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:
|_| Preliminary Proxy Statement
|_| Confidential, For Use of the Commission Only (as permitted by Rule
14(a-6(e)(2))
|X| Definitive Proxy Statement
|_| Definitive Additional Materials
|_| Soliciting Material Pursuant to ss.240.14a-12
SUSSEX BANCORP
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
|X| No fee required.
|_| Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
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2) Aggregate number of securities to which transaction applies:
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3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
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4) Proposed maximum aggregate value of transaction:
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5) Total fee paid:
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|_| Fee paid previously with preliminary materials.
|_| Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
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2) Form, Schedule or Registration Statement No.:
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3) Filing Party:
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4) Date Filed:
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SUSSEX BANCORP
200 Munsonhurst Road
Route 517
Franklin, NJ 07416
March 21, 2005
To Our Stockholders:
You are cordially invited to attend the Annual Meeting of Stockholders
(the "Annual Meeting") of Sussex Bancorp (the "Company"), the holding company
for Sussex Bank (the "Bank"), to be held on April 27, 2005, at 10:30 at the
Bank's Augusta office, 100 Route 206, Augusta, New Jersey.
At the Annual Meeting stockholders will be asked to consider and vote upon
the election of Patrick Brady, Richard Branca, Edward J. Leppert, Richard Scott
and Joseph Zitone to the Company's Board of Directors, each to serve for the
term set forth in the accompanying Proxy Statement, and the approval of the
Company's 2004 Equity Incentive Plan.
The Board of Directors of the Company believes that the election of its
nominees to the Board of Directors and the approval of the Company's 2004 Equity
Incentive Plan are in the best interests of the Company and its stockholders and
unanimously recommends that you vote "FOR" each of the Board's nominees and
"FOR" approval of the 2004 Equity Incentive Plan.
Your cooperation is appreciated since a majority of the Common Stock of
the Company must be represented, either in person or by proxy, to constitute a
quorum for the conduct of business. Whether or not you expect to attend, please
sign, date and return the enclosed proxy card promptly in the postage-paid
envelope provided so that your shares will be represented.
Very truly yours,
Donald L. Kovach
Chairman of the Board
SUSSEX BANCORP
200 Munsonhurst Road
Route 517
Franklin, NJ 07416
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD APRIL 27, 2005
Notice is hereby given that the Annual Meeting of Stockholders (the
"Annual Meeting") of Sussex Bancorp (the "Company") will be held at Sussex
Bank's Augusta office, 100 Route 206, Augusta, New Jersey, on April 27, 2005, at
10:30 for the purpose of considering and voting upon the following matters:
1. The election of Patrick Brady, Richard Branca, Edward J. Leppert, Richard
Scott and Joseph Zitone, each to serve as directors of the Company for the
term set forth in this Proxy Statement, and in each case until his
successor is elected and duly qualified;
2. Approval of the Company's 2004 Equity Incentive Plan, which provides for
the grant of equity, in the form of restricted stock awards or stock
option grants to the Company's employees, officers, directors, consultants
and advisors; the plan covers up to an aggregate 200,000 shares of Common
Stock; and
3. Such other business as shall properly come before the Annual Meeting.
Stockholders of record at the close of business on March 4, 2005 are
entitled to notice of and to vote at the Annual Meeting. Whether or not you
contemplate attending the Annual Meeting, it is suggested that the enclosed
proxy be executed and returned to the Company. You may revoke your proxy at any
time prior to the exercise of the proxy by delivering to the Company a later
proxy or by delivering a written notice of revocation to the Company.
By Order of the Board of Directors
Donald L. Kovach
Chairman of the Board
Franklin, New Jersey
March 21, 2005
IMPORTANT---PLEASE MAIL YOUR PROXY PROMPTLY
SUSSEX BANCORP
200 Munsonhurst Road
Route 517
Franklin, NJ 07416
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PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
APRIL 27, 2005
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GENERAL PROXY STATEMENT INFORMATION
This Proxy Statement is being furnished to stockholders of Sussex Bancorp
(the "Company") in connection with the solicitation by the Board of Directors of
proxies to be used at the annual meeting of stockholders (the "Annual Meeting"),
to be held on April 27, 2005, at 10:30, at Sussex Bank's Augusta office, 100
Route 206, Augusta, New Jersey and at any adjournments thereof. The 2004 Annual
Report to Stockholders, including consolidated financial statements for the
fiscal year ended December 31, 2004, and a proxy card, accompanies this Proxy
Statement, which is first being mailed to record holders on or about March 21,
2005.
Solicitation and Voting of Proxies
Regardless of the number of shares of common stock, no par value, of the
Company ("Common Stock") owned, it is important that you vote by completing the
enclosed proxy card and returning it signed and dated in the enclosed
postage-paid envelope. Stockholders are urged to indicate their vote in the
spaces provided on the proxy card. Proxies solicited by the Board of Directors
of the Company will be voted in accordance with the directions given therein.
Where no instructions are indicated, signed proxy cards will be voted "FOR" the
election of each of the nominees for director named in this Proxy Statement and
"FOR" approval of the Company's 2004 Equity Incentive Plan.
Other than the matters set forth on the attached Notice of Annual Meeting
of Stockholders, the Board of Directors knows of no additional matters that may
be presented for consideration at the Annual Meeting. Execution of a proxy,
however, confers on the designated proxy holders discretionary authority to vote
the shares in accordance with their best judgment on such other business, if
any, that may properly come before the Annual Meeting and at any adjournments
thereof, including whether or not to adjourn the Annual Meeting.
A proxy may be revoked at any time prior to its exercise by sending a
written notice of revocation to the Company, 200 Munsonhurst Road, Route 517,
Franklin, New Jersey 07416-0353, Attn: Candace A. Leatham. A proxy filed prior
to the Annual Meeting may be revoked
by delivering to the Company a duly executed proxy bearing a later date, or by
attending the Annual Meeting and voting in person. However, if you are a
stockholder whose shares are not registered in your own name, you will need
appropriate documentation from your record holder to vote personally at the
Annual Meeting.
The cost of solicitation of proxies on behalf of the Board of Directors
will be borne by the Company. Proxies may also be solicited personally or by
mail or telephone by directors, officers and other employees of the Company and
Sussex Bank (the "Bank"), its wholly owned subsidiary, without additional
compensation therefor. The Company will also request persons, firms and
corporations holding shares in their names, or in the name of their nominees,
which are beneficially owned by others, to send proxy material to and obtain
proxies from such beneficial owners, and will reimburse such holders for their
reasonable expenses in doing so.
Voting Securities
The securities which may be voted at the Annual Meeting consist of shares
of the Company's Common Stock, with each share entitling its owner to one vote
on all matters to be voted on at the Annual Meeting, except as described below.
There is no cumulative voting for the election of directors.
The close of business on March 4, 2005, has been fixed by the Board of
Directors as the record date (the "Record Date") for the determination of
stockholders of record entitled to notice of and to vote at the Annual Meeting
and at any adjournments thereof. The total number of shares of Common Stock
outstanding on the Record Date was 3,007,408 shares.
The presence, in person or by proxy, of the holders of at least a majority
of the total number of shares of Common Stock entitled to vote is necessary to
constitute a quorum at the Annual Meeting. In the event that there are not
sufficient votes for a quorum, or to approve or ratify any matter being
presented at the time of the Annual Meeting, the Annual Meeting may be adjourned
in order to permit the further solicitation of proxies.
The proxy card being provided by the Board of Directors enables a
stockholder to vote "FOR" the election of the nominees proposed by the Board of
Directors, or to "WITHHOLD AUTHORITY" to vote for one or more of the nominees
being proposed. Under New Jersey law and the Company's Bylaws, directors are
elected by a plurality of votes cast, without regard to broker non-votes or
abstentions.
The proxy card being provided by the Board of Directors also enables a
stockholder to vote "FOR" the approval of the Company's 2004 Equity Incentive
Plan, "AGAINST" approval of the Company's 2004 Equity Incentive Plan, or to
abstain. Under New Jersey law and the Company's Certificate of Incorporation,
actions taken by shareholders shall be authorized by a majority of votes cast,
without regard to broker non-votes or abstentions.
PROPOSAL 1 - ELECTION OF DIRECTORS
The Company's Certificate of Incorporation and its Bylaws authorize a
minimum of five (5) and a maximum of twenty-five (25) directors but leave the
exact number to be fixed by resolution of the Board of Directors. In 2005, the
Board increased the number of directors by two (2) to a total of ten (10)
members. Patrick Brady and Richard Branca have been nominated by the Board to
stand for election to fill these two vacancies, along with three incumbent
directors, each for the terms set forth on the table below.
Directors are elected to serve for staggered terms of three years each,
with the term of certain directors expiring each year. Directors serve until
their successors are duly elected and qualified.
If, for any reason, any of the nominees become unavailable for election,
the proxy solicited by the Board of Directors will be voted for a substitute
nominee selected by the Board of Directors. The Board has no reason to believe
that any of the named nominees is not available or will not serve if elected.
Unless authority to vote for the nominee is withheld, it is intended that the
shares represented by the enclosed proxy card, if executed and returned, will be
voted "FOR" the election of the nominees proposed by the Board of Directors.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE ELECTION OF THE
NOMINEES NAMED IN THIS PROXY STATEMENT.
Information with respect to the Nominees
The following tables set forth, as of the Record Date, the names of the
nominees for election and those directors whose terms continue beyond the Annual
Meeting, their ages, a brief description of their recent business experience,
including present occupations, and the year in which each became a director of
the Company or the Bank. No nominee is a director of another company registered
pursuant to Section 12 of the Securities Exchange Act of 1934 or subject to the
requirements of Section 15(d) of such Act or any company registered as an
investment company under the Investment Company Act of 1940.
Table I
Nominees for 2005 Annual Meeting
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Name, Age and Position Principal Occupations During Director Term
With the Company Past Five Years Since (1) Expires
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Patrick Brady, 51 CEO, Health Alliance for Care
Hackettstown, New Jersey -- 2008
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Richard Branca, 57 Owner/President, Bergen Engineering Company
East Hanover, New Jersey -- 2007
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Edward J. Leppert, 45 Owner, E.J. Leppert & Co. (certified public
Director accountants); previously partner, Murphy, Perry &
Leppert. 2002 2008
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Richard Scott, 69 Dentist, Richard Scott, DDS
Director Franklin, New Jersey 1976 2008
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Joseph Zitone, 73 General Contractor, Zitone Construction
Director Montague, New Jersey 1984 2008
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(1) Includes prior service on Board of Directors of the Bank prior to
formation of the Company.
Table II
Directors of the Company whose Terms Continue Beyond this Annual Meeting
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Name, Age and Position Principal Occupations During Director Term
With the Company Past Five Years Since (1) Expires
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Irvin Ackerson, 82 Excavating Contractor
Director Ackerson Contracting Co. 1976 2007
Oak Ridge, New Jersey
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Terry Thompson, 58 President and Chief Operations Officer of the Bank
Director 2001 2007
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Mark J. Hontz, 38 Partner
Director Hollander Hontz Hinkes & Pasculli, L.L.C.
