| (4) | The amounts in this column represent the expiration of twenty-four months after the effective timeaggregate dollar value of the merger. Messrs. Knight, Kushner and Laitsch have each entered into a non-competition, non-solicitation and non-disclosure agreement, substantiallyamounts in the form attached as Exhibit B-2 to the merger agreement attached as Annex A to this joint proxy statement/prospectus. Such agreements, among other things, restrict the abilitypreceding three columns. All of the foregoing directors from competing against Citizens following the merger in certain counties in which Community currently conducts its business. The non-competition covenant with respect to two specified competing banks and the non-solicitation covenantthese payments are in effect from the date of the merger agreement to the expiration of twenty-four months after the effective time of the merger. The non-competition covenant with respect to any other businesses engaged in financial services in certain counties in which Community currently conducts its business is in effect from the date of the merger agreement to the expiration of six months after the effective time of the merger.
Misch Non-Competition, Non-Solicitation and Non-Disclosure Agreement and Release. Mr. Misch has entered into a non-competition, non-solicitation and non-disclosure agreement and release, substantially in the form attached as Exhibit B-3 to the merger agreement attached as Annex A to this joint proxy statement/prospectus. Such agreement, among other things, restricts the ability of Mr. Misch from competing against Citizens following the merger in certain counties in which Community currently conducts its business, and covers the period from the date of the merger agreement to the expiration of twenty-four months after the effective time of the merger. Pursuant to such agreement, Mr. Misch has also agreed to release certain claims against Community and Citizens, effective as of the effective time of the merger.
Buckle Non-Competition, Non-Solicitation and Non-Disclosure Agreement and Release. Mr. Buckle has entered into a non-competition, non-solicitation and non-disclosure agreement and release, substantially in the form attached as Exhibit B-4 to the merger agreement attached as Annex A to this joint proxy statement/prospectus. Such agreement, among other things, restricts the ability of Mr. Buckle from competing against Citizens following the merger in certain counties in which Community currently conducts its business, and covers the period from the date of the merger agreement to the expiration of twelve months after the effective time of the
merger. Pursuant to such agreement, Mr. Buckle will be paid $250,000 on or prior to the effective time of the merger. Mr. Buckle has also agreed to release certain claims against Community and Citizens, effective as of the effective time of the merger.
Employee Non-Solicitation and Non-Disclosure Agreement and Release. Messrs. Baker, Rodeno, Smith and certain other key employees have each entered into a non-solicitation and non-disclosure agreement and release, substantially in the form attached as Exhibit B-5 to the merger agreement attached as Annex A to this joint proxy statement/prospectus. Such agreements cover the period from the date of the merger agreement to the expiration of twelve months after the effective time of the merger. Pursuant to such agreements, each respective employee has also agreed to release certain claims against Community and Citizens, effective as of the effective time of the merger.
Employee 401(k) Retirement and Profit Sharing Plan.
The Employee 401(k) Retirement/Savings Plan of Community Bank, originally effective as of December 1, 1986, amended as of January 1, 2018, will be terminated in connection with the merger. Pursuant to such plan, Community makes nondiscretionary matching employer contributions of 50% of employee elective deferral contributions (matching contribution limited to 3% of compensation) on behalf of certain eligible participants and discretionary nonelective employer contributions on behalf of certain eligible participants based on compensation, in each case subject to limits as described in such plan. Such employer contribution accounts are subject to graded 5-year vesting that will accelerate upon termination of the plan. Messrs. Misch, Rodeno and Smith will each receive full accelerated vesting of such accounts.
Executive Deferred Compensation Plan.
Community provides a deferred compensation plan to a select group of management and highly compensated employees and to its directors through an unfunded “top hat” arrangement. All compensation deferred under the plan is deducted from the participants’ salary and bonus compensation or director fees, and all participants are fully vested in their deferred compensation accounts at all times. Messrs. Baker, Cook, and Stewart are participating in such plan. Pursuant to the executive deferred compensation plan, the merger will constitute a “change in control event.” Upon the completion of the merger, all accounts under such plan will become immediately payable in full, rather than continuingconsidered to be deferred and payable at a later date or dates.
Indemnification and Insurance.
