EXECUTIVE INCENTIVE AND DEFERRED COMPENSATION PLAN

 

 

                                   Exhibit 10

 

                                   SUSSEXBANK

               EXECUTIVE INCENTIVE AND DEFERRED COMPENSATION PLAN

 

      THIS PLAN is  adopted  this  23rd day of March,  2005,  by  SUSSEXBANK,  a

state-chartered commercial bank located in Franklin, New Jersey (the "Company").

The purpose of this  SussexBank  Executive  Incentive and Deferred  Compensation

Plan (the "Plan") is to motivate and reward for  achieving  bank  financial  and

strategic  goals as well as to provide  specified  benefits to a select group of

management  or highly  compensated  employees who  contribute  materially to the

continued  growth,  development and future business success of the Company.  The

Plan  includes an option for  Participants  to defer  Compensation  or Incentive

Awards. This Plan shall be unfunded for tax purposes and for purposes of Title I

of the Employee  Retirement  Income Security Act of 1974  ("ERISA"),  as amended

from time to time.

 

                                    Article 1

                                   Definitions

 

      Whenever used in this Plan, the following words and phrases shall have the

meanings specified:

 

1.1   "Beneficiary"  means each designated  person,  or the estate of a deceased

      Participant, entitled to benefits, if any, upon the death of a Participant

      determined pursuant to Article 7.

 

1.2   "Beneficiary  Designation  Form" means the form  established  from time to

      time by the Plan  Administrator  that a Participant  completes,  signs and

      returns to the Plan Administrator to designate one or more beneficiaries.

 

1.3   "Board"  means the Board of  Directors of the Company as from time to time

      constituted.

 

1.4   "Change of  Control"  means (a) the  transfer  of shares of the  Company's

      voting  common  stock such that one entity or one person  acquires  (or is

      deemed to acquire when  applying  Section 318 of the Code) more than fifty

      percent (50%) of the Company's  outstanding  voting common stock  followed

      within  twelve  months by  Participant's  Termination  of  Employment  for

      reasons other than death, disability or retirement; or (b) such definition

      of  Change  of  Control  hereafter  promulgated  by the  Secretary  of the

      Treasury  or  other  authorized   regulatory  body,  in  which  case  such

      definition  shall  supersede any other  definition of Change of Control in

      this Plan and shall control the terms of this Plan.

 

1.5   "Change of Control Benefit" means the benefit set forth in Section 5.4.

 

1.6   "Code" means the Internal Revenue Code of 1986, as amended.

 

 

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1.7   "Compensation" means the base salary that would be paid to the Participant

      during a Plan Year, absent deferrals,  not including  Incentive Awards and

      FICA taxes associated with such base salary.

 

1.8   "Deferral  Account"  means the  Company's  accounting  of a  Participant's

      accumulated Deferrals, plus accrued interest.

 

1.9   "Deferrals"  means the  amount  of a  Participant's  Compensation  and any

      Incentive  Award which the  Participant  elects to defer according to this

      Plan.

 

1.10  "Disability" means (a) the Participant's suffering a sickness, accident or

      injury which has been determined by the carrier of any individual or group

      disability  insurance  policy covering the  Participant,  or by the Social

      Security  Administration,  to be a disability  rendering  the  Participant

      totally and permanently disabled. The Participant must submit proof to the

      Plan  Administrator  of the carrier's or Social Security  Administration's

      determination upon the request of the Plan  Administrator;  or (b) or such

      definition of Disability applicable to non-qualified deferred compensation

      plans hereafter promulgated by the Secretary of the Treasury in which case

      such definition shall supersede any other definition of Disability in this

      Plan and shall control the terms of this Plan.

 

1.11  "Disability Benefit" means the benefit set forth in Section 5.3.

 

1.12  "Early   Termination"   means  Termination  of  Employment  before  Normal

      Retirement Age for reasons other than death,  Disability,  Termination for

      Cause or following a Change of Control.

