................................... 9 5-14 --
7. Financial Statements and Supplementary Data................... 9 15-34 --
8. Disagreements on Accounting and
Financial Disclosure........................................... 9 -- --
PART III
9. Directors, Executive Officers, Promoters, and Control Persons;
Compliance with Section 16(a) of the Exchange Act.............. 10 -- 4,8
10. Executive Compensation........................................ 10 -- 11-20
11. Security Ownership of Certain Beneficial Owners and
Management..................................................... 10 -- 9-10
12. Certain Relationships and Related Transactions................ 10 31 --
13. Exhibits, Financial Statement Schedules and Reports of Form
8-K............................................................ 10 -- --
</TABLE>
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PART I
ITEM L. BUSINESS
GENERAL
Riverside National Bank ("Bank") commenced business as a national banking
association on March 2, 1965. The Bank and its operations are subject to federal
and state laws applicable to national banks and to supervision and regular
examinations by the Comptroller of the Currency ("Comptroller"). The Bank is
also a member of the Federal Reserve System and has its deposits insured up to
the applicable limits by the Federal Deposit Insurance Corporation. At December
31, 1995, the Bank had approximately $222 million in consolidated assets, $141
million in consolidated net loans and $198 million in consolidated deposits.
The Bank's capital base, for the purpose of computing the legal lending
limit, as of December 31, 1995, was $22,946,000. This figure includes Allowances
for Loan and Lease Losses but excludes goodwill. This capital base will provide
the Bank with lending limits of approximately $3,442,000 unsecured and an
additional $2,295,000 for certain secured loans based upon federal law. This
federal law mandates that the total loans and extensions of credit by a national
banking association to a person outstanding at one time and not fully secured by
collateral having a market value at least equal to the amount of the loan or
extension of credit shall not exceed 15 percent of the unimpaired capital and
unimpaired surplus of the association. In addition, the total loans and
extensions of credit by a national banking association to a person outstanding
at one time and fully secured by readily marketable collateral having a market
value at least equal to the amount of the funds outstanding shall not exceed 10
percent of the unimpaired capital and unimpaired surplus of the association. The
Bank's directors believe that this lending limit should be sufficient to meet
the needs of most of the Bank's customers. If a customer requires, and qualifies
for, more credit than the Bank can extend, the Bank will attempt to arrange to
sell all, or a portion, of a prospective loan to another bank so as to
accommodate the customer's credit needs while remaining within its legal lending
limits.
Approximately 32 percent of the Bank's deposits are non-interest bearing
demand deposits and 68 percent are interest bearing time, savings and demand
deposits as of December 31, 1995. Of its interest bearing time, savings and
demand deposits, approximately 51 percent are interest bearing deposits without
specified maturities or contractual provisions requiring advance notice to
withdraw funds.
SUBSIDIARIES OF THE BANK
The Bank has two subsidiaries: RNB Trust Deed Services, Inc. ("RNB Trust")
and Inland Data Services, Inc. ("IDS"). The Bank owns 100% of the voting stock
of RNB Trust, which had assets of $2,500 as of December 31, 1995. The Bank also
owns 100% of the voting stock of IDS, which had assets of $766,000 as of
December 31, 1995. Both subsidiaries are discussed further in the Bank Services
section below.
BANK SERVICES
The Bank, as an independent commercial bank, offers a full range of
commercial banking services primarily to the business and professional community
and individuals located in Riverside County.
The Bank offers a wide range of deposit options. These include personal and
business checking accounts and savings accounts, interest-bearing negotiable
order of withdrawal ("NOW") accounts, money market accounts and time
certificates of deposit. Most of the Bank's deposits are attracted from
individuals and from small and medium-sized business-related sources. In
addition, the Bank attracts some deposits from municipalities and other
governmental groups.
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The Bank engages in the full complement of lending activities, including
commercial and consumer loans, and short-term real estate loans, with particular
emphasis on small and medium-sized professional firms, retail and wholesale
outlets, and light manufacturing concerns. Consumer lending activities include
loans for aircraft, automobiles and recreational vehicles, home improvements,
debt consolidation and other personal needs. Real estate loans include secured
short-term "swing" loans and construction loans. At December 31, 1995,
commercial loans, real estate loans and consumer loans constituted approximately
30%, 62% and 8%, respectively, of the Bank's total loan portfolio.
In the normal course of business, the Bank makes various commitments. At
December 31, 1995, and 1994, commitments aggregated approximately $34.4 million
and $35.2 million, respectively. As of December 31, 1995, management anticipates
that 50% of these commitments will be exercised within 1996. See Note 9 of the
Notes to the Bank's Consolidated Financial Statements.
The Bank continues to actively offer the services of its Mortgage Loan and
Appraisal Departments, and "RNB Trust". These departments and subsidiary were
established in 1985. RNB Trust's services, which are provided to the Bank,
include preparing and filing reconveyances and related documents and acting as
trustee under deeds of trust executed in conjunction with the making of real
estate loans by the Bank.
Until June 30, 1994, IDS provided full financial computer processing
services, primarily to the Bank. On July 1, 1994, IDS sold all of its assets,
except for certain software, to Ideal Data Solutions ("Ideal"). The Bank now
outsources its item processing needs to Ideal and data processing functions to
FiServe. All of the accounts of IDS for 1995 are included in the consolidated
financial statements of Riverside National Bank.
The Bank also offers a wide range of specialized services designed to
attract and service the needs of commercial customers and account holders. These
services include cashier's checks, traveler's checks, money orders and foreign
drafts. The Bank does not operate a trust department; however, it makes
arrangements with its correspondent bank to offer trust services to the Bank's
customers on request. Neither the Bank's business nor liquidity is seasonal, and
there has been no material effect upon the Bank's capital expenditures, earnings
or competitive position as a result of compliance with federal, state or local
environmental regulation.
SOURCES OF BUSINESS
Management obtains sufficient market penetration from existing customers,
referrals, advertising and through the personal solicitation by the Bank's
officers, directors and shareholders. All loan and business development officers
are responsible for making regular calls on potential customers to solicit
business and on existing customers to obtain referrals. Promotional efforts are
directed toward residents and small-to-medium sized businesses. The Bank's
customers are able to deal with bankers who have commercial and real estate loan
experience, lending authority, and the time to quickly and competently serve
customer banking needs.
The risk of nonpayment (or deferred payment) of loans is inherent to banking
and the lending of money. The Bank's marketing focus, directed toward local
residents and small-to-medium sized businesses, may, however, involve certain
lending risks not inherent in loans to larger companies. The smaller companies
may have shorter operating histories, less sophisticated internal record keeping
and financial planning capabilities, and greater debt-to-equity ratios.
Management of the Bank carefully evaluates all loan applicants and attempts
to minimize its credit risk exposure by use of thorough loan application,
underwriting and approval procedures.
It is the policy of the Bank to offer loans on fair and equitable terms to
all credit worthy borrowers without regard to sex, marital status, race, color,
religion, national origin, handicap, age (provided the applicant has the
capacity to enter into a binding contract), receipt of income derived in whole
or in part from public assistance programs, or the fact that the applicant may
have in good faith exercised any right
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<PAGE>
under the Consumer Protection Act. The Bank's primary consideration in extending
credit is the creditworthiness of the applicant.
Most of the Bank's business originates from within Riverside County. The
Bank's primary business is community-based commercial banking, serving
small-to-medium size businesses, professionals, retired individuals, employees
and residents in the Riverside area, plus real estate owners throughout the
Inland Empire and Orange County.
COMPETITION
The banking business in California generally, and in the Bank's market areas
specifically, is highly competitive with respect to both loans and deposits. The
Bank competes for loans and deposits with other commercial banks, savings and
loan associations, finance companies, money market funds, credit unions and
other financial institutions, including a number that are much larger than the
Bank. There has been increased competition for deposit and loan business over
the last several years as a result of deregulation. Additionally, with the
advent of interstate banking, bank holding companies headquartered outside of
California may enter the California market and provide further competition for
the Bank.
Many of the major commercial banks operating in the Bank's market areas
offer certain services, such as trust and international banking services, which
the Bank does not offer directly. Additionally, banks with
larger capitalization have larger lending limits and are thereby able to serve
the needs of larger customers. Among the advantages which major insured
depository institutions have over the Bank are their abilities to: finance
extensive advertising campaigns; allocate their investment assets to regions of
highest yield and demand; offer certain services (such as trust and
international banking services) which are not offered directly by the Bank;
access to international money markets, and; offer loans with substantially
higher limits than the Bank.
In addition to competition from insured depository institutions, principal
competitors for deposits and loans have been mortgage brokerage companies,
insurance companies, brokerage houses, credit card companies, and even retail
establishments offering new investment vehicles such as money market funds,
mutual funds, as well as traditional bank-like services such as check access to
money market funds, or cash advances on credit card accounts.
GOVERNMENT SUPERVISION AND REGULATION
As a national bank, the Bank is subject to supervision and examination by
the Comptroller of the Currency ("OCC"). The Bank is insured by, therefore
subject to regulations of, the Federal Deposit Insurance Corporation ("FDIC").
The Bank is also subject to requirements and restrictions under federal and
state law, including requirements to maintain reserves against deposits,
restrictions on the types and amounts of loans that may be made, limitations on
the types of investments that may be made and services that may be offered, and
restrictions on locations of branch offices. Numerous consumer laws and
regulations also affect the operations of the Bank including, among others,
disclosure requirements, and limitations with respect to deposit accounts. The
banking agencies, together with the Departments of Justice and Housing and Urban
Development, have announced that they intend to enforce more rigorously
compliance with the Community Reinvestment Act and antidiscrimination and other
fair lending laws and regulations.
DIVIDENDS
As a national bank, the Bank is subject to restrictions on its ability to
pay dividends. In general, the Bank may pay dividends out of its net profits.
However, the Bank may not, without the prior approval of the Comptroller, pay
dividends in any calendar year in excess of net profits for that year and
retained net profits from the two preceding years. Under such restrictions as of
December 31, 1995, the Bank was able to pay dividends of $.365 per share to its
stockholders. In addition, the Comptroller and the FDIC have
F-5
<PAGE>
authority to prohibit banks from engaging in unsafe or unsound practices in
conducting their business. The payment of dividends, depending upon the
financial condition of the bank in question, could be deemed to constitute such
an unsafe or unsound practice, and the regulatory agencies have indicated their
view that it generally would be an unsafe and unsound practice to pay dividends
except out of current operating earnings. The ability of the Bank to pay
dividends in the future is presently, and could be further, influenced, among
other things, by applicable capital guidelines or by bank regulatory and
supervisory policies. (See Part II, Item 5, "Dividends".)
FDIC ASSESSMENTS
In late 1995, the FDIC reduced the amount of assessments paid by individual
insured depository institutions retroactive to May 1995. The assessment amount
is based on relative risk as measured by regulatory capital ratios and certain
other factors. Current regulations provide for a minimum assessment of $500 per
quarter, and a maximum of 27 cents per $100 of eligible deposits. A significant
increase in the assessment rate or a special additional assessment with respect
to insured deposits could have an adverse impact on the results of operations
and capital levels of the Bank.
CAPITAL ADEQUACY
The Comptroller has adopted risk-based capital adequacy guidelines for
national banks. Under the guidelines, "Tier 1 capital" and "total capital," as a
percentage of risk-weighted assets and certain off-balance sheet instruments,
must be at least 4% and 8%, respectively.
The Comptroller has also imposed a minimum leverage ratio of Tier 1 capital
to adjusted total assets equal to at least 3%. However, banks that do not meet
certain criteria (including excellent asset quality, high liquidity, low
interest rate exposure, good earnings, and having the highest regulatory
rating), as well as banks with supervisory, financial or operational weaknesses
or experiencing or anticipating significant growth, are expected to maintain a
Tier l capital to adjusted total assets ratio equal to at least 4%.
At December 31, 1995, the Bank had the following capital ratios: total
capital to risk-weighted assets 13.09%; Tier 1 capital to risk-weighted assets
11.84%; and leverage ratio 9.52%.
The Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA")
required each federal banking agency, including the Comptroller, to revise its
risk-based capital standards within 18 months of the enactment of the statute
into law on December 19, 1991 in order to ensure that those standards take
adequate account of interest rate risk, concentration of credit risk and the
risk of nontraditional activities, as well as reflect the actual performance and
expected risk of loss on multifamily mortgages. In August 1992, the Comptroller,
the Federal Reserve Board and the FDIC issued a joint advance notice of proposed
rulemaking, soliciting comments on a proposed framework for implementing these
revisions. Based on comments received, the federal banking agencies in September
1993 issued proposed rules whereby exposures to interest rate risk would be
measured as the effect that a specified change in market interest rates would
have on the net economic value of a bank. This economic perspective considers
the effect that changing market interest rates may have on the value of a bank's
assets, liabilities, and off-balance-sheet positions. The banking agencies
propose to measure an institution's exposure using either a standardized,
supervisory model or each bank's own internal model. In either case, the results
could be used in one of two ways when assessing capital adequacy for interest
rate risk. One approach would be to reduce an institution's risk-based capital
ratios by an amount based on the level of measured risk. The other would be to
use the measured exposure as only one of several factors in assessing the need
for capital. The Bank cannot assess at this point the impact the proposals would
have on its capital requirements. Additional proposals, including proposals
which concern the risks of credit concentrations and nontraditional activities,
are currently pending, and there is no assurance that the adoption of these or
other proposals implementing FDICIA will not increase the Bank's capital
requirements.
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PROMPT CORRECTIVE ACTION
The Comptroller and the other federal banking agencies possess broad powers
to take corrective action as deemed appropriate for an insured depository
institution. The extent of these powers depends upon whether the institution in
question is considered "well capitalized," "adequately capitalized,"
"undercapitalized," "significantly undercapitalized" or "critically
undercapitalized". Under regulations adopted by the Comptroller and the other
federal banking agencies, a bank is considered "well capitalized" if it has (i)
a total risk-based capital ratio of 10% or greater, (ii) a Tier 1 risk-based
capital ratio of 6% or greater, (iii) a leverage ratio of 5% or greater, and
(iv) is not subject to any order or written directive to meet and maintain a
specific capital level for any capital measure. At December 31, 1995, the Bank
exceeded the required ratios for classification as "well capitalized."
Generally, as an institution is deemed to be less than well capitalized, the
scope and severity of the agencies' powers increase. The agencies' corrective
powers can include, among other things: requiring an insured financial
institution to adopt a capital restoration plan; placing limits on asset growth
and restrictions on activities; placing restrictions on transactions with
affiliates; restricting the interest rate the institution may pay on deposits;
prohibiting the institution from accepting deposits from correspondent banks;
prohibiting the payment of principal or interest on subordinated debt; and,
ultimately, appointing a receiver for the institution. Business activities may
also be influenced by an institution's capital classification. For instance,
only a "well capitalized" depository institution may accept brokered deposits
without prior regulatory approval and only an "adequately capitalized"
depository institution may accept brokered deposits with prior regulatory
approval.
GOVERNMENTAL POLICIES
The operations of financial institutions may be affected by legislative
changes. For example, Congress is presently considering various administration
proposals, including proposals to consolidate the bank regulatory agencies and
to amend various consumer protection laws. In addition, Congress is considering
various issues relating to the separation of banking and commerce including, for
example, banks' mutual fund activities. Financial institutions' operations also
may be affected by the policies of various regulatory authorities. In
particular, banks are affected by the credit policies of the Federal Reserve
Board. An important function of the Federal Reserve Board is to regulate the
national supply of bank credit. Among the instruments of monetary policy used by
the Federal Reserve Board to implement its objectives are: open market
operations in U.S. Government securities; changes in the discount rate on bank
borrowings; and changes in reserve requirements on bank deposits.
These instruments of monetary policy are used in varying combinations to
influence the overall level of bank loans, investments and deposits, the
interest rates charged on loans and paid for deposits, the price of the dollar
in foreign exchange markets, and the level of inflation. The monetary policies
of the Federal Reserve Board have had a significant effect on the operating
results of banking institutions in the past and are expected to continue to do
so in the future. It is not possible to predict the nature of future changes in
monetary and fiscal policies, or the effect that they may have on the Bank's
business and earnings.
EMPLOYEES
At December 31, 1995, the Bank employed a total of 150 employees, including
113 full-time employees, equaling 129.3 full-time equivalent employees.
ITEM 2. PROPERTIES
The Bank currently has four banking offices: the Main Office, located at
3484 Central Avenue, Riverside, California, 92506; the University Branch,
located at 1485 University Avenue, Riverside, California, 92507; the Arlington
Branch, located at 10725 Magnolia Avenue, Riverside, California, 92505; and the
Magnolia Branch, located at 6814 Magnolia Avenue, Riverside, California, 92506.
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The principal executive offices and main office of the Bank are owned by the
Bank and are located at 3484 Central Avenue, Riverside, California. The Bank
occupies the premises for its Arlington Office under a lease expiring August 28,
2009. The Bank owns its University and Magnolia Branch offices and property
adjacent to the University Branch office for future expansion of that facility.
The Bank's total occupancy expense, exclusive of furniture and equipment
expense, for the year ended December 31, 1995, was approximately $1.01 million.
Management believes that its existing and proposed facilities are adequate for
its present purposes and anticipated growth in the foreseeable future. For
additional information concerning properties, see Notes 6 and 9 of Notes to the
Bank's Consolidated Financial Statements.
ITEM 3. LEGAL PROCEEDINGS.
Management is not aware of any material pending legal proceeding to which it
is a party, other than ordinary, routine litigation incidental to the business
of banking.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of the security holders during the
fourth quarter of 1995.
PART II
ITEM 5. MARKET FOR THE BANK'S COMMON STOCK AND RELATED SECURITY HOLDER MATTERS.
MARKET INFORMATION
As of February 29, 1996, 2,129,489 shares of the Bank's Common Stock were
outstanding. The Bank's common stock is traded on the NASDAQ National Market
System, under the symbol RNRC. An average of 49,148 shares of the Bank's common
stock traded per month during 1995. The following investment firms make a market
in the Bank's common stock:
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<S> <C>
Keefe, Bruyette and Woods, Inc. J. Alexander Securities, Inc.
2 World Trade Center, 85th Floor 523 West Sixth Street, Ste. 606
New York, NY 10048 Los Angeles, CA 90014
Hoefer and Arnett, Inc. GBS Financial Corporation
353 Sacramento Street, 10th Floor 2909 Community Avenue
San Francisco, CA 94111 La Crescenta, CA 91214
</TABLE>
The high and low bid quotations for the Bank's common stock for each full
quarterly period for fiscal years 1994 and 1995 are listed in the chart below:
<TABLE>
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QUARTER ENDING HIGH LOW
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<S> <C> <C>
3/31/94................................ 6 3/4 5 3/4
6/30/94................................ 7 5/8 5 3/4
9/30/94................................ 8 3/4 7
12/31/94................................ 8 1/2 6 3/4
3/31/95................................ 8 3/4 6 3/4
6/30/95................................ 10 3/4 8 1/4
9/30/95................................ 13 3/4 9 5/8
12/31/95................................ 13 7/8 13
</TABLE>
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HOLDERS
The number of holders of record of the Bank's common stock was 1,192 as of
December 31, 1995.
DIVIDENDS
The Bank paid cash dividends of $.365 per share in 1995, and no cash
dividends in 1994. Any future dividends will be determined by the Board of
Directors subject to limitations, if any, imposed by the Office of the
Comptroller of Currency (OCC) after consideration of numerous factors including,
but not limited to, earnings and financial condition of the Bank and the capital
needs for growth and expansion.
Subsequent to December 31, 1995, the Bank declared a cash dividend of $.12
per share on January 17, 1996.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION.
Management's discussion and analysis of the financial condition and results
of operations is set forth in the Bank's 1995 Annual Report to shareholders,
attached hereto and incorporated by this reference, at pages 5 through 14.
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The Bank's consolidated financial statements, schedules, and notes to
consolidated financial statements for the year ended December 31, 1995, are set
forth in the Annual Report to shareholders, attached hereto and by this
reference made a part hereof, at pages 16 through 34. The "Independent Auditor's
Report" for the years ended December 31, 1995, and 1994 is set forth in the
Annual Report to shareholders, attached hereto and by this reference made a part
hereof, at page 15, and at page 18 of this Form 10-KSB.
ITEM 8. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
F-9
<PAGE>
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.
Information on the Bank's directors and executive officers, and Compliance
with Section 16(a) of the Exchange Act is found in the Proxy Statement for the
1996 Annual Shareholders Meeting, ("Proxy Statement") expected to be mailed by
April 11, 1996, those parts of which are incorporated by this reference and made
a part thereof.
ITEM 10. EXECUTIVE COMPENSATION.
Information on executive officers' compensation is found in the Proxy
Statement, those parts of which are incorporated by this reference and made a
part thereof.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The Proxy Statement contains a table disclosing the security ownership of
certain beneficial owners and managment. That section of the Proxy Statement is
incorporated by this reference and made a part hereof.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Note 12 of the Notes to the Bank's Consolidated Financial Statements
contained in the 1995 Annual Report to Shareholders, a copy of which is attached
hereto, and that portion of which is incorporated by this reference, discusses
the Bank's loans and other transactions with related parties.
The legal fees, referenced in Footnote 12, were paid to a law firm of which
Bank Chairman of the Board of Directors Everett L. Spriggs is managing partner,
and were for legal services provided to the Bank.
ITEM 13. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
A. THE FOLLOWING DOCUMENTS ARE FILED AS PART OF THIS FORM 10-KSB:
1. FINANCIAL STATEMENTS
The following financial statements of the Bank and the Auditor's Report
thereon included in the Bank's 1995 Annual Report to shareholders are attached
hereto and incorporated by this reference. Page number references are to the
Bank's Annual Report to shareholders.
<TABLE>
<CAPTION>
PAGE(S)
------
<S> <C>
The Independent Auditor's Report (Also included at page 18 of this Form 15
10-KSB)...............................................................
Consolidated Balance Sheets-December 31, 1995 and 1994.................. 16
Consolidated Statements of Income for the years ended December 31, 1995 17
and 1994..............................................................
Consolidated Statements of Changes in Stockholders' Equity for the years 18
ended December 31, 1995 and 1994......................................
Consolidated Statements of Cash Flows for the years ended December 31, 19
1995 and 1994.........................................................
Notes to Consolidated Financial Statements.............................. 20-34
</TABLE>
F-10
<PAGE>
2. EXHIBITS
The following is a list of those exhibits filed as part of this Form 10-KSB.
<TABLE>
<S> <C> <C>
2.1 Articles of Association, and amendments thereto............................. *
2.1.1 Articles Amendment dated September 21, 1994................................. +
2.2 Bylaws, and amendments thereto.............................................. *
2.2.9 Bylaws amendment dated February 15, 1995.................................... 16
5.1.3 1991 Stock Option Plan...................................................... **
5.1.4 1994 Stock Option Plan...................................................... +
5.2 Riverside National Bank Profit Sharing Plan, as amended..................... *
5.2.1 Riverside National Bank 401(k) Profit Sharing Plan.......................... +
5.4 Riverside National Bank Deferred Compensation Arrangement................... +
23 Consent of Independent Auditor's............................................ 17
</TABLE>
- ------------------------
* Filed as Exhibits 2.1, 2.2 and 5.2 to the Annual Report on Form F-2 for the
fiscal year ended December 31, 1989 which are incorporated herein by this
reference.
** Filed as Exhibit 5.1.3 to the Annual Report on Form F-2 for the fiscal year
ended December 31, 1991 which is incorporated herein by this reference.
+ Filed as Exhibits 2.1.1, 5.1.4, 5.2.1 and 5.4 to the Annual Report on Form
10-K for the fiscal year ended December 31, 1994 which is incorporated herein
by this reference.
B. REPORTS FILED ON FORM 8-K:
The Bank filed one report on Form 8-K on October 18, 1995, in connection
with a cash dividend of $.12 per share approved by the Bank's Board of Directors
on October 18, 1995. This cash dividend, payable to shareholders of record
November 1, 1995, was paid November 15, 1995.
F-11
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 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.
RIVERSIDE NATIONAL BANK
DATE: March 20, 1996 BY: /s/ JAMES A. ROBINSON
------------------------------------------
James A. Robinson
PRESIDENT AND CHIEF EXECUTIVE OFFICER
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant in the capacity and on the date indicated.
SIGNATURES TITLE DATE
- -------------------------------- -------------------------- -----------------
/s/ EVERETT L. SPRIGGS
- -------------------------------- Chairman of the Board and 3-20-96
Everett L. Spriggs Director
/s/ MARYANN ARCHAMBAULT
- -------------------------------- Director 3-20-96
Maryann Archambault
/s/ GEORGE R. FREEMAN
- -------------------------------- Director 3-20-96
George R. Freeman
/s/ DOLORES M. MAGNUSON
- -------------------------------- Director 3-20-96
Dolores M. Magnuson
/s/ JAMES A. ROBINSON
- -------------------------------- President, Chief Executive 3-20-96
James A. Robinson Officer and Director
/s/ LEON SIGERMAN
- -------------------------------- Director 3-20-96
Leon Sigerman
/s/ JEROME H. THOMPSON
- -------------------------------- Director 3-20-96
Jerome H. Thompson
/s/ ROY E. WHITEHEAD
- -------------------------------- Director 3-20-96
Roy E. Whitehead
/s/ JERRY THINNES Senior Vice President and
- -------------------------------- Principal Financial 3-20-96
Jerry Thinnes Officer
F-12
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
Riverside National Bank
Riverside, California
We consent to the incorporation by reference in the Form 10-KSB of Forms
S-8, dated August 8, 1995 and December 18, 1995, with respect to the financial
statements of Riverside National Bank and subsidiaries, incorporated by
reference in the Annual Report on Form 10-KSB as of and for the years ended
December 31, 1995 and 1994.
/s/ McGladrey & Pullen, LLP
Riverside, California
March 20, 1996
F-13
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE FINANCIAL CONDITION
AND RESULTS OF OPERATIONS FROM PAGES 5-14 OF
THE RIVERSIDE NATIONAL BANK 1995 ANNUAL REPORT
OVERVIEW
Riverside National Bank, a national banking association, was founded in
March of 1965. The Bank is a full service commercial bank which provides a broad
range of services through its four banking offices in Riverside, California. The
Bank's primary investment vehicle is its loan portfolio. Investment securities
and short term investments are secondary investment vehicles which provide
liquidity while earning a return on funds which are not currently employed in
the loan portfolio. Funding of the Bank's assets consists almost entirely of
retail and business deposits.
The Bank's loan portfolio consists of commercial loans and lines of credit,
real estate construction financing, commercial and residential real estate
loans, and consumer loans and credit lines. The commercial loan portfolio
consists of loans to small and medium sized businesses, most of which are
located or headquartered in Riverside County. The real estate loan portfolio
consists of loans to businesses and individuals to finance real estate and loans
for other purposes secured by real estate. The majority of those loans are for
terms of five years and are amortized over periods from twenty to thirty years
with balloon payoffs. The consumer loan portfolio consists mostly of loans to
individuals for aircraft financing and for home equity loans and lines of
credit.
Riverside National Bank offers a wide variety of deposit products, including
regular and interest bearing checking accounts, money market savings accounts,
savings accounts, and certificates of deposit. The Bank is relationship
oriented, focusing on providing a complete package of business and retail
banking services to its customers. This focus provides a stable base of funding
for the Bank's assets and reduces fluctuations in periods of changing interest
rates. The Bank does not employ brokered deposits in its deposit portfolio.
The following discussion presents financial data and other information
regarding the Bank. Most dollar amounts have been rounded to three significant
digits, with some amounts rounded to higher precision when appropriate. Interest
rates are expressed to the nearest one hundredth of a percent. Percentage
changes are rounded to the nearest one tenth of a percent and are often computed
from numbers rounded with more precision than those presented here.
The Bank recorded net income of $2.63 million, or $1.19 per share, for the
year ended December 31, 1995, an increase of 94%, or $1.28 million, over net
income of $1.35 million, or $0.64 per share, recorded in 1994. Return on average
assets (ROA) was 1.24% for the year ended December 31, 1995, compared to 0.66%
for the year ended December 31, 1994. Return on average equity (ROE) was 13.38%
for the year ended December 31, 1995, compared to ROE of 7.53% in 1994.
Total assets were $222 million at December 31, 1995, an increase of 9.3%
compared to $203 million a year earlier. Total deposits increased 8.8% from $182
million at December 31, 1994, to $198 million at December 31, 1995. Total loans
were $144 million at December 31, 1995, an increase of 5.0% from $137 million a
year earlier.
The Bank's total shareholders' equity at December 31, 1995 was $21.2
million, up 15.5% from the $18.4 million reported a year earlier. Total
qualifying capital at year end 1995 was $22.5 million yielding a ratio of total
qualifying capital to risk weighted assets of 13.09%, well above the 10%
standard set by the Comptroller of the Currency to be considered a well
capitalized bank.
Common stock of Riverside National Bank is traded on the NASDAQ National
Market System under the trading symbol RNRC. The average number of shares of the
Bank's stock traded per month during 1995 was 49,148. As of December 31, 1995,
there were approximately 1,100 holders of record of the Bank's common stock.
F-14
<PAGE>
RESULTS OF OPERATIONS
NET INTEREST INCOME
Net interest income is the difference between the Bank's total interest
revenue, consisting of interest earned on its loans, securities and other
earning assets, and the Bank's total interest expense, consisting of interest
accrued on deposits and other interest bearing liabilities. Net interest income
was $11.43 million in 1995, compared to $10.10 million in 1994. An analysis of
the Bank's average balance sheet, net interest income and interest yields
appears in Schedule III.
SCHEDULE III
ANALYSIS OF AVERAGE BALANCE SHEET, NET INTEREST INCOME, AND INTEREST YIELDS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1995 1994
--------------------------- ---------------------------
AVERAGE TE AVERAGE TE
BALANCE INTEREST YIELD BALANCE INTEREST YIELD
-------- -------- ------ -------- -------- ------
<S> <C> <C> <C> <C> <C> <C>
Assets
Investment Securities
Taxable................................................. $ 38,964 $ 2,494 6.40% $ 32,480 $ 1,782 5.49%
Tax exempt.............................................. 0 0 N/A 0 0 N/A
Bank Certificates of Deposit.............................. 0 0 N/A 3,893 99 2.54%
Federal Funds Sold........................................ 9,950 572 5.75% 6,156 262 4.26%
Gross Loans (1)........................................... 134,852 13,354 9.91% 132,709 11,723 8.85%
-------- -------- ------ -------- -------- ------
Total Earning Assets...................................... 183,766 $ 16,420 8.94% 175,238 $ 13,866 7.92%
-------- -------- ------ -------- -------- ------
-------- ------ -------- ------
Total Non-Earning Assets.................................. 27,334 28,375
-------- --------
Total Assets.............................................. $211,100 $203,613
-------- --------
-------- --------
Liabilities and Stockholders' Equity
Demand Deposits........................................... $ 55,010 $ 56,099
Savings Deposits.......................................... 73,495 $ 1,707 2.32% 70,434 $ 1,560 2.21%
Time Deposits............................................. 59,333 3,198 5.39% 53,472 2,144 4.01%
-------- -------- ------ -------- -------- ------
Total Deposits............................................ 187,838 4,905 2.61% 180,005 3,704 2.06%
-------- -------- ------ -------- -------- ------
Other Borrowings.......................................... 1,566 83 5.30% 1,557 59 3.79%
-------- -------- ------ -------- -------- ------
Interest Bearing Liabilities.............................. 134,394 $ 4,988 3.71% 125,463 $ 3,763 3.00%
-------- -------- ------ -------- -------- ------
-------- ------ -------- ------
Other Liabilities......................................... 2,062 4,072
Stockholders' Equity...................................... 19,634 17,979
-------- --------
Total Liabilities and Stockholders' Equity................ $211,100 $203,613
-------- --------
-------- --------
Net Interest Income....................................... $ 11,432 $ 10,103
Net Interest Spread (TE).................................. 5.23% 4.92%
Net Interest Margin (TE).................................. 6.23% 5.78%
</TABLE>
- ------------------------
(1) Nonaccrual loan balances are included in the average balances. Interest on
nonaccrual loans is included to the extent recognized on the Bank's
financial statements.
Note: TE refers to yields that have been adjusted to present tax exempt income
at the fully taxable equivalent yield.
F-15
<PAGE>
Schedule IV presents the Bank's interest variances for the years ended
December 31, 1995 and 1994. Increases in yields on loans accounted for the
majority of the $1.63 million increase in interest revenues on loans. The
reference rate, the index which controls most of the Bank's variable rate loans,
averaged 8.83% during 1995 compared to 7.14% in 1994. Increases in both the
volume of and yields on the Bank's investments contributed an additional $923
thousand to the increase in net interest income. Those increases were partially
offset by increases in interest expense of $901 thousand due to higher deposit
rates and $324 thousand due to increases in the level of interest bearing
liabilities.
Net interest income increased in 1994 compared to 1993 primarily due to
increases in interest rates and secondarily to reductions in the levels of
nonperforming assets.