As described under “The Merger Agreement—Interests of Community Directors and Executive Officers in the Merger” beginning on page [●], after the effective time of the merger, CVB and Citizens will indemnify and hold harmless each present and former director and officer of Community and its subsidiaries against claims pertaining to matters occurring at or prior to the closing of the merger, including the transactions contemplated by the merger agreement, to the extent such indemnified parties are indemnified as of the date of the merger agreement to the fullest extent permitted under applicable law. Further, Community’s present and former directors and officers will be entitled to the same indemnification afforded under Community’s articles of incorporation and bylaws and Community’s agreements in effect as of the date of the merger agreement to indemnify such directors and officers for their acts and omissions occurring at or prior to the effective time of the merger in their capacity as directors or officers. CVB will also advance expenses as incurred to the fullest extent permitted under applicable law.
CVB has also agreed to maintain, for a period of six years from the effective time of the merger, directors’ and officers’ liability insurance for Community’s directors and officers through a “tail” policy or a substitute policy, which must contain at least the same coverage and amounts as, and with terms no less advantageous than, the coverage provided by Community. However, CVB will not be required to expend more than an aggregate of 300% of the current annual premium paid by Community for its existing directors’ and officers’ liability insurance, which is considered the maximum amount. If the cost of such insurance to CVB exceeds such amount, then CVB will obtain as much comparable insurance as is available for the maximum amount.
Merger-Related Compensation for Community’s Named Executive Officers.
This section sets forth the information required by Item 402(t) of Regulation S-K of the Securities and Exchange Commission rules regarding the compensation for each named executive officer of Community that is based on or otherwise relates to the merger. This compensation is referred to as “golden parachute” compensation by the applicable Securities and Exchange Commission disclosure rules.
The following table quantifies such compensation for each of the named executive officers of Community. Each of Community’s named executive officers is potentially entitled to certain benefits under his existing arrangement with Community and/or CVB if, within twelve months following the merger, he is terminated by Community, CVB or Citizens other than for cause, disability or death, or he resigns for good reason. Payments under the retention bonus plan, the stay bonus pool, and the non-competition, non-solicitation and non-disclosure agreements and releases are also included below. Pursuant to the merger agreement and the Community stock incentive plan, each of Community’s named executive officers will also receive full accelerated vesting of his Community restricted stock units, which accelerated vesting is also reflected below. Certain named executive officers will also benefit from the termination of the Employee 401(k) Retirement/Savings Plan of Community Bank in connection with the merger, which will cause the matching employer contribution and the nonelective employer contribution accounts to vest in full.
The table below quantifies only that merger-related compensation that would be provided under the existing Community arrangements, in each case assuming that the merger occurred on April 9, 2018 (the latest practicable date prior to the filing of this joint proxy statement/prospectus) and that all triggers are satisfied. The amounts indicated below are estimates of amounts that might become payable to the named executive officers. The estimates are based on multiple assumptions that may or may not prove correct, including the assumption that each of the named executive officers will experience a qualifying separation from service on the date of the merger. Some of the assumptions are based on information not currently available and, as a result, any actual amounts received by a named executive officer may differ in material respects from the amounts set forth below. The amounts set forth below have not been reduced to reflect assumptions about the effects of cutbacks due to parachute payment tax limitations because it is not possible to predict the effects of those limitations, if any, with certainty.