Newton, New Jersey 1998 2006
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Donald L. Kovach, 70 Chairman, CEO and President of the Company
Chairman of the Board, CEO 1976 2006
and President
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Joel D. Marvil, 70 Chairman of Manufacturing Co.
Director Ames Rubber Corporation 1989 2006
Hamburg, New Jersey
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(1) Includes prior service on Board of Directors of the Bank prior to
formation of the Company.
The Company encourages all directors to attend the Company's annual
meeting. All of the Company's directors were able to attend the 2004 annual
meeting.
Board of Directors' Meetings
Pursuant to the New Jersey Business Corporation Act and the Company's
by-laws, the Company's business and affairs are managed under the direction of
the Board of Directors. The Board of Directors of the Company held six meetings
during 2004. The Board of Directors holds regularly scheduled meetings each
month and special meetings as circumstances require. All of the directors of the
Company attended at least 75% of the total number of Board meetings and
committee meetings held during 2004, with the exception of Joseph Zitone, who
attended 66% of such meetings. A majority of the board consists of individuals
who are "independent" under the American Stock Exchange listing standards (the
"AMEX listing standards").
Shareholders Communications to the Board of Directors
Shareholders wishing to communicate with the independent members of the
Board of Directors may send correspondence to P.O. Box 965, Branchville, New
Jersey 07826. All correspondence will go directly to the Chairman of our Audit
Committee.
Code of Conduct
The Board of Directors has adopted a Code of Conduct governing the
company's Chief Executive Officer and senior financial officers, as well as the
Board of Directors, officers and employees of the Company, as required by the
Sarbanes-Oxley Act, SEC regulations and the AMEX listing standards. The Code of
Conduct governs such matters as conflicts of interest, use of corporate
opportunity, confidentiality, compliance with law and the like. A copy of the
Code of Conduct has been filed as an exhibit to our annual report on Form
10-KSB.
Committees of the Board
During 2004, the Board of Directors maintained an Audit Committee, a
Compensation Committee and a Nominating Committee.
Nominating Committee
The members of the Nominating Committee for 2004 were Edward Leppert, Joel
Marvil and Richard W. Scott. Each member of the Nominating Committee is
independent, as such term is defined in the AMEX listing standards. The purpose
of the Committee is to assess Board composition, size, additional skills and
talents needed, and make recommendations to the Board regarding those
assessments. The Committee determines the nominees for election as directors,
and considers performance of incumbent directors to determine whether to
nominate them for re-election. The Nominating Committee will consider qualified
nominations for directors recommended by shareholders. All shareholder
recommendations are evaluated on the same basis as any recommendation from
members of the Board or management of the Company. Recommendations should be
sent to P.O. Box 965, Branchville, New Jersey 07826. Any nomination for director
should be received by the Secretary on or before November 18, 2005. Nominees
should have a minimum of education, have experience in a senior executive
position in a corporate or equivalent organization and have experience in at
least one facet of the Company's
business or its major functions. The Nominating Committee has a written Charter,
a copy of which is attached as Exhibit A.
The Nominating Committee approved the nominations of Messrs. Branca and
Brady to the Board. Both Mr. Branca and Mr. Brady were recommended to the
Nominating Committee by our Chief Executive Officer.
Audit Committee
The Company's Audit Committee consisted during 2004 of Directors Edward J.
Leppert (Chairman), Joel D. Marvil and Richard W. Scott. The Audit Committee met
five times during 2004. All Directors who serve on the Audit Committee during
2004 are "independent" for purposes of the AMEX listing standards and, as
required under the Sarbanes-Oxley Act, no member of the Audit Committee receives
any form of compensation from the Company, apart from compensation for Board and
Committee service. The Board has determined that Mr. Leppert qualifies as an
"audit committee financial expert" as that term is defined in SEC Regulation S-B
Item 401(e).
The Audit Committee is also responsible for the pre-approval of all
non-audit services provided by its independent auditors. Non-audit services are
only provided by the Company's auditors to the extent permitted by law.
Audit Committee Report
----------------------
The Audit Committee meets periodically, and in any event, no less than
once per quarter, to consider the adequacy of the Company's financial controls
and the objectivity of its financial reporting. The Audit Committee meets with
the Company's independent auditors and the Company's internal auditors, both
whom have unrestricted access to the Audit Committee.
The Board has adopted a written charter for the Audit Committee setting
forth the audit related functions the Audit Committee is to perform, its
structure and membership requirements, all in compliance with the requirements
of the Sarbanes-Oxley Act, SEC regulations and the Amex Listing Standards. A
copy of this amended Audit Committee Charter is filed as Exhibit B to this proxy
statement.
In connection with this year's financial statements, the Audit Committee
has reviewed and discussed the Company's 2004 audited financial statements with
the Company's officers and Beard Miller Company, LLP, its independent auditors.
We have discussed with Beard Miller Company, LLP the matters required to be
discussed by Statements on Auditing Standards 61, 89 and 90 (Communication with
Audit Committees), as amended or supplemented, which include, among other items,
matters related to the conduct of the audit of the Company's financial
statements. We also have received the written disclosures and letter from Beard
Miller Company, LLP as required by Independence Standards Board Standard No. 1
(Independence Discussions with Audit Committees), and have discussed with
representatives of Beard Miller Company, LLP their independence with regard to
all services provided.
Based on these reviews and discussions, the Audit Committee recommended to
the Board of Directors that the audited financial statements be included in the
Company's Annual Report on
form 10-KSB for the fiscal year ended December 31, 2004 for filing with the U.S.
Securities and Exchange Commission.
Edward J. Leppert (Chairman)
Joel D. Marvil
Richard W. Scott
Compensation Committee
The Company maintains a Compensation Committee which sets the compensation
for the executive officers of the Company. In 2004, the Compensation Committee
consisted of Directors Joel D. Marvil (Chairman), Irvin Ackerson, and Mark J.
Hontz, all of whom are independent under the AMEX Listing Standards. In 2004,
the Compensation Committee met three times.
Compensation of Directors
During 2004, Directors of the Bank who were not full-time employees of the
Bank received a fee of $500 for each regular monthly Bank Board meeting or
special Bank Board meeting attended, and $100 for each committee meeting
attended. Each member of the Bank's loan committee received $500 per meeting in
2004. In addition, Directors of the Company received an annual retainer of
$5,000 each. In addition, members of the Audit Committee receive an additional
fee of $1,000 per Audit Committee meeting, and the Chairman will receive $1,500
per meeting.
The Company maintains the 1995 Stock Option Plan for Non-Employee
Directors (the "Non-Employee Plan), the purpose of which is to assist the
Company in attracting and retaining qualified persons to serve as members of the
Board of Directors. Under the Non-Employee Plan, options may be granted at
exercise prices which may not be less than the fair market value of the Common
Stock on the date of grant. Under the Non-Employee Plan, each non-employee
director elected at the 1995 Annual Meeting was granted an option to purchase
3,000 shares at $11.25 per share (or 5,516 shares at $4.84 as adjusted for
subsequent stock dividends). In addition, each non-employee director who is
elected or re-elected to serve on the Board of Directors at succeeding annual
meetings will be granted an option to purchase 500 shares of Common Stock at the
time of such re-election. As of December 31, 2004, 36,691 options were
outstanding under this plan and there were no authorized shares available for
grant.
In addition, members of the Board of Directors are eligible to participate
in the 2001 Stock Option Plan. Under the 2001 Stock Option Plan, options to
purchase up to a total of 165,000 shares of Common Stock may be granted.
Pursuant to the terms of the 2001 Stock Option Plan, options which qualify as
incentive stock options under the Internal Revenue Code of 1986 must be granted
at an exercise price of no less than 100% of the then current fair market value
of the Common Stock, and options which are nonstatutory options may be granted
at an exercise price no less than 85% of the then current fair market value of
the Common Stock. If adopted by the shareholders, Directors will also be
eligible to participate in the 2004 Equity Incentive Plan. See Proposal 2.
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information concerning the beneficial
ownership of shares of Common Stock as of February 25, 2005, by (i) each person
who is known by the Company to own beneficially more than five percent (5%) of
the issued and outstanding Common Stock, (ii) each director and nominee for
director of the Company, (iii) each executive officer of the Company described
in this Proxy Statement under the caption "Executive Compensation" and (iv) all
directors and executive officers of the Company as a group. Other than as set
forth in this table, the Company is not aware of any individual or group which
holds in excess of 5% of the outstanding Common Stock.
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Number of Shares Percent
Name of Beneficial Beneficially Owned (1) of Class
------------------ ---------------------- --------
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Irvin Ackerson 35,273(2) 1.17%
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Mark J. Hontz 3,817(3) 0.13%
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Donald L. Kovach 133,033(4)(5) 4.41%
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Edward J. Leppert 17,382(6) 0.58%
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Joel D. Marvil 49,761(7) 1.65%
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Richard Scott 54,319(8) 1.80%
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Terry Thompson 25,659(9) 0.85%
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Joseph Zitone 94,434(10) 3.13%
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Directors & Principal Officers as a Group
(11 persons) 512,105 16.62%
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Name of Beneficial Owner of More
Than 5% of the Number of Shares Beneficially Percent
Common Stock Owned (1) of Class
------------ --------- --------
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Lakeland Bancorp, Inc.
250 Oak Ridge Road
Oak Ridge, NJ 07438 162,956 5.42%
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(1) Beneficially owned shares include shares over which the named person
exercises either sole or shared voting power or sole or shared investment
power. It also includes shares owned (i) by a spouse, minor children or by
relatives sharing the same home, (ii) by entities owned or controlled by
the named person, and (iii) by other persons if the named person has the
right to acquire such shares within 60 days by the exercise of any right
or option. Unless otherwise noted, all shares are owned of record and
beneficially by the named person, either directly or through the dividend
reinvestment plan.
(2) Includes 11,418 shares owned by Mr. Ackerson's wife. Also includes 11,360
shares purchasable upon the exercise of immediately exercisable stock
options.
(3) Also includes 1,000 shares purchasable upon the exercise of immediately
exercisable stock options.
(4) Includes 6,000 shares owned by Mr. Kovach's wife, and 10,177 shares held
by IRA's for the benefit of Mr. Kovach and his spouse. Also includes
10,450 shares purchasable upon the exercise of stock options.
(5) Includes 42,507 shares over which Mr. Kovach has voting authority as
administrator for The Sussex County State Bank Employee Stock Ownership
Plan.
(6) Includes 992 shares in the name of Sun America FBO Cynthia Leppert, IRA
and 3,396 in the name of Salomon Smith Barney FBO Edward J. Leppert, IRA.
Also includes 4,150 shares purchasable upon the exercise of immediately
exercisable stock options.
