[LETTERHEAD SUSSEX BANCORP]
March 20, 2003
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 23, 2003, at 10:30 a.m. 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 Mark J. Hontz, Donald Kovach and Joel D. Marvil to the Company's
Board of Directors to each serve for a term of three years and upon the election
of Edward J. Leppert to serve until the 2005 Annual Meeting.
The Board of Directors of the Company believes that the election of its
nominees to the Board of Directors is in the best interests of the Company and
its stockholders and unanimously recommends that you vote "FOR" each of the
Board's nominees.
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,
/s/ William E. Kulsar
-----------------------
William E. Kulsar
Secretary
SUSSEX BANCORP
399 State Highway 23
P.O. Box 353
Franklin, NJ 07416
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD APRIL 23, 2003
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 23, 2003, at 10:30
a.m. for the purpose of considering and voting upon the following matters:
1. The election of Mark J. Hontz, Donald L. Kovach, Joel D. Marvil and
Edward J. Leppert to serve as directors of the Company, for a term of
three years with regard to Messrs. Hontz, Kovach and Marvil and until
the 2005 Annual Meeting with regard to Mr. Leppert, and in each case
until his successor is elected and duly qualified; and
2. Such other business as shall properly come before the Annual Meeting.
Stockholders of record at the close of business on March 3, 2003 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
/s/ William E. Kulsar
-----------------------------------
William E. Kulsar
Secretary
Franklin, New Jersey
March 20, 2003
IMPORTANT---PLEASE MAIL YOUR PROXY PROMPTLY
SUSSEX BANCORP
399 State Highway 23
P.O. Box 353
Franklin, NJ 07416
----------------------------------
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
APRIL 23, 2003
----------------------------------
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 23, 2003, at 10:30 a.m., at Sussex Bank's Augusta office,
100 Route 206, Augusta, New Jersey and at any adjournments thereof. The 2002
Annual Report to Stockholders, including consolidated financial statements for
the fiscal year ended December 31, 2002, and a proxy card, accompany this Proxy
Statement, which is first being mailed to record holders on or about March 20,
2003.
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.
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.
-1-
A proxy may be revoked at any time prior to its exercise by sending a
written notice of revocation to the Company, 399 State Highway 23, P.O. Box 353,
Franklin, New Jersey 07416, 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 3, 2003, 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 1,695,462 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.
-2-
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. The Board has
fixed the number of directors at nine (9).
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.
-3-
Table I
Nominees for 2003 Annual Meeting
---------------------------------------------------------------------------------------------------------
Name, Age and Position Principal Occupations During Director Term
With the Company Past Five Years Since (1) Expires
---------------------------------------------------------------------------------------------------------
Mark J. Hontz, 36 Partner 1998 2006
Director Hollander Hontz Weaver Hinkes & Pasculli,
L.L.C.(attorneys) Newton, New Jersey
---------------------------------------------------------------------------------------------------------
Donald L. Kovach, 67 Chairman, CEO and President of the Company; 1976 2006
Chairman of the Board,CEO Chairman and CEO of the Bank
and President
---------------------------------------------------------------------------------------------------------
Edward J. Leppert, 42 Owner, E.J. Leppert & Co. (certified public
Director accountants); previously partner, Murphy,
Perry & Leppert. 2002 2005
---------------------------------------------------------------------------------------------------------
Joel D. Marvil, 68 Chairman of Manufacturing Co. 1989 2006
Director Ames Rubber Corporation
Hamburg, New Jersey
---------------------------------------------------------------------------------------------------------
(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
---------------------------------------------------------------------------------------------------------
Name, Age and Position Principal Occupations During Director Term
With the Company Past Five Years Since (1) Expires
---------------------------------------------------------------------------------------------------------
Irvin Ackerson, 80 Excavating Contractor
Director Ackerson Contracting Co. 1976 2004
Oak Ridge, New Jersey
---------------------------------------------------------------------------------------------------------
William E. Kulsar, 66 Certified Public Accountant 1976 2004
Secretary and Director Caristia, Kulsar & Wade, P.A.
