<PAGE>
As filed with the Securities and Exchange Commission on January 17, 1997
Registration No. 333-18381
---------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------
POST EFFECTIVE AMENDMENT NO. 1 TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------------
HARBOR FLORIDA BANCORP, INC.
----------------------------
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
Delaware 6712 Applied For
-------- ---- -----------
<S> <C> <C>
(State or other jurisdiction of (Primary Standard Industrial I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.
</TABLE>
100 S. Second Street
Fort Pierce, Florida 34950
(561) 461-2414
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
Michael J. Brown, Sr.
100 S. Second Street
Fort Pierce, Florida 34950
(561) 461-2414
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Copies of Communications to:
Raymond J. Gustini, Esq.
Peabody & Brown
1255 23rd St., N.W., Suite 800
Washington, D.C. 20037
(202) 973-7700
<PAGE>
Approximate date of commencement of proposed sale to public:
As soon as practicable after this Registration Statement becomes effective.
If the securities being registered on this Form are being offered in connection
with the formation of a holding company and there is compliance with General
Instruction G, check the following box: [X]
CALCULATION OF REGISTRATION FEE /(3)/
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
Proposed Proposed
Title of each class of Maximum Maximum
securities to be Amount to be Offering Price Aggregate Amount of
registered Registered/(1)/ Per Unit/(2)/ Offering Price/(2)/ Registration Fee
---------- --------------- ------------- ------------------- ----------------
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock,
$0.01 par 4,937,187 $32.75 $161,692,874.25 $48,998
value per share
- ---------------------------------------------------------------------------------------------------
</TABLE>
(1) Based on the maximum number of shares to be issued in respect of the same
number of shares of Harbor Federal Savings Bank common stock outstanding upon
the consummation of the Reorganization described herein.
(2) Estimated solely for purposes of determining the registration fee and
based, in accordance with Rule 457(f)(1), upon the average of the prices of
common stock of Harbor Federal Savings Bank as reported by the NASDAQ on
December 18, 1996.
/(3)/ Previously Paid.
2
<PAGE>
HARBOR FLORIDA BANCORP, INC.
Cross-Reference Sheet
For
Registration Statement on Form S-4 and
Proxy Statement/Prospectus
<TABLE>
<CAPTION>
Item Caption Caption in Prospectus
------- ---------------------
Number
- ------
<S> <C> <C>
1 Forepart of Facing Page of Registration
Registration Statement; Cross Reference
Statement and Sheet; Proxy
Outside Front Page Statement/Prospectus Cover
of Prospectus Page
2 Inside Front and Available Information;
Outside Back Cover Proxy Statement/Prospect
Pages of Prospectus Cover Page; Outside Back
Cover Pages
3 Risk Factors, Ratio Summary; Election of
of Earnings to Fixed Directors of Harbor
Charges and Other Federal; Formation of
Information Middle Tier Holding Company
4 Terms of the Formation of Middle Tier
Transaction Holding Company --
Description of the
Reorganization
5 Pro Forma Financial Not Applicable
Information
6 Material Contacts Not Applicable
with the Company
Being Acquired
7 Additional Not Applicable
Information Not
Required for
Reoffering by
Persons Deemed to be
Underwriters
8 Interests of Named Not Applicable
Experts and Counsel
</TABLE>
3
<PAGE>
<TABLE>
<S> <C> <C>
9 Disclosure of Commission Formation of Middle
Position on Tier Holding Company
Indemnification for -- Indemnification
Securities Act
Liabilities
10 Information with Respect Not Applicable
to S-3 Registrants
11 Incorporation of Certain Not Applicable
Information by Reference
12 Information with Respect Not Applicable
to S-2 or S-3 Registrants
13 Incorporation of Certain Not Applicable
Information by Reference
14 Information with Respect Summary; Formation of
to Registrants Other Middle Tier Holding
Than S-3 or S-2 Company -- Business of
Registrants Bancorp -- Business of
Harbor Federal
15 Information with Respect Not Applicable
to S-3 Companies
16 Information with Respect Not Applicable
to S-2 or S-3 Companies
17 Information with Respect Summary; Formation of
to Companies Other Than Middle Tier Holding
S-2 or S-3 Companies Company -- Business of
Bancorp -- Business of
Harbor Federal; Legal
Proceedings
18 Information if Proxies, Summary; Information
Consents or Concerning the Annual
Authorizations are to be Meeting of
Solicited Shareholders;Principal
Shareholders;
Solicitation of
Proxies; Revocation of
Proxies; Formation of
Middle Tier Holding
Company; Ratification
of Appointment of
Independent Auditors
19 Information if Proxies, Not Applicable
Consents or
Authorizations are not
to be Solicited or in
an Exchange Offer
</TABLE>
4
<PAGE>
HARBOR FEDERAL SAVINGS BANK
100 S. Second Street
Fort Pierce, FL 34540
(561) 461-2414
January 16, 1997
Dear Shareholder:
You are cordially invited to attend the 1997 Annual Meeting of
Shareholders (the "Annual Meeting") of Harbor Federal Savings Bank ("Harbor
Federal") to be held on February 10, 1997, at 10:00 a.m., Eastern Standard Time,
at the Old City Hall Annex, 315 Avenue A, Fort Pierce, Florida 34950.
The Annual Meeting has been called for the following purposes: (i) to
approve an Agreement and Plan of Reorganization ("Plan of Reorganization")
pursuant to which a proposed new middle tier holding company, Harbor Florida
Bancorp, Inc., a Delaware stock corporation ("Bancorp"), will be formed.
Bancorp will in a one-for-one exchange with Harbor Federal's shareholders
acquire all the issued and outstanding common stock of Harbor Federal and will,
as a result of the exchange, become the middle tier stock holding company for
Harbor Federal. Harbor Financial, M.H.C., Harbor Federal's mutual holding
company (the "Mutual Holding Company") will hold the majority of Bancorp's
common stock issued and outstanding; (ii) to amend the Federal Stock Charter of
Harbor Federal to permit Bancorp to hold 100% of the outstanding common stock of
Harbor Federal; (iii) to elect three (3) directors of Harbor Federal for
three-year terms; (iv) to ratify the appointment by Harbor Federal's Board of
Directors of the firm of KPMG Peat Marwick LLP, as independent public
accountants of Harbor Federal for the fiscal year ending September 30, 1997; (v)
to transact such other business as may properly come before the Annual Meeting
or any adjournments thereof.
The Plan of Reorganization was adopted by the Board of Directors of
Harbor Federal on November 27, 1996. Pursuant to the Plan of Reorganization,
which is subject to regulatory and shareholder approval, each outstanding share
of Harbor Federal's common stock will be converted into one share of Bancorp
common stock, and Harbor Federal will become a wholly-owned subsidiary of
Bancorp. The Mutual Holding Company, which currently holds the majority of
Harbor Federal's issued and outstanding common stock, will hold the majority of
Bancorp's common stock and is statutorily required to do so as long as the
Mutual Holding Company remains in existence. The affirmative vote of the
majority of shares of common stock present or represented by proxy at the Annual
Meeting is required to approve the Plan of Reorganization. As the Mutual
Holding Company intends to cast its shares, which
5
<PAGE>
represent 53.79% of the issued and outstanding shares of common stock of Harbor
Federal, in favor of the Plan of Reorganization its approval by stockholders is
assured.
Harbor Federal will continue operations in the same offices and with
the same directors, officers and other employees. Pursuant to the regulations
of the Office of Thrift Supervision ("OTS") stockholders of Harbor Federal will
not have dissenters' rights in connection with the Plan of Reorganization, if,
as the regulations provide, there is an active trading market for Harbor Federal
common stock where stockholders may sell their shares pursuant to a listing on a
national securities exchange or quotation on the National Association of
Securities Dealers Automated Quotation System.
In your Board's opinion, the Plan of Reorganization will, through the
establishment of Bancorp, create a corporate structure which will facilitate
growth through potential acquisitions of financial institutions and permit,
through a program of stock repurchases, a reduction in excess capital and
improvement in capital ratios and the returns thereby. The Reorganization is
more fully described in the enclosed Proxy Statement/Prospectus.