(7) Also includes 7,479 shares purchasable upon the exercise of immediately
exercisable stock options.
(8) Also includes 8,582 shares purchasable upon the exercise of immediately
exercisable stock options.
(9) Includes 13,925 shares in the name of American Express Trust Co. FBO Terry
H. Thompson, IRA. Also includes 7,050 shares purchasable upon the exercise
of immediately exercisable stock options.
(10) Includes 12,588 shares owned by the Zitone Construction & Supply Co., Inc.
Profit Sharing Plan Trust, 22,509 shares owned by Zitone Family Limited
Partnership and 17,198 shares in the name of Smith Barney FBO Joseph
Zitone. Also includes 3,401 shares purchasable upon the exercise of
immediately exercisable stock options.
Annual Executive Compensation and All Other Compensation
The following table sets forth a summary for the last three (3) fiscal
years of the cash and non-cash compensation awarded to, earned by, or paid to,
the Chief Executive Officer of the Company and each other officer whose
remuneration exceeded $100,000 for the last fiscal year.
SUMMARY COMPENSATION TABLE
Cash and Cash Equivalent Forms
of Remuneration
---------------
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Annual Compensation Award Payouts
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Securities
Underlying LTIP All Other
Name and Other Annual Options/SARs Payouts Compensation
Principal Position Year Salary ($) Bonus ($) Compensation ($) (#) ($) ($)
-------------------------------------------------------------------------------------------------------------------------------
Donald L. Kovach, Chairman 2004 $229,748 -0- (1) 10,000 None $ 42,114(4)
of the Board and CEO ---------------------------------------------------------------------------------------------
2003 $202,087 -0- (1) 9,975 None $143,049(4)
---------------------------------------------------------------------------------------------
2002 $188,143 -0- (1) 3,000 None $117,869(4)
-------------------------------------------------------------------------------------------------------------------------------
George B. Harper, President, 2004 $ 50,000 $16,471(2) $ 77,300(3) 5,000 None -0-
Tri-State Insurance Agency, ---------------------------------------------------------------------------------------------
Inc. 2003 $ 50,000 $21,515(2) $ 76,264(3) 4,988 None -0-
---------------------------------------------------------------------------------------------
2002 $ 50,000 $ 5,660(2) $ 71,570(3) -- None -0-
-------------------------------------------------------------------------------------------------------------------------------
George Lista, Chief Operating 2004 $120,000 $16,471(2) $121,399(3) 5,000 None -0-
Officer, Tri-State Insurance ---------------------------------------------------------------------------------------------
Agency, Inc. 2003 $120,000 $21,515(2) $ 95,822(3) 4,988 None -0-
---------------------------------------------------------------------------------------------
2002 $120,000 $ 5,660(2) $ 68,495(3) -- None -0-
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Terry Thompson, President and 2004 $122,711 -0- (1) 10,000 None -0-
COO of the Bank ---------------------------------------------------------------------------------------------
2003 $109,650 -0- $ 1,051(1)(5) 7,481 None -0-
---------------------------------------------------------------------------------------------
2002 $ 98,280 -0- (1) 3,780 None -0-
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(1) During the fiscal years presented, the Company provided additional life
insurance and an automobile and provided a match to the 401(k) plan
account for each of Messrs. Kovach and Thompson. The use made thereof for
personal purposes did not exceed 10% of the total cash compensation to
such persons which is the sum of base salary and bonus and therefore is
not included in the above table.
(2) Bonus is the fair market value of 1,516 shares of the Company's common
stock.
(3) Represents commissions earned on the sale of insurance products.
(4) Represents amount charged by the Company to expense in connection with the
Supplemental Executive Retirement Plan ("SERP") implemented for Mr. Kovach
in 2000.
Employment Agreements
The Company and the Bank are parties to an Amended Employment Agreement
with Mr. Donald L. Kovach pursuant to which he serves as President and Chief
Executive Officer of the Company and Chief Executive Officer of the Bank (the
"Employment Agreement"). The Employment Agreement, as amended, provides for a
term ending on August 31, 2007, although it will be automatically extended on
each anniversary date for up to two additional one-year periods unless either
party provides notice of their intention not to extend the contract. The
Employment Agreement provides that Mr. Kovach will receive a base salary of
$223,300, subject to increase or decrease, and he may be granted a discretionary
bonus, in cash or equity, as determined by the Board of Directors. The
Employment Agreement permits the Company to terminate Mr. Kovach's employment
for cause at any time. The Employment Agreement defines cause to mean personal
dishonesty, willful misconduct, breach of fiduciary duty involving personal
profit, intentional failure to perform stated duties, willful violation of law,
rule or regulation, other than traffic violations or similar offenses, or
violation of a final cease and desist order, or a material breach of any
provision of the Agreement. In the event Mr. Kovach is terminated for any reason
other than cause, or in the event Mr. Kovach resigns his employment because he
is reassigned to a position of lesser rank or status than President and Chief
Executive Officer, his place of employment is relocated by more than 30 miles
from its location on the date of the Agreement, or his compensation or other
benefits are reduced, Mr. Kovach, or in the event of his death, his beneficiary,
will be entitled to receive his base salary at the time of such termination or
resignation for the remaining term of the Agreement. In addition, the Company
will continue to provide Mr. Kovach with certain insurance and other benefits
through the end of the term of the Agreement. Mr. Kovach's Employment Agreement
further provides that upon the occurrence of a change in control of the Company,
as defined in the Employment Agreement, and in the event Mr. Kovach is
terminated for reasons other than cause or in the event Mr. Kovach, within 18
months of the change in control, resigns his employment for the reasons
discussed above, he shall be entitled to receive a severance payment based upon
his then current base salary. Under the Agreement, in the event the change in
control occurs, Mr. Kovach is entitled to a severance payment equal to 2.99
times his then current base salary. The Employment Agreement also prohibits Mr.
Kovach from competing with the Bank and the Company for a period of one year
following termination of his employment.
The Company and the Bank are parties to an employment agreement with Terry
Thompson. Under this agreement, Mr. Thompson will serve as President of the Bank
for a period ending on January 23, 2006. Mr. Thompson's agreement also provides
that its terms will automatically be extended for one additional year, until
January 23, 2007, unless the Company provides notice three (3) months prior to
the termination of the original term of the agreement. The agreement also
provides that it will also be extended for an additional one-year period unless
notice is given prior to the fourth anniversary of the agreement. Under the
agreement, Mr. Thompson is to receive a base salary of $110,000. Mr. Thompson
may also be entitled to receive a bonus, if granted in the discretion of the
Board of Directors, and he will receive customary fringe benefits, including an
automobile or cash allowance, consistent with his position as President of the
Bank. Mr. Thompson may be terminated for "cause", as defined in the agreement.
In the event he is terminated without "cause", he will entitled to receive his
then current base salary for the remaining term of the
agreement, and the Company will be obligated to continue his health benefits for
such period. Mr. Thompson's agreement contains a change in control provision
substantially similar to the one contained in Mr. Kovach's agreement described
above. Mr. Thompson's agreement also contains a covenant not to compete, whereby
Mr. Thompson is prohibited for a period of one year after termination of his
employment from affiliating with any enterprise which competes with the Company
in the counties which the Company is conducting business on the date of
termination.
In connection with the Company's acquisition of Tri-State Insurance
Agency, Inc. ("Tri-State ") effective October 1, 2001, the Company entered into
employment agreements with each of Messrs. George B. Harper and George Lista.
Under these agreements, each of Messrs. Harper and Lista is to be paid a base
salary ($50,000 for Mr. Harper and $120,000 for Mr. Lista) and commissions for
insurance products actually placed. In addition, each of Messrs. Harper and
Lista is entitled to receive bonuses based upon the net before tax income of
Tri-State for each twelve-month period commencing on the effective date of the
acquisition. To the extent Tri-State's net before tax income exceeds certain
designated targets contained in each employment agreement, each of Messrs.
Harper and Lista will be entitled to receive a bonus equal to 25% of the amount
by which the net before tax income of Tri-State exceeds the target. The bonus is
to be paid in shares of the Company's common stock. The amount of stock to be
issued will be determined by dividing the amount of the bonus by the fair market
value of the Company's common stock, determined by taking the average closing
price of the common stock for the fifteen trading days prior to issuance. For
the twelve-month period ended September 30, 2004, Tri-State exceeded its
targeted net before tax income, and each of Messrs. Harper and Lista received a
bonus of 1,516 shares of the Company's common stock. The employment agreements
with Messrs. Harper and Lista expire on September 30, 2006.
Retirement Plans
The Bank maintains a salary continuation plan for Mr. Kovach. Under this
plan, as recently amended, Mr. Kovach will receive a retirement benefit equal to
35% of his average final compensation determined by his last five years of
employment, provided that to the extent Mr. Kovach continues to work past age
70, his final compensation will be increased 4% per year for each year he works
past age 70 until his retirement. Mr. Kovach will receive this benefit in the
event that he works until retirement, or he is involuntarily discharged prior to
his retirement for any reason other than "cause". For purposes of the Salary
Continuation Agreement, cause is defined in the same manner as under Mr.
Kovach's Employment Agreement. Annual retirement payments are to be made for
fifteen years under the Salary Continuation Agreement to Mr. Kovach or, in the
event of his death, to his spouse.
1995 Incentive Stock Option Plan and 2001 Stock Option Plan
The Company maintains the 1995 Incentive Stock Option Plan which provides
for options to purchase shares of Common Stock to be issued to key employees of
the Company, the Bank and any other subsidiaries which the Company may acquire
or incorporate in the future. The Company also maintains the 2001 Stock Option
Plan, under which options to purchase shares of Common Stock may be issued to
employees, officers and directors of the Company, the Bank and any other
subsidiaries which the Company may acquire or incorporate in the future.
Recipients of options granted under the Plans are selected by the Stock Option
Committee of the Board of Directors. The Stock Option Committee has the
authority to determine the terms and conditions of options granted
under the Plans and the exercise price therefore. The exercise price for options
granted under the 1995 Incentive Stock Option Plan, and for Incentive Stock
Options under the 2001 Stock Option Plan may be no less than the fair market
value of the Common Stock. The exercise price for nonstatutory options granted
under the 2001 Stock Option Plan may be no less than 85% of the fair market
value of the Common Stock.