| | | | | | | | | | | | | | | | | | | | | | | | | Name | | Cash Severance | | | Cash
Bonus (3) | | | Acceleration of
Community
RSUs (4) | | | 401(k)
Benefits (5) | | | Medical and
Welfare
Benefits (6) | | | Total | | David R. Misch,
Chief Executive Officer | | $ | 2,283,333 | (1) | | | — | | | $ | 1,875,664 | | | $ | 13,145 | | | $ | — | | | $ | 4,172,142 | | J. Duncan Smith,
Chief Financial Officer | | $ | 306,000 | (2) | | $ | 83,333 | | | $ | 554,520 | | | $ | 17,513 | | | $ | 9,900 | | | $ | 971,266 | | Alan P. Buckle,
President and Chief Banking Officer | | $ | 284,707 | (2) | | $ | 333,333 | | | $ | 554,520 | | | $ | — | | | $ | 16,740 | | | $ | 1,189,300 | | Paul F. Rodeno,
Chief Credit and Risk Officer | | $ | 284,708 | (2) | | $ | 83,333 | | | $ | 360,438 | | | $ | 19,069 | | | $ | 11,736 | | | $ | 759,284 | | Thomas C. Baker,
Chief Operating Officer | | $ | 252,023 | (2) | | $ | 83,333 | | | $ | 360,438 | | | $ | — | | | $ | 14,952 | | | $ | 710,746 | |
(1) | Represents a double-trigger payment in the amount of two and one-half times (2.5x) Mr. Misch’s average annual base salary for the calendar years 2015, 2016 and 2017, plus two and one-half times (2.5x) Mr. Misch’s average annual bonus received for the calendar years 2015, 2016 and 2017, as described above in “—Interests of Community Directors and Executive Officers in the Merger— Merger Related Paymentssingle-trigger benefits.
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Material U.S. Federal Income Tax Consequences of the Merger The following is a discussion of the material U.S. federal income tax consequences of the merger to U.S. holders (as defined below) of Suncrest common stock who exchange shares of Suncrest common stock for shares of CVB common stock and cash pursuant to the merger. This discussion does not address the tax consequences of transactions effectuated prior or subsequent to, or concurrently with, the merger (whether or not such transactions are undertaken in connection with the merger). The following discussion is based on the Code, Treasury regulations promulgated thereunder, judicial decisions and published administrative rulings, all as currently in effect as of the date hereof, and all of which are subject to change, possibly with retroactive effect. Any such change could affect the continuing validity of this discussion. For purposes of this discussion, a “U.S. holder” means a holder of Suncrest common stock who is, for U.S. federal income tax purposes: a citizen or resident of the United States; a corporation, or an entity treated as a corporation for U.S. federal income tax purposes, created or organized in or under the laws of the United States or any state or political subdivision thereof (including the District of Columbia); a trust that (1) is subject to (A) the primary supervision of a court within the United States and (B) the authority of one or more “U.S. persons” to control all substantial decisions of the trust or (2) has a valid election in effect under applicable Treasury regulations to be treated as a “U.S. person”; or an estate that is subject to U.S. federal income tax on its income regardless of its source. If a partnership (including for this purpose any entity treated as a partnership for U.S. federal income tax purposes) holds Suncrest common stock, the tax treatment of a partner generally will depend on the status of the partner and the activities of the partnership. If you are a partner of a partnership holding Suncrest common stock, you should consult your tax advisor regarding the tax consequences of the merger. This discussion addresses only those Suncrest shareholders that are U.S. holders and that hold their Suncrest common stock as a capital asset within the meaning of Section 1221 of the Code for U.S. federal income tax purposes, and does not address (i) tax consequences applicable to Suncrest shareholders that are not U.S. holders, (ii) all U.S. federal income tax consequences that may be relevant to particular Suncrest shareholders in light of their individual circumstances, or (iii) Suncrest shareholders that are subject to special rules, such as: pass-through entities or investors in pass-through entities; regulated investment companies; real estate investment trusts; tax-exempt organizations; dealers in securities or currencies; certain expatriates or other persons whose functional currency is not the U.S. dollar; traders in securities that elect to use a mark to market method of accounting; persons who exercise dissenters’ rights; persons that hold Suncrest common stock as part of a straddle, hedge, constructive sale, conversion transaction, or other integrated transaction for U.S. federal income tax purposes; or shareholders who acquired their shares of Suncrest common stock through the exercise of an employee stock option or otherwise as compensation or through a tax-qualified retirement plan. In addition, the discussion does not address those subject to the alternative minimum tax provisions of the Code or any state, local or foreign tax consequences of the merger, nor does it address any federal laws other than those pertaining to income tax. CVB and Suncrest have structured the merger to qualify as a “reorganization” within the meaning of Section 368(a) of the Code for U.S. federal income tax purposes. In connection with the filing of the registration statement of which this proxy statement/prospectus is a part, (i) CVB has received an opinion of Manatt, Phelps & Phillips, LLP that, as of the date of such opinion, if certain factual circumstances exist, the merger will be treated for U.S. federal income tax purposes as a reorganization within the meaning of Section 368(a) of the Code and (ii) Suncrest has received an opinion of Sheppard, Mullin, Richter & Hampton, LLP that, as of the date of such opinion, if certain factual circumstances exist, the merger will be treated for U.S. federal income tax purposes as a reorganization within the meaning of Section 368(a) of the Code. Additionally, CVB will not be required to consummate the merger unless CVB receives an additional opinion of Manatt, Phelps & Phillips, LLP, dated as of the closing date of the merger, confirming that the merger will be treated for U.S. federal income tax purposes as a reorganization within the meaning of Section 368(a) of the Code. Similarly, Suncrest will not be required to consummate the merger unless Suncrest receives an additional opinion of Sheppard, Mullin, Richter & Hampton, LLP, dated as of the closing date of the merger, confirming that the merger will be treated for U.S. federal income tax purposes as a reorganization within the meaning of Section 368(a) of the Code. The opinions of Manatt, Phelps & Phillips, LLP and Sheppard, Mullin, Richter & Hampton, LLP regarding the merger will be based on factual assumptions, representations, warranties and covenants, including those contained in the merger agreement and in tax representation letters provided by CVB, Citizens and Suncrest. The accuracy of such assumptions, representations and warranties, and compliance with such covenants, could affect the conclusions set forth in such opinions. Neither of these opinions will be binding on the Internal Revenue Service (“IRS”) or on any court. CVB and Suncrest have not requested and do not intend to request any ruling from the IRS as to the U.S. federal income tax consequences of the merger. Accordingly, each Suncrest shareholder should consult his, her or its tax advisor with respect to the particular tax consequences of the merger to such holder. The remainder of this discussion assumes that the merger will qualify as a “reorganization” within the meaning of Section 368(a) of the Code. Tax Consequences of the Merger Generally. On the basis of the opinions delivered in connection herewith: no gain or loss will be recognized by CVB or Suncrest as a result of the merger; | • | | Under Employment and Change in Control Severance Agreements – Change in Control Severance Plan” beginning on page [●] of this joint proxy statement/prospectus. Provided that all other conditions described in Mr. Misch’s employment agreement are satisfied, such amount will be paid in a single lump sum payment within thirty (30) days after the date of termination. The amount indicated is subject to cutback as a result of a provision of Mr. Misch’s employment agreement limiting such payments to the maximum amount permitted under Section 280G of the Internal Revenue Code, as amended, without creating adverse tax consequences. Assuming that the merger occurred on April 9, 2018, the estimated amount of such cutback would be approximately $685,000, resulting in a total of $3,487,142 in compensation based on or otherwise related to the merger. |
(2) | Represents a double-trigger payment equal to one times (1x) such participant’s annual base salary, as described above in “—Interests of Community Directors and Executive Officers in the Merger— Merger Related Payments Under Employment and Change in Control Severance Agreements – Change in Control Severance Plan” beginning on page [●] of this joint proxy statement/prospectus. |
(3) | Represents an assumed allocation of the stay bonus pool in the amount of $83,333 for each named executive officer and certain other key employees and, in the case of Mr. Buckle, an additional $250,000 pursuant to his Non-Competition, Non-Solicitation and Non-Disclosure Agreement and Release. Such stay bonuses may be higher or lower than the amounts shown in the table above as determined by Mr. Misch in his sole discretion. All cash bonuses are single-trigger payments, and are more fully described above in “—Interests of Community Directors and Executive Officers in the Merger— Merger Related Payments Under Bonus and Employee Benefit Plans – Stay Bonuses.” beginning on page [●] of this joint proxy statement/prospectus and in “—Interests of Community Directors and Executive Officers in the Merger— Non-Competition, Non-Solicitation and Non-Disclosure Agreements and Releases—Buckle Non-Competition, Non-Solicitation and Non-Disclosure Agreement and Release” beginning on page [●] of this joint proxy statement/prospectus. |
(4) | Represents a single-trigger payment based upon the accelerated vesting of Community restricted stock units, which will be converted into, and be exchanged for, the merger consideration. For purposes of calculating the value of the Community restricted stock units, we have assumed April 9, 2018 to be the closing date of the merger (the latest practicable date prior to the filing of this joint proxy statement/prospectus), and, assuming no merger consideration adjustments, a merger consideration value of $277.26 per share of Community common stock, calculated by adding (i) the cash consideration of $56.00 per share and (ii) (x) $23.39, the average closing price of CVB common stock over the first five business days following the February 26, 2018 public announcement of the merger multiplied by (y) the exchange ratio of 9.4595. |
The Community restricted stock units are more fully described above in “—Interests of Community Directors and Executive Officers in the Merger— Community Restricted Stock Units” beginning on page [●] of this joint proxy statement/prospectus. Because the Community restricted stock unitsgain (but not loss), if any, will be converted into, and be exchanged for, the merger consideration at the closing of the merger, the exact value of such Community restricted stock units is uncertain and the amount shown is only an approximation.
