<PAGE> 1
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a)
OF THE SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement [ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to
Rule 14a-11(c) or Rule 14a-12
</TABLE>
ORANGE NATIONAL BANCORP
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] Fee not required.
<PAGE> 2
ORANGE NATIONAL BANCORP LOGO
1201 EAST KATELLA AVENUE
ORANGE, CALIFORNIA 92667
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
MAY 17, 1999
TO THE SHAREHOLDERS OF
ORANGE NATIONAL BANCORP:
NOTICE IS HEREBY GIVEN that, pursuant to the call of its board of
directors, the Annual Meeting of Shareholders (the "Meeting") of Orange National
Bancorp (the "Bancorp") will be held at the Bancorp's main office located at
1201 East Katella Avenue, Orange, California, on Monday, May 17, 1999 at 7:30
a.m. for the purpose of considering and voting upon the following matters:
1. ELECTION OF DIRECTORS. To elect nine (9) persons to the board of directors to
serve until the 2000 Annual Meeting of Shareholders and until their successors
are elected and have been qualified. The persons nominated by management to
serve as directors are:
<TABLE>
<S> <C>
Michael W. Abdalla, M.D. Gerald R. Holte
Michael J. Christianson James E. Mahoney
Kenneth J. Cosgrove Wayne F. Miller
Robert W. Creighton San E. Vaccaro
Charles R. Foulger
</TABLE>
2. APPROVAL OF THE AMENDMENT OF THE 1997 STOCK OPTION PLAN. To approve the
amendment of the Orange National Bancorp 1997 Stock Option Plan to allow for the
limited transferability of nonqualified options to trusts, charities and family
members.
3. RATIFICATION OF APPOINTMENT OF ACCOUNTANTS. To ratify the appointment of
McGladrey & Pullen, LLP as the Bancorp's independent certified public
accountants for the year 1999.
4. TRANSACTION OF OTHER BUSINESS. To transact such other business as may
properly come before the Meeting or any adjournment thereof.
The board of directors has fixed the close of business on April 2, 1999 as
the record date for determination of shareholders entitled to notice of, and to
vote at, the Meeting or any adjournment thereof.
The Bylaws of the Bancorp set forth the following procedures for
nominations to the board of directors:
Nominations for election of members of the Board of Directors may be
made by the Board of Directors or by any holder of any outstanding class of
capital stock of the Company entitled to vote for the election of Directors.
Notice of Intention to make any nominations (other than for persons named in the
Notice of any meeting called for the election of Directors) are required to be
made in writing and to be delivered or mailed to the President of the Company by
the later of: (i) the close of business 21 days prior to any meeting of
stockholders called for the election of Directors or (ii) 10 days after the date
of mailing of notice of the meeting to stockholders. Such notification must
contain the following information to the extent known to the notifying
stockholder: (a) the name and address of each proposed nominee; (b) the
principal occupation of each proposed nominee; (c) the number of shares of
capital stock of the Company owned by each proposed nominee; (d) the name and
residence address of the notifying stockholder; (e) the number of
<PAGE> 3
shares of capital stock of the Company owned by the notifying stockholder; (f)
the number of shares of capital stock of any bank, bank holding company, savings
and loan association or other depository institution owned beneficially by the
nominee or by the notifying stockholder and the identities and locations of any
such institutions; and, (g) whether the proposed nominee has ever been convicted
of or pleaded nolo contendere to any criminal offense involving dishonesty or
breach of trust, filed a petition in bankruptcy or been adjudged bankrupt. The
notification shall be signed by the nominating stockholder and by each nominee,
and shall be accompanied by a written consent to be named as a nominee for
election as a Director from each proposed nominee. Nominations not made in
accordance with these procedures shall be disregarded by the chairman of the
meeting, and upon his instructions, the inspectors of election shall disregard
all votes cast for each such nominee. The foregoing requirements do not apply to
the nomination of a person to replace a proposed nominee who has become unable
to serve as a Director between the last day for giving notice in accordance with
this paragraph and the date of election of Directors if the procedure called for
in this paragraph was followed with respect to the nomination of the proposed
nominee.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ ROBERT W. CREIGHTON
Robert W. Creighton, Secretary
April 19, 1999
YOU ARE URGED TO VOTE IN FAVOR OF MANAGEMENT'S PROPOSALS BY SIGNING AND
RETURNING THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE, WHETHER OR NOT YOU PLAN TO
ATTEND THE MEETING IN PERSON. THE ENCLOSED PROXY IS SOLICITED BY THE BANCORP'S
BOARD OF DIRECTORS. ANY SHAREHOLDER GIVING A PROXY MAY REVOKE IT PRIOR TO THE
TIME IT IS VOTED BY NOTIFYING THE SECRETARY OF THE BANCORP IN WRITING OF
REVOCATION OF THE PROXY, BY FILING A DULY EXECUTED PROXY BEARING A LATER DATE,
OR BY ATTENDING THE MEETING AND VOTING IN PERSON. PLEASE INDICATE ON THE PROXY
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING SO THAT WE CAN ARRANGE FOR
ADEQUATE ACCOMMODATIONS.
<PAGE> 4
ORANGE NATIONAL BANCORP LOGO
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
MAY 17, 1999
INTRODUCTION
This Proxy Statement is furnished in connection with the solicitation of
Proxies for use at the 1999 Annual Meeting of Shareholders (the "Meeting") of
Orange National Bancorp (the "Bancorp") to be held at the Bancorp's main office
located at 1201 East Katella Avenue, Orange, California, on Monday, May 17, 1999
at 7:30 a.m., and at any and all adjournments thereof.
It is anticipated that this Proxy Statement and the accompanying Notice and
form of Proxy will be mailed on or about April 19, 1999 to shareholders eligible
to receive notice of, and to vote at, the Meeting.
REVOCABILITY OF PROXIES
A form of Proxy for voting your shares at the Meeting is enclosed. Any
shareholder who executes and delivers such Proxy has the right to and may revoke
it at any time before it is exercised by filing with the Secretary of the
Bancorp an instrument revoking it or a duly executed Proxy bearing a later date.
In addition, the powers of the proxyholders will be suspended if the person
executing the Proxy is present at the Meeting and elects to vote in person by
advising the chairman of the Meeting of his or her election to vote in person,
and votes in person at the Meeting. Subject to such revocation or suspension,
all shares represented by a properly executed Proxy received in time for the
Meeting will be voted by the proxyholders in accordance with the instructions
specified on the Proxy. UNLESS OTHERWISE DIRECTED IN THE ACCOMPANYING PROXY, THE
SHARES REPRESENTED BY YOUR EXECUTED PROXY WILL BE VOTED "FOR" THE NOMINEES FOR
ELECTION OF DIRECTORS NAMED HEREIN, "FOR" APPROVAL OF THE AMENDMENT OF THE 1997
STOCK OPTION PLAN, AND "FOR" RATIFICATION OF THE APPOINTMENT OF MCGLADREY &
PULLEN, LLP AS THE BANCORP'S INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS FOR 1999.
IF ANY OTHER BUSINESS IS PROPERLY PRESENTED AT THE MEETING, THE PROXY WILL BE
VOTED IN ACCORDANCE WITH THE RECOMMENDATIONS OF MANAGEMENT.
PERSONS MAKING THE SOLICITATION
This solicitation of Proxies is being made by the board of directors (the
"Board") of the Bancorp. The expense of preparing, assembling, printing and
mailing this Proxy Statement and the materials used in the solicitation of
Proxies for the Meeting will be borne by the Bancorp. It is contemplated that
Proxies will be solicited principally through the use of the mail, but
directors, officers and employees of the Bancorp and its subsidiary, Orange
National Bank (the "Bank") may solicit Proxies personally or by telephone,
without receiving special compensation therefore. Although there is no formal
agreement to do so, the Bancorp may reimburse banks, brokerage houses and other
custodians, nominees and fiduciaries for their reasonable expenses in forwarding
these Proxy materials to shareholders whose stock in the Bancorp is held of
record by such entities. In addition, the Bancorp may use the services of
individuals or companies it does not regularly employ in connection with this
solicitation of Proxies, if management determines it to be advisable.
