UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
SCHEDULE 14A INFORMATION
(Rule 14a-101)
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 pursuant to Sec. 240.
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 CORP LETTERHEAD]
April 5, 2004
Dear Stockholder:
I am pleased to invite you to attend the Annual Meeting of the Stockholders
(the "Annual Meeting") 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 5, 2004
at 10:00 a.m.
The attached Notice and Proxy Statement describe the formal business to be
transacted at the Annual 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 Annual 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) 645-5601
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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 5, 2004
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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 5, 2004, 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 four 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 22, 2004, 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 5, 2004
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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 5, 2004
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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 (the
"Bank"), 3035 Leonardtown Road, Waldorf, Maryland on Wednesday, May 5, 2004 at
10:00 a.m. The accompanying notice of meeting and this Proxy Statement are being
first mailed to stockholders on or about April 5, 2004.
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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 22, 2004 (the
"Record Date") are entitled to one vote for each share then held. As of the
Record Date, the Company had 773,762 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.
AS OF RECORD DATE PERCENT OF SHARES
NAME OF BENEFICIAL AMOUNT AND NATURE OF OF COMMON STOCK
OWNERS BENEFICIAL OWNERSHIP (1) OUTSTANDING (2)
--------------------------- ------------------------ ---------------------
Michael L. Middleton 99,702(3) 12.58%
C. Marie Brown 38,793(4) 4.93
James R. Shepherd 250 0.03
Louis P. Jenkins, Jr. 55,410(5)(6) 6.51
Herbert N. Redmond, Jr. 59,450(5)(6) 7.00
H. Beaman Smith 28,915(5) 3.71
A. Joseph Slater, Jr. 100 0.01
Gregory C. Cockerham 25,050(7) 3.18
William J. Pasenelli 7,361(8) 0.94
All Directors, Executive Officers and 235,860(9) 28.57
Nominees as a Group (9 persons)
Community Bank of Tri-County 54,310(10) 7.02
Employee Stock Ownership Plan ("ESOP")
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(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 18,882 shares held by spouse. Includes 18,724 shares of Common
Stock which may be acquired upon the exercise of stock options. Also
includes 10,546 shares of Common Stock allocated to Mr. Middleton's account
in the ESOP.
(4) Includes 13,654 shares of Common Stock which may be acquired upon the
exercise of stock options and 7,264 shares of Common Stock allocated to Ms.
Brown's account in the ESOP.
(5) Includes 600, 4,600, and 5,200 shares that may be acquired upon the
exercise of options by Directors Jenkins, Redmond and Smith respectively.
(6) Includes 54,310 shares of Common Stock held by the ESOP, over which the
named individual may exercise voting power in his capacity as an ESOP
trustee.
(7) Includes 14,341 shares of Common Stock which may be acquired upon the
exercise of stock options and 6,560 shares of Common Stock allocated to Mr.
Cockerham's account in the ESOP.
(8) Includes 6,037 shares of Common Stock which may be acquired upon the
exercise of stock options and 491 shares of Common Stock allocated to Mr.
Pasenelli's account in the ESOP.
(9) Includes 63,104 shares of Common Stock which may be acquired upon the
exercise of stock options. Also includes 54,310 shares of Common Stock held
by the ESOP.
(10) Includes 4,966 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.
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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 Michael L. Middleton, C.
Marie Brown and Louis P. Jenkins, Jr. to serve for an additional three-year term
or until their successors are elected and qualified. The Board of Directors has
also nominated James R. Shepherd to serve for an one-year term or until his
successor is elected and qualified. Director Shepherd was appointed by the Board
of Directors as a Director of the Company and the Bank in October 2003 to fill
the vacancy created by the resignation of W. Edelen Gough, Jr., as a director of
the Company and the Bank. 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. Any proxies marked as abstentions or as
broker non-votes will, however, be treated as shares present for purposes of
determining whether a quorum is present.
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, 2003 DIRECTOR (1) EXPIRE
---- -------- ------------ ------
BOARD NOMINEES FOR A TERM TO EXPIRE IN 2007
Michael L. Middleton 56 1979 2004
C. Marie Brown 61 1991 2004
Louis P. Jenkins, Jr. 32 2001 2004
BOARD NOMINEE FOR A TERM TO EXPIRE IN 2005
James R. Shepherd 58 2003 2004
DIRECTORS CONTINUING IN OFFICE
H. Beaman Smith 58 1986 2005
Herbert N. Redmond, Jr. 63 1997 2006
A. Joseph Slater, Jr. 50 2003 2006
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(1) Reflects the year first elected as a director of the Bank. Mr. Middleton
and Mr. Smith 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.
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 became the Chairman of the Board effective January,
2004, and also serves as its Board Representative to the Council of Federal Home
Loan Banks. Mr. Middleton also serves on the Board of Directors of the Federal
Reserve Bank, Baltimore Branch.