SCHEDULE IV
INTEREST VARIANCE ANALYSIS (1)
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1995 COMPARED TO 1994 1994 COMPARED TO 1993
----------------------- -----------------------
TOTAL TOTAL TOTAL TOTAL TOTAL TOTAL
VOLUME RATE CHANGE VOLUME RATE CHANGE
------ ------ ------ ------ ----- ------
<S> <C> <C> <C> <C> <C> <C>
Increase (Decrease) due to:
Interest Revenues:
Taxable Investment Securities............................. $388 $ 324 $ 712 $ 25 $ 73 $ 98
Tax Exempt Investment Securities.......................... 0 0 0 (5) 0 (5)
Bank Certificates of Deposit.............................. (99) 0 (99) (36) (2) (38)
Federal Funds Sold........................................ 198 112 310 (2) 83 81
Loans..................................................... 192 1,439 1,631 144 337 481
------ ------ ------ ------ ----- ------
$679 $1,875 $2,554 $126 $ 491 $617
Interest Expense:
Savings Deposits.......................................... $ 69 $ 78 $ 147 $(12) $ (71) $(83)
Time Deposits............................................. 255 799 1,054 12 93 105
Other Borrowings.......................................... 0 24 24 1 17 18
------ ------ ------ ------ ----- ------
$324 $ 901 $1,225 $ 1 $ 39 $ 40
------ ------ ------ ------ ----- ------
Net Interest Income......................................... $355 $ 974 $1,329 $125 $ 452 $577
------ ------ ------ ------ ----- ------
------ ------ ------ ------ ----- ------
</TABLE>
- ------------------------
(1) The change in net interest income attributable to simultaneous changes in
both volume level and net interest spread was allocated to the two factors
on a pro rata basis.
NONINTEREST INCOME
Total noninterest income totaled $2.89 million in 1995, a decrease of $300
thousand, or 9.4%, from $3.19 million in the prior year. Loan fees and servicing
fees relating to FNMA loans decreased by $237 thousand. That decrease was due to
a soft market for mortgage refinancing which resulted from interest rate and
real estate market conditions. Revenues relating to other real estate owned
(OREO) declined $234 thousand from 1994 levels. OREO revenues relate primarily
to gains on the sale of properties acquired through foreclosure. Those effects
were partially offset by increases in legal settlements from $274 thousand in
1994 to $460 thousand in 1995.
NONINTEREST EXPENSE
The Bank's total noninterest expense declined $862 thousand, or 7.9%, to
$10.09 million for the year ended December 31, 1995. Salaries and benefits
declined $488 thousand and occupancy and equipment
F-16
<PAGE>
expenses declined $171 thousand in comparison with the prior year. The
outsourcing of data processing services contributed savings of $371 thousand and
$224 thousand, respectively, to those categories of expense. The remaining
savings in salaries and benefits were derived primarily from the results of the
reengineering project which was implemented in 1993 and 1994. The FDIC
assessment decreased by $256 thousand in 1995 compared to the prior year. Based
on the assessment rate announced by the FDIC, the assessment expense will
decline by another $236 thousand in 1996. Consulting fees declined by $199
thousand in 1995. 1994 expense included consulting fees of $140 thousand for the
reengineering project and $50 thousand in connection with the data processing
conversion.
Data processing expense increased by $279 thousand due to outsourcing, as
data processing services are now paid to an outside provider. When personnel,
occupancy, equipment and other costs associated with the former data processing
subsidiary are considered, the outsourcing of data processing services has
created a net annual savings to the Bank of over $300 thousand.
FINANCIAL CONDITION
Riverside National Bank had total assets of $222 million at December 31,
1995. That figure represents an increase of 9.3% over total assets of $203
million on the same date in 1994. The Bank's deposit base was $16.1 million
higher on the last day of 1995 when compared with the same date in 1994. $6.95
million of that increase was employed in the Bank's loan portfolio, while $9.00
million represented an increase in short term investments.
The allowance for credit losses (ACL) was $2.59 million, or 1.80% of
outstanding loans, at December 31, 1995, compared to $2.66 million, or 1.94% of
outstanding loans, at year end 1994. Management believes that the ACL at
December 31, 1995 is adequate to provide for the losses inherent in the
portfolio at that date.
LIQUIDITY AND INTEREST RATE RISK MANAGEMENT
In the regular course of business the Bank must ensure that sufficient
liquid funds are available to meet customer needs for borrowing and deposit
withdrawals. Liquidity is managed through various methods, including monitoring
the Bank's level of liquid assets as a percentage of deposits, liabilities and
assets, and by forecasting the Bank's future funding sources in relation to
known and potential liquidity needs. At the end of 1995, the Bank had a ratio of
gross loans to total deposits of 72.6%, compared to 75.2% a year earlier. Cash,
cash equivalents, and unpledged securities represented 26.9% of assets at
December 31, 1995, compared to 22.3% a year earlier.
Interest rate risk management is the process of measuring and managing the
Bank's exposure to fluctuations in market values of its assets and liabilities
and especially to fluctuations in future net interest income levels that can
result from changes in prevailing interest rates. Changes in the prevailing
interest rates will not have an equal impact on interest income and interest
expense due to several factors. Those factors include differences in the volume
of interest sensitive assets and liabilities and the relative magnitude and
timing of changes in rates on the various balance sheet components. The Bank
attempts to match the repricing of assets and liabilities on the balance sheet
to the extent possible. Management understands that risk is inherent in the
business of banking. The process of interest rate risk management ensures that
interest rate risk within the Bank's balance sheet is identified and is not
excessive.
Schedule V presents the interest rate sensitivity of all interest earning
assets and interest bearing liabilities of the Bank as of December 31, 1995,
along with the interval and cumulative gaps between the repricing of such assets
and liabilities.
F-17
<PAGE>
SCHEDULE V
INTEREST RATE SENSITIVITY
AS OF DECEMBER 31, 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
AT LEAST
AT LEAST 1 YEAR
UP TO 3 MONTHS UP TO 5 5 YEARS
3 MONTHS UP TO 1 YEAR YEARS AND OVER TOTAL
------------- ------------ ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Interest Earning Assets:
Securities and Fed Funds Sold.............. $ 9,502 $ 8,562 $ 27,266 $ 213 $ 45,543
Loans...................................... 71,996 31,484 24,171 16,361 144,012
------------- ------------ ----------- ----------- ----------
Total.................................... $ 81,498 $ 40,046 $ 51,437 $ 16,574 $ 189,555
------------- ------------ ----------- ----------- ----------
Interest Bearing Liabilities:
Time Deposits:
TCD's Under $100,000..................... $ 16,135 $ 15,583 $ 4,379 $ 18 $ 36,115
TCD's $100,000 and Over.................. 17,115 11,010 1,987 0 30,112
Savings.................................... 15,979 0 0 0 15,979
Money Market Accounts...................... 27,806 0 0 0 27,806
Now Accounts............................... 24,762 0 0 0 24,762
TT&L Liability............................. 687 0 0 0 687
------------- ------------ ----------- ----------- ----------
Total.................................. $ 102,484 $ 26,593 $ 6,366 $ 18 $ 135,461
------------- ------------ ----------- ----------- ----------
------------- ------------ ----------- ----------- ----------
Rate Sensitivity Gap
Interval................................. $ (20,986) $ 13,453 $ 45,071 $ 16,556
------------- ------------ ----------- -----------
------------- ------------ ----------- -----------
Cumulative............................... $ (20,986) $ (7,533) $ 37,538 $ 54,094
------------- ------------ ----------- -----------
------------- ------------ ----------- -----------
Ratio of Cumulative Gap to Total Assets.... (9.44)% (3.39)% 16.88% 24.32%
------------- ------------ ----------- -----------
------------- ------------ ----------- -----------
</TABLE>
CAPITAL
The maintenance of adequate capital is vital to the financial well being of
the Bank. Capital facilitates growth and expansion and serves as a cushion
against potential losses. The assessment of capital adequacy depends on a
variety of factors, including the nature, mix and quality of assets, liquidity,
stability and level of earnings, competitive forces, economic conditions, and
the strength of management. Management believes the Bank's current capital
position is strong and will support current business activity and future growth.
Management has no plan for significant capital expenditures in 1996.
Shareholders' equity totaled $21.2 million at December 31, 1995, up $2.84
million, or 15.5%, from $18.4 million at December 31, 1994. Net income of $2.63
million was the main component of the increase. Also, the Bank had an unrealized
gain on its available for sale securities (net of the tax effect) of $450
thousand at year end compared to an unrealized loss of $427 thousand in 1994,
yielding an increase in capital of $877 thousand. Approximately $224 thousand of
that increase was due to the reclassification of securities from held to
maturity status in December 1995. The payment of cash dividends totaling $771
thousand served to partially offset the increases in capital. At December 31,
1995, the Bank's tier 1 capital stood at $20.4 million yielding a ratio of core
capital to risk weighted assets (RWA) of 11.84%, and total qualifying capital
stood at $22.5 million yielding a ratio of total qualifying capital to RWA of
13.09%. The Bank's tier 1 leverage ratio was 9.52% on the same date. Those
ratios were 11.17%, 12.42%, and 8.90% on the same date a year earlier.
F-18
<PAGE>
INVESTMENT PORTFOLIO
Management maintains the Bank's portfolio of investment securities with an
emphasis on asset quality and liquidity. Bank policy prohibits the use of
derivative investment products and sets strict limitations on investments in
municipal bonds, bankers' acceptances, commercial paper and certificates of
deposit. The use of mutual or other investment funds is allowed only if all of
the underlying investments in the fund are in accordance with Bank policy. The
Bank had no investments in any of the above assets at December 31, 1995.
Management elected to reclassify all securities previously accounted for as
held to maturity as available for sale in accordance with the issuance of
Financial Accounting Standards Board Guide to Implementation of Statement No.
115 on Accounting for Certain Investments in Debt and Equity Securities. That
election, made in December 1995, increased the carrying value of the Bank's
investment portfolio by $379 thousand before taxes. The distribution of the
Bank's investment securities held as of December 31, 1995 and 1994 is presented
on Schedule VI. A presentation which allocates the Bank's investment securities
between available for sale and held to maturity at year end 1995 and 1994
appears in Note 3 of the notes to consolidated financial statements. A schedule
of maturities of securities as of December 31, 1995 also appears in Note 3 of
the notes to consolidated financial statements.
SCHEDULE VI
CARRYING VALUE OF INVESTMENT SECURITIES
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1995 1994
--------- ---------
<S> <C> <C>
Investment Securities
U.S. Treasury Securities.............................................. $ 16,065 $ 23,604
U.S. Government Agency Obligations.................................... 20,265 14,001
Other................................................................. 213 220
--------- ---------
Total Investment Securities......................................... $ 36,543 $ 37,825
--------- ---------
--------- ---------
</TABLE>
LOAN PORTFOLIO
The year-end composition of outstanding loans by type of loan or borrower
for the period 1991 through 1995 is presented in Schedule VII. In addition to
loans outstanding, the Bank has commitments in the form of lines of credit and
letters of credit. Lines of credit may either be revolving or non-revolving.
Such commitments totaled $34.4 million at December 31, 1995, compared to $35.2
million on the same date in 1994.
The loan portfolio contains about $36.7 million in fixed rate loans, $105.6
million in variable rate loans, and $2.3 million in loans which have been placed
on nonaccrual status. Historically, the majority of the Bank's variable rate
loans have been tied directly to Bank of America's prime rate (BofA prime).
During 1995, Riverside National Bank adopted a new "reference rate". That rate
is tied to the national prime rate as published in the Wall Street Journal (WSJ
prime). The Wall Street Journal derives their rate based on the corporate rates
posted by 75% of the nation's 30 largest banks. Virtually all of the Bank's new
and renewing variable rate commercial loans are being tied to the Wall Street
Journal rate. As of December 31, 1995, the Bank had $43 million in loans tied to
the BofA prime and $27 million tied to the WSJ prime. The remaining $36 million
in variable rate loans were tied to other money rates or to lagging prime
indexes.
F-19
<PAGE>
SCHEDULE VII
COMPOSITION OF LOAN PORTFOLIO
FOR THE PERIOD 1991 - 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
----------------------------------------------------------
1995 1994 1993 1992 1991
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Real Estate Loans
Construction....................................... $ 10,388 $ 7,381 $ 8,168 $ 18,039 $ 23,626
Secured............................................ 78,878 71,309 65,278 67,363 78,929
Held For Sale...................................... 0 0 3,736 1,813 3,671
---------- ---------- ---------- ---------- ----------
89,266 78,690 77,182 87,215 106,226
Commercial, Industrial and Agricultural.............. 43,868 45,605 46,070 27,613 15,680
Loans to Individuals................................. 11,481 13,333 16,419 23,310 27,568
Lease Financing Receivables.......................... 0 232 713 2,106 3,415
Other Loans.......................................... 33 12 14 34 41
---------- ---------- ---------- ---------- ----------
Total Loans........................................ $ 144,648 $ 137,872 $ 140,398 $ 140,278 $ 152,930
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
</TABLE>
DEPOSITS
Information regarding average balances, interest expense, and average
interest rates on the Bank's deposits is presented on Schedule III. Information
regarding repricing of deposits appears in Schedule V. A schedule of the
maturities of certificates of deposit $100 thousand and over appears in Note 7
of the notes to consolidated financial statements.
F-20
<PAGE>
RISK ELEMENTS
GENERAL
The California economy has been in a recovery phase for the past two to
three years. However, that recovery has been slow. The Inland Empire region has
had particular difficulty recovering from the effects of reductions in
government spending on defense, over-built commercial real estate, high housing
costs, and relocations of businesses to other states. While there has been
moderate economic growth and a decline in the unemployment rate, real estate
values have continued to decline. The number of good credit opportunities for
the Bank continues to be negatively impacted by the economic conditions.
Management does not attempt to accurately predict the timing or duration of
future economic conditions. They attempt to mitigate risk by using strict credit
quality guidelines, diversifying the loan portfolio and limiting activities to
industries where the Bank has the proper expertise to make informed credit
decisions. However, due to the nature of community banking and the credit
opportunities within the Inland Empire region, a certain level of credit
concentration is unavoidable. The future performance of Riverside National Bank
is largely dependent on the strength and vitality of the local real estate
market and the local, statewide and national economies.
The financial strength of the banking industry as a whole has improved
markedly over the past two years. Banking industry profits are at record levels
and the improvement in asset quality in the industry has prompted regulators of
the BIF (Bank Insurance Fund) to make sharp reductions in FDIC assessment
levels. Those reductions were made in September of 1995 and were retroactive to
June 1, 1995.
NONPERFORMING LOANS
Nonperforming loans include nonaccrual loans and loans which have become
contractually past due for ninety days or more with respect to principal or
interest. Schedule VIII presents the nonperforming assets of Riverside National
Bank as of December 31 of each year from 1991 through 1995.
It is the policy of the Bank to discontinue the accrual of interest income
on loans for which reasonable doubt exists with respect to the timely collection
of interest or principal due to the inability of the borrower to comply with
existing loan repayment terms. Generally, this action is taken when the loans
become past due by 90 days. However, loans may be placed on nonaccrual status
either earlier or later when conditions warrant.
The Bank employs one of two methods for recognition of interest on
nonaccrual loans. The first method applies all monies received first to
principal until all principal is recovered and is employed when full repayment
of the loan is in question. Income is recognized to the extent that payments are
received after all principal is recovered. The second method is used when the
loan is well secured and payments are being received. It applies monies received
first to unpaid interest due at the time of the payment, and second, to reduce
the outstanding principal balance on the loan. In either method, interest is
recognized only when received by the Bank.
Management's placement of a loan on nonaccrual status does not necessarily
indicate that the principal is uncollectible in whole or in part.
The Financial Accounting Standards Board issued Statement No. 114, which was
adopted by the Bank in 1995. That Statement created a category of loans called
"impaired" loans. A loan is considered impaired when it is possible the creditor
will be unable to collect the contractual principal and interest payments due in
accordance with the terms of the loan agreement. Impaired loans are required to
be measured on the present value of expected cash flows discounted at the loan's
effective interest rate, or at the loan's observable market price or the fair
market value of the collateral if the loan is collateral dependent. An estimate
of the potential impact of impaired credits on the Bank's allowance for credit
losses (ACL) is made and used in the calculation of the sufficiency of the ACL.
At December 31, 1995, the Bank identified
F-21
<PAGE>
loans totaling $983 thousand as impaired against which $206 thousand was
included in the calculation of the sufficiency of the ACL at that date.
OTHER REAL ESTATE OWNED
Other Real Estate Owned (OREO) represents real property which has been
transferred to the Bank in satisfaction of loan obligations on which the
property was used as collateral. Information regarding the levels of OREO at
each of the past five year ends is presented on Schedule VIII. The Bank's policy
regarding the disposition of OREO is to sell the properties as quickly as
practical while minimizing any possible losses on the disposal of the
properties. The net book value of OREO was $2.90 million at December 31, 1995
compared to $1.51 million a year earlier. Those values are net of allowances for
losses on the disposal of properties of $476 thousand and $365 thousand,
respectively. Such allowances were taken pursuant to appraisals or other
indications of the market value of the assets subsequent to the time those
assets were foreclosed upon.
SCHEDULE VIII
NONPERFORMING LOANS AND OREO
FOR THE PERIOD 1991 - 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
---------------------------------------------------------------
1995 1994 1993 1992 1991
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Nonaccrual Loans.................................... $ 2,329 $ 2,933 $ 3,033 $ 5,152 $ 1,029
Loans Past Due 90 Days or More and Still Accruing... 701 22 1,232 3,147 0
----------- ----------- ----------- ----------- -----------
Total Nonperforming Loans......................... 3,030 2,955 4,265 8,299 1,029
----------- ----------- ----------- ----------- -----------
% of Total Loans.................................. 2.10% 2.15% 3.05% 5.93% 0.67%
----------- ----------- ----------- ----------- -----------
Other Real Estate Owned............................. 2,901 1,512 3,840 3,525 2,250
----------- ----------- ----------- ----------- -----------
Total Nonperforming Assets........................ $ 5,931 $ 4,467 $ 8,105 $ 11,824 $ 3,279
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
% of Total Loans and OREO......................... 4.04% 3.22% 5.64% 8.24% 2.11%
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
</TABLE>
F-22
<PAGE>
LOAN CHARGE-OFFS AND PROVISION FOR CREDIT LOSSES
The Bank recorded a provision for credit losses of $180 thousand in 1995 as
compared to $270 thousand in 1994. Net charge-offs totaled $246 thousand in 1995
compared to $544 thousand in the prior year. Schedule IX presents the activity
in the Allowance for Credit Losses from 1991 through 1995, showing the
provisions, charge-offs and recoveries for each of those years.
SCHEDULE IX
SUMMARY OF THE ALLOWANCE FOR CREDIT LOSSES
FOR THE PERIOD 1991 - 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Total Loans at End of Period............. $ 144,012 $ 137,129 $ 139,953 $ 139,937 $ 152,886
------------ ------------ ------------ ------------ ------------
Average Total Loans Outstanding.......... $ 134,852 $ 132,709 $ 131,048 $ 143,353 $ 157,386
------------ ------------ ------------ ------------ ------------
Allowance for Credit Losses (ACL) at
Beginning of Period..................... $ 2,656 $ 2,930 $ 3,357 $ 2,130 $ 1,870
Provision for Credit Losses.............. 180 270 1,257 2,030 340
Charge-offs:
Business............................... 22 107 198 17 11
Real Estate............................ 267 478 1,367 710 127
Consumer............................... 41 81 177 121 56
------------ ------------ ------------ ------------ ------------
Total Charge-offs........................ 330 666 1,742 848 194
------------ ------------ ------------ ------------ ------------
Recoveries:
Business............................... 20 66 18 21 15
Real Estate............................ 46 39 17 0 68
Consumer............................... 18 17 23 24 31
------------ ------------ ------------ ------------ ------------
Total Recoveries......................... 84 122 58 45 114
------------ ------------ ------------ ------------ ------------
Net Loan Charge-offs..................... 246 544 1,684 803 80
------------ ------------ ------------ ------------ ------------
Allowance for Credit Losses (ACL) at End
of Period............................... $ 2,590 $ 2,656 $ 2,930 $ 3,357 $ 2,130
------------ ------------ ------------ ------------ ------------
Net Charge-offs to Average Total Loans... 0.18% 0.41% 1.29% 0.56% 0.05%
ACL to End of Period Loans............... 1.80% 1.94% 2.09% 2.40% 1.39%
------------ ------------ ------------ ------------ ------------
</TABLE>
ALLOWANCE FOR CREDIT LOSSES
The allowance for credit losses (ACL) provides for the estimated risk of
credit losses inherent in the lending activities of the Bank. The ACL is
increased by the provision for credit losses and by recoveries on loans
previously charged off. It is decreased by loan charge-offs as they are
recognized. The adequacy of the ACL is ultimately determined by the amount of
actual future losses sustained and there is, therefore, no precise method of
determining the exact proper level of the ACL at any given time.
Management assesses the adequacy of the ACL using a systematic and thorough
analysis of a variety of portfolio quality factors. Changes in underwriting
standards, staff and management were considered along with the estimated effects
of changes in the local economy, concentrations of credit, projected losses and
delinquent loan trends. These factors are used to adjust the risk weightings
applied to the Bank's current problem loan portfolio and to the portfolio as a
whole. Additionally, these quantitative factors are applied to an evaluation of
the weighted average historical loss analysis. The above analysis and a
F-23
<PAGE>
comparison against peer group data is then used to make a final determination of
the adequacy of the ACL.
The Bank has also established internal credit underwriting policies and a
loan approval system that provides a strong foundation to assess and control
risk in the portfolio. It has also established a risk rating, or loan grading,
system and a loan review program to identify and monitor problem loans and asset
quality in a timely and accurate manner.
Based on its analysis at December 31, 1995, management believes the ACL is
adequate to cover losses inherent in loans and commitments outstanding at
December 31, 1995.
CREDIT ADMINISTRATION
Sound credit quality is vital to the continued success of a financial
institution. It allows the Bank to maintain a stable positive income stream and
is important with respect to attracting and retaining depositors and borrowing
customers. Management has strict policies designed to assure credit quality and
minimize the level of nonperforming loans and loan losses. The policies require
prudent review of all new credits as well as ongoing reviews of the loans in the
portfolio to identify and monitor possible deterioration in asset quality. In
addition, the Bank utilizes an independent external credit review firm to
validate the results of the Bank's self-evaluation process.
OFF-BALANCE SHEET CREDIT COMMITMENTS AND CONTINGENT OBLIGATIONS
In the normal course of business, the Bank is a party to financial
instruments with off-balance sheet risk to meet the financing needs of its
customers. These financial instruments include commitments to extend credit and
standby letters of credit. The Bank's exposure to credit loss in the event of
nonperformance by the other party to the financial instrument for commitments to
extend credit and standby letters of credit is represented by the contractual
amounts of those instruments. The Bank uses the same credit policies in making
commitments and conditional obligations as it does for on-balance sheet
instruments.
The Bank had outstanding commitments to extend credit of $34.0 million and
outstanding letters of credit of $412 thousand at December 31, 1995. Such
commitments totaled $34.5 million and $643 thousand, respectively, at December
31, 1994. Additional information regarding commitments and contingencies is
presented in Note 9 of the notes to consolidated financial statements which are
included as part of this report.
EFFECTS OF INFLATION
The financial statements and related data presented herein have been
prepared in accordance with generally accepted accounting principles, which
require the measurement of financial position and operating results in terms of
historical dollars without considering changes in the relative purchasing power
of money due to inflation. There is a presentation of the fair value of the
financial assets and liabilities of the Bank in Note 16 of the notes to
consolidated financial statements.
Virtually all of the assets and liabilities of a financial institution are
monetary in nature. As a result, changes in interest rates have a more
significant impact on a financial institution's performance than the effect of
general levels of inflation.
EFFECT OF ACCOUNTING PRONOUNCEMENTS
In March 1995, the Financial Accounting Standards Board (FASB) issued
Statement No. 121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of. Statement No. 121 establishes accounting
standards for the impairment of long-lived assets, certain identifiable
intangibles, and goodwill related to those assets to be held and used and for
long-lived assets and certain identifiable intangibles to be disposed of.
Statement No. 121 will first be required for the
F-24
<PAGE>
Bank's year ending December 31, 1996. Based on its preliminary analysis, the
Bank does not anticipate that the adoption of Statement No. 121 will have a
material impact on the financial statements.
In May 1995, the FASB issued Statement No. 122, Accounting for Mortgage
Servicing Rights, an Amendment of Financial Accounting Standards Board Statement
No. 65. Statement No. 122 requires that a mortgage banking enterprise recognize
as separate assets rights to service mortgage loans for others, however those
servicing rights are acquired. Statement No. 122 will first be required for the
Bank's year ending December 31, 1996. The Bank has not addressed the potential
future impact of the application of this Statement.
In October 1995, the FASB issued Statement No. 123, Accounting for
Stock-Based Compensation. Statement No. 123 establishes financial accounting and
reporting standards for stock-based employee compensation plans such as a stock
purchase plan. The statement generally suggests, but does not require,
stock-based compensation transactions be accounted for based on the fair market
value of the consideration received or the fair value of the equity instruments
issued, whichever is more reliably measurable. An enterprise may continue to
follow the requirements of Accounting Principles Board (APB) Opinion No. 25,
which does not require compensation to be recorded if the consideration to be
received is at least equal to the fair value at the measurement date. If an
enterprise elects to follow APB Opinion No. 25, it must disclose the pro forma
effects on the net income as if compensation were measured in accordance with
the suggestions of Statement No. 123. The Bank has not determined if it will
continue to follow APB Opinion No. 25 or follow the guidance of Statement No.
123. However, adoption of this pronouncement in 1996 is not expected to have a
material impact on the financial statements.
F-25
<PAGE>
CONSOLIDATED FINANCIAL STATEMENTS, SCHEDULES AND NOTES THERETO FROM
PAGES 16-34 OF THE RIVERSIDE NATIONAL BANK 1995 ANNUAL REPORT
RIVERSIDE NATIONAL BANK
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
ASSETS
<TABLE>
<CAPTION>
1995 1994
-------------- --------------
<S> <C> <C>
Cash and cash equivalents, including $9,000,000 of federal funds sold in 1995
(Note 2)....................................................................... $ 32,462,000 $ 16,830,000
Securities (Note 3)
Held-to-maturity securities (fair value 1994 $17,862,000)...................... -- 18,499,000
Available-for-sale securities.................................................. 36,543,000 19,326,000
Loans, net of allowance for credit losses and deferred loan fees 1995 $2,590,000
and $636,000; 1994 $2,656,000 and $743,000, respectively (Notes 4, 5 and 12)... 141,422,000 134,473,000
Bank premises and equipment, net (Note 6)........................................ 6,117,000 6,494,000
Other real estate owned, net (Note 5)............................................ 2,901,000 1,512,000
Accrued interest receivable...................................................... 1,823,000 1,668,000
Deferred tax assets (Note 8)..................................................... 229,000 768,000
Income tax refund claim receivable............................................... 76,000 3,078,000
Other assets..................................................................... 818,000 811,000
-------------- --------------
Total assets............................................................... $ 222,391,000 $ 203,459,000
-------------- --------------
-------------- --------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits (Notes 3 and 7):
Demand....................................................................... $ 63,646,000 $ 56,917,000
Savings and NOW.............................................................. 68,547,000 67,027,000
Other time................................................................... 66,227,000 58,421,000
-------------- --------------
Total deposits............................................................. 198,420,000 182,365,000
Other borrowed funds........................................................... 687,000 1,342,000
Accrued interest payable and other liabilities................................. 2,068,000 1,377,000
-------------- --------------
Total liabilities.......................................................... 201,175,000 185,084,000
-------------- --------------
Commitments and Contingencies (Notes 9 and 11)
Stockholders' Equity (Notes 10 and 13)
Common stock, $1.25 par value; 2,700,000 shares authorized..................... 2,649,000 2,683,000
Additional paid-in capital..................................................... 4,323,000 4,520,000
Retained earnings.............................................................. 13,794,000 11,937,000
Unrealized gain (loss) on available-for-sale securities, net (Note 3).......... 450,000 (427,000)
Less cost of 41,000 common shares acquired for treasury........................ -- (338,000)
-------------- --------------
Total stockholders' equity................................................. 21,216,000 18,375,000
-------------- --------------
Total liabilities and stockholders' equity................................. $ 222,391,000 $ 203,459,000
-------------- --------------
-------------- --------------
</TABLE>
See Notes to Consolidated Financial Statements.
F-26
<PAGE>
RIVERSIDE NATIONAL BANK
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
------------- -------------
<S> <C> <C>
Interest income on:
Loans............................................................................ $ 13,354,000 $ 11,723,000
Securities....................................................................... 2,494,000 1,782,000
Federal funds sold............................................................... 572,000 262,000
Deposits in other financial institutions......................................... -- 99,000
------------- -------------
Total interest income.......................................................... 16,420,000 13,866,000
------------- -------------
Interest expense on:
Deposits......................................................................... 4,905,000 3,704,000
Other borrowed funds............................................................. 83,000 59,000
------------- -------------
Total interest expense......................................................... 4,988,000 3,763,000
------------- -------------
Net interest income............................................................ 11,432,000 10,103,000
Provision for credit losses (Note 5)............................................... 180,000 270,000
------------- -------------
Net interest income after provision for credit losses.......................... 11,252,000 9,833,000
------------- -------------
Other income:
Service charges and other fees................................................... 1,616,000 1,562,000
Other (Note 14).................................................................. 1,269,000 1,624,000
------------- -------------
2,885,000 3,186,000
------------- -------------
Other expenses:
Salaries, wages and employee benefits............................................ 5,024,000 5,512,000
Occupancy and equipment expenses................................................. 1,671,000 1,842,000
Other (Note 14).................................................................. 3,394,000 3,597,000
------------- -------------
10,089,000 10,951,000
------------- -------------
Income before income taxes..................................................... 4,048,000 2,068,000
Income tax expense (Note 8)........................................................ 1,420,000 715,000
------------- -------------
Net income..................................................................... $ 2,628,000 $ 1,353,000
------------- -------------
------------- -------------
Earnings per common share and common equivalent share.............................. $ 1.19 $ 0.64
------------- -------------
------------- -------------
Shares used in computing earnings per common share and common equivalent share..... 2,203,659 2,105,489
------------- -------------
------------- -------------
Dividends per common share......................................................... $ 0.37 $ --
------------- -------------
------------- -------------
</TABLE>
See Notes to Consolidated Financial Statements.
F-27
<PAGE>
RIVERSIDE NATIONAL BANK
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
UNREALIZED
GAIN (LOSS)
COMMON STOCK ADDITIONAL AVAILABLE FOR
----------------------------- PAID-IN RETAINED SALE
SHARES PAR VALUE CAPITAL EARNINGS SECURITIES
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1993................ 2,146,489 $ 2,683,000 $ 4,520,000 $ 10,584,000 $ 197,000
Net income............................ -- -- -- 1,353,000 --
Net change in unrealized gain (loss)
on available-for-sale securities
(Note 3)............................ -- -- -- -- (624,000)
------------- ------------- ------------- ------------- -------------
Balance December 31, 1994................. 2,146,489 2,683,000 4,520,000 11,937,000 (427,000)
Net income............................ -- -- -- 2,628,000 --
Cash dividends declared ($.37 per
share).............................. -- -- -- (771,000) --
Common stock sold under stock
option.............................. 14,000 17,000 90,000 -- --
Retirement of Treasury Stock.......... (41,000) (51,000) (287,000) -- --
Net change in unrealized gain (loss)
on available-for-sale securities
(Note 3)............................ -- -- -- -- 877,000
------------- ------------- ------------- ------------- -------------
Balance December 31, 1995................. 2,119,489 $ 2,649,000 $ 4,323,000 $ 13,794,000 $ 450,000
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
<CAPTION>
TREASURY
STOCK TOTAL
------------- -------------
<S> <C> <C>
Balance, December 31, 1993................ $ (338,000) $ 17,646,000
Net income............................ -- 1,353,000
Net change in unrealized gain (loss)
on available-for-sale securities
(Note 3)............................ -- (624,000)
------------- -------------
Balance December 31, 1994................. (338,000) 18,375,000
Net income............................ -- 2,628,000
Cash dividends declared ($.37 per
share).............................. -- (771,000)
Common stock sold under stock
option.............................. -- 107,000
Retirement of Treasury Stock.......... 338,000 --
Net change in unrealized gain (loss)
on available-for-sale securities
(Note 3)............................ -- 877,000
------------- -------------
Balance December 31, 1995................. $ -- $ 21,216,000
------------- -------------
------------- -------------
</TABLE>
See Notes to Consolidated Financial Statements.
F-28
<PAGE>
RIVERSIDE NATIONAL BANK
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
------------- --------------
<S> <C> <C>
Cash Flows From Operating Activities
Net income............................................................................. $ 2,628,000 $ 1,353,000
Adjustments to reconcile net income to net cash provided by (used in) operating
activities:
Depreciation and amortization........................................................ 566,000 523,000
Provision for credit losses.......................................................... 180,000 270,000
Net amortization and accretion of bond premiums and discounts........................ 257,000 290,000
Provision for losses on other real estate owned...................................... 244,000 47,000
Deferred income taxes................................................................ 8,000 3,338,000
(Increase) decrease in income tax refund claim receivable............................ 3,002,000 (3,078,000)
(Gain) loss on sale of other real estate owned....................................... 75,000 (204,000)
Originations and purchases of loans held for sale.................................... -- 3,736,000
(Increase) decrease in interest receivable and other assets.......................... (163,000) 183,000
Increase (decrease) in accrued interest and other liabilities........................ 691,000 (8,052,000)
------------- --------------
Net cash provided by (used in) operating activities.................................. 7,488,000 (1,594,000)
------------- --------------
Cash Flows From Investing Activities
Net decrease in interest bearing deposits in other financial institutions.............. -- 5,920,000
Purchase of securities to be held to maturity.......................................... (3,597,000) (10,285,000)
Purchase of available-for-sale securities.............................................. (2,053,000) (16,775,000)
Proceeds from maturities of securities held to maturity................................ 2,000,000 5,500,000
Proceeds from maturities of available-for-sale securities.............................. 2,000,000 13,000,000
Proceeds from sales of available-for-sale securities................................... 4,084,000 --
Change in loans made to customers, net................................................. (9,673,000) (1,123,000)
Proceeds from sale of other real estate owned.......................................... 836,000 2,152,000
Purchases of bank premises and equipment............................................... (304,000) (1,128,000)
Proceeds from sales of bank premises and equipment..................................... 115,000 238,000
------------- --------------
Net cash (used in) investing activities.............................................. (6,592,000) (2,501,000)
------------- --------------
Cash Flows From Financing Activities
Net increase in deposits............................................................... 16,055,000 7,347,000
(Decrease) in other borrowed funds..................................................... (655,000) (1,442,000)
Proceeds from issuance of common stock................................................. 107,000 --
Dividends paid......................................................................... (771,000) --
------------- --------------
Net cash provided by financing activities............................................ 14,736,000 5,905,000
------------- --------------
Net increase in cash and cash equivalents............................................ 15,632,000 1,810,000
Cash and Cash Equivalents
Beginning.............................................................................. 16,830,000 15,020,000
------------- --------------
Ending................................................................................. $ 32,462,000 $ 16,830,000
------------- --------------
------------- --------------
</TABLE>
See Notes to Consolidated Financial Statements.