<PAGE> 5
VOTING SECURITIES
There were issued and outstanding 2,000,171 shares of Bancorp common stock
("Common Stock") on April 2, 1999, which has been fixed as the record date for
the purpose of determining shareholders entitled to notice of, and to vote at,
the Meeting (the "Record Date"). On any matter submitted to the vote of the
shareholders, each holder of Common Stock will be entitled to one vote, in
person or by Proxy, for each share of Common Stock he or she held of record on
the books of the Bancorp as of the Record Date. In connection with the election
of directors, shares may be voted cumulatively if a shareholder present at the
Meeting gives notice at the Meeting, prior to the voting for election of
directors, of his or her intention to vote cumulatively. If any shareholder of
the Bancorp gives such notice, then all shareholders eligible to vote will be
entitled to cumulate their shares in voting for election of directors.
Cumulative voting allows a shareholder to cast a number of votes equal to the
number of shares held in his or her name as of the Record Date, multiplied by
the number of directors to be elected. These votes may be cast for any one
nominee, or may be distributed among as many nominees as the shareholder sees
fit. If cumulative voting is declared at the Meeting, votes represented by
Proxies delivered pursuant to this Proxy Statement may be cumulated in the
discretion of the proxyholders, in accordance with management's recommendation.
The effect of broker nonvotes is that such votes are not counted as being voted;
however such votes are counted for purposes of determining a quorum. The effect
of a vote of abstention on any matter is that such vote is not counted as a vote
for or against the matter, but is counted as an abstention.
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
Management of the Bancorp knows of no person who owns, beneficially or of
record, either individually or together with associates, 5 percent or more of
the outstanding shares of Common Stock, except as set forth in the table below.
The following table sets forth, as of February 17, 1999, the number and
percentage of outstanding shares of Common Stock beneficially owned, directly or
indirectly, by each of the Bancorp's directors and named executive officers and
by the directors and executive officers of the Bancorp as a group. The shares
"beneficially owned" are determined under Securities and Exchange Commission
rules, and do not necessarily indicate ownership for any other purpose. In
general, beneficial ownership includes shares over which a director or named
executive officer has sole or shared voting or investment power and shares which
such person has the right to acquire within 60 days of February 17, 1999. Unless
otherwise indicated, the persons listed below have sole voting and investment
powers. Management is not aware of any arrangements which may, at a subsequent
date, result in a change of control of the Bancorp.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF PERCENT
BENEFICIAL OWNER BENEFICIAL OWNERSHIP OF CLASS(1)
---------------- -------------------- -----------
<S> <C> <C>
DIRECTORS AND NAMED EXECUTIVE OFFICERS:
Michael W. Abdalla, M.D. ....................... 91,991(2) 4.5%
Michael J. Christianson......................... 72,187(3) 3.6%
Kenneth J. Cosgrove............................. 81,377(4) 4.1%
Robert W. Creighton............................. 37,585(5) 1.9%
Charles R. Foulger.............................. 79,035(6) 3.9%
Gerald R. Holte................................. 47,307(7) 2.3%
James E. Mahoney................................ 97,581(8) 4.8%
Wayne F. Miller................................. 68,609(9) 3.4%
San E. Vaccaro.................................. 65,386(10) 3.2%
Frank A. Del Giorgio............................ 13,640(11) *
Larry A. Sallinger.............................. 2,583(12) *
All Directors and Executive Officers as a Group
(numbering 11)................................ 657,281 30.0%
(Footnotes on following page)
</TABLE>
2
<PAGE> 6
- ---------------
* Less than one percent.
(1) Includes shares subject to options held by the directors and named
executive officers that are exercisable within 60 days of February 17,
1999. These are treated as issued and outstanding for the purpose of
computing the percentages of each director, named executive officer and the
directors and executive officers as a group, but not for the purpose of
computing the percentage of class of any other person.
(2) Dr. Abdalla has 23,200 shares acquirable by exercise of stock options.
(3) Mr. Christianson has shared voting and investment powers as to 34,923 of
these shares and has 23,200 shares acquirable by exercise of stock options.
(4) Mr. Cosgrove has shared voting and investment powers as to 2,017 of these
shares and has 7,299 shares acquirable by exercise of stock options.
(5) Mr. Creighton has 8,166 shares acquirable by exercise of stock options.
(6) Mr. Foulger has shared voting and investment powers as to 55,835 of these
shares and has 23,200 shares acquirable by exercise of stock options.
(7) Mr. Holte has shared voting and investment powers as to 15,253 of these
shares and has 23,200 shares acquirable by exercise of stock options.
(8) Mr. Mahoney has shared voting and investment powers as to 74,381 of these
shares and has 23,200 shares acquirable by exercise of stock options.
(9) Mr. Miller has shared voting and investment powers as to 45,279 of these
shares and has shared voting and no investment powers as to 82 of these
shares. Mr. Miller has 23,200 shares acquirable by exercise of stock
options.
(10) Mr. Vaccaro has shared voting and investment powers as to 393 of these
shares. Mr. Vaccaro has 34,800 shares acquirable by exercise of stock
options.
(11) Mr. Del Giorgio has 1,666 shares acquirable by exercise of stock options.
(12) Mr. Sallinger has 1,333 shares acquirable by exercise of stock options.
SECTION 16(A) BENEFICIAL OWNERSHIP COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Bancorp's
directors and certain executive officers and persons who own more than ten
percent of a registered class of the Bancorp's equity securities (collectively,
the "Reporting Persons"), to file reports of ownership and changes in ownership
with the Securities and Exchange Commission. The Reporting Persons are required
by Securities and Exchange Commission regulation to furnish the Bancorp with
copies of all Section 16(a) forms they file.
Based solely on its review of the copies of such forms received by it, or
written representations from the Reporting Persons that no Forms 5 were required
for those persons, the Bancorp believes that, during 1998 the Reporting Persons
complied with all filing requirements applicable to them.
PROPOSAL 1:
ELECTION OF DIRECTORS
NOMINEES
The Bancorp's Bylaws presently provide that the number of directors of the
Bancorp shall not be less than nine (9) nor more than seventeen (17) until
changed by an amendment to the Bylaws adopted by the Bancorp's shareholders. The
Bylaws further provide that the exact number of directors shall be nine (9)
until changed by a Bylaw amendment duly adopted by the Bancorp's shareholders or
the Board.
The persons named below, all of whom are currently members of the Board,
have been nominated for election as directors to serve until the 2000 Annual
Meeting of Shareholders and until their successors are elected and have
qualified. Unless otherwise instructed, the proxyholders will vote the Proxies
received by
3
<PAGE> 7
them for the election of the nominees named below. Votes of the proxyholders
will be cast in such a manner as to effect, if possible, the election of all
nine (9) nominees, as appropriate, (or as many thereof as possible under the
rules of cumulative voting). The nine nominees for directors receiving the most
votes will be elected directors. In the event that any of the nominees should be
unable to serve as a director, it is intended that the Proxy will be voted for
the election of such substitute nominee, if any, as shall be designated by the
Board. The Board has no reason to believe that any of the nominees named below
will be unable to serve if elected. Additional nominations for directors may
only be made by complying with the nomination procedures which are included in
the Notice of Annual Meeting of Shareholders accompanying this Proxy Statement.
The following table sets forth as of February 17, 1999, the names of, and
certain information concerning, the persons nominated by the Board for election
as directors of the Bancorp.
<TABLE>
<CAPTION>
YEAR FIRST
APPOINTED PRINCIPAL OCCUPATION
NAME AND TITLE OTHER THAN DIRECTOR AGE DIRECTOR DURING THE PAST FIVE YEARS
- ---------------------------------- --- ---------- ---------------------------------------
<S> <C> <C> <C>
Michael W. Abdalla, M.D. 65 1986 Orthopedic Surgeon and Vice President
of Orange Orthopedic Medical Group,
Inc.