C. MARIE BROWN has been associated with the Bank for 31 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.
LOUIS P. JENKINS, JR. is a partner in the law firm of Jenkins, Jenkins &
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 including the Rotary Club of Charles County - La
Plata, the Southern Maryland Chapter of the American Red Cross and the Charles
County Bar Association.
JAMES R. SHEPHERD is the Business Development Officer for the Calvert
County Department of Economic Development. Mr. Shepherd was previously a
business owner in Calvert County. Mr. Shepherd holds an MS degree in Management
from the University of Maryland and a BA from Roanoke College. Mr. Shepherd
serves in numerous civic and charitable organizations.
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 holds a Masters Degree and BS from the
University of Maryland. Mr. Smith is a Trustee of the Ferguson Foundation and a
director of the Maryland 4-H Foundation.
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 of the
Leonardtown Rotary and serves on the special activities committee. He also
serves as chairperson of the St. Mary's County Building Officials and Code
Administrators Appeals Boards and is a member of the St. Mary's County
Historical Society. Mr. Redmond serves on the vestry of Christ Church Chaptico
and on the scholarships awards committee of the Maryland Society of Surveyors.
A. JOSEPH SLATER, JR. is the President and CEO 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. Mr. Slater holds an MBA in Finance from George Washington
University and a BS in Accounting from Shepherd College.
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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 2003, the Board of
Directors held five meetings. No 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, except for
director A. Joseph Slater, Jr.
The Company's Audit Committee consists of Directors James R. Shepherd, A.
Joseph Slater and Herbert N. Redmond, Jr. The Audit Committee meets with the
Company's independent auditors in connection with their annual
4
audit and reviews the Company's accounting and financial reporting policies and
practices. As the Common Stock of the Company trades on the OTC Bulletin Board,
the Company is required by the Exchange Act to select the listing standards of
either a national securities exchange or the listing standards of the National
Association of Securities Dealers, Inc. (the "NASD"), pursuant to which the
Board is required to determine and disclose whether the members of the Company's
audit committee and nominating committees are "independent". The Company
determined to use the listing standards of the NASD. All of the members of the
Audit Committee are "independent" as defined in NASD Rule 4200(a)(15) and
Section 10A(m)(3) and Rule 10A-3 of the Exchange Act. The Audit Committee met
four times during 2003. The amended Audit Committee Charter is attached hereto
as Annex A.
The Company's "Nominating Committee" is its Governance Committee and will
generally be comprised of all of the directors of the Company who are
"independent," as defined by NASD Rule 4200(a)(15), and who are not nominees for
a given year's director election. The Governance Committee selects nominees for
election as directors. For this year's annual meeting the directors serving on
the Governance Committee are: Louis P. Jenkins, Jr., James R. Shepherd, H.
Beaman Smith, who is not independent as he is an officer of the Company and the
Bank and Michael L. Middleton, ex officio. The Board of Directors has adopted a
charter for its nominating committee which is included as Annex B hereto, which
will apply to director nominations commencing in 2005.
In its deliberations, the Governance Committee considers a candidate's
knowledge of the banking business and involvement in community, business and
civic affairs, and also considers whether the candidate would provide for
adequate representation of the Company's market area. Any nominee for director
made by the Governance Committee must be highly qualified with regard to some or
all the attributes listed in the preceding sentence. In searching for qualified
director candidates to fill vacancies in the Board, the Governance Committee
solicits its then current directors for the names of potential qualified
candidates. The Governance Committee may also ask its directors to pursue their
own business contacts for the names of potentially qualified candidates. The
Governance Committee would then consider the potential pool of director
candidates, select the top candidate based on the candidates' qualifications and
the Governance Committee's needs, and conduct a thorough investigation of the
proposed candidate's background to ensure there is no past history that would
cause the candidate not to be qualified to serve as a director of the Company.
In the event a stockholder has submitted a proposed nominee, in accordance with
the procedures in the Company's Articles of Incorporation, the Governance
Committee would consider the proposed nominee, along with any other proposed
nominees recommended by individual directors, in the same manner in which the
Governance Committee would evaluate nominees for director recommended by the
Board of Directors.
The Governance Committee will consider recommendations for directorships
submitted by stockholders. Stockholders who wish the Governance Committee to
consider their recommendations for nominees for the position of Director should
submit their recommendations in writing to the Governance Committee in care of
the Secretary, Tri-County Financial Corporation, 3035 Leonardtown Road, Waldorf,
Maryland 20601. Each such written recommendation must set forth (i) the name of
the recommended candidate, (ii) the number of shares of stock of the Company
which are beneficially owned by the stockholder making the recommendation and
the recommended candidate, and (iii) a detailed statement explaining why the
stockholder believes the recommended candidate should be nominated for election
as a director. In addition, the stockholder making such recommendation must
promptly provide any other information reasonably requested by the Governance
Committee. In order to be considered by the Governance Committee for nomination
for election at an annual meeting of stockholders, the recommendation must be
received by January 1 preceding that annual meeting. Recommendations by
stockholders that are made in accordance with these procedures will receive the
same consideration given to other candidates recommended by directors or
executive management.