 

1.13  "Early Termination Benefit" means the benefit set forth in Section 5.2.

 

1.14  "Earnings  per Share" means the  Company's net income before income taxes,

      and  before any  expense  for the  awards  under the Plan,  divided by the

      weighted average number of shares outstanding for the current Plan Year.

 

1.15  "Effective Date" means March 23, 2005.

 

1.16  "Election Form" means the forms  established from time to time by the Plan

      Administrator that a Participant completes,  signs and returns to the Plan

      Administrator to make an election under the Plan.

 

1.17  "Incentive  Award" means for any one Plan Year,  the amount  determined in

      accordance with Article 3.

 

1.18  "Normal Distribution Date" means the later of the Normal Retirement Age or

      Termination of Employment.

 

1.19  "Normal Retirement Age" means the Participant attaining age 65.

 

 

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1.20  "Normal Retirement Benefit" means the benefit set forth in Section 5.1.

 

1.21  "Participant"  shall mean any employee (i) who is selected to  participate

      in the Plan, (ii) who elects to participate in the Plan, (iii) who signs a

      Participation  Agreement,  an Election Form and a Beneficiary  Designation

      Form,  (iv)  whose  signed  Participation  Agreement,  Election  Form  and

      Beneficiary  Designation Form are accepted by the Plan Administrator,  (v)

      who  commences  participation  in the Plan,  and (vi) whose  Participation

      Agreement has not terminated.  A Participant  shall also mean any employee

      (i) who is selected to  participate in the Plan and selected to receive an

      Incentive Award, and (ii) whose completed Beneficiary  Designation Form is

      accepted by the Plan Administrator.

 

1.22  "Participation  Agreement"  shall  mean  a  written  agreement,  as may be

      amended  from  time to time,  which is  entered  into by and  between  the

      Company and a  Participant.  Each  Participation  Agreement  executed by a

      Participant  and the Company shall provide for the entire benefit to which

      such Participant is entitled under the Plan; should there be more than one

      Participation  Agreement,  the Participation  Agreement bearing the latest

      date  of  acceptance   by  the  Company   shall   supersede  all  previous

      Participation   Agreements  in  their   entirety  and  shall  govern  such

      entitlement. The terms of any Participation Agreement may be different for

      any Participant,  and any Participation  Agreement may provide  additional

      benefits  not set  forth  in the  Plan or  limit  the  benefits  otherwise

      provided  under  the Plan;  provided,  however,  that any such  additional

      benefits or benefit  limitations must be agreed to by both the Company and

      the  Participant.  For  employees who are selected to receive an Incentive

      Award(s) but do not elect to defer  Compensation or such Incentive  Awards

      under the Deferral provisions of the Plan, a Participation Agreement shall

      not be necessary or required in order for such employee to be considered a

      Participant.

 

1.23  "Plan Administrator" means the plan administrator described in Article 9.

 

1.24  "Plan Year" means a twelve-month period commencing on January 1 and ending

      on December 31 of each year.  The initial Plan Year shall  commence on the

      Effective Date of this Plan.

 

1.25  "Return On Assets" means the Company's net income before income taxes, and

      before  any  expense  for the awards  under the Plan,  as a percent of the

      average total assets.

 

1.26  "Return on Equity" means the Company's net income before income taxes, and

      before  any  expense  for the awards  under the Plan,  as a percent of the

      average total shareholders equity.

 

1.27  "Termination  of  Employment"  means  that the  Participant  ceases  to be

      employed by the Company for any reason,  voluntary or  involuntary,  other

      than by reason of a leave of absence approved by the Company.

 

1.28  "Unforeseeable Financial Emergency" means a severe financial hardship to a

      Participant, resulting from a sudden and unexpected illness or accident of

      the Participant, the

 

 

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      Participant's  spouse, or a dependent (as defined in Section 152(a) of the

      Code)  of the  Participant,  loss  of the  Participant's  property  due to

      casualty, or other similar  extraordinary and unforeseeable  circumstances

      arising as a result of events beyond the control of the Participant.