F-29
<PAGE>
RIVERSIDE NATIONAL BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. NATURE OF BANKING ACTIVITIES AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
NATURE OF OPERATIONS: Riverside National Bank (the "Bank") provides a full
range of banking services to its commercial and consumer customers through four
branches located in the City of Riverside, California.
The Bank grants commercial, residential and consumer loans to customers,
substantially all of whom are middle-market businesses or residents. The Bank's
business is concentrated in Southern California, and the loan portfolio includes
a significant credit exposure to the real estate industry of this area. As of
December 31, 1995, real estate related loans accounted for approximately 63% of
total loans. Substantially all of these loans are secured by first liens with an
initial loan-to-value ratio of generally not more than 80%.
The loans are expected to be repaid from cash flows or proceeds from the
sale of selected assets of the borrowers. The Bank's policy requires that
collateral be obtained on substantially all loans. Such collateral is primarily
first trust deeds on property.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS: The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosures of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
PRINCIPLES OF CONSOLIDATION: The consolidated financial statements include
the accounts of Riverside National Bank and its wholly-owned subsidiaries,
Inland Data Services, Inc. and Trust Deed Services, Inc. These entities are
collectively referred to herein as the Bank. All significant intercompany
balances and transactions have been eliminated in consolidation.
CASH AND CASH EQUIVALENTS: For purposes of reporting cash flows, cash and
due from banks includes cash on hand, amounts due from banks and federal funds
sold. Cash flows from loans originated by the Bank, deposits and federal funds
purchased are reported net.
The Bank maintains amounts due from banks which exceed federally insured
limits. The Bank has not experienced any losses in such accounts.
HELD-TO-MATURITY SECURITIES: Securities classified as held-to-maturity are
those debt securities the Bank has both the intent and ability to hold to
maturity regardless of changes in market conditions, liquidity needs or changes
in general economic conditions. These securities are carried at cost adjusted
for amortization of premiums and accretion of discount, computed by the interest
method over their contractual lives.
The sale of a security within three months of its maturity date or after at
least 85% of the principal outstanding has been collected is considered a
maturity for purposes of classification and disclosure.
AVAILABLE-FOR-SALE SECURITIES: Securities classified as available-for-sale
are those debt securities that the Bank intends to hold 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
Bank's assets and liabilities, liquidity needs, regulatory capital
considerations, and other similar factors. Securities available-for-sale are
carried at fair value. Unrealized gains or losses, net of the related deferred
tax effect, are reported as increases or decreases in
F-30
<PAGE>
RIVERSIDE NATIONAL BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1. NATURE OF BANKING ACTIVITIES AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
stockholders' equity. Realized gains or losses, determined on the basis of the
cost of specific securities sold, are included in earnings.
TRANSFERS: Transfers of debt securities into the held-to-maturity
classification from the available-for-sale classification are made at fair value
on the date of transfer. The unrealized holding gains or losses on the date of
transfer are retained as a separate component of stockholders' equity and in the
carrying value of the held-to-maturity securities. Such amounts are amortized
over the remaining contractual lives of the securities by the interest method.
LOANS: Loans are stated at the amount of unpaid principal, reduced by
unearned fees and an allowance for credit losses.
The allowance for credit losses is established through a provision for
credit losses charged to expense. Loans are charged against the allowance for
credit losses when management believes that collectibility of the principal is
unlikely. The allowance is an amount that management believes will be adequate
to absorb estimated losses on existing loans that may become uncollectible,
based on evaluation of the collectibility of loans and prior loan loss
experience. This evaluation also takes into consideration such factors as
changes in the nature and volume of the loan portfolio, overall portfolio
quality, review of specific problem loans, and current economic conditions that
may affect the borrower's ability to pay. While management uses the best
information available to make its evaluation, future adjustments to the
allowance may be necessary if there are significant changes in economic or other
conditions. In addition, the Office of the Comptroller of the Currency ("OCC"),
as an integral part of their examination process, periodically reviews the
Bank's allowance for credit losses, and may require the Bank to make additions
to the allowance based on their judgment about information available to them at
the time of their examinations.
Impaired loans are measured based on the present value of expected future
cash flows discounted at the loan's effective interest rate or, as a practical
expedient, at the loan's observable market price or the fair value of the
collateral if the loan is collateral dependent. A loan is impaired when it is
probable the creditor will be unable to collect all contractual principal and
interest payments due in accordance with the terms of the loan agreement.
INTEREST AND FEES ON LOANS: Interest on loans is recognized over the terms
of the loans and is calculated using the simple-interest method on principal
amounts outstanding. The accrual of interest on impaired loans is discontinued
when, in management's opinion, the borrower may be unable to meet payments as
they become due. When interest accrual is discontinued, all unpaid accrued
interest is reversed. Interest income is subsequently recognized only to the
extent cash payments are received.
Loan origination and commitment fees and certain direct loan origination
costs are deferred and the net amount amortized as an adjustment of the related
loan's yield. The Bank is generally amortizing these amounts over the
contractual life.
SALES OF LOANS: The Bank sells loans to FNMA and other outside investors to
provide funds for additional lending and to generate servicing income. Under
such agreements, the Bank continues to service the loans and the buyer receives
the principal collected together with interest. Loans held for sale are valued
at the lower of cost or market value.
F-31
<PAGE>
RIVERSIDE NATIONAL BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1. NATURE OF BANKING ACTIVITIES AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
Gains and losses on sales of loans are recognized at the time of sale and
are calculated based on the difference between the selling price and the book
value of loans sold. Any inherent risk of loss on loans sold is transferred to
the buyer at the date of sale.
BANK PREMISES AND EQUIPMENT: Premises and equipment are stated at cost less
accumulated depreciation and amortization. Depreciation is computed principally
by the straight-line method over the following estimated useful lives:
<TABLE>
<CAPTION>
YEARS
---------
<S> <C>
Buildings and leasehold improvements................................................ 3 to 40
Equipment and furnishings........................................................... 3 to 30
</TABLE>
Improvements to leased property are amortized over the lesser of the term of
the lease or life of the improvements.
OTHER REAL ESTATE OWNED: Other real estate owned ("OREO") represents
properties acquired through foreclosure or other proceedings. OREO is held for
sale and is recorded at the lower of the carrying amounts of the related loans
or the estimated fair value of the properties less estimated costs of disposal.
Any write-down to estimated fair value less cost to sell at the time of transfer
to OREO is charged to the allowance for credit losses. Property is evaluated
regularly by management and reductions of the carrying amount to estimated fair
value less estimated costs to dispose are recorded as necessary. Depreciation is
recorded based on the recorded amount of depreciable assets after they have been
owned for one year. Depreciation and additions to or reductions from valuation
allowances are recorded in income.
INTANGIBLES: Goodwill is amortized over 20 years using the straight-line
method. At December 31, 1995, the unamortized balance of $410,000 is included in
other assets in the accompanying consolidated balance sheet.
INCOME TAXES: Deferred taxes are provided on an asset and liability method
whereby deferred tax assets are recognized for deductible temporary differences
and operating loss and tax credit carryforwards and deferred tax liabilities are
recognized for taxable temporary differences. Temporary differences are the
differences between the reported amounts of assets and liabilities and their tax
bases. Deferred tax assets are reduced by a valuation allowance when management
determines that it is more likely than not that some portion or all of the
deferred tax assets will not be realized. Deferred tax assets and liabilities
are adjusted for the effects of changes in tax laws and rates on the date of
enactment.
FAIR VALUE OF FINANCIAL INSTRUMENTS: Management uses its best judgment in
estimating the fair value of the Bank's financial instruments; however, there
are inherent weaknesses in any estimation technique. Therefore, for
substantially all financial instruments, the fair value estimates presented
herein are not necessarily indicative of the amounts the Bank could have
realized in a sales transaction at either December 31, 1995 or 1994. The
estimated fair value amounts for 1995 and 1994 have been measured as of their
respective year ends, and have not been reevaluated or updated for purposes of
these consolidated financial statements subsequent to those respective dates. As
such, the estimated fair values of these financial instruments subsequent to the
respective reporting dates may be different than the amounts reported at each
year end.
F-32
<PAGE>
RIVERSIDE NATIONAL BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1. NATURE OF BANKING ACTIVITIES AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
The information in Note 16 should not be interpreted as an estimate of the
fair value of the entire Bank since a fair value calculation is only required
for a limited portion of the Bank's assets.
This disclosure of fair value amounts does not include the fair values of
any intangibles, including core deposit intangibles, purchased mortgage
servicing rights, and credit card intangibles.
Due to the wide range of valuation techniques and the degree of subjectivity
used in making the estimate, comparisons between the Bank's disclosures and
those of other banks may not be meaningful.
The following methods and assumptions were used by the Bank in estimating
the fair value of its financial instruments:
CASH AND SHORT-TERM INSTRUMENTS: The carrying amounts reported in the
consolidated balance sheets for cash and due from banks and federal funds
sold approximate their fair values.
SECURITIES: Carrying amounts approximate fair values for securities
available for sale. Fair values for securities held to maturity are based on
quoted market prices.
LOANS: For variable-rate loans that reprice frequently and that have
experienced no significant change in credit risk, fair values are based on
carrying values. At December 31, 1995 and 1994, variable rate loans
comprised approximately 72% and 70% of the loan portfolio, respectively.
Fair values for all other loans are estimated based on discounted cash
flows, using interest rates currently being offered for loans with similar
terms to borrowers with similar credit quality. Prepayments prior to the
repricing date are not expected to be significant. Loans are expected to be
held to maturity and any unrealized gains or losses are not expected to be
realized.
OFF-BALANCE-SHEET INSTRUMENTS: Fair values for off-balance-sheet
instruments (guarantees, letters of credit and lending commitments) are
based on quoted fees currently charged to enter into similar agreements,
taking into account the remaining terms of the agreements and the
counterparties' credit standing.
DEPOSIT LIABILITIES: Fair values disclosed for savings and demand
deposits equal their carrying amounts, which approximate the amount payable
on demand. The carrying amounts for variable-rate money market accounts and
certificates of deposit approximate their fair values at the reporting date.
Fair values for fixed-rate certificates of deposit are estimated using a
discounted cash flow calculation that applies interest rates currently being
offered on certificates to a schedule of aggregate expected monthly
maturities on time deposits. Early withdrawals of fixed-rate certificates of
deposit are not expected to be significant.
BORROWINGS: The fair values of all short-term borrowings approximate
their carrying amounts.
ACCRUED INTEREST RECEIVABLE AND PAYABLE: The fair values of both
accrued interest receivable and payable approximate their carrying amounts.
RECLASSIFICATIONS: Certain of the 1994 amounts have been reclassified to
conform with the 1995 presentation. These reclassifications had no effect on net
income or stockholders' equity.
EARNINGS PER SHARE: Earnings per share of common stock are based on the
weighted average number of common shares and common equivalent shares
outstanding.
F-33
<PAGE>
RIVERSIDE NATIONAL BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1. NATURE OF BANKING ACTIVITIES AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS
TO BE DISPOSED OF: In March 1995, the Financial Accounting Standards Board
("FASB") issued Statement No. 121, ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED
ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF. Statement No. 121
establishes accounting standards for the impairment of long-lived assets,
certain identifiable intangibles, and goodwill related to those assets to be
held and used and for long-lived assets and certain identifiable intangibles to
be disposed of. Statement No. 121 will first be required for the Bank's year
ending December 31, 1996. Based on its preliminary analysis, the Bank does not
anticipate that the adoption of Statement No. 121 will have a material impact on
the financial statements.
ACCOUNTING FOR MORTGAGE SERVICING RIGHTS: In May 1995, the FASB issued
Statement No. 122, ACCOUNTING FOR MORTGAGE SERVICING RIGHTS, AN AMENDMENT OF
FINANCIAL ACCOUNTING STANDARDS BOARD STATEMENT NO. 65. Statement No. 122
requires that a mortgage banking enterprise recognize as separate assets rights
to service mortgage loans for others, however those servicing rights are
acquired. Statement No. 122 will first be required for the Bank's year ending
December 31, 1996. The Bank has not addressed the potential future impact of the
application of this Statement.
ACCOUNTING FOR STOCK-BASED COMPENSATION: In October 1995, the FASB issued
Statement No. 123, Accounting for Stock-Based Compensation. Statement No. 123
establishes financial accounting and reporting standards for stock-based
employee compensation plans such as a stock purchase plan. The statement
generally suggests, but does not require, stock-based compensation transactions
be accounted for based on the fair value of the consideration received or the
fair value of the equity instruments issued, whichever is more reliably
measurable. An enterprise may continue to follow the requirements of Accounting
Principles Board ("APB") Opinion No. 25, which does not require compensation to
be recorded if the consideration to be received is at least equal to the fair
value at the measurement date. If an enterprise elects to follow APB Opinion No.
25, it must disclose the pro forma effects on net income as if compensation were
measured in accordance with the suggestions of Statement No. 123. The Bank has
not determined if it will continue to follow APB Opinion No. 25 or follow the
guidance of Statement No. 123. However, adoption of this pronouncement in 1996
is not expected to have a material impact on the financial statements.
NOTE 2. RESTRICTIONS ON CASH AND DUE FROM BANKS
The Bank is required to maintain reserve balances in cash or on deposit with
Federal Reserve Banks. The total of those reserve balances was approximately
$3,068,000 as of December 31, 1995.
NOTE 3. SECURITIES
Carrying amounts and fair values of securities being held to maturity as of
December 31, 1994 is summarized as follows:
<TABLE>
<CAPTION>
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUES
------------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
U.S. Treasury securities and obligations of other U.S.
Government corporations and agencies..................... $ 18,279,000 $ -- $ 637,000 $ 17,642,000
Other...................................................... 220,000 -- -- 220,000
------------- ----------- ----------- -------------
$ 18,499,000 $ -- $ 637,000 $ 17,862,000
------------- ----------- ----------- -------------
------------- ----------- ----------- -------------
</TABLE>
F-34
<PAGE>
RIVERSIDE NATIONAL BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 3. SECURITIES (CONTINUED)
Securities being held to maturity with a carrying amount of $8,843,000 at
December 31, 1994, were pledged as collateral on public deposits and for other
purposes as required or permitted by law. There were no securities being held to
maturity at December 31, 1995.
Carrying amounts and fair values of available-for-sale securities as of
December 31, 1995 and 1994 are summarized as follows:
<TABLE>
<CAPTION>
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUES
------------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
1995
U.S. Treasury securities and obligations of other U.S.
Government corporations and agencies..................... $ 35,567,000 $ 763,000 $ -- $ 36,330,000
Other...................................................... 213,000 -- -- 213,000
------------- ----------- ----------- -------------
$ 35,780,000 $ 763,000 $ -- $ 36,543,000
------------- ----------- ----------- -------------
------------- ----------- ----------- -------------
1994
U.S. Treasury securities and obligations of other U.S.
Government corporations and agencies..................... $ 19,972,000 $ -- $ 646,000 $ 19,326,000
------------- ----------- ----------- -------------
------------- ----------- ----------- -------------
</TABLE>
Available-for-sale securities with a carrying amount of $9,205,000 at
December 31, 1995 were pledged as collateral on public deposits and for other
purposes as required or permitted by law. There were no available-for-sale
securities pledged at December 31, 1994.
The amortized cost and fair value of investment securities as of December
31, 1995 by contractual maturities are shown below.
<TABLE>
<CAPTION>
AVAILABLE-FOR-SALE
----------------------------
AMORTIZED FAIR
COST VALUES
------------- -------------
<S> <C> <C>
Due in one year or less........................................ $ 9,017,000 $ 9,064,000
Due after one year through five years.......................... 26,550,000 27,266,000
Other.......................................................... 213,000 213,000
------------- -------------
$ 35,780,000 $ 36,543,000
------------- -------------
------------- -------------
</TABLE>
There was a gross realized loss of $15,000 from the sale of
available-for-sale securities for the year ended December 31, 1995. There were
no gross realized gains or losses from the sale of available-for-sale securities
for the year ended December 31, 1994, and no gross realized gains for the year
ended December 31, 1995.
On December 21, 1995, the Bank reassessed the appropriateness of the
classification of all securities in accordance with the issuance of Financial
Accounting Standards Board Guide to Implementation of Statement 115 on
Accounting for Certain Investments in Debt and Equity Securities. As a result,
the Bank transferred $19,723,000 of securities previously classified as
held-to-maturity into available-for-sale securities at their fair value and
recognized a pre-tax unrealized holding gain of $379,000 at the date of transfer
(included with the caption "unrealized gain (loss) on available-for-sale
securities in stockholders' equity").
F-35
<PAGE>
RIVERSIDE NATIONAL BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 4. LOANS
The composition of the Bank's loan portfolio is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
1995 1994
-------------- --------------
<S> <C> <C>
Real estate loans:
Construction............................................... $ 10,388,000 $ 7,381,000
Residential................................................ 15,886,000 18,336,000
Commercial................................................. 62,992,000 52,973,000
-------------- --------------
89,266,000 78,690,000
Commercial and industrial loans.............................. 43,868,000 45,605,000
Loans to individuals......................................... 11,514,000 13,345,000
Leasing financing receivables................................ -- 232,000
-------------- --------------
144,648,000 137,872,000
Deduct:
Unearned net loan fees..................................... 636,000 743,000
Allowance for loan and lease losses........................ 2,590,000 2,656,000
-------------- --------------
$ 141,422,000 $ 134,473,000
-------------- --------------
-------------- --------------
</TABLE>
ACCOUNTING BY CREDITORS FOR IMPAIRMENT OF A LOAN: On January 1, 1995, the
Bank adopted FASB Statement No. 114, ACCOUNTING BY CREDITORS FOR IMPAIRMENT OF A
LOAN, as amended by FASB Statement No. 118, ACCOUNTING BY CREDITORS FOR
IMPAIRMENT OF A LOAN--INCOME RECOGNITION AND DISCLOSURES. There was no effect on
the Bank's financial statements for this change, which generally requires
impaired loans to be measured on the present value of expected future cash flows
discounted at the loan's effective interest rate or, as an expedient, at the
loan's observable market price or the fair value of the collateral if the loan
is collateral dependent. A loan is impaired when it is probable the creditor
will be unable to collect all contractual principal and interest payments due in
accordance with the terms of the loan agreement. At January 1, 1995, the Bank
has classified $2,544,000 of its loans as impaired with no additional specific
loss reserve allocated.
Impairment of loans having recorded investments of $983,000 at December 31,
1995 have been recognized. The total allowance for credit losses related to
these loans was $206,000 on December 31, 1995. There were no impaired loans for
which there was no related allowance for credit losses at December 31, 1995. The
average recorded investment for all impaired loans during 1995 was $2,708,000.
Interest income of $10,500 was recognized on impaired loans in 1995 on the
accrual basis. No interest was recognized using a cash-basis method of
accounting on impaired loans.
The Bank is not committed to lend additional funds to debtors whose loans
have been modified due to an impairment.
FNMA LOANS SERVICED: The Bank serviced approximately $88,964,000 and
$97,154,000 of loans for FNMA as of December 31, 1995 and 1994, respectively,
which are not included in the accompanying balance sheets.
F-36
<PAGE>
RIVERSIDE NATIONAL BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 5. ALLOWANCE FOR CREDIT LOSSES AND RESERVE FOR OTHER REAL ESTATE OWNED
Changes in the allowance for credit losses are as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------
1995 1994
------------ ------------
<S> <C> <C>
Balance, beginning................................................ $ 2,656,000 $ 2,930,000
Provision charged to expense.................................... 180,000 270,000
Recoveries of amounts charged off............................... 84,000 122,000
Amounts charged off............................................. (330,000) (666,000)
------------ ------------
Balance, ending................................................... $ 2,590,000 $ 2,656,000
------------ ------------
------------ ------------
</TABLE>
Changes in the reserve for other real estate owned are as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------
1995 1994
----------- ------------
<S> <C> <C>
Balance, beginning................................................. $ 365,000 $ 1,311,000
Provision charged to other real estate expense................... 244,000 47,000
Disposal of other real estate owned.............................. (133,000) (993,000)
----------- ------------
Balance, ending.................................................... $ 476,000 $ 365,000
----------- ------------
----------- ------------
</TABLE>
NOTE 6. BANK PREMISES AND EQUIPMENT
The major classes of bank premises and equipment and the total accumulated
depreciation and amortization are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1995 1994
------------- -------------
<S> <C> <C>
Land........................................................... $ 2,239,000 $ 2,239,000
Buildings and leasehold improvements........................... 3,596,000 3,561,000
Equipment and furnishings...................................... 4,066,000 4,440,000
Construction in progress....................................... 148,000 20,000
------------- -------------
10,049,000 10,260,000
Less accumulated depreciation and amortization................. 3,932,000 3,766,000
------------- -------------
$ 6,117,000 $ 6,494,000
------------- -------------
------------- -------------
</TABLE>
F-37
<PAGE>
RIVERSIDE NATIONAL BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 7. DEPOSITS
The aggregate amount of jumbo certificates of deposit, each with a minimum
denomination of $100,000 was approximately $30,112,000 and $22,947,000 in 1995
and 1994, respectively. At December 31, 1995, the scheduled maturities of
certificates of deposits are as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
- -------------------------------------------------------------------------------
<S> <C>
1996......................................................................... $ 28,125,000
1997......................................................................... 1,112,000
1998......................................................................... 336,000
1999......................................................................... 321,000
2000......................................................................... 218,000
-------------
$ 30,112,000
-------------
-------------
</TABLE>
NOTE 8. INCOME TAXES
The cumulative tax effects of the primary temporary differences are shown in
the following table:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1995 1994
------------ ------------
<S> <C> <C>
Deferred tax assets:
Credit loss allowances.......................................... $ 966,000 $ 984,000
Other real estate owned......................................... 216,000 224,000
State net operating loss carryforward........................... -- 424,000
Unrealized loss on available-for-sale securities................ -- 294,000
Other........................................................... 188,000 198,000
------------ ------------
Total deferred tax assets......................................... 1,370,000 2,124,000
------------ ------------
Deferred tax liabilities:
Property and equipment.......................................... 531,000 480,000
Unrealized gain on available-for-sale securities................ 345,000 --
Other........................................................... 110,000 131,000
------------ ------------
Total deferred tax liabilities.................................... 986,000 611,000
------------ ------------
Subtotal.......................................................... 384,000 1,513,000
Valuation allowance for deferred tax asset........................ (155,000) (745,000)
------------ ------------
Net deferred tax asset............................................ $ 229,000 $ 768,000
------------ ------------
------------ ------------
</TABLE>
The provision for income taxes charged to operations consists of the
following:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------
1995 1994
------------ -------------
<S> <C> <C>
Current tax expense (benefit).................................... $ 1,412,000 $ (2,623,000)
Deferred tax expense............................................. 8,000 3,338,000
------------ -------------
$ 1,420,000 $ 715,000
------------ -------------
------------ -------------
</TABLE>
F-38
<PAGE>
RIVERSIDE NATIONAL BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 8. INCOME TAXES (CONTINUED)
The income tax provision differs from the amount of income tax determined by
applying the U.S. federal income tax rate to pretax income as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------
1995 1994
------------ -----------
<S> <C> <C>
Computed "expected" tax expense........................................................ $ 1,417,000 $ 724,000
Increase (decrease) in income taxes resulting from:
State income taxes, net of federal tax benefit and valuation allowance of $590,000
and $400,000 in 1995 and 1994, respectively........................................ 13,000 (243,000)
Benefit of income taxed at lower rates............................................... (41,000) 151,000
Other................................................................................ 31,000 83,000
------------ -----------
$ 1,420,000 $ 715,000
------------ -----------
------------ -----------
</TABLE>
NOTE 9. COMMITMENTS AND CONTINGENCIES
CONTINGENCIES: In the normal course of business, the Bank is involved in
various legal proceedings. In the opinion of management, any liability resulting
from such proceedings would not have a material adverse effect on the
consolidated financial statements.
FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK: The Bank is party to
financial instruments with off-balance-sheet risk in the normal course of
business to meet the financing needs of its customers. These financial
instruments include commitments to extend credit and standby letters of credit.
They involve, to varying degrees, elements of credit risk in excess of amounts
recognized on the consolidated balance sheets.
The Bank's exposure to credit loss in the event of nonperformance by the
other parties to the financial instrument for these commitments is represented
by the contractual amounts of those instruments. The Bank uses the same credit
policies in making commitments and conditional obligations as it does for on-
balance-sheet instruments.
A summary of the contract amount of the Bank's exposure to off-balance-sheet
risk as of December 31, 1995 and 1994 is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1995 1994
------------- -------------
<S> <C> <C>
Commitments to extend credit, including unsecured loan commitments of $7,337,000 in
1995 and $8,214,000 in 1994...................................................... $ 34,007,000 $ 34,545,000
Standby letters of credit.......................................................... 412,000 643,000
------------- -------------
$ 34,419,000 $ 35,188,000
------------- -------------
------------- -------------
</TABLE>
COMMITMENTS TO EXTEND CREDIT: Commitments to extend credit are agreements
to lend to a customer as long as there is no violation of any condition
established in the contract. Commitments generally have fixed expiration dates
or other termination clauses and may require payment of a fee. Since many of the
commitments are expected to expire without being drawn upon, the total
commitment amounts do not necessarily represent future cash requirements. The
Bank evaluates each customer's creditworthiness on a
F-39
<PAGE>
RIVERSIDE NATIONAL BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 9. COMMITMENTS AND CONTINGENCIES (CONTINUED)
case-by-case basis. If deemed necessary upon extension of credit, the amount of
collateral obtained is based on management's credit evaluation of the
counterparty. Collateral held varies, but may include accounts receivable,
inventory, property and equipment, and income-producing commercial properties.
STANDBY LETTERS OF CREDIT: Standby letters of credit are conditional
commitments issued by the Bank to guarantee the performance of a customer to a
third party. Those guarantees are primarily issued to support public and private
borrowing arrangements. The credit risk involved in issuing letters of credit is
essentially the same as that involved in extending loan facilities to customers.
Collateral held varies as specified above and is required in instances which the
Bank deems necessary. At December 31, 1995, approximately 61% of the standby
letters of credit were collateralized.
SALES OF LOANS: The Bank has issued various representations and warranties
associated with the sale of loans. These representations and warranties may
require the Bank to repurchase loans with underwriting deficiencies as defined
per the applicable sales agreements. The Bank experienced no losses during the
years ended December 31, 1995 and 1994 regarding these representations and
warranties.
CREDIT CARD COMMITMENTS: Credit card commitments are commitments on credit
cards and are unsecured.
LEASE COMMITMENTS: The Bank leases one branch under an operating lease
expiring in 2009. Total future minimum rental commitments under this lease are
$2,831,000. The following is a schedule of future minimum rental payments under
this lease:
<TABLE>
<CAPTION>
YEARS ENDING DECEMBER 31,
- --------------------------------------------------------------------------------
<S> <C>
1996.......................................................................... $ 207,000
1997.......................................................................... 207,000
1998.......................................................................... 207,000
1999.......................................................................... 207,000
2000.......................................................................... 207,000
Thereafter...................................................................... 1,796,000
------------
$ 2,831,000
------------
------------
</TABLE>
Total rent expense under lease agreements for the years ended December 31,
1995 and 1994, was $299,000 and $421,000, respectively.
NOTE 10. STOCK OPTION PLANS
The Board of Directors has granted options to key employees and directors to
purchase shares of the Bank's common stock under stock option plans which were
approved by the stockholders in 1987 and 1991. The Board of Directors also
approved a plan in 1994 authorizing 200,000 shares of common stock. The 1987
Plan was originally established for a maximum of 539,511 shares of the Bank's
common stock. Purchase prices associated with the options range from $6.00 to
$13.56 and are based on the fair market value of the Bank's stock at the time
the option is granted. The options, if not exercised, will expire no later than
10 years from the date they were granted, although a shorter period may be
established by the Board
F-40
<PAGE>
RIVERSIDE NATIONAL BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 10. STOCK OPTION PLANS (CONTINUED)
at the time of grant. There are no charges or credits to income in connection
with the grant or exercise of options. Other pertinent information relating to
the Plan follows:
<TABLE>
<CAPTION>
1995 1994
--------- ---------
<S> <C> <C>
Under option, beginning of year......................................... 377,000 353,000
Granted............................................................... 102,000 65,000
Exercised............................................................. (14,000) --
Canceled.............................................................. (6,000) (41,000)
--------- ---------
Under option, end of year............................................... 459,000 377,000
--------- ---------
--------- ---------
Options exercisable, end of year........................................ 302,600 222,800
--------- ---------
--------- ---------
Available to grant, end of year......................................... 80,511 176,511
--------- ---------
--------- ---------
Average price under option, end of year................................. $ 7.86 $ 7.57
--------- ---------
--------- ---------
Average price of options granted, during the year....................... $ 12.34 $ 7.83
--------- ---------
--------- ---------
Average price of options exercised, during the year..................... $ 7.68 $ --
--------- ---------
--------- ---------
</TABLE>
NOTE 11. EMPLOYEE BENEFIT PLANS
PROFIT SHARING/SALARY DEFERRAL PLAN: Effective January 1, 1994, the Bank
adopted a salary deferral 401(k) plan for all full-time and salaried employees
who have completed six months of service. Annual contributions are limited to
the maximum deductible percentage of covered employee compensation.
Contributions to the plan amounted to $102,000 and $91,000 in 1995 and 1994,
respectively.
CONTIGENCY CONTRACT: On November 17, 1993, the Bank entered into a
contingency contract with the Chief Executive Officer of the Bank which provides
for benefits in the event that the Bank experiences a merger, acquisition, or
other act wherein he is not retained as the surviving bank's Chief Executive
Officer.
DEFERRED COMPENSATION PLAN: On June 15, 1994, the Bank entered into a
deferred compensation agreement with certain key executive officers of the Bank
which provides for benefits upon retirement, or for his or her respective
surviving spouse if he or she dies before retirement. The Bank has recorded an
accrual of approximately $391,000 and $156,000 at December 31, 1995 and 1994,
respectively, which represents the estimated value of the benefits earned under
this agreement.
NOTE 12. LOANS AND OTHER TRANSACTIONS WITH RELATED PARTIES
Shareholders of the Bank, and officers and directors, including their
families and companies of which they are principal owners, are considered to be
related parties. These related parties were loan customers of, and had other
transactions with, the Bank in the ordinary course of business. In management's
opinion, these loans and transactions were on the same terms as those for
comparable loans and transactions with nonrelated parties.
F-41
<PAGE>
RIVERSIDE NATIONAL BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 12. LOANS AND OTHER TRANSACTIONS WITH RELATED PARTIES (CONTINUED)
LOANS: Total loans to related parties were approximately $5,494,000 and
$6,751,000 at December 31, 1995 and 1994, respectively. The activity in such
loans is as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------
1995 1994
------------- -------------
<S> <C> <C>
Balance, beginning.............................................. $ 6,751,000 $ 7,536,000
New loans, including renewals................................. 4,658,000 6,152,000
Repayments.................................................... (5,915,000) (6,937,000)
------------- -------------
Balance, ending................................................. $ 5,494,000 $ 6,751,000
------------- -------------
------------- -------------
</TABLE>
None of these loans are past due, nonaccrual, or restructured to provide a
reduction or deferral of interest or principal because of deterioration in the
financial position of the borrower. There were no loans to a related party that
were considered classified loans at December 31, 1995 and 1994.
The Bank has paid approximately $73,000 and $81,000 in legal fees to a
related party during the years ended December 31, 1995 and 1994, respectively.
NOTE 13. REGULATORY CAPITAL REQUIREMENTS AND SUBSEQUENT EVENT
The Bank is subject to various regulatory capital requirements administered
by the federal banking agencies. Failure to meet minimum capital requirements
can initiate certain mandatory--and possibly additional discretionary--actions
by regulators that, if undertaken, could have a direct material effect on the
Bank's financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Bank must meet specific
capital guidelines that involve qualitative measures of the Bank's assets,
liabilities, and certain off-balance-sheet items as calculated under regulatory
accounting practices. The Bank's capital amounts and classification are also
subject to qualitative judgments by the regulators about components, risk
weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios (set forth in the table
below) of total and Tier I capital (as defined in the regulations) to
risk-weighted assets (as defined), and of Tier I capital (as defined) to average
assets (as defined). Management believes, as of December 31, 1995, that the Bank
meets all capital adequacy requirements to which it is subject.
The most recent notification from the OCC, January 25, 1995, categorized the
Bank as well capitalized under the regulatory framework for prompt corrective
action. To be categorized as well capitalized, the Bank must maintain minimum
total risk-based, Tier I risk-based, Tier I leverage ratios as set forth in the
table. There are no conditions or events since that management believes have
changed the institution's category.