In addition, if it is approved by the shareholders, employees of the
Company, including executive officers, will be eligible to participate in the
2004 Equity Incentive Plan.
The following table sets forth information regarding stock option grants
to the individuals named in the table above:
OPTION/SAR GRANTS IN LAST FISCAL YEAR
=======================================================================================================================
INDIVIDUAL GRANTS
-----------------------------------------------------------------------------------------------------------------------
Name Number of Securities % of Total Exercise or Base Expiration Present Value of
Underlying Option/SARs Granted Price Date Option on Date
Options/SARs to Employees in ($/SH) of
Granted (#) Fiscal Year Grant($)(3)
-----------------------------------------------------------------------------------------------------------------------
Donald L. Kovach 10,000(1) 17.60% 16.40 1/7/14 2.81
-----------------------------------------------------------------------------------------------------------------------
Terry Thompson 10,000(2) 17.60% 16.40 1/7/14 2.81
-----------------------------------------------------------------------------------------------------------------------
George B. Harper 5,000(4) 8.80% 16.40 1/7/14 2.81
-----------------------------------------------------------------------------------------------------------------------
George Lista 5,000(4) 8.80% 16.40 1/7/14 2.81
=======================================================================================================================
----------
(1) As of December 31, 2004, 2,500 of these options were immediately
exercisable.
(2) As of December 31, 2004, 2,500 of these options were immediately
exercisable.
(3) The present value of each option grant is estimated on the date of grant
using the Black-Scholes option pricing model with the following weighted
average assumptions: dividend yield of 1.50%, expected volatility of
16.81%, risk free interest rate of 3.12%, and an expected life of 5 years.
(4) As of December 31, 2004, 1,250 of these options were immediately
exercisable.
The following table sets forth information concerning the fiscal year-end
value of unexercised options held by the executive officers of the Company named
in the table above.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL
YEAR AND FY-END OPTION/SAR VALUES
=====================================================================================================================
Name Shares Acquired on Value Number of Securities Value of Unexercised In-the-
Exercise (#) Realized ($) Underlying Unexercised Money Options/SARs at FY-
Options/SARs at FY-End (#) End ($) (based on $10.25 per
Exercisable/ share)
Unexercisable Exercisable/
Unexercisable
=====================================================================================================================
Donald L. Kovach 165 $1,108 16,602/13,557 $150,959/$183,032
=====================================================================================================================
Terry Thompson 179 $1,397 9,507/12,409 $110,566/$171,665
=====================================================================================================================
George B. Harper -0- -0- 4,794/6,244 $55,813/$86,565
=====================================================================================================================
George Lista -0- -0- 3,744/6,244 $45,565/$86,565
=====================================================================================================================
Interest of Management and Others in Certain Transactions
The Bank has made in the past and, assuming continued satisfaction of
generally applicable credit standards, expects to continue to make loans to
directors, executive officers and their associates (i.e. corporations or
organizations for which they serve as officers or directors or in which they
have beneficial ownership interests of ten percent or more). These loans have
all been made in the ordinary course of the Bank's business on substantially the
same terms, including interest rates and collateral, as those prevailing at the
time for comparable transactions with other persons and do not involve more than
the normal risk of collectibility or present other unfavorable features.
The Bank paid $14,720 to Irvin Ackerson for appraisal services rendered to
the Bank during fiscal 2004. Irvin Ackerson continues to render appraisal
services to the Bank.
The Bank leases its Montague branch office from Montague Mini Mall, Inc.
under a lease covering 1,200 square feet. The lease agreement was renewed as of
April 1, 2002. As renewed, the lease will terminate on March 31, 2007, and
provides for a monthly rent of $1,850. Mr. Joseph Zitone, a Director of the
Company, is a majority stockholder of Montague Mini Mall, Inc. The Company
considers the lease terms to be comparable to those which exist with
unaffiliated third parties.
Recommendation and Vote Required
Nominees will be elected by a plurality of the shares voting at the Annual
Meeting.
THE BOARD UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS VOTE "FOR" ITS
NOMINEES FOR THE BOARD OF DIRECTORS.
PROPOSAL 2 - APPROVAL OF THE 2004 EQUITY INCENTIVE PLAN
Introduction
On December 15, 2004, the Board of Directors of the Company adopted,
subject to stockholder approval, the 2004 Equity Incentive Plan (the "2004
Plan"). Up to 200,000 shares of Common Stock (subject to adjustment in the event
of stock splits and other similar events) may be issued pursuant to awards
granted under the 2004 Plan.
Description of the 2004 Plan
The following summary is qualified in its entirety by reference to the
2004 Plan, a copy of which is attached as Exhibit C to this Proxy Statement.
Types of Awards
The 2004 Plan provides for the grant of incentive stock options intended
to qualify under Section 422 of the Internal Revenue Code of 1986, as amended
(the "Code"), nonstatutory stock options and restricted stock awards
(collectively, "Awards").
Incentive Stock Options and Nonstatutory Stock Options
Eligible participants chosen to receive stock options ("Optionees")
receive the right to purchase a specified number of shares of Common Stock at a
specified option price and subject to such other terms and conditions as are
specified in connection with the option grant. Options may be granted at an
exercise price which may be less than, equal to or greater than the fair market
value of the Common Stock on the date of grant. Under present law, however,
incentive stock options may not be granted at an exercise price less than 100%
of the fair market value of the Common Stock on the date of grant (or less than
110% of the fair market value in the case of incentive stock options granted to
optionees holding more than 10% of the voting power of the Company). Options may
not be granted for a term in excess of ten years (or five years in the case of
incentive stock options granted to optionees holding more than 10% of the voting
power of the Company). The 2004 Plan permits the following forms of payment of
the exercise price of options: (i) payment by cash, check or in connection with
a "cashless exercise" through a broker, (ii) surrender to the Company of shares
of Common Stock, (iii) any other lawful means, or (iv) any combination of these
forms of payment.
Restricted Stock Awards
Eligible participants chosen to receive restricted stock Awards will be
granted shares of the Company's common stock, subject to forfeiture in the event
that the conditions specified in the applicable Award are not satisfied prior to
the end of the applicable restriction period established for such Award.
Eligibility to Receive Awards
Employees, officers, directors, consultants and advisors of the Company
and its subsidiaries are eligible to be granted Awards under the 2004 Plan.
Under present law, however, incentive stock options may only be granted to
employees of the Company and its subsidiaries.
Administration
The 2004 Plan is administered by the Board of Directors. The Board of
Directors has the authority to adopt, amend and repeal the administrative rules,
guidelines and practices relating to the 2004 Plan and to interpret the
provisions of the 2004 Plan.
Subject to any applicable limitations contained in the 2004 Plan, the
Board of Directors selects the recipients of Awards and determines (i) the
number of shares of Common Stock covered by options and the dates upon which
such options become exercisable, (ii) the exercise price of options, (iii) the
duration of options (which may not exceed ten years) and (iv) the number of
shares of Common Stock subject to any restricted stock Awards and the terms and
conditions of such Awards, including conditions for repurchase, issue price and
repurchase price.
The Board of Directors is required to make appropriate adjustments in
connection with the 2004 Plan and any outstanding Awards to reflect stock
splits, stock dividends, recapitalizations, spin-offs and other similar changes
in capitalization. The 2004 Plan also contains provisions address ing the
consequences of any Change of Control Event, which is defined to have taken
place upon the occurrence of certain events including (a) a reorganization,
merger, consolidation or sale of all or substantially all of the assets of the
Company, or a similar transaction in which shareholders owning a majority of the
voting securities of the Company prior to such transaction fail to own a
majority of the voting securities of the Company after such transaction; (b) a
proxy statement soliciting proxies from stockholders of the Company is
disseminated by someone other than the current management of the Company,
seeking stockholder approval of a plan of reorganization, merger or
consolidation of the Company or similar transaction with one or more
corporations as a result of which the outstanding shares of the class of
securities then subject to the plan or transaction are exchanged or converted
into cash or property or securities not issued by the Company, and such
transaction is approved by a majority of the Company's voting securities; or (c)
a tender offer is made for 25% or more of the voting securities of the Company
and the shareholder owning beneficially or of record 25% or more of the
outstanding securities of the Company have tendered or offered to sell their
shares pursuant to such tender and such tendered shares have been accepted by
the tender offeror. Upon the occurrence of a Change of Control Event, the Board
shall provide for any one or more of the following actions, as to outstanding
options: (i) provide that such options shall be assumed, or equivalent options
shall be substituted, by the acquiring or succeeding corporation (or an
affiliate thereof), (ii) in the event of a merger under the terms of which
holders of Common Stock will receive upon consummation thereof a cash payment
for each share surrendered in the merger (the "Merger Price"), make or provide
for a cash payment to the participants equal to the difference between (A) the
Merger Price times the number of shares of Common Stock subject to such
outstanding options (to the extent exercisable at prices not in excess of the
Merger Price) and (B) the aggregate exercise price of all such outstanding
options in exchange for the termination of such options, and (iii) provide that
all or any outstanding options shall become exercisable in full immediately
prior to such event. Upon the occurrence of a Change of Control Event, the
repurchase and other rights of the Company under each outstanding restricted
stock Award shall cease and such shares shall be immediately become free and
clear of all such restrictions.
If any Award expires or is terminated, surrendered, canceled or forfeited,
the unused shares of Common Stock covered by such Award will again be available
for grant under the 2004 Plan, subject, however, in the case of incentive stock
options, to any limitations under the Code.
Amendment or Termination
No Award may be made under the 2004 Plan after April 27, 2014, but Awards
previously granted may extend beyond that date. The Board of Directors may at
any time amend, suspend or terminate the 2004 Plan. If Stockholders do not
approve the adoption of the 2004 Plan, the 2004 Plan will not go into effect,
and the Company will not grant any Awards under the 2004 Plan. In such event,
the Board of Directors will consider whether to adopt alternative arrangements
based on its assessment of the needs of the Company.
Federal Income Tax Consequences
The following is a summary of the United States federal income tax
consequences that generally will arise with respect to Awards granted under the
2004 Plan and with respect to the sale of Common Stock acquired under the 2004
Plan. This summary is based on the federal tax laws in effect as of the date of
this proxy statement. Changes to these laws could alter the tax consequences
described below.
Incentive Stock Options
In general, a participant will not recognize taxable income upon the grant
or exercise of an incentive stock option. Instead, a participant will recognize
taxable income with respect to an incentive stock option only upon the sale of
Common Stock acquired through the exercise of the option ("ISO Stock"). The
exercise of an incentive stock option, however, may subject the participant to
the alternative minimum tax.
Generally, the tax consequences of selling ISO Stock will vary depending
on the date on which it is sold. If the participant sells ISO Stock more than
two years from the date the option was granted (the "Grant Date") and more than
one year from the date the option was exercised (the "Exercise Date"), then the
participant will recognize long-term capital gain in an amount equal to the
excess of the sale price of the ISO Stock over the exercise price.
If the participant sells ISO Stock prior to satisfying the above waiting
periods (a "Disqualifying Disposition"), then all or a portion of the gain
recognized by the participant will be ordinary compensation income and the
remaining gain, if any, will be a capital gain. This capital gain will be a
long-term capital gain if the participant has held the ISO Stock for more than
one year prior to the date of sale.
If a participant sells ISO Stock for less than the exercise price, then
the participant will recognize capital loss in an amount equal to the excess of
the exercise price over the sale price of the ISO Stock. This capital loss will
be a long-term capital loss if the participant has held the ISO Stock for more
than one year prior to the date of sale.