Your Board believes that the formation of a middle tier holding
company is in the best interests of Harbor Federal and its shareholders and
therefore unanimously recommends that you vote "FOR" this proposal. Your Board
also recommends that you vote "FOR" the amendment of the Federal Stock Charter
of Harbor Federal, "FOR" the election of its three nominees as directors of
Harbor Federal, and "FOR" ratification of the appointment of KPMG Peat Marwick,
LLP as Harbor Federal's independent public accountants. You are urged to read
the accompanying Proxy Statement/Prospectus, which provides detailed information
concerning each of these matters. Also enclosed is Harbor Federal's Annual
Report to Shareholders, which presents results for the fiscal year ended
September 30, 1996.
It is important that your shares be represented at the Annual Meeting.
Whether or not you plan to attend the Annual Meeting, you are requested to
complete, date, sign and return the enclosed proxy card in the enclosed envelope
for which postage has been paid.
Sincerely yours,
Michael J. Brown, Sr.
President and CEO
2
<PAGE>
HARBOR FEDERAL SAVINGS BANK
100 S. Second Street
Fort Pierce, FL 34950
(561) 461-2414
___________________________
NOTICE OF ANNUAL MEETING
OF SHAREHOLDERS TO BE HELD
FEBRUARY 10, 1997
___________________________
NOTICE IS HEREBY GIVEN that the 1997 Annual Meeting of Shareholders
(the "Annual Meeting") of Harbor Federal Savings Bank ("Harbor Federal") will be
held on Monday, February 10, 1997, at 10:00 a.m., Eastern Standard Time, at the
Old City Hall Annex, 315 Avenue A, Fort Pierce, Florida 34950 for the following
purposes:
1. To elect three (3) directors of Harbor Federal for three-year terms.
2. To approve an Agreement and Plan of Reorganization (the "Plan of
Reorganization") pursuant to which a proposed new middle tier stock holding
company, Harbor Florida Bancorp, Inc., a Delaware stock corporation
("Bancorp") will be formed. Bancorp will in a one-for-one exchange with
Harbor Federal's shareholders acquire all the issued and outstanding common
stock of Harbor Federal.
3. To amend the Federal Stock Charter of Harbor Federal to permit Bancorp to
hold 100% of the outstanding common stock of Harbor Federal.
4. To ratify the appointment by Harbor Federal's Board of Directors of the
firm of KPMG Peat Marwick, LLP, as independent public accountants of Harbor
Federal for the fiscal year ending September 30, 1997.
5. To transact such other business as may properly come before the Annual
Meeting or any adjournments thereof.
Pursuant to Harbor Federal's bylaws, the Board of Directors of Harbor
Federal has fixed the close of business on December 13, 1996, as the record date
for the determination of shareholders entitled to notice of and to vote at the
Annual Meeting. Only holders of common stock of record at the close of business
on that date will be entitled to notice of and to vote at the Annual Meeting or
any adjournments thereof.
IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY. THEREFORE, WHETHER OR NOT
YOU PLAN TO BE PRESENT IN PERSON AT THE ANNUAL MEETING, PLEASE DATE, SIGN AND
COMPLETE THE ENCLOSED PROXY AND RETURN IT IN THE ENCLOSED ENVELOPE WHICH
REQUIRES NO POSTAGE IF
1
<PAGE>
MAILED IN THE UNITED STATES. YOU MAY REVOKE YOUR PROXY AND VOTE IN PERSON IF YOU
DO ATTEND THE ANNUAL MEETING.
By Order of the Board of Directors
/s/
Michael J. Brown, Sr.
President and CEO
Fort Pierce, Florida
January 16, 1997
2
<PAGE>
HARBOR FEDERAL SAVINGS BANK
HARBOR FLORIDA BANCORP, INC.
PROXY STATEMENT/PROSPECTUS
This Proxy Statement/Prospectus is being furnished in connection with
the solicitation of proxies by the Board of Directors of Harbor Federal Savings
Bank, ("Harbor Federal") for use at its Annual Meeting of Shareholders to be
held on Monday, February 10, 1997. It is also the Prospectus of Harbor Florida
Bancorp, Inc. ("Bancorp") and part of an effective Registration Statement filed
under the Securities Act of 1933, as amended (the "Securities Act") with respect
to the issuance of up to 4,934,454 shares of Bancorp's common stock in
connection with the reorganization (the "Reorganization") described herein. The
approximate date of mailing of this Proxy Statement/Prospectus is January 16,
1997.
This Proxy Statement does not cover any resales of Bancorp's common
stock received by Harbor Federal's shareholders upon completion of the
Reorganization described herein. No person is authorized to make any use of
this Proxy Statement/Prospectus in connection with the offer or sale of any
other securities.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION (THE "SEC" OR THE "COMMISSION"), THE FEDERAL DEPOSIT
INCORPORATION ("FDIC") OR THE OFFICE OF THRIFT SUPERVISION ("OTS") NOR
HAS SUCH COMMISSION, CORPORATION OR OFFICE PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
-----------------------------
HARBOR FINANCIAL, M.H.C. (THE "MUTUAL HOLDING COMPANY")
BENEFICIALLY OWNS A MAJORITY OF THE SHARES OUTSTANDING AND
ENTITLED TO VOTE ON THE PROPOSAL TO ADOPT THE AGREEMENT AND
PLAN OF REORGANIZATION, AND IT INTENDS TO VOTE ITS SHARES IN
FAVOR OF THE PROPOSAL. THE AFFIRMATIVE VOTE OF THE MAJORITY
OF THE SHARES OF COMMON STOCK PRESENT OR REPRESENTED BY
PROXY AT THE ANNUAL MEETING IS REQUIRED TO APPROVE THE PLAN
OF REORGANIZATION. CONSEQUENTLY, APPROVAL OF THE
AGREEMENT AND PLAN OF REORGANIZATION TO ESTABLISH A STOCK
HOLDING COMPANY IS ASSURED.
-----------------------------
THE SHARES OF COMMON STOCK ARE NOT SAVINGS ACCOUNTS OR
DEPOSITS AND ARE NOT INSURED OR GUARANTEED BY THE SAVINGS
ASSOCIATION INSURANCE FUND OR THE BANK INSURANCE FUND OF THE
FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER
GOVERNMENT AGENCY AND ARE NOT GUARANTEED BY BANCORP,
HARBOR FEDERAL OR THE MUTUAL HOLDING COMPANY. THE COMMON
STOCK IS SUBJECT TO INVESTMENT RISK INCLUDING THE POSSIBLE LOSS
OF PRINCIPAL INVESTED.
1
<PAGE>
THE OTS HAS PROMULGATED AN ADVANCE NOTICE OF PROPOSED
RULEMAKING TO SOLICIT COMMENTS ON AMENDING THE REGULATIONS
REGARDING THE INTRODUCTION OF A MIDDLE TIER STOCK HOLDING
COMPANY INTO A MUTUAL HOLDING COMPANY AND SUBSIDIARY
STRUCTURE. THE OUTCOME OF THIS RULEMAKING PROCEDURE IS
UNCERTAIN AND THEREFORE SOME OF THE OBJECTIVES SOUGHT BY
HARBOR FEDERAL BY THE CREATION OF BANCORP MAY NOT BE
ACHIEVABLE. FURTHER, THE OTS HAS APPROVED ONE MIDDLE TIER
STOCK HOLDING COMPANY AND IMPOSED A SIGNIFICANT NUMBER OF
CONDITIONS THAT MAY LIMIT OR RESTRICT THE USES OF A MIDDLE
TIER STRUCTURE SUCH AS BANCORP. THE BOARD OF DIRECTORS WILL
REVIEW AND EVALUATE SUCH CONDITIONS OR RESTRICTIONS AND
RESERVES THE SOLE RIGHT TO CONTINUE OR TERMINATE THE PLAN OF
REORGANIZATION FOR THE MIDDLE TIER HOLDING COMPANY WITHOUT
ADDITIONAL CONSULTATION WITH OR APPROVAL OF ITS ACTIONS BY
SHAREHOLDERS.