Sparta, New Jersey
---------------------------------------------------------------------------------------------------------
Terry Thompson, 56 President and Chief Operations Officer
Director of the Bank 2001 2004
---------------------------------------------------------------------------------------------------------
Richard Scott, 67 Dentist, Richard Scott, DDS
Director Franklin, New Jersey 1976 2005
---------------------------------------------------------------------------------------------------------
-4-
---------------------------------------------------------------------------------------------------------
Joseph Zitone, 71 General Contractor, Zitone Construction
Director Montague, New Jersey 1984 2005
---------------------------------------------------------------------------------------------------------
----------------------------------
(1) Includes prior service on Board of Directors of the Bank prior to formation
of the Company.
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 2002. 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 held and
committee meetings held during 2002.
Committees of the Board
During 2002, the Board of Directors maintained an Audit Committee and a
Compensation Committee. The Company does not maintain a separate Nominating
Committee. The full Board acts as a Nominating Committee.
Audit Committee. The Company's Audit Committee consisted during 2002 of
Directors William E. Kulsar (Chairman), and Mark J. Hontz. The Audit Committee
met five times during 2002. For 2003, Mr. Edward J. Leppert has been appointed
Chairman of the Audit Committee. Messrs. Joel Marvil, and Richard W. Scott have
been appointed to the Audit Committee and Mr. Kulsar will continue as a member
of the Committee.
Audit Committee Report
----------------------
The Audit Committee meets periodically 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.
All Directors who serve on the Audit Committee are "independent" for
purposes of the American Stock Exchange 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 adopted a written charter for the Audit Committee setting
forth the audit related functions the Audit Committee is to perform. This
Charter was filed with the SEC as an exhibit to the year 2000 proxy statement.
In connection with this year's financial statements, the Audit Committee
-5-
has reviewed and discussed the Company's 2002 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,
2002 for filing with the U.S. Securities and Exchange Commission.
Edward J. Leppert (Chairman)
William E. Kulsar
Joel D. Marvil
Richard Scott
Compensation Committee. The Company maintains a Compensation Committee which
sets the compensation for the executive officers of the Company. In 2002, the
Compensation Committee consisted of Directors Joel D. Marvil (Chairman), Irvin
Ackerson, Joseph Zitone and Mark J. Hontz and met twice.
Compensation of Directors
During 2002, 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 will receive $500 per meeting
in 2003. During 2002, Directors of the Company received an annual retainer of
$4,000 each. For 2003, the annual retainer was increased on $5,000. In addition,
members of the Audit Committee will receive in 2003 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 $5.08 as adjusted for 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
-6-
re-election. As of December 31, 2002, 43,721 options were outstanding under this
plan and 6,733 authorized shares were available for grant.
In addition, members of the Board of Directors are eligible to participate
in the 2001 Stock Option Plan, which was approved by the shareholders in 2000.
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
non-statutory options may be granted at an exercise price no less than 85% of
the then current fair market value of the Common Stock.
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 28, 2003, 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.
----------------------------------------------------------------------
Number of Shares Percent
Name of Beneficial Beneficially Owned (1) of Class
---------------------- --------
----------------------------------------------------------------------
2.02%
Irvin Ackerson 34,288 (2)
----------------------------------------------------------------------
0.23%
Mark J. Hontz 3,893 (3)
----------------------------------------------------------------------
7.18%
Donald L. Kovach 121,767 (4)(5)
----------------------------------------------------------------------
22,959 (6) 1.35%
William E. Kulsar
----------------------------------------------------------------------
10,391 (7) 0.63%
Edward J. Leppert
----------------------------------------------------------------------
2.68%
Joel D. Marvil 45,440 (8)
----------------------------------------------------------------------
3.07%
Richard Scott 52,011 (9)
----------------------------------------------------------------------
1.01%
Terry Thompson 17,132 (10)
----------------------------------------------------------------------
4.22%
Joseph Zitone 85, 156 (11)
----------------------------------------------------------------------
-7-
--------------------------------------------------------------------------------
Directors & Principal Officers 425,540 25.10%
as a Group (9 persons)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Name of Beneficial Owner of
More Than 5% of the Number of Shares Percent
Common Stock Beneficially Owned (1) of Class
--------------------------------------------------------------------------------
Ambrose Hamm
P.O. Box E 124,940 7.37%
Branchville, NJ 07826
--------------------------------------------------------------------------------
Lakeland Bancorp, Inc.
