SCHEDULE 14A INFORMATION
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. ___)
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
[x]Definitive Proxy Statement Commission Only (as permitted
[ ]Definitive Additional Materials by Rule 14a-6(e)(2))
[ ]Soliciting Material Under Rule 14a-12
TRI-COUNTY FINANCIAL CORPORATION
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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)(1) 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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[TRI-COUNTY FINANCIAL CORPORATION LETTERHEAD]
April 7, 2003
Dear Stockholder:
I am pleased to invite you to attend the Annual Meeting of the Stockholders
of Tri-County Financial Corporation (the "Company") to be held in the second
floor Board Room at the main office of Community Bank of Tri-County, 3035
Leonardtown Road, Waldorf, Maryland on Wednesday, May 7, 2003 at 10:00 a.m.
The attached Notice and Proxy Statement describe the formal business to be
transacted at the meeting. Directors and officers of the Company as well as a
representative of the Company's auditors, Stegman & Company, will be present to
respond to any questions stockholders may have.
Your vote is important, regardless of the number of shares you own. ON
BEHALF OF THE BOARD OF DIRECTORS, I URGE YOU TO SIGN, DATE AND RETURN THE
ENCLOSED PROXY CARD AS SOON AS POSSIBLE, EVEN IF YOU CURRENTLY PLAN TO ATTEND
THE ANNUAL MEETING. This will not prevent you from voting in person, but will
assure that your vote is counted if you are unable to attend the meeting.
Sincerely,
/s/ Michael L. Middleton
Michael L. Middleton
President and Chief Executive Officer
TRI-COUNTY FINANCIAL CORPORATION
3035 LEONARDTOWN ROAD
WALDORF, MARYLAND 20601
(301) 843-0854
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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 7, 2003
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NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders (the "Annual
Meeting") of Tri-County Financial Corporation (the "Company") will be held in
the second floor Board Room at the main office of Community Bank of Tri-County,
3035 Leonardtown Road, Waldorf, Maryland on Wednesday, May 7, 2003, at 10:00
a.m.
A Proxy Card and a Proxy Statement for the Annual Meeting are enclosed.
The Annual Meeting is for the purpose of considering and acting upon:
1. The election of two directors of the Company; and
2. Such other matters as may properly come before the Annual Meeting or
any adjournments thereof.
The Board of Directors is not aware of any other business to come before
the Annual Meeting.
Any action may be taken on any one of the foregoing proposals at the Annual
Meeting on the date specified above, or on any date or dates to which, by
original or later adjournment, the Annual Meeting may be adjourned. The Board of
Directors has fixed the close of business on March 24, 2003, as the record date
for determination of the stockholders entitled to vote at the Annual Meeting and
any adjournments thereof.
You are requested to fill in and sign the enclosed form of proxy which is
solicited by the Board of Directors and to mail it promptly in the enclosed
envelope. The proxy will not be used if you attend and vote at the Annual
Meeting in person.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ H. Beaman Smith
H. BEAMAN SMITH
Secretary
Waldorf, Maryland
April 7, 2003
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IMPORTANT: THE PROMPT RETURN OF PROXIES WILL SAVE THE CORPORATION THE EXPENSE OF
FURTHER REQUESTS FOR PROXIES IN ORDER TO ENSURE A QUORUM. AN ADDRESSED ENVELOPE
IS ENCLOSED FOR YOUR CONVENIENCE. NO POSTAGE IS REQUIRED IF MAILED IN THE UNITED
STATES.
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PROXY STATEMENT
OF
TRI-COUNTY FINANCIAL CORPORATION
3035 LEONARDTOWN ROAD
WALDORF, MARYLAND 20601
(301) 843-0854
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ANNUAL MEETING OF STOCKHOLDERS
MAY 7, 2003
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This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of Tri-County Financial Corporation
("Tri-County Financial" or the "Company") to be used at the Annual Meeting of
Stockholders of the Company (the "Annual Meeting"), which will be held in the
second floor Board Room at the main office of Community Bank of Tri-County, 3035
Leonardtown Road, Waldorf, Maryland on Wednesday, May 7, 2003 at 10:00 a.m. The
accompanying notice of meeting and this Proxy Statement are being first mailed
to stockholders on or about April 7, 2003.
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VOTING AND REVOCABILITY OF PROXIES
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Stockholders who execute proxies retain the right to revoke them at any
time. Unless so revoked, the shares represented by such proxies will be voted at
the Annual Meeting and all adjournments thereof. Proxies may be revoked by
written notice delivered in person or mailed to the Secretary of the Company at
the address shown above, by the filing of a later-dated proxy prior to a vote
being taken on a particular proposal at the Annual Meeting or by attending the
Annual Meeting and voting in person. The mere presence of a stockholder at the
Annual Meeting will not in and of itself revoke such stockholder's proxy.