-----------------------------
The date of this Proxy Statement/Prospectus is January 16, 1997.
2
<PAGE>
AVAILABLE INFORMATION
Bancorp has filed with the Securities and Exchange Commission (the
"Commission" or the "SEC") a registration statement under the Securities Act of
1933 (the "Securities Act"). As permitted by the rules and regulations of the
Commission, this Proxy Statement/Prospectus does not contain all of the
information set forth in the Registration Statement. Such information can be
examined without charge at the public reference facilities of the SEC located at
450 Fifth Street, N.W., Washington, D.C. 20549 and copies of such material can
be obtained from the Commission at prescribed rates. The statements contained
herein as to the contents of any contract or other documents filed as an exhibit
to the Registration Statement are of necessity brief descriptions thereof and
are not necessarily complete. Each such statement is qualified by reference to
such contract or document.
Bancorp will file, following the meeting of shareholders, a holding
company application with the OTS with respect to the Reorganization. Upon
filing, which is anticipated to occur not later than February 15, 1997, the
application may be examined at the principal office of the OTS at 1700 G Street,
N.W., Washington, D.C. 20052 and at the Southeast Regional Office of the OTS at
1475 Peachtree Street, N.E., Atlanta, GA 30309 without charge.
Harbor Federal is subject to the information, reporting and proxy
statement requirements of the Securities Exchange Act of 1934, as amended (the
"Exchange Act") and, in accordance therewith and with the rules and regulations
applicable to all savings associations, files reports, proxy statements and
other information with the OTS. Copies of such materials may be obtained at
prescribed rates from the OTS, 1700 G Street, N.W., Washington, D.C. 20552.
Although Bancorp is not presently subject to the requirements of the Exchange
Act, upon completion of the Reorganization Bancorp will become subject to the
same information, reporting and proxy statement requirements under the Exchange
Act as currently apply to Harbor Federal, except that such filings will be
required to be made with the Commission rather than the OTS and will be
available for inspection and copying at the offices of the Commission set forth
above. The common stock of Harbor Federal is quoted on the National Association
of Securities Dealers Automated Quotation National Market (the "NASDAQ-NMS").
Upon completion of the Reorganization, such stock will be held solely by Bancorp
and, as a result, will not be quoted on NASDAQ-NMS. Bancorp will apply to and
anticipates that the common stock of Bancorp will be included in the NASDAQ-NMS
upon completion of the Reorganization. However, there is no assurance that
Bancorp common stock will be included in the NASDAQ-NMS, or that a public
trading market will develop in its common stock, although a market has existed
for the common stock of Harbor Federal.
UPON RECEIPT OF WRITTEN OR TELEPHONIC REQUEST, HARBOR FEDERAL WILL
FURNISH TO ANY SHAREHOLDER WITHOUT CHARGE A COPY OF HARBOR FEDERAL'S ANNUAL
REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1996, AND A LIST OF
THE EXHIBITS THERETO. THIS REPORT HAS BEEN FILED WITH THE OTS UNDER THE EXCHANGE
ACT. SUCH WRITTEN
3
<PAGE>
REQUEST SHOULD BE DIRECTED TO ANNE W. SATTERLEE, HARBOR FEDERAL SAVINGS BANK,
100 S. SECOND STREET, FORT PIERCE, FL 34950, (561) 460-7046.
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROXY STATEMENT/PROSPECTUS
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS SHOULD NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED. THIS PROXY STATEMENT/PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO PURCHASE, THE
SECURITIES OFFERED BY THIS PROXY STATEMENT/PROSPECTUS, OR THE SOLICITATION OF A
PROXY, TO OR FROM ANY PERSON IN ANY JURISDICTION WHERE IT IS UNLAWFUL TO MAKE
SUCH OFFER OR SOLICITATION OF AN OFFER OR PROXY SOLICITATION. NEITHER THE
DELIVERY OF THIS PROXY STATEMENT/PROSPECTUS NOR ANY DISTRIBUTION OF THE
SECURITIES MADE UNDER THIS PROXY STATEMENT/PROSPECTUS SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF HARBOR FEDERAL OR BANCORP SINCE THE DATE OF THIS PROXY
STATEMENT/PROSPECTUS.
4
<PAGE>
Harbor Federal Savings Bank
PROXY STATEMENT/PROSPECTUS
TABLE OF CONTENTS
<TABLE>
<S> <C>
SUMMARY................................................................... 7
Formation of the Middle Tier Holding Company............................ 7
Reasons for Reorganization............................................ 7
Description of Reorganization......................................... 8
Tax Consequences...................................................... 9
Accounting Treatment.................................................. 9
Comparison of Shareholder Rights...................................... 9
Interest of Directors and Officers.................................... 10
Market for Bancorp Common Stock....................................... 10
Management of Bancorp................................................. 10
Required Shareholder Vote............................................. 11
Regulatory Approvals and Regulation................................... 11
Dividends............................................................. 11
No Dissenters' Rights................................................. 12
Changes in Shareholders' Rights and Takeover.......................... 13
Other Information Concerning Annual Meeting........................... 13
Market for Common Stock................................................. 13
MARKET FOR COMMON STOCK................................................... 13
INFORMATION CONCERNING THE ANNUAL MEETING OF SHAREHOLDERS................. 15
Matters to be Considered at the Meeting................................. 15
SOLICITATION OF PROXIES................................................... 16
REVOCATION OF PROXIES..................................................... 16
VOTING SECURITIES......................................................... 17
VOTING PROCEDURES......................................................... 17
PRINCIPAL HOLDERS OF COMMON STOCK......................................... 18
PROPOSAL I - ELECTION OF DIRECTORS........................................ 21
Board Meetings and Committees........................................... 24
Directors' Fees......................................................... 24
Director Retirement Plan................................................ 24
Directors' Unfunded Deferred Compensation Plan.......................... 25
Executive Compensation.................................................. 25
Option Grants in Last Fiscal Year....................................... 27
Aggregate Option Exercises and Year-End Option Values................... 28
Compensation Committee Interlocks and Insider Participation............. 29
401(k) Profit Sharing Plan.............................................. 29
Pension Plan............................................................ 30
</TABLE>
5
<PAGE>
<TABLE>
<S> <C>
Supplemental Executive Retirement Program.............................. 31
Employment and Change in Control Agreements............................ 32
Certain Transactions................................................... 32
Report of the Compensation Committee................................... 34
Performance Graph...................................................... 36
PROPOSAL II - FORMATION OF MIDDLE TIER HOLDING COMPANY................... 37
Reasons for and Risks of the Reorganization............................ 39
Future Conversion of the Mutual Holding Company........................ 42
Description of the Reorganization...................................... 42
Effective Date......................................................... 44
Business of Bancorp and Harbor Federal................................. 44
Management of Bancorp and Harbor Federal after the Reorganization...... 48
Income Tax Consequences of the Reorganization.......................... 49
No Dissenters' Rights.................................................. 52
Dividend Policy........................................................ 52
Conditions of Plan of Reorganization................................... 53
Amendment or Termination of Plan of Reorganization..................... 54
Stock Certificates Need Not But May Be Exchanged; Transfer Agent....... 54
Effect on Stock Benefit Programs....................................... 54
Approval by Regulatory Authorities Required............................ 55
Regulation of Harbor Federal........................................... 55
Regulation of Bancorp.................................................. 61
Description of Bancorp Capital Stock................................... 64
Anti-Takeover Provisions............................................... 65
Indemnification........................................................ 67
Limitations on Director Liability...................................... 68
Changes in Shareholders' Rights........................................ 69
Federal Securities Laws................................................ 72
Resales of Bancorp Common Stock........................................ 73
LEGAL PROCEEDINGS........................................................ 73
MARKET FOR COMMON STOCK.................................................. 73
PROPOSAL III - RATIFICATION OF APPOINTMENT OF INDEPENDENT
AUDITORS............................................................... 75
SHAREHOLDER PROPOSALS FOR 1998 ANNUAL MEETING............................ 75
FURTHER INFORMATION...................................................... 76
LEGAL OPINION............................................................ 76
FINANCIAL INFORMATION.................................................... 76
OTHER BUSINESS........................................................... 77
</TABLE>
6
<PAGE>
SUMMARY
THIS SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE DETAILED INFORMATION APPEARING
ELSEWHERE HEREIN.