Nonstatutory Stock Options
As in the case of an incentive stock option, a participant will not
recognize taxable income upon the grant of a nonstatutory stock option. Unlike
the case of an incentive stock option, however, a participant who exercises a
nonstatutory stock option generally will recognize ordinary compensation income
in an amount equal to the excess of the fair market value of the Common
Stock acquired through the exercise of the option ("NSO Stock") on the Exercise
Date over the exercise price.
With respect to any NSO Stock, a participant will have a tax basis equal
to the exercise price plus any income recognized upon the exercise of the
option. Upon selling NSO Stock, a participant generally will recognize capital
gain or loss in an amount equal to the difference between the sale price of the
NSO Stock and the participant's tax basis in the NSO Stock. This capital gain or
loss will be a long-term gain or loss if the participant has held the NSO Stock
for more than one year prior to the date of the sale.
Restricted Stock Awards
A participant will not recognize taxable income upon the grant of a
restricted stock Award unless the participant makes an election under Section
83(b) of the Code (a "Section 83(b) Election") to be taxed as if the underlying
shares were vested shares. If the participant makes a valid Section 83(b)
Election within 30 days of the date of the grant, then the participant will
recognize ordinary compensation income, for the year in which the Award is
granted, in an amount equal to the fair market value of the Common Stock at the
time the Award is granted. If a valid Section 83(b) Election is not made, then
the participant will recognize ordinary compensation income, at the time that
the forfeiture provisions or restrictions on transfer lapse, in an amount equal
to the fair market value of the Common Stock at the time of such lapse. The
participant will have a tax basis in the Common Stock acquired equal to the sum
of the price paid and the amount of ordinary compensation income recognized.
Upon the disposition of the Common Stock acquired pursuant to a restricted
stock Award, the participant will recognize a capital gain or loss equal to the
difference between the sale price of the Common Stock and the participant's tax
basis in the Common Stock. This capital gain or loss will be a long-term capital
gain or loss if the shares are held for more than one year.
Tax Consequences to the Company
The grant of an Award under the 2004 Plan generally will have no tax
consequences to the Company. Moreover, in general, neither the exercise of an
incentive stock option nor the sale of any Common Stock acquired under the 2004
Plan will have any tax consequences to the Company. The Company or its parent or
subsidiary, as the case may be, generally will be entitled to a business-expense
deduction, however, with respect to any ordinary compensation income recognized
by a participant under the 2004 Plan, including in connection with a restricted
stock Award or as a result of the exercise of a nonstatutory stock option or a
Disqualifying Disposition. Any such deduction will be subject to the limitations
of Section 162(m) of the Code.
Equity Compensation Plans
The following table sets forth information with respect to the Company's
equity compensation plans as of the end of the most recently completed fiscal
year.
Equity Compensation Plan Information
-------------------------------------------------------------------------------------------------------------------
Number of
securities
remaining
Number of available for
Plan category securities to future issuance
be issued under equity
upon compensation
exercise of Weighted-average plans
outstanding exercise price of (excluding
options, outstanding securities
warrants and options, warrants reflected in
rights and rights column (a))
(a) (b) (c)
-------------------------------------------------------------------------------------------------------------------
Equity compensation plans approved 131,403 $12.34(1) 71,371
by security holders
-------------------------------------------------------------------------------------------------------------------
Equity compensation plans not approved by (1) (1) (1)
security holders
-------------------------------------------------------------------------------------------------------------------
Total 131,403(1) $12.34(1) 71,371(1)
-------------------------------------------------------------------------------------------------------------------
(1) In connection with the Company's acquisition of Tri-State effective
October 1, 2001, the Company entered into employment agreements with each
of Messrs George B. Harper and George Lista. Under these agreements, each
of Messrs. Harper and Lista is entitled to receive bonuses based upon the
net before tax income of Tri-State for each twelve-month period commencing
on the effective date of the acquisition. To the extent Tri-State's net
before tax income exceeds certain designated targets contained in each
employment agreement, each of Messrs. Harper and Lista will be entitled to
receive a bonus equal to 25% of the amount by which the net before tax
income of Tri State exceeds the target. The bonus is to be paid in shares
of the Company's common stock. The amount of stock to be issued will be
determined by dividing the amount of the bonus by the fair market value of
the Company's common stock, determined by taking the average closing price
of the common stock for the fifteen trading days prior to issuance. For
the twelve-month period ended September 30, 2004, Tri-State exceeded its
targeted net before tax income, and each of Messrs. Harper and Lista
received a bonus of 1053 shares of the Company's common stock. The
employment agreements with Messrs. Harper and Lista expire on September
30, 2006.
Recommendation and Vote Required for Approval
The Board of Directors believes that the future success of the Company
depends, in large part, upon the ability of the Company to maintain a
competitive position in attracting, retaining and motivating key personnel.
Approval of the 2004 Plan requires the vote of a majority of the votes cast at
the Annual Meeting.
Accordingly, the Board of Directors believes adoption of the 2004 Plan is
in the best interests of the Company and its stockholders and unanimously
recommends a vote "FOR" the approval of the 2004 Plan and the reservation of
200,000 shares of Common Stock for issuance thereunder.
INDEPENDENT AUDITORS
The Company's independent auditors for the fiscal year ended December 31, 2004
were Beard Miller Company, LLP. Beard Miller Company, LLP has advised the
Company that one or more of its representatives will be present at the Annual
Meeting to make a statement if they so desire and to respond to appropriate
questions. In 2004, Beard Miller Company, LLP performed audit and audit related
services for the company. In addition, Beard Miller Company, LLP rendered
certain tax related services to the company, the only non-audit related services
provided by Beard Miller Company, LLP. In connection with the retention of Beard
Miller Company, LLP to render tax related services, the audit committee
considered the possible effect on Beard Miller's independence before approving
their retention.
Principal Accounting Firm Fees
------------------------------
Aggregate fees billed to the company for the fiscal years ended December
31, 2003 and 2004 by the company's principal accounting firm, Beard Miller, are
shown in the following table:
--------------------------------------------------------------------------------
2004 2003
-------- -------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Audit Fees (1) $106,717 $55,376
--------------------------------------------------------------------------------
Audit-related fees (2) $ 8,645 $ 7,666
--------------------------------------------------------------------------------
Tax fees (3) $ 2,330 $ 2,842
--------------------------------------------------------------------------------
All other fees 0 0
-------- -------
--------------------------------------------------------------------------------
$117,692 $65,884
======== =======
--------------------------------------------------------------------------------
(1) Includes professional services rendered for the audit of the Company's
annual financial statements and review of financial statements included in
Forms 10-QSB, or services normally provided in connection with statutory
and regulatory filings, including out-of-pocket expenses. In 2004, this
also included comfort and consent procedures related to the filing of an
SB-2. Of this amount, $47,384 was included in the costs of the offering.
(2) Assurance and related services reasonably related to the performance of
the audit or review of financial statements include the following: For
2004, assistance with tax accrual and deferred taxes, research regarding
reporting of restructured loans, review of a potential agreement with
Countrywide, assistance with accounting for mortgage division annual
bonus, accounting for the amendment/extension of SERP agreement,
assistance with the implementation of FIN 46, research and assistance with
proper accounting for the tax effect of the Company's non-qualified and
incentive stock option plans, and assistance with 2002 financial statement
disclosures and MD&A disclosures. For 2003, assistance with 2002 financial
statements and 10-KSB disclosure and 2003 10-Q disclosures, accounting
consultations in regard to mortgage banking agreement and proposed
operation, OREO sales research, review of internal audit proposal,
research on FHLB mortgage sales accounting treatment, research on
restructured loans, and review of title insurance partnership agreement
and related accounting.
(3) Tax fees include the following: tax planning meetings with tax accountant,
including assistance with filing Form 3115, and management and related
research in regard to New Jersey income tax.
COMPLIANCE WITH SECTION 16(a)
OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers and directors, and persons who own more than ten percent of a
registered class of the Company's equity securities, to file reports of
ownership and changes in ownership with the Securities and Exchange Commission.
Officers, directors and greater than ten percent stockholders are required by
regulation of the Securities and Exchange Commission to furnish the Company with
copies of all Section 16(a) forms they file.
Based solely upon its review of the Forms 3,4 and 5 filed during 2004, the
Company believes that all persons subject to Section 16(a) have made all
required filings for the fiscal year ended December 31, 2004.
STOCKHOLDER PROPOSALS
Proposals of stockholders to be included in the Company's 2006 proxy material
must be received by the Secretary of the Company no later than November 29,
2005.
OTHER MATTERS
The Board of Directors is not aware of any other matters which may come
before the Annual Meeting. However, in the event such other matters come before
the meeting, it is the intention of the persons named in the proxy to vote on
any such matters in accordance with the recommendation of the Board of
Directors.
EXHIBIT A
---------
NOMINATING COMMITTEE CHARTER
(Adoption Date: December 15, 2004)
Composition: Annually, the Board of Directors shall appoint a
Nominating Committee (the "Committee") comprised of at
least three members, one of who shall be designated by
the Board to be Chairperson. Each member of the
Committee shall be an "independent director" within the
meaning of Section 121 of the AMEX listing standards.
The full Board may remove any member of the Committee,
with or without cause, and appoint any substitute member
of the Committee who meets the qualifications set forth
above.
Meetings: Prior to the Annual Meeting of Shareowners each year on
the second Wednesday in February, the Committee shall
meet to determine the recommendations to the Board of
the individuals to constitute the nominees of the Board
of Directors ("Board") for the election of whom the
Board will solicit proxies. The Committee shall also
meet from time to time as necessary or appropriate to
carry out the responsibilities described below.
Responsibilities: The purpose of the Committee is to assist the Board in
assuring that the composition, structure and operation
of the Board serves the best interests of the
Corporation and its shareowners. To that end, the
Committee will endeavor to assess the corporate needs
for an effective Board and then identify and recommend
qualified Director nominees who will bring knowledge,
experience and other skills that would strengthen the
Board.
The Committee's responsibilities shall include the
following:
1. Assess Board composition, size, additional skills
and talents needed and make recommendations to the
Board regarding same.
2. Receive from shareholders and others,
recommendations for nominees for election to the
Board; and, in accordance with Board approved
criteria, based on the recommendations provided
under Paragraph 1 above, recommend to the Board
candidates for Board membership for consideration
by the shareholders at the Annual Meeting of
Shareholders and candidates for election to the
Board at intervals between Annual Meetings.
3. Consider the performance of incumbent Directors in
determining whether to recommend that they be
nominated for re-election.
4. Recommend to the Board the compensation and other
benefits of any kind of the Directors of the
Corporation and its direct subsidiaries.
5. To the extent not otherwise provided for above,
make reports to the Board on any Committee
activities as are material to the effective
functioning of the Board.