The Company does not have a separate compensation committee. Compensation
matters are considered by the full Board of Directors.
BOARD POLICIES REGARDING COMMUNICATIONS WITH THE BOARD OF DIRECTORS AND
ATTENDANCE AT ANNUAL MEETINGS
The Board of Directors maintains a process for stockholders to communicate
with the Board of Directors. Stockholders wishing to communicate with the Board
of Directors should send any communication to Secretary c/o Christy Lombardi,
Tri-County Financial Corporation, 3035 Leonardtown Road, Waldorf, Maryland
20601. Any such communication must state the number of shares beneficially owned
by the stockholder making the communication. The Secretary will forward such
communication to the full Board of Directors or to any individual director or
directors to whom the communication is addressed unless the communication is
unduly hostile, threatening, illegal or similarly
5
inappropriate, in which case the Secretary has the authority to discard the
communication or take appropriate legal action regarding the communication.
The Company does not have a policy regarding Board member attendance at
annual meetings of stockholders. All of the Company's directors attended the
Company's 2003 annual meeting of stockholders.
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DIRECTORS' COMPENSATION
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BOARD FEES. Directors of the Company receive fees of $325 per meeting
attended in person and $225 per telephone meeting. Members of the Bank's Board
of Directors currently receive fees of $425 per meeting attended in person and
$225 per telephone meeting and an annual retainer of $3,500. Members of the
Bank's executive committee receive a fee of $425 per meeting attended. Members
of the Company's Audit Committee receive fees of $325 per meeting attended in
person and $225 per telephone meeting. If more than one meeting of the Bank, the
Company or any subcommittees is held on any given day, the aggregate fees cannot
exceed $900 per day.
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 of Common Stock under the plan. Options
to purchase all of these 11,000 shares of Common Stock were granted to directors
during 1998. On September 25, 2001, the option plan was amended to increase the
number of shares of Common Stock reserved thereunder by 9,600 and an option for
3,000 shares of Common Stock was granted to Mr. Smith, an option for 2,400
shares of Common Stock was granted to Mr. Redmond and an option for 600 shares
of Common Stock was granted to Mr. Jenkins.
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' Plan). 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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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 2003 (the "Named Executive Officers").
LONG-TERM
ANNUAL COMPENSATION COMPANSATION AWARDS
NAME AND PRINCIPAL --------------------------- -- SECURITIES ALL OTHER
POSITION YEAR SALARY BONUS (1) UNDERLYING OPTIONS COMPENSATION
---------------------------- ---- ------ --------- ------------------ ------------
Michael L. Middleton 2003 $ 188,000 $ 99,674 4,691 $ 36,281 (2)
President and Chief 2002 175,236 86,249 2,975 30,183
Executive Officer 2001 162,429 91,968 2,079 31,215
C. Marie Brown 2003 $ 135,000 $ 57,644 2,545 $ 32,284 (3)
Executive Vice President 2002 125,067 49,880 2,197 27,559
and Chief Operating Officer 2001 124,080 48,852 1,201 28,772
Gregory C. Cockerham 2003 $ 125,000 $ 53,272 2,282 $ 19,036 (4)
Executive Vice President 2002 115,581 46,097 1,720 15,967
and Chief Lending Officer 2001 109,177 44,819 1,110 18,582
William J. Pasenelli 2003 $ 120,000 $ 48,415 2,362 $ 11,974 (5)
Executive Vice President 2002 105,043 31,420 1,395 12,130
and Chief Financial Officer 2001 102,091 18,908 754 5,811
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(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 2003, the Multiplier was the
average of (i) the percentage obtained when the Company's return on equity
("ROE") is divided by 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, stock options
whose value as measured by the Black-Scholes method is equal to 50% of cash
compensation will be awarded. Measures of performance may be adjusted at
the discretion of the Board of Directors. For fiscal 2004 and thereafter,
the Incentive Plan was amended on December 23, 2003, in two respects.
First, a third component was added to the Multiplier formula, with the
result that all three components will be averaged to determine the
Multiplier. The new component is the percentage obtained when the
percentage increase in the Company's earnings-per-share from the previous
year ("EPS Increase") is divided by the targeted EPS Increase for the year
established by the Board. In no event will this third component exceed
150%, and it will be deemed to be 0% if the percentage, as so computed, is
less than 50%. The second aspect of the amendment relates to the manner in
which the number of each participant's stock option shares will be
determined. The number of stock option shares will be determined such that
the value of the participant's stock option, as measured by the Company for
purposes of compliance with the reporting requirements of FASB Statement
No. 123, is equal to 50% of the bonus to which the participant is entitled
under the Incentive Plan.