 

                                    Article 2

                      Selection, Enrollment and Eligibility

 

2.1   Selection  by Plan  Administrator.  Participation  in the  Plan  shall  be

      limited to a select group of management and highly  compensated  employees

      of the  Company,  as  determined  by the  Plan  Administrator  in its sole

      discretion.  From that group, the Plan Administrator  shall select, in its

      sole discretion, employees to participate in the Plan.

 

2.2   Enrollment  Requirements.  As a condition to participation,  each selected

      employee shall  complete,  execute and return to the Plan  Administrator a

      Participation  Agreement,  an Election Form and a Beneficiary  Designation

      Form,  all within  thirty (30) days after the  employee is notified by the

      Plan  Administrator of his or her selection to participate in the Plan. In

      addition,  the Plan  Administrator  shall establish from time to time such

      other enrollment  requirements as it determines in its sole discretion are

      necessary. However, for employees who are selected to receive an Incentive

      Award(s) but do not elect to defer  Compensation or such Incentive  Awards

      under the Deferral provisions of the Plan, a Participation Agreement shall

      not be necessary  or required in order for such  employee to enroll in the

      Plan or to be considered a Participant.

 

2.3   Eligibility;  Commencement of Participation. Provided an employee selected

      to participate in the Plan has met all enrollment  requirements  set forth

      in this Plan and required by the Plan  Administrator,  including returning

      all required documents to the Plan Administrator within the specified time

      period,  that employee  shall  commence  participation  in the Plan on the

      first day of the month following the month in which the employee completes

      all enrollment  requirements  (the  "Participation  Date"). If an employee

      fails  to meet  all such  requirements  within  the  period  required,  in

      accordance  with  Section  2.2,  that  employee  shall not be  eligible to

      participate in the Plan until the first day of the Plan Year following the

      delivery  to and  acceptance  by the Plan  Administrator  of the  required

      documents.

 

2.4   Termination of Participation  and/or Deferrals.  If the Plan Administrator

      determines  in good  faith that a  Participant  no longer  qualifies  as a

      member of a select group of management or highly compensated employees, as

      membership in such group is determined in accordance with Sections 201(2),

      301(a)(3) and 401(a)(1) of ERISA,  the Plan  Administrator  shall have the

      right, in its sole discretion,  to (i) terminate any deferral election the

      Participant  has made for the  remainder  of the  Plan  Year in which  the

      Participant's membership status changes, (ii) prevent the Participant from

      making future deferral  elections and/or (iii) immediately  distribute the

      Participant's then vested Deferral Account and terminate the Participant's

      participation in the Plan.

 

 

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                                    Article 3

                                 Incentive Award

 

3.1   Determination of Incentive Award. The Annual Incentive Award will be based

      on Earnings per Share of the Company, the Return on Assets of the Company,

      and  Return on Equity of the  Company.  Each Plan Year the  Company  shall

      determine the Incentive Award amount using the following formula:

 

      1.    Earnings per Share.  The Company  shall  calculate  the Earnings per

            Share portion of the Incentive Award as follows:

 

            a.    Calculate the Earnings per Share for the current Plan Year

 

            b.    Determine  the  Earnings per Share for the five (5) highest of

                  the past ten (10) Plan Years

 

            c.    Calculate percent (a divided by b)

 

      2.    Return on Assets.  The Company shall  calculate the Return on Assets

            portion of the Incentive Award as follows:

 

            a.    Calculate Return on Assets for the current Plan Year

 

            b.    Determine  Return on Assets  for the five (5)  highest  of the

                  past ten (10) Plan Years

 

            c.    Calculate percent (a divided by b)

 

      3.    Return on Equity.  The Company shall  calculate the Return on Equity

            portion of the Incentive Award as follows:

 

            a.    Calculate Return on Equity for the current Plan Year

 

            b.    Determine  Return on Equity  for the five (5)  highest  of the

                  past ten (10) Plan Years

 

            c.    Calculate percent (a divided by b)

 

      4.    Determination of Incentive Award.  Using the percentages  calculated

            in steps one (1) through  three (3) above,  determine  the Incentive

            Award  percentages  by  referring  to Exhibit  A. If the  percentage

            achieved  falls  between  the  tiers  as  shown  on  Exhibit  A, the

            Incentive  Award will be determined by  interpolation.  Also, if the

            current  Plan  Year's  performance  on any of the three  performance

            measures  falls  below  ninety  percent  (90%)  of  the  target,  no

            Incentive Award is earned for that measure.

 

      5.    Calculation of Incentive  Award and Example.  The Incentive Award is

            equal to the sum of the  percentages  determined  in number four (4)

            above, multiplied by the Participant's  Compensation for the current

            Plan Year.

 

 

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      The following  example  illustrates the calculation of the Incentive Award

(at a 20% target incentive level):

 

            ----------------------------------------------------------------

                                                        High five (5) of the

            Incentive Award Based on    Current Year    last ten (10) years

            ----------------------------------------------------------------

            EPS                         $  11.25        $ 9.00

            ----------------------------------------------------------------

            ROA                             1.05%         1.10%

            ----------------------------------------------------------------

            ROE                             15.0%         12.0%

            ----------------------------------------------------------------

            Salary                      $100,000

            ----------------------------------------------------------------

 

<TABLE>

<S>                                         <C>                                 <C>

         Step 1:                            Step 4:

         -------                            -------

         $11.25 divided by $9.00 = 125%     EPS Award:                          12.00% + 3.00% =  15.0%

                                            ROA Award:                           2.00% + 1.00% =  3.00%

                                            ROE Award:                           4.00% + 1.00% =  5.00%

                                                                                                 ------

                                            Step 4 Total                                         23.00%

 

         Step 2:                            Step 5:

         -------                            -------

         1.05% divided by 1.10% = 95%       If Participant's Compensation:                    $100,000

                                            Total Incentive Award Percentage:             x      23.00%

                                                                                             ----------

                                            Incentive Award Amount:                           $ 23,000

 

         Step 3:

         -------

         15% divided by 12% = 125%

</TABLE>

 

3.2   Incentive  Award Payout.  By March 31 of each Plan Year, the Company shall

      calculate and pay the Incentive Award to the Participant.  The Participant

      shall have the option to defer the Incentive Award into a Deferral Account

      that the Company has  established  in  accordance  with  Article 4. Unless

      otherwise  applicable  in  Section  3.3,  the  Participant  needs to be an

      employee  of the Company at the time of payout  under this  Section 3.2 to

      receive an Incentive Award.

 

3.3   Incentive Award Eligibility.  New Participants must be employed by October

      1 of a Plan Year to be  eligible  to receive  that Plan  Year's  Incentive

      Award.  New  Participants  who are employed  prior to October 1, but after

      January 1 will receive prorated  Incentive Awards based on hours worked in

      such partial Plan Year. A minimal individual  performance rating of "meets

      expectations" or similar  equivalent is required for  participation.  If a

      Participant  changes his role or is promoted during the Plan Year, he will

      be eligible for the new role's target Incentive Award opportunity on a pro

      rata basis.

 

3.3.1 Death.  In the event of death,  the Company will pay to the  Participant's

      Beneficiary  the pro rata  portion  of the  Incentive  Award that had been

      earned by the Participant.

 

3.3.2 Disability.  If a Participant  has a Termination of Employment as a result

      of a Disability,  the Participant will receive the pro rata portion of the

      Incentive  Award based on hours actually worked in such partial Plan Year.

      If a  Participant  remains an employee of the Company and has a Disability

      which results in receipt of long-term disability  benefits,  the Incentive

      Award for such  Disability  period shall be prorated  during affected Plan

      Years so that no  Incentive  Award will be earned  during  such