Michael J. Christianson 57 1986 Attorney in the law firm of Michael J.
Christianson, Inc.; Consultant with
Christianson International, Inc.; and
associated with Adventure Travel Group
and Adventure Travel and Mountain
Climbing.
Kenneth J. Cosgrove 51 1986 President and Chief Executive Officer
President, of the Bancorp and the Bank.
Chief Executive Officer
Robert W. Creighton 60 1986 Chief Financial Officer of the Bancorp
Secretary, and Executive Vice President and Chief
Chief Financial Officer Financial Officer of the Bank.
Charles R. Foulger 65 1986 President and Owner of Foulger's Villa
Honda, Mazda and Volkswagen.
Gerald R. Holte 61 1986 G.R. Holte Enterprises, floor covering
dealer/contractor.
James E. Mahoney 70 1986 President of Mahoney Enterprises, Inc.,
business development corporation.
Wayne F. Miller 65 1986 Consultant to the Bank. Former
President and Chief Executive Officer
of the Bancorp and the Bank.
San E. Vaccaro 65 1986 Sole proprietor of the Law Offices of
Chairman of the San E. Vaccaro. Former Partner in the
Board of Directors law firm of Curtis & Vaccaro.
</TABLE>
All of the nominees named above have served as members of the Bancorp's
Board since its inception. All nominees will continue to serve if elected at the
Meeting until the 2000 Annual Meeting of Shareholders and until their successors
are elected and have qualified. None of the directors were selected pursuant to
any arrangement or understanding other than with the directors and executive
officers of the Bancorp acting within their capacities as such. There are no
family relationships among any of the directors and executive officers of the
Bancorp. No director or executive officer of the Bancorp serves as a director of
any company which has a class of securities registered under, or which is
subject to the periodic reporting requirements of, the Securities Exchange Act
of 1934, or of any company registered as an investment company under the
Investment Company Act of 1940.
4
<PAGE> 8
THE BOARD OF DIRECTORS AND COMMITTEES
The Bancorp's Board held thirteen (13) meetings during 1998. None of the
directors attended less than 75 percent of all Board meetings and committee
meetings (of which they were a member) that were held in 1998.
There were no standing committees of the Bancorp's Board in 1998. However,
in 1998, the Bank had a standing Audit Committee and a standing Directors Review
Committee.
The Bank's Audit Committee, which consisted of Mr. Christianson and Dr.
Abdalla met four (4) times in 1998. The Audit Committee's functions include
making recommendations to the Board on the selection of the Bancorp's and the
Bank's independent certified public accountants, reviewing the arrangements for
the independent certified public accountants' examination, reviewing the
internal accounting controls and reporting, and any other duties assigned by the
Board.
The Bank's Directors Review Committee, which consisted of Messrs.
Christianson, Holte, Mahoney and Vaccaro met six (6) times in 1998. The
Directors Review Committee's function is to evaluate and recommend to the Board
policies regarding the Bank's officers' compensation, employee benefits,
retirement and other internal administrative matters.
REPORT OF THE BANK'S DIRECTORS REVIEW COMMITTEE ON EXECUTIVE COMPENSATION
Compensation Policies. The Bank's Directors Review Committee establishes
the overall executive compensation guidelines of the Bank and establishes the
compensation plans and specific compensation levels of the Bank's Chief
Executive Officer and other executive officers. The Directors Review Committee
reviews its approach to executive compensation annually.
The Directors Review Committee believes that executive officer compensation
should be closely aligned with the performance of the Bank on a short-term and
long-term basis, and that such compensation should be structured to assist the
Bank in attracting and retaining key executives critical to its long-term
success. To that end, the Directors Review Committee's policy for compensation
packages of executive officers consists of three components: (i) an annual base
salary; (ii) an annual incentive bonus based on the Bank's performance, and, in
certain cases, individual performance as well; and (iii) stock option awards and
salary continuation plans designed to link shareholder interests with those of
executive management by providing long-term incentives to executive officers of
the Bank. The performance based aspects, items (ii) and (iii) above, are
considered major elements of the overall compensation program.
EXECUTIVE OFFICER COMPENSATION
Base Salary: The Directors Review Committee establishes a fixed base salary
program for executive officers which is reviewed annually. In establishing base
salaries, the Directors Review Committee considered salaries of comparably sized
California banks, as well as local area banks. Executive officers may have their
salaries adjusted from time to time as the size, complexity, and earnings of the
Bank change, in order to ensure that total compensation remains competitive.
Annual Incentives: The Directors Review Committee believes that incentives
for officers are a key component for ensuring continued growth in shareholder
value through increased earnings. Accordingly, executive officers earn bonuses
based upon formulas approved by the Bank's board of directors.
All executive officers are entitled to participate in the Bank's 401(k)
program, but are subject to more stringent matching contributions than other
employees of the Bank, as required by regulation.
Long-term Incentives: Long-term incentives are provided through the grant
of stock options to certain employees of the Bank including executive officers.
Stock options are granted at the market value prevailing on the date of grant
and are intended to retain and motivate key management to improve the Bank's
long-term shareholder value, as the options only have value if the market price
of the underlying stock appreciates after the date granted.
5
<PAGE> 9
A component of the Bank's 401(k) recognizes and rewards employees for their
efforts by making contributions to employees at the discretion of the Bank's
board of directors that has been 3% of employee compensation with a maximum of
$1,800 for each of the past three years.
CHIEF EXECUTIVE OFFICER COMPENSATION
Base Salary: Mr. Cosgrove is subject to the same salary program as other
executive officers of the Bank effective July of each year. As such, the
Directors Review Committee targeted Mr. Cosgrove's base salary at the
competitive median for comparable sized California banks demonstrating
comparable net earnings as taken from a variety of reliable sources. Mr.
Cosgrove's current base salary is believed reasonable by the Directors Review
Committee based upon reference to competitive pay practices and the previously
described compensation approach to executive officers. The Directors Review
Committee believes that the performance based compensation program, as it
related to the Chief Executive Officer, offers substantial additional
compensation incentive to reward Mr. Cosgrove for successful results.
Performance Based Compensation: Mr. Cosgrove is eligible to participate in
the same short-term and long-term incentive plans as the other executive
officers of the Bank. In addition, some terms of the bonus plan for the Chief
Executive Officer are different than the other executive officers.
Pursuant to the provisions of the performance based compensation plan for
the Chief Executive Officer, Mr. Cosgrove was awarded a cash bonus resulting
from the Bank's performance during 1998. In addition, Mr. Cosgrove was granted
options to purchase shares of Common Stock at the prevailing market value at the
date of grant.
MEMBERS OF THE DIRECTORS REVIEW COMMITTEE
<TABLE>
<S> <C>
Michael J. Christianson James E. Mahoney
Gerald R. Holte San E. Vaccaro
</TABLE>
THE DIRECTORS REVIEW COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Messrs. Christianson, Holte, Mahoney and Vaccaro served as members of the
Directors Review Committee during 1998. Mr. Vaccaro serves as the Chairman of
the Board of the Bank and the Bancorp. There are no Directors Review Committee
interlocks between the Bank and other entities involving the Bank's executive
officers or board members.
6
<PAGE> 10
<TABLE>
<CAPTION>
SNL $250M-$500M BANK
ORANGE NATIONAL BANKCORP NASDAQ - TOTAL US ASSET-SIZE INDEX
------------------------ ----------------- --------------------
<S> <C> <C> <C>
12/31/93 100.00 100.00 100.00
12/31/94 222.14 97.75 107.90
12/31/95 449.25 138.26 145.61
12/31/96 595.22 170.01 189.07
12/31/97 1081.64 208.58 327.00
12/31/98 1272.03 293.21 292.84
</TABLE>
COMPENSATION OF DIRECTORS
The directors of the Bancorp who are not employees of the Bank received a
fee of $300 per meeting for attendance at the Bancorp's Board meetings and $235
per meeting for up to two meetings if such director did not attend the meeting.