Formation of the Middle Tier Holding Company
Harbor Florida Bancorp, Inc. ("Bancorp") was recently incorporated
under Delaware law by Harbor Federal Savings Bank ("Harbor Federal"). Upon
completion of the reorganization described herein (the "Reorganization"), Harbor
Federal will become the wholly owned subsidiary of Bancorp. Harbor Financial
M.H.C., the mutual holding company of Harbor Federal (the "Mutual Holding
Company") will hold a majority of the shares of Bancorp. Under the terms of the
Reorganization each outstanding share of Harbor Federal common stock, par value
$1.00 per share, will be exchanged for one share of Bancorp common stock (par
value $0.01) per share, and the holders of all of the outstanding shares of
Harbor Federal's common stock will become the owners of all of the outstanding
shares of common stock of Bancorp. See "FORMATION OF MIDDLE TIER HOLDING
COMPANY -- Regulation of Harbor Federal," "--Regulation of Bancorp."
After the Reorganization, Harbor Federal will continue its current
business and operations as a federally chartered stock savings bank under its
current name. Harbor Federal will continue such operations with the same
management, branch structure and subject to all rights, obligations and
liabilities of Harbor existing immediately prior to the Reorganization. The
Mutual Holding Company owns approximately 53.79% of Harbor Federal's common
stock entitled to vote. The balance is held by employees, officers, Directors
and the public (the "Minority Shareholders"). The Mutual Holding Company intends
to vote its shares in favor of the Reorganization. Consequently shareholder
approval of the plan is assured. See "FORMATION OF MIDDLE TIER HOLDING COMPANY
- -- Description of the Reorganization."
The principal executive offices of Harbor Federal, Bancorp and the
Mutual Holding Company are located at 100 S. Second Street, Fort Pierce, FL
34950 and each of their telephone numbers is (561) 461-2414.
Reasons for Reorganization The Board of Directors of Harbor Federal believes
that the middle tier stock holding company
structure effected through the Reorganization is
in the best long term interests of shareholders in
that it will facilitate the acquisition of other
savings institutions and repurchases of stock. No
specific acquisitions are presently planned but
stock repurchases are contemplated. In connection
with acquisitions, Bancorp would be able to use
stock as well as cash to effect such acquisitions.
At present, because the
7
<PAGE>
Mutual Holding Company must maintain a majority
ownership of Harbor Federal's common stock there is
insufficient common stock available for
acquisition. The Board of Directors of Harbor
Federal also believes repurchases of stock, from
time to time, in the open market, depending upon
market conditions, is in the best interests of
shareholders. A middle tier holding company
structure will permit such stock repurchases
without adverse tax consequences. Historically
Harbor Federal has used the percentage of taxable
income method for establishing its bad debt
reserves for tax purposes. Accordingly, the Board
believes that repurchase of shares without a middle
tier holding company might trigger a recapture all
or part of such bad debt reserves accrued pursuant
to (S) 593 of the Internal Revenue Code. See
"FORMATION OF MIDDLE TIER HOLDING COMPANY --
Reasons for and Risks of the Reorganization" and
"-- Income Tax Consequences of the Reorganization."
Bancorp, however, will be permitted to repurchase
its common stock without causing any recapture of
Harbor Federal's bad debt reserves.
Description of Bancorp will become a middle tier stock holding
Reorganization company of Harbor Federal pursuant to the
Agreement and Plan of Reorganization (the "Plan of
Reorganization") described herein. Under the Plan
of Reorganization: (i) an interim federally
chartered stock savings association, Interim
Harbor Federal Savings Bank ("Interim") will be
organized as a wholly-owned subsidiary of Bancorp;
(ii) Interim will be merged into Harbor Federal
with Harbor Federal being the survivor; and (iii)
upon such merger, all the outstanding shares of
common stock of Harbor Federal will be converted
into common stock of Bancorp on a one share for
one share basis. The shareholders of Harbor
Federal will thus become the sole shareholders of
Bancorp. The Mutual Holding Company will own a
majority of the outstanding common stock of
Bancorp. Bancorp's initial capital will consist
solely of cash invested by Harbor Federal, not
exceeding $12 million. If Bancorp makes
acquisitions of other financial institutions in
the future, it may need to issue additional common
or preferred stock. Bancorp will be required to
obtain the approval of the OTS prior to issuing
any additional stock, common or preferred. No
8
<PAGE>
such acquisitions or other business operations are
currently planned. See "FORMATION OF MIDDLE TIER
HOLDING COMPANY -- Description of the
Reorganization" and "-- Reasons for and Risks of
the Reorganization."
Tax Consequences The Reorganization is conditioned upon receipt of
opinions of counsel and other tax advisers to the
effect, among other things, that no gain or loss
will be recognized by Bancorp or the shareholders
of Harbor Federal, for purposes of Federal and
Florida income taxes, when Harbor Federal shares
are converted into shares of common stock of
Bancorp. Bancorp will receive opinions of counsel
to this effect which are not binding on the
Internal Revenue Service ("IRS") or the State of
Florida. See "FORMATION OF MIDDLE TIER HOLDING
COMPANY - Income Tax Consequences of the
Reorganization."
Accounting Treatment Harbor Federal believes the Reorganization will be
characterized and accounted for at historical cost
similar to a "pooling of interest" for financial
reporting and related purposes.
Comparison of Shareholder Upon consummation of the Reorganization, there
Rights will be certain differences in the rights of
shareholders of Bancorp, a Delaware corporation,
and those of shareholders of Harbor Federal, a
federally chartered savings association. The
rights of the shareholders of Harbor Federal are
currently governed by federal law and regulations
or Harbor Federal's Federal Stock Charter and
bylaws. After the Reorganization, these their
rights will be governed by the Delaware General
Corporation Law and the Certificate of
Incorporation and Bylaws of Bancorp. The
Certificate of Incorporation and bylaws of Bancorp
and the Federal Stock Charter and bylaws of Harbor
Federal each contain anti-takeover protections,
indemnification provisions and limitations on
Director liability which differ in certain
important respects. Bancorp's Certificate of
Incorporation contains provisions: limiting the
liability of directors and officers of Bancorp for
certain breaches of fiduciary duty; eliminating
cumulating voting for the election of directors;
indemnifying directors and officers in certain
proceedings against them; providing for staggered
terms of directors;
9
<PAGE>
and providing a supermajority vote requirement in
order to remove a director. Such provisions may
have the effect of protecting the management of
Bancorp against attempts to change or replace it.
Directors and officers of Harbor Federal thus have
a personal interest in the completion of the
Reorganization. See "FORMATION OF MIDDLE TIER
HOLDING COMPANY --Changes in Shareholders' Rights,"
"--Anti-Takeover Provisions," "--Indemnification,"
and "-- Limitations on Director Liability." Copies
of the Certificate of Incorporation and Bylaws of
Bancorp are attached hereto as Exhibits B and C,
respectively. Copies of Harbor Federal's Federal
Stock Charter and Bylaws may be obtained by any
stockholder, without charge, upon telephonic or
written request to Anne W. Satterlee, Stockholder
Relations, Harbor Federal Savings Bank, P.O. Box
249, Fort Pierce, FL 23954, (561) 460-7046.
Interest of Directors and The Directors and officers of Harbor Federal have
Officers a personal interest in the Reorganization to the
extent that the exemptions from liability provided
for in Bancorp's Certificate of Incorporation and
permitted under Delaware General Corporation Law
may provide greater protection than the protection
afforded under Harbor Federal's Federal Stock
Charter and bylaws indemnifying Harbor Federal's
Directors and officers. The Directors and
officers of Harbor Federal, who will also be the
Directors and officers of Bancorp, also may have a
personal interest in the Reorganization because of
provisions of Bancorp's Certificate of
Incorporation and bylaws and provisions of
Delaware law, which may be considered to provide
increased anti-takeover protection and may tend to
perpetuate management and deter takeovers that
shareholders consider beneficial. See "FORMATION
OF MIDDLE TIER HOLDING COMPANY -- Indemnification"
and "-- Anti-Takeover Provisions."