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, proxies will be voted for the nominees for director set forth below
and in favor of each of the other proposals set forth in this Proxy Statement
for consideration at the Annual Meeting. The proxy confers discretionary
authority on the persons named therein to vote with respect to the election of
any person as a director where the nominee is unable to serve or for good cause
will not serve, and matters incident to the conduct of the Annual Meeting. If
any other business is properly presented at the Annual Meeting, proxies will be
voted by those named therein in accordance with the determination of a majority
of the Board of Directors.
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VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
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Stockholders of record as of the close of business on March 24, 2003 (the
"Record Date") are entitled to one vote for each share then held. As of the
Record Date, the Company had 767,929 shares of common stock, par value $.01 per
share (the "Common Stock"), issued and outstanding. The presence, in person or
by proxy, of at least one-third of the total number of shares of Common Stock
outstanding and entitled to vote will be necessary to constitute a quorum at the
Annual Meeting.
The following table sets forth, as of the Record Date, certain information
as to those persons who were beneficial owners of more than 5% of the Company's
outstanding shares of Common Stock and as to the shares of Common Stock
beneficially owned by each director, each executive officer named in the summary
compensation table and by all executive officers and directors of the Company as
a group. Persons and groups owning in excess of 5% of the Common Stock are
required to file certain reports regarding such ownership with the Company and
the Securities and Exchange Commission pursuant to the Securities Exchange Act
of 1934, as amended (the "Exchange Act"). Based upon such reports, management
knows of no person, other than those set forth in the table below, who owned
more than 5% of the outstanding shares of Common Stock as of the Record Date.
All beneficial owners listed in the table have the same address as the Company.
PERCENT OF SHARES
NAME OF BENEFICIAL AMOUNT AND NATURE OF OF COMMON STOCK
OWNERS BENEFICIAL OWNERSHIP(1) OUTSTANDING (2)
------------------ ----------------------- ------------------
Michael L. Middleton 95,779 (3) 12.01%
C. Marie Brown 36,359 (4) 4.65
W. Edelen Gough, Jr. 15,243 (5) 1.97
Louis P. Jenkins, Jr. 8,149 (6) 1.06
Herbert N. Redmond, Jr. 11,733 (5)(6) 1.52
H. Beaman Smith 33,299 (5) 4.31
A. Joseph Slater, Jr.* 100 0.01
Gregory C. Cockerham 24,083 (7) 3.08
William J. Pasenelli 4,757 (8) 0.62
All Directors, Executive Officers and 222,453 (9) 26.37
Nominees as a Group (9 persons)
Community Bank of Tri-County 55,195 (10) 7.19%
Employee Stock Ownership Plan ("ESOP")
____________________
* Mr. Slater was appointed a Director of the Company and the Bank on February
28, 2003.
(1) Includes certain shares owned by spouses, or as custodian or trustee for
minor children over which shares all officers and directors as a group
effectively exercise sole or shared voting and investment power, unless
otherwise indicated.
(2) In calculating the percentage ownership of an individual or group, the
number of shares outstanding is deemed to include any shares which the
individual or group may acquire through the exercise of options within 60
days of the Record Date.
(3) Includes 11,315 shares held by spouse. Includes 29,358 shares of Common
Stock which may be acquired upon the exercise of stock options. Also
includes 10,123 shares of Common Stock allocated to Mr. Middleton's account
in the ESOP.
(4) Includes 14,469 shares of Common Stock which may be acquired upon the
exercise of stock options and 6,933 shares of Common Stock allocated to Ms.
Brown's account in the ESOP.
(5) Includes 4,600, 4,100, 5,200, and 600 shares that may be acquired upon the
exercise of options by Directors Redmond, Gough, Smith and Jenkins,
respectively.
(6) Includes 6,593 shares of Common Stock held by the ESOP which have not been
allocated to the accounts of participants over which shares the named
individual may exercise voting power in his capacity as an ESOP trustee.
(7) Includes 13,677 shares of Common Stock which may be acquired upon the
exercise of stock options and 6,257 shares of Common Stock allocated to Mr.
Cockerham's account in the ESOP.
(8) Includes 3,570 shares of Common Stock which may be acquired upon the
exercise of stock options and 354 shares of Common Stock allocated to Mr.
Pasenelli's account in the ESOP.
(9) Includes 75,574 shares of Common Stock which may be acquired upon the
exercise of stock options. Also includes 23,667 shares of Common Stock
allocated to the accounts of all executive officers and directors as a
group in the ESOP and 6,593 shares held by the ESOP that are not allocated
to the accounts of participants over which certain directors may exercise
voting power in their capacities as ESOP trustees.
(10) Includes 6,593 shares held in a suspense account for future allocation
and/or distribution among participants as the loan used to purchase the
shares is repaid. The ESOP trustees vote all allocated shares in accordance
with the instructions of the participating employees. Unallocated shares
and shares for which no instructions have been received are voted by the
trustees in the manner directed by the ESOP committee.