F-42
<PAGE>
RIVERSIDE NATIONAL BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 13. REGULATORY CAPITAL REQUIREMENTS AND SUBSEQUENT EVENT (CONTINUED)
The Bank's actual capital amounts and ratios are presented in the following
table:
<TABLE>
<CAPTION>
TO BE WELL CAPITALIZED
FOR CAPITAL ADEQUACY UNDER PROMPT CORRECTIVE
ACTUAL PURPOSES ACTION PROVISIONS
------------------ --------------------------- ---------------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
----------- ----- ------------- ------ ------------- ------
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1995:
Total Capital
(to Risk Weighted Assets)........... $22,511,000 13.1% =>$13,756,000 => 8% =>$17,195,000 => 10%
Tier I Capital
(to Risk Weighted Assets)........... $20,356,000 11.8% =>$ 6,878,000 => 4% =>$10,317,000 => 6%
Tier I Capital
(to Average Assets)................. $20,356,000 9.5% =>$ 8,566,000 => 4% =>$10,707,000 => 5%
As of December 31, 1994:
Total Capital
(to Risk Weighted Assets)........... $20,418,000 12.4% =>$13,156,000 => 8% =>$16,445,000 => 10%
Tier I Capital
(to Risk Weighted Assets)........... $18,362,000 11.2% =>$ 6,578,000 => 4% =>$ 9,867,000 => 6%
Tier I Capital
(to Average Assets)................. $18,362,000 8.9% =>$ 8,269,000 => 4% =>$10,336,000 => 5%
</TABLE>
NOTE: the symbols => found in the above table represent the 'equal to or greater
than'.
Subsequent to December 31, 1995, the Bank declared a cash dividend of
approximately $254,000 ($.12 per share).
F-43
<PAGE>
RIVERSIDE NATIONAL BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 14. STATEMENT OF OPERATIONS
Components of other noninterest income and other noninterest expense for the
years ended December 31, 1995 and 1994 are as follows:
<TABLE>
<CAPTION>
1995 1994
------------ ------------
<S> <C> <C>
Other noninterest income
Gain on sale of loans........................................... $ -- $ 201,000
Mortgage servicing fees......................................... 268,000 306,000
Other real estate income........................................ 41,000 272,000
Insurance recovery.............................................. -- 274,000
Litigation settlement........................................... 325,000 --
Other........................................................... 635,000 571,000
------------ ------------
$ 1,269,000 $ 1,624,000
------------ ------------
------------ ------------
Other noninterest expense
Business development............................................ $ 391,000 $ 434,000
FDIC and regulatory assessments................................. 302,000 559,000
Amortization/writedown of intangible assets..................... 30,000 30,000
Legal and professional services................................. 297,000 438,000
Office supplies and telephone................................... 467,000 515,000
Other........................................................... 1,907,000 1,621,000
------------ ------------
$ 3,394,000 $ 3,597,000
------------ ------------
------------ ------------
</TABLE>
NOTE 15. STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------
1995 1994
------------- ------------
<S> <C> <C>
Supplemental disclosures of cash flow information:
Cash payments (receipts) for:
Interest......................................................................... $ 4,537,000 $ 3,859,000
------------- ------------
------------- ------------
Income taxes..................................................................... $ (1,580,000) $ 315,000
------------- ------------
------------- ------------
Supplemental schedule of noncash investing and financial activities:
Held-to-maturity securities transferred to available-for-sale (Note 3)............. $ 19,723,000 $ --
------------- ------------
------------- ------------
Retirement of 41,000 shares of treasury stock...................................... $ 338,000 $ --
------------- ------------
------------- ------------
Net change in unrealized gain (loss) on available-for-sale securities (Note 3)..... $ 877,000 $ (624,000)
------------- ------------
------------- ------------
Other real estate acquired in settlement of loans.................................. $ 2,544,000 $ 744,000
------------- ------------
------------- ------------
Disposition of other real estate owned, financed by loans from Bank................ $ -- $ 1,077,000
------------- ------------
------------- ------------
</TABLE>
F-44
<PAGE>
RIVERSIDE NATIONAL BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 16. FAIR VALUES OF FINANCIAL INSTRUMENTS
The fair values of the Bank's financial instruments are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------------------------
1995 1994
------------------------------ ------------------------------
CARRYING CARRYING
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Financial assets:
Cash and cash equivalents.................... $ 32,462,000 $ 32,462,000 $ 16,830,000 $ 16,830,000
Securities................................... 36,543,000 36,543,000 37,825,000 37,188,000
Loans, net................................... 141,422,000 141,687,000 134,473,000 134,909,000
Accrued interest receivable.................. 1,823,000 1,823,000 1,668,000 1,668,000
Financial liabilities:
Deposits..................................... 198,420,000 198,696,000 182,365,000 182,364,000
Accrued interest payable..................... 1,279,000 1,279,000 1,342,000 1,342,000
Unrecognized financial instruments:
Commitments to extend credit................. 125,000 125,000 219,000 219,000
Standby letters of credit.................... 2,000 2,000 3,000 3,000
</TABLE>
FAIR VALUE OF COMMITMENTS: The estimated fair value of fee income on letters
of credit at December 31, 1995 and 1994, is insignificant. Loan commitments on
which the committed interest rate is less than the current market rate are also
insignificant at December 31, 1995 and 1994.
F-45
<PAGE>
APPENDIX G
RIVERSIDE NATIONAL BANK'S QUARTERLY REPORT
ON FORM 10-QSB FOR THE QUARTER ENDED SEPTEMBER 30, 1996
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
FORM 10-QSB.--QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
---------------------
FORM 10-QSB
_X_ QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1996
____ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from _________ to _________
Commission file number ________________
------------------------
RIVERSIDE NATIONAL BANK
(Exact name of small business issuer as specified in its charter)
CALIFORNIA 95-2312456
- ---------------------------------------- --------------------------------------
(State or other jurisdiction (IRS Employer Identification)
of incorporation of organization)
3484 CENTRAL AVENUE, P.O. BOX 1279, RIVERSIDE, CALIFORNIA 92502
(Address of principal executive offices)
(909)276-8800
(Issuer's telephone number)
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if
changed since last report)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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 / /
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS
DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13, of 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court.
YES /X/ NO / /
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of
common equity, as the latest practicable date:
2,187,289 SHARES AS OF OCTOBER 25, 1996
Transitional Small Business Disclosure Format (Check one):
YES / / NO /X/
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
G-1
<PAGE>
PART I--FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
Reference is made to the Index to Financial Statements at Page 5 for a list
of Financial Statements filed as part of this report.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION
Riverside National Bank recorded the highest quarterly and nine month
earnings in its 31 year history. Net income for the quarter ended September 30,
1996, was $844 thousand, or $0.36 per share. That figure represents an increase
of 20.4% over net income of $701 thousand, or $0.31 per share for the third
quarter of 1995. Net income for the first nine months of 1996 was $2.23 million,
or $0.96 per share, up 12.2% from net income of $1.99 million, or $0.91 per
share, for the same period in 1995.
Return on average assets was 1.35% and return on average equity was 13.68%
for the nine months ended September 30, 1996, compared to 1.27% and 13.73%,
respectively, in the prior year.
Net interest income after the provision for credit losses increased 4.3% to
$8.76 million for the nine months of 1996, from a total of $8.40 million for the
same period in 1995. The increase in net interest income can be attributed to
growth in the Bank's loan portfolio. Average loans outstanding for the period
increased by 10.9% to $148 million, compared to $134 million in 1995.
Noninterest income declined by $575 thousand to $1.70 million for the first
nine months of 1996, compared to $2.28 million for the same period in 1995.
Service charges and fees on deposit accounts declined by $81 thousand to $1.13
million. Other noninterest income was $572 thousand year to date, a decrease of
$494 thousand from $1.07 million year to date 1995. 1995 results included $400
thousand in litigation settlement income.
Total noninterest expense for the first nine months of 1996 totaled $6.80
million, a decrease of $855 thousand, or 11.2%, from $7.66 million for the first
nine months of 1995. Reduced salary and benefits expense accounted for $131
thousand of that decrease. In addition, occupancy and equipment expense declined
by $128 thousand, year to date, compared to the prior year. Other noninterest
expense declined by $596 thousand on a year to date comparative basis. The main
factors contributing to that decline were reductions in FDIC assessments of $217
thousand, expenses relating to foreclosed assets of $142 thousand, and legal
fees totaling $89 thousand.
Average total assets increased by $9.9 million for the first nine months of
1996 to $220 million compared to $210 million in 1995. Total loans averaged $148
million, up $14.6 million over 1995, while total deposits averaged $195 million,
an increase of $7.4 million over 1995. Riverside National Bank had ratios of
tier 1 capital to risk weighted assets of 10.85% and total qualifying capital to
risk weighted assets of 12.10% at September 30, 1996. Based on those ratios and
other factors, RNB is considered a well capitalized institution for regulatory
purposes.
G-2
<PAGE>
PART II--OTHER INFORMATION
ITEM 5. OTHER INFORMATION.
On October 15, 1996, the Bank entered into an agreement with City National
Corporation (CNC) and City National Bank (CNB), whereby Riverside National Bank
(RNB) will merge with and into CNB, subject to, among other customary
conditions, regulatory approval and approval by RNB's shareholders.
Riverside National Bank shareholders will receive, at their election, cash,
CNC stock, or a combination thereof valued at $18 per share, with a minimum of
48 percent and a maximum of 60 percent stock in the aggregate. The provisions of
the merger adjust the exchange ratio based upon the market value of CNC stock
during the 20 trading days prior to the effective date of the merger.
In connection with the merger agreement, CNC and RNB entered into a Stock
Option agreement which allows CNC to purchase 421,778 shares for RNB common
stock at $14.50 per share. The option is exercisable by CNC upon the occurrence
of certain events relating generally to the acquisition of RNB by a third party.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(A) There are no exhibits required to be filed as part of this report.
(B) Reports on Form 8-K. During the third quarter of 1996, the Bank filed
one report on Form 8-K, dated July 17, 1996. That report disclosed the
declaration of a cash dividend of $0.15 per common share payable August 15,
1996, to shareholders of record on August 1, 1996.
G-3
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Riverside National Bank
November 4, 1996 /s/ JAMES A. ROBINSON
- ---------------------------------------- --------------------------------------
Date James A. Robinson
PRESIDENT AND CEO
November 4, 1996 /s/ MICHAEL J. SHONBORN
- ---------------------------------------- --------------------------------------
Date Michael J. Shonborn
FIRST VICE PRESIDENT AND CFO
G-4
<PAGE>
RIVERSIDE NATIONAL BANK
INDEX TO CONDENSED FINANCIAL STATEMENTS
FILED WITH THE QUARTERLY REPORT ON FORM 10-QSB
FOR THE QUARTER ENDED SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Consolidated Statements of Condition--
September 30, 1996 and December 31, 1995................................. 6
Consolidated Statements of Operations--
For the quarters and nine months ended September 30, 1996 and 1995....... 7
Consolidated Statements of Cash Flows--
For the nine months ended September 30, 1996 and 1995.................... 8
</TABLE>
G-5
<PAGE>
RIVERSIDE NATIONAL BANK AND SUBSIDIARY
CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
(IN THOUSANDS)
CONSOLIDATED STATEMENTS OF CONDITION
AS OF SEPTEMBER 30, 1996 AND DECEMBER 31, 1995
ASSETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
------------- ------------
<S> <C> <C>
Cash and due from banks............................................................. $ 24,622 $ 23,462
Federal Funds Sold.................................................................. 17,000 9,000
Investments......................................................................... 29,799 36,543
Loans, net of allowance for credit losses........................................... 164,374 141,422
Bank premises and equipment......................................................... 5,888 6,117
Interest receivable and other assets................................................ 6,675 5,847
------------- ------------
Total Assets.................................................................... $ 248,358 $ 222,391
------------- ------------
------------- ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Noninterest bearing deposits........................................................ $ 70,422 $ 63,646
Interest bearing deposits........................................................... 149,003 134,774
------------- ------------
Total deposits.................................................................. 219,425 198,420
Demand notes issued to the U.S. Treasury............................................ 4,073 687
Accrued interest and other liabilities.............................................. 2,231 2,068
------------- ------------
Total liabilities............................................................... 225,729 201,175
------------- ------------
STOCKHOLDERS' EQUITY
Common Stock........................................................................ 2,720 2,649
Surplus............................................................................. 4,694 4,323
Retained Earnings................................................................... 15,122 13,794
Unrealized gain on securities available for sale.................................... 93 450
------------- ------------
Total stockholders' equity...................................................... 22,629 21,216
------------- ------------
Total Liabilities and Stockholders' Equity...................................... $ 248,358 $ 222,391
------------- ------------
------------- ------------
</TABLE>
G-6
<PAGE>
RIVERSIDE NATIONAL BANK AND SUBSIDIARY
CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE PERIODS ENDED SEPTEMBER 30, 1996 AND 1995
<TABLE>
<CAPTION>
3RD QUARTER 3RD QUARTER YEAR TO DATE YEAR TO DATE
1996 1995 1996 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Interest income.......................................... $ 4,453 $ 4,196 $ 12,689 $ 12,235
Interest expense......................................... 1,353 1,331 3,851 3,700
------------ ------------ ------------ ------------
Net interest income.................................... 3,100 2,865 8,838 8,535
Provision for loan and lease losses...................... 0 45 75 135
------------ ------------ ------------ ------------
Net interest income after provision for loan and lease
losses............................................... 3,100 2,820 8,763 8,400
------------ ------------ ------------ ------------
Noninterest income
Service charges on deposit accounts...................... 366 402 1,132 1,213
Other operating income................................... 221 207 572 1,066
------------ ------------ ------------ ------------
Total noninterest income............................... 587 609 1,704 2,279
------------ ------------ ------------ ------------
Noninterest expense
Salaries, wages and employee benefits.................... 1,275 1,209 3,635 3,766
Occupancy and equipment expense.......................... 404 398 1,156 1,284
Other operating expense.................................. 662 752 2,013 2,609
------------ ------------ ------------ ------------
Total noninterest expense.............................. 2,341 2,359 6,804 7,659
------------ ------------ ------------ ------------
Income before income taxes............................. 1,346 1,070 3,663 3,020
Provision for income taxes............................... 502 369 1,431 1,031
------------ ------------ ------------ ------------
Net income............................................. $ 844 $ 701 $ 2,232 $ 1,989
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Earnings per common share and common share
equivalent........................................... $ 0.36 $ 0.31 $ 0.96 $ 0.91
------------ ------------ ------------ ------------
Average common shares outstanding...................... 2,174,980 2,109,489 2,149,850 2,105,489
------------ ------------ ------------ ------------
End of period common share equivalents................. 137,353 125,514 137,353 125,514
------------ ------------ ------------ ------------
</TABLE>
G-7
<PAGE>
RIVERSIDE NATIONAL BANK AND SUBSIDIARY
CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
(IN THOUSANDS)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
---------- ---------
<S> <C> <C>
Cash Flows From Operating Activities....................................................... $ 2,223 $ 5,568
Cash Flows From Investing Activities....................................................... (16,992) 117
Cash Flows From Financing Activities....................................................... 23,929 11,479
---------- ---------
Net increase in cash and cash equivalents................................................ 9,160 17,164
Cash and Cash Equivalents
Beginning................................................................................ 32,462 16,830
---------- ---------
Ending................................................................................... $ 41,622 $ 33,994
---------- ---------
---------- ---------
</TABLE>
G-8
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the DGCL authorizes CNC 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 reasonable
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 CNC Bylaws provide for the indemnification of directors and
officers to the maximum extent permitted by the DGCL.
In addition, the CNC Certificate of Incorporation provides that CNC shall
eliminate the personal liability of its directors to the fullest extent
permitted by the DGCL, and CNC has entered into indemnification agreements with
certain of its directors providing for additional indemnification. CNC has
policies of directors' and officers' liabilities 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
CNC 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 CNC to
make reasonable indemnification payments to such person during the course of
such actions, provided the board of directors makes certain determinations and
such person or persons agree to reimburse CNC for any indemnification payments
that become impermissible as a result of the final outcome of the action, other
than those for which CNC 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
- ----------- -----------------------------------------------------------------------------------------------------
<C> <S>
4.1 CNC Certificate of Incorporation*
4.2 CNC Bylaws**
5 Opinion of Richard H. Sheehan, Jr., Senior Vice President and General Counsel of Registrant
8 Tax Opinion of Munger, Tolles & Olson
23.1 Consent of KPMG Peat Marwick LLP
23.2 Consent of Mr. Sheehan (included within Exhibit 5)
23.3 Consent of McGladrey & Pullen, LLP
23.4 Consent of Munger, Tolles & Olson (included within Exhibit 8)
99.1 Power of Attorney (see page II-4)
99.2 Form of Letter of Transmittal and Instructions
99.3 Form of Proxy
99.4 Riverside's Quarterly Report on Form 10-QSB for the quarter ended March 31, 1996
99.5 Riverside's Quarterly Report on Form 10-QSB for the quarter ended June 30, 1996
</TABLE>
II-1
<PAGE>
<TABLE>
<CAPTION>
NUMBER EXHIBIT
- ----------- -----------------------------------------------------------------------------------------------------
<C> <S>
99.6 Riverside's Quarterly Report on Form 10-QSB for the quarter ended September 30, 1996 (included as
Appendix G to the Proxy Statement/Prospectus)
99.7 Riverside's Current Report on Form 8-K dated January 17, 1996
99.8 Riverside's Current Report on Form 8-K dated April 17, 1996
99.9 Riverside's Current Report on Form 8-K dated July 17, 1996
99.10 Riverside's Current Report on Form 8-K dated October 15, 1996
</TABLE>
- ------------------------
* Incorporated by reference to CNC's Registration Statement on Form S-4
(333-16197) filed on November 15, 1996.
** Incorporated by reference to CNC's Annual Report on Form 10-K for the year
ended December 31, 1994.
ITEM 22. UNDERTAKINGS
(a) The undersigned registrant hereby undertakes
(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.
II-2
<PAGE>
(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-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, 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 December 5, 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, as amended, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
/s/ RUSSELL GOLDSMITH Vice Chairman of the
- ------------------------------ Board, Chief Executive December 5, 1996
Russell Goldsmith Officer and Director
Executive Vice President
/s/ FRANK P. PEKNY and Treasurer/Chief
- ------------------------------ Financial Officer and December 5, 1996
Frank P. Pekny Principal Financial
Officer
/s/ HENG W. CHEN
- ------------------------------ Controller and Principal December 5, 1996
Heng W. Chen Accounting Officer
/s/ BRAM GOLDSMITH
- ------------------------------ Chairman of the Board December 5, 1996
Bram Goldsmith
/s/ GEORGE H. BENTER, JR.
- ------------------------------ President and Director December 5, 1996
George H. Benter, Jr.
/s/ MIRION P. BOWERS, M.D.
- ------------------------------ Director December 5, 1996
Mirion P. Bowers, M.D.
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
NAME TITLE DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
- ------------------------------ Director December 5, 1996
Richard L. Bloch
/s/ STUART D. BUCHALTER
- ------------------------------ Director December 5, 1996
Stuart D. Buchalter
/s/ BURTON S. HORWITCH
- ------------------------------ Director December 5, 1996
Burton S. Horwitch
/s/ CHARLES E. RICKERSHAUSER,
JR.
- ------------------------------ Director December 5, 1996
Charles E. Rickershauser, Jr.
/s/ EDWARD SANDERS
- ------------------------------ Director December 5, 1996
Edward Sanders
/s/ ANDREA L. VAN DE KAMP
- ------------------------------ Director December 5, 1996
Andrea L. Van De Kamp
/s/ KENNETH ZIFFREN
- ------------------------------ Director December 5, 1996
Kenneth Ziffren
</TABLE>
II-5
<PAGE>
EXHIBIT 5
[LOGO]
November 27, 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 1,744,125 shares
(the "Shares") of CNC's common stock, par value $1.00 per share (the "Common
Stock"), as a portion of the consideration for the merger (the "Merger") of
Riverside National Bank, a national banking association ("Riverside") with and
into City National Bank ("CNB"), pursuant to that certain Agreement and Plan of
Merger, dated as of October 15, 1996, by and among CNC, CNB and Riverside (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 October 15, 1996, by and among CNC and certain
shareholders of Riverside, (4) the Stock Option Agreement, dated as of October
15, 1996, by and between CNC and Riverside, (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
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 1933, as amended (the "Securities Act"), 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.
<PAGE>
Based upon the foregoing, I am of the opinion that the Shares, when issued
to the shareholders of Riverside 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.
<PAGE>
EXHIBIT 8
MUNGER, TOLLES & OLSON
355 SOUTH GRAND AVENUE, 35TH FLOOR
LOS ANGELES, CALIFORNIA 90071
(213) 683-9100
November 20, 1996
Riverside National Bank
3484 Central Avenue
Riverside, California 92506
Re: Merger of City National Bank and Riverside National Bank
-----------------------------------------------------------
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 Riverside National Bank ("RNB") will merge with and into
City National Bank ("CNB") pursuant to that certain Agreement and Plan of Merger
dated as of October 15, 1996 (the "Agreement"). Terms used herein but not
defined herein have the same meaning as in the Agreement.
In the Merger, RNB, at the Effective Time, shall be merged with and into CNB
by a statutory merger in accordance with the applicable banking laws of the
United States. The separate existence of RNB shall cease and CNB shall be the
surviving entity. CNB shall succeed, without other transfer, to all the rights
and property of RNB and shall be subject to all the debts and liabilities of RNB
in the same manner as if CNB had itself incurred them.
Subject to the provisions of the Agreement, each share of RNB Common Stock
which shall be outstanding immediately prior to the Merger shall automatically
be converted into shares of CNC Common Stock, cash, or a combination of CNC
Common Stock and cash pursuant to certain shareholder elections permitted under
the Agreement. Each share of RNB Common Stock which shall be outstanding
immediately prior to the Merger (other than shares which are dissenting shares
within the meaning of the National Bank Act and other than RNB Common Stock
described in Section 2.1(d) of the Agreement) 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 CNC Common Stock, cash, or a
combination of CNC Common Stock and cash, in a ratio specified in the Agreement.
Dissenting shares shall not be converted into the right to receive shares of CNC
Common Stock, but shall be entitled to such rights as are granted under the
National Bank Act. No fractional shares of CNC Common Stock shall be issued in
the Merger, but instead fractional shares shall be converted to cash under a
formula in the Agreement.
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, and certain written representations to us from
RNB, CNC and certain shareholders of RNB in certificates of even date herewith.
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 and
representations set forth in those documents are true, complete, correct and
accurate on the date of this analysis and remain so to the Effective Time. Any
change or inaccuracy in such facts, representations or assumptions may adversely
affect our opinions. Additionally, our ability to give the opinions set forth
herein at the Effective Time is expressly conditioned upon our receipt, as of
the Effective Time, of certificates, in form and substance reasonably
satisfactory to us, comparable to those referred to in the second sentence of
this paragraph. Furthermore, our opinion assumes, and is conditioned upon our
determination that, the aggregate value of the Eligible CNC Shares issued
pursuant to the Merger is sufficient to satisfy the "continuity of interest"
requirement of Treas. Reg. Section 1.368-1(b).
<PAGE>
We have acted as counsel to CNC in connection with the Merger and are
rendering these opinions to RNB at CNC's 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 Internal Revenue Code of 1986, as amended
(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
(the "IRS") in revenue rulings and revenue procedures, and judicial decisions.
Such legal authorities are all subject to change, either prospectively or
retroactively, and it is possible that changes in such legal authorities may
occur between the date hereof and the Effective Time. 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 IRS 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 RNB and for the
benefit of the RNB 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, at the Effective Time, (i)
the Merger will qualify as a reorganization within the meaning of Section 368(a)
of the Code; (ii) CNC, CNB, and RNB will be parties to the reorganization within
the meaning of Section 368(b) of the Code; (iii) no gain or loss will be
recognized by holders of RNB Common Stock to the extent that they receive solely
shares of CNC Common Stock solely in exchange for shares of RNB Common Stock;
(iv) each holder of RNB Common Stock who exchanges such holder's RNB Common
Stock for CNC Common Stock and cash will be taxed separately with respect to
each identifiable block of RNB Common Stock for which such holder has a
different adjusted tax basis per share. The gain, if any, to be realized by each
such holder of RNB Common Stock with respect to each such block will be the
excess of (A) the amount of cash received allocable to such block of RNB Common
Stock plus the fair market value at the Effective Time of the CNC Common Stock
received allocable to such block of RNB Common Stock over (B) the aggregate
adjusted tax basis of such block of RNB Common Stock surrendered in the
exchange, and any such gain will be recognized on the exchange to the extent of
the cash received allocable to such block of RNB Common Stock. Any loss realized
on an exchange of a block of RNB Common Stock will not be recognized and will
not offset any gain recognized on another block of RNB Common Stock; (v) the
basis of the shares of CNC Common Stock to be received by holders of RNB Common
Stock will be the same as the basis of the RNB Common Stock surrendered in
exchange therefor, adjusted as provided in Section 358(a) of the Code in the
event any cash is received; and (vi) the holding period of CNC Common Stock to
be received by holders of RNB Common Stock will include the holding period of
the RNB Common Stock surrendered in exchange therefor, provided that the holders
of RNB Common Stock held such stock as a capital asset.
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/ Munger, Tolles & Olson
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
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 headings "Experts" and "Selected Consolidated
Financial Data" in the prospectus.
KPMG Peat Marwick LLP
/s/ KPMG Peat Marwick LLP
Los Angeles, California
December 4, 1996
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in this Registration Statement
on Form S-4 of City National Corporation of our report, dated January 19, 1996,
on our audits of the consolidated balance sheets of Riverside National Bank
("Riverside") and its subsidiaries as of December 31, 1995 and 1994 and the
related consolidated statements of income, stockholders' equity and cash flows
for the years then ended which report is included in Riverside's Annual Report
to Shareholders and incorporated by reference into Riverside's Annual Report on
form 10-KSB for the year ended December 31, 1995. We also consent to the
reference to our firm under the caption "Experts" in the Registration Statement.
McGladrey & Pullen, LLP
/s/ McGladrey & Pullen, LLP
Riverside, California
December 3, 1996
<PAGE>
LETTER OF TRANSMITTAL AND FORM OF ELECTION
WITH RESPECT TO SHARES OF COMMON STOCK OF
RIVERSIDE NATIONAL BANK
IN CONNECTION WITH THE PROPOSED MERGER OF RIVERSIDE NATIONAL BANK
WITH AND INTO
CITY NATIONAL BANK
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
Riverside National Bank ("Riverside") with and into City National Bank ("City
National") pursuant to the Agreement and Plan of Merger, dated as of October 15,
1996, by and among City National Corporation ("CNC"), City National and
Riverside (the "Merger Agreement"). This Letter of Transmittal must be completed
by holders of shares of Common Stock, $1.25 par value, of Riverside (the
"Shares" or "Riverside 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 to be 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 CNC and
Riverside (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 Riverside 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 Letter of Transmittal
should be read carefully before this Letter of Transmittal is completed.
SHAREHOLDERS SHOULD DELIVER THIS LETTER OF TRANSMITTAL, PROPERLY COMPLETED
AND ACCOMPANIED BY ALL REQUIRED DOCUMENTS, NO LATER THAN 5:00 P.M., PACIFIC
STANDARD TIME, ON , 1997, IN ORDER TO ASSURE ITS RECEIPT PRIOR TO
THE ELECTION DEADLINE OF , 1997.
THE EXCHANGE AGENT IS:
IBJ Schroder Bank & Trust Company
<TABLE>
<S> <C> <C>
BY MAIL: BY OVERNIGHT DELIVERY: BY HAND:
[Name] [Name] [Name]
[Address] [Address] [Address]
BY FACSIMILE TRANSMISSION:
(For Eligible Institutions
Only)
( ) -
CONFIRM BY TELEPHONE:
( ) -
</TABLE>
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 APPRAISAL RIGHTS, YOU SHOULD
COMPLETE AND RETURN THIS LETTER OF TRANSMITTAL AND THE OTHER REQUIRED DOCUMENTS
PRIOR TO THE ELECTION DEADLINE WHETHER OR NOT YOU INTEND TO VOTE "FOR" THE
MERGER 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
<PAGE>
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,
CORPORATE INVESTOR COMMUNICATIONS, INC.
<TABLE>
<CAPTION>
DESCRIPTION OF SHARES
(ATTACH SEPARATE SIGNED LIST IF NECESSARY)
TOTAL NUMBER OF
SHARES
NUMBER OF SHARES WITH RESPECT TO
NAME(S) AND ADDRESS(ES) OF EVIDENCED BY 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
ELECTION IS BEING CASH ELECTION STOCK ELECTION CASH STOCK
MADE (NUMBER OF SHARES) (NUMBER OF SHARES) (NUMBER OF SHARES) (NUMBER OF SHARES)
<S> <C> <C> <C> <C>
</TABLE>
PURSUANT TO THE MERGER AGREEMENT, AT LEAST 48% BUT NOT MORE THAN 60% OF THE
TOTAL CONSIDERATION (AS DEFINED BELOW) ISSUED IN THE MERGER FOR OUTSTANDING
SHARES OF RIVERSIDE STOCK WILL BE SHARES OF COMMON STOCK OF CNC, PAR VALUE $1.00
PER SHARE ("CNC STOCK"). IF HOLDERS OF RIVERSIDE STOCK ELECT, IN THE AGGREGATE,
TO CONVERT MORE THAN THE MAXIMUM STOCK AMOUNT (AS DEFINED BELOW) INTO SHARES OF
CNC STOCK, CERTAIN HOLDERS OF RIVERSIDE STOCK CHOSEN BY RANDOM SELECTION WILL
RECEIVE A LESSER NUMBER OF SHARES OF CNC STOCK AND A GREATER AMOUNT OF CASH THAN
THEY ELECTED, SO THAT A NUMBER OF SHARES OF RIVERSIDE STOCK APPROXIMATELY EQUAL
TO THE MAXIMUM STOCK AMOUNT IS CONVERTED INTO SHARES OF CNC STOCK. IF HOLDERS OF
RIVERSIDE STOCK ELECT, IN THE AGGREGATE, TO CONVERT LESS THAN THE MINIMUM STOCK
AMOUNT (AS DEFINED BELOW) INTO SHARES OF CNC STOCK, CERTAIN HOLDERS OF RIVERSIDE
STOCK CHOSEN BY RANDOM SELECTION WILL RECEIVE A GREATER NUMBER OF SHARES OF CNC
STOCK AND A SMALLER AMOUNT OF CASH THAN THEY ELECTED, SO THAT A NUMBER OF SHARES
OF RIVERSIDE STOCK APPROXIMATELY EQUAL TO THE MINIMUM STOCK AMOUNT IS CONVERTED
INTO SHARES OF CNC STOCK. ACCORDINGLY, HOLDERS OF RIVERSIDE STOCK ARE UNLIKELY
TO RECEIVE THE PRECISE PROPORTION OF CNC STOCK AND/OR CASH INDICATED BY SUCH
HOLDER'S ELECTION. NONE OF CNC, CITY NATIONAL, RIVERSIDE, THE CNC BOARD OF
DIRECTORS, THE CITY NATIONAL BOARD OF DIRECTORS OR THE RIVERSIDE BOARD OF
DIRECTORS MAKES ANY RECOMMENDATION AS TO THE TYPE OF CONSIDERATION 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).
<PAGE>
<TABLE>
<S> <C>
/ / 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 ---------------------
</TABLE>
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, any purported Election with respect to Shares
subject to such guarantee will be void.
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 Riverside, 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.
<TABLE>
<S> <C>
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): ----------------
</TABLE>
<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:
The undersigned understands that the purposes of the election procedures
described below are to permit holders of Shares to express their preferences
for the type of consideration they wish to receive in the Merger and further
understands that no less than 48% and no more than 60% of the Total
Consideration issued in the Merger in exchange for shares of Riverside Stock
will be shares of CNC Stock. Accordingly, there can be no assurance that a
holder of shares making an election will receive the precise proportion of CNC
Stock and/or cash indicated by such holder's election.
In connection with the Merger of Riverside with and into City National,
subject to the election and allocation procedures set forth in the Merger
Agreement, each holder of Riverside Stock is entitled, with respect to the
Merger Consideration to be received for each share of Riverside Stock held by
such holder, to (1) elect to receive a share and/or a fraction of a share of
CNC Stock equal to the Exchange Ratio (as defined below) (a "Stock Election"),
(2) elect to receive cash in the amount of $18.00 (a "Cash Election") or (3)
elect to receive a combination of shares of CNC Stock (at the rate of the
Exchange Ratio for a whole share of Riverside Stock) and cash (at the rate of
$18.00 for a whole share of Riverside Stock) (a "Combination Stock Election"
or "Combination Cash Election," respectively). If a holder does not make an
Election, his or her shares will be deemed "Undesignated Shares." The
"Exchange Ratio" is the quotient obtained by dividing (A) $18.00 by (B) the
average of the daily closing prices of a share of CNC 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) (the "Final CNC Stock Price"), provided,
however, that (i) if the Final CNC Stock Price is more than $19.50 but not
more than $22.50, the Exchange Ratio will be based on a Final CNC Stock Price
of $19.50 and, accordingly, will be fixed at 0.923; (ii) if the Final CNC
Stock Price is less than $16.00, the Exchange Ratio will be based on a Final
CNC Stock Price of $16.00 and, accordingly, will be fixed at 1.125; and (iii)
if the Final CNC Stock Price is more than $22.50, the Exchange Ratio will be
determined by dividing $20.77 by the Final CNC Stock Price. The CNC Stock
and/or cash into which a Share is converted in the Merger is referred to
herein as the "Merger Consideration."
Notwithstanding the foregoing, the holder of Shares exchanged pursuant to
the Merger who would otherwise have been entitled to receive a fraction of a
share of CNC Stock will receive cash (without interest) in an amount equal to
such fractional part of a share of CNC Stock multiplied by the Final CNC Stock
Price.