Market for Bancorp Common Bancorp common stock to be received by Harbor
Stock Federal shareholders in the Reorganization is
expected to trade on the NASDAQ-NMS as Harbor
Federal common stock does currently. There is no
assurance that Bancorp common stock will be
included in NASDAQ-NMS or that a public trading
market will develop in its common stock. See
"FORMATION OF MIDDLE TIER HOLDING COMPANY
-Description of Reorganization."
Management of Bancorp The directors of Bancorp will initially consist of
seven persons, six of whom currently serve as
directors of Harbor Federal and one of whom is a
nominee to serve on the Board of Directors of
Harbor Federal. See "FORMATION
10
<PAGE>
OF MIDDLE TIER HOLDING COMPANY -- Management of
Bancorp and Harbor Federal after the
Reorganization."
Required Shareholder Vote The affirmative vote of a majority of the total
votes present in person or by proxy at the Annual
Meeting, is required to approve the Plan of
Reorganization. The shares held by the Mutual
Holding Company, 2,654,369 or approximately 53.79%
of the outstanding shares of Harbor Federal, will
be cast in favor of the approval of the Plan of
Reorganization. See "VOTING SECURITIES." Harbor
Federal's directors, executive officers and their
affiliates intend to vote in favor of the Plan of
Reorganization.
Regulatory Approvals and Completion of the Reorganization is conditioned
Regulation upon, among other things, obtaining the prior
approval of OTS. An application to obtain this
approval will be filed by Bancorp. After the middle
tier holding company formation, Bancorp, will be
subject to OTS regulation. It is also anticipated
that the OTS will impose certain conditions in
connection with its approval of the Reorganization.
One such condition is likely to require that
Bancorp agree to limit its holding company
activities to the same activities currently
authorized by law for the Mutual Holding Company.
Bancorp and Harbor Federal anticipate that they
would accept this condition and limit Bancorp's
activities to those permitted under federal law and
regulations for the Mutual Holding Company. Bancorp
will also be regulated, with respect to certain
matters arising under the federal securities laws,
by the Commission. Prior to the Reorganization,
such federal securities laws, insofar as they apply
to Harbor Federal, have been administered by the
OTS pursuant to the rules and regulations
applicable to all savings associations. Harbor
Federal will continue to be subject to OTS
regulation. See "FORMATION OF MIDDLE TIER HOLDING
COMPANY -- Approval by Regulatory Authorities
Required," "-- Regulation of Harbor Federal" and
"-- Regulation of Bancorp."
Dividends No change in the current dividend policy is
anticipated or planned. Accordingly, it is
expected that Bancorp will pay similar quarterly
cash dividends to shareholders after
11
<PAGE>
completion of the middle tier holding company
formation. Its principal source of income initially
will consist of dividends from Harbor Federal.
Payment of such dividends by Harbor Federal to
Bancorp will depend on a number of factors
including Harbor Federal's results of operations,
financial, regulatory and tax considerations as
well as general economic conditions. The Mutual
Holding Company has waived receipt of all dividends
declared by Harbor Federal since its inception.
Under OTS policy, if the Mutual Holding Company
waives the right to receive cash dividends from
Bancorp, the amount of the waived dividend is
considered a restriction on retained earnings for
financial statement purposes, and in the event the
Mutual Holding Company converts to stock form, the
conversion appraisal submitted in connection with
the conversion application must take into account
the aggregate amount of dividends waived by the
Mutual Holding Company. Since the Mutual Holding
Company was formed prior to February 1, 1995,
current OTS policy provides that no dilution of
minority stockholders' ownership interests would
occur as a result of dividends waived by the Mutual
Holding Company unless the dividends paid to
minority stockholders are significantly in excess
of the amount of dividends paid by comparable
institutions. As a policy of OTS and not a
regulation, the OTS' policy on dividend waivers is
therefore subject to change without the opportunity
for notice and comment which occurs in connection
with regulations of the OTS. The Board of Directors
of the Mutual Holding Company anticipates it will
continue to waive receipt of all dividends paid by
Bancorp. See "FORMATION OF MIDDLE TIER HOLDING
COMPANY -Dividend Policy," "--Income Tax
Consequences of the Reorganization," "-- Regulation
of Harbor Federal," and "--Regulation of Bancorp."
No Dissenters' Rights Pursuant to the regulations of the OTS,
shareholders of federal savings banks such as
Harbor Federal whose stock is regularly traded
generally do not have dissenters rights. No
dissenters rights will be available to shareholders
in connection with the middle tier holding company
formation. See "FORMATION OF MIDDLE TIER HOLDING
COMPANY -- No Dissenters' Rights."
Amendment or Termination of The Plan of Reorganization may be abandoned by
Plan of Reorganization Harbor Federal at any time before the Effective
Date in the event that for any reason consummation
of the formation of the middle tier holding company
contemplated by the Plan of Reorganization becomes
inadvisable in the sole judgment of Harbor
Federal's Board of Directors. The Plan of
Reorganization may be amended at any time by the
Boards of Directors of Harbor Federal and Bancorp
provided that after the Plan of Reorganization is
approved by Harbor Federal's shareholders there
shall no amendment or modification which would
result in a material adverse change on the benefits
intended to be received by the holders of Harbor
Federal's common stock. See "FORMATION OF MIDDLE
TIER HOLDING COMPANY -- Amendment or Termination of
Plan of Reorganization"
Changes in Shareholders' Harbor Federal is subject to federal regulations
Rights applicable to federally chartered savings
associations. Bancorp, as a
12
<PAGE>
Delaware corporation, is governed by the corporate
laws of Delaware. The governing instruments of
Bancorp are similar in most material respects to
those of Harbor Federal, except that the Directors
of Bancorp have greater protection against
liability for monetary damages to shareholders
under Bancorp's Certificate of Incorporation than
do the Directors of Harbor Federal under Harbor
Federal's Federal Stock Charter and Bancorp's
Certificate of Incorporation contains different
takeover defense provisions. See "FORMATION OF
MIDDLE TIER HOLDING COMPANY -- Changes in
Shareholders' Rights" and "-- Anti-Takeover
Provisions."
Other Information Concerning In addition to the proposed Plan of Reorganization,
Annual Meeting shareholders are also being asked: (i) to elect
three (3) directors of Harbor Federal for three-
year terms; and (ii) to approve the amendment for
the Federal Stock Charter of Harbor Federal to
permit Bancorp to hold 100% of the outstanding
common stock of Harbor Federal; and (iii) to ratify
the appointment of Harbor Federal's independent
public accountants. The Mutual Holding Company will
vote its shares of Harbor Federal in favor of these
proposals. See "FORMATION OF MIDDLE TIER HOLDING
COMPANY -- Management of Bancorp and Harbor Federal
after the Reorganization," "ELECTION OF DIRECTORS,"
"AMENDMENT OF FEDERAL STOCK CHARTER" and
"RATIFICATION OF APPOINTMENT OF INDEPENDENT PUBLIC
ACCOUNTANTS." If the Plan of Reorganization is
approved at the Annual Meeting, all stock benefit
plans of Harbor Federal will remain the stock
benefit plans of Harbor Federal, with appropriate
amendments to reflect that Bancorp's common stock
will be subsituted for Harbor Federal common stock
thereunder. See "ELECTION OF DIRECTORS OF HARBOR
FEDERAL" and "FORMATION OF MIDDLE TIER HOLDING
COMPANY -- Effect on Stock Benefit Programs." The
Annual Meeting of Shareholders will be held at
10:00 a.m. on Monday, February 10, 1997, at the Old
City Hall Annex, 315 Avenue A, Fort Pierce, Florida
34950. Shareholders of record on December 13, 1996,
will be entitled to vote at the Annual Meeting, in
person or by proxy.
Market for Common Stock
Since January 6, 1994, the date of the reorganization, the common
stock of Harbor Federal has been quoted on the NASDAQ-NMS. The following table
presents quarterly information on the range of high and low prices since that
time.