2
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PROPOSAL I - ELECTION OF DIRECTORS
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Tri-County Financial's Board of Directors currently consists of seven
members. The Company's Articles of Incorporation provide that directors are to
be elected for terms of three years, approximately one-third of whom are to be
elected annually.
The Board of Directors has nominated as directors Herbert N. Redmond, Jr.
to serve for an additional three-year term and A. Joseph Slater, Jr. to serve
for a three-year term and until their successors are elected and qualified. Mr.
Slater was appointed to the Board on February 28, 2003 to fill the vacancy
caused by the resignation of Director Catherine A. Askey. It is intended that
the persons named in the proxies solicited by the Board will vote for the
election of the named nominees. The Company's Articles of Incorporation provide
that stockholders may not cumulate their votes for the election of directors.
If any nominee is unable to serve, the shares represented by all valid
proxies will be voted for the election of such substitute as the Board of
Directors may recommend. At this time, the Board knows of no reason why any
nominee might be unavailable to serve.
Under the Company's Bylaws, directors shall be elected by a majority of
those votes cast by stockholders at the Annual Meeting. Votes which are not cast
at the Annual Meeting, either because of abstentions or broker non-votes, are
not considered in determining the number of votes which have been cast for or
against the election of a nominee.
The following table sets forth certain information for each nominee and
director continuing in office.
YEAR
AGE AT FIRST CURRENT
DECEMBER ELECTED TERM TO
NAME 31, 2002 DIRECTOR (1) EXPIRE
---- -------- ------------ -------
Board Nominees for a Term to Expire in 2006
Herbert N. Redmond, Jr. 62 1997 2003
A. Joseph Slater , Jr. 49 2003 2003
Directors Continuing in Office
Michael L. Middleton 55 1979 2004
C. Marie Brown 60 1991 2004
Louis P. Jenkins, Jr. 31 2001 2004
W. Edelen Gough, Jr. 74 1970 2005
H. Beaman Smith 57 1986 2005
__________
(1) Reflects the year first elected as a director of Community Bank of Tri
County (the "Bank"). Mr. Middleton , Mr. Smith, and Mr. Gough became
directors of the Company on the date of its incorporation in September
1989.
3
The principal occupation of each director of Tri-County Financial is set
forth below. Unless otherwise noted, all directors have held the position
described below for at least the past five years and reside in southern
Maryland.
HERBERT N. REDMOND, JR. is the Senior Vice President and Manager of the St.
Mary's County office of the D.H. Steffens Company, which provides civil
engineering, land planning and land surveying services. He is a member and
director of the Leonardtown Rotary and serves as chairperson of the St. Mary's
County Building Officials and Code Administrators Appeals Boards, participates
in the St. Mary's County Development and Review Forum and is a member of the St.
Mary's County Historical Society.
A. JOSEPH SLATER, JR. is the President and General Manager of the Southern
Maryland Electric Cooperative, Inc, ("SMECO"). SMECO is one of the 10 largest
electrical cooperatives in the country. Previously Mr. Slater served as Vice
President of the National Rural Electric Cooperative Association. Mr. Slater
also serves on the Board of the Maryland Chamber of Commerce and numerous other
civic organizations.
MICHAEL L. MIDDLETON is President and Chief Executive Officer of the
Company and the Bank. Mr. Middleton joined the Bank in 1973 and served in
various management positions until 1979 when he became President of the Bank.
Mr. Middleton is a Certified Public Accountant and holds a Masters of Business
Administration. As President and Chief Executive Officer of the Bank, Mr.
Middleton is responsible for the overall operation of the Bank pursuant to the
policies and procedures established by the Board of Directors. Since December
1995, Mr. Middleton has served on the Board of Directors of the Federal Home
Loan Bank of Atlanta and also serves as its Board Representative to the Council
of Federal Home Loan Banks.
C. MARIE BROWN has been associated with the Bank for 30 years and serves as
its Chief Operating Officer. Ms. Brown is an alumna of Charles County Community
College with an associates of arts degree in management development. She is a
supporter of the Handicapped and Retarded Citizens of Charles County and of
Zonta and serves on various administrative committees of the Hughesville Baptist
Church and the board of the Charles County chapter of the American Red Cross.
LOUIS P. JENKINS, JR. is a partner in the law firm of Louis P. Jenkins,
P.A. located in La Plata, Maryland. Prior to entering private practice, Mr.
Jenkins served as an Assistant State's Attorney in Charles County, Maryland from
1997 to 1999. From 1996 to 1997, he clerked for the Honorable Robert C. Nalley
of the Charles County Circuit Court. Mr. Jenkins is involved in a number of
public service organizations which include serving on the Board of Directors for
the Charles County Bar Association and the Charles County Chapter of the
American Red Cross.