(2) Consists of $10,425 in directors' fees, the value of the shares at year
end, ($17,766) allocated to the participant's account in the ESOP, $7000 in
matching contributions under the 401(k) Plan, and split-dollar life
insurance premiums of $1,090.
(3) Consists of $10,425 in directors' fees, the value of the shares at year end
($13,944) allocated to the participant's account in the ESOP, $6,000 in
matching contributions under the 401(k) Plan, and split-dollar life
insurance premiums of $915.
(4) Consists of the value of the shares ($12,726) allocated to the
participant's account in the ESOP, $6,000 in matching contributions under
the 401(k) Plan, and split-dollar life insurance premiums of $310.
(5) Consists of the value of the shares at year end ($5,754) allocated to the
participant's account in the ESOP, $6,000 in matching contributions under
the 401(k) Plan and split-dollar life insurance premiums of $220.
7
OPTION GRANTS IN FISCAL YEAR 2003. The following table contains information
concerning the grants of stock options during the year ended December 31, 2003
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 2003.
PERCENT
OF TOTAL
NUMBER OF OPTIONS
SECURITIES GRANTS TO
UNDERLYING EMPLOYEES
OPTIONS IN FISCAL EXERCISE EXPIRATION
NAME GRANTED YEAR PRICE DATE
---- ------------ ----------- -------- ----------
Michael L. Middleton 458 2.72% $39.00 12/31/12
4,233 25.17 42.00 12/31/13
C. Marie Brown 113 .67 39.00 12/31/12
2,432 14.46 42.00 12/31/13
Gregory C. Cockerham 30 .18 39.00 12/31/12
2,252 13.39 42.00 12/31/13
William J. Pasenelli 200 1.19 39.00 12/31/12
2,162 12.86 42.00 12/31/13
AGGREGATED OPTION EXERCISES IN FISCAL YEAR 2003 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, 2003, 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 3,100 $89,032 36,591 $788,531
C. Marie Brown 1,680 52,030 16,901 303,235
Gregory C. Cockerham 1,698 52,587 15,929 292,306
William J. Pasenelli 0 0 5,837 46,153
----------
(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 was last amended and restated effective September 6,
2003. The employment agreement 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, as defined in the agreement (i) Mr. Middleton voluntarily
terminates his employment for any reason within the 30 day period beginning on
the date of a change of control, (ii) Mr. Middleton voluntarily terminates
employment within 90 days of an event that occurs during the period which begins
on the date six months before a change of control and ends on the later of the
second anniversary of the change of control or the expiration of the employment
agreement, and which event constitutes good reason, as defined in the employment
agreement, or (iii) the Bank terminates Mr. Middleton's employment for any
reason other than for just cause, as defined in the agreement, then Mr.
Middleton shall be entitled to receive an amount equal to 2.99 times the average
annual compensation payable by the Bank and includable in Mr. Middleton's gross
income for the most recent five taxable years. In addition, Mr. Middleton would
be entitled to be reimbursed for excise taxes imposed on any "excess parachute
payments," as defined in Section 280G of the Internal Revenue Code of 1986, made
under the employment agreement and under any other
8
plans, programs or agreements (such as the Salary Continuation Agreement
described below), as well as any additional excise and income taxes imposed as a
result of such reimbursement. A change of control refers to certain enumerated
events, including the acquisition of 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 and Chief Lending Officer, and William J. Pasenelli,
Executive Vice President and Chief Financial Officer, respectively, except that
those agreements do not include any provision for an excess parachute payment
tax reimbursement. 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, 2003 would have been approximately $776,707, $333,675, $304,877 and
$246,308, respectively.
SALARY CONTINUATION AGREEMENTS. The Bank and Mr. Middleton entered into a
Salary Continuation Agreement effective as of September 6, 2003. The Bank is
presently funding it's obligations to Mr. Middleton pursuant to the Salary
Continuation Agreement through a life insurance policy on his life which the
Bank owns and with respect to which it is the sole death beneficiary. Pursuant
to his Salary Continuation Agreement, if Mr. Middleton terminates employment
with the Bank on or after his 62nd birthday, or within 24 months subsequent to a
change in control (as defined in his Employment Agreement), or terminates
employment on account of disability, he will be entitled to receive a pension
from the Bank in the amount of $10,671 per month for 180 months commencing on
the his 65th birthday (or his termination of employment, if later). If Mr.