The Chairman of the Bancorp's Board received a fee of $450 per meeting for
attendance at the Bancorp's Board meetings. In addition, the directors of the
Bancorp who are not employees of the Bank received a fee of $900 per meeting for
attendance at the Bank's board of directors meetings and $700 per meeting for up
to two meetings if such director did not attend the meeting. The Chairman of the
Bank's board of directors received a fee of $1,350 per meeting for attendance at
the Bank's board of directors meetings and an automobile allowance of $300 per
month. Directors of the Bancorp who are employees of the Bank received a fee of
$500 per month for attendance at the Bank's board of directors meetings. In
addition, directors who were members of the Bank's Directors Review Committee,
Loan Committee and Audit Committee received a fee of $300 per meeting for each
meeting they attended. The Chairmen of the Bank's Directors Review Committee and
Audit Committee received a fee of $500 per meeting for each meeting they
attended. In 1999, the directors will receive the same compensation as that
received during 1998.
Directors of the Bancorp and the Bank also have the option of participating
in the Bank's Deferred Fee Program. Pursuant to the Deferred Fee Program,
directors make an initial deferral election by filing with the Bank a signed
Election Form which sets forth the amount of the director's fees to be deferred.
The Bank then establishes a Deferral Account on its books for the director and
credits to the Deferral Account the fees deferred by the director and interest
on the account balance at an annual rate determined prospectively by the Bank's
board of directors in December of each year. The Deferral Account is not a trust
fund of any kind and the director is a general unsecured creditor of the Bank
for the payment of the benefits. Benefits under the Deferred Fee Program are
payable upon the director's termination of service. If termination of service
occurs after the director attains the age of 65, the amount of benefit payable
is the Deferral Account balance at the date of termination of service. This
amount may be paid by the Bank in either one lump sum within 60 days of
termination of service or in 120 monthly installments commencing on the first
day of the month following the director's termination of service. If termination
of service occurs before the director attains the age of 65, the amount of
benefit payable is also the Deferral Account balance at the date of termination
of service. This amount may be paid by the Bank in either one lump sum within 60
days of termination of service or in
7
<PAGE> 11
120 monthly installments commencing on the first day of the month following the
director's termination of service. If termination of service occurs due to
disability before the director attains the age of 65 or due to a change in
control of the Bank, the amount of benefit payable is also the Deferral Account
balance at the date of termination of service. This amount shall be paid by the
Bank in one lump sum within 60 days of termination of service. Finally, if
termination of service occurs due to the death of the director, the amount of
benefit payable is the greater of the Deferral Account balance at the date of
termination of service or the amount set forth in the individual Deferral Fee
Agreement. This amount shall also be paid by the Bank in one lump sum within 60
days of termination of service.
Messrs. Cosgrove, Creighton, Foulger, Holte, Mahoney and Vaccaro have all
entered into Deferred Fee Agreements with the Bank. Mr. Cosgrove's agreement
provides for a minimum death benefit of $227,315; Mr. Creighton's agreement
provides for a minimum death benefit of $68,411; Mr. Foulger's agreement
provides for a minimum death benefit of $191,901; Mr. Holte's agreement provides
for a minimum death benefit of $224,035; Mr. Mahoney's agreement provides for a
minimum death benefit of $56,442; and Mr. Vaccaro's agreement provides for a
minimum death benefit of $774,146.
In June, 1997, each outside director of the Bancorp, other than Mr.
Vaccaro, received a stock option under the Bancorp's 1997 Stock Option Plan to
acquire 20,000 shares of Common Stock and Mr. Vaccaro received a stock option to
acquire 30,000 shares of Common Stock. The exercise price for these shares was
$17.72 per share. The options are for a term of five years expiring in June,
2002. The vesting of the director options was 100% of the total option amount
immediately.
In May, 1998, each outside director of the Bancorp, other than Mr. Vaccaro,
received a stock option under the Bancorp's 1997 Stock Option Plan to acquire
3,200 shares of Common Stock and Mr. Vaccaro received a stock option to acquire
4,800 shares of Common Stock. The exercise price for these shares was $29.00 per
share. The options are for a term of five years expiring in May, 2003. The
vesting of the director options was 100% of the total option amount immediately.
DIRECTOR EMERITUS PLAN
During 1995, the Bancorp and the Bank each established a Directors Emeritus
Plan. Those outside directors who have satisfactorily served ten or more
consecutive years as an outside director and any outside directors who have
satisfactorily served five or more consecutive years as an outside director and
immediately prior thereto served five or more consecutive years as an inside
director, qualify and are entitled to participate under the Directors Emeritus
Plans. In 1997, four of the then-outside directors, Messrs. Barrera, Durante and
Frantz and Dr. Smith, elected to participate in the Directors Emeritus Plans.
The Directors Emeritus Plans terminated on January 1, 1998. Director Emeritus
status shall be for a period of five years from the date of retirement as an
outside director of the Bancorp and/or the Bank, subject to reduction for the
period of time a director serves beyond the mandatory retirement age of 72,
provided the director meets all of the requirements under the Directors Emeritus
Plans.
The Directors Emeritus receive a monthly sum equal to a percent of the base
director fee such director was receiving for attending a Board meeting of the
Bancorp and/or a board meeting of the Bank at the time such director became a
Director Emeritus. The percentage received shall be on a sliding scale as
follows: 1st year, 80%; 2nd year, 75%; 3rd year, 70%; 4th year, 65%; and 5th
year, 60%. In addition, the Directors Emeritus can participate in existing
medical plans of the Bank subject to eligibility and each Director Emeritus
paying all of his respective premiums for such coverage. In order to qualify for
remuneration under the Directors Emeritus Plans, a Director Emeritus must comply
with the provisions of the Director Emeritus Plans.
Director Emeritus status can terminate upon any of the following events:
(i) death of the Director Emeritus; (ii) inability of the Director Emeritus to
provide service to the Bancorp or the Bank; (iii) upon the fifth year
anniversary of the date of retirement as an outside director; (iv) resignation
as Director Emeritus; (v) determination by the Bancorp's Board and/or the Bank's
board of directors that the Director Emeritus has not fulfilled his or her
service requirements; (vi) reelection or appointment of the Director Emeritus as
a director of the Bancorp and/or the Bank; or (vii) the failure of the Director
Emeritus to maintain a minimum ownership of 5,000 shares of Common Stock.
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<PAGE> 12
In the event of any Acquisition of the Bank, as defined in the Directors
Emeritus Plans, the terms of the Directors Emeritus Plans shall continue and be
in full force and effect unless the resulting corporation terminates the
Directors Emeritus Plans, in which case the resulting corporation shall pay the
Director Emeritus a lump sum amount in cash equal to 75% of the remaining
benefits due such Director Emeritus under the Directors Emeritus Plans.
EXECUTIVE OFFICERS
The following table sets forth information, as of February 17, 1999,
concerning executive officers of the Bancorp and certain executive officers of
the Bank:
<TABLE>
<CAPTION>
NAME AGE POSITION AND PRINCIPAL OCCUPATION FOR THE PAST FIVE YEARS
- -------------------- --- ---------------------------------------------------------
<S> <C> <C>
Kenneth J. Cosgrove 51 President and Chief Executive Officer of the Bancorp and
the Bank.
Robert W. Creighton 60 Chief Financial Officer of the Bancorp and Executive Vice
President and Chief Financial Officer of the Bank.
Frank A. Del Giorgio 54 Senior Vice President and Loan Administrator of the Bank.
Larry A. Sallinger 56 Senior Vice President and Branch Administrator of the
Bank. Former Executive Vice President -- Interim
President/Chief Executive Officer of Frontier Bank, N.A.
from 1993 through 1994.
</TABLE>
EXECUTIVE COMPENSATION
During 1998, the Bancorp did not pay any cash compensation to its executive
officers and no such cash compensation is expected to be paid during 1999.
However, the persons serving as the executive officers of the Bancorp received
during 1998, and are expected to receive in 1999, cash compensation in their
capacities as executive officers of the Bank.