(5) | Represents the single-trigger accelerated vesting of the otherwise unvested balances in the matching employer contribution accounts and the nonelective employer contribution accounts under the Employee 401(k) Retirement/Savings Plan of Community Bank in connection with the termination of such plan immediately prior to the closing date of the merger, which we have assumed to occur on April 9, 2018 (the latest practicable date prior to the filing of this joint proxy statement/prospectus). |
(6) | Represents a double-trigger payment of the difference between the cost for health care and dental benefits for a period of 12 months as determined for purposes of COBRA and the amount that such participant would be required to pay for such coverage, as described above in “—Interests of Community Directors and Executive Officers in the Merger— Merger Related Payments Under Employment and Change in Control Severance Agreements – Change in Control Severance Plan” beginning on page [●] of this joint proxy statement/prospectus. |
Material U.S. Federal Income Tax Consequences of the Merger
The following is a discussion of the material U.S. federal income tax consequences of the merger torecognized by those U.S. holders (as defined below) of Community common stock who exchange shares of Community common stock forreceive shares of CVB common stock and cash pursuant to the merger. This discussion does not address the tax consequences of transactions effectuated prior or subsequent to, or concurrently with, the merger (whether or not such transactions are undertaken in connection with the merger).
The following discussion is based on the Code, Treasury regulations promulgated thereunder, judicial decisions and published administrative rulings, all as currently in effect as of the date hereof, and all of which are subject to change, possibly with retroactive effect. Any such change could affect the continuing validity of this discussion.
For purposes of this discussion, a “U.S. holder” means a holder of Community common stock who is,exchange for U.S. federal income tax purposes:
a citizen or resident of the United States;
a corporation, or an entity treated as a corporation, created or organized in or under the laws of the United States or any state or political subdivision thereof;
a trust that (1) is subject to (A) the primary supervision of a court within the United States and (B) the authority of one or more “United States persons” to control all substantial decisions of the trust or (2) has a valid election in effect under applicable Treasury regulations to be treated as a “United States person”; or
an estate that is subject to U.S. federal income tax on its income regardless of its source.
If a partnership (including for this purpose any entity treated as a partnership for U.S. federal income tax purposes) holds Community common stock, the tax treatment of a partner generally will depend on the status of the partner and the activities of the partnership. If you are a partner of a partnership holding Community common stock, you should consult your tax advisor regarding the tax consequences of the merger.
This discussion addresses only those Community shareholders that hold their Community common stock as a capital asset within the meaning of Section 1221 of the Code, and does not address all U.S. federal income tax consequences that may be relevant to particular Community shareholders in light of their individual circumstances or to Community shareholders that are subject to special rules, such as:
financial institutions;
pass-through entities or investors in pass-through entities;
insurance companies;
tax-exempt organizations;
dealers in securities;
traders in securities that elect to use a mark to market method of accounting;
persons who exercise dissenters’ rights;
persons that hold Community common stock as part of a straddle, hedge, constructive sale, conversion transaction, or other integrated transaction for U.S. federal income tax purposes;
certain expatriates or persons that have a functional currency other than the U.S. dollar;
persons who are not U.S. holders; and
shareholders who acquired their shares of Community common stock through the exercise of an employee stock option or otherwise as compensation or through a tax-qualified retirement plan.