COMMITTEE PERFORMANCE
Evaluation: At least annually, the Committee will review and
evaluate its performance of its responsibilities
provided for under this charter. The Committee shall
have the authority to retain outside advisors or
consultants to assist it in its self-evaluation.
EXHIBIT B
---------
SUSSEX BANCORP
AUDIT COMMITTEE CHARTER
A. Purpose
The purpose of the Audit Committee is to assist the Board of Directors'
oversight of the Company's accounting and financial reporting processes,
including its internal audit function, and the audits of the Company's
financial statements.
B. Structure and Membership
1. Number. The Audit Committee shall consist of at least three members
of the Board of Directors.
2. Independence. Except as otherwise permitted by the applicable
American Stock Exchange ("AMEX") rules, each member of the Audit
Committee shall be independent as defined by AMEX rules, meet the
criteria for independence set forth in Rule 10A-3(b)(1) under the
Exchange Act (subject to the exemptions provided in Rule 10A-3(c)),
and not have participated in the preparation of the financial
statements of the Company or any current subsidiary of the Company
at any time during the past three years. Specifically, the AMEX
rules state that a director does not qualify as "independent" if:
(a) such director is, or during the past three years was, an
employee of the company or any parent or subsidiary of the
company or an immediate family member of an individual who is,
or in the past three years has been, employed by the company
or any parent or subsidiary of the company as an executive
officer. Prior service as an interim Chairman or CEO will not
disqualify an otherwise independent director;
(b) such director accepts or has an immediate family member who
accepts any payments from the company or any parent or
subsidiary of the company in excess of $60,000 during the
current or any of the past three fiscal years. This
disqualification does not apply to (i) compensation for board
service, (ii) payments arising solely from investments in the
company's securities, (iii) compensation to an immediate
family member who is a non-executive employee of the company
or of a parent or subsidiary of the company, (iv) compensation
for prior service as an interim Chairman or CEO, (v) benefits
under a tax-qualified retirement plan, (vi) non-discretionary
compensation, or (vii) personal loans to executives permitted
by the Securities Exchange Act of 1934, as amended;
(c) such director is, or who has an immediate family member who
is, a partner in, or a controlling shareholder or an executive
officer of, any organization to which the company made, or
from which the company received, payments (other than
payments arising solely from investments in the company's
securities or payments under non-discretionary charitable
contribution matching programs) that exceed the greater of 5%
of the recipient's gross revenues for that year or $200,000,
in any of the most recent three fiscal years;
(d) such director is, or has an immediate family member who is,
employed as an executive officer of another company at any
time during the most recent three fiscal years at which any of
the listed company's officers serve on such other company's
compensation committee; or
(e) such director is, or has an immediate family member who is, a
current partner of the company's outside auditor, or was a
partner or employee of the company's outside auditor who
worked on the company's audit engagement at any time during
the past three fiscal years.
3. Financial Literacy. Each member of the Audit Committee must be able
to read and understand fundamental financial statements, including
the Company's balance sheet, income statement, and cash flow
statement, at the time of his or her appointment to the Audit
Committee. In addition, at least one member must have past
employment experience in finance or accounting, requisite
professional certification in accounting, or any other comparable
experience or background which results in the individual's financial
sophistication, including being or having been a chief executive
officer, chief financial officer or other senior officer with
financial oversight responsibilities. Chair. Unless the Board of
Directors elects a Chair of the Audit Committee, the Audit Committee
shall elect a Chair by majority vote.
4. Compensation. The compensation of Audit Committee members shall be
as determined by the Board of Directors. No member of the Audit
Committee may receive, directly or indirectly, any consulting,
advisory or other compensatory fee from the Company or any of its
subsidiaries, other than fees paid in his or her capacity as a
member of the Board of Directors or a committee of the Board.
5. Selection and Removal. Members of the Audit Committee shall be
appointed by the Board of Directors, upon the recommendation of the
Nominating Committee. The Board of Directors may remove members of
the Audit Committee from such committee, with or without cause.
C. Authority and Responsibilities
General
-------
The Audit Committee shall discharge its responsibilities, and shall assess
the information provided by the Company's management, internal audit
function and the independent auditor, in accordance with its business
judgment. Management is responsible for the preparation, presentation, and
integrity of the Company's financial statements and for the
appropriateness of the accounting principles and reporting policies that
are used by the Company. The independent auditors are responsible for
auditing the Company's financial statements and for reviewing the
Company's unaudited interim financial statements. The
authority and responsibilities set forth in this Charter do not reflect or
create any duty or obligation of the Audit Committee to plan or conduct any
audit, to determine or certify that the Company's financial statements are
complete, accurate, fairly presented, or in accordance with generally accepted
accounting principles or applicable law, or to guarantee the independent
auditor's report.
Oversight of Independent Auditors
---------------------------------
1. Selection. The Audit Committee shall be solely and directly
responsible for appointing, evaluating, retaining and, when
necessary, terminating the engagement of the independent auditor.
The Audit Committee may, in its discretion, seek stockholder
ratification of the independent auditor it appoints.
2. Independence. The Audit Committee shall take appropriate action to
oversee the independence of the independent auditor. In connection
with this responsibility, the Audit Committee shall obtain and
review a formal written statement from the independent auditor
describing all relationships between the auditor and the Company,
including the disclosures required by Independence Standards Board
Standard No. 1. The Audit Committee shall actively engage in
dialogue with the auditor concerning any disclosed relationships or
services that might impact the objectivity and independence of the
auditor.
3. Compensation. The Audit Committee shall have sole and direct
responsibility for setting the compensation of the independent
auditor. The Audit Committee is empowered, without further action by
the Board of Directors, to cause the Company to pay the compensation
of the independent auditor established by the Audit Committee.
4. Preapproval of Services. The Audit Committee shall preapprove all
audit services to be provided to the Company, whether provided by
the principal auditor or other firms, and all other services
(review, attest and non-audit) to be provided to the Company by the
independent auditor; provided, however, that de minimis non-audit
services may instead be approved in accordance with applicable SEC
rules.
5. Oversight. The independent auditor shall report directly to the
Audit Committee, and the Audit Committee shall have sole and direct
responsibility for overseeing the work of the independent auditor,
including resolution of disagreements between Company management and
the independent auditor regarding financial reporting. In connection
with its oversight role, the Audit Committee shall, from time to
time as appropriate, receive and consider the reports required to be
made by the independent auditor regarding:
- critical accounting policies and practices;
- alternative treatments within generally accepted
accounting principles for policies and practices related
to material items that have been discussed with Company
management, including ramifications of the use of such
alternative disclosures and treatments, and the
treatment preferred by the independent auditor; and
- other material written communications between the
independent auditor and Company management.
Audited Financial Statements
----------------------------
6. Review and Discussion. The Audit Committee shall review and discuss
with the Company's management and independent auditor the Company's
audited financial statements, including the matters about which
Statement on Auditing Standards No. 61 (Codification of Statements
on Auditing Standards, AU ss.380) requires discussion.
7. Recommendation to Board Regarding Financial Statements. The Audit
Committee shall consider whether it will recommend to the Board of
Directors that the Company's audited financial statements be
included in the Company's Annual Report on Form 10-K.
8. Audit Committee Report. The Audit Committee shall prepare an annual
committee report for inclusion where necessary in the proxy
statement of the Company relating to its annual meeting of security
holders.
Oversight of Internal Audit Function
------------------------------------
9. The Audit Committee shall oversee the internal audit function of the
Company including (a) the planned scope of the internal audit work,
(b) findings of the internal auditors and related management
actions, (c) the adequacy of the staffing of the internal audit
function, (d) the adequacy and effectiveness of the internal
accounting controls and compliance with the Foreign Corrupt
Practices Act, (e) the adequacy, effectiveness and compliance with
the Code of Conduct of the Company and (f) the effectiveness of the
electronic data processing procedures and controls and related
security programs; and (g) review the independent auditors' letter
to management, and other comments, if any, regarding the system of
internal accounting controls and review any management response
thereto. The head of the Internal Auditing Department of the Company
("Audit Manager") shall report directly to the Chief Executive
Officer of the Company and to the Committee. The Committee shall
have direct access to the independent auditors. The Committee shall
report regularly to the Board.
Review of Other Financial Disclosures
-------------------------------------
10. Independent Auditor Review of Interim Financial Statements. The
Audit Committee shall direct the independent auditor to use its best
efforts to perform all reviews of interim financial information
prior to disclosure by the Company of such information and to
discuss promptly with the Audit Committee and the Chief Financial
Officer any matters identified in connection with the auditor's
review of interim financial information which are required to be
discussed by applicable auditing standards.
The Audit Committee shall direct management to advise the Audit
Committee in the event that the Company proposes to disclose interim
financial information prior to completion of the independent
auditor's review of interim financial information.
Controls and Procedures
-----------------------
11. Oversight. The Audit Committee shall coordinate the Board of
Directors' oversight of the Company's internal control over
financial reporting, disclosure controls and procedures and code of
conduct. The Audit Committee shall receive and review the reports of
the CEO and CFO required by Rule 13a-14 of the Exchange Act.
12. Procedures for Complaints. The Audit Committee shall establish
procedures for (i) the receipt, retention and treatment of
complaints received by the Company regarding accounting, internal
accounting controls or auditing matters; and (ii) the confidential,
anonymous submission by employees of the Company of concerns
regarding questionable accounting or auditing matters.
13. Related-Party Transactions. The Audit Committee shall review all
related party transactions on an ongoing basis, and all such
transactions must be approved by the Audit Committee.
14. Additional Powers. The Audit Committee shall have such other duties
as may be delegated from time to time by the Board of Directors.
D. Procedures and Administration
1. Meetings. The Audit Committee shall meet as often as it deems
necessary in order to perform its responsibilities, but in any
event, no less than once per quarter. The Audit Committee may also
act by unanimous written consent in lieu of a meeting. The Audit
Committee shall keep such records of its meetings as it shall deem
appropriate.
2. Subcommittees. The Audit Committee may form and delegate authority
to one or more subcommittees (including a subcommittee consisting of
a single member), as it deems appropriate from time to time under
the circumstances. Any decision of a subcommittee to preapprove
audit, review, attest or non-audit services shall be presented to
the full Audit Committee at its next scheduled meeting.
3. Reports to Board. The Audit Committee shall report regularly to the
Board of Directors.
4. Charter. At least annually, the Audit Committee shall review and
reassess the adequacy of this Charter and recommend any proposed
changes to the Board of Directors for approval.
5. Independent Advisors. The Audit Committee is authorized, without
further action by the Board of Directors, to engage such independent
legal, accounting and other advisors as it deems necessary or
appropriate to carry out its responsibilities. Such
independent advisors may be the regular advisors to the Company. The
Audit Committee is empowered, without further action by the Board of
Directors, to cause the Company to pay the compensation of such
advisors as established by the Audit Committee.