250 Oak Ridge Road 161,391 9.64%
Oak Ridge, NJ 07438
--------------------------------------------------------------------------------
(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 10,875 shares owned by Mr. Ackerson's wife. Also includes 11,513
shares purchasable upon the exercise of immediately exercisable stock
options.
(3) Also includes 2,788 purchasable upon the exercise of immediately
exercisable stock options.
(4) Includes 16,216 shares owned by Mr. Kovach's wife, 5,731 shares in the name
of Merrill Lynch Pierce Fenner & Smith, FBO Donald L. Kovach and 3,458
shares in the name of Merrill Lynch Pierce Fenner & Smith, FBO Betty J.
Kovach, 1,260 shares in the name of ICBA Financial Services FBO Donald L.
Kovach, 1,365 shares in the name of ICBA Financial Services FBO Betty J.
Kovach. Also includes 7,066 shares purchasable upon the exercise of stock
options.
(5) Includes 37,730 shares over which Mr. Kovach has voting authority as
administrator for The Sussex County State Bank Employee Stock Ownership
Plan.
(6) Includes 12,800 shares in the name of Merrill Lynch Pierce Fenner & Smith
FBO William E. Kulsar IRA and 5,215 shares in the name of Merrill Lynch
Pierce Fenner & Smith FBO William E. Kulsar. Also includes 4,100 shares
purchasable upon the exercise of immediately exercisable stock options.
-8-
(7) Includes 945 shares in the name of Sun America FBO Cynthia Leppert, IRA and
3, 235 in the name of Salomon Smith Barney FBO Edward J. Leppert, IRA. Also
includes 2,000 shares purchasable upon the exercise of immediately
exercisable stock options.
(8) Also includes 11,790 shares purchasable upon the exercise of immediately
exercisable stock options.
(9) Also includes 11,769 shares purchasable upon the exercise of immediately
exercisable stock options.
(10) Includes 11,600 shares in the name of American Express Trust Co. FBO Terry
H. Thompson, IRA. Also includes 1,533 shares purchasable upon the exercise
of immediately exercisable stock options.
(11) Includes 11,587 shares owned by the Zitone Construction & Supply Co., Inc.
Profit Sharing Plan Trust, 21,438 shares owned by Zitone Family Limited
Partnership and 315 shares in the name of Smith Barney FBO Joseph Zitone.
Also includes 2,525 shares purchasable upon the exercise of immediately
exercisable stock options.
-9-
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. Our CEO is the only executive
officer whose remuneration exceeded $100,000 for the last fiscal year.
SUMMARY COMPENSATION TABLE
Cash and Cash Equivalent Forms
of Remuneration
---------------
-------------------------------------------------------------------------------------------------------------------
Annual Compensation Award Payouts
-------------------------------------------------------------------------------------------------------------------
Securities
Name and Other Annual Underlying LTIP All Other
Principal Compensation Options/SARs Payouts Compensation
Position Year Salary ($) Bonus ($) ($) (#) ($) ($)
-------------------------------------------------------------------------------------------------------------------
Donald L 2002 $188,143 -0- (1) 3,000 None $117,869 (5)
Kovach, --------------------------------------------------------------------------------------------------
Chairman of 2001 $177,234 -0- (1) 1,080 None $94,156 (5)
the --------------------------------------------------------------------------------------------------
Board,
President and CEO 2000 $168,618 -0- (1) 315 None $41,682 (5)
-------------------------------------------------------------------------------------------------------------------
George B
Harper, 2002 $ 50,000 $5,660(3) $71,570(4) -- None -0-
President, --------------------------------------------------------------------------------------------------
Tri-State 2001 $12,500(2) -- $11,300(4) -- None -0-
Insurance
Agency, Inc.
-------------------------------------------------------------------------------------------------------------------
George
Lista, Chief 2002 $120,000 $5,660(3) $68,495(4) -- None -0-
Operating --------------------------------------------------------------------------------------------------
Officer, 2001 $30,000(2) -- $11,300(4) -- None -0-
Tri-State --------------------------------------------------------------------------------------------------
Insurance
Agency, Inc.
