Exhibit 10.3
THIRD AMENDMENT TO THE SUSSEX BANK SALARY CONTINUATION AGREEMENT
DATED MAY 15, 2000 FOR DONALD L. KOVACH
THIS THIRD AMENDMENT is adopted this 17th day of October, 2007,
effective as of January 1, 2005, by and between Sussex Bank, a state-chartered commercial bank located in Franklin, New Jersey (the “Company”) and Donald L. Kovach (the “Executive”).
The Company and the Executive executed the Salary Continuation Agreement effective as of May 15, 2000 (the “Agreement”), executed an Addendum to the Agreement on June 11, 2002, and executed a Second Amendment to the Agreement on January 7, 2004.
The undersigned hereby amend the Agreement for the purpose of bringing the Agreement into compliance with Section 409A of the Internal Revenue Code. Therefore, the following changes shall be made:
The following Section 1.9a shall be added to the Agreement immediately following Section 1.9:
| 1.9a | “Specified Employee” means an employee who at the time of Termination of Employment is a key employee of the Bank, if any stock of the Bank is publicly traded on an established securities market or otherwise. For purposes of this Agreement, an employee is a key employee if the employee meets the requirements of Code Section 416(i)(1)(A)(i), (ii), or (iii) (applied in accordance with the regulations thereunder and disregarding section 416(i)(5)) at any time during the 12-month period ending on December 31 (the “identification period”). If the employee is a key employee during an identification period, the employee is treated as a key employee for purposes of this Agreement during the twelve (12) month period that begins on the first day of April following the close of the identification period. |
Section 1.11 of the Agreement shall be deleted in its entirety and replaced by the following:
| 1.11 | “Termination of Employment” means termination of the Executive’s employment with the Bank for reasons other than death. Whether a Separation from Service has occurred is determined in accordance with the requirements of Code Section 409A and is based on whether the facts and circumstances indicate that the Bank and the Executive reasonably anticipated that no further services would be performed after a certain date or that the level of bona fide services the Executive would perform after such date (whether as an employee or as an independent contractor) would permanently decrease to no more than twenty percent (20%) of the average level of bona fide services performed (whether as an employee or an independent contractor) over the immediately preceding thirty-six (36) month period (or the full period of services to the Bank if the Executive has been providing services to the Bank less than thirty-six (36) months). |
- 32 -
Section 2.1 of the Agreement shall be deleted in its entirety and replaced by the following:
| 2.1 | Normal Retirement Benefit. Upon May 1, 2008, the Company shall pay to the Executive the benefit described in this Section 2.1 in lieu of any other benefit under this Agreement. |
Amount of Benefit. The annual benefit under this Section 2.1 is 35 percent of Final Pay, as defined in Article 1.5, at May 1, 2008.
Payment of Benefit. The Company shall pay the annual benefit to the Executive in 12 equal monthly installments payable on the first day of each month commencing with May 1, 2008. The annual benefit shall be paid to the Executive for 15 years.