W. EDELEN GOUGH, JR. retired from his position as senior vice president in
charge of administration of the Company and the Bank in May 1994. He had served
in this capacity with the Bank since 1970. He is a member of the Rotary Club of
Leonardtown, Maryland, is a Paul Harris Fellow and a member and Vice President
of the Literary Council of St. Mary's County.
H. BEAMAN SMITH is the Secretary/Treasurer of the Company, President of
Accoware, a computer software company, and Vice President of Fry Plumbing
Company of Washington, D.C. Mr. Smith is a Trustee of the Ferguson Foundation
and a director of the Maryland 4-H Foundation.
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MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
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The Board of Directors conducts its business through meetings of the Board
and through activities of its committees. During fiscal year 2002, the Board of
Directors held 4 meetings. Director Askey missed 2 of 4 meetings. No other
director of the Company attended fewer than 75% of the total meetings of the
Board of Directors and committees on which such Board member served during the
period he or she served on the Board.
The Company's Audit Committee consists of Directors Louis P. Jenkins, Jr.,
Chairman, A. Joseph Slater and Herbert N. Redmond, Jr. The Audit Committee meets
with the Company's independent auditors in connection with
4
their annual audit and reviews the Company's accounting and financial reporting
policies and practices. All of the members of the Audit Committee are
independent within the meaning of Rule 4200(a)(15) of the National Association
of Securities Dealers, Inc.'s listing standards. The Company's Audit Committee
has adopted a written charter. The Audit Committee met once during 2002.
The Company's full Board of Directors acts as a nominating committee for
the annual selection of its nominees for election as directors. While the Board
of Directors will consider nominees recommended by stockholders, it has not
actively solicited recommendations from the Company's stockholders for nominees
nor established any procedures for this purpose. The Board of Directors met 1
times in its capacity as nominating committee during 2002. The Company does not
have a separate compensation committee. Compensation matters are considered by
the full Board of Directors.
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EXECUTIVE COMPENSATION
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SUMMARY COMPENSATION TABLE. The following table sets forth the cash and
noncash compensation awarded to or earned in the last three years by the chief
executive officer of the Company and each other executive officer who earned in
excess of $100,000 in salary and bonus in 2002 (the "Named Executive Officers").
LONG-TERM
ANNUAL COMPENSATION COMPENSATION AWARDS
NAME AND PRINCIPAL -------------------------- -- SECURITIES ALL OTHER
POSITION YEAR SALARY BONUS (1) UNDERLYING OPTIONS COMPENSATION
------------------- ---- ------ --------- -------------------- ------------
Michael L. Middleton 2002 $175,236 $86,249 2,975 $30,183 (2)
President and Chief 2001 162,429 91,968 2,079 31,215
Executive Officer 2000 163,840 82,574 2,239 41,949
C. Marie Brown 2002 $125,067 $49,880 2,197 $27,559 (3)
Executive Vice President 2001 124,080 48,852 1,201 28,772
and Chief Operating Officer 2000 108,266 42,313 1,161 39,619
Gregory C. Cockerham 2002 $115,581 $46,097 1,720 $15,967 (4)
Executive Vice President 2001 109,177 44,819 1,110 18,582
and Chief Lending Officer 2000 99,198 36,013 1,209 26,192
William J. Pasenelli 2002 $105,043 $31,420 1,395 $12,130 (5)
Executive Vice President 2001 102,091 18,908 754 5,811
and Chief Financial Officer 2000 (6) 65,769 -- 1,421 --
__________
(1) Represents bonuses paid pursuant to the Bank's Executive Incentive
Compensation Plan (the "Incentive Plan"). For each year in which the
Incentive Plan is in effect, the Bank establishes a bonus pool equal to 10%
of net income after taxes (but before deduction of bonuses payable under
the Incentive Plan) multiplied by the "Multiplier," as determined in
accordance with the Incentive Plan. For fiscal 2002, the Multiplier was the
average of (i) the percentage obtained when the Company's return on equity
("ROE") is divided by 95% of the median ROE of a peer group comprised of
commercial banks in the fifth Federal Reserve district, plus (ii) the
percentage obtained when the median percentage of noncurrent to gross loans
of the peer group is divided by the percentage of the Bank's noncurrent to
gross loans; provided that the Multiplier shall not exceed 1.0. The bonus
pool is allocated among officers in proportion to the ratio a designated
percentage of their base salary (the "Allocation Base") bears to the total
Allocation Bases of all participating officers. In addition, each
participant is granted an option under the 1995 Stock Option and Incentive
Plan to acquire shares having a market value equal to 60% of the bonus to
which the participant is entitled under the Incentive Plan. Measures of
performance may be adjusted at the discretion of the Board of Directors.
(2) Consists of $9,700 in directors' fees, the value of the shares ($13,973)
allocated to the participant's account in the ESOP, $5,500 in matching
contributions under the 401(k) Plan, and split-dollar life insurance
premiums of $1,010.