13
<PAGE>
<TABLE>
<CAPTION>
Quarter Ended High Low Dividends Declared Per Share
------------- ---- --- ----------------------------
<S> <C> <C> <C>
March 31, 1994 $14.50 $12.125 $.1125
June 30, 1994 15.25 11.875 .1125
September 30, 1994 20.25 14.438 .1125
December 31, 1994 18.50 15.00 .2250
March 31, 1995 18.50 16.00 .2250
June 30, 1995 19.75 17.75 .2250
September 30, 1995 23.50 19.50 .2250
December 31, 1995 27.50 22.50 .30
March 31, 1996 28.00 24.75 .30
June 30, 1996 29.25 25.50 .30
September 30, 1996 30.00 23.75 .30
</TABLE>
On January 7, 1997, the closing price for Harbor Federal's common
-
stock as reported in The Wall Street Journal was 33 1/2. On that date, there
------
were approximately 2,274 holders of such common stock. At December 13, 1996,
-----
there were 4,934,454 shares of Harbor Federal's common stock outstanding.
2,654,369 of the shares were held by the Mutual Holding Company.
14
<PAGE>
INFORMATION CONCERNING THE ANNUAL MEETING OF SHAREHOLDERS
On January 6, 1994, Harbor Federal completed its reorganization into
its current structure, with the creation of the Mutual Holding Company as a
mutual holding company for Harbor Federal. Simultaneously, Harbor Federal
conducted a minority public stock issuance. As a result, as of September 30,
1996, the 46.21% of Harbor Federal's common stock is owned by the public and the
remainder is held by the Mutual Holding Company.
Matters to be Considered at the Meeting
The Annual Meeting has been called for the following purposes: (1) to
elect three (3) directors of Harbor Federal for three-year terms; (2) to approve
an Agreement and Plan of Reorganization ("Plan of Reorganization") pursuant to
which a proposed new middle tier holding company, Harbor Florida Bancorp, a
Delaware Corporation ("Bancorp") will be formed. Bancorp will in a one-for-one
exchange with Harbor Federal's shareholders acquire all the issued and
outstanding common stock of Harbor Federal; (3) to amend the Federal Stock
Charter of Harbor Federal to allow Bancorp to hold 100% of the outstanding
common stock of Harbor Federal; (4) to ratify the appointment by Harbor
Federal's Board of Directors of the firm of KPMG Peat Marwick LLP as independent
public accountants of Harbor Federal for the fiscal year ending September 30,
1997; and (4) to transact such other business as may properly come before the
Annual Meeting or any adjournments thereof.
At the Annual Meeting, shareholders of Harbor Federal will be asked to
approve the Plan of Reorganization. Under the Plan of Reorganization Bancorp
will organize Interim Harbor Federal Savings Bank ("Interim"). Interim will be
merged into Harbor Federal. Each share of Harbor Federal common stock will be
converted and exchanged automatically into one share of Bancorp common stock,
and Harbor Federal will become a wholly-owned subsidiary of Bancorp. Harbor
Financial, M.H.C., Harbor Federal's mutual holding company, will own the
majority of issued and outstanding shares of Bancorp and is statutorily required
to do so as long as it remains in existence in mutual form. The Plan of
Reorganization is subject to various regulatory approvals including those of the
OTS. Applications for such approvals will be filed with the OTS. Assuming
approval by the OTS of the application and the satisfaction of the other
conditions set forth in the Plan of Reorganization, attached hereto as Exhibit
A, the Plan of Reorganization will be implemented and Harbor Federal's shares
will be exchanged for those of Bancorp.
15
<PAGE>
SOLICITATION OF PROXIES
This Proxy Statement/Prospectus is furnished in connection with the
solicitation of proxies by the Board of Directors of Harbor Federal to be used
at the Annual Meeting to be held on Monday, February 10, 1997, at 10:00 a.m.,
Eastern Standard Time, at the Old City Hall Annex, 315 Avenue A, Fort Pierce,
Florida 34950 and at any adjournment thereof. This Proxy Statement/Prospectus is
first being mailed to stockholders on or about January 16, 1997. The Annual
Meeting date was changed from its traditional January date to February 10, 1997
pursuant to authority in newly promulgated regulations of the OTS which allow
bylaws of federal associations to be amended to permit annual meetings to take
place up to 150 days after the close of the fiscal year. Harbor Federal's Board
of Directors, on January 9, 1997, amended its bylaws to change the 120 day
requirement for conducting annual meetings to up 150 days after the close of the
fiscal year.
All costs of the solicitation of proxies will be borne by Harbor
Federal. In addition to solicitation by mail, directors, officers and other
employees of Harbor Federal may solicit proxies personally or by telephone or
other means without additional compensation. Harbor Federal 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
Harbor Federal's common stock.
REVOCATION OF PROXIES
Stockholders who execute proxies retain the right to revoke them. Any
proxy solicited hereby may be revoked by the person giving it at any time before
it is exercised by: (i) delivering written notice of revocation at any time
before the Annual Meeting to Christine Fowler, Corporate Secretary of Harbor
Federal at its headquarters, 100 S. Second Street, Fort Pierce, Florida 34950;
(ii) submitting a duly-executed proxy bearing a later date; or (iii) attending
the Annual Meeting and voting in person. Unless so revoked, the shares
represented by the proxies will be voted according to the stockholders'
instructions on the proxies or, if no instructions are given, in favor of
Proposals I, II, III, and IV in this Proxy Statement/Prospectus. In
addition, shares represented by proxies will be voted in the discretion of the
Board of Directors on any other matters that may properly come before the Annual
Meeting. Proxies solicited by this Proxy Statement/Prospectus may be exercised
only at the Annual Meeting and any adjournments thereof, and will not be used
for any other meeting. A proxy card is enclosed with this Proxy Statement.
Please sign, date and complete the enclosed proxy card and return it in the
enclosed envelope.
16
<PAGE>
VOTING SECURITIES
Only stockholders of record of the outstanding common stock of Harbor
Federal, par value $1.00 per share, on the record date of December 13, 1996, as
set by the Board of Directors, are entitled to notice of, and to vote at the
Annual Meeting, with each share entitling its owner to one vote on all matters
properly presented at the Annual Meeting. Pursuant to Harbor Federal's Federal
Stock Charter, stockholders are not entitled to cumulate their votes for the
election of directors. Stockholders may vote at the Annual Meeting in person or
by proxy. On September 30, 1996, there were 4,934,454 voting shares of Harbor
Federal's common stock outstanding. HARBOR FINANCIAL, M.H.C. OWNS A MAJORITY OF
THE OUTSTANDING SHARES OF COMMON STOCK OF HARBOR FEDERAL AND INTENDS TO VOTE ITS
SHARES IN FAVOR OF PROPOSALS I, II, III AND IV DESCRIBED IN THIS PROXY
STATEMENT/PROSPECTUS. THE MUTUAL HOLDING COMPANY'S INTENT TO VOTE ITS SHARES IN
FAVOR OF THE REORGANIZATION ASSURES THE PASSAGE OF THIS PROPOSAL. See "FORMATION
OF MIDDLE TIER HOLDING COMPANY." The presence, in person, or by proxy, of the
holders of at least a majority of the total number of outstanding shares of
common stock entitled to vote at the Annual Meeting is necessary to constitute a
quorum.
Harbor Federal's Stock Charter provides that until January 6, 1999, no
person other than Harbor Financial M.H.C. may own more than 10% of any
outstanding class of equity stock in Harbor Federal. Any shares owned in
violation of this provision will not be entitled to vote and will not be counted
as voting shares. Proposal III seeks stockholder approval to amend this
provision of the Federal Stock Charter of Harbor Federal to permit Bancorp to
own 100% of the outstanding common stock of Harbor Federal. See "AMENDMENT OF
FEDERAL STOCK CHARTER."