If the aggregate number of shares of Riverside Stock as to which Stock
Elections and Combination Stock Elections have been effectively made
multiplied by the Exchange Ratio exceeds the Maximum Stock Amount, then, to
the extent necessary so that the number of shares of CNC Stock to be issued
shall not be greater than the Maximum Stock Amount and the number of Eligible
CNC Shares to be issued shall be at least equal to the Minimum Stock Amount,
(1) all Cash Elections will be accepted, (2) all Undesignated Shares and
Dissenting Shares will be deemed to have made Cash Elections and (3) the
Exchange Agent will select by random selection, first from holders of
Riverside Stock for which Stock
<PAGE>
Elections or Combination Stock Elections have been made that, if converted
into shares of CNC Stock, would not constitute Eligible CNC Shares, and second
(if necessary) from among the holders of remaining shares of Riverside Stock
for which Stock Elections and Combination Stock Elections have been made,
shares that shall be designated as "Cash Designated Shares," and all such
shares shall be deemed to have made Cash Elections.
Correspondingly, if the aggregate number of shares of Riverside Stock as
to which Stock Elections and Combination Stock Elections have been effectively
made multiplied by the Exchange Ratio would not result in a number of Eligible
CNC Shares being issued that is at least equal to the Minimum Stock Amount,
then, to the extent necessary so that the number of Eligible CNC Shares to be
issued will be at least equal to the Minimum Stock Amount, the Exchange Agent
will select by random selection, first from holders of Undesignated Shares and
then (if necessary) from holders of Riverside Stock who have made Cash
Elections or Combination Cash Elections, a sufficient number of such shares to
receive CNC Stock as will be necessary so that the number of Eligible CNC
Shares that will be issued is equal to the Minimum Stock Amount.
For purposes of the allocation of CNC Stock and cash, the following
definitions will apply:
1. "MINIMUM STOCK AMOUNT" shall mean the lowest whole number of Eligible
CNC Shares which, if multiplied by the Final CNC Stock Price, results in a
dollar amount at least equal to 48% of the Total Consideration;
2. "MAXIMUM STOCK AMOUNT" shall mean the excess of (A) the number of
shares of CNC Stock that would be issuable under the terms hereof as 60% of
the Total Consideration, based on the Exchange Ratio, over (B) the number of
options to purchase CNC Stock granted to Riverside employees and directors in
exchange for their options to purchase Riverside Stock, which number shall not
exceed 216,000;
3. "ELIGIBLE CNC SHARES" shall mean all shares of CNC Stock to be issued
in the Merger other than shares of CNC Stock issued (A) to any holder of 5% or
more of the total outstanding shares of Riverside Stock who does not provide
to the Exchange Agent a representation of investment intent as required by the
Merger Agreement, or as to which the management of Riverside is unable as of
the Effective Time to make a representation of investment intent as required
by the Merger Agreement, (B) to any holder of less than 5% of the total
outstanding shares of Riverside Stock as to which the management of Riverside
is unable as of the Effective Time to make the representation of investment
intent as required by the Merger Agreement, or (C) with respect to any shares
of Riverside Stock that were obtained by the holder thereof upon the exercise
of options if such exercise shall have occurred subsequent to August 2, 1996
for directors and October 15, 1996 for other employees; and
4. "TOTAL CONSIDERATION" shall mean the sum of (A) the product of (i) the
Final CNC Stock Price and (ii) the number of shares of CNC Stock actually
issued to holders of Riverside Stock in the Merger, (B) the amount of cash
actually issued to holders of Riverside Stock in the Merger pursuant to Cash
Elections and Combination Elections, (C) the amount of cash actually issued to
holders of Riverside Stock in the Merger in lieu of fractional shares of CNC
Stock, and (D) an amount equal to the number of Dissenting Shares as to which
the holder's demand to exercise dissenter's rights shall not have been
withdrawn as of the Effective Time multiplied by the greater of (x) the
product of the Exchange Ratio and the Final CNC Stock Price and (y) $18.00.
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 in
accordance with such holder's Election and the above-described allocation
procedures, or, if an Election is not duly made, to have such Shares treated
as Undesignated Shares.
As described above, Riverside 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. CNC's
acceptance of Shares delivered pursuant to this Letter of Transmittal will
constitute a binding agreement between the undersigned and CNC 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 CNC Stock issuable in the Merger.
<PAGE>
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 CNC 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 CNC 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 CNC Stock in the name(s) of,
and mail such check and such certificate to, the person(s) so indicated.
<TABLE>
<S> <C>
SPECIAL PAYMENT SPECIAL DELIVERY
INSTRUCTIONS INSTRUCTIONS
(SEE INSTRUCTIONS A3 AND C2.) (SEE INSTRUCTIONS A3 AND C2.)
To be completed ONLY if the check is to To be completed ONLY if the check or the
be made payable to, or the certificates certificates for shares of CNC Stock are
for shares of CNC Stock are to be to be mailed to someone other than the
registered in, the name of someone other undersigned or to the undersigned at an
than the undersigned. address other than that shown under
"Description of Shares."
Mail checks and/or certificate to:
Name: Name:
(Please Print) (Please Print)
Address: Address:
Zip Code Zip Code
TAXPAYER IDENTIFICATION OR SOCIAL
SECURITY NUMBER
(SEE SUBSTITUTE FORM W-9 ON REVERSE
SIDE.)
</TABLE>
IMPORTANT!
ALL RIVERSIDE 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 liens, claims,
charges, or encumbrances whatsoever. The undersigned, upon request, shall
execute and deliver all additional documents deemed
<PAGE>
by the Exchange Agent, City National or CNC to be necessary or desirable to
complete the sale, assignment, transfer, cancellation, and retirement of the
Shares delivered herewith.
<TABLE>
<S> <C>
SIGN HERE: SIGNATURE GUARANTEE
- ------------------------------------------- (Complete Only If Required--See Instructions
A2 and A3.)
- ------------------------------------------- NOTE: A NOTARIZATION BY A NOTARY PUBLIC IS
(Signature(s) of holder(s)) NOT ACCEPTABLE.
Name(s): FOR USE BY ELIGIBLE INSTITUTIONS ONLY
- -------------------------------------------- PLACE MEDALLION GUARANTEE IN SPACE BELOW
- --------------------------------------------
(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.
</TABLE>
<PAGE>
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, 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. Riverside 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 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 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, 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 CNC 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 Riverside'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 BY THE ELECTION
DEADLINE.
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 it
appears 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.
<PAGE>
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 CNC
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
CNC of such person's authority to so 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 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 CNC or Riverside 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 Riverside 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 will be of no force and
effect and the shareholder making such purported Stock Election, Cash Election
or Combination Election shall, for purposes hereof, shall be deemed to have not
made an Election and the Shares covered thereby shall be deemed to be
"Undesignated Shares."
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 CNC or Riverside
that the Merger Agreement has been terminated, and Shares 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 and
Shares represented by Certificates will be returned to Riverside shareholders by
registered mail (with attendant delay).
7. APPRAISAL RIGHTS. Holders of Riverside Stock who wish to exercise
dissenters' rights should not complete this Letter of Transmittal. CNC 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. CNC 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 "DISSENTERS' RIGHTS -- Rights of
Dissenting Shareholders."
<PAGE>
B. ELECTION AND ALLOCATION PROCEDURES
1. ELECTIONS. By completing the box entitled "Type of Election" and this
Letter of Transmittal in accordance with the instructions hereto, a Riverside
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. If holders of Riverside Stock elect, in the aggregate, to
convert their shares of Riverside Stock into a number of shares of CNC Stock
that exceeds the Maximum Stock Amount, certain holders of Riverside Stock chosen
by random selection will receive a lesser number of shares of CNC Stock and a
greater amount of cash than they elected, so that the number of shares of CNC
Stock issued to Riverside shareholders is approximately equal to the Maximum
Stock Amount. If holders of Riverside Stock elect, in the aggregate, to convert
their shares of Riverside Stock into a number of shares of CNC Stock that is
less than the Minimum Stock Amount, certain holders of Riverside Stock chosen by
random selection will receive a greater number of shares of CNC Stock and a
smaller amount of cash than they elected, so that the number of shares of CNC
Stock issued to Riverside shareholders is approximately equal to the Minimum
Stock Amount. 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 CNC Stock portions of the Merger
Consideration and shall notify CNC of its determination.
2. TREATMENT OF NON-ELECTING SHARES. Any Riverside 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. This
Letter of Transmittal will be deemed properly completed only if: (1) an Election
is indicated for each Share covered by this Letter of Transmittal, (2)
accompanied by one or more Certificates with respect to such Shares (or (a)
customary affidavits and indemnity agreements regarding the loss or destruction
of such certificates or (b) properly executed guarantees of delivery with
respect to such Shares), (3) with respect to Shares to be delivered by
book-entry transfer, the holder of such Shares completes the procedure for
delivery by book-entry transfer on a timely basis and (4) accompanied by any
other documents required by the Exchange Agent or CNC.
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 Riverside 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 ON [ ], 1997. 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, CNC will publicly
announce such date.
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 with 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 Riverside 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. In such event, upon
request of the holder who submitted the revoked Election, the certificates
representing the related Shares will be returned without charge to such holder.
5. NO FRACTIONAL SHARES. No certificates representing fractional shares of
CNC 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 CNC. In
lieu of any fractional share of CNC Stock, holders of Shares will receive cash
(without interest) in an amount equal to such fractional part of a share of CNC
Stock multiplied by the Final CNC Stock Price.
6. UNDESIGNATED SHARES. Holders of Riverside 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 Riverside Stock
to
<PAGE>
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 CNC 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
Riverside Stock until the holder duly surrenders such Certificate. Following the
surrender of any such Certificate, there will be paid to the holder, without
interest (A) the amount of any cash payable with respect to a fractional share
of CNC Stock to which such holder is entitled and the amount of dividends or
other distributions with a record date of or after the Effective Time
theretofore paid with respect to such whole shares of CNC Stock and (B) at the
appropriate payment date, the amount of dividends or other distributions with
(i) a record date of or after the Effective Time but prior to surrender and (ii)
a payment date subsequent to surrender payable with respect to such shares of
CNC Stock.
7. NO LIABILITY. Neither CNC, Riverside nor the Exchange Agent will be
liable to any holder of Shares of Riverside Stock for any shares of CNC 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.
* * *
A more complete description of the election and allocation 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 Riverside shareholder should carefully
read, among other items, the information contained in the Proxy
Statement/Prospectus under "THE MERGER -- Certain Federal Income Tax
Considerations." Each Riverside shareholder should consult his or her own tax
advisor as to the specific tax consequences of an 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 allocation procedures described above are
completed, holders who have surrendered their Certificates to the Exchange Agent
for cancellation, together with this 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 CNC Stock, if any, which such holder has the right to receive.
All cash paid or shares of CNC 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 CNC 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 "Special Payment Instructions"
and/or "Special Delivery Instructions" on this Letter of Transmittal must be
completed.
3. STOCK TRANSFER TAXES. CNC 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, CNC 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 CNC 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 CNC.
<PAGE>
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 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 (1) that the TIN provided on
Substitute Form W-9 is correct (or that such shareholder is awaiting a TIN) and
(2) that (A) 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 (B) 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 Riverside 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 Chase Mellon Shareholders Services, as
transfer agent for Riverside (the "Transfer Agent"), at 1-800- - . Such
Riverside 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
<PAGE>
below. (See Instruction C and accompanying Guidelines for Certification of
Taxpayer Identification Number on Substitute Form W-9.)
<TABLE>
<S> <C> <C>
PAYER: [ ------------------------------------]
PART I--PLEASE PROVIDE YOUR TIN IN THE
BOX AT RIGHT AND CERTIFY BY SIGNING AND Social security number
SUBSTITUTE DATING BELOW. OR
Form W-9
Department of the Treasury Employer identification number
Internal Revenue Service (If awaiting TIN, write "Applied For")
PAYER'S REQUEST FOR TAXPAYER PART II--For Payees Exempt From Backup Withholding, see the enclosed GUIDELINES and
IDENTIFICATION NUMBER (TIN) 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------------------, 1997
</TABLE>
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:
CORPORATE INVESTOR COMMUNICATIONS, INC.
[Address]
( ) - (Call Collect)
or
Call Toll-Free (800) -
<PAGE>
EXHIBIT 99.3
RIVERSIDE NATIONAL BANK
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
appoints James Robinson, William Hoey and Mike Shonborn, 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
Riverside National Bank (the "Company") to be held at the Mission Inn, 3649
Mission Inn Avenue, Riverside, California on Friday, January 17, 1997 at
10:00 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.
PLEASE SIGN AND DATE ON REVERSE SIDE
<PAGE>
<TABLE>
<S> <C>
Please mark
your votes as /X/
indicated in
this example
<CAPTION>
FOR AGAINST ABSTAIN FOR AGAINST ABSTAIN
<S> <C> <C> <C> <C> <C>
1. APPROVAL OF THE / / / / / / 2. OTHER BUSINESS. In their discretion, the proxies / / / / / /
AGREEMENT AND PLAN OF MERGER. To approve the are authorized to vote upon such other business as may properly come before
Agreement and Plan of Merger dated as of the Meeting and at any and all adjournments thereof. The Board of Directors
October 15, 1996 (the "Agreement"), by and at present knows of no other business to be presented by or on behalf of
among City National Corporation ("CNC"), City the Company or the Board of Directors at the Meeting.
National Bank ("City National"), on the one YES NO
hand, and the Company, on the other hand, as I PLAN TO ATTEND THE / / / /
described in the Proxy Statement/Prospectus SPECIAL MEETING:
accompanying this proxy card, including, PLEASE SIGN AND DATE BELOW
without limitation, the merger of the Company
with and into City National, whereby, subject The undersigned hereby ratifies and confirms all that said attorneys,
to certain allocation restrictions, each agents and proxies, or any of them, or their substitutes, shall lawfully do
outstanding share of the Company's common or cause to be done by virtue hereof, and hereby revokes and all proxies
stock would be converted into, at the option heretofore given by the undersigned to vote at the Meeting. The undersigned
of the holder thereof, the right to receive cash, acknowledges receipt of the notice of the Meeting and the Proxy Statement/
common stock of CNC or a combination of the two. Prospectus 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.
DATED:_________________ , 19__
SIGNED:_______________________
SIGNED:_______________________
Please date this proxy signing
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.
</TABLE>
<PAGE>
EXHIBIT 99.4
FORM 10-QSB. -- QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FORM 10-QSB
X QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
- ----- EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
--------------
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
- ----- For the transition period from to
------------- -------------
Commission file number
---------------------
Riverside National Bank
- -------------------------------------------------------------------------------
(Exact name of small business issuer as
specified in its charter)
California 95-2312456
----------------------------- ----------------------------
(State or other jurisdiction (IRS Employer Identification)
of incorporation of organization)
3484 Central Avenue, P.O. Box 1279, Riverside, California 92502
---------------------------------------------------------------------------
(Address of principal executive offices)
(909) 276-8800
---------------------------
(Issuer's telephone number)
---------------------------------------------------------------------------
(Former name, former address and former fiscal year, if
changed since last report)
Check whether the issuer (1) filed all reports required to be filed
by Section 13 or 15(d) of the Exchange Act during the past 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
----- -----
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS
DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required
to be filed by Section 12, 13, of 15(d) of the Exchange Act after the
distribution of securities under a plan confirmed by a court.
Yes No
----- -----
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes
of common equity, as the latest practicable date:
2,148,689 shares as of April 30, 1996
-------------------------------------
Transitional Small Business Disclosure Format (Check one):
Yes No X
----- -----
1
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
Reference is made to the Index to Financial Statements at Page 5 for a list
of Financial Statements filed as part of this report.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION
Riverside National Bank recorded net income of $650 thousand, or $0.28 per
share, for the quarter ended March 31, 1996, an increase of 7.0%, or $43
thousand, over net income of $607 thousand, or $0.29 per share, in 1995. The
increase in earnings is attributable to reductions in noninterest expenses.
Net income before taxes increased by $172 thousand, or 18.6%. However, an
increase in the provision for income taxes offset most of the increase in
pre-tax earnings. 1995 benefited from the carryforward of state net operating
loss deductions relating to losses recognized in 1989 and 1993.
Return on average assets was 1.24% and return on average equity was 12.21%
for the quarter compared to 1.21% and 13.16%, respectively, in the prior year.
Net interest income after the provision for credit losses was $2.78 million
for the first quarter of 1996, down slightly from a total of $2.81 million
for the same period in 1995. Net interest margin was 6.20% for the quarter
compared to 6.53% last year. 1995 interest margins benefited from a favorable
interest rate environment. The interest rate environment in 1996, while still
attractive, is not as favorable as in the prior year.
Noninterest income totaled $565 thousand, a decrease of $113 thousand
compared to $678 thousand in the prior year. Service charges and fees
declined $23 thousand, or 5.6%. Other noninterest revenues declined by $90
thousand, or 33%.
2
<PAGE>
Noninterest expense declined by 12.3%, or $315 thousand, to $2.25 million for
the quarter from $2.56 million in the first quarter of 1995. Salaries and
benefits expense declined by $39 thousand, or 3.1%. Occupancy and equipment
expense declined by $31 thousand, or 7.8%, due to property tax refunds
received on revaluations of the Bank's facilities. Other operating expenses
totaled $655 thousand, a decrease of $245 thousand, or 27.2%, from $900
thousand in 1995. FDIC insurance declined by $115 thousand from the prior
year. Also, expenses relating to other real estate owned decreased $44
thousand from the first quarter of last year.
Total assets averaged $211 million in the first quarter of 1996, up 3.5% from
the prior year. Total loans averaged $142 million, up 5.2% over 1995, while
total deposits averaged $186 million, an increase of 2.4% over 1995.
Riverside National Bank had total qualifying capital of $23.1 million at
March 31, 1996, yielding a ratio of total qualifying capital to risk weighted
assets of 12.94%.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) There are no exhibits required to be filed as part of this report.
(B) Reports on Form 8-K. During the first quarter of 1996, the Bank
filed one report on Form 8-K, dated January 17, 1996. That report disclosed
the declaration of a cash dividend of $0.12 per common share payable February
15, 1996, to shareholders of record on February 1, 1996.
3
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
Riverside National Bank
May 1, 1996 /s/ James A. Robinson
- ----------- ---------------------
Date James A. Robinson
President and CEO
May 1, 1996 /s/ Michael J. Shonborn
- ----------- ---------------------
Date Michael J. Shonborn
First Vice President and CFO
4
<PAGE>
Riverside National Bank
Index to Financial Statements
Filed with the Quarterly Report on Form 10-QSB
For the Quarter Ended March 31, 1996
Consolidated Statements of Condition
March 31, 1996 and December 31, 1995 6
---
Consolidated Statements of Operations
For the quarters ended March 31, 1996 and 1995 7
---
Consolidated Statements of Cash Flows
For the quarters ended March 31, 1996 and 1995 8
---
5
<PAGE>
Riverside National Bank and Subsidiary
CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
(In thousands, except per share data)
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CONDITION
As of March 31, 1996 and December 31, 1995 March 31, December 31,
1996 1995
<S> <C> <C>
ASSETS
Cash and due from banks $ 22,551 $ 23,462
Federal Funds Sold 11,000 9,000
Investments 35,565 36,543
Loans, net of allowance for credit losses 140,315 141,422
Bank premises and equipment 6,062 6,117
Interest receivable and other assets 6,190 5,847
-------------------------------
TOTAL ASSETS $221,683 $222,391
-------------------------------
-------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Noninterest bearing deposits $ 63,847 $ 63,646
Interest bearing deposits 132,204 134,774
------------------------------
Total deposits 196,051 198,420
Demand notes issued to the U.S. Treasury 2,034 687
Accrued interest and other liabilities 2,155 2,068
------------------------------
Total liabilities 200,240 201,175
------------------------------
STOCKHOLDERS' EQUITY
Common Stock 2,661 2,649
Surplus 4,393 4,323
Retained Earnings 14,189 13,794
Unrealized gain(loss) on securities
available for sale 200 450
------------------------------
Total stockholders' equity 21,443 21,216
------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $221,683 $222,391
------------------------------
------------------------------
</TABLE>
6
<PAGE>
CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
(In thousands, except per share data)
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF OPERATIONS
For three months ended March 31, 1996 and 1995
1996 1995
<S> <C> <C>
Interest income $ 4,070 $ 3,983
Interest expense 1,247 1,130
----------------------------------
Net interest income 2,823 2,853
Provision for credit losses 45 45
----------------------------------
NET INTEREST INCOME AFTER PROVISION
FOR CREDIT LOSSES 2,778 2,808
----------------------------------
Noninterest income
Service charges and other fees 385 408
Other operating income 180 270
----------------------------------
TOTAL NONINTEREST INCOME 565 678
----------------------------------
Noninterest expense
Salaries, wages and employee benefits 1,225 1,264
Occupancy and equipment expense 367 398
Other operating expense 655 900
----------------------------------
TOTAL NONINTEREST EXPENSE 2,247 2,562
----------------------------------
INCOME BEFORE INCOME TAXES 1,096 924
Provision for income taxes 446 317
----------------------------------
NET INCOME $ 650 $ 607
----------------------------------
----------------------------------
EARNINGS PER COMMON SHARE $ 0.28 $ 0.29
----------------------------------
AVERAGE COMMON SHARES OUTSTANDING 2,123,005 2,105,489
----------------------------------
COMMON SHARE EQUIVALENTS FOR EARNINGS
PER SHARE CALCULATION(1) 165,560 N/A
----------------------------------
</TABLE>
(1) Common share equivalents are not applicable when their dilutive effect is
less than three percent.
7
<PAGE>
CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
(In thousands)
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
For three months ended March 31, 1996 and 1995
1996 1995
<S> <C> <C>
Cash Flows From Operating Activities $ 724 $ 5,568
Cash Flows From Investing Activities 1,560 117
Cash Flows From Financing Activities (1,195) 11,479
----------------------------------
Net increase (decrease) in cash and
cash equivalents 1,089 17,164
Cash and Cash Equivalents
Beginning 32,462 16,830
----------------------------------
Ending $33,551 $33,994
----------------------------------
----------------------------------
</TABLE>
8
<PAGE>
EXHIBIT 99.5
FORM 10-QSB, -- QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FORM 10-QSB
X QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
- ----- EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
-------------
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
- ----- For the transition period from to
------------ ------------
Commission file number
-------------------------
Riverside National Bank
- ------------------------------------------------------------------------------
(Exact name of small business issuer as
specified in its charter)
California 95-2312456
- ----------------------------------- -----------------------------------
(State or other jurisdiction (IRS Employer Identification)
of incorporation of organization)
3484 Central Avenue, P.O. Box 1279, Riverside, California 92502
- ------------------------------------------------------------------------------
(Address of principal executive offices)
(909) 276-8800
----------------------------
(Issuers's telephone number)
- ------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if
changed since last report)
Check whether the issuer (1) filed all reports required to be filed
by Section 13 or 15(d) of the Exchange Act during the past 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
----- -----
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS
DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports
required to be filed by Section 12, 13, of 15(d) of the Exchange Act after
the distribution of securities under a plan confirmed by a court.
Yes No
----- -----
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's
classes of common equity, as the latest practicable date:
2,174,289 shares as of July 26, 1996
------------------------------------
Transitional Small Business Disclosure Format (Check one):
Yes No X
----- -----
1
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
Reference is made to the Index to Financial Statements at Page 5 for a list
of Financial Statements filed as part of this report.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION
Riverside National Bank recorded net income for the quarter ended June 30,
1996, of $738 thousand, or $0.32 per share. That figure represents the fourth
highest quarterly result in the Bank's history. Net income for the same
quarter in 1995 was $681 thousand, or $0.31 per share. Net income for the six
months ended June 30, 1996, was $1.39 million, or $0.60 per share, an
increase of $100 thousand, or 7.8%, when compared to the same period in 1995.
Return on average assets was 1.30% and return on average equity was 12.96%
for the six months ended June 30, 1996, compared to 1.26% and 13.62%,
respectively, in the prior year.
Net interest income after the provision for credit losses increased slightly
to $5.66 million for the six months of 1996, from a total of $5.58 million
for the same period in 1995. The increase in net interest income can be
attributed to growth in the Bank's loan portfolio. Average loans outstanding
for the period increased by 8.2% to $144 million, compared to $133 million in
1995.
Noninterest income declined by $553 thousand to $1.12 million for the first
six months of 1996, compared to $1.67 million for the same period in 1995.
Service charges and fees on deposit accounts declined by $45 thousand to $766
thousand. Other noninterest income was $351 thousand year to date, a decrease
of $508 thousand from $859 thousand year to date 1995. 1995 results included
$400 thousand in litigation settlement income.
Total noninterest expense for the first six months of 1996 totaled $4.46
million, a decrease of $837 thousand, or 15.8%, from $5.30 million for the
first six months of 1995. Reduced
2
<PAGE>
salary and benefits expense accounted for $197 thousand of that decrease. In
addition, occupancy and equipment expense declined by $134 thousand, year to
date, compared to the prior year. Other noninterest expense declined by $506
thousand on a year to date comparative basis. The two main factors
contributing to that decline were reductions in FDIC assessments of $229
thousand and losses on foreclosed assets of $142 thousand.
Average total assets increased by $8.3 million for the first six months of
1996 to $215 million compared to $206 million in 1995. Total loans averaged
$144 million, up $10.9 million over 1995, while total deposits averaged $190
million, an increase of $5.6 million over 1995. Riverside National Bank had
ratios of tier 1 capital to risk weighted assets of 11.39% and total
qualifying capital to risk weighted assets of 12.64% at June 30, 1996. Based
on those ratios and other factors, RNB is considered a well capitalized
institution for regulatory purposes.
3
<PAGE>
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS.
The Bank held its annual shareholders' meeting on May 15, 1996. Only one
matter was voted on at the meeting, the election of eight persons to the
Bank's Board of Directors. Information regarding that matter and other
information is available in the Proxy Statement 1996 for Riverside National
Bank which was submitted to shareholders in April 1996 and is incorporated
herein by reference.
All of the candidates for the Board of Directors submitted by management
were elected by the shareholders with each receiving 1,633,742, or 77%, of
the 2,129,489 shares outstanding as of the record date for the meeting.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(A) There are no exhibits required to be filed as part of this report.
(B) Reports on Form 8-K. During the second quarter of 1996, the Bank
filed one report on Form 8-K, dated April 17, 1996. That report disclosed the
declaration of a cash dividend of $0.15 per common share payable May 15,
1996, to shareholders of record on May 1, 1996.
4
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
Riverside National Bank
August 12, 1996 /s/ James A. Robinson
------------------------- ------------------------------
Date James A. Robinson
President and CEO
August 12, 1996 /s/ Michael J. Shonborn
------------------------- ------------------------------
Date Michael J. Shonborn
First Vice President and CFO
5
<PAGE>
Riverside National Bank
Index to Financial Statements
Filed with the Quarterly Report on Form 10-QSB
For the Quarter Ended June 30, 1996
Consolidated Statements of Condition
June 30, 1996 and December 31, 1995 7
---
Consolidated Statements of Operations-
For the quarters and six months ended
June 30, 1996 and 1995 8
---
Consolidated Statements of Cash Flows
For the six months ended June 30, 1996 and 1995 9
---
6
<PAGE>
Riverside National Bank and Subsidiary
CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
(in thousands)
CONSOLIDATED STATEMENTS OF CONDITION
As of June 30, 1996 and December 31, 1995
JUNE 30, DECEMBER 31,
1996 1995
ASSETS
Cash and due from banks $26,835 $23,462
Federal Funds Sold 23,000 9,000
Investments 31,242 36,543
Loans, net of allowance for credit losses 148,080 141,422
Bank premises and equipment 5,964 6,117
Interest receivable and other assets 6,721 5,847
-----------------------------
TOTAL ASSETS $241,842 $222,391
=============================
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Noninterest bearing deposits $69,123 $63,646
Interest bearing deposits 146,211 134,774
-----------------------------
Total deposits 215,334 198,420
Demand notes issued to the U.S. Treasury 2,338 687
Accrued interest and other liabilities 2,132 2,068
-----------------------------
Total liabilities 219,804 201,175
-----------------------------
STOCKHOLDERS' EQUITY
Common Stock 2,717 2,649
Surplus 4,681 4,323
Retained Earnings 14,604 13,794
Unrealized gain on securities available for sale 36 450
-----------------------------
Total stockholders' equity 22,038 21,216
-----------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $241,842 $222,391
=============================
7
<PAGE>
Riverside National Bank and Subsidiary
CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
(in thousands, except per share data)
<TABLE>
CONSOLIDATED STATEMENTS OF OPERATIONS 2ND QUARTER 2ND QUARTER YEAR TO DATE YEAR TO DATE
FOR THE PERIODS ENDED JUNE 30, 1996 AND 1995 1996 1995 1996 1995
<S> <C> <C> <C> <C>
Interest income $4,166 $4,056 $8,236 $8,039
Interest expense 1,251 1,239 2,498 2,369
-------------------------------------------------------------
Net interest income 2,915 2,817 5,738 5,670
Provision for loan and lease losses 30 45 75 90
-------------------------------------------------------------
NET INTEREST INCOME AFTER PROVISION FOR
LOAN AND LEASE LOSSES 2,885 2,772 5,663 5,580
-------------------------------------------------------------
Noninterest income
Service charges on deposit accounts 381 403 766 811
Other operating income 171 589 351 859
-------------------------------------------------------------
TOTAL NONINTEREST INCOME 552 992 1,117 1,670
-------------------------------------------------------------
Noninterest expense
Salaries, wages and employee benefits 1,135 1,293 2,360 2,557
Occupancy and equipment expense 385 488 752 886
Other operating expense 696 957 1,351 1,857
-------------------------------------------------------------
TOTAL NONINTEREST EXPENSE 2,216 2,738 4,463 5,300
-------------------------------------------------------------
INCOME BEFORE INCOME TAXES 1,221 1,026 2,317 1,950
Provision for income taxes 483 345 929 662
-------------------------------------------------------------
NET INCOME $738 $681 $1,388 $1,288
=============================================================
EARNINGS PER COMMON SHARE AND
COMMON SHARE EQUIVALENT $0.32 $0.31 $0.60 $0.60
-------------------------------------------------------------
AVERAGE COMMON SHARES OUTSTANDING 2,151,289 2,108,918 2,137,147 2,107,213
-------------------------------------------------------------
END OF PERIOD COMMON SHARE EQUIVALENTS 142,400 81,394 142,400 81,394
-------------------------------------------------------------
</TABLE>
8
<PAGE>
Riverside National Bank and Subsidiary
CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
(in thousands)
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six Months Ended June 30, 1996 and 1995 1996 1995
Cash Flows From Operating Activities $1,150 $4,631
Cash Flows From Investing Activities (2,190) 1,071
Cash Flows From Financing Activities 18,413 21,276
------------------------
Net increase in cash and cash equivalents 17,373 26,978
Cash and Cash Equivalents
Beginning 32,462 16,830
------------------------
Ending $49,835 $43,808
========================
9
<PAGE>
EXHIBIT 99.7
FORM 8-K. -- CURRENT REPORT
FORM 8-K
OFFICE OF THE COMPTROLLER OF THE CURRENCY
Washington, D.C. 20919
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) January 17, 1996
----------------
RIVERSIDE NATIONAL BANK
-----------------------
(Exact name of registrant as specified in its charter)
95-2312456
----------
(IRS Employer Identification No.)
3484 Central Avenue, Riverside, California 92506
------------------------------------------------
(Address of principal executive office) (Zip Code)
(909) 276-8800
--------------
Bank's telephone number, including area code
<PAGE>
ITEM 5. OTHER EVENTS
- ------- ------------
On January 17, 1996, Riverside National Bank's Board of Directors approved a
$0.12 per share cash dividend. The cash dividend will be paid to shareholders
of record on February 1, 1996, the record date in connection with said
dividend, and will be issued on or about February 15, 1996.
(See Resolution attached as Exhibit A)
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the Bank
has duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
RIVERSIDE NATIONAL BANK
By: /s/ Emanuel King
---------------------------
Emanuel King
Vice President & Cashier
Dated: January 18, 1996
<PAGE>
RESOLUTION
CASH DIVIDEND
"EXHIBIT A"
WHEREAS, the authorized capital stock of Riverside National Bank, (the
"Bank") is 2,700,000 shares of common stock $1.25 par value, and there are
presently 2,119,489 shares of the Bank's common stock issued and outstanding;
WHEREAS, the Bank has sufficient capital stock surplus and undivided
profits to declare a cash dividend in the amount of $0.12 per share on its
outstanding common stock and any increases in the outstanding shares of
common stock due to the exercise of outstanding employee stock options
between this date and February 1, 1996 consistent with the requirements of
federal law;
WHEREAS, the Board of Directors deems it to be in the best interest of
the Bank and its shareholders to pay a cash dividend of $0.12 per share;
NOW, THEREFORE, BE IT HEREBY RESOLVED, that the Bank declares a cash
dividend of $0.12 per share on its outstanding shares of common stock,
comprising a distribution in an aggregate amount of $254,338.68 plus an
additional amount, if any, which will result in the increase in the number of
shares outstanding between this date and the record date by virtue of
exercise of outstanding employee stock options, payable to shareholders of
record at the close of business on February 1, 1996, and payable on February 15,
1996;
AND, BE IT FURTHER RESOLVED, that the officers of the Bank and they
hereby are authorized and directed to transmit notice of said dividend to the
National Association of Securities Dealers, Inc. pursuant to Rule 10b-17
promulgated by the Securities and Exchange Commission, and to take such
further action as they may deem necessary or appropriate to further the
purposes of these Resolutions and including, but not limited to, the
issuances of press releases of said dividends.
SECRETARY'S CERTIFICATE
-----------------------
I, Emanuel King, Corporate Secretary of Riverside National Bank, do
hereby certify the foregoing Resolution, Cash Dividend, Exhibit A, is a full,
true and correct copy of a Resolution duly adopted by the Board of Directors
of said Corporation on January 17, 1996.
WITNESS my hand and the seal of said Corporation, this 17th day of January,
1996.