-------------------------------------------------------------------------------------------------------------------
(1) During the fiscal years presented, the Company provided add itional
life insurance and an automobile and provided a match to Mr. Kovach's 401 (k)
plan account membership for Mr. Kovach. 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) Messrs. Harper and Lista became executive officers of the Company on
October 1, 2001 with the acquisition of Tri-State Insurance Agency, Inc. at
annual salaries of $50,000 for Mr. Harper and $120,000 for Mr. Lista.
(3) Bonus is the fair market value of 535 shares of the Company's common
stock.
(4) Represents commissions earned on the sale of insurance products.
(5) Represents amount charged by the Company to expense in connection with
the Supplemental Executive Retirement Plan ("SERP") implemented for Mr. Kovach
in 2000.
-10-
Employment Agreements
The Company and the Bank are parties to an Employment Agreement with Mr.
Donald L. Kovach pursuant to which he serves as President and Chief Executive
Officer of the Company and President and Chief Executive Officer of the Bank
(the "Employment Agreement"). The Employment Agreement provides for a term
ending on August 31, 2002, although it will be automatically extended on each
anniversary date for up to two (2) additional one-year periods unless either
party provides notice of their intention not to extend the contract. No such
notice was given for the August 31, 2002 anniversary, and so the Employment
Agreement is in effect until August 31, 2003. The Employment Agreement provides
that Mr. Kovach will receive a base salary of $160,200, subject to increase or
decrease, and may be granted a discretionary bonus 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.
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
-11-
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, 2002, Tri-State exceeded its
targeted net before tax income, and each of Messrs. Harper and Lista received a
bonus of 535 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, Mr. Kovach will receive a retirement benefit equal to 35% of his average
final compensation determined by his last five years of employment. Mr. Kovach
will receive this benefit in the event that he works to age 70, or he is
involuntarily discharged prior to age 70 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 non-statutory options granted under the
2001 Stock Option Plan may be no less than 85% of the fair market value of the
Common Stock.
-12-
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
-----------------------------------------------------------------------------------------------------------------------------
Number of Securities % of Total
Underlying Option/SARs Granted Exercise or Present Value of
Options/SARs to Employees in Base Price Expiration Option on Date of
Name Granted (#)(1) Fiscal Year ($/SH) Date Grant($)(2)
-----------------------------------------------------------------------------------------------------------------------------
Donald L. Kovach 3,000 18.1% $10.45 1/23/12 $1.61
=============================================================================================================================
-------------------
(1) As of December 31, 2002, 750 of these options were immediately
exercisable.
(2) The present value of each option grant is estimated on the date of
grant using the Black-Scholes option pricing model with the following weighted
average assumptions: dividend yield of 2.50%, expected volatility of 14.43%,
risk free interest rate of 4.45%, and an expected life of five (5) years.
The following table sets forth information concerning the fiscal year-end
value of unexercised options held by the executive officers of the Company named
in the table above. No stock options were exercised by such executive officers
during 2002.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL
YEAR AND FY-END OPTION/SAR VALUES
====================================================================================================================================
Value of Unexercised
Number of Securities In-the-Money Options/SARs at
Underlying Unexercised FY-End ($) (based on $10.25 per
Value Options/SARs at FY-End (#) share)
Shares Acquired on Realized Exercisable/ Exercisable/
Name Exercise (#) ($) Unexercisable Unexercisable
------------------------------------------------------------------------------------------------------------------------------------
Donald L. Kovach 863 $661 6,639/3,217 $29,326/0(1)
====================================================================================================================================
-----------------------
(1) Mr. Kovach has options to purchase 1,020 shares which were not in the money
at year end 2002.
13
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 $15,900 to Irvin Ackerson for appraisal services rendered to
the Bank during fiscal 2002. 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.
INDEPENDENT AUDITORS
The Company's independent auditors for the fiscal year ended December 31,
2002 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.
Audit Fees
The Company was billed the aggregate amount of $48,918 for fiscal year 2002
for professional services rendered by Beard Miller Company, LLP for the audit of
the Company's annual financial statements for 2002 and review of the financial
statements included in the Company's forms 10-QSB during 2002.
-14-
Financial Information System Design and Implemental Fees
The Company was not billed any amount for financial information system
design and implementation services rendered by Beard Miller Company, LLP during
2002.