6. Funding. The Audit Committee is empowered, without further action by
the Board of Directors, to cause the Company to pay the ordinary
administrative expenses of the Audit Committee that are necessary or
appropriate in carrying out its duties.
EXHIBIT C
---------
SUSSEX BANCORP
2004 EQUITY INCENTIVE PLAN
--------------------------
1. Purpose
-------
The purpose of this 2004 Equity Incentive Plan (the "Plan") of Sussex
Bancorp, a New Jersey corporation (the "Company"), is to advance the interests
of the Company's stockholders by enhancing the Company's ability to attract,
retain and motivate persons who make (or are expected to make) important
contributions to the Company by providing such persons with equity ownership
opportunities and performance-based incentives and thereby better aligning the
interests of such persons with those of the Company's stockholders. Except where
the context otherwise requires, the term "Company" shall include any of the
Company's present or future parent or subsidiary corporations as defined in
Sections 424(e) or (f) of the Internal Revenue Code of 1986, as amended, and any
regulations promulgated thereunder (the "Code") and any other business venture
(including, without limitation, joint venture or limited liability company) in
which the Company has a controlling interest, as determined by the Board of
Directors of the Company (the "Board").
2. Eligibility
-----------
All of the Company's employees, officers, directors, consultants and
advisors are eligible to be granted options or restricted stock awards (each, an
"Award") under the Plan. Each person who has been granted an Award under the
Plan shall be deemed a "Participant".
3. Administration
--------------
The Plan will be administered by the Board. The Board shall have authority
to grant Awards, set the terms of such Awards (subject to the terms and
conditions of this Plan) and to adopt, amend and repeal such administrative
rules, guidelines and practices relating to the Plan as it shall deem advisable.
The Board may correct any defect, supply any omission or reconcile any
inconsistency in the Plan or any Award in the manner and to the extent it shall
deem expedient to carry the Plan into effect and it shall be the sole and final
judge of such expediency. All decisions by the Board shall be made in the
Board's sole discretion and shall be final and binding on all persons having or
claiming any interest in the Plan or in any Award. No director or person acting
pursuant to the authority delegated by the Board shall be liable for any action
or determination relating to or under the Plan made in good faith.
4. Stock Available for Awards
--------------------------
Subject to adjustment under Section 7, Awards may be made under the Plan
for up to 200,000 shares of common stock, without par value, of the Company (the
"Common Stock"). If any Award expires or is terminated, surrendered or canceled
without having been fully exercised or is forfeited in whole or in part or
results in any Common Stock not being issued, the unused Common Stock covered by
such Award shall again be available for the grant of Awards under the Plan.
Shares issued under the Plan may consist in whole or in part of authorized but
unissued shares or treasury shares.
5. Stock Options
-------------
(a) General. The Board may grant options to purchase Common Stock (each,
an "Option") and, subject to the terms hereof, determine the number of shares of
Common Stock to be covered by each Option, the exercise price of each Option and
the conditions and limitations applicable to the exercise of each Option,
including any vesting period and any conditions relating to applicable federal
or state securities laws, as it considers necessary or advisable. An Option
which is not intended to be an Incentive Stock Option (as hereinafter defined)
shall be designated a "Nonstatutory Stock Option".
(b) Incentive Stock Options. An Option that the Board intends to be an
"incentive stock option" as defined in Section 422 of the Code (an "Incentive
Stock Option") shall only be granted to employees of the Company, and any other
entities the employees of which are eligible to receive Incentive Stock Options
under the Code, and shall be subject to and shall be construed consistently with
the requirements of Section 422 of the Code. The Company shall have no liability
to a Participant, or any other party, if an Option (or any part thereof) that is
intended to be an Incentive Stock Option is not an Incentive Stock Option.
(c) Exercise Price. The Board shall establish the exercise price at the
time each Option is granted and specify it in the applicable option agreement;
provided, however that the exercise price for an Incentive Stock Option shall be
100% of the "fair market value" of the Common Stock on the date of grant. The
exercise price of any Incentive Stock Option granted to a person owning more
than ten percent (10%) of the total combined voting power of all classes of
stock of the Company ("Ten Percent Shareholder") shall not be less than one
hundred ten percent (110%) of the Fair Market Value of the Shares on the date of
the grant. The exercise price for any Non-Statutory Stock Option shall be
__________. For purposes hereof, Fair Market Value shall mean the fair market
value of the Common Stock as determined by Board from time to time in good
faith. As long as the stock is traded on the American Stock Exchange, the Fair
Market Value shall be the closing price on the last trading day prior to the
date of determination as reported by the Exchange
(d) Duration of Options. Each Option shall be exercisable at such times
and subject to such terms and conditions (including any vesting requirements) as
the Board may specify in the applicable option agreement provided, however, that
no Option will be granted for a term in excess of 10 years and provided further
that no Incentive Stock Option granted to a Ten Percent Shareholder may have a
term greater than five (5) years.
(e) Exercise of Option. Options may be exercised by delivery to the
Company of a written notice of exercise signed by the proper person or by any
other form of notice (including electronic notice) approved by the Board
together with payment in full as specified in Section 5(f) for the number of
shares for which the Option is exercised.
(f) Payment Upon Exercise. Common Stock purchased upon the exercise of an
Option granted under the Plan shall be paid for as follows:
(1) in cash or by check, payable to the order of the Company;
(2) except as the Board may, in its sole discretion, otherwise
provide in an option agreement, by (i) delivery of an irrevocable and
unconditional undertaking by a creditworthy broker
to deliver promptly to the Company sufficient funds to pay the exercise price
and any required tax withholding or (ii) delivery by the Participant to the
Company of a copy of irrevocable and unconditional instructions to a
creditworthy broker to deliver promptly to the Company cash or a check
sufficient to pay the exercise price and any required tax withholding;
(3) except as the Board may, in its sole discretion, otherwise
provide in an option agreement, by delivery of shares of Common Stock owned by
the Participant valued at their Fair Market Value, provided (i) such method of
payment is then permitted under applicable law and (ii) such Common Stock, if
acquired directly from the Company was owned by the Participant at least six
months prior to such delivery;
(4) to the extent permitted by applicable law and by the Board, in
its sole discretion by such other lawful consideration as the Board may
determine; or
(5) by any combination of the above permitted forms of payment.
(g) Substitute Options. In connection with a merger or consolidation of an
entity with the Company or the acquisition by the Company of property or stock
of an entity, the Board may grant Options in substitution for any options or
other stock or stock-based awards granted by such entity or an affiliate
thereof. Substitute Options may be granted on such terms as the Board deems
appropriate in the circumstances, notwithstanding any limitations on Options
contained in the other sections of this Section 5 or in Section 2.
(h) Limitations on Incentive Stock Options. The aggregate Fair Market
Value (determined as of the time an Option is granted) of stock with respect to
which Incentive Stock Options are exercisable for the first time by a
Participant during any calendar year (under this Plan or under any other
incentive stock option plan of the Company) shall not exceed one hundred
thousand dollars ($100,000). If the Fair Market Value of stock with respect to
which Incentive Stock Options are exercisable for the first time by a
Participant during any calendar year exceeds $100,000, the Options for the first
$100,000 worth of stock to become exercisable in such year shall be Incentive
Stock Options and the Options for the amount in excess of $100,000 that become
exercisable in that year shall be Non-Statutory Options. In the event that the
Code or the regulations promulgated thereunder are amended after the effective
date of this Plan to provide for a different limit on the Fair Market Value of
Shares permitted to be subject to Incentive Stock Options, such different limit
shall be incorporated herein and shall apply to any Options granted after the
effective date of such amendment.
(i) Transferability of Options. Incentive Stock Options granted under this
Plan, and any interest therein, shall not be transferable or assignable by the
Participant, and may not be made subject to any execution, attachment or similar
process, otherwise than by will or by the laws of descent and distribution and
shall be exercisable during the lifetime of the Participant only by the
Participant or any permitted transferee. Non-Statutory Options granted under
this Plan shall also generally not be transferable or assignable, provided,
however, that any Non-Statutory Option granted hereunder may be transferred by a
Participant to members of the Participant's immediate family, or to any trust or
benefit plan established for the benefit of such Participant or immediate family
member, or pursuant to the laws of descent and distribution.
6. Restricted Stock
----------------
(a) Grants. The Board may grant Awards entitling recipients to acquire
shares of Common Stock, subject to the right of the Company to require
forfeiture of such shares from the recipient in the event that conditions
specified by the Board in the applicable Award are not satisfied prior to the
end of the applicable restriction period or periods established by the Board for
such Award (each, a "Restricted Stock Award"). During the Restricted Period,
shares constituting a Restricted Stock Award may not be transferred, although a
Participant shall be entitled to exercise other indicia of ownership, including
the right to vote such shares and receive any dividends declared on such shares.
(b) Terms and Conditions. The Board shall determine the terms and
conditions of any such Restricted Stock Award, including the conditions for
forfeiture.
(c) Stock Certificates. The Company may cause shares issues as part of a
Restricted Stock Award to be issued in either book entry form of certificated
form. Shares issued in book entry form will be maintained in an account at the
Company's transfer agent, and only released to a Participant upon satisfaction
of any required restrictions. Any stock certificates issued in respect of a
Restricted Stock Award shall be registered in the name of the Participant and,
unless otherwise determined by the Board, deposited by the Participant, together
with a stock power endorsed in blank, with the Company (or its designee). At the
expiration of the applicable restriction periods, the Company (or such designee)
shall deliver the certificates no longer subject to such restrictions to the
Participant or if the Participant has died, to the beneficiary designated, in a
manner determined by the Board, by a Participant to receive amounts due or
exercise rights of the Participant in the event of the Participant's death (the
"Designated Beneficiary"). In the absence of an effective designation by a
Participant, Designated Beneficiary shall mean the Participant's estate.
7. Adjustments for Changes in Common Stock and Certain Other Events
----------------------------------------------------------------
(a) Changes in Capitalization. In the event of any stock split, reverse
stock split, stock dividend, recapitalization, combination of shares,
reclassification of shares, spin-off or other similar change in capitalization
or event, or any distribution to holders of Common Stock other than an ordinary
cash dividend, (i) the number and class of securities available under this Plan,
and (ii) the number and class of securities and exercise price per share subject
to each outstanding Option shall be appropriately adjusted by the Company (or
substituted Awards may be made, if applicable) to the extent the Board shall
determine, in good faith, that such an adjustment (or substitution) is necessary
and appropriate. If this Section 7(a) applies and Section 7(c) also applies to
any event, Section 7(c) shall be applicable to such event, and this Section 7(a)
shall not be applicable.
(b) Liquidation or Dissolution. In the event of a proposed liquidation or
dissolution of the Company, the Board shall upon written notice to the
Participants provide that all then unexercised Options will (i) become
exercisable in full as of a specified time at least 10 business days prior to
the effective date of such liquidation or dissolution and (ii) terminate
effective upon such liquidation or dissolution, except to the extent exercised
before such effective date. The Board may specify the effect of a liquidation or
dissolution on any Restricted Stock Award granted under the Plan at the time of
the grant.