(Seal) /s/ Emanuel King
-----------------------------
Emanuel King
Vice President & Cashier
<PAGE>
EXHIBIT 99.8
FORM 8-K. -- CURRENT REPORT
FORM 8-K
OFFICE OF THE COMPTROLLER OF THE CURRENCY
Washington, D.C. 20919
Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) April 17, 1996
--------------
RIVERSIDE NATIONAL BANK
-----------------------
(Exact name of registrant as specified in its charter)
95-2312456
----------
(IRS Employer Identification No.)
3484 Central Avenue, Riverside, California 92506
------------------------------------------------
(Address of principal executive office) (ZIP Code)
(909) 276-8800
--------------
Bank's telephone number, including area code
<PAGE>
ITEM 5. OTHER EVENTS
On April 17, 1996, Riverside National Bank's Board of Directors approved a
$0.15 per share cash dividend. The cash dividend will be paid to shareholders
of record on May 1, 1996, the record date in connection with said dividend,
and will be issued on or about May 15, 1996.
(See Resolution attached as Exhibit A)
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the Bank
has duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
RIVERSIDE NATIONAL BANK
By: /s/ Emanuel King
-------------------------
Emanuel King
Vice President & Cashier
Date: April 18, 1996
<PAGE>
RESOLUTION
CASH DIVIDEND
"EXHIBIT A"
WHEREAS, the authorized capital stock of Riverside National Bank, (the
"Bank") is 2,700,000 shares of common stock $1.25 par value, and there are
presently 2,129,489 shares of the Bank's common stock issued and outstanding;
WHEREAS, the Bank has sufficient capital stock surplus and undivided
profits to declare a cash dividend in the amount of $0.15 per share on its
outstanding common stock and any increases in the outstanding shares of
common stock due to the exercise of outstanding employee stock options
between this date and May 1, 1996 consistent with the requirements of federal
law;
WHEREAS, the Board of Directors deems it to be in the best interest of
the Bank and its shareholders to pay a cash dividend of $0.15 per share;
NOW, THEREFORE, BE IT HEREBY RESOLVED, that the Bank declares a cash
dividend of $0.15 per share on its outstanding shares of common stock,
comprising a distribution in an aggregate amount of $319,423 plus an
additional amount, if any, which will result in the increase in the number of
shares outstanding between this date and the record date by virtue of
exercise of outstanding employee stock options, payable to shareholders of
record at the close of business on May 1, 1996, and payable on May 15, 1996;
AND, BE IT FURTHER RESOLVED, that the officers of the Bank and they
hereby are authorized to transmit notice of said dividend to the National
Association of Securities Dealers, Inc. pursuant to Rule 10b-17 promulgated
by the Securities and Exchange Commission, and to take such further action as
they may deem necessary or appropriate to further the purposes of these
Resolutions and including, but not limited to, the issuance of press releases
of said dividends.
SECRETARY'S CERTIFICATE
-----------------------
I, Emanuel King, Corporate Secretary of Riverside National Bank, do hereby
certify the foregoing Resolution, Cash Dividend, Exhibit A, is a full, true
and correct copy of a Resolution duly adopted by the Board of Directors of
said Corporation on April 17, 1996.
WITNESS my hand and the seal of said Corporation, this 17th day of
April, 1996.
(Seal) /s/ Emanuel King
--------------------------
Emanuel King
Vice President & Cashier
<PAGE>
EXHIBIT 99.9
FORM 8-K -- CURRENT REPORT
FORM 8-K
OFFICE OF THE COMPTROLLER OF THE CURRENCY
Washington, D.C. 20919
Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934 Date
of Report (Date of earliest event reported) JULY 17, 1996
RIVERSIDE NATIONAL BANK
-----------------------
(Exact name of registrant as specified in its charter)
95-2312456
----------
(IRS Employer Identification No.)
3484 Central Avenue, Riverside, California 92606
------------------------------------------------
(Address of principal executive office) (ZIP Code)
(909)276-8800
-------------
Bank's telephone number, including area code
<PAGE>
ITEM 5. OTHER EVENTS
On July 17, 1996, Riverside National Bank's Board of Directors approved a
$0.15 per share cash dividend. The cash dividend will be paid to shareholders
of record on August 1, 1996, the record date in connection with said
dividend, and will be issued on or about August 15, 1996.
(See Resolution attached as Exhibit A)
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the Bank
has duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
RIVERSIDE NATIONAL BANK
By: /s/ Emanuel King
--------------------------------
Emanuel King
First Vice President & Cashier
Date: July 18, 1996
<PAGE>
RESOLUTION
CASH DIVIDEND
"EXHIBIT A"
WHEREAS, the authorized capital stock of Riverside National Bank, (the
"Bank") is 2,700,000 shares of common stock $1.25 par value, and there are
presently 2,714,289 shares of the Bank's common stock issued and outstanding;
WHEREAS, the Bank has sufficient capital stock surplus and undivided
profits to declare a cash dividend in the amount of $0.15 per share on its
outstanding common stock and any increases in the outstanding shares of
common stock due to the exercise of outstanding employee stock options
between this date and August 1, 1996 consistent with the requirements of
federal law;
WHEREAS, the Board of Directors deems it to be in the best interest of
the Bank and its shareholders to pay a cash dividend of $0.15 per share;
NOW, THEREFORE, BE IT HEREBY RESOLVED, that the Bank declares a cash
dividend of $0.15 per share on its outstanding shares of common stock,
comprising a distribution in an aggregate amount of $326,143 plus an
additional amount, if any, which will result in the increase in the number of
shares outstanding between this date and the record date by virtue of
exercise of outstanding employee stock options, payable to shareholders of
record at the close of business on August 1, 1996, and payable on August 15,
1996;
AND, BE IT FURTHER RESOLVED, that the officers of the Bank and they
hereby are authorized to transmit notice of said dividend to the National
Association of Securities Dealers, Inc. pursuant to Rule 10b-17 promulgated
by the Securities and Exchange Commission, and to take such further action as
they may deem necessary or appropriate to further the purposes of these
Resolutions and including, but not limited to, the issuance of press releases
of said dividends.
SECRETARY'S CERTIFICATE
I, Emanuel King, Corporate Secretary of Riverside National Bank, do hereby
certify the foregoing Resolution, Cash Dividend, Exhibit A, is a full, true
and correct copy of a Resolution duly adopted by the Board of Directors of
said Corporation on July 17, 1996.
WITNESS my hand and the seal of said Corporation, this 17th day of July,
1996.
(Seal) /s/ Emanuel King
-------------------------------
Emanuel King
First Vice President & Cashier
<PAGE>
EXHIBIT 99.10
OFFICE OF THE COMPTROLLER OF THE CURRENCY
WASHINGTON, D.C. 20219
----------------------
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): OCTOBER 15, 1996
RIVERSIDE NATIONAL BANK
(Exact Name of Registrant as Specified in its Charter)
UNITED STATES 95-2312456
(State or Other Jurisdiction of (I.R.S. Employer Identification
Incorporation) No.)
3484 CENTRAL AVENUE
RIVERSIDE, CALIFORNIA 92506
(Address of Principal Executive Offices, Including Zip Code)
(909) 276-8900
(Registrant's Telephone Number, Including Area Code)
Exhibit Index at Page 4
<PAGE>
ITEM 5. OTHER EVENTS.
On October 15, 1996, City National Corporation ("CNC") and City National
Bank ("CNB"), on the one hand, and Riverside National Bank ("Riverside"), on the
other, entered into that certain Agreement and Plan of Merger (the "Merger
Agreement") whereby Riverside will merge with and into CNB (the "Merger"),
subject to, among other customary conditions, regulatory approval and approval
by Riverside's shareholders.
Pursuant to the Merger Agreement, at the effective time of the Merger (the
"Effective Time"), each share of Riverside common stock, $1.25 par value (the
"Riverside Common Stock"), will be exchanged for, at the election of the holder
thereof, (i) a number of shares of CNC common stock, $1.00 par value (the "CNC
Common Stock"), equal to the quotient (the "Exchange Ratio") of (A) $18.00
divided by (B) the average of the daily closing prices of a share of CNC Common
Stock on the New York Stock Exchange for the twenty consecutive trading days
ending on and including the third trading day immediately prior to the Effective
Time (such average, the "Final CNC Stock Price"), (ii) cash in the amount of
$18.00 per share, or (iii) a combination of CNC Common Stock and cash. In the
event that the Final CNC Stock Price is more than $19.50 but equal to or less
than $22.50, the Exchange Ratio shall be 0.923; and in the event that the Final
CNC Stock Price is less than $16.00, the Exchange Ratio shall be 1.125; and
provided further, that in the event that the Final CNC Stock Price is more than
$22.50, the Exchange Ratio shall be $20.77 divided by the Final CNC Stock Price.
The actual amount of cash and shares of CNC Common Stock to be received by any
Riverside stockholder will be subject to adjustment as is necessary or
appropriate in order to preserve the status of the Merger as a "reorganization"
within the meaning of section 368(a) of the Internal Revenue Code.
In connection with the Merger Agreement, CNC and Riverside entered into
that certain Stock Option Agreement dated as of October 15, 1996 (the "Stock
Option Agreement"). Pursuant to the Stock Option Agreement, Riverside has
granted to CNC an option (the "Option") to purchase up to 421,778 fully paid and
nonassessable shares of Riverside Common Stock at $14.50 per share. The Option
is exercisable by CNC upon the occurrence of certain events specified in the
Option Agreement relating generally to the acquisition of Riverside by a third
party. The Option Agreement also provides that in no event shall CNC realize a
total profit in excess of $2.0 million from the exercise of the Option.
The foregoing description of the Merger Agreement and the Option Agreement
is qualified in its entirety by reference to the Merger Agreement and the Option
Agreement, conformed copies of which are attached hereto as Exhibits 2.1 and
2.2, respectively, and incorporated herein by reference.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(c) Exhibits
See Exhibit Index on page 4 hereof.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
RIVERSIDE NATIONAL BANK
Date: November 1, 1996 By: /s/ Michael J. Shonborn
--------------------------------
Michael J. Shonborn
Chief Financial Officer
<PAGE>
EXHIBIT INDEX
Exhibit No. Exhibit Page No.
- ----------- ------- --------
2.1 Agreement and Plan of Merger between City National 5
Corporation and City National Bank, on the one hand,
and Riverside National Bank, on the other, dated as
of October 15, 1996
2.2 Stock Option Agreement between City National Corporation 132
and Riverside National Bank dated at of October 15, 1996
99.1 Press Release dated as of October 15, 1996 155
<PAGE>
EXHIBIT 2.1
<PAGE>
AGREEMENT AND PLAN OF MERGER
BETWEEN
CITY NATIONAL CORPORATION
CITY NATIONAL BANK
AND
RIVERSIDE NATIONAL BANK
OCTOBER 15, 1996
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C> <C>
ARTICLE I THE MERGER AND RELATED TRANSACTIONS....................................................................... 1
1.1 Structure of the Merger................................................................................... 1
1.2 Closing................................................................................................... 2
1.3 Effective Time............................................................................................ 2
1.4 Effects of the Merger..................................................................................... 2
ARTICLE II EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE CONSTITUENT CORPORATIONS................................
2
2.1 Effect on Capital Stock................................................................................... 2
(a) Common Stock of CNC................................................................................. 2
(b) Common Stock of RNB................................................................................. 2
(c) Dissenting Common Stock............................................................................. 2
(d) Cancellation of Certain Shares...................................................................... 2
2.2 Conversion of RNB Common Stock............................................................................ 2
2.3 Election and Proration Procedures......................................................................... 3
(a) Election Forms and Types of Elections............................................................... 3
(b) Proper and Timely Election.......................................................................... 4
(c) Definitions......................................................................................... 4
(d) Allocation of Aggregate Merger Consideration Among RNB Shareholders................................. 5
(e) Calculations........................................................................................ 7
(f) No Fractional Shares................................................................................ 7
2.4 Stock Options............................................................................................. 7
2.5 Adjustments for Dilution and Other Matters................................................................ 8
2.6 Conversion of Dissenting Common Stock..................................................................... 8
ARTICLE III EXCHANGE OF SHARES...................................................................................... 9
3.1 Exchange Procedures....................................................................................... 9
(a) Exchange Agent...................................................................................... 9
(b) Exchange of Certificates and Cash................................................................... 9
(c) Affiliates.......................................................................................... 9
3.2 Voting and Dividends...................................................................................... 9
3.3 No Liability.............................................................................................. 10
3.4 Withholding Rights........................................................................................ 10
ARTICLE IV CONDUCT PENDING THE MERGER............................................................................... 10
4.1 Conduct of RNB's Business Prior to the Effective Time..................................................... 10
4.2 Forbearance by RNB and its Subsidiaries................................................................... 11
4.3 Timeliness of CNC's Consent............................................................................... 13
4.4 Conduct by CNC and CNB Prior to the Effective Time........................................................ 13
ARTICLE V REPRESENTATIONS AND WARRANTIES............................................................................ 14
5.1 Representations and Warranties of RNB..................................................................... 14
(a) RNB Capital Stock................................................................................... 14
(b) Authority........................................................................................... 14
(c) Subsidiaries........................................................................................ 14
(d) Approvals........................................................................................... 14
(e) No Violations....................................................................................... 15
(f) Community Reinvestment Act.......................................................................... 15
(g) Reports............................................................................................. 15
(h) Financial Statements................................................................................ 15
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C> <C>
(i) Absence of Certain Changes or Events................................................................ 16
(j) Taxes............................................................................................... 16
(k) Absence of Claims; Litigation....................................................................... 16
(l) Regulatory Actions.................................................................................. 16
(m) Certain Agreements.................................................................................. 17
(n) Labor Matters....................................................................................... 17
(o) Employee Benefit Plans.............................................................................. 17
(p) Insider Loans; Other Transactions................................................................... 18
(q) Title to Assets..................................................................................... 18
(r) Knowledge as to Conditions.......................................................................... 18
(s) Compliance with Laws................................................................................ 18
(t) Fees................................................................................................ 19
(u) Environmental....................................................................................... 19
(v) Allowance for Possible Loan Losses.................................................................. 20
(w) Performance of Obligations.......................................................................... 20
(x) Insurance........................................................................................... 21
(y) Listing of Loans.................................................................................... 21
(z) Derivative Transactions............................................................................. 21
(aa) Trust Administration................................................................................ 21
(bb) Contingent Liabilities.............................................................................. 21
(cc) Statements True and Correct......................................................................... 21
(dd) Additional Tax Representation....................................................................... 22
5.2 Representations and Warranties of CNC and CNB............................................................. 22
(a) CNC Capital Stock................................................................................... 22
(b) CNB Capital Stock................................................................................... 23
(c) Authority........................................................................................... 23
(d) Approvals........................................................................................... 23
(e) No Violations....................................................................................... 23
(f) Financial Statements................................................................................ 24
(g) Absence of Certain Changes or Events................................................................ 24
(h) Absence of Claims; Litigation....................................................................... 24
(i) Regulatory Actions.................................................................................. 24
(j) Knowledge as to Conditions.......................................................................... 24
(k) Compliance with Laws................................................................................ 24
(l) Fees................................................................................................ 25
(m) Community Reinvestment Act.......................................................................... 25
(n) Statements True and Correct......................................................................... 25
(o) Tax Representation.................................................................................. 25
(p) CNC Common Stock.................................................................................... 26
ARTICLE VI COVENANTS................................................................................................ 26
6.1 Regulatory Matters........................................................................................ 26
6.2 Stockholders' Approvals................................................................................... 27
6.3 Legal Conditions to Merger................................................................................ 27
6.4 Information............................................................................................... 27
(a) CNC's Right to Access and Information............................................................... 27
(b) RNB's Right to Access and Information............................................................... 28
(c) Customer Calls...................................................................................... 28
(d) Confidentiality..................................................................................... 28
6.5 Employee Benefits......................................................................................... 28
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C> <C>
6.6 Certain Filings, Consents and Arrangements................................................................ 29
6.7 Timeliness and Compliance of RNB Reports and Filings...................................................... 29
6.8 Timeliness and Compliance of CNC and CNB Reports and Filings.............................................. 29
6.9 Additional Agreements; Parties............................................................................ 29
6.10 Publicity................................................................................................. 29
6.11 Notification of Certain Matters........................................................................... 30
6.12 Pre-Closing Adjustments................................................................................... 30
6.13 Director Resignations..................................................................................... 30
6.14 Human Resources Issues.................................................................................... 30
6.15 Assistance with Third-Party Agreements.................................................................... 30
6.16 Notices and Communications................................................................................ 31
6.17 Insurance Policies Assignment............................................................................. 32
6.18 Additional Agreements; Officers and Directors............................................................. 32
6.19 Affiliates and Five Percent Shareholders.................................................................. 32
6.20 Cooperation............................................................................................... 32
6.21 Indemnification of Directors and Officers................................................................. 32
6.22 Shareholders' Agreement................................................................................... 32
6.23 Coordination of Dividends................................................................................. 33
6.24 Sale of Certain Securities................................................................................ 33
6.25 Vacation Time and Accrual................................................................................. 33
ARTICLE VII CONDITIONS TO CONSUMMATION.............................................................................. 33
7.1 Conditions to Each Party's Obligations.................................................................... 33
7.2 Conditions to Obligations of CNC and CNB.................................................................. 34
7.3 Conditions To Obligations of RNB.......................................................................... 35
ARTICLE VIII TERMINATION............................................................................................ 36
8.1 Termination............................................................................................... 36
8.2 Effect of Termination..................................................................................... 37
ARTICLE IX OTHER MATTERS............................................................................................ 37
9.1 Certain Definitions; Interpretations...................................................................... 37
9.2 Non-Survival of Representations, Warranties and Covenants................................................. 38
9.3 Waiver and Modification................................................................................... 38
9.4 Counterparts.............................................................................................. 39
9.5 Governing Law, Jurisdiction and Venue..................................................................... 39
9.6 Notices................................................................................................... 39
9.7 Entire Agreement.......................................................................................... 40
9.8 Binding Effect; Assignment................................................................................ 40
9.9 Severability.............................................................................................. 40
9.10 No Third Party Beneficiaries.............................................................................. 40
9.11 Specific Performance...................................................................................... 40
9.12 Expenses.................................................................................................. 40
</TABLE>
iii
<PAGE>
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER, dated as of the 15th day of October, 1996
(the "AGREEMENT"), by and between City National Corporation, a Delaware
corporation ("CNC"), City National Bank, a national banking association formed
pursuant to the laws of the United States ("CNB"), and Riverside National Bank,
a national banking association formed pursuant to the laws of the United States
("RNB"), is entered into with reference to the following:
A. CNC is a bank holding company 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"); and CNB and RNB are national banking associations
subject to primary regulation by the Office of the Comptroller of the
Currency ("OCC");
B. The Boards of Directors of CNC, CNB and RNB 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 RNB will be merged
into CNB and that CNB will be the surviving association in the Merger;
D. As a condition and inducement to CNC and CNB's willingness to enter
into this Agreement, RNB 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 and substantially in the form of
Exhibit A hereto, pursuant to which RNB shall grant to CNC an option to
purchase shares of the common stock, $1.25 par value per share, of RNB (the
"RNB 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 hereto that CNC and CNB by reason of this Agreement
shall not, until consummation of the Merger, control, and shall not be
deemed to control, RNB or any of its Subsidiaries (as defined in Section
9.1), directly or indirectly, and shall not exercise or be deemed to
exercise, directly or indirectly, a controlling influence over the
management or policies of RNB 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,
RNB will merge with and into CNB, with CNB being the surviving corporation
(hereinafter sometimes called the "SURVIVING BANK"), pursuant to the provisions
of, and with the effect provided in, all applicable banking laws of the United
States and shall continue its corporate existence under the laws of the United
States. The name of the Surviving Bank shall be "CITY NATIONAL BANK."
1
<PAGE>
SECTION 1.2 CLOSING. The closing of the Merger (the "CLOSING") will take
place as of 6:00 P.M. Pacific time, on the first Friday (unless such date is a
holiday, in which case it will be the preceding Business Day (as defined in
Section 9.1)) that is both (a) after satisfaction or waiver 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 OCC 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) RNB shall be merged with and into CNB and the
separate corporate existence of RNB shall cease, (ii) the Articles of
Association of CNB as in effect immediately prior to the Effective Time shall be
the Articles of Association of Surviving Bank, and (iii) the Bylaws of CNB as in
effect immediately prior to the Effective Time shall be the Bylaws of Surviving
Bank.
(b) At and after the Effective Time, the Merger will have the effects set
forth in the applicable federal banking laws.
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 RNB, CNC and CNB:
(a) COMMON STOCK OF CNC. Each share of the 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 CNC Common Stock, and shall not be affected by the
Merger;
(b) COMMON STOCK OF RNB. Each share of RNB Common Stock issued and
outstanding immediately prior to the Effective Time, shall be converted into
the right to receive CNC Common Stock and/or cash as provided in Section
2.2(a);
(c) DISSENTING COMMON STOCK. Each share of RNB Common Stock that is a
dissenting share pursuant to the provisions of Section 215a of the National
Bank Act ("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 Common Stock, at
which time such shares shall be converted into cash and/or CNC Common Stock
pursuant to Section 2.6 hereof. The purchase of Dissenting Common Stock, if
any, shall be made pursuant to the provisions of Section 215a of the
National Bank Act.
(d) CANCELLATION OF CERTAIN SHARES. Any shares of RNB Common Stock
held by CNC (or any of its wholly owned Subsidiaries) or RNB (or any of its
wholly owned Subsidiaries), other than those held in a 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 RNB COMMON STOCK.
(a) Subject to the other provisions of this Article II, each share of RNB
Common Stock issued and outstanding immediately prior to the Effective Time
(other than Dissenting Common Stock and Common
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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 share and/or fraction of a share of CNC Common Stock per share of
RNB Common Stock equal to the quotient (such quotient, the "EXCHANGE RATIO")
of (A) $18.00, divided by (B) 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 and
including the third trading day immediately prior to the Effective Time
(such average, the "FINAL CNC STOCK PRICE" and such period, the
"DETERMINATION PERIOD"); provided, that in the event that the Final CNC
Stock Price shall be more than $19.50 but equal to or less than $22.50 (the
"INTERIM CEILING PRICE"), the Exchange Ratio shall be 0.923, and in the
event that the Final CNC Stock Price shall be less than $16.00 ("FLOOR
PRICE"), the Exchange Ratio shall be 1.125; and provided further, that in
the event that the Final CNC Stock Price shall be more than $22.50, the
Exchange Ratio shall be $20.77 divided by the Final CNC Stock Price; or
(ii) cash in the amount of $18.00 per share of RNB Common Stock (such
amount, the "PER SHARE CASH CONSIDERATION"); or
(iii) a combination of CNC Common Stock and cash in the per share
amounts set forth in Subsections 2.2(a)(i) and (a)(ii) above;
(b) At the Effective Time, the stock transfer books of RNB shall be closed
as to holders of RNB Common Stock immediately prior to the Effective Time and no
transfer of RNB 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 RNB
Common Stock represented thereby was converted in the Merger, plus payment for
any fractional share of CNC Common Stock that the holder of such certificates
would have otherwise been entitled to receive as a result of such conversion.
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 RNB Common Stock shall pass, only upon proper
delivery of such certificates to an exchange agent selected by CNC and
reasonably acceptable to RNB (the "EXCHANGE AGENT")) in such form as CNC and RNB
shall mutually agree ("ELECTION FORM") shall be mailed no less than 35 days
prior to the anticipated Effective Time or on such other date as RNB and CNC
shall mutually agree ("MAILING DATE") to each holder of record of RNB 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, as defined in
Section 9.1) of RNB Common Stock after the Election Form Record Date and prior
to the Election Deadline (as defined below), and RNB 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 RNB Common Stock, (ii)
cash (a "CASH ELECTION") with respect to all of such holder's RNB Common Stock,
or (iii) a specified number of shares of RNB Common Stock to receive CNC Common
Stock (a "COMBINATION STOCK ELECTION") and a specified number of shares of RNB
Common Stock to receive cash (a "COMBINATION CASH ELECTION"). Any RNB 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. Pacific Time on or before the 30th day
following the Mailing Date, or such other time and date as CNC and RNB may
mutually agree (the "ELECTION DEADLINE"). An Election Form shall be deemed
properly completed only if an Election is indicated for each share of RNB 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 RNB 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 RNB 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 RNB 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 RNB
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) DEFINITIONS. For purposes of this Section 2.3, the following
definitions shall apply:
(i) "TOTAL CONSIDERATION" shall mean the sum of (A) the product of (1)
the Final CNC Stock Price and (2) the number of shares of CNC Common Stock
actually issued to holders of RNB Common Stock in the Merger, (B) the amount
of cash actually issued to holders of RNB Common Stock in the Merger
pursuant to Cash Elections and Combination Cash Elections, (C) the amount of
cash actually issued to holders of RNB Common Stock in the Merger in lieu of
fractional shares of CNC Common Stock, and (D) an amount equal to the number
of shares of Dissenting Common Stock as to which the holder's demand to
exercise dissenter's rights shall not have been withdrawn as of the
Effective Time multiplied by the greater of (1) the product of the Exchange
Ratio and the Final CNC Stock Price and (2) the Per Share Cash
Consideration.
(ii) "MINIMUM STOCK AMOUNT" shall mean the lowest whole number of
Eligible CNC Shares which, if multiplied by the Final CNC Stock Price,
results in a dollar amount at least equal to 48 percent of the Total
Consideration.
(iii) "MAXIMUM STOCK AMOUNT" shall mean the excess of (A) the number
of shares of CNC Common Stock that would be issuable under the terms hereof
for 60 percent of the Total Consideration, based on the Exchange Ratio, over
(B) the number of Substitute Options granted.
(iv) "ELIGIBLE CNC SHARES" shall mean all shares of CNC Common Stock
to be issued in the Merger other than shares of CNC Common Stock issued (A)
to any holder of five percent or more of the total outstanding shares of RNB
Common Stock who does not provide to the Exchange Agent a representation in
the form set forth in Exhibit B hereof, or as to which the management of RNB
is unable as of the Effective Time to make the representation set forth in
Section 5.1(dd)(ii), (B) to any holder of less than five percent of the
total outstanding shares of RNB Common Stock as to which the management of
RNB is unable as of the Effective Time to make the representation set forth
in Section 5.1(dd)(ii) hereto, or (C) with respect to any shares of RNB
Common Stock which were obtained by the holder thereof upon the exercise of
Employee Options or Director Options if such exercise shall have occurred
subsequent to August 2, 1996 for directors and October 15, 1996 for other
employees.
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(d) ALLOCATION OF AGGREGATE MERGER CONSIDERATION AMONG RNB
SHAREHOLDERS. As promptly as practicable but not later than two business days
after the Effective Time, CNC and CNB shall cause the Exchange Agent to effect
the allocation among the holders of RNB Common Stock of rights to receive CNC
Common Stock or cash in the Merger as follows:
(i) If the product of (A) the aggregate number of shares of RNB Common
Stock for which Stock Elections and Combination Stock Elections shall have
effectively been made, and (B) the Exchange Ratio, exceeds the Maximum Stock
Amount, then, to the extent necessary so that the number of shares of CNC
Common Stock to be issued in the Merger shall be not greater than the
Maximum Stock Amount and the number of Eligible CNC Shares to be issued in
the Merger shall be at least equal to the Minimum Stock Amount, the Exchange
Agent shall make the following allocations and adjustments in the following
order:
(1) shares of RNB Common Stock for which Cash Elections or
Combination Cash Elections have been made and all Undesignated Shares
shall be converted into the right to receive cash in an amount equal to
the Per Share Cash Consideration;
(2) the Exchange Agent shall select by random selection (as described
in subsection (v) of this Section 2.3(d)), first from among the holders
of RNB Common Stock for which Stock Elections or Combination Stock
Elections have been made which, if converted into shares of CNC Common
Stock, would not constitute Eligible CNC Shares, and second (if
necessary) from among the holders of the remaining shares of RNB Common
Stock for which Stock Elections and Combination Stock Elections have been
made shares that shall be designated as "Cash Designated Shares," and all
such Cash Designated Shares shall be converted into the right to receive
cash in an amount equal to the Per Share Cash Consideration; provided
that no particular holder of RNB Common Stock for which Stock Elections
or Combination Stock Elections have been made shall be deemed to hold
Cash Designated Shares if such designation would prevent the satisfaction
of any of the conditions set forth in Article VII hereof; and
(3) Any shares of RNB Common Stock for which Stock Elections or
Combination Stock Elections have been made which are not Cash Designated
Shares after completion of the foregoing selection process shall be
converted into the right to receive a number of shares of CNC Common
Stock determined by multiplying the number of such shares of RNB Common
Stock by the Exchange Ratio.
(ii) If the conversion of the shares of RNB Common Stock for which Stock
Elections and Combination Stock Elections shall have effectively been made
(based upon the Exchange Ratio), would not result in a number of Eligible
CNC Shares being issued that is at least equal to the Minimum Stock Amount
(which shall be determined for this purpose on the assumption that all
shares of RNB Common Stock other than those for which Stock Elections or
Combination Stock Elections have been made would be entitled to receive the
Per Share Cash Consideration), then, to the extent necessary so that the
number of Eligible CNC Shares to be issued in the Merger shall be at least
equal to the Minimum Stock Amount, the Exchange Agent shall make the
following allocations and adjustments in the following order:
(1) all shares of RNB Common Stock for which Stock Elections and
Combination Stock Elections have been made shall be converted into the
right to receive shares of CNC Common Stock; provided, however, that to
the extent that the issuance of shares of CNC Common Stock that would not
qualify as Eligible CNC Shares to holders of RNB Common Stock pursuant to
such elections would cause the total number of shares of CNC Common Stock
issued in the Merger to exceed the Maximum Stock Amount, such holders
shall instead be deemed to have made Cash Elections and shall be entitled
to receive the Per Share Cash Consideration for such shares of RNB Common
Stock;
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(2) the Exchange Agent shall select, by random selection (as
described in subsection (v) of this Section 2.3(d)), first from among the
holders of Undesignated Shares and then (if necessary) from among holders
of Cash Election Shares and Combination Cash Election Shares a sufficient
number of such shares ("STOCK DESIGNATED SHARES") until the number of
Eligible CNC Shares that will be issued in the Merger upon the conversion
of such Stock Designated Shares equals the Minimum Stock Amount, and all
Stock Designated Shares shall be converted into the right to receive CNC
Common Stock based on the Exchange Ratio; provided, that no particular
holder of Undesignated Shares, Cash Election Shares or Combination Cash
Election Shares who holds Stock Designated Shares shall be deemed to hold
Stock Designated Shares if such designation would prevent the
satisfaction of any of the conditions set forth in Article VII hereof;
and
(3) After completion of the foregoing selection process, the
Undesignated Shares and Cash Election Shares not treated as Stock
Designated Shares shall be converted into the right to receive the Per
Share Cash Consideration.
(iii) If the product of (A) the aggregate number of shares of RNB Common
Stock for which Stock Elections and Combination Stock Elections shall have
effectively been made, and (B) the Exchange Ratio, does not exceed the
Maximum Stock Amount, and the conversion of such shares of RNB Common Stock
would result in a number of Eligible CNC Shares being issued that is at
least equal to the Minimum Stock Amount (which shall be determined for this
purpose on the assumption that all shares of RNB Common Stock other than
those for which Stock Elections or Combination Stock Elections have been
made would be entitled to receive the Per Share Cash Consideration),
(1) the shares of RNB Common Stock for which Stock Elections and
Combination Stock Elections have been made shall be converted into the
right to receive CNC Common Stock;
(2) the shares of RNB Common Stock for which Cash Elections and
Combination Cash Elections have been made shall be converted into the
right to receive the Per Share Cash Consideration; and
(3) the Undesignated Shares shall be converted into the right to
receive CNC Common Stock or cash (based on the Exchange Ratio or the Per
Share Cash Consideration, as the case may be), in the discretion of CNC,
subject to the requirement of subsection (iv) of this Section 2.3(d).
(iv) Notwithstanding any other provision of this Agreement, if, after
applying the allocation rules set forth in the preceding subsections of this
Section 2.3(d), the aggregate value of the Eligible CNC Shares that would be
issued pursuant to the Merger (valued at the Final CNC Stock Price) is less
than 48 percent of the Total Consideration, RNB and CNC shall be authorized
to reallocate shares of CNC Common Stock and cash among the holders of the
RNB Common Stock, or to vary the number of shares of CNC Common Stock to be
issued in the Merger, in a manner such that the number of Eligible CNC
Shares to be issued in the Merger shall be not less than the Minimum Stock
Amount.
(v) The random selection process referred to in subsections (i) and (ii)
of this Section 2.3(d) shall consist of such selection processes as CNC and
RNB shall determine, after consultation with the Exchange Agent, to be fair
to the holders of RNB Common Stock (by giving each such holder an equal
likelihood of being selected) and practicable to implement, and may include
a process under which share lots comprising a fixed number of shares that
may be less than all of an individual holder's shares may be selected,
provided that such process is applied on a uniform basis.
(vi) Notwithstanding any other provision of this Agreement (other than
Section 2.3(d)(iv) hereof), if any share of Dissenting Common Stock loses
its status as Dissenting Common Stock pursuant to Section 215a of the
National Bank Act, then, as of the later of the Effective Time or the
occurrence of such loss of status, such share of Dissenting Common Stock
shall
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automatically be converted into and represent the right to receive the
consideration for such shares provided in this Agreement, without interest
thereon. The consideration payable for any such shares of Dissenting Common
Stock shall be payable in cash, in shares of CNC Common Stock, or in such
combination of cash and CNC Common Stock as shall be determined by CNC as
being necessary or appropriate to preserve the status of the Merger as a
"reorganization" within the meaning of section 368(a) of the Code.