The following Summary Compensation Table indicates the compensation of the
Bancorp's executive officers, and certain of the Bank's executive officers.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
-------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
- ---------------------------------------------------------------------- --------------------- -------
(A) (B) (C) (D) (E) (F) (G) (H) (I)
--- --- --- --- --- --- --- --- ---
OTHER RESTRICTED
ANNUAL STOCK LTIP ALL OTHER
SALARY BONUS COMPENSATION AWARD(S) OPTIONS/ PAYOUTS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) ($) ($) ($) SARS ($) ($)(1)
--------------------------- ---- ------- ------ ------------ ---------- -------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Kenneth J. Cosgrove 1998 162,000 81,266 3,338 0 6,400 0 1,800
President and Chief Executive 1997 151,500 83,146 1,173 0 10,000 0 1,800
Officer of the Bancorp and 1996 142,834 52,399 1,281 0 0 0 1,800
the Bank
Robert W. Creighton 1998 121,000 45,813 525 0 3,500 0 1,800
Chief Financial Officer 1997 119,500 48,733 123 0 3,000 0 1,800
of the Bancorp; Executive Vice 1996 115,917 31,131 58 0 5,000 0 1,800
President and CFO of the Bank
Frank A. Del Giorgio 1998 99,475 34,530 0 0 2,500 0 1,800
Senior Vice President 1997 95,100 35,721 0 0 2,500 0 1,800
of the Bank 1996 96,300 25,639 0 0 0 0 1,800
Larry A. Sallinger 1998 103,000 17,660 0 0 2,000 0 1,800
Senior Vice President 1997 98,666 15,000 0 0 0 0 1,800
of the Bank 1996 94,583 12,000 0 0 0 0 1,800
</TABLE>
- ---------------
(1) The Bank's contribution to its 401(k) plan for employees of 3% of salary to
a maximum of $1,800.
9
<PAGE> 13
OPTION/SAR GRANTS TABLE
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
- ------------------------------------------------------------------------------------------------------
(A) (B) (C) (D) (E)
--- --- --- --- ---
% OF TOTAL
OPTIONS/SARS
GRANTED TO EXERCISE OR
OPTIONS/SARS EMPLOYEES IN BASE PRICE EXPIRATION
NAME GRANTED (#) FISCAL YEAR ($/SHARE) DATE
---- ------------- ------------ ----------- ----------
<S> <C> <C> <C> <C>
Kenneth J. Cosgrove.......................... 6,400 Options 29% $28.00 June 2003
Robert W. Creighton.......................... 3,500 Options 16% $25.00 March 2003
Frank A. Del Giorgio......................... 2,500 Options 11% $25.00 March 2003
Larry A. Sallinger........................... 2,000 Options 9% $25.00 March 2003
</TABLE>
OPTION/SAR EXERCISES AND YEAR-END VALUE TABLE
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND
YEAR-END OPTION/SAR VALUE
<TABLE>
<CAPTION>
(A) (B) (C) (D) (E)
--- --- --- --- ---
NUMBER OF VALUE OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS/SARS AT OPTIONS/SARS AT
YEAR-END(#) YEAR-END($)
SHARES ACQUIRED ON VALUE REALIZED EXERCISABLE/ EXERCISABLE/
NAME EXERCISE (#) ($) UNEXERCISABLE UNEXERCISABLE
---- ------------------ -------------- --------------- --------------------
<S> <C> <C> <C> <C>
Kenneth J. Cosgrove.............. 7,750 Shares $158,565 Options Only Options Only
8,799/7,601 $54,195/$27,105
Robert W. Creighton.............. 0 0 Options Only Options Only
8,166/3,334 $112,190/$17,085
Frank A. Del Giorgio............. 6,917 Shares $131,711 Options Only Options Only
833/2,500 $1,458/$13,746
Larry A. Sallinger............... 4,200 Shares $ 88,032 Options Only Options Only
1,506/1,544 $18,772/$6,736
</TABLE>
EMPLOYMENT CONTRACTS
The executive officers of the Bank have, or had during 1998, employment
contracts with the Bank as described below.
Kenneth J. Cosgrove has a three year employment contract with the Bank
beginning July 1, 1998 and expiring June 30, 2001. In addition, unless the
employment contract is otherwise terminated, the term of the employment contract
shall automatically extend in annual increments of one year so as to always
remain a three year employment contract. Mr. Cosgrove's annual salary is
currently fixed at $160,000 and shall be renegotiated in each subsequent year.
Mr. Cosgrove also agreed to an $8,000 per year salary deduction for a period of
eight (8) years beginning March 1, 1996, in consideration of Mr. Cosgrove's
salary continuation agreement which is described below. However, in June 1998,
the Bank and Mr. Cosgrove agreed to discontinue the $8,000 per year salary
deduction and Mr. Cosgrove's annual salary is again fixed at $160,000. Under the
terms of the employment contract, Mr. Cosgrove is entitled to a two-part bonus:
Part 1 is 8% to 20% of his annual salary calculated on the Bancorp's Return on
Equity as described below; and Part 2 is 1% of the Bancorp's pre-tax earnings,
subject to a minimum earnings of $500,000. Mr. Cosgrove's employment contract
provides that in the event he becomes disabled, he shall be entitled to 100% of
his salary for ninety days and after such ninety day period, he shall be
entitled to 100% of his salary, less any disability benefits received under any
income continuation/disability plans sponsored by the Bank, for a period not to
exceed 730 days, but in no event beyond the term of the employment contract. In
addition, if the Bank or Bancorp is merged, sold or acquired and the merging,
purchasing or acquiring entity elects not to employ Mr. Cosgrove under the terms
of an agreement acceptable to Mr. Cosgrove, he shall have the right to continue
10
<PAGE> 14
to receive his base salary plus certain other employee benefits for a period of
two years following the merger, sale or acquisition.
In addition Mr. Cosgrove has a salary continuation agreement with the Bank
which provides that the Bank will pay him $154,056 per year for 15 years
following his retirement from the Bank at age 65 or later. In the event of
earlier retirement before age 60, Mr. Cosgrove will receive salary continuation
payments beginning at age 65 with the amount of the salary continuation payment
being based on years of service and up to a maximum of $8,556 per month for 180
months. In the event of earlier retirement after age 60 and before age 65, Mr.
Cosgrove will receive salary continuation payments beginning at the time of such
early retirement with the amount of the salary continuation payment based on
years of service up to a maximum of $12,838 per month for 180 months. In the
event of disability of Mr. Cosgrove prior to February 21, 2001, Mr. Cosgrove
would receive a one time lump sum disability benefit based on years of service
and up to a maximum of $133,125. In the event of disability of Mr. Cosgrove
after February 21, 2001, Mr. Cosgrove would receive salary continuation benefits
based on years of service up to a maximum of $12,838 per month for 180 months or
until the time Mr. Cosgrove recovered and returned to active service. In the
event Mr. Cosgrove dies while in active service of the Bank, his beneficiary
will receive from the Bank a benefit amount of $154,056 per year for 15 years
beginning one month after his death. In the event of termination with cause, Mr.
Cosgrove will forfeit any benefits from the salary continuation agreement. In
the event of a change of control of the Bank whereby Mr. Cosgrove's employment
is terminated or adversely affected, Mr. Cosgrove will receive salary
continuation benefits up to a maximum of $12,838 per month for 180 months
beginning after the change of control. The benefits under the salary
continuation agreement for Mr. Cosgrove will also be reduced in the event such
payments are not deductible under Section 280G of the Internal Revenue Code of
1986, as amended (the "Code").