All Other Fees
In addition to the audit fees described above, Beard Miller Company, LLP
billed the Company $4,444 for consulting services regarding accounting
compliance issues. The Audit Committee has reviewed these fees and determined
that the provision of these services is compatible with maintaining the
independence of Beard Miller Company, LLP. Other than these fees and the fees
set forth above under Audit Fees, the Company was not billed for any services by
Beard Miller Company, LLP for fiscal year 2002.
Change in Auditors
For the year ended December 31, 2001, Arthur Andersen, LLP performed the
audit of the Company's financial statements. In light of events impacting Arthur
Andersen, LLP during 2002, the Company changed its independent auditors in April
of 2002, dismissing Arthur Andersen, LLP and retaining Beard Miller Company, LLP
as independent auditors. The decision to change auditors was recommended by the
Company's Audit Committee. There were no disagreements with Arthur Andersen, LLP
on any matter of accounting principles or practices, financial statement
disclosure or auditing scope or procedure which, if not resolved to the
satisfaction of Arthur Andersen, LLP, would have caused it to make reference to
the subject matter of the disagreement in connection with their reports. The
independent auditors report on the consolidated financial statements for the
fiscal years ended December 31, 2001 and 2000 did not contain any adverse
opinion or disclaimer of opinion, and was not qualified or modified as to
uncertainty, audit scope or auditing principles.
In 2001 the Company changed independent auditors. The Company replaced
Radics & Co., LLC with Arthur Andersen to serve as its independent auditors. The
decision to change auditors was recommended by the Company's Audit Committee.
For the fiscal years ended December 31, 2000 and 1999, the Company had retained
the services of Radics & Co., LLC as its independent auditors. There have been
no disagreements with Radics & Co., LLC on any matter of accounting principles
or practices, financial statement disclosure or auditing scope or procedure
which, if not resolved to the satisfaction of Radics & Co., LLC, would have
caused it to make reference to the subject matter of the disagreement in
connection with their reports. The independent auditor's report on the
consolidated financial statements for the fiscal years ended December 31, 2000
and 1999 did not contain an adverse opinion or disclaimer of opinion, and was
not qualified or modified as to uncertainty, audit scope or auditing principles.
-15-
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.
The Company believes that, during the fiscal year ended December 31, 2002,
all persons subject to Section 16(a) have made all required filings for the
fiscal year 2002.
STOCKHOLDER PROPOSALS
Proposals of stockholders to be included in the Company's 2004 proxy
material must be received by the Secretary of the Company no later than November
28, 2003.
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.
-16-
SUSSEX BANCORP
REVOCABLE PROXY FOR
ANNUAL MEETING OF SHAREHOLDERS
APRIL 23, 2003
Solicited on Behalf of the Board of Directors
The undersigned hereby appoints Candace A. Leatham and Terry H. Thompson
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 23, 2003, at 10:30 A.M., and at any adjournment thereof. The undersigned
hereby revokes any and all proxies heretofore given with respect to such
meeting.
ANNUAL MEETING OF SHAREHOLDERS OF
SUSSEX BANCORP
April 23, 2003
Please date, sign and mail
your proxy card in the
envelope provided as soon as
possible.
Please detach and mail in the envelope provided.
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.
PLEASE SIGN, DATE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE. PLEASE MARK YOUR
VOTE IN BLUE OR BLACK INK AS SHOWN HERE [X]
1. Election of the following four (4) nominees to each serve on the Board of
Directors for the term described below and until their successors are
elected and duly qualified:
NOMINEES:
[ ] Mark J. Hontz, for a term of three (3) years
[ ] Donald L. Kovach for a term of three (3) years
[ ] Joel D. Marvil for a term of three (3) years
[ ] Edward J. Leppert for a term of two (2) years
[ ] FOR ALL NOMINEES
[ ] WITHHOLD AUTHORITY FOR
ALL NOMINEES
[ ] FOR ALL EXCEPT
(See instructions below)
2. In their discretion, such other business as may properly come before the
meeting.
INSTRUCTION: To withhold authority to vote for any individual nominee(s),
mark"FOR ALL EXCEPT" and fill in the circle next to each nominee you wish to
withhold, as shown here:
---------------------------------
---------------------------------
---------------------------------
---------------------------------
To change the address on your account, please check the box at right and
indicate your new address in the space above. Please note that changes to the
registered name(s) on the account may not be submitted via this method.
SUSSEX BANCORP