Middleton's employment is terminated for reasons other than disability prior to
his 62nd birthday, the monthly amount payable to him for 180 months commencing
on his 65th birthday will be $10,671 multiplied by a fraction, the numerator of
which is the number of years of service completed by Mr. Middleton at the time
of his termination of employment, and the denominator of which is the number of
years of service he would have completed had he remained employed with the Bank
until his 62nd birthday. Mr. Middleton may elect that his pension shall commence
immediately following termination of employment prior to his 65th birthday,
provided that he make such election at least 13 months prior to his termination
of employment. If Mr. Middleton makes such election, his pension will be reduced
on the basis of an interest factor equal to the five-year Treasury Constant
Maturity Rate (but not greater than 6% annually). If Mr. Middleton dies while an
employee of the Bank, or after termination of employment, but before the date on
which his pension would have become payable, his designated beneficiary shall
receive a survivor's pension of $10,671 per month for 180 months commencing as
of the first day of the month following the date of death. If Mr. Middleton dies
after payment of his pension has commenced, his designated beneficiary shall
receive the balance of the 180 monthly payments. Mr. Middleton shall forfeit his
entitlement to all benefits under the Salary Continuation Agreement if his
employment with the Bank is terminated for cause as specified in his Employment
Agreement described above. In addition, Mr. Middleton would be entitled to be
reimbursed for excise taxes imposed on any "excess parachute payments," as
defined in Section 280G of the Internal Revenue Code of 1986, made under the
Salary Continuation Agreement and under any other plans, programs or agreements
(such as the Employment Agreement described above), as well as any additional
excise and income taxes imposed as a result of such reimbursement.
The Bank entered into similar Salary Continuation Agreements with C. Marie
Brown, Gregory C. Cockerham, and William J. Pasenelli as of September 6, 2003.
Their Salary Continuation Agreements are identical to Mr. Middleton's Salary
Continuation Agreement, except (i) the full monthly benefit for C. Marie Brown,
Gregory C. Cockerham and William J. Pasenelli is $3,627, $6,020 and $6,176,
respectively; (ii) the full monthly benefit is payable if termination of
employment occurs on or after age 65, on account of disability, or within 12
months subsequent to a change in control; and (iii) they do not include any
provision for an excess parachute payment tax reimbursement.
9
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.
--------------------------------------------------------------------------------
TRANSACTIONS WITH THE COMPANY AND THE BANK
--------------------------------------------------------------------------------
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 Jenkins,
Jenkins & Jenkins, P.A. which performed legal services for the Bank and its
borrowers during fiscal year 2003 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 2003 and is expected to perform similar services during the current
fiscal year.
--------------------------------------------------------------------------------
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
--------------------------------------------------------------------------------
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 2003, 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.
--------------------------------------------------------------------------------
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, 2004. 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.
AUDIT FEES
During the fiscal years ended December 31, 2002 and 2003, 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 years
ended December 31, 2002 and 2003 were $46,813 and $49,973, respectively.
AUDIT-RELATED FEES
During the fiscal years ended December 31, 2002 and 2003, the aggregate
fees for assurance and related services by Stegman & Company that were
reasonably related to the performance of the audit and review of the Company's
financial statements (other than audit fees) were $0 and $2,500, respectively.
TAX FEES
During the fiscal years ended December 31, 2002 and 2003, the aggregate
fees by Stegman & Company for professional services rendered by Stegman &
Company to the Company for tax compliance, tax advice and tax planning were
$7,151 and $6,750, respectively.
10
ALL OTHER FEES
For the fiscal years ended December 31, 2002 and 2003, the aggregate fees
paid by the Company to Stegman & Company for all other services (other than
audit, audit-related and tax fees) were $2,303 and $2,117, respectively.
The Audit Committee's charter provides that the Audit Committee will
approve in advance any non-audit service permitted by the Exchange Act,
including tax services, that its independent auditors renders to the Company,
unless such prior approval may be waived because of permitted exceptions under
the Exchange Act, including but not limited to the 5% de minimis exception. The
Audit Committee may delegate to one or more members of the Audit Committee the
authority to grant pre-approvals for auditing and allowable non-auditing
services, which decision shall be presented to the full Audit Committee at its
next scheduled meeting for ratification. During fiscal years ended December 31,
2002 and 2003 the Audit Committee approved 100% of all "audit-related", "tax"
and "other fees".
--------------------------------------------------------------------------------
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.
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, 2003, for filing with the
Securities and Exchange Commission.
AUDIT COMMITTEE
JAMES R. SHEPHERD
A. JOSEPH SLATER, JR.
HERBERT N. REDMOND, JR.
11
--------------------------------------------------------------------------------
OTHER MATTERS
--------------------------------------------------------------------------------
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.
--------------------------------------------------------------------------------
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, officers, and regular employees of the Company
may solicit proxies personally or by telegraph or telephone without additional
compensation.