Robert W. Creighton has an employment contract with the Bank which began
April 1, 1996 and was extended to expire March 31, 2000. Mr. Creighton's annual
salary is currently fixed at $122,000. Mr. Creighton also agreed to an $8,000
per year salary deduction for a period of eight (8) years beginning March 1,
1996, in consideration of Mr. Creighton's salary continuation agreement which is
described below. However, in March 1998, the Bank and Mr. Creighton agreed to
discontinue the $8,000 per year salary deduction and Mr. Creighton's annual
salary was then fixed at $117,000. Under the employment contract, Mr. Creighton
is entitled to a two-part bonus: Part 1 is 8% to 20% of his annual salary
calculated on the Bancorp's Return on Equity as described below; and Part 2 is
one-half of 1% of the Bancorp's pre-tax earnings, subject to a minimum earnings
of $750,000 for the years ended December 31, 1996 and 1997 and $2,000,000 for
the year ended December 31, 1998 and the years thereafter. Mr. Creighton's
employment contract provides that in the event he becomes disabled, he will be
entitled to 100% of his salary for ninety days and after such ninety day period,
he will be entitled to 100% of his salary, less any disability benefits received
under any income continuation/disability plans sponsored by the Bank, for a
period not to exceed 275 days, but in no event beyond the term of the employment
contract. In addition, if the Bancorp is merged, sold or acquired and the
merging, purchasing or acquiring entity elects not to employ Mr. Creighton under
the terms of an agreement acceptable to Mr. Creighton, he will be entitled to
receive his base salary plus certain other employee benefits for the remaining
period of the employment contract, less any payments received from the salary
continuation agreement between Mr. Creighton and the Bank.
In addition Mr. Creighton has a salary continuation agreement with the Bank
which provides that the Bank will pay him $60,000 per year for 15 years
following his retirement from the Bank at age 65 or later. In the event of
earlier retirement before age 60, Mr. Creighton will receive salary continuation
payments beginning at age 65 with the amount of the salary continuation payment
being based on years of service and up to a maximum of $2,304 per month for 180
months. In the event of earlier retirement after age 60 and before age 65, Mr.
Creighton will receive salary continuation payments beginning at the time of
such early retirement with the amount of the salary continuation payment based
on years of service up to a maximum of $5,000 per month for 180 months. In the
event of disability of Mr. Creighton prior to February 21, 2001, Mr. Creighton
would receive a one time lump sum disability benefit based on years of service
and up to a maximum of $492,967. In the event of disability of Mr. Creighton
after February 21, 2001, Mr. Creighton would receive salary continuation
benefits based on years of service up to a maximum of $5,000 per month for 180
months or
11
<PAGE> 15
until the time Mr. Creighton recovered and returned to active service. In the
event Mr. Creighton dies while in active service of the Bank, his beneficiary
will receive from the Bank a benefit amount of $60,000 per year for 15 years
beginning after his death. In the event of termination with cause, Mr. Creighton
will forfeit any benefits from the salary continuation agreement. In the event
of a change of control of the Bank whereby Mr. Creighton's employment is
terminated or adversely affected, Mr. Creighton will receive salary continuation
benefits up to a maximum of $5,000 per month for 180 months beginning after the
change of control. The benefits under the salary continuation agreement for Mr.
Creighton will also be reduced in the event such payments are not deductible
under Section 280G of the Code.
Frank A. Del Giorgio has an employment contract with the Bank which began
April 1, 1996 and was extended to expire March 31, 2000. Mr. Del Giorgio's
annual salary was fixed at $96,100 for the April 1, 1997 through March 31, 1998
period, was increased to $100,600 for the April 1, 1998 through March 31, 1999
period and was increased to $105,600 for the April 1, 1999 through March 31,
2000 period. Under the employment contract, Mr. Del Giorgio is entitled to a
two-part bonus: Part 1 is 8% to 20% of his annual salary calculated on the
Bancorp's Return on Equity as described below; and Part 2 is 0.35% of the
Bancorp's pre-tax earnings, subject to a minimum earnings of $750,000 for the
years ended December 31, 1996 and 1997 and $2,000,000 for the year ended
December 31, 1998 and the years thereafter. Mr. Del Giorgio's contract provides
that in the event he becomes disabled, he will be entitled to 100% of his salary
for ninety days and after such ninety day period, he will be entitled to 100% of
his salary, less any disability benefits received under any income
continuation/disability plans sponsored by the Bank, for a period not to exceed
275 days, but in no event beyond the term of the employment contract. In
addition, if the Bancorp is merged, sold or acquired and the merging, purchasing
or acquiring entity elects not to employ Mr. Del Giorgio under the terms of an
agreement acceptable to Mr. Del Giorgio, he will be entitled to receive his base
salary plus certain other employee benefits for the remaining period of the
employment contract.
The earnings bonus is the officer's specified percentage of the amount of
the Bancorp's pre-tax earnings after allowances for the Bank's loan loss
reserves. No bonus is paid unless the applicable pre-tax earnings amount is more
than $500,000 for Mr. Cosgrove and $2,000,000 for Messrs. Creighton and Del
Giorgio.
The Return on Equity bonus is paid only if the Bancorp realizes at least
10% Return on Equity. Return on Equity is the Bancorp's net income divided by
shareholders' equity at the end of the prior fiscal year. The bonus amount is a
scaled percentage of the officer's salary from 8% to 20%, varying with the
amount of Return on Equity, as follows:
<TABLE>
<CAPTION>
PERCENT BONUS PERCENT BONUS
RETURN PERCENT RETURN PERCENT
ON EQUITY OF SALARY ON EQUITY OF SALARY
- --------- --------- --------- ---------
<S> <C> <C> <C>
10 8 16.1 14
11.1 9 17.1 15
12.1 10 18.1 16
13.1 11 19.1 18
14.1 12 20.1 20
15.1 13
</TABLE>
Each executive officer is entitled to employee benefits made available by
the Bank to all its employees plus, use of an automobile supplied by the Bank,
life, health and disability insurance fully paid by the Bank, and participation
in the Bank's deferred compensation plan. Each executive officer is also
entitled to participate in the Bancorp's 1997 Stock Option Plan and the
Bancorp's 1993 Incentive Stock Option Plan.
PROPOSAL 2:
AMENDMENT OF THE 1997 STOCK OPTION PLAN
Shareholders are being asked to approve an amendment to the Orange National
Bancorp 1997 Stock Option Plan (the "Plan") to allow nonqualified stock options
granted under the Plan to be transferable in certain circumstances. Specifically
the amendment would allow optionees, including directors of the Bancorp
12
<PAGE> 16
with nonqualified stock options, to transfer such stock options to family
members, trusts and charities. The purpose of this amendment is to allow such
optionees to transfer their stock options to family members, trusts and
charities for tax planning purposes. The Board approved the proposed amendment
of the Plan on March 17, 1999 subject to shareholder approval.
Below is a summary of the principal provisions of the Plan assuming
approval of the proposed amendment. The summary is qualified in its entirety by
reference to the full text of the Plan.
The Plan provides for the granting of options to purchase shares of Common
Stock at option prices per share which must not be less than one hundred percent
(100%) of the fair market value per share of Common Stock at the time each
option is granted. It is intended that options granted pursuant to the Plan
qualify for treatment either as "incentive stock options" within the meaning of
Section 422 of the Code, or as "nonqualified stock options," as shall be
determined and designated upon the grant of each option. The Plan provides that
414,250 shares of the Bancorp's authorized but unissued Common Stock will be
available for issuance under the Plan. The purpose of the Plan is to have
options available as an additional means of retaining and attracting competent
directors and personnel for the Bancorp and its subsidiaries, and for inducing
high levels of performance and efforts for the benefit of the Bancorp and its
shareholders.
The Plan is administered by the Board. All options under the Plan are
granted at an exercise price of not less than 100 percent of the fair market
value of the shares of Common Stock on the date of grant, except for an
incentive stock option granted to an optionee who at the time of the grant owns
more than 10% of the total combined voting power of all classes of stock of the
Bancorp or a subsidiary of the Bancorp in which case the option price shall not
be less than 110% of the fair market value of such stock. The purchase price of
any shares purchased upon exercise is payable in full in cash or, subject to
applicable law, with Common Stock previously acquired by the optionee and held
by the optionee for a period of at least six months. The equivalent dollar value
of shares used to effect a purchase shall be the fair market value of the Common
Stock on the date of exercise.