(3) Consists of $9,700 in directors' fees, the value of the shares ($11,776)
allocated to the participant's account in the ESOP, $5,248 in matching
contributions under the 401(k) Plan, and split-dollar life insurance
premiums of $835.
(4) Consists of the value of the shares ($10,836) allocated to the
participant's account in the ESOP, $4,850 in matching contributions under
the 401(k) Plan, and split-dollar life insurance premiums of $280.
(footnotes continued on next page)
5
(5) Consists of the value of the shares ($7,836) allocated to the participant's
account in the ESOP, $4,094 in matching contributions under the 401(k) Plan
and split-dollar life insurance premiums of $200.
(6) Mr. Pasenelli joined the Company in April, 2000.
OPTION GRANTS IN FISCAL YEAR 2002. The following table contains information
concerning the grants of stock options during the year ended December 31, 2002
to the Named Executive Officers. All such options were granted under the 1995
Stock Option and Incentive Plan and were fully vested at the date of grant. No
stock appreciation rights ("SARs") were granted to the Named Executive Officers
during fiscal year 2002.
PERCENT
OF TOTAL
NUMBER OF OPTIONS
SECURITIES GRANTS TO
UNDERLYING EMPLOYEES
OPTIONS IN FISCAL EXERCISE EXPIRATION
NAME GRANTED YEAR PRICE DATE
---- ---------- ---------- -------- ----------
Michael L. Middleton 1,442 11.45% $26.50 12/31/11
1,533 12.18 39.00 12/31/12
C. Marie Brown 1,310 10.40 26.50 12/31/11
887 7.04 39.00 12/31/12
Gregory C. Cockerham 900 7.15 26.50 12/31/11
820 6.15 39.00 12/31/12
William J. Pasenelli 650 5.16 26.50 12/31/11
745 5.91 39.00 12/31/11
AGGREGATED OPTION EXERCISES IN FISCAL YEAR 2002 AND YEAR-END OPTION VALUES.
The following table sets forth information concerning exercises of stock options
by the Named Executive Officers during the year ended December 31, 2002, as well
as the value of options held by such persons at the end of the fiscal year. No
SARs have been granted to any of the Named Executive Officers.
NUMBER OF VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
SHARES ACQUIRED VALUE AT FISCAL YEAR-END AT FISCAL YEAR-END (1)
NAME ON EXERCISE REALIZED (1) (ALL IMMEDIATELY EXERCISABLE) (ALL IMMEDIATELY EXERCISABLE)
---- --------------- ------------ ----------------------------- -----------------------------
Michael L. Middleton 2,175 $39,629 29,358 $691,457
C. Marie Brown 1,680 30,610 14,469 259,828
Gregory C. Cockerham 1,500 43,080 13,677 251,275
William J. Pasenelli 0 0 3,570 35,128
__________
(1) Based on the difference between the exercise price and the fair market
value of the underlying securities on the date of exercise or at fiscal
year-end, as the case may be.
EMPLOYMENT AGREEMENTS. The Bank maintains an employment agreement with
Michael L. Middleton which currently provides for an annual salary of $188,000.
The agreement provides for Mr. Middleton's employment for a period of five
years, subject to annual one-year extensions. The agreement provides for
termination for cause or upon certain events specified in the agreement. The
agreement is also terminable by the Bank without cause, in which case Mr.
Middleton would be entitled to compensation as in effect on the date of
termination up to the expiration date of the agreement payable in a lump sum or
in periodic payments (at the option of Mr. Middleton), plus full life, health,
disability and other benefits as in effect on the date of termination up to the
expiration date of the agreement. If, following a change in control of the
Company or the Bank, the Bank terminates Mr. Middleton's employment for any
reason other than (i) just cause, as defined in the agreement, or (ii) if the
Bank otherwise changes the capacity or circumstances in which Mr. Middleton is
employed or causes a reduction in his responsibilities, authority, compensation
or other benefits provided under the agreement without Mr. Middleton's consent,
then Mr. Middleton shall be entitled to receive an amount equal to 2.99 times
the average annual co mpensation payable by the Bank and includable in Mr.
6
Middleton's gross income for the most recent five taxable years. Control refers
to certain enumerated events, including the ownership of 25% or more of the
Bank's or Company's Common Stock by any person or group. The agreement provides,
among other things, for annual review of compensation, for participation in an
equitable manner in any stock option plan or incentive plan to the extent
authorized by the Bank's Board of Directors for its key management employees and
for participation in pension, group life insurance, medical coverage and in
other employee benefits applicable to executive personnel.