The Company's 2003 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, 2003 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.
--------------------------------------------------------------------------------
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 5, 2004. 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 5, 2004
12
Annex-A
AUDIT COMMITTEE
CHARTER
The Board of Directors of Tri-County Financial Corporation (the "Company")
has constituted and established an audit committee (the "Committee") with
authority, responsibility, and specific duties as described in this Audit
Committee Charter.
Committee Mission: The primary responsibility of the Committee is to
oversee the Company's financial reporting process on behalf of the Board of
Directors and report the results of these activities to the Board. Management of
the Company is responsible for preparing the Company's financial statements, and
the independent auditors retained by the Committee are responsible for auditing
those financial statements. The Committee in carrying out its responsibilities
believes its policies and procedures should remain flexible, in order to best
react to overall changing conditions and circumstances. The Committee should
take the appropriate actions to set the overall corporate policy for quality
financial reporting, sound business risk management policies and ethical
behavior.
A. COMPOSITION
The Committee shall consist of three directors. Each director shall be free
from any relationship that, in the opinion of the Board of Directors, as
evidenced by its annual selection of such Committee members, would interfere
with the exercise of independent judgment as a Committee member. Each Committee
member shall be able to read and understand financial statements (including the
Company's balance sheet, income statement and cash flow statement). The
Committee shall use its best efforts to have a member that is an "audit
committee financial expert" as defined by SEC Regulations.
B. MISSION STATEMENT AND PRINCIPAL FUNCTIONS
The Committee shall have access to all records of the Company and shall
have and may exercise such powers as are appropriate to its purpose. The
Committee shall perform the following functions:
(1) Understand the accounting policies used by the Company for financial
reporting and tax purposes and approve their application; it shall also
consider any significant changes in accounting policies that are proposed
by management or required by regulatory or professional authorities.
(2) Review the Company's audited financial statements and related footnotes and
the "Management's Discussion and Analysis" portion of the annual report on
Form 10-K prior to the filing of such report with the SEC.
(3) Review the Company's unaudited financial statements and related footnotes
and the "Management Discussion and Analysis" portion of the Company's Form
10-Q for each interim quarter and instruct management of the Company to
ensure that the independent auditors also reviews the Company's interim
financial statements before the Company files its quarterly reports on Form
10-Q with the SEC.
(4) Study the format and timeliness of financial reports presented to the
public or used internally and, when indicated, recommend changes for
appropriate consideration by management.
(5) Meet and discuss with the Company's legal counsel, as appropriate, legal
matters that may have a significant impact on the Company or its financial
reports.
(6) Ensure that management has been diligent and prudent in establishing
accounting provisions for probable losses or doubtful values and in making
appropriate disclosures of significant financial conditions or events.
(7) Review and reassess the adequacy of this Charter annually.
A-1
(8) Discuss generally with management the Company's earnings press releases.
(9) Appoint, compensate, retain and oversee the work of the independent
auditors employed for the purpose of preparing or issuing an audit report
with respect to the Company or preparing other audit, review or attest
services for the Company; such independent auditors shall be duly
registered with the Public Accounting Oversight Board following its
establishment; and, such independent auditors shall be instructed to report
directly to the Committee.
(10) Approve in advance any non-audit service permitted by the Act, including
tax services, that its independent auditors renders to the Company, unless
such prior approval may be waived because of permitted exceptions under the
Act, including but not limited to the 5% de minimis exception.
(11) To the extent required by applicable regulations, disclose in periodic
reports filed by the Company with the SEC, approval by the Committee of
allowable non-audit services to be performed for the Company by its
independent auditors.
(12) Delegate to one or more members of the Committee the authority to grant
pre-approvals for auditing and allowable non-auditing services, which
decision shall be presented to the full Committee at its next scheduled
meeting for ratification.
(13) Receive a timely report from its independent auditors performing the audit
of the Company, which details: (1) all "critical accounting policies and
practices" to be used in the audit; (2) all alternate presentation and
disclosure of financial information within generally accepted accounting
principles that have been discussed with management officials of the
Company, ramifications of the use of such alternative disclosure and the
treatment preferred by the independent auditors; and (3) other material
written communications between the independent auditors and the management
of the Company, including, but not limited to, any management letter or
scheduled or unadjusted differences.
(14) Meet with management and independent auditors to (a) discuss the scope of
the annual audit, (b) discuss the annual audited financial statements
including disclosures made in "Management's Discussion and Analysis"
portion of the Company's annual report on Form 10-K, (c) discuss any
significant matter arising from the audit or report as disclosed to the
Committee by management or the independent auditors, (d) review the form of
opinion the independent auditors propose to render with respect to the
audited annual financial ( statements, (e) discuss significant changes to
the Company's auditing and accounting principles, policies, or procedures
proposed by management or the independent auditors, (f) inquire of the
independent auditors of significant risks or exposures, if any, that have
come to the attention of the independent auditors and any difficulties
encountered in conducting the audit, including any restrictions on the
scope of activities or access to requested information and any significant
disagreement with management.
