UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K/A
(Amendment No. 1)
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 2003
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission File No. 0-18279
TRI-COUNTY FINANCIAL CORPORATION
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(Exact Name of Registrant as Specified in Its Charter)
Maryland 52-1652138
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification no.)
3035 Leonardtown Road, Waldorf, Maryland 20601
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(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (301) 645-5601
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Securities registered pursuant to Section 12(b) of the Act: None
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Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.01 per share
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(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or such shorter period that the registrant was required
to file such reports) and (2) has been subject to such filing requirements for
the past 90 days. Yes X No
-- --
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ X ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2). Yes _ No X
The aggregate market value of voting stock held by non-affiliates of the
registrant was approximately $23 million based on the closing price at which the
common stock, $0.01 par value, was sold on the last business day of the
Company's most recently completed second fiscal quarter. For purposes of this
calculation only, the shares held by directors and executive officers of the
registrant and by any stockholder beneficially owning more than 5% of the
registrant's outstanding common stock are deemed to be shares held by
affiliates.
Number of shares of Common Stock outstanding as of March 3, 2004: 756,737
PART III
Item 11 to the Annual Report on Form 10-K of Tri-County Financial
Corporation (the "Company") for the fiscal year ended December 31, 2003 as filed
with the Securities and Exchange Commission (the "SEC") on March 26, 2004 is
hereby amended and restated in its entirety as set forth below. The Company is
amending and restating this Item because the number of unexercised options at
fiscal year end reported for the named executive officers of the Company was
incorrect as previously filed.
ITEM 11. EXECUTIVE COMPENSATION
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The Company qualifies as a "small business issuer" as defined by Item
10(a)(1) of Regulation S-B and is in compliance with Item 402 of Regulation S-K
if it provides solely the information required by Subsection (a)(1)(i) of this
Item.
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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 COMPENSATION 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
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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.
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 33,858 $691,300
C. Marie Brown 1,680 52,030 15,334 250,283
Gregory C. Cockerham 1,698 52,587 14,311 238,686
William J. Pasenelli 0 0 5,837 46,153
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(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.
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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 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
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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.
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.
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
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(3) Exhibits. The following is a list of exhibits filed as part of this
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Amendment No. 1 to the Annual Report on Form 10-K and is also the Exhibit Index.
NO. DESCRIPTION
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31.1 Rule 13a-14a Certification of Chief Executive Officer
31.2 Rule 13a-14a Certification of Chief Financial Officer
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
TRI-COUNTY FINANCIAL CORPORATION
Date: April 26, 2004 By:/s/ Michael L. Middleton
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Michael L. Middleton
President and Chief Executive Officer
(Duly Authorized Representative)