The Bank maintains similar employment agreements with C. Marie Brown,
Executive Vice President and Chief Operating Officer, Gregory C. Cockerham,
Executive Vice President of Lending, and William J. Pasenelli, Executive Vice
President and Chief Financial Officer, respectively. Ms. Brown's agreement
provides for a current annual salary of $135,000, Mr. Cockerham's agreement
provides for a current annual salary of $125,000 and Mr. Pasenelli's provides
for a current annual salary of $120,000. Each agreement has a three-year term
with provision for extension for an additional year annually if determined by
the Board. Each agreement provides for a change in control payment equal to 2.00
times the officer's five-year average annual compensation in circumstances
similar to those in which Mr. Middleton would receive a change in control
payment. The aggregate payments that would be made to Mr. Middleton, Ms. Brown,
Mr. Cockerham and Mr. Pasenelli assuming the termination of their employment
under the foregoing circumstances at December 31, 2002 would have been
approximately $745,227, $313,983, $284,121 and $216,135, respectively.
The Company has entered into Guaranty Agreements with each of Mr.
Middleton, Ms. Brown, Mr. Cockerham and Mr. Pasenelli pursuant to which it has
agreed to be jointly and severally liable for amounts payable under their
employment agreements.
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DIRECTORS' COMPENSATION
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BOARD FEES. Directors of the Company receive fees of $300 per meeting
attended in person and $200 per telephone meeting. Members of the Bank's Board
of Directors currently receive fees of $400 per meeting attended in person and
$200 per telephone meeting and an annual retainer of $3,500. Members of the
Bank's executive committee receive a fee of $400 per meeting attended. Members
of the Company's audit committee receive fees of $300 per meeting attended in
person and $200 per telephone meeting.
STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS. The Company maintains a stock
option plan for non-employee directors, adopted by the Board of Directors in
December 1995. Under that plan, the Company granted to non-employee directors
options to purchase an aggregate of 8,750 shares of the Common Stock during
1995. In October, 1998, the Board of Directors approved an amendment to the plan
to reserve an additional 11,000 shares under the plan. Options to purchase all
of these 11,000 shares were granted to directors during 1998. On September 25,
2001, the option plan was amended to increase the number of shares reserved
thereunder by 9,600 and options for 3,000 shares each were granted to Messrs.
Smith and Gough, an option for 2,400 shares was granted to Mr. Redmond and
options for 600 shares were granted to Mr. Jenkins. No options were granted
under this plan in fiscal 2002.
DIRECTOR RETIREMENT PLAN. The Bank's Board of Directors has adopted a
retirement plan for members of the Board of Directors of the Bank (the
"Directors' Plan"), effective January 1, 1995. Under the Directors' Plan, each
non-employee director of the Bank will receive an annual retirement benefit for
ten years following his termination of service on the Bank's Board in an amount
equal to the product of his "Benefit Percentage," his "Vested Percentage," and
$3,500. A participant's "Benefit Percentage" is based on his overall years of
service as a non-employee director of the Bank, and increases in increments of
33-1/3% from 0% for less than five years of service, to 33-1/3% for five to nine
years of service, to 66-2/3% for 10 to 14 years of service, and to 100% for 15
or more years of service. A participant's "Vested Percentage" equals 33-1/3% if
the participant was serving on the Board on January 1, 1995 (the "Effective
Date"), increases to 66-2/3% if the participant completes one year of service
after the Effective Date, and becomes 100% if the participant completes a second
year of service after the Effective Date. However, in the event a participant
retires from service on the Board due to "disability" (as determined by the
Board of Directors of the Bank) or for any reason after attaining age 65, the
participant's Vested Percentage will become 100% regardless of his years of
service. A participant's vested percentage will also become 100% in the event of
a "change in control" (as defined in the Directors'
7
Plan). This provision may have the effect of deferring a hostile change in
control by increasing the costs of acquiring control.
If a participant terminates service on the Board due to disability, the
Bank will pay the participant each year for ten years an amount equal to the
product of his Benefit Percentage and $3,500. The Directors' Plan also provides
death benefits to a participant's surviving spouse under certain conditions.
The Directors' Plan also establishes a deferred compensation program for
members of the Board of Directors of the Bank. Under the Directors' Plan,
directors of the Bank may elect to defer all or any portion of the fees and/or
salary otherwise payable to him or her in cash for any calendar year in which
the Directors' Plan is in effect. Deferred amounts will be credited to a
bookkeeping account in the participant's name, which will also be credited
annually with the greater of: (1) the investment return which would have
resulted if such deferred amounts had been invested in savings accounts having a
return equal to the highest interest rate which the Bank pays on certificates of
deposit, which rate is adjusted on each January 1st; or (2) the consolidated
return on equity of the Company for the calendar year as determined under
generally accepted accounting principles. Participants may determine the time
and form of benefit payments and may cease future deferrals any time. Changes in
participant elections generally become effective only as of the following
January 1st, except that (i) elections designating a beneficiary or ceasing
future contributions will be given immediate effect, and (ii) participants may
change elections as to the timing or form of distributions only with respect to
subsequently deferred compensation.
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TRANSACTIONS WITH THE COMPANY AND THE BANK
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The Bank has followed a policy of offering loans to its officers, directors
and employees for the financing and improvement of their personal residences as
well as consumer loans. These loans are made in the ordinary course of business
and upon substantially the same terms, including collateral, interest rate and
origination fees, as those prevailing at the time for comparable transactions,
and do not involve more than the normal risk of collectibility or present any
unfavorable features.