(15) Ensure that the independent auditors submit to the Committee written
disclosures and the letter from the independent auditors required by
Independence Standards Board Standard No. 1 Independence Discussions with
Audit Committees, and discuss with the independent auditors their
independence.
(16) Discuss with the independent auditors the matters required to be discussed
by SAS 61 Communication with Audit Committees and SAS 90 Audit Committee
Communications, which include:
(a) methods used to account for significant unusual transactions;
(b) the effect of significant accounting policies in controversial or
emerging areas for which there is a lack of authoritative guidance or
consensus;
(c) the process used by management in formulating particularly sensitive
accounting estimates and the basis for the auditor's conclusions
regarding the reasonableness of those estimates;
(d) disagreements with management over the application of accounting
principles, the basis for management's accounting estimates, and the
disclosures in the financial statements; and
(e) information regarding the auditor's judgment about quality, not just
acceptability, of the
A-2
Company's auditing principles.
(17) Engage independent counsel and other advisers, as the Committee may
determine in its sole discretion to be necessary and appropriate, to carry
out the Committee's duties.
(18) Be provided with appropriate funding by the Company, as determined by the
Committee, for payment of:
(a) compensation to any independent auditors engaged for the purpose of
preparing or issuing an audit report or performing other audit, review
or attest services for the Company;
(b) compensation to any advisers employed by the audit committee under
Section 17 above; and
(c) ordinary administrative expenses of the audit committee that are
necessary or appropriate in carrying out its duties.
(19) Obtain from the independent auditors, at least annually, a formal written
statement delineating all relationships between the independent auditors
and the Company, and at least annually discuss with the independent
auditors any relationship or services which may impact the independent
auditors' objectivity or independence, and take appropriate actions to
ensure such independence.
(20) Establish procedures for the receipt, retention and treatment of complaints
received by the Company regarding accounting, internal accounting controls
or auditing matters.
(21) Review management's assessment of the effectiveness of internal control
over financial reporting and the attestation report submitted by the
independent auditors to ensure that appropriate suggestions for improvement
are promptly considered with respect to the Company's internal control over
financial reporting.
(22) Establish procedures for the confidential, anonymous submission by
employees of the Company of concerns regarding questionable accounting or
auditing matters.
(23) Have the authority to investigate allegations of managerial misconduct by
its executives or any other matters related to the financial operations of
the Company.
C. MEETINGS
Meetings of the Committee will be held at least quarterly and such other
times as shall be required by the Chairman of the Board, or by a majority of the
members of the Committee. All meetings of the Committee shall be held pursuant
to the Bylaws of the Company with regard to notice and waiver thereof. The
Chairman of the Audit Committee shall be responsible for meeting with or
designating another Committee member to meet with the Company's independent
auditors either in person or by telephone at their request to discuss their
interim financial statements. Written minutes pertaining to each meeting shall
be filed with the Company's Secretary and an oral report shall be presented by
the Committee at each Board meeting.
At the invitation of the Chairman of the Committee, the meetings shall be
attended by the President and Chief Executive Officer, the Chief Financial and
Accounting Officer, the representatives of the independent auditors, and such
other persons whose attendance is appropriate to the matters under
consideration.
Approved by Committee and the Board of the Company as of February 4, 2004.
A-3
Annex-B
CHARTER
OF THE
GOVERNANCE COMMITTEE
OF THE
BOARD OF DIRECTORS OF
TRI-COUNTY FINANCIAL CORPORATION
AS APPROVED BY THE BOARD OF DIRECTORS
ON FEBRUARY 4, 2004
I. AUTHORITY AND COMPOSITION
The Committee is established pursuant to Section 14 of the By-Laws of Tri-County
Financial Corporation (the "Corporation") and Article IX of the Articles of
Incorporation of the Corporation. Committee members shall be appointment
annually by the Board and may be replaced by the Board. The Committee may
appoint a Secretary, who need not be a Director. The Committee Chairman shall be
appointed by the Board.
Even though the common stock of the Corporation is not listed, the Corporation
is required to select the listing standards of a national securities exchange or
the rules of the National Association of Securities Dealers and disclose
annually in the Corporation's proxy statement whether the members of the
Committee are independent pursuant to the selected standard. While the members
of the Committee are not required to meet these independence standards, the
Committee will consider these standards when evaluating the independence of its
members.
II. PURPOSE OF THE COMMITTEE
The Committee's purpose is to assist the Board in promoting the best interests
of the Corporation and its shareholders through the implementation of sound
corporate governance principles and practices.