Options granted pursuant to the Plan shall be for a term of up to ten (10)
years, except for certain incentive stock options described below. Each option
shall be exercisable in installments and upon such conditions as the Board shall
determine. Options granted shall vest over a period no greater than five years,
and no less than 20% of such option shall vest annually. Optionees shall have
the right to exercise all or a portion of the option at any time or from time to
time with respect to the vested part of their stock options. If any option shall
expire without being exercised in full, the shares will again become available
for granting of stock options under the Plan. The Plan shall expire on February
19, 2007.
Incentive stock options may be granted to full-time salaried officers and
management level employees of the Bancorp or a subsidiary. No director who is
not also a full-time salaried officer or management level employee may be
granted an incentive stock option pursuant to the Plan. No incentive stock
option with a term of more than five (5) years may be granted to any person who
at the time of grant owns stock possessing more than 10% of the total combined
voting power or value of all classes of stock of the Bancorp or a subsidiary of
the Bancorp. Nonqualified stock options may be granted to directors, full-time
salaried officers and management level employees of the Bancorp or its
subsidiaries.
TAX CONSEQUENCES TO THE OPTIONEE
The following describes, generally, the major federal income tax
consequences relating to stock options issued under the Plan. If all of the
requirements of the Plan are met, generally no taxable income will result to an
optionee upon the grant of an incentive or nonqualified stock option.
Incentive Stock Options. If the optionee is employed by the Bancorp (or a
subsidiary) continuously from the date of grant until at least three months
before the option is exercised and otherwise satisfies the requirements of the
Plan and applicable law, the optionee will not recognize taxable income upon
exercise of the option. If the optionee is not employed by the Bancorp (or a
subsidiary) continuously from the date of grant until at least three months
before the option is exercised for reason other than death or disability, the
optionee will recognize ordinary income at the time the option is exercised. The
Bancorp will be allowed a
13
<PAGE> 17
deduction for federal income tax purposes only if and to the extent that the
optionee recognizes ordinary income. Upon exercise of an incentive stock option,
the excess of the fair market value of the shares received over the option price
at the time of exercise is treated as an item of tax preference which may result
in the imposition of the alternative minimum tax.
On a subsequent sale of shares acquired by the exercise of an incentive
stock option, gain or loss will be recognized in an amount equal to the
difference between the amount realized on the sale and the optionee's tax basis
of the shares sold. If a disposition (generally a sale, exchange, gift or
similar lifetime transfer of legal title) of stock received pursuant to an
incentive stock option does not take place until more than two years after the
grant of such option and more than one year after the exercise of such option,
any gain or loss realized on such disposition will be treated as long-term
capital gain or loss. Under such circumstances, the Bancorp will not be entitled
to a deduction for income tax purposes in connection with the exercise of the
option.
If a disposition of stock received pursuant to an exercise of an incentive
stock option occurs within two years after the grant of such option or one year
after the exercise of such option, the optionee must treat any gain realized as
ordinary income to the extent of the lesser of (i) the fair market value of such
stock as of the date of exercise less the option price, or (ii) the amount
realized on disposition of the stock less the option price. Such ordinary income
realized is deductible by the Bancorp for federal income tax purposes. Any
additional amount realized on the disposition will be taxable as either
long-term or short-term capital gain, depending on the holding period.
Nonqualified Stock Options. In general, when an optionee exercises a
nonqualified stock option, the optionee recognizes ordinary income in the amount
of the excess of the fair market value of the shares received upon exercise over
the aggregate amount paid for those shares, and the Bancorp may deduct as an
expense the amount of income so recognized by the optionee. For capital gains
purposes, the holding period of the shares begins upon the exercise of the
option, and the optionee's basis in the shares is equal to the fair market value
of the shares on the date of exercise.
If, upon exercise of a nonqualified option, the optionee pays all or part
of the purchase price by delivering to the Bancorp shares of already-owned
stock, there are no federal income tax consequences to the optionee or the
Bancorp to the extent of the number of shares so delivered. As to any additional
shares issued, the optionee recognizes ordinary income equal to the aggregate
fair market value of the additional shares received, less any cash paid to the
Bancorp, and the Bancorp is allowed to deduct as an expense the amount of such
income. For purposes of calculating tax upon disposition of the shares acquired,
the holding period and basis of the new shares, to the extent of the number of
old shares delivered, is the same as for those old shares. The holding period
for the additional shares begins on the date the option is exercised, and the
basis in those additional shares is equal to the taxable income recognized by
the optionee, plus the amount of any cash paid to the Bancorp.
Upon a subsequent disposition of the shares received on exercise, the
difference between the amount realized on such disposition and the fair market
value of the shares on the date of exercise generally will be treated as a
separate capital gain or loss.
In April of 1998, the Internal Revenue Service issued Revenue Ruling 98-21
which addresses gifts of stock options and Revenue Procedure 98-34 which
addresses the method for valuing stock options for gift and estate tax purposes.
The issuances provide that the unvested portion of a stock option that has been
transferred by gift is not valued until the time the donee's right to exercise
the option is no longer conditioned on the performance of services by the
optionee. This means that the gift is not valued until the option vests. If the
option vests over a period of time, each vesting would be considered a separate
option and be valued at the time of vesting. Revenue Procedure 98-34 requires
for the valuation of a stock option gift the use of a generally recognized
option pricing model such as the Black-Scholes model using the same assumptions
as presented in the Bancorp's financial statements in the footnote required by
Statement of Financial Accounting Standards No. 123. The IRS also specifically
requires that no discount is allowed in the valuation model for lack of
transferability or termination of the option soon after termination of
employment. The Revenue Procedures
14
<PAGE> 18
are safe harbors, and optionees should consult with tax counsel about the tax
consequences of any proposed permissible transfer of a nonqualified option.
Excise Tax. In addition, the exercise of outstanding options that become
exercisable upon certain major corporate events may result in all or a portion
of the difference between the fair market value of the option shares and the
exercise price of any shares issuable in respect to such options being
characterized "parachute payments." A 20% excise tax is imposed on the optionee
on any amount so characterized and the Bancorp will be denied any tax deduction
for such amount.
Withholding Taxes. The Bancorp is generally required to withhold applicable
payroll taxes with respect to compensation income recognized by optionees. The
Bancorp is also generally required to make certain information reports to the
IRS with respect to any income of an optionee attributable to transactions
involving the grant or exercise of options and/or the disposition of shares
acquired on exercise of options.
OTHER TERMS AND CONDITIONS
Incentive options are nontransferable by the optionee other than by will or
the laws of descent and distribution, and are exercisable during his or her
lifetime only by the optionee. Nonqualified options are also nontransferable by
the optionee, except for transfers by will or the laws of descent and
distribution and transfers to family members, trusts and charities. In the event
of termination of employment or cessation as a director as a result of the
optionee's death or disability, to the extent exercisable on the date employment
or directorship terminates, the option shall remain exercisable for up to one
(1) year (but not beyond the end of the original option term) by the disabled
optionee or his or her permissible transferee or, in the event of death of the
optionee, by his or her permissible transferee or the person or persons to whom
rights under the option shall have passed by will or the laws of descent and
distribution. In addition, if an optionee dies during the three month period
referred to below, the option shall expire one year after the date of such
death.
If an optionee's employment is terminated, unless termination was for cause
or if an optionee's directorship is terminated, the optionee or his or her
permissible transferee shall have the right, for a three-month period after such
termination, to exercise that portion of the option which was exercisable
immediately prior to such termination. If an optionee's employment is terminated
for cause (which shall include malfeasance or gross misfeasance in the
performance of duties or conviction of a crime involving moral turpitude), the
option shall expire within 30 days of the date of termination. However, in no
event may the option be exercised after the end of the original option term.