Director Louis P. Jenkins, Jr. is a partner in the law firm of Louis P.
Jenkins, P.A. which performed legal services for the Bank and its borrowers
during fiscal year 2002 and is expected to perform similar services during the
current fiscal year. Director Herbert N. Redmond, Jr. is a Vice President of
D.H. Steffens Company which performed engineering services to the Bank during
2002 and is expected to perform similar services during the current fiscal year.
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SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
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Pursuant to regulations promulgated under the Exchange Act, the Company's
officers, directors and persons who own more than 10% of the outstanding Common
Stock are required to file reports detailing their ownership and changes of
ownership in such Common Stock, and to furnish the Company with copies of all
such reports. Based solely on its review of the copies of such reports received
during the past fiscal year or with respect to the last fiscal year or written
representations from such persons that no annual reports of changes in
beneficial ownership were required, the Company believes that during 2002, all
of its officers, directors and all of its stockholders owning in excess of 10%
of the outstanding Common Stock have complied with the reporting requirements.
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RELATIONSHIP WITH INDEPENDENT AUDITORS
--------------------------------------------------------------------------------
The Board of Directors presently intends to renew the Company's
arrangements with Stegman & Company to be its independent auditors for the
fiscal year ending December 31, 2003. A representative of Stegman & Company is
expected to be present at the Annual Meeting to respond to appropriate questions
and to make a statement, if so desired.
8
AUDIT FEES. During the fiscal year ended December 31, 2002, the aggregate
fees billed for professional services rendered for the audit of the Company's
annual financial statements and the reviews of the financial statements included
in the Company's Quarterly Reports on Form 10-Q filed during the fiscal year
ended December 31, 2002 were $45,551.
FINANCIAL INFORMATION SYSTEMS DESIGN AND IMPLEMENTATION FEES. The Company
did not engage Stegman & Company to provide advice to the Company regarding
financial information systems design and implementation during the fiscal year
ended December 31, 2002.
ALL OTHER FEES. For the fiscal year ended December 31, 2002, the aggregate
fees paid by the Company to Stegman & Company for all other services (other than
audit services and financial information systems design and implementation
services) were $11,182 including $6,000 for tax preparation and consulting
services.
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AUDIT COMMITTEE REPORT
--------------------------------------------------------------------------------
The Audit Committee has reviewed and discussed the audited financial
statements of the Company with management and has discussed with Stegman &
Company, the Company's independent auditors, the matters required to be
discussed under Statement of Auditing Standards No. 61 ("SAS 61"). In addition,
the Audit Committee received from Stegman & Company the written disclosures and
the letter required to be delivered by Stegman & Company under Independence
Standards Board Standard No. 1 ("ISB Standard No. 1") and has discussed with
representatives of Stegman & Company their independence.
The Audit Committee has reviewed the non-audit services currently provided
by the Company's independent auditor and has considered whether the provision of
such services is compatible with maintaining the independence of the Company's
independent auditors.
Based on the its review of the financial statements, its discussion with
Stegman & Company regarding SAS 61, and the written materials provided by
Stegman & Company under ISB Standard No. 1 and the related discussion with
Stegman & Company of their independence, the Audit Committee has recommended
that the audited financial statements of the Company be included in its Annual
Report on Form 10-K for the year ended December 31, 2002, for filing with the
Securities and Exchange Commission.
AUDIT COMMITTEE
LOUIS P. JENKINS, JR. CHAIRMAN
A. JOSEPH SLATER, JR.
HERBERT N. REDMOND, JR.
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OTHER MATTERS
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The Board of Directors is not aware of any business to come before the
Annual Meeting other than those matters described above in this Proxy Statement.
However, if any other matters should properly come before the Annual Meeting, it
is intended that proxies in the accompanying form will be voted in respect
thereof by the person or persons voting the proxies as directed by a majority of
the Board of Directors.
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MISCELLANEOUS
--------------------------------------------------------------------------------
The cost of solicitation of proxies will be borne by the Company. The
Company will reimburse brokerage firms and other custodians, nominees and
fiduciaries for reasonable expenses incurred by them in sending proxy materials
to the beneficial owners of the Common Stock. In addition to conducting
solicitations by mail, directors,
9
officers, and regular employees of the Company may solicit proxies personally or
by telegraph or telephone without additional compensation.
The Company's 2002 Annual Report to Stockholders, including financial
statements, accompanies this proxy statement. Such Annual Report is not to be
treated as a part of the proxy solicitation material nor as having been
incorporated herein by reference. A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM
10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 2002 AS FILED WITH THE SECURITIES
AND EXCHANGE COMMISSION WILL BE FURNISHED WITHOUT CHARGE TO STOCKHOLDERS AS OF
THE RECORD DATE, UPON WRITTEN REQUEST TO THE SECRETARY, TRI-COUNTY FINANCIAL
CORPORATION, 3035 LEONARDTOWN ROAD, WALDORF, MARYLAND 20601.