(e) CALCULATIONS. The calculations required by Subsection 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 RNB
for its review and approval at least 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. The number of shares of CNC Common Stock to be issued as consideration in
the Merger shall be deemed to be in compliance with the Maximum Stock Amount
limitations set forth in this Section 2.3 if such number is an amount issuable
(based on the Exchange Ratio) in exchange for not more than 10,000 shares of RNB
Common Stock of the Maximum Stock Amount.
(f) NO FRACTIONAL SHARES. Notwithstanding any other provisions of this
Agreement, each holder of shares of RNB 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. 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. At least 30 days prior to the anticipated
Effective Time, CNC shall notify each employee of RNB whether such employee is
or is not being offered employment with CNB following the Effective Time.
Options granted to employees and directors of RNB (each such option a "RNB
OPTION") pursuant to the 1987 Stock Option Plan, the 1991 Stock Option Plan and
the 1994 Stock Option Plan (collectively the "OPTION PLANS") shall be treated as
follows:
(a) For RNB Options held by each RNB employee not offered a position
with CNB following the Merger, and for each RNB option that vests prior to
the Effective Time solely as a result of the Change In Control (as defined
in the option plan or agreement relevant to such RNB Option), RNB shall take
appropriate action such that each RNB Option held by such persons that is
outstanding and unexercised at the Effective Time (whether or not such RNB
Option has then vested) shall be cancelled by RNB in consideration of the
payment by RNB to each holder of such RNB Options of an aggregate amount in
cash equal to the positive difference, if any, between (i) the Per Share
Cash Consideration amount multiplied by the number of shares of RNB Common
Stock as to which such holder has RNB Options, and (ii) the aggregate
exercise price of such RNB Options. At the Effective Time, each RNB Option
shall terminate and be of no further force or effect, and any rights
thereunder to purchase shares of RNB Common Stock or CNC Common Stock shall
also terminate and be of no further force or effect; and
(b) Subject to the limitations contained herein, each RNB employee
offered employment with CNB following the Merger and each non-employee RNB
director at the Effective Time who holds RNB Options will be entitled to
elect, on a form to be distributed to each such employee no later than 20
days prior to the anticipated Effective Time, which form must be returned to
CNC no later than 10 days prior to the anticipated Effective Time, to: (i)
receive cash under the same terms as described in Subsection (a) above; or
(ii) in exchange for terminating such RNB Option, receive a fully vested
option (a "SUBSTITUTE OPTION") to purchase CNC Common Stock. The aggregate
number of shares of CNC Common Stock represented by Substitute Options shall
not exceed 216,000, of which 166,000 shares shall be initially reserved for
RNB employees offered employment by CNB following the
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Merger, and 50,000 shares shall be initially reserved for non-employee
directors of RNB, and shall not cause CNC to exceed the Maximum Stock
Amount. If the persons in either group do not elect to receive the maximum
number of Substitute Options initially allocated to such group, persons in
the other group shall be permitted (on a pro rata basis) to elect to receive
the unused Substitute Options in exchange for any unexchanged RNB Options
held by them. To the extent that persons in either group elect to receive
more than the maximum number of Substitute Options allocated to such group,
or otherwise available to such group as provided herein, the persons in that
group shall be deemed to have elected, with respect to the excess over the
maximum allocation, to receive (on a pro rata basis) cash pursuant to
Section 2.4(a) above, in order to ensure that the group as a whole does not
receive more than its allocated and available share of Substitute Options.
(c) The number of shares of CNC Common Stock subject to each Substitute
Option shall be equal to the number of shares of RNB Common Stock subject to
the related RNB Option immediately prior to the Effective Time, multiplied
by the Exchange Ratio; and the per share exercise price under each such
Substitute Option shall be determined by dividing the per share exercise
price under the related RNB Option by the Exchange Ratio and rounding down
to the nearest cent; provided, however, that the number of shares or other
securities, property or cash for which each such Substitute Option is
exercisable and/or the exercise price of each such Substitute Option shall,
in accordance with its terms, be subject to further adjustment as
appropriate to reflect any stock split, stock dividend, recapitalization or
other similar transaction subsequent to the Effective Time. Substitute
Options shall have a term of one year in the case of such options issued to
non-employee directors of RNB and a term of three years in the case of such
options issued to RNB employees, and shall otherwise contain terms and
conditions substantially identical to options issued to CNC or CNB employees
pursuant to CNC's option plan.
SECTION 2.5 ADJUSTMENTS FOR DILUTION AND OTHER MATTERS. If, prior to the
Effective Time, (a) RNB shall declare a stock dividend or distribution on the
RNB Common Stock, or subdivide, split up, reclassify or combine the RNB Common
Stock, or declare a dividend, or make a distribution, on the RNB Common Stock,
in any security convertible into RNB Common Stock (provided that no such action
may be taken by RNB 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, as mutually agreed by CNC and RNB, shall be made to
the Exchange Ratio, the Final CNC Stock Price, the Interim Ceiling Price and the
Floor Price.
SECTION 2.6 CONVERSION OF DISSENTING COMMON STOCK.
(a) RNB shall give CNC prompt notice upon receipt by RNB of any written
demands for appraisal rights, withdrawal of such demands, and any other
documents received or instruments served relating to Dissenting Common Stock and
shall give CNC the opportunity to direct all negotiations and proceedings with
respect to such demands. RNB 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 RNB
Common Stock who becomes entitled, pursuant to Section 215a of the National Bank
Act, to payment for his or her shares of Dissenting Common Stock shall receive
payment therefor from CNC or CNB out of its historic assets and such shares of
RNB Common Stock shall be canceled.
(b) If prior to the Election Deadline any shareholder of RNB shall fail to
perfect, or shall effectively withdraw or lose, his or her rights under Section
215a of the National Bank Act, the Dissenting Common Stock of such holder shall
be treated for purposes of this Article II as any other shares of outstanding
RNB Common Stock. If, after the Election Deadline, any holder of RNB 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
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Common Stock under Section 215a of the National Bank Act, each share of
Dissenting Common Stock of such holder shall be converted into the right to
receive the Per Share Cash Consideration or such number of shares of CNC Common
Stock calculated pursuant to Subsection 2.2(a)(i) as shall be determined by CNC
to be necessary or appropriate to preserve the status of the Merger as a
"reorganization" within the meaning of Section 368(a) of the Code.
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 RNB 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
RNB 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 RNB Common Stock
certificate upon compliance with such reasonable and customary terms and
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 RNB 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 RNB
Common Stock is entitled as a result of the Merger until such holder surrenders
his or her certificate or certificates representing shares of RNB 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 RNB 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
6.19.
SECTION 3.2 VOTING AND DIVIDENDS. Former shareholders of record of RNB
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 RNB Common Stock are converted, regardless of whether such
holders have exchanged their certificates representing RNB 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 RNB Common Stock (other than shares to be canceled pursuant to
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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 RNB Common Stock
with respect to the shares of CNC Common Stock represented thereby, until the
holder of such certificate of RNB Common Stock shall surrender such certificate.
Subject to the effect of applicable laws, following surrender of any such
certificates of RNB 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,
(a) 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 (b) 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, RNB nor the Exchange Agent shall be
liable to any holder of shares of RNB 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 RNB 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 RNB Common
Stock in respect of which such deduction and withholding was made by CNC or the
Exchange Agent.
ARTICLE IV
CONDUCT PENDING THE MERGER
SECTION 4.1 CONDUCT OF RNB'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, RNB shall (a) conduct its business in the
usual, regular and ordinary course, consistent with past practices and
consistent with prudent banking practices; (b) use its best 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 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) 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
(as defined in Section 5.1(i)), RAP (as defined in Section 9.1) or applicable
law or regulation, classified as "loss" or as directed by its regulators; (g)
maintain the ALLL (as defined in Section 9.1) 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 adversely to affect or delay
the ability of CNC, CNB or RNB 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.
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SECTION 4.2 FORBEARANCE BY RNB 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, RNB shall not,
and shall cause each of its 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 (i) in connection with banking
transactions with banking customers in the ordinary course of business, or
(ii) for short-term borrowings (A) not in excess of the longer of thirty
days or until June 30, 1997, (B) in amounts not greater than $12,500,000 in
the aggregate for RNB 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 (other than quarterly cash dividends on
the RNB Common Stock not exceeding $0.15 per share, for the fourth quarter
of 1996 and the first quarter of 1997 only, payable out of the dividendable
earnings of RNB, and in accordance with Section 6.23); 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 RNB 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 Plans, issue RNB
Common Stock pursuant to exercise of an exercisable option granted pursuant
to the Option Plans, and receive or redeem shares of RNB 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 September 30, 1996;
(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 the purchase of collateral for existing RNB loans
in foreclosure or trustee's sales consistent with past practice.
(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,
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; 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;
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or voluntarily accelerate the vesting of any employee benefits, except for
the acceleration of the vesting of options granted pursuant to the Option
Plans;
(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; provided, however, that in the event CNC withholds
consent to any settlement, CNC shall indemnify and hold harmless RNB from
any liability with respect to any such claim, action or proceeding that
exceeds the amount provided for in such settlement relating thereto, which
indemnity obligation shall survive any termination of this Agreement;
(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) other than pursuant to a customer request, terminate, materially
modify or suggest to a title, escrow or mortgage company customer, or to any
major customer, the termination or material modification of any deposit
relationship without first consulting with a designated CNC representative
as to whether such relationship should be retained;
(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;
(n) amend its 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
or applicable law);
(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 loans are rated "pass," $1,000,000 for unsecured obligations or
$2,000,000 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 RNB'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, including,
without limitation, any contingency reserve, litigation reserve, tax
reserve, or the ALLL, by reversal or booking a negative
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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
provided, however, that if after making a good-faith effort to obtain CNC's
consent to the filing of any return, RNB must file such return by the date
on which it is due (taking into account any applicable automatic extension
of time to file returns), then RNB may do so without obtaining CNC's prior
consent;
(t) take any action that would reasonably be expected to adversely
affect RNB'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 directly or indirectly to solicit, initiate or encourage any
inquiries relating to, or the making of any proposal which constitutes a
Takeover Proposal (as defined below), or to recommend or endorse any
Takeover Proposal, or to participate in any discussions or negotiations, or
to 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 RNB 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 written 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. RNB 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. RNB
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 RNB 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, RNB or any of
its Subsidiaries other than the transactions contemplated or permitted by
this Agreement; and
(x) 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 five Business Days after the time RNB shall have requested such
consent in writing, unless during such five-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 three Business Days after the time such
reasonably requested information has been furnished.
SECTION 4.4 CONDUCT BY CNC AND CNB 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 and CNB shall (a) not take any action which
would reasonably be expected adversely to affect or delay the ability of CNC,
CNB or RNB to obtain any necessary approvals, consents or waivers of any
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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 or Articles of
Association, respectively, 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 RNB. Prior to the date
hereof, RNB has delivered to CNC a Disclosure Schedule (including exhibits
thereto) setting forth, among other things, facts, circumstances and events the
disclosure of which is required or appropriate in relation to its
representations and warranties. The mere inclusion of a fact, circumstance or
event in the Disclosure Schedule shall not be deemed an admission that such item
represents a material exception or that the absence of such item would cause the
representation or warranty to which it relates to be untrue or incorrect.
RNB represents and warrants to CNC that, except as set forth in the
Disclosure Schedule:
(a) RNB CAPITAL STOCK. RNB is authorized to issue 2,700,000 shares of RNB
Common Stock, $1.25 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 RNB can vote. As of the
date hereof, 2,176,089 shares of RNB Common Stock are issued. No shares are
reserved for issuance under the 1987 Stock Option Plan and a total of 459,000
shares are reserved for issuance under the 1991 Stock Option Plan and the 1994
Stock Option Plan. No shares are reserved for issuance pursuant to any other
stock option, restricted stock, stock appreciation rights, dividend reinvestment
or similar plan or plans. All outstanding shares of capital stock of RNB are
duly authorized, validly issued and outstanding, fully paid and nonassessable.
(b) AUTHORITY. RNB 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 (as defined in Section 9.1) on RNB), to carry on
its business as it is now being conducted and to own all of its material
properties and assets. RNB 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 RNB.
(c) SUBSIDIARIES. RNB's only subsidiaries are Inland Data Services, Inc.
and Trust Deed Services, Inc., each of which is a wholly owned subsidiary of
RNB. RNB does not own, directly or indirectly, any equity portion or voting
interest in any other corporation, partnership or other entity, except as
received in satisfaction of a debt previously contracted in good faith.
(d) APPROVALS. The execution by RNB 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 RNB) subject to
adoption of this Agreement by the affirmative vote of the holders of two-thirds
of the outstanding shares of RNB. 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 RNB,
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 (including
those of federally insured financial institutions) and general equitable
principles, regardless of whether such enforcement is considered in a proceeding
in equity or at law.
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(e) NO VIOLATIONS. The execution, delivery and performance of this
Agreement by RNB 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 RNB, or to which
it (or any of its respective properties) is subject, which breach, violation or
default would have a Material Adverse Effect on RNB or would materially hinder
or delay the Merger, or (ii) a breach or violation of, or a default under, its
Articles of Association 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 RNB or would not materially hinder or delay the
Merger.
(f) COMMUNITY REINVESTMENT ACT. RNB received a rating of "satisfactory" in
its most recent examination or interim review with respect to the Community
Reinvestment Act. RNB has not been advised of any supervisory concerns regarding
compliance with the Community Reinvestment Act.
(g) REPORTS. RNB and each of its Subsidiaries has 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 OCC, (ii) any state regulatory authority, (iii) the
Securities and Exchange Commission (the "SEC"), (iv) the Federal Deposit
Insurance Corporation (the "FDIC") and (v) any self-regulatory organization
(collectively, "GOVERNMENTAL AUTHORITIES") and has 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
RNB, (x) no Governmental Authority has initiated any proceeding or, to the best
knowledge of RNB, investigation, into the business or operations of RNB since
January 1, 1991 and (y) RNB is not 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. 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 RNB by any Governmental
Authority with respect to any report or statement relating to any examinations
of RNB. The deposits of RNB are insured by the FDIC in accordance with the
Federal Deposit Insurance Act, up to applicable limits.
(h) FINANCIAL STATEMENTS. As of their respective dates, none of RNB's
Annual Report on Form 10-KSB for the fiscal year ended December 31, 1995 (the
"1995 10-K") or Quarterly Report on Form 10-QSB for the quarters ended March 31,
1996 and June 30, 1996 (the "JUNE 30 10-Q"), nor any other document filed or to
be filed prior to the Effective Time 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 OCC and as amended (collectively, the "RNB REPORTS"), contained or will
contain at the time of filing 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 RNB Reports (including any related
notes and schedules) fairly presents 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 RNB Reports (including any related
notes and schedules) fairly presents the results of operations, retained
earnings and cash flows, as the case may be, of the entity
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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 the OCC and generally accepted
accounting principles ("GAAP") consistently applied and applicable to banks
during the periods involved, except as may be noted therein. The books and
records of RNB 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.
(i) ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as set forth in the June
30 10-Q or the Disclosure Schedule, since December 31, 1995, there have not been
(i) any changes in the business, assets, financial condition or results of
operations of RNB and its Subsidiaries that, individually or in the aggregate,
have had a Material Adverse Effect on RNB and its Subsidiaries; (ii) any
amendments to the Articles of Association or Bylaws of RNB; (iii) any
declarations, setting aside or payment of any dividend or any other distribution
in respect of the capital stock of RNB; or (iv) any changes by RNB 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 RNB.
(j) TAXES. Subject to Section 4.2(s), RNB has, or will have, timely filed
all Tax Returns (as defined in Section 9.1) 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. RNB has delivered
or made available to CNC true and complete copies of all such Tax Returns for
1993, 1994 and 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 (as defined in Section 9.1) 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 RNB's knowledge, RNB 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 has been proposed, asserted or assessed against RNB that has not been
settled and paid. Except as set forth in the Disclosure Schedule, no extension
of the time within which any Tax may be assessed is in effect or pending. To
RNB's knowledge, RNB has no liability for Taxes, including employment taxes, of
any other person under Treasury Regulation Section1.1502-6, as a transferee or
successor, or otherwise. Except as set forth in the Disclosure Schedule, RNB 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.
(k) 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 RNB's knowledge, threatened,
against RNB which are reasonably likely, individually or in the aggregate, to
have a Material Adverse Effect on RNB or materially to hinder or delay
consummation of the Merger. RNB is not 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
RNB's knowledge, threatened against RNB as of September 30, 1996, to which RNB
is a party and which names RNB as a defendant or cross-defendant and the amount
reserved for litigation matters in the aggregate.
(l) REGULATORY ACTIONS. As of the date hereof and to RNB's knowledge, RNB
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 (as defined in Section 5.1(s)). Except as
set forth in the Disclosure Schedule, to the knowledge of RNB, each material
violation, criticism, or exception by any governmental authority with respect to
any examinations of RNB has been resolved or is in the process of resolution.
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(m) CERTAIN AGREEMENTS. RNB is not 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 RNB 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 RNB
and each of its Subsidiaries, and the names of all persons, if any, holding tax
or other powers of attorney for the RNB and each of its Subsidiaries.
(n) LABOR MATTERS. Neither RNB 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 RNB
or any of its Subsidiaries. RNB considers its employee relations and those of
each of its Subsidiaries to be satisfactory.
(o) EMPLOYEE BENEFIT PLANS. A list of all Employee Plans (as hereinafter
defined) is set forth in the Disclosure Schedule. RNB 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.
Except as set forth in the Disclosure Schedule:
(i) each of the Employee Plans has been administered in substantial
compliance with any 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 RNB 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
RNB 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 RNB's knowledge, neither RNB 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 RNB 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;
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(v) neither RNB 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 RNB 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 Section 3(3) of ERISA) as well as any other material
written or formal plan or contract involving direct or indirect compensation
under which RNB 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 rights 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.
(p) INSIDER LOANS; OTHER TRANSACTIONS. RNB has previously provided CNC
with a listing, current as of September 30, 1996, of all extensions of credit
made to RNB 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 RNB 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 RNB 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).
(q) TITLE TO ASSETS. RNB 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 previously contracted), including, without limitation,
all personal and intangible properties reflected in the audited financial
statements included in the 1995 10-K and the June 30 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, the June 30 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 and the June 30
10-Q, (5) defect 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, RNB 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.
(r) KNOWLEDGE AS TO CONDITIONS. Each of RNB and 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.
(s) COMPLIANCE WITH LAWS. Neither RNB 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
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properties may be bound, except such violations as would not have a Material
Adverse Effect on RNB. Without limiting the scope of the previous sentence, each
of RNB and 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.
Section 1691, ET SEQ.), the Fair Housing Act (420 U.S.C. Section 3601, ET SEQ.),
the Bank Secrecy Act (31 U.S.C. Section 5322, ET SEQ.), the Home Mortgage
Disclosure Act (12 U.S.C. Section 2801, 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. Section 1956)
or engaging in monetary transactions in property derived from specified
unlawful activity (18 U.S.C. Section 1957).
(t) FEES. Other than financial advisory services performed for RNB by
Alex. Brown & Sons Incorporated, neither RNB 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.
(u) ENVIRONMENTAL.
(i) To RNB's knowledge, all of the properties and operations of RNB 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 RNB's knowledge, RNB and each of its Subsidiaries has obtained
all material permits, licenses, and authorizations which are required for
RNB's operations under Environmental Laws.
(iii) Except as set forth in the Disclosure Schedule, to RNB'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 RNB or any of its Subsidiaries except in
accordance in all material respects with Environmental Laws. Neither RNB nor
any of its Subsidiaries has any 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 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
RNB 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 RNB or any of its Subsidiaries, threatened
against RNB or any of its Subsidiaries relating in any way to any material
violation of any applicable Environmental Law. To the knowledge of RNB, none
of RNB 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,
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without limitation, the Comprehensive Environmental Response Compensation
and Liability Act of 1980, 42 U.S.C. Section 9601, ET SEQ. ("CERCLA"), the
Resource Conservation and Recovery Act of 1975, 42 U.S.C. Section 6901, ET
SEQ. ("RCRA"), the Occupational Safety and Health Act, 29 U.S.C. Section
651, ET SEQ. (as it relates to the use of, or exposure to, Hazardous
Substances), the Clean Air Act, 42 U.S.C. Section 7401, ET SEQ., the Clean
Water Act, 33 U.S.C. Section 1251, ET SEQ., the Toxic Substance Control Act,
15 U.S.C. Section 2601, ET SEQ., the Carpenter-Presley-Tanner Hazardous
Substance Account Act, as amended, Chapter 6.8 of the California Health and
Safety Code, Section 25300, ET SEQ., and the Hazardous Waste Control Law,
Chapter 6.5 of the California Health and Safety Code, Section 25100,
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 RNB 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 RNB and each of
its Subsidiaries, property as to which RNB or any of its Subsidiaries holds
any security interest, deed of trust, mortgage or other lien, and any
property to which RNB 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
(A) 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; (B) any "hazardous substance" as such term is
defined by CERCLA; (C) any "regulated substance" as defined by the State
Acts; (D) asbestos requiring abatement, removal or encapsulation pursuant to
the requirements of Governmental Authorities; (E) polychlorinated biphenyls;
(F) petroleum products; (G) "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, as amended; (H) 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; (I) any substance that requires
reporting, registration, notification, removal, abatement and/or special
treatment, storage, handling or disposal, under Sections 6, 7 and 8 of
the Toxic Substance Control Act (15 U.S.C. Section 2601); (J) 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 (K) any (1) "hazardous
waste," (2) "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, (3) "solid waste" that is
capable of causing a "hazardous substance incident," (4) "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. Sections1251-1376, as amended, by Public Law 100-4, February
4, 1987, and the regulations promulgated thereunder, including 40 C.F.R.
Sections122.1 and 122.26.
(v) ALLOWANCE FOR POSSIBLE LOAN LOSSES. The ALLL for RNB is adequate in
accordance with GAAP and RAP.
(w) PERFORMANCE OF OBLIGATIONS. RNB 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 material default under, or in material
breach of, any term or provision of any contract, lease, indenture or any other
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 RNB and each of its Subsidiaries is a party, except
for contracts terminable
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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.
(x) INSURANCE. RNB 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. RNB has
made available to CNC copies of all policies of insurance and bonds carried and
owned by RNB 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 RNB 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.
(y) LISTING OF LOANS. Copies, in writing, have been made available to CNC
of the detailed listing of all loans and notes receivable of RNB and each of its
Subsidiaries as of September 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.
(z) DERIVATIVE TRANSACTIONS. Neither RNB nor any of its Subsidiaries is a
party to a transaction in or involving forwards, futures, options on futures,
swaps or other derivative instruments.
(aa) TRUST ADMINISTRATION. Neither RNB 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 seven years prior
to the date hereof. The term "trusts" as used in this Subsection 5.1(aa)
includes (i) any and all common law or other trusts between an individual,
corporation or other entities and RNB 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 RNB
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 RNB 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
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 RNB 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.
(bb) CONTINGENT LIABILITIES. RNB has no actual knowledge of any facts,
other than those reflected in the financial statements included in the RNB
Reports or the contracts, litigation and other matters listed in the Disclosure
Schedules, that indicate the existence of a contingent liability of RNB or any
of its Subsidiaries (whether or not disclosure or accrual is required pursuant
to GAAP) as to which there is a reasonable possibility of a Material Adverse
Effect on RNB.
(cc) STATEMENTS TRUE AND CORRECT. None of the information supplied or to
be supplied by RNB for inclusion in the S-4 or the Proxy Statement/Prospectus
(each 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 RNB, 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 shareholders of
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RNB, 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 for the
RNB shareholders' meeting.
(dd) ADDITIONAL TAX REPRESENTATION.
(i) The terms of this Agreement reflect arm's length negotiations
between unrelated parties, and, accordingly, RNB believes that the fair
market value of the CNC Common Stock and other consideration to be received
by each RNB shareholder in the Merger will be approximately equal to the
fair market value of the RNB stock surrendered in the exchange.
(ii) To the best of the knowledge of the management of RNB, and after
due inquiry of each shareholder of RNB who owns 5% or more of the stock of
RNB, there is no plan or intention on the part of the shareholders of RNB to
sell, exchange or otherwise dispose of any shares of CNC Common Stock
received in the Merger.
(iii) CNB will acquire at least 90 percent of the fair market value of
the net assets and at least 70 percent of the fair market value of the gross
assets held by RNB immediately prior to the Merger. For purposes of this
representation, any amounts paid by RNB to dissenters, amounts paid by RNB
to shareholders who receive cash or other property, RNB assets used to pay
its reorganization expenses, all redemptions and distributions (except for
regular, normal dividends) made by RNB immediately preceding the Merger and
all assets disposed of by RNB prior to or contemporaneously with the Merger
and in contemplation thereof (including, without limitation, any asset
disposed of by RNB, other than in the ordinary course of business or other
than in exchange for cash which will be transferred to CNB in the Merger,
pursuant to a plan or intent existing during the period beginning with the
commencement of negotiations (whether formal or informal) with CNC and CNB
regarding the Merger and ending on the effective date of the Merger), will
be included as assets of RNB held immediately prior to the Merger.
(iv) The liabilities of RNB to be assumed by CNB in the Merger and the
liabilities to which the transferred assets of RNB are subject were incurred
by RNB in the ordinary course of its business.
(v) RNB and the shareholders of RNB will pay their respective expenses,
if any, incurred in connection with the Merger.
(vi) There is no intercorporate indebtedness existing between CNC and
RNB or between CNB and RNB.
(vii) RNB is not an investment company as defined in Section
368(a)(2)(F)(iii) and (iv) of the Code.
(viii) RNB is not under the jurisdiction of a court in a Title 11 or
similar case within the meaning of Section 368(a)(3)(A) of the Code.
(ix) The fair market value of the assets of RNB to be transferred to CNB
in the Merger will equal or exceed the sum of the liabilities assumed by
CNB, plus the amount of liabilities, if any, to which the transferred assets
are subject.
(x) RNB operates at least one significant historic line of business, or
owns at least a significant portion of its historic business assets, in each
case within the meaning of Treasury Regulation Section 1.368-1(d).
SECTION 5.2 REPRESENTATIONS AND WARRANTIES OF CNC AND CNB. CNC and, as
applicable, CNB, represent and warrant to RNB that:
(a) CNC CAPITAL STOCK. CNC is authorized to issue 75,000,000 shares of
CNC Common Stock, $1.00 par value, 5,000,000 shares of preferred stock, no
par value, and is not authorized to issue any
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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 CNC
can vote. As of August 31, 1996, 46,088,181 shares of CNC Common Stock were
issued and outstanding, 2,211,200 shares of CNC Common Stock were held as
treasury stock, and no shares of preferred stock were outstanding. 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
preemptive rights. CNC has provided RNB with true and correct copies of its
Certificate of Incorporation and Bylaws, including any amendments thereto or
restatements thereof.
(b) CNB CAPITAL STOCK. CNB is authorized to issue 900,000 shares of
common stock, $100 par value per share, and is not authorized to issue any
other class or series of capital stock or any other securities or options
convertible into or exercisable or exchangeable for common stock of CNB. As
of October 11, 1996, CNB has outstanding 900,000 shares of common stock, all
of which are owned by CNC. Immediately prior to the Effective Time, CNC will
be in "control" of CNB within the meaning of section 368(c)(1) of the Code.
CNB has no present plan or intent to issue additional shares of its stock in
a manner that would result in CNC's losing "control" of CNB within the
meaning of Section 368(c)(1) of the Code.
(c) AUTHORITY. CNC and CNB have the power and authority, and each 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 or CNB,
respectively), to carry on their businesses as they are now being conducted
and to own all of their material properties and assets. Each of CNC and CNB
has all federal, state, local and foreign governmental authorizations
necessary for it to own or lease its respective properties and assets and to
carry on its respective businesses as these are 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 or CNB,
respectively.
(d) APPROVALS. The execution by CNC and CNB of this Agreement have
been authorized by all necessary corporate actions of CNC and CNB,
including, but not limited to, a vote by their boards of directors. No vote,
consent or approval of the shareholder of CNB 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 and CNB enforceable against CNC and CNB
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, and general equity
principles.
(e) NO VIOLATIONS. The execution, delivery and performance of this
Agreement by CNC and CNB 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 CNB, or to which CNC or CNB (or their properties) 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 or the Articles of Association or Bylaws of CNB; 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 (A) the required
approvals, consents and waivers of Governmental Authorities referred to in
Section 7.1(b); and (B) 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 CNB or would not materially hinder or
delay the Merger.
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(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 or to be filed prior to the Effective
Time 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 or will omit 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 presents 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 presents 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 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; LITIGATION. No legal, administrative,
arbitration or other proceedings, claims, actions or governmental or
regulatory investigations of any nature are pending or to CNC's knowledge,
threatened against CNC or its Subsidiaries which are reasonably likely,
individually or in the aggregate, to have a Material Adverse Effect on CNC
or materially to hinder or delay consummation of the Merger.
(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 knowledge, neither CNC nor
CNB 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. Each material violation, criticism, or
exception by any Governmental Authority with respect to any examinations of
CNC or CNB has been resolved or is in the process of resolution.
(j) KNOWLEDGE AS TO CONDITIONS. Neither CNC nor CNB knows of any
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 or CNB. 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 Board of Governors of the Federal Reserve System, the Fair
Lending Acts, or those provisions of the United States Code
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providing penalties for the laundering of monetary instruments (18 U.S.C.
1956) or engaging in monetary transactions in property derived from
specified unlawful activity (18 U.S.C. Section 1957).
(l) FEES. Neither CNC, nor any of its Subsidiaries, officers,
directors, employees or agents, has employed any broker or finder or
incurred any liability for any 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 its 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 or the Proxy
Statement/Prospectus (each 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 RNB, 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 RNB, 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 for the RNB shareholders'
meeting.
(o) TAX REPRESENTATION. Neither CNC nor any subsidiary or affiliate
thereof has any present plan or intention to reacquire any of the shares of
CNC Common Stock to be issued pursuant to the Merger, whether in a private
transaction or otherwise; provided, however, that CNC does intend to
repurchase shares of CNC Common Stock in the open market from time to time.
CNC has no plan or intention to liquidate CNB, to merge CNB with and into
any other corporation in a transaction that would have the effect of
disqualifying the Merger as a "reorganization" within the meaning of Section
368(a) of the Code, to sell or otherwise dispose of the stock of CNB, or to
cause CNB to sell or otherwise dispose of any of the assets of RNB acquired
in the Merger, except for dispositions made in the ordinary course of
business or transfers described in Section 368(a)(2)(C) of the Code.
Following the Merger, CNB will continue the historic business of RNB or use
a significant portion of RNB's business assets in a business, in each case
within the meaning of Treasury Regulation Section 1.368-1(d). CNC and CNB
will pay their respective expenses incurred in connection with the Merger.
There is no intercorporate indebtedness existing between CNC and RNB or
between CNB and RNB. Neither CNC nor CNB is an investment company as defined
in Section 368(a)(2)(F)(iii) and (iv) of the Code. No stock of CNB will be
issued in the Merger. The CNC Common Stock and other consideration to be
issued to RNB shareholders pursuant to the Merger will be issued solely on
account of each RNB shareholder's interest in his, her or its RNB stock, and
no part of such consideration will represent payment in respect of
indebtedness, compensation, or any purpose other than payments for RNB
Common Stock. None of the compensation paid or to be paid by CNB or CNC to
any employee will be separate consideration for, or allocable to, any such
employee's shares of RNB stock exchanged in the Merger; rather, the
compensation paid to any shareholder-employee will be for services actually
rendered and will be commensurate with amounts paid to third parties
bargaining at arm's length for similar services. None of the shares of CNC
Common Stock to be issued to any shareholder-employee in the Merger will be
separate consideration for, or allocable to, any employment agreement.
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(p) CNC COMMON STOCK. The outstanding shares of CNC Common Stock are
registered with the SEC pursuant to the Securities Exchange Act of 1934, and
are listed for trading on the New York Stock Exchange (the "NYSE") pursuant
to the listing rules of the NYSE. CNC has filed with the NYSE all material
forms and reports required to be filed by CNC with the NYSE, which forms and
reports, taken as a whole, are true and correct in all material respects,
and do not 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 made therein, in light of the circumstances under which they were
made, not misleading.
ARTICLE VI
COVENANTS
SECTION 6.1 REGULATORY MATTERS.
(a) CNC and RNB 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 RNB 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 RNB 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. RNB shall furnish all
information concerning RNB and the holders of RNB 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 promptly to 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 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 RNB 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.
(c) CNC and RNB 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, RNB or any of their
respective Subsidiaries to any Governmental Authority in connection with the
transactions contemplated by this Agreement.
(d) CNC and RNB 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 June 30, 1997.
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SECTION 6.2 STOCKHOLDERS' APPROVALS. RNB 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, RNB shall, through its Board of Directors,
unanimously recommend to its stockholders approval of such matters. RNB'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 written 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 RNB 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 RNB 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 RNB 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, RNB
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 copies of such documents or such information with respect to
its businesses and affairs as CNC may reasonably request and that RNB and its
Subsidiaries may provide without violation of applicable law or regulation or
jeopardy to any attorney-client or similar privilege to which RNB may be
entitled as against third parties other than CNC. Without limiting the
foregoing, RNB 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 RNB 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. RNB shall provide CNC with as much information concerning
any exit interview or similar meetings held in connection with any regulatory
examinations of RNB and its Subsidiaries and, with respect to the examination
findings and results, as RNB can provide without violation of law. Without
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limiting the generality of the foregoing, CNC shall have the right to (x)
conduct a full due diligence review of the operations and assets of RNB and its
Subsidiaries, (y) conduct a full credit review of RNB and its Subsidiaries and
(z) conduct a specific credit review of RNB and its Subsidiaries during the
thirty days prior to the Effective Time.