The following Sections 2.5, 2.6 and 2.7 shall be added to the Agreement immediately following Section 2.4.2:
| 2.5 | Restriction on Timing of Distributions. Notwithstanding any provision of this Agreement to the contrary, if the Executive is considered a Specified Employee, the provisions of this Section 2.5 shall govern all distributions hereunder. If benefit distributions which would otherwise be made to the Executive due to a Termination of Employment are limited because the Executive is a Specified Employee, then such distributions shall not be made during the first six (6) months following Termination of Employment. Rather, any distribution which would otherwise be paid to the Executive during such period shall be accumulated and paid to the Executive in a lump sum on the first day of the seventh month following the Termination of Employment. All subsequent distributions shall be paid in the manner specified. |
| 2.6 | Distributions Upon Income Inclusion Under Section 409A of the Code. Upon the inclusion of any amount into the Executive’s income as a result of the failure of this non-qualified deferred compensation plan to comply with the requirements of Section 409A of the Code, to the extent such tax liability can be covered by the amount the Company has accrued with respect to the Company’s obligations hereunder, a distribution shall be made as soon as is administratively practicable following the discovery of the plan failure. |
| 2.7 | Change in Form or Timing of Distributions. All changes in the form or timing of distributions hereunder must comply with the following requirements. The changes: |
| (d) | may not accelerate the time or schedule of any distribution, except as provided in Section 409A of the Code and the regulations thereunder; |
| (e) | must, for benefits distributable under Sections 2.1, 2.2 and 2.4, delay the commencement of distributions for a minimum of five (5) years from the date the first distribution was originally scheduled to be made; and |
| (f) | must take effect not less than twelve (12) months after the election is made. |
Article 7 of the Agreement shall be deleted in its entirety and replaced by the following:
Article 7
Amendments and Termination
| 7.1 | Amendments. This Agreement may be amended only by a written agreement signed by the Company and the Executive. However, the Company may unilaterally amend this Agreement to conform with written directives to the Company from its auditors or banking regulators or to comply with legislative changes or tax law, including without limitation Section 409A of the Code and any and all Treasury regulations and guidance promulgated thereunder. |
- 33 -
| 7.2 | Plan Termination Generally. The Company and Executive may terminate this Agreement at any time. The benefit hereunder shall be the amount the Company has accrued with respect to the Company’s obligations hereunder. Except as provided in Section 7.3, the termination of this Agreement shall not cause a distribution of benefits under this Agreement. Rather, after such termination benefit distributions will be made at the earliest distribution event permitted under Article 2 or Article 3. |
| 7.3 | Plan Terminations Under Section 409A. Notwithstanding anything to the contrary in Section 7.2, if this Agreement terminates in the following circumstances: |
| (a) | Within thirty (30) days before or twelve (12) months after a change in the ownership or effective control of the Company, or in the ownership of a substantial portion of the assets of the Company as described in Section 409A(2)(A)(v) of the Code, provided that all distributions are made no later than twelve (12) months following such termination of the Agreement and further provided that all the Company's arrangements which are substantially similar to the Agreement are terminated so the Executive and all participants in the similar arrangements are required to receive all amounts of compensation deferred under the terminated arrangements within twelve (12) months of the termination of the arrangements; |
| (b) | Upon the Company’s dissolution or with the approval of a bankruptcy court provided that the amounts deferred under the Agreement are included in the Executive's gross income in the latest of (i) the calendar year in which the Agreement terminates; (ii) the calendar year in which the amount is no longer subject to a substantial risk of forfeiture; or (iii) the first calendar year in which the distribution is administratively practical; or |
| (c) | Upon the Bank’s termination of this and all other arrangements that would be aggregated with this Agreement pursuant to Treasury Regulations Section 1.409A-1(c) if the Executive participated in such arrangements (“Similar Arrangements”), provided that (i) the termination and liquidation does not occur proximate to a downturn in the financial health of the Bank, (ii) all termination distributions are made no earlier than twelve (12) months and no later than twenty-four (24) months following such termination, and (iii) the Bank does not adopt any new arrangement that would be a Similar Arrangement for a minimum of three (3) years following the date the Bank takes all necessary action to irrevocably terminate and liquidate the Agreement |
the Company may distribute the amount the Company has accrued with respect to the Company’s obligations hereunder, determined as of the date of the termination of the Agreement, to the Executive in a lump sum subject to the above terms.
The following Section 8.11 shall be added to the Agreement immediately following Section 8.10:
| 8.11 | Compliance with Section 409A. This Agreement shall at all times be administered and the provisions of this Agreement shall be interpreted consistent with the requirements of Section 409A of the Code and any and all regulations thereunder, including such regulations as may be promulgated after the Effective Date of this Agreement. |
IN WITNESS OF THE ABOVE, the Company and the Executive hereby consent to this THIRD Amendment.
| EXECUTIVE: | SUSSEX BANK: |
By: /s/ Donald L. Kovach | By: /s/ Terry H. Thompson |
DONALD L. KOVACH | TERRY H. THOMPSON |
| President |
- 34 -