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STOCKHOLDER PROPOSALS
--------------------------------------------------------------------------------
To be eligible for inclusion in the Company's proxy materials for next
year's Annual Meeting of Stockholders, any stockholder proposal to take action
at such meeting must be received at the Company's main office at 3035
Leonardtown Road, Waldorf, Maryland 20601 no later than December 9, 2003. Any
such proposals shall be subject to the requirements of the proxy rules adopted
under the Exchange Act.
Stockholder proposals, other than those submitted pursuant to the Exchange
Act, must be submitted in writing, delivered or mailed by first class United
States mail, postage prepaid, to the secretary of the Company not fewer than 30
days nor more than 60 days prior to any such meeting; provided, however, that if
notice or public disclosure of the meeting is given fewer than 40 days before
the meeting, such written notice shall be delivered or mailed to the secretary
of the Company not later than the close of the 10th day following the day on
which notice of the meeting was mailed to stockholders.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ H. Beaman Smith
H. BEAMAN SMITH
Secretary
Waldorf, Maryland
April 7, 2003
10
REVOCABLE PROXY
TRI-COUNTY FINANCIAL CORPORATION
ANNUAL MEETING OF STOCKHOLDERS MAY 7, 2003
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
The undersigned hereby appoints Michael l. Middleton and Louis P. Jenkins, Jr.,
with full powers of substitution, to act as attorneys and proxies for the
undersigned to vote all shares of Common Stock of Tri-County Financial
Corporation (the "Company") that the undersigned is entitled to vote at the 2003
Annual Meeting of Stockholders (the "Annual Meeting") to be held in the second
floor Board Room at the main office of Community Bank of Tri-County, 3035
Leonardtown Road, Waldorf, Maryland on Wednesday, May 7, 2003 at 10:00 a.m. and
at any and all adjournments thereof, as follows:
Should the undersigned be present and elect to vote at the Annual Meeting or at
any adjournment thereof and after notification to the Secretary of the Company
at the Annual Meeting of the stockholder's decision to terminate this proxy,
then the power of said attorneys and proxies shall be deemed terminated and of
no further force and effect.
THIS PROXY WILL BE VOTED AS DIRECTED, BUT IF NO INSTRUCTIONS ARE SPECIFIED, THIS
PROXY WILL BE VOTED FOR THE NOMINEES LISTED. IF ANY OTHER BUSINESS IS PRESENTED
AT SUCH ANNUAL MEETING, THIS PROXY WILL BE VOTED BY THOSE NAMED IN THIS PROXY AS
DIRECTED BY THE BOARD OF DIRECTORS. AT THE PRESENT TIME THE BOARD OF DIRECTORS
KNOWS OF NO OTHER BUSINESS TO BE PRESENTED AT THE ANNUAL MEETING. THIS PROXY
ALSO CONFERS DISCRETIONARY AUTHORITY ON THE PROXY HOLDERS TO VOTE WITH RESPECT
TO APPROVAL OF THE MINUTES OF THE PRIOR ANNUAL MEETING OF STOCKHOLDERS, THE
ELECTION OF ANY PERSON AS DIRECTOR WHERE THE NOMINEE IS UNABLE TO SERVE OR FOR
GOOD CAUSE WILL NOT SERVE, AND MATTERS INCIDENT TO THE CONDUCT OF THE 2003
ANNUAL MEETING.
Continued, and to be signed and dated, on reverse side.
11
Detach Proxy Card Here If You Are Not Voting By Telephone or Internet
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[X]
[ ] Mark, Sign, Date and Return VOTES MUST BE INDICATED
Proxy Card Promptly Using the (X) IN BLACK OR BLUE INK.
Enclosed Envelope
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" ALL THE LISTED NOMINEES.
1. ELECTION OF DIRECTORS
FOR all nominees [ ] WITHHOLD AUTHORITY to vote [ ] *EXCEPTIONS [ ]
listed below for all nominees listed below.
Nominees: Herbert N. Redmond, Jr. and A. Joseph Slater, Jr.
(INSTRUCTIONS: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, MARK
THE "EXCEPTIONS" BOX AND WRITE THAT NOMINEE'S NAME IN THE SPACE PROVIDED BELOW.)
*Exceptions ____________________________________________________________________
The undersigned acknowledges receipt from the Company prior to
the execution of this proxy of notice of the Annual Meeting, a
proxy statement for the Annual Meeting and the Company's 2002
Annual Report.
Please sign exactly as your name appears on the enclosed
card. When signing as attorney, executor, administrator,
trustee or guardian, please give your full title. If shares
are held jointly, each holder should sign.
Date Share Owner sign here Co-Owner sign here
__________________________________________________________________
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