Exhibit 10.4

 

PERFORMANCE UNIT AWARD AGREEMENT

ADDENDUM

(PERFORMANCE METRICS BASED)

 

THIS ADDENDUM TO THE PERFORMANCE UNIT AWARD AGREEMENT provides the rules and
procedures relating to the grant of the Performance Unit Award and the operation
of the Performance Unit Account.

 

A.                                    Definitions.  Any capitalized terms used,
but not defined, in this Addendum shall have the meaning set forth in the
Performance Unit Award Agreement (Performance Metrics Based).  Whenever the
following terms are used in the Performance Unit Award Agreement or in this
Addendum, they shall have the meaning specified below, unless the context
clearly indicates to the contrary:

 

1.                                      2008 Agreement means the Employment
Agreement, dated as of December22, 2008, by and between Colleague and City
National Corporation, as amended.

 

2.                                      2010 Agreement means the Amended and
Restated Employment Agreement made as of the 24th day of June, 2010, by and
between Colleague, City National Bank and City National Corporation, as amended
on March 14, 2012 and July 14, 2014.

 

3.                                      Award Metrics means (1) Growth in
Cumulative Actual Diluted Earnings Per Share, (2) Return on Tangible Common
Equity, (3) Net Charge-Offs to Total Loans, and (4) Non-Performing Assets to
Total Loans and Other Real Estate Owned.

 

4.                                      Change in Control Event shall have the
meaning assigned to it in the Plan.

 

5.                                      Disability means Colleague shall become
incapable of fulfilling his obligations because of injury or physical or mental
illness which shall exist or may reasonably be anticipated to exist for a period
of twelve (12) consecutive months or for an aggregate of twelve (12) months
during any twenty-four (24) month period.

 

6.                                      Growth in Cumulative Actual Diluted
Earnings Per Share means the cumulative growth rate for the Company’s actual
diluted earnings per share for each of the calendar years during the Performance
Period. The cumulative growth rate is calculated by summing the earnings per
share achieved in calendar years 2015, 2016, and 2017 and dividing by 3 times
the value of the baseline earnings per share (which is the actual diluted
earnings per share reported for calendar year 2014). For example, if earnings
per share achieved in calendar years 2015, 2016, and 2017 were $5.50, $6.50, and
$7.50, respectively, and the baseline earnings per share value was $4.50
(earnings per share achieved in calendar 2014), then the cumulative growth rate
would equal 44.4%. In the event of a partial Performance Period, Growth in
Cumulative Actual Diluted Earnings Per Share shall be determined using a
weighted average for each calendar quarter included in the applicable
Performance Period as reported by SNL Financial. For example, if earnings per
share achieved in calendar year 2015 was $5.50 and earnings per share achieved
in the first quarter of calendar year 2016 was $1.63, and the baseline earnings
per share value was $4.50, then the cumulative growth rate would equal 26.8%.

 

7.                                      Net Charge-Offs to Total Loans means the
average of the annualized loans and leases charged off, net of recoveries, as a
percent of total loans and leases, excluding covered loans as reported by SNL
Financial, for each of the calendar years during the Performance Period.  In the
event of a partial Performance Period, Net Charge-Offs to Total Loans shall be
determined using a weighted

 

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average for each calendar quarter included in the applicable Performance Period
as reported by SNL Financial.

 

8.                                      Non-Performing Assets to Total Loans and
Other Real Estate Owned means the average of the annual non-performing assets
excluding covered assets as a percent of total loans and other real estate
owned, excluding covered assets, as reported by SNL Financial, for each of the
calendar years during the Performance Period.  In the event of a partial
Performance Period, Non-Performing Assets to Total Loans and Other Real Estate
Owned shall be determined using a weighted average for each calendar quarter
included in the applicable Performance Period as reported by SNL Financial.

 

9.                                      Peer Banks means the component companies
ranked as the 11th through 50th of the largest banks in the SNL Bank Index (but
excluding the Company) as measured by assets based on the most recently
available public data as of the first day of the Performance Period or if the
SNL Bank Index is no longer maintained or is no longer appropriate, in the
reasonable judgment of the Committee, the Peer Banks listed in any other
reasonably comparable index prepared by a third party or the Committee of
publicly-traded financial companies such that the Company falls between the
25th and 75th percentile in terms of size of market capitalization and/or
assets.  If on the last day of the Performance Period, a Peer Bank would not
otherwise qualify as a “Peer Bank” if the component companies were determined on
the last day of the Performance Period, such Peer Bank shall be disregarded and
shall not be replaced.

 

10.                               Performance Unit Account means the memorandum
account maintained by the Company on behalf of Colleague which is credited with
Performance Units.  Each Performance Unit represents the right to receive a
distribution of cash in an amount as provided in the Performance Unit Award
Agreement and this Addendum.