In the event of certain changes in the outstanding Common Stock, such as
stock dividends, stock splits, recapitalization, reclassification,
reorganization, merger, stock consolidation or otherwise, appropriate and
proportionate adjustments shall be made in the number, kind and exercise price
of shares covered by any unexercised options or portions thereof. In the event
of liquidation of the Bancorp or upon a reorganization, merger or consolidation
of the Bancorp with one or more corporations, the result of which the Bancorp is
not the surviving corporation or the Bancorp becomes a subsidiary of another
corporation, a sale of substantially all of the assets of the Bancorp to another
corporation, or upon a sale representing more than 80% of equity securities
voting power of the Bancorp to any person or entity (any one of which shall be
referred to as a "Terminating Event"), the Plan shall terminate and all options
theretofore granted shall completely vest and become immediately exercisable.
All outstanding options not exercised by the time of the Terminating Event shall
at such time terminate. However, any options not exercised at the time of a
Terminating Event shall not terminate if they have been assumed or substituted
by the successor corporation.
The Board reserves the right to suspend, amend or terminate the Plan, and,
with the consent of the optionee, make such modifications of the terms and
conditions of his/her option as it deems advisable, except that the Board may
not, without further approval of a majority of the shareholders, increase the
maximum number of shares covered by the Plan, change the minimum option price,
increase the maximum term of options under the Plan or permit options to be
granted to anyone other than a director, officer or management
15
<PAGE> 19
level employee. Approval of the amendment of the Plan requires the affirmative
vote of a majority of the outstanding shares of Common Stock represented and
voting at the Meeting.
MANAGEMENT RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR" APPROVAL OF THE
AMENDMENT OF THE ORANGE NATIONAL BANCORP 1997 STOCK OPTION PLAN.
PROPOSAL 3:
RATIFICATION OF APPOINTMENT OF
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The firm of McGladrey & Pullen, LLP, Anaheim, California, served as
independent certified public accountants for the Bancorp and the Bank through
the year 1998. The Bancorp has selected McGladrey & Pullen, LLP to serve as the
Bancorp's independent certified public accountants for the year 1999. All
services rendered by McGladrey & Pullen, LLP were approved by the Board, which
has determined the firm of McGladrey & Pullen, LLP to be independent. It is
expected that one or more representatives of McGladrey & Pullen, LLP will be
present at the Meeting and will be given the opportunity to make a statement, if
desired, and to respond to appropriate questions.
In the event shareholders do not ratify the appointment of McGladrey &
Pullen, LLP as the Bancorp's independent certified public accountants for the
forthcoming fiscal year, such appointment will be reconsidered by the Bank's
Audit Committee and the Board.
Ratification of the appointment of McGladrey & Pullen, LLP as the Bancorp's
independent certified public accountants for fiscal year 1999 requires the
affirmative vote of a majority of the outstanding shares of Common Stock
represented and voting at the meeting.
MANAGEMENT RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR" RATIFICATION OF THE
APPOINTMENT OF MCGLADREY & PULLEN, LLP AS THE BANCORP'S INDEPENDENT CERTIFIED
PUBLIC ACCOUNTANTS FOR 1999.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Some of the Bancorp's directors and executive officers and their immediate
families as well as the companies with which they are associated are customers
of, or have had banking transactions with, the Bank in the ordinary course of
the Bank's business, and the Bank expects to have banking transactions with such
persons in the future. In management's opinion, all loans and commitments to
lend included in such transactions were made in compliance with applicable laws
on substantially the same terms, including interest rates and collateral, as
those prevailing for comparable transactions with other persons of similar
creditworthiness and, in the opinion of management, did not involve more than a
normal risk of collectibility or present other unfavorable features.
SHAREHOLDER PROPOSALS
The deadline for shareholders to submit proposals to be considered for
inclusion in the Proxy Statement for the Bancorp's 2000 Annual Meeting of
Shareholders is December 31, 1999.
16
<PAGE> 20
OTHER MATTERS
Management does not know of any matters to be presented at the Meeting
other than those set forth above. However, if other matters come before the
Meeting, it is the intention of the persons named in the accompanying Proxy as
proxyholders to vote the shares represented by the Proxy in accordance with the
recommendations of management on such matters, and discretionary authority to do
so is included in the Proxy.
ORANGE NATIONAL BANCORP
/s/ ROBERT W. CREIGHTON
Dated: April 19, 1999 Robert W. Creighton
Secretary
The Annual Report to Shareholders for the fiscal year ended December 31,
1998 has been previously mailed to the Bancorp's shareholders.
A COPY OF THE BANCORP'S 1998 ANNUAL REPORT TO THE SECURITIES AND EXCHANGE
COMMISSION ON FORM 10-K WILL BE PROVIDED TO THE BANCORP'S SHAREHOLDERS WITHOUT
CHARGE UPON WRITTEN REQUEST TO THE SECRETARY, ORANGE NATIONAL BANCORP, 1201 EAST
KATELLA AVENUE, ORANGE, CALIFORNIA 92667.
17
<PAGE> 21
PROXY
ORANGE NATIONAL BANCORP
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD
OF DIRECTORS. The undersigned hereby appoints
Messrs. Gerald R. Holte and Wayne F. Miller as
proxyholders, with full power of substitution,
to represent, vote and act with respect to all
shares of common stock of Orange National
Bancorp (the "Bancorp") which the undersigned
would be entitled to vote at the meeting of
shareholders to be held on May 17, 1999 at
7:30 a.m. at the Bancorp's main office located
at 1201 East Katella Avenue, Orange,
California or any adjournments thereof, with
all the powers the undersigned would possess
if personally present as follows:
1. Election of nine (9) persons to be directors.
<TABLE>
<S> <C> <C>
Michael W. Abdalla, M.D. Robert W. Creighton James E. Mahoney
Michael J. Christianson Charles R. Foulger Wayne F. Miller
Kenneth J. Cosgrove Gerald R. Holte San E. Vaccaro
</TABLE>
[ ] FOR ALL NOMINEES LISTED ABOVE [ ] WITHHOLD AUTHORITY
(except as marked to the contrary below)
(INSTRUCTION: To withhold authority to vote for any individual nominee, write
that nominee's name on the space below:)
- --------------------------------------------------------------------------------
2. Approval of the amendment of the Orange National Bancorp 1997 Stock Option
Plan to allow for the limited transferability of nonqualified options.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. Ratification of the appointment of McGladrey & Pullen, LLP as the Bancorp's
independent certified public accountants for 1999.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. Transaction of such other business as may properly come before the meeting
and any adjournment or adjournments thereof.
<PAGE> 22
(Please sign and date below)
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" EACH OF THE MATTERS LISTED
ABOVE. The Proxy confers authority to vote and shall be voted in accordance with
such recommendation unless a contrary instruction is indicated, in which case,
the shares represented by the Proxy will be voted in accordance with such
instruction. IF NO INSTRUCTION IS SPECIFIED WITH RESPECT TO A MATTER TO BE ACTED
UPON, THE SHARES REPRESENTED BY THE PROXY WILL BE VOTED IN ACCORDANCE WITH THE
RECOMMENDATIONS OF MANAGEMENT. IF ANY OTHER BUSINESS IS PRESENTED AT THE
MEETING, THIS PROXY CONFERS AUTHORITY TO AND SHALL BE VOTED IN ACCORDANCE WITH
THE RECOMMENDATIONS OF MANAGEMENT.
[ ] I DO [ ] DO NOT EXPECT TO ATTEND THE MEETING.
-------------------------
(Number of Shares)
-------------------------
(Please Print Your Name)
-------------------------
(Please Print Your Name)
-------------------------
(Date)
-------------------------
(Signature of
Shareholder)
-------------------------
(Signature of
Shareholder)
(Please date this
Proxy and sign your name
exactly as it appears on
your stock certificates.
Executors,
administrators, trustees,
etc., should give their
full title. If a
corporation, please sign
in full corporate name by
the president or other
authorized officer. If a
partnership, please sign
in partnership name by an
authorized person. All
joint owners should
sign.)
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS AND MAY BE REVOKED
PRIOR TO ITS EXERCISE BY NOTIFYING THE SECRETARY OF THE BANCORP IN WRITING OF
REVOCATION OF THE PROXY, BY FILING A DULY EXECUTED PROXY BEARING A LATER DATE OR
BY ATTENDING THE MEETING AND VOTING IN PERSON.