(b) RNB'S RIGHT TO ACCESS AND INFORMATION. Upon reasonable request by RNB,
each of CNC and CNB shall (i) make its Chief Financial Officer and Controller
available to discuss with RNB and its representatives CNC's ongoing diligence
and review of RNB's operations and (ii) shall provide RNB with written
information which is (A) similar to the written information that RNB reviewed in
connection with this Agreement, and (B) related to CNC's and CNB'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 RNB, if accompanied
by representatives of RNB, 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 RNB
not otherwise a customer of CNC or CNB 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 RNB continuing in the employ of CNC or CNB shall be
entitled to participate in stock plans, bonus plans and all other benefit plans
of CNC or CNB on the same basis as other similarly situated employees of CNC or
CNB. 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 or CNB's sick leave program), with such
employee's respective years of past service with RNB (or other prior service so
credited by RNB) as though they had been employees of CNC.
(b) RNB 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 employment in an equivalent or
substantially similar position by CNC or CNB following the Effective Time. CNC
consents to RNB amending these policies to provide enhanced severance payments
consistent with policies previously provided by CNC to RNB. To the extent CNC or
CNB fails to offer an employee identified on such schedule continued employment
in an equivalent or substantially similar position following the Effective Time,
RNB shall be responsible for paying the severance payments due such employee as
set forth in its amended severance policies.
(c) Current RNB employees who are hired by CNC following the Effective Time
and who are subsequently terminated shall be entitled to severance benefits in
accordance with CNC's normal severance policy for its employees.
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SECTION 6.6 CERTAIN FILINGS, CONSENTS AND ARRANGEMENTS. CNC, RNB 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, the SEC, the NYSE 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 TIMELINESS AND COMPLIANCE OF RNB REPORTS AND FILINGS. RNB
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 RNB and/or any of its Subsidiaries will fairly
present the financial position of such entities or entity and will be prepared
in accordance with GAAP or RAP consistently applied during the periods involved.
Notwithstanding anything to the contrary set forth in this Section 6.7, RNB
makes no representation or warranty with respect to any information supplied by
CNC or CNB or any of the CNC Reports.
SECTION 6.8 TIMELINESS AND COMPLIANCE OF CNC AND CNB REPORTS AND
FILINGS. CNC and CNB agree that through the Effective Time of the Merger, each
of their 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 CNB will fairly present the financial
position of CNC and CNB, will be prepared in accordance with GAAP or RAP
consistently applied during the periods involved. Notwithstanding anything to
the contrary set forth in this Section 6.8, CNC makes no representation or
warranty with respect to any information supplied by RNB or RNB's Subsidiaries
or any of the RNB Reports.
SECTION 6.9 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 6.10 PUBLICITY. The initial press release announcing this
Agreement shall be a joint press release and thereafter CNC and RNB 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 or by any
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applicable self-regulatory organization, 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.
SECTION 6.11 NOTIFICATION OF CERTAIN MATTERS. RNB shall give CNC, and CNC
shall give RNB, 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 6.12 PRE-CLOSING ADJUSTMENTS. At or before the Effective Time, RNB
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 following the Effective Time or
to reflect expenses and costs related to the Merger; provided, however, that (a)
RNB 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 RNB 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 RNB or its Subsidiaries, or (iii)
otherwise materially disadvantage RNB or its Subsidiaries if the Merger were not
consummated; provided that in any event, no accrual or reserve made by RNB or
its Subsidiaries pursuant to this Section 6.12, 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 RNB's or its Subsidiaries'
management with any such adjustments, and shall not affect the Exchange Ratio or
the Per Share Cash Consideration.
SECTION 6.13 DIRECTOR RESIGNATIONS. RNB shall use reasonable efforts to
cause to be delivered to CNC at the Effective Time, the resignations of the
members of the Boards of Directors of RNB and its Subsidiaries.
SECTION 6.14 HUMAN RESOURCES ISSUES. RNB 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 6.15 ASSISTANCE WITH THIRD-PARTY AGREEMENTS.
(a) RNB and its Subsidiaries shall cooperate with and use all reasonable
efforts to assist CNC in (i) 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, and (ii) obtaining the
cooperation of such third parties in a smooth transition in accordance with
CNC's timetable at or after the Effective Time.
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(b) Without limiting Section 6.15(a), RNB and its Subsidiaries shall use all
commercially 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. All incremental out-of-pocket
costs incurred by RNB in complying with this section shall be reimbursed by CNC.
Among other things, RNB and its Subsidiaries shall:
(i) cooperate with CNC to establish a mutually agreeable project plan to
effectuate the conversion;
(ii) use their commercially reasonable efforts to have RNB'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 reasonably practicable;
(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, RNB shall not be required to give any notice
of termination required by this Section 6.15, (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 RNB 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 RNB for the incremental costs
of obtaining a replacement contract in the event that the Merger is not
consummated other than due solely to breaches of this Agreement by RNB; and (2)
to terminate any of RNB's outside data processing contracts (the "DP CONTRACTS")
if (A) CNC provides an undertaking to RNB in form and substance reasonably
satisfactory to RNB to the effect that CNC shall, in the event that the Merger
is not consummated, indemnify RNB against all losses, claims, damages or
liabilities resulting from such action, and (B) CNC agrees to compensate RNB for
arrangements through a third-party provider reasonably acceptable to RNB
providing service levels reasonably comparable to those provided under the DP
Contracts under terms no more burdensome and at a price no higher to RNB 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 solely to breaches of this
Agreement by RNB 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 RNB 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 6.15 shall be
taken in a manner intended to minimize disruption to the customary business
activities of RNB and its Subsidiaries.
SECTION 6.16 NOTICES AND COMMUNICATIONS. RNB 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 prepared by CNC, and
reasonably acceptable to RNB, 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
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Adjustment and Retraining Notification Act, as amended (12 U.S.C Section2101, et
seq.), with respect to all employees of RNB 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 6.17 INSURANCE POLICIES ASSIGNMENT. RNB and its Subsidiaries agree
to make commercially reasonable efforts to obtain consent to partial or complete
assignments of any of their insurance 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 RNB and its Subsidiaries. RNB 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 6.18 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 CNC with full title to all
properties, assets, rights, approvals, immunities and franchises of RNB, the
proper officers and directors of each party to this Agreement shall take all
necessary or appropriate action.
SECTION 6.19 AFFILIATES AND FIVE PERCENT SHAREHOLDERS.
(a) At least 40 days prior to the Effective Time, RNB shall deliver to CNC a
letter identifying all persons who are, at the time this Agreement is submitted
for approval to the stockholders of RNB, "affiliates" of RNB for purposes of
Rule 145 under the Securities Act. RNB 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, RNB shall use commercially reasonable
efforts to cause each person, or "group" of persons (as described in Section
13(d) of the 1934 Act and the regulations adopted thereunder), who holds more
than five percent (5%) of the outstanding RNB Common Stock (regardless of
whether such person is an "affiliate") to deliver to the law firm of Munger,
Tolles and Olson, 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,
she or they will receive in the Merger.
SECTION 6.20 COOPERATION. RNB shall cooperate with CNC and CNB in all
reasonable respects in accomplishing the Bank Mergers.
SECTION 6.21 INDEMNIFICATION OF DIRECTORS AND OFFICERS. CNC and CNB agree
that all rights to indemnification or exculpation now existing in favor of the
directors, officers, employees and agents of RNB and its Subsidiaries as
provided in their respective articles of association, 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 shall continue in full force and effect for a period of six (6) years
following the Effective Time. CNC and CNB further agree that, during such six
(6) year period, to the greatest extent permitted by applicable law, regulations
and their respective organizational documents or bylaws as in effect of the date
hereof, they shall indemnify, defend and hold harmless individuals who were
officers and directors of RNB 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, as and when incurred, 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 each of CNC and CNB to return such advances in the event it has finally
concluded such indemnification is not allowed under applicable law.
SECTION 6.22 SHAREHOLDERS' AGREEMENT. RNB will use all reasonable efforts
to cause the directors of RNB, to execute and deliver to CNC simultaneous with
the execution of this Agreement, one or more shareholders' agreements
substantially in the form of Exhibit C hereto, committing such persons, among
other things, to vote their shares of RNB 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
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representations and covenants concerning the ownership of RNB Common Stock and
the CNC Common Stock to be received in the Merger.
SECTION 6.23 COORDINATION OF DIVIDENDS. RNB shall coordinate with CNC the
declaration of any dividends that may be allowed hereunder in respect of RNB
Common Stock and the record date and payment dates relating thereto, it being
the intention of the parties that holders of RNB Common Stock shall not receive
two dividends, or fail to receive one dividend, for any single calendar quarter
with respect to their shares of RNB Common Stock and any shares of CNC Common
Stock any such holder will receive in exchange therefor in the Merger.
SECTION 6.24 SALE OF CERTAIN SECURITIES. During the period between the
time the conditions required by Sections 7.1(a), (b) and (e) are met, and the
Effective Time, RNB, upon the written request of CNC, shall sell such securities
in its held-for-sale portfolio as CNC shall reasonably request, upon terms and
conditions and for a price, reasonably satisfactory to both parties.
SECTION 6.25 VACATION TIME AND ACCRUAL.
(a) Prior to December 31, 1996, RNB shall use its reasonable best efforts to
cause each of its, and each of its subsidiaries', employees to use all of their
accrued vacation time for all times prior to December 31, 1996.
(b) Commencing January 1, 1997, RNB shall, and shall cause each of its
Subsidiaries to, accrue vacation pay for each of its and their employees in
accordance with GAAP.
ARTICLE VII
CONDITIONS TO CONSUMMATION
SECTION 7.1 CONDITIONS TO EACH PARTY'S OBLIGATIONS. The respective
obligations of CNC and CNB on the one hand, and of RNB 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 RNB and CNC
in accordance with applicable law, including the approval and adoption by
the requisite affirmative votes of the holders of RNB 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
of a court or agency of competent jurisdiction which enjoins or prohibits
the consummation of the Merger 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 or
any other transactions contemplated by this Agreement.
(e) The 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 S-4 shall have been issued
and no proceedings for that purpose shall have been initiated.
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(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 AND CNB. The obligations of
CNC and CNB 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 RNB 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 is 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. RNB
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 RNB, at the Effective Time, to the foregoing effect.
(b) No litigation or proceeding shall be pending against RNB 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 Mayer, Brown & Platt, special
counsel to RNB, in form and substance reasonably satisfactory to CNC, to the
effect that this Agreement has been duly authorized, executed and delivered
by RNB, and constitutes the valid and legally binding obligation of RNB
enforceable in accordance with its terms, subject to customary exceptions.
(d) At least two days prior to the Effective Time, all attorneys,
accountants, investment bankers and other advisors and agents for RNB and
its Subsidiaries shall have submitted to RNB (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, RNB 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 RNB and its Subsidiaries for services
rendered, with a copy to be delivered to CNC, and based on such summary, RNB
shall have prepared and submitted to CNC a final calculation of such fees
and expenses and (ii) RNB 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. CNC shall not be
liable for any such fees and expenses in the event that the Effective Time
does not occur.
(e) At least five Business Days prior to the Effective Time, RNB shall
provide CNC with RNB'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
Adjusted Stockholders' Equity of RNB shall be not less than the sum of (i)
RNB's stockholders' equity as shown on its financial statements at September
30, 1996 PLUS (ii) $223,000 for each calendar month from September 30, 1996
through the last day of the month preceding the Effective Time. "ADJUSTED
STOCKHOLDERS' EQUITY" shall mean the stockholders' equity of RNB as
reflected on the financial statement delivered pursuant to this Section
7.2(e),
(x) PLUS the sum of (1) all severance benefits paid or accrued
pursuant to Section 6.5(b), (2) all amounts paid or accrued in connection
with the cancellation of options granted pursuant
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to the Option Plans as permitted by Section 2.4 and 4.2(b), (3) all
amounts paid or accrued in connection with taking any actions pursuant to
Section 6.15, (4) the amount of dividends paid as permitted by Section
4.2(b), and (5) reasonable expenses of all attorneys, accountants,
investment bankers and other advisors and agents for RNB for services
rendered solely in connection with the transactions contemplated by this
Agreement,
(y) MINUS the exercise price of all options to purchase shares of RNB
Common Stock exercised between September 30, 1996 and the date of the
financial statement delivered pursuant to this Section 7.2(e), and
(z) PLUS the amount of any decreases, and MINUS the amount of any
increases, in the market value in securities held throughout the period
from September 30, 1996 to the date of the financial statement delivered
pursuant to this Section 7.2(e) that are marked to market in accordance
with GAAP or RAP,
in each case, net of applicable taxes.
(f) At the close of business on the last day of the month preceding the
Effective Time, total deposits of RNB, calculated pursuant to RAP and GAAP,
shall be not less than ninety percent (90%) of the average of total deposits
for RNB for the month ended August 31, 1996, excluding deposits relating to
the title insurance and escrow company accounts indicated on the Disclosure
Schedule, and deposits in any similar deposit accounts added between August
31, 1996 and the Effective Time.
(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 RNB and its
Subsidiaries that has had a Material Adverse Effect on RNB.
(h) CNC and its directors and officers who sign the S-4 shall have
received from RNB's independent certified public accountants "cold comfort"
letters, dated (i) the date of the mailing of the Proxy Statement/Prospectus
to RNB's shareholders, and (ii) shortly prior to the Effective Time, with
respect to certain financial information regarding RNB in the form
customarily issued by such accountants at such times in transactions of this
type.
(i) Dissenters' rights shall not have been preserved with respect to
more than 5% of the outstanding shares of RNB Common Stock.
SECTION 7.3 CONDITIONS TO OBLIGATIONS OF RNB. The obligations of RNB
hereunder shall be subject to the satisfaction or waiver prior to the Effective
Time of the following additional conditions:
(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 RNB 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) RNB shall have received the opinion of Richard H. Sheehan, General
Counsel to CNC, in form and substance reasonably satisfactory to RNB, 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, (ii) the shares of CNC Common Stock issued as consideration in
the Merger have been duly authorized, validly issued, fully paid and
non-assessable, and (iii) the S-4 has been declared effective by the SEC.
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(d) RNB shall have received the opinion of Munger, Tolles & Olson,
special counsel to CNC, no later than thirty (30) days from the date hereof,
in form and substance reasonably satisfactory to RNB, and confirmed
immediately prior to the Effective Time by such counsel, 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 and which assumptions may include the fact that the
terms of the Merger, including the Exchange Ratio and the Per Share Cash
Consideration, were negotiated by independent parties dealing at arm's
length, and that the value of the consideration to be received by each RNB
shareholder in the Merger will be approximately equal to the fair market
value of the RNB shares exchanged by such shareholder, that (i) the Merger
will qualify as a reorganization under Section 368 of the Code; (ii) CNC,
CNB and RNB will each be a party to such reorganization within the meaning
of Section 368(b) of the Code; (iii) no gain or loss will be recognized by
holders of RNB Common Stock to the extent that they receive solely shares of
CNC Common Stock solely in exchange for shares of RNB Common Stock; (iv) the
gain, if any, to be realized by holders of RNB Common Stock who exchange
their RNB Common Stock for CNC Common Stock and cash will be the excess of
(A) the amount of cash received plus the fair market value at the Effective
Time of the CNC Common Stock received over (B) the basis of the RNB Common
Stock surrendered in the exchange, and such gain will be recognized on the
exchange to the extent of the cash received; (v) the basis of the shares of
CNC Common Stock to be received by holders of RNB Common Stock will be the
same as the basis of the RNB Common Stock surrendered in exchange therefor,
adjusted as provided in Section 358(a) of the Code in the event any cash is
received; and (vi) the holding period of CNC Common Stock to be received by
holders of RNB Common Stock will include the holding period of the RNB
Common Stock surrendered in exchange therefor, provided that the holders of
RNB Common Stock held such stock as a capital asset.
(e) RNB shall have received an updated fairness opinion of Alex. Brown &
Sons Incorporated within five (5) days prior to the mailing of the Proxy
Statement/Prospectus to the shareholders of RNB confirming that the
consideration to be paid to the RNB 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 RNB and CNC, if the board of directors,
or duly authorized committee thereof, or duly authorized officers, of each
so determines;
(b) by CNC or RNB 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 RNB 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 RNB in the event that the Merger is not consummated by
June 30, 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 RNB if any approval of the stockholders of RNB
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 RNB shall have withdrawn,
modified or changed in a manner adverse to CNC its approval or
recommendation of this Agreement and the Merger;
(g) by RNB, if both (a) the Final CNC Stock Price is less than $13.50;
and (b) the number obtained by dividing the Final CNC Stock Price by $17.75
is more than 15% less than the number obtained by dividing the average Index
Price for the Determination Period by the Index Price on October 10, 1996.
The "Index Price" shall be the average closing price of the banks and bank
holding companies included in the Standard & Poor's Bank Index.
(h) by CNC, if (i) RNB 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 RNB which contains a
proposal as to price (without regard to the specificity of such price
proposal) and RNB shall not have rejected such proposal within 10 Business
Days of its receipt or the date its existence first becomes publicly
disclosed, if earlier.
SECTION 8.2 EFFECT OF TERMINATION. In the event of the termination of this
Agreement by either CNC or RNB, 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 senior vice president, chief financial officer,
controller (and, after the date of this Agreement, shall also include any 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.
"BENEFICIAL OWNER" shall have the meaning ascribed thereto in Section 13d-e
of the 1934 Act.
"BURDENSOME CONDITION" shall mean any condition or requirement included in
any required regulatory approval, consent or waivers of Government Authorities
which imposes 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.
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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, except as otherwise provided herein, have the meaning
ascribed thereto in Section 2(a) of the BHCA.
"KNOWLEDGE" or "BEST KNOWLEDGE" shall mean facts and other information which
as of the date of this Agreement any senior vice president, chief financial
officer, superior officer, controller (and, after the date of this Agreement,
shall also include any 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 such an 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 RNB (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 transactions contemplated by this Agreement.
"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 2.4, 4.2(h), 5.2(b),
5.2(o), 5.2(p), 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.
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 RNB
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Shareholders in the Merger shall not be valid after the Agreement is approved by
the stockholders of RNB without any subsequent approval by the stockholders of
RNB.
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 RNB to:
Riverside National Bank
3484 Central Avenue
Riverside, California 92506
Telecopy: (909) 686-0135
Attention: James A. Robinson
with a copy to:
James R. Walther, Esq.
Mayer Brown & Platt
350 South Grand Avenue, 25th Floor
Los Angeles, California 90071
Telecopy: (213) 625-0248
If to CNC or CNB, to:
City National Corporation
400 North Roxbury Drive
Beverly Hills, California 90210-5021
Telecopy: (310) 888-6704
Attention: Frank P. Pekny
with copies to:
Richard H. Sheehan
General Counsel
City National Corporation
400 North Roxbury Drive
Beverly Hills, California 90210-5021
Telecopy: (310) 888-6232
and
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William L. Cathey, Esq.
Munger, Tolles & Olson
355 South Grand Avenue, 35th Floor
Los Angeles, California 90071
Telecopy: (213) 687-3702
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 Agreement between CNC and RNB
dated August 2, 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, that 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
2.4, 6.5 and 6.19 which are intended to benefit the officers and employees of
RNB 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, and except as
otherwise provided herein, 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.
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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.
RIVERSIDE NATIONAL BANK CITY NATIONAL CORPORATION
By: /s/ JAMES A. ROBINSON By: /s/ RUSSELL GOLDSMITH
------------------------------ ------------------------------------
PRESIDENT AND CHIEF EXECUTIVE VICE CHAIRMAN AND CHIEF EXECUTIVE
OFFICER OFFICER
CITY NATIONAL BANK
By: /s/ RUSSELL GOLDSMITH
------------------------------------
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
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EXHIBIT 2.2
<PAGE>
STOCK OPTION AGREEMENT
THIS STOCK OPTION AGREEMENT, dated as of October 15, 1996 (the "AGREEMENT"),
is made and entered into by and between City National Corporation, a Delaware
corporation ("CNC"), and Riverside National Bank, a California corporation
("RNB").
WHEREAS, CNC, City National Bank ("CNB") and RNB are concurrently herewith
entering into an Agreement and Plan of Merger with respect to a business
combination of CNB and RNB (the "MERGER AGREEMENT"); and
WHEREAS, as a condition to its willingness to enter into the Merger
Agreement, CNC has requested that RNB agree, and in order to induce CNC to enter
into the Merger Agreement, RNB has agreed, to grant an option to CNC to purchase
certain shares of common stock, $1.25 par value, of RNB (the "RNB 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. RNB hereby grants to CNC an irrevocable option (the
"OPTION") to purchase, subject to the terms hereof, up to 421,778 fully paid and
nonassessable shares (the "OPTION SHARES") of RNB Common Stock, exercisable as
set forth herein by payment of the Option Price, as defined in Section 4 hereof.
The number of shares of RNB Common Stock that may be received upon the exercise
of the Option and the Option Price is 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 have a right to purchase under the terms of this Agreement
more than the number of Option Shares that has a Spread Value of $2,000,000. In
the event that the Spread Value exceeds $2,000,000 at the time CNC wishes to
exercise the Option, the number of Option Shares that CNC is entitled to
purchase on the date of the Closing (as defined herein) shall be reduced to the
extent necessary to reduce the Spread Value following such reduction to an
amount 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 herein or 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 (such earliest date, the "EXPIRATION DATE") of (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 RNB
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.
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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 RNB, specifying the number of Option Shares to be
purchased and a place and date not earlier than three 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 RNB for the Option Shares so
purchased at such date by delivery of immediately available funds to RNB of
$14.50 per Option Share (the "OPTION PRICE"). If the Option is exercised in part
only, CNC shall also deliver all originally executed copies of this Agreement to
RNB at the Closing in exchange for a new agreement duly authorized and executed
by RNB identical to this Agreement evidencing the right to purchase the
remaining balance of the Option Shares.
(c) Upon payment of the Option Price, RNB 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 RNB 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 RNB, 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, RNB 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 RNB,
addressed to CNC and which shall be reasonably satisfactory in form and
substance to CNC and its counsel, registration is not required for such
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proposed disposition of the Option Shares. Notwithstanding the foregoing, RNB
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 RNB (i) is involved in a material transaction,
(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 RNB or would require disclosure of
information, the premature disclosure of which could materially adversely affect
RNB or any transaction under active consideration by RNB, or (iii) reasonably
requires such delay in order to prepare audited financial statements required to
be included in such registration statement. For purposes of this Agreement, the
term "material transaction" shall mean a transaction which would require RNB to
file a current report on Form 8-K with the SEC. RNB 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 by RNB in
connection with the registration of the Option Shares pursuant to this Section 5
shall be borne and paid by RNB. RNB 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, other than
any losses, claims, damages, liabilities and expenses arising out of or based
upon an untrue statement or alleged untrue statement or omission or alleged
omission made in such registration statement or prospectus in reliance upon
information furnished to RNB by CNC.
(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. RNB 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 RNB. RNB hereby represents and
warrants to, and agrees with, CNC as follows:
(a) AUTHORITY RELATIVE TO THIS AGREEMENT. RNB 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 RNB and no
other corporate proceedings on the part of RNB are necessary to authorize
this Agreement or to consummate the transactions so contemplated. This
Agreement has been duly and validly executed and delivered by RNB 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 RNB, enforceable against RNB in accordance with its terms.
(b) OPTION SHARES. RNB 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, 421,778 shares of RNB 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. RNB 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. RNB will not take, and will
refrain from taking, any action which could reasonably have the effect of
preventing or disabling RNB from (i) delivery of the Option Shares to CNC
upon exercise of the Option or (ii) from otherwise performing its
obligations under this Agreement.
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(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
Association or Bylaws of RNB, or of any material agreement, instrument,
judgment, decree, order, statute, rule or governmental regulation applicable
to RNB. 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 RNB
in connection with the execution and delivery by RNB of this Agreement or
the consummation by RNB of the transactions contemplated hereby.
(d) NOTICE. RNB shall give notice to CNC promptly, but in any event
within two business days, of RNB's first obtaining knowledge of any Exercise
Event or Repurchase Event.
7. REPRESENTATIONS AND WARRANTIES OF CNC. CNC hereby represents and
warrants to RNB 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 RNB, 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, RNB shall give
CNC thirty business days' (or such shorter time as is possible under the
circumstances) prior written notice of any record date, for determining the
holders of record of RNB 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
RNB 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 RNB for any
shareholders' meeting, then RNB 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 RNB 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 RNB Common Stock if the Option had been
exercised immediately prior to such event, or the record date therefor, as
applicable. If any shares of RNB 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 RNB Common Stock subject to the
Option
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shall be adjusted so that, after such issuance, it, together with any shares of
RNB Common Stock previously issued to CNC pursuant hereto, equals 19.9% of the
number of shares of RNB 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 RNB 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 RNB and RNB shall be the
continuing or surviving corporation, but, in connection with such merger, the
then outstanding shares of RNB Common Stock shall be changed into or exchanged
for stock or other securities of RNB or any other person or cash or any other
property or the outstanding shares of RNB Common Stock immediately prior to such
merger shall after such merger represent less than 50% of the outstanding shares
and share equivalents of the 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), RNB (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 or regulatory
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 RNB
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 RNB 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 RNB (if other than RNB), (y)
RNB in a merger in which RNB is the continuing or surviving person, and (z)
the transferee of all or any substantial part of RNB'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 RNB Common Stock at which a Tender Offer or Exchange Offer therefor
has been made by any person (other than CNC or its Subsidiaries or
affiliates), (y) the price per share of the RNB Common Stock to be paid by
any person (other than CNC or its Subsidiaries or affiliates) pursuant to an
agreement with RNB, and (z) the highest closing sale price per share of RNB
Common Stock quoted on the Nasdaq National Market (or if RNB 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
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period immediately preceding the agreement; provided, that in the event of a
sale of less than all of RNB'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 RNB as determined in good faith by a nationally
recognized investment banking firm selected by CNC and reasonably acceptable
to RNB, divided by the number of shares of the RNB Common Stock outstanding
at the time of such sale. In the event that an Exchange Offer is made for
the RNB 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 RNB
Common Stock shall be determined in good faith by a nationally recognized
investment banking firm mutually selected by CNC and RNB (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.
(iv) "AVERAGE PRICE" shall mean the average closing price of a share of
the Substitute Common Stock for the one-year period 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 RNB is the
issuer of the Substitute Option, the Average Price shall be computed with
respect to a share of common stock issued by RNB, the person merging into
RNB 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) RNB 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 RNB 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)), RNB shall
repurchase from CNC the Option and, to the extent permitted by applicable law,
all shares of RNB 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 RNB 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 RNB Common Stock over (y) the Option Price (subject to
adjustment pursuant to Section 9), multiplied by the number of shares of RNB
Common Stock with respect to which the Option has not been exercised; and
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(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 has not occurred, payable) by CNC for each share of RNB 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, RNB 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 RNB the Option and the certificates evidencing the shares of RNB
Common Stock purchased thereunder with respect to which CNC then has Beneficial
Ownership, and CNC shall represent and warrant that it has sole record and
Beneficial Ownership of such shares, that it has not granted any rights to
purchase or otherwise acquire such shares to any person, 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 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 RNB 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 application and the obtaining of any such approval). If the Federal
Reserve Board, the OCC or any other regulatory authority disapproves of any part
of RNB's proposed repurchase pursuant to this Section 10, RNB 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 RNB 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 RNB Common Stock paid for any such share
by the person or groups described in Section 10(d)(i), (ii) the price per share
of RNB Common Stock received by holders of RNB Common Stock in connection with
any merger or other business combination transaction described in Section
9(b)(i), (ii) or (iii) or (iii) the highest closing sales price per share of RNB
Common Stock quoted on the Nasdaq National Market (or if RNB 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 RNB'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 RNB as determined in good faith by an independent national
recognized investment banking firm selected by CNC and reasonably acceptable to
RNB (which determination shall be conclusive for all purposes of this
Agreement), divided by the number of shares of the RNB 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
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determined in good faith by an independent nationally recognized investment
banking firm selected by CNC and reasonably acceptable to RNB, 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 or affiliate 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 RNB 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.
(b) The following definitions shall have the meanings set forth herein.
"ACQUISITION TRANSACTION" shall mean:
(i) a merger, consolidation or similar transaction involving RNB or any
of its Subsidiaries (other than internal transactions solely involving RNB
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 RNB or any
of its Subsidiaries representing 50% or more of the consolidated assets of
RNB 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 RNB or any of its
Subsidiaries; or
(iv) the acquisition by any person or group of persons (other than by
CNC or any of its Subsidiaries or affiliates) of Beneficial Ownership of, or
the right to acquire beneficial ownership of, 20% or more of the
then-outstanding shares of RNB Common Stock.
"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 or
affiliate of CNC) of, or the filing by any person (other than CNC or any
Subsidiary or affiliate of CNC) of a registration statement under the
Securities Act with respect to, a tender offer or exchange offer to purchase
shares of RNB Common Stock such that, upon consummation of such offer, such
person would own or control 20% or more of the then-outstanding shares of
RNB Common Stock (such an offer being referred to herein as a "TENDER OFFER"
or an "EXCHANGE OFFER," respectively); or
(ii) the shareholders of RNB 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 RNB's Board of Directors of the Merger and/or the Merger
Agreement that the shareholders of RNB 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 or affiliate 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,
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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 RNB of an
Acquisition Transaction; (iii) a public announcement by RNB 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 RNB of any agreement with any person or group of persons to
effect an Acquisition Transaction; or (v) the termination by RNB 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 RNB
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 on the day of the Closing
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. RNB 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
9
<PAGE>
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 90210-5021
Telecopy No. (310) 888-6704
Attention: Frank P. Pekny
with a copy to:
City National Corporation
400 North Roxbury Drive
Beverly Hills, California 90210-5021
Telecopy No. (310) 888-6232
Attention: Richard H. Sheehan, Esq.
If to RNB:
Riverside National Bank
3484 Central Avenue
Riverside, California 92506
Telecopy No. (909) 686-0135
Attention: James A. Robinson
With a copy to:
Mayer Brown & Platt
350 South Grand Avenue, 25th Floor
Los Angeles, California 90071
Telecopy No. (213) 625-0248
Attention: James R. Walther, Esq.
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.
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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
------------------------------------------
RIVERSIDE NATIONAL BANK
a national banking association
By: /s/ JAMES A. ROBINSON
------------------------------------------
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EXHIBIT 99.1
<PAGE>
FOR IMMEDIATE RELEASE:
October 16, 1996
CONTACT: Financial: Media:
Frank Pekny J.A. Dunnigan
City National City National Bank
(310)888-6700 (310)888-6636
James Robinson Melissa Robinson
Riverside National Bank Golin/Harris
(909)276-8921 (213)623-4200
CITY NATIONAL EXPANDS INTO INLAND EMPIRE
----------------------------------------
RIVERSIDE NATIONAL BANK TO MERGE INTO CITY NATIONAL CORPORATION
---------------------------------------------------------------
BEVERLY HILLS, CALIFORNIA -- City National Corporation and Riverside
National Bank today announced that they have signed a definitive agreement in
which Riverside National Bank will be merged into City National Bank in a
transaction totaling $39 million. Riverside National Bank shareholders will
receive, at their election, cash, stock or a combination thereof valued at $18
per share, with a minimum of approximately 48 percent and a maximum of 60
percent stock in the aggregate. City National Corporation will use previously
repurchased shares as well as an additional 400,000 shares authorized by its
board of directors to be repurchased in the near future for the stock portion of
the transaction. The purchase price of $18 represents a multiple of 1.8 times
Riverside National's June 30, 1996 book value. The agreement, which was
unanimously approved by the board of directors of both companies, is subject to
approval by regulatory authorities and the shareholders of Riverside National
Bank.
The merger marks City National's second strategic move this year into a new
market area of Southern California, building upon its leadership role as the
largest independent bank headquartered in Southern California. Riverside
National Bank, the largest commercial bank headquartered in Riverside County,
has four branches with 130 employees and approximately $242 million in assets as
of June 30, 1996. The transaction is expected to be completed during the first
quarter of 1997 and to be accretive to City National's 1997 earnings.
(More)
<PAGE>
City National Bank Merger
2-2-2-2
"We are very pleased that Riverside National Bank, the leading independent
bank in Riverside County, has chosen to become a part of City National Bank."
said Russell Goldsmith, chief executive officer of City National Bank. "This
step by City National fulfills our strategic objective to participate in the
dynamic economic growth of the Inland Empire. It will also facilitate our
ability to provide successful individuals and businesses with premiere banking
throughout Southern California from Ventura to the Mexican border and now east
from Los Angeles and Orange counties into the Inland Empire."
"This transaction is a positive move for Riverside National customers and
shareholders as well as the community in general," said James Robinson,
president and chief executive officer of Riverside National Bank. "City
National and Riverside National make the perfect team as the two banks share a
similar vision, business approach and customer profile. Furthermore, Riverside
National Bank customers will now benefit from City National's significantly
larger lines of credit and a broader array of banking products including
international services, cash management, SBA, and trust and investment
services."
Riverside National Bank is Riverside's oldest locally owned bank. The
company's stock is traded on the NASDAQ system under the symbol RNRC.
City National Corporation's (NYSE:CYN) principal subsidiary is City
National Bank, the largest independent bank headquartered in Southern
California. A federally chartered $3.9 billion commercial bank, City National
has 23 offices throughout Los Angeles, Orange and San Diego counties. Ten new
offices and an expansion into Ventura and Riverside counties will be added with
the pending mergers of Ventura County National Bancorp and Riverside National
Bank into City National Bank. For more information about City National, please
call our Fax-On-Demand Information Service. The 24-hour toll-free number is
1-800-873-5293.
# # #
EDITOR'S NOTE: A MEDIA CONFERENCE CALL REGARDING THIS ANNOUNCEMENT WILL BE HELD
TODAY, OCTOBER 16, AT 11:00 A.M. PACIFIC TIME. TO PARTICIPATE PLEASE CALL
1-800-553-0327.