III. RESPONSIBILITIES OF THE COMMITTEE
The following activities are set forth as a guide with the understanding that
the Committee may diverge from this guide as it considers appropriate.
(a) Identify potential candidates for nomination as Directors on an
ongoing basis, in such manner as the Committee deems appropriate;
(b) Recommend to the Board the number of Directors to be elected and a
slate of nominees for election as Directors at the Corporation's
annual meeting of shareholders;
(c) Recommend to the Board persons to be appointed as Directors in the
interval between annual meetings of the Corporation's shareholders;
(d) Recommend to the Board standards for determining outside director
independence consistent with NASD Rule 4200(a)(15) and other legal or
regulatory corporation governance requirements and review and assess
these standards on a periodic ongoing basis;
(e) Review the qualifications and independence of the members of the Board
and its various committees on a regular periodic basis and make any
recommendations the Committee members may deem appropriate from time
to time concerning any recommended changes in the composition of the
Board and its committees;
B-1
(f) Oversee the Corporation's director orientation and continuing
education programs;
(g) Oversee matters related to the compensation and benefits of outside,
nonemployee Directors and make such recommendations to the Board as
the Committee deems appropriate;
(h) Recommend to the Board a retirement policy for Directors and a policy
relating to Directors who have experienced a change in the job
responsibilities they held at the time they became a Director;
(i) Recommend to the Board such changes to the Board's Committee structure
and Committee functions as the Committee deems advisable;
(j) Confirm that each standing Committee of the Board has a Charter in
effect and that such Charter is reviewed at least annually by its
Committee;
(k) Review shareholder proposals duly and properly submitted to the
Corporation and recommend appropriate action to the Board;
(l) Review any proposed amendments to the Corporation's Articles of
Incorporation and Bylaws and recommend appropriate action to the
Board;
(m) Review and assess the Corporation's compliance with the corporate
governance requirements established under federal securities and
banking laws and regulations or otherwise as applicable to each of the
Corporation and its subsidiaries and controlled affiliates;
(n) Monitor the Board's and the Corporation's compliance with any
commitments made to the Corporation's regulators or otherwise
regarding changes in corporate governance practices;
(o) Recommend to the Board such additional actions related to corporate
governance matters as the Committee may deem necessary or advisable
from time to time;
(p) Review and assess the quality and clarity of the information provided
to the Board and the Committee and make recommendations to management
as the Committee deems appropriate from time to time for improving
such materials;
(q) Evaluate the effectiveness of the Board's oversight of management
activities and the major operations of the Corporation and its
subsidiaries and controlled affiliates;
(r) Review and assess the Board's effectiveness in monitoring exceptions
to Board-approved policies and guidelines;
(s) Review Board and committee processes for assessing the adequacy and
completeness of their respective minutes, the process for the review
and approval of such minutes and the retention of such minutes and any
related materials presented to the Board of its committees for review;
and
(t) Receive comments from all Directors and report annually to the Board
with an assessment of the Board's performance, to be discussed with
the full Board near or following the end of each fiscal year.
WITH RESPECT TO THE RESPONSIBILITIES LISTED ABOVE, THE COMMITTEE SHALL:
(a) Report regularly to the Board on its activities;
(b) Maintain minutes of its meetings and records relating to those
meetings and the Committee's activities;
B-2
(c) Have the sole authority to retain and terminate any search firm to be
used to identify Director candidates and to approve the search firm's
fees and other retention terms;
(d) Have authority to obtain advice and assistance from internal or
external legal, accounting or other advisors;
(e) Form and delegate authority to subcommittees of one or more Committee
members when appropriate;
(f) Review and reassess the adequacy of this Charter annually and
recommend to the Board any proposed changes to this Charter; and
(g) Annually review the Committee's own performance.
IV. GENERAL
In performing their responsibilities, Committee members are entitled to rely in
good faith on information, opinions, reports or statements prepared or presented
by:
(a) One or more officers and employees of the Corporation whom the
Committee member reasonably believes to be reliable and competent in
the matters presented;
(b) Counsel, independent auditors, or other persons as to matters which
the Committee member reasonably believes to be within the professional
or expert competence of such person; or
(c) Another committee of the Board as to matters within its designated
authority which committee the Committee member reasonably believes to
merit confidence.
B-3
REVOCABLE PROXY
TRI-COUNTY FINANCIAL CORPORATION
ANNUAL MEETING OF STOCKHOLDERS MAY 5, 2004
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
The undersigned hereby appoints Herbert N. Redmond, Jr. and A. Joseph Slater,
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 2004
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 5, 2004 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 2004
ANNUAL MEETING.
Continued, and to be signed and dated, on reverse side.
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: Michael L. Middleton, C. Marie Brown, Louis P. Jenkins, Jr. and James
R. Shepherd
(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 2003 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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/ / / /
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