 

11.                               Return on Tangible Common Equity means the
average of the annual return on tangible common equity, which excludes
intangible assets and their related amortization expense, as reported by SNL
Financial, for each of the calendar years during the Performance Period.  In the
event of a partial Performance Period, Return on Tangible Common Equity shall be
determined using a weighted average for each calendar quarter included in the
applicable Performance Period as reported by SNL Financial.

 

B.                                    Performance Unit Account.  As soon as
practicable following the first day of the Performance Period, the Company shall
credit Colleague’s Performance Unit Account with the Performance Units.

 

C.                                    Lapse of Forfeiture Restrictions.  The
Performance Unit Award is subject to forfeiture based on continued service until
the forfeiture restrictions lapse in accordance with Section 2(b) of the
Performance Unit Award Agreement.

 

Notwithstanding the forfeiture provision in Section 2(b) of the Performance Unit
Award Agreement, the service-based forfeiture restrictions on the Performance
Units shall immediately lapse:

 

·                  upon Colleague’s termination of employment by the Company
without good cause or by Colleague for good reason (as those terms are defined
in the 2010 Agreement) prior to a Change in Control Event;

 

·                  upon Colleague’s voluntary termination of employment for any
reason or by the Company without good cause (as such term is defined in the 2010
Agreement) on or after expiration of the 2010 Agreement as provided in
Section 10(f) of the 2010 Agreement prior to a Change in Control Event;

 

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·                  upon Colleague’s termination of employment by the Company
without cause or by Colleague for good reason (as those terms are defined in the
2008 Agreement) following a Change in Control Event; or

 

·                  upon Colleague’s termination of employment due to death or
Disability.

 

D.                                    Payment Date.

 

1.                                      Except as set forth in paragraph 2 of
this Section D, the Earned Payout as determined in Section 1(a)(ii) of the
Performance Unit Award Agreement, if any, shall be distributed to Colleague (or,
in the event of his death, Colleague’s Beneficiary) in cash in a lump sum
payment as soon as reasonably practicable following the end of the Performance
Period, but no later than seventy-five (75) days thereafter.

 

2.                                      Subject to Section E, upon Colleague’s
separation from service (within the meaning of Section 409A of the Code and the
Treasury Regulations thereunder) following a Change in Control Event that
results in the lapse of forfeiture restrictions as set forth in Section C of
this Addendum, the payment shall be paid as soon as reasonably practicable
following the date the lapse of forfeiture restrictions occurs, but in no event
later than thirty (30) days (or such longer period, not to exceed seventy-five
(75) days, as is required in order to determine the Earned Payout pursuant to
Section 1(a)(vi) of the Performance Unit Award Agreement) thereafter; provided
that if the Performance Units constitute nonqualified deferred compensation
within the meaning of Section 409A of the Code, then this sentence shall only
apply to the Performance Units if (a) such separation from service occurs within
twenty four months following a Change in Control Event and (b) such Change in
Control Event constitutes a “change in control event” within the meaning of
Treasury Regulation Section 1.409A-3(i)(5). Except to the extent provided by the
preceding sentence, the Earned Payout shall be paid according to the schedule
set forth in paragraph 1 of this Section D.

 

E.                                     Plan Construction.  It is the intent of
the Company that the Performance Units shall comply with Section 409A of the
Code, and the Performance Unit Award Agreement and this Addendum shall be
interpreted in a manner which is consistent with the foregoing intent.  Any
provisions of the Performance Unit Award Agreement and this Addendum which would
not comply with the requirements of Section 409A of the Code and the Treasury
Regulations adopted thereunder shall be deemed to be modified or eliminated in
order to comply with these requirements.  Sections 10(h) and 24 of the 2010
Employment Agreement addressing the application of Section 409A of the Code are
hereby incorporated by reference.  Notwithstanding anything in the Plan, the
Performance Unit Award Agreement or the Addendum to the contrary, in the event
of a “change in control event” within the meaning of Treasury Regulation
Section 1.409A-3(i)(5), the Company may terminate the Performance Unit Awards
granted hereunder in a manner consistent with Section 1.409A-3(j)(ix)(B) of the
Treasury Regulations under Section 409A of the Code.

 

F.                                      Unfunded Plan.  The liability of the
Company to the Colleague under this Performance Unit Award Agreement shall be
that of a debtor only pursuant to such contractual obligations as are created by
the Plan, the Performance Unit Award Agreement and this Addendum, and no such
obligation of the Company shall be deemed to be secured by any assets, pledges,
or other encumbrances on any property of the Company.  The Company has not
segregated or earmarked any of the Company’s assets for the benefit of Colleague
or his beneficiary or estate, and the Plan does not, and shall not be construed
to,

 

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require the Company to do so.  Colleague and his beneficiary or estate shall
have only an unsecured, contractual right against the Company with respect to
any Performance Unit and such right shall not be deemed superior to the right of
any other creditor.

 

G.                                    Clawback.  Section 7(e) of the 2010
Agreement addressing clawback is hereby incorporated by reference.

 

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