(c) Change in Control Event
-----------------------
(1) Definitions
-----------
A "Change in Control Event" shall mean:
a. a reorganization, merger, consolidation or sale of all
or substantially all of the assets of the Company, or a
similar transaction in which shareholders owning a
majority of the voting securities of the Company prior
to such transaction fail to own a majority of the voting
securities of the Company after such transaction;
b. individuals who constitute the Incumbent Board (as
herein defined) of the Company cease for any reason to
constitute a majority thereof;
c. an event of a nature that would be required to be
reported in response to Item I of the current report on
Form 8-K, as in effect on the date hereof, pursuant to
Section 13 or 15(d) of the Exchange Act; or
d. Without limitation, a Change in Control shall be deemed
to have occurred at such time as (i) any "person" (as
the term is used in Section 13(d) and 14(d) of the
Exchange Act) other than the Company or the trustees or
any administration of any employee stock ownership plan
and trust, or any other employee benefit plans,
established by Employer from time-to-time is or becomes
a "beneficial owner" (as defined in Rule 13-d under the
Exchange Act) directly or indirectly, of securities of
the Company representing 25% or more of the Company's
outstanding securities ordinarily having the right to
vote at the election of directors; or
e A proxy statement soliciting proxies from stockholders
of the Company is disseminated by someone other than the
current management of the Company, seeking stockholder
approval of a plan of reorganization, merger or
consolidation of the Company or similar transaction with
one or more corporations as a result of which the
outstanding shares of the class of securities then
subject to the plan or transaction are exchanged or
converted into cash or property or securities not issued
by the Company, and such transaction is approved by a
majority of the Company's voting securities;
f. A tender offer is made for 25% or more of the voting
securities of the Company and the shareholder owning
beneficially or of record 25% or more of the outstanding
securities of the Company have tendered or offered to
sell their shares pursuant to such tender and such
tendered shares have been accepted by the tender
offeror.
For these purposes, "Incumbent Board" means the Board of Directors on the
date hereof, provided that any person becoming a director subsequent to the date
hereof whose election was
approved by a voting of at least three-quarters of the directors comprising the
Incumbent Board, or whose nomination for election by members or stockholders was
approved by the same nominating committee serving under an Incumbent Board,
shall be considered as though he were a member of the Incumbent Board.
(2) Effect on Options
-----------------
In the event of a consolidation, reorganization, merger or
sale of all or substantially all of the assets of the Company, in
each case in which outstanding shares of Common Stock are exchanged
for securities, cash or other property of any other corporation or
business entity or in the event of a liquidation of the Company, the
Board shall provide for any one or more of the following actions, as
to outstanding Options: (i) provide that such Options shall be
assumed, or equivalent options shall be substituted, by the
acquiring or succeeding corporation (or an affiliate thereof), (ii)
in the event of a merger under the terms of which holders of the
Common Stock will receive upon consummation thereof a cash payment
for each share surrendered in the merger (the "Merger Price"), make
or provide for a cash payment to the Participants equal to the
difference between (A) the Merger Price times the number of shares
of Common Stock subject to such outstanding Options (to the extent
then exercisable at prices not in excess of the Merger Price) and
(B) the aggregate exercise price of all such outstanding Stock
Options in exchange for the termination of such Stock Options, and
(iii) provide that all or any outstanding Stock Options shall become
exercisable in full immediately prior to such event.
(3) Effect on Restricted Stock Awards
---------------------------------
(a) Upon the occurrence of a Change in Control Event, except
to the extent specifically provided to the contrary in the
instrument evidencing any Restricted Stock Award or any other
agreement between a Participant and the Company, the vesting
schedule of all Restricted Stock Awards shall be accelerated so all
shares still subject to conditions or restrictions shall immediately
become free from such conditions or restrictions.
(d) Documentation. Each Award shall be evidenced in such form (written,
electronic or otherwise) as the Board shall determine. Each Award may contain
terms and conditions in addition to those set forth in the Plan.
(e) Board Discretion. Except as otherwise provided by the Plan, each Award
may be made alone or in addition or in relation to any other Award. The terms of
each Award need not be identical, and the Board need not treat Participants
uniformly.
(f) Termination of Status. The Board shall determine the effect on an
Award of the disability, death, retirement, authorized leave of absence or other
change in the employment or other status of a Participant and the extent to
which, and the period during which, the Participant, the Participant's legal
representative, conservator, guardian or Designated Beneficiary may exercise
rights under the Award. Such determination shall be reflected in the grant
agreement evidencing each such Award.
(g) Withholding. Each Participant shall pay to the Company, or make
provision satisfactory to the Board for payment of, any taxes required by law to
be withheld in connection with Awards to such Participant no later than the date
of the event creating the tax liability. Except as the Board may otherwise
provide in an Award, Participants may satisfy such tax obligations in whole or
in part by delivery of shares of Common Stock, including shares retained from
the Award creating the tax obligation, valued at their Fair Market Value;
provided, however, that the total tax withholding where stock is being used to
satisfy such tax obligations cannot exceed the Company's minimum statutory
withholding obligations (based on minimum statutory withholding rates for
federal and state tax purposes, including payroll taxes, that are applicable to
such supplemental taxable income). The Company may, to the extent permitted by
law, deduct any such tax obligations from any payment of any kind otherwise due
to a Participant.
(h) Amendment of Award. The Board may amend, modify or terminate any
outstanding Award, including but not limited to, substituting therefor another
Award of the same or a different type, changing the date of exercise or
realization, and converting an Incentive Stock Option to a Nonstatutory Stock
Option, provided that the Participant's consent to such action shall be required
unless the Board determines that the action, taking into account any related
action, would not materially and adversely affect the Participant.
(i) Conditions on Delivery of Stock. The Company will not be obligated to
deliver any shares of Common Stock pursuant to the Plan or to remove
restrictions from shares previously delivered under the Plan until (i) all
conditions of the Award have been met or removed to the satisfaction of the
Company, (ii) in the opinion of the Company's counsel, all other legal matters
in connection with the issuance and delivery of such shares have been satisfied,
including any applicable securities laws and any applicable stock exchange or
stock market rules and regulations, and (iii) the Participant has executed and
delivered to the Company such representations or agreements as the Company may
consider appropriate to satisfy the requirements of any applicable laws, rules
or regulations.
(j) Acceleration. The Board may at any time provide that any Award shall
become immediately exercisable in full or in part, free of some or all
restrictions or conditions, or otherwise realizable in full or in part, as the
case may be.
8. Miscellaneous
-------------
(a) No Right To Employment or Other Status. No person shall have any claim
or right to be granted an Award, and the grant of an Award shall not be
construed as giving a Participant the right to continued employment or any other
relationship with the Company. The Company expressly reserves the right at any
time to dismiss or otherwise terminate its relationship with a Participant free
from any liability or claim under the Plan, except as expressly provided in the
applicable Award.
(b) No Rights As Stockholder. Subject to the provisions of the applicable
Award, no Participant or Designated Beneficiary shall have any rights as a
stockholder with respect to any shares of Common Stock to be distributed with
respect to an Option until becoming the record holder of such shares.
Notwithstanding the foregoing, in the event the Company effects a split of the
Common Stock by means of a stock dividend and the exercise price of and the
number of shares subject to such Option are adjusted as of the date of the
distribution of the dividend (rather than as
of the record date for such dividend), then an optionee who exercises an Option
between the record date and the distribution date for such stock dividend shall
be entitled to receive, on the distribution date, the stock dividend with
respect to the shares of Common Stock acquired upon such Option exercise,
notwithstanding the fact that such shares were not outstanding as of the close
of business on the record date for such stock dividend.
(c) Effective Date and Term of Plan. The Plan shall become effective on
the date on which it is approved by the Company's stockholders, although Awards
may be made by the Board subject to such approval. No Awards shall be granted
under the Plan after the completion of ten years from the earlier of (i) the
date on which the Plan was adopted by the Board or (ii) the date the Plan was
approved by the Company's stockholders, but Awards previously granted may extend
beyond that date.
(d) Amendment of Plan. The Board may amend, suspend or terminate the Plan
or any portion thereof at any time.
(e) Governing Law. The provisions of the Plan and all Awards made
hereunder shall be governed by and interpreted in accordance with the laws of
the State of New Jersey, without regard to any applicable conflicts of law.
SUSSEX BANCORP
REVOCABLE PROXY FOR
ANNUAL MEETING OF SHAREHOLDERS
APRIL 27, 2005
Solicited on Behalf of the Board of Directors
The undersigned hereby appoints Edward J. Leppert and Mark J. Hontz and
each of them, with full power of substitution, to vote all of the shares of
Sussex Bancorp (the "Company") standing in the undersigned's name at the Annual
Meeting of Shareholders of the Company, to be held at the Augusta office of
Sussex Bank (the "Bank"), 100 Route 206, Augusta, New Jersey, on Wednesday,
April 27, 2005, at 10:30, and at any adjournment thereof. The undersigned hereby
revokes any and all proxies heretofore given with respect to such meeting.
This proxy will be voted as specified below. If no choice is specified,
the proxy will be voted "FOR" Management's nominees to the Board of Directors.
The Board of Directors recommends a vote for its nominees.
1. Election of the following five (5) nominees to each serve on the Board
of Directors for the term described below and until their successors are elected
and duly qualified: Patrick Brady, Edward J. Leppert, Richard Scott and Joseph
Zitone for a term of three (3) years and Richard Branca for a term of two (2)
years.
|_| FOR ALL NOMINEES
TO WITHHOLD AUTHORITY FOR ANY OF THE ABOVE NAMED NOMINEES, PRINT THE
NOMINEE'S NAME ON THE LINE BELOW:
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|_| WITHHOLD AUTHORITY FOR ALL NOMINEES
2. Approval of the Company's 2004 Equity Incentive Plan, which provides
for the grant of equity, in the form of restricted stock awards or stock option
grants to the Company's employees, officers, directors, consultants and
advisors; the plan covers up to an aggregate 200,000 shares of Common Stock.
|_| FOR APPROVAL OF THE 2004 EQUITY INCENTIVE PLAN
|_| AGAINST APPROVAL OF THE 2004 EQUITY INCENTIVE PLAN
3. In their discretion, such other business as may properly come before
the meeting.
Dated: , 2005.
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Signature
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Signature
(Please sign exactly as your name appears. When signing as an executor,
administrator, guardian, trustee or attorney, please give your title as such. If
signer is a corporation, please sign the full corporate name and then an
authorized officer should sign his name and print his name and title below his
signature. If the shares are held in joint name, all joint owners should sign.)
PLEASE DATE, SIGN AND RETURN THIS PROXY IN THE ENCLOSED RETURN ENVELOPE.