VOTING PROCEDURES
The affirmative vote of a majority of the shares of Common Stock
present or represented by proxy at the Annual Meeting is required to approve the
Proposals described in this Proxy Statement, except that directors can be
elected by a plurality of stockholders. An abstention with respect to a Proposal
by a shareholder present or represented at the Annual Meeting will have the same
effect as a vote against that Proposal. If a broker indicates on the proxy that
it does not have discretionary authority as to certain shares to vote on a
particular Proposal, those shares will not be considered represented and
entitled to vote with respect to that Proposal, nor will they be considered as
votes in favor or against that Proposal. Harbor Federal's counsel, Peabody &
Brown, the inspector of election for the Annual Meeting, will tabulate all
proxies submitted to Harbor Federal and all votes cast in person by shareholders
at the Annual Meeting.
Executed but unmarked proxies will be voted: (1) FOR the election of
the three nominees of the Board of Directors as directors of Harbor Federal; (2)
FOR approval of the proposed Plan of Reorganization to form the middle tier
holding company; (3) FOR the amendment to Harbor Federal's Federal Stock
Charter; and (4) FOR ratification of the appointment of the firm of KPMG Peat
Marwick LLP as independent public accountants of Harbor Federal for the fiscal
year ending September 30, 1997.
17
<PAGE>
Except for procedural matters incident to the conduct of the Annual
Meeting, Harbor Federal does not know of any matters other than those described
in the Notice of Annual Meeting that are to come before the Annual Meeting. If
any other matters properly come before the Annual Meeting, the persons named as
proxies will vote upon such matters as determined by a majority of the Board of
Directors.
Harbor Federal's Annual Report to Shareholders for its fiscal year
ended September 30, 1996 (the "Annual Report") was previously mailed to
stockholders. The Bank has filed with the OTS an Annual Report on Form 10-K for
the fiscal year ended September 30, 1996. Stockholders may obtain, free of
charge, either an additional copy of the Annual Report or a copy of the Annual
Report on Form 10-K by requesting it by telephone or in writing from Anne W.
Satterlee, Harbor Federal Savings Bank, 100 S. Second Street, Fort Pierce, FL
34950, (561) 461-7046.
PRINCIPAL HOLDERS OF COMMON STOCK
The following table sets forth information as of September 30, 1996,
with respect to ownership of Harbor Federal's common stock by: (i) Harbor
Financial, M.H.C.; (ii) Harbor Federal's Employee Stock Ownership Plan; (iii)
the executive officers and directors of Harbor Federal; and (iv) all the
directors and executive officers of Harbor Federal as a group. Except for those
listed below, and based on the absence of any filings under Regulation 13D-G
with the Office of Thrift Supervision, Harbor Federal has no knowledge of any
person (including any "group" as that term is used in Section 13(d)(3) of the
Securities Exchange Act of 1934, as amended) who owns beneficially more than 5%
of Harbor Federal's common stock.
<TABLE>
<CAPTION>
Common Stock
Beneficially Owned/(1)/
----------------------------
Name Title Number/(2)/ Percent
---- ----- ----------- -------
<S> <C> <C> <C>
Harbor Financial, N/A 2,654,369 53.79%
M.H.C.
Harbor Federal's
Employee N/A 151,705 3.07%
Stock Ownership
Plan
Bruce R. Abernethy, Vice Chairman of the Board 51,189/(3)(4)(14)/ 1.04%
Sr.
</TABLE>
18
<PAGE>
<TABLE>
<S> <C> <C> <C>
Michael J. Brown, Sr. Director, President
and Chief 75,416/(5)(6)/ 1.53%
Executive Officer
Richard K. Davis Director 44,956/(3)(4)(7)/ *
Edward G. Enns Chairman of the Board 14,034/(4)(8)/ *
Frank H. Fee III Director 52,980/(3)(4)(15)/ 1.07%
Richard B. Hellstrom Director 20,056/(4)(9)/ *
Maltby F. Watkins, M.D. Director 25,356/(4)(10)/ *
Don W. Bebber Senior Vice President 12,867/(5)(11)/ *
Robert W. Bluestone Senior Vice President 40,768/(5)/ *
Albert L. Fort Senior Vice President 15,903/(5)(12)/ *
David C. Hankle Senior Vice President 31,468/(5)(13)/ *
Directors and Executive
Officers as a group (11 N/A 384,993 7.80%
persons)
</TABLE>
/(1)/ Except as otherwise noted, all beneficial ownership is direct and each
beneficial owner exercises sole voting and investment power over the
shares.
/(2)/ Reflects information provided by these persons, filings made by these
persons with the Office of Thrift Supervision, and other information
known to Harbor Federal.
/(3)/ Includes 20,207, 17,900 and 15,172 shares, respectively, held by the
Directors' Deferred Compensation Plan for the benefit of Messrs.
Abernethy, Davis and Fee.
/(4)/ Includes 4,910, 4,090, 5,715, 4,090, 4,090 and 4,090 shares awarded,
respectively, to Messrs. Abernethy, Davis, Enns, Fee, Hellstrom and
Watkins under the Harbor
19
<PAGE>
Federal Savings Bank Outside Directors' Recognition and Retention
Plan. Two thirds of the shares granted under the Plan vested on
January 6, 1995, and January 6, 1996. The other third will vest on
January 6, 1997.
/(5)/ Includes 16,050, 5,291, 5,292, 5,290 and 5,292 shares awarded,
respectively, to Messrs. Brown, Bebber, Bluestone, Fort and Hankle
under the Harbor Federal Savings Bank Recognition and Retention Plan.
Two thirds of the shares granted under the Plan vested on January 6,
1995, and January 6, 1996. The other third will vest on January 6,
1997.
/(6)/ Includes 590 shares held by spouse and currently exercisable options
to purchase 16,000 shares.
/(7)/ Includes 17,500 shares held by Richard K. Davis Construction
Corporation Profit Sharing Fund. Does not include 1,750 shares owned
by Nancy D. Davis, spouse. Richard K. Davis disclaims beneficial
ownership of the 1,750 shares held by Nancy D. Davis.
/(8)/ Includes 4,202 shares held by spouse and currently exercisable options
to purchase 3,817 shares.
/(9)/ Includes 2,000 shares held by spouse.
/(10)/ Includes 1,000 shares held by spouse and currently exercisable options
to purchase 5,466 shares.
/(11)/ Includes 300 shares held by spouse and currently exercisable options
to purchase 788 shares.
/(12)/ Includes 373 shares held by spouse and 50 shares held by son.
/(13)/ Includes 1,400 shares held by spouse, and 3,800 shares held as
custodian for minor children and currently exercisable options to
purchase 3,276 shares.
/(14)/ Includes 506 shares held by spouse and currently exercisable options
to purchase 6,566 shares.
/(15)/ Includes 500 shares held by spouse.
* Represents less than 1% of outstanding shares.
20
<PAGE>
PROPOSAL I - ELECTION OF DIRECTORS
Harbor Federal's Federal Stock Charter and Bylaws provide that the Board of
Directors be composed of seven members and be divided into three approximately
equal classes. The members of each class are elected for a term of three years.
One class is elected annually.
Three directors will be elected at the Annual Meeting. The Board of
Directors has nominated current directors Richard K. Davis and Frank H. Fee, III
for re-election. Dr. Maltby Watkins, a current director of Harbor Federal, is
retiring upon the expiration of his term, i.e. February 10, 1997. Therefore, the
Board has nominated Richard N. Bird to serve on the Board of Directors to
succeed Dr. Watkins. If elected, Messrs. Bird, Davis and Fee will serve as
directors for three year terms expiring at the Annual Meeting to be held in
2000. If the Plan of Reorganization is approved at the Annual Meeting and
completed thereafter, the Board of Directors of Bancorp will be as set forth
herein at "FORMATION OF MIDDLE TIER HOLDING COMPANY -- Management of Bancorp and
Harbor Federal after the Reorganization."
The Nominating Committee of the Board of Directors determines management
nominees for election as directors. The Bylaws also allow stockholders to submit
nominations in writing directly to the Corporate Secretary of Harbor Federal not
fewer than five (5) days prior to the date of the Annual Meeting. There are no
arrangements known to management between the persons named and any other person
pursuant to which such nominees were selected.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF THE ABOVE
---
NOMINEES FOR DIRECTOR UNDER THIS PROPOSAL I.