In addition, the discussion does not address any alternative minimum tax or any state, local or foreign tax consequences of the merger, nor does it address any federal laws other than those pertaining to income tax.
CVB and Community have structured the merger to qualify as a “reorganization” within the meaning of Section 368(a) of the Code. In connection with the filing of the registration statement of which this joint proxy statement/prospectus is a part, (i) CVB has received an opinion of Morrison & Foerster LLP that, as of the date of such opinion, if certain factual circumstances exist, the merger will be treated for U.S. federal income tax purposes as a reorganization within the meaning of Section 368(a) of the Code and (ii) Community has received an opinion of Manatt, Phelps & Phillips, LLP that, as of the date of such opinion, if certain factual circumstances exist, the merger will be treated for U.S. federal income tax purposes as a reorganization within the meaning of Section 368(a) of the Code. Additionally, CVB will not be required to consummate the merger unless CVB receives an additional opinion of Morrison & Foerster LLP, dated as of the closing date of the merger, confirming that the merger will be treated for U.S. federal income tax purposes as a reorganization within the meaning of Section 368(a) of the Code. Similarly, Community will not be required to consummate the merger unless Community receives an additional opinion of Manatt, Phelps & Phillips, LLP, dated as of the closing date of the merger, confirming that the merger will be treated for U.S. federal income tax purposes as a reorganization within the meaning of Section 368(a) of the Code. The opinions of Morrison & Foerster LLP and Manatt, Phelps & Phillips, LLP regarding the merger will be based on factual assumptions, representations, warranties and covenants, including those contained in the merger agreement and in tax representation letters provided by CVB, Citizens and Community. The accuracy of such assumptions, representations and warranties, and compliance with such covenants, could affect the conclusions set forth in such opinions. Neither of these opinions will be binding on the Internal Revenue Service or the courts. CVB and Community have not requested and do not intend to request any ruling from the Internal Revenue Service as to the U.S. federal income tax consequences of the merger. Accordingly, each Community shareholder should consult his, her or its tax advisor with respect to the particular tax consequences of the merger to such holder. The remainder of this discussion assumes that the merger will qualify as a “reorganization” within the meaning of Section 368(a) of the Code.
Tax Consequences of the Merger Generally.On the basis of the opinions delivered in connection herewith:
no gain or loss will be recognized by CVB or Community as a result of the merger;
| • | | gain (but not loss), if any, will be recognized by those U.S. holders who receive shares of CVB common stock and cash in exchange for shares of CommunitySuncrest common stock pursuant to the merger in an amount equal to the lesser of (1) the amount of gain realized (i.e., the excess of the sum of the amount of cash (excluding any cash received in lieu of a fractional share) and the fair market value of the CVB common stock received pursuant to the merger over the adjusted tax basis in the Community common stock surrendered), and (2) the amount of cash received by such holder of Community common stock (excluding any cash received in lieu of a fractional share); |
the aggregate tax basis in the shares of CVB common stock received by a Community shareholder in the merger (including any fractional share interests deemed received and sold as described below) will equal the aggregate tax basis of the Community common stock surrendered, decreased by the amount of cash received in the merger (excluding any cash received in lieu of a fractional share) and the fair market value of the CVB common stock received pursuant to the merger over the adjusted tax basis in the Suncrest common stock surrendered), and increased by(2) the amount of gain, if any, recognizedcash received by such holder of Suncrest common stock (excluding any gain recognized with respect to cash received in lieu of a fractional share) on the exchange (regardless of whether such gain is classified as capital gain, or as ordinary dividend income, as discussed below); and
the holding period of CVB common stock received in exchange for shares of Community common stock (including fractional shares of CVB common stock deemed received and sold as described below) will include the holding period of the Community common stock that is surrendered in the merger.
If a U.S. holder of Community common stock acquired different blocks of Community common stock at different times or at different prices, any gain or loss will be determined separately with respect to each block of
Community common stock and such holder’s basis and holding period in his or her shares of CVB common stock may be determined with reference to each block of Community common stock. Any such holders should consult their tax advisors regarding the manner in which cash and CVB common stock received in the exchange should be allocated among different blocks of Community
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