The persons named in the enclosed proxy intend to vote for the election of
the named nominees, unless the proxy is marked by the stockholder to the
contrary. If any nominee is unable to serve, all valid proxies will be voted for
the election of such substitute as the Board of Directors may recommend. The
Board of Directors knows of no reason why any nominee might be unable to serve.
The following table sets forth certain information, as of November 30,
1996, with respect to each nominee, and each director continuing in office.
21
<PAGE>
<TABLE>
<CAPTION>
Name Age Director of Harbor Federal Since New or Current Term to Expire/(*)/
---- --- -------------------------------- ----------------------------------
<S> <C> <C> <C>
BOARD NOMINEES
Richard N. Bird 56 Not Applicable 2000
Richard K. Davis 66 1978 2000
Frank H. Fee, III 53 1987 2000
DIRECTORS CONTINUING IN OFFICE
Bruce R. Abernethy, Sr. 61 1983 1999
Michael J. Brown, Sr. 55 1977 1998
Edward G. Enns 63 1977 1999
Richard B. Hellstrom 60 1988 1998
</TABLE>
____________________
/(*)/ All terms expire on the date of the Annual Meeting.
The principal occupation for the last five years for each nominee and
director of Harbor Federal is set forth below.
<TABLE>
<CAPTION>
<S> <C>
Bruce R. Abernethy, Sr. Mr. Abernethy was elected to the Board in
1983. He served as Executive Vice President
of the Fort Pierce/St. Lucie County Chamber
of Commerce from May 1991 to May 1993.
Prior to that Mr. Abernethy was operations
manager for the Southern Bell Telephone
Company. He currently resides in St. Lucie
County, Florida, and is retired.
Richard N. Bird Mr. Bird is President and principal broker
of Bird Realty Group, Inc., a real estate
brokerage firm specializing in commercial
real estate in Indian River County. He is
recently retired from elected office after
serving sixteen years on the Indian River
County Commission. Mr. Bird assisted
</TABLE>
22
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Harbor Federal in forming the Indian River
County Advisory Board and has served as a
member of that Board for the past year. He
conducts his business in Indian River
County, Florida.
Michael J. Brown, Sr. Mr. Brown has served as President and Chief
Executive Officer of Harbor Federal since
1976. He was elected to the Board in 1977.
Prior to joining Harbor Federal, Mr. Brown
was the Chief Financial Officer at
University Federal Savings in Coral Gables,
Florida and Prudential Savings in Clayton,
Missouri. Mr. Brown has served as president
of the Chamber of Commerce and the Rotary
Club. He has also been a member of the
Federal Home Loan Mortgage Corporation
Advisory Board.
Richard K. Davis Mr. Davis has served on the Board of
Directors since 1978. He is Chairman of
Richard K. Davis Construction Corp.,
located in St. Lucie County, Florida.
Edward G. Enns Mr. Enns has served as a Director since
1977. He is the owner of the Enns Agency, a
property and casualty insurance agency
located in Fort Pierce, Florida. Mr. Enns
is a licensed real estate sales agent. He
is a former County Commission Chairman of
St. Lucie County, Florida, and presently
serves as mayor of the city of Fort Pierce.
Frank H. Fee, III Mr. Fee has served as a Director since
1987. He is an attorney and President of
the law firm of Fee & Koblegard, P.A. which
does business under the registered name of
Fee, Koblegard & DeRoss, a general practice
law firm located in Fort Pierce, Florida.
Mr. Fee is also President of Treasure Coast
Abstract & Title Insurance Company, an
abstracting and title insuring agent firm,
and in the business of citrus and cattle
production.
Richard B. Hellstrom Mr. Hellstrom has been a Director since
1988. He is shareholder and President of
Lindahl, Browning, Ferrari & Hellstrom,
Inc., a firm specializing in civil,
environmental and agricultural engineering.
He conducts his business in St. Lucie
County, Florida.
</TABLE>
23
<PAGE>
Board Meetings and Committees
The Board of Directors meets twice a month and may have additional special
meetings. During the year ended September 30, 1996, the Board met 26 times. All
Directors attended at least 75% of Board meetings in that fiscal year. The
standing committees include the following:
Audit Committee. The Audit Committee met three times during the fiscal
---------------
year ended September 30, 1996. The Audit Committee reviews the internal audit
department of Harbor Federal as well as selecting the independent auditors for
Harbor Federal. It also has oversight of Harbor Federal's internal control
structure and financial reporting as well as review of Harbor Federal's annual
audit plan. This committee currently consists of Messrs. Davis, Fee and
Watkins.
Nominating Committee. The Nominating Committee nominates management
--------------------
candidates for vacancies in the office of director. The Committee met once in
fiscal 1996 and consists of Messrs. Brown, Davis, Fee, Hellstrom and Watkins.
Compensation Committee. The Compensation Committee met four (4) times in
----------------------
fiscal 1996. It reviews and discusses employee performance and prepares
recommendations for annual salary adjustments and bonuses. The Committee also
administers Harbor Federal's stock benefit plans. This committee consists of
Messrs. Abernethy, Enns, and Hellstrom.
Directors' Fees
Directors of Harbor Federal receive a monthly fee of $1,750 for serving on
the Board. Directors Abernethy, Davis and Fee defer their compensation through
Harbor Federal's Directors' Deferred Compensation Plan. In addition, each
Director is covered by a Group Accident and Travel Plan at a cost of $290 per
year per Director. The Chairman of the Board, Edward G. Enns, receives an
additional $435 per month and the Vice-Chairman, Bruce R. Abernethy, Sr.,
receives an additional $200 per month. The Chairman and Vice-Chairman devote
approximately 10% and 8%, respectively, of their professional time to the
affairs of Harbor Federal. President Brown receives no fees for serving on the
Board of Directors.
Director Retirement Plan
Harbor Federal has established a Director Retirement Plan. Under this plan,
non-employee directors who served on the Board of Directors for ten (10) years
and have attained the age of 65 are entitled to receive annually until death a
payment upon retirement equal to 2 1/2% of the average of the annual Board fee
paid such directors for the last three years of service multiplied by his years
of Board services (not to exceed 50% of the three year average fee). This plan
is available only to current directors. It has been discontinued on a
prospective basis. Richard N. Bird, if elected, will not participate in this
plan.
24
<PAGE>
Directors' Unfunded Deferred Compensation Plan
The Unfunded Deferred Compensation Plan for the Directors of Harbor Federal
(the "Directors' Deferred Compensation Plan") provides that a director of Harbor
Federal may elect to defer all or part of his annual director fees to fund the
Directors' Deferred Compensation Plan. The plan also provides that deferred
fees are to earn interest at an annual rate equal to the 30-month certificate of
deposit rate adjusted and compounded quarterly. Amounts deferred under the
Directors' Deferred Compensation Plan are distributed in annual installments
over a ten year period beginning with the first day of the calendar year
immediately following the year in which the director: (i) ceases to be a
director; or (ii) attains the age of 65, and having been a participant in the
Directors' Deferred Compensation Plan for a minimum of five years or terminates
his participation in the plan. The Directors' Deferred Compensation Plan also
provides methods of distribution in the event of the death of the participant as
well as retirement or removal from the Board of Harbor Federal. The Directors'
Deferred Compensation Plan also holds 20,207, 17,900 and 15,172 shares of Harbor
Federal common stock for Messrs. Abernethy, Davis and Fee, respectively. These
shares were acquired by the Plan utilizing deferred annual director fees of
Messrs. Abernethy, Davis and Fee.
Executive Compensation
The following table sets forth the compensation paid to Mr. Michael J.
Brown, Sr., President and Chief Executive Officer, Robert W. Bluestone, Senior
Vice President - Retail Banking, David C. Hankle, Senior Vice President - Credit
Administration/Commercial Lending, Don W. Bebber, Senior Vice President and
Chief Financial Officer, and Albert L. Fort, Senior Vice President -
Marketing/Operations. No other executive officer of Harbor Federal served as
President or earned a total salary and bonus in excess of $100,000 during these
three fiscal years.
25
<PAGE>
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
--------------------------
All Other
Annual Compensation Long Term Compensation Compensation($)/(3)/
------------------- ---------------------- --------------------
Restricted
Name and Stock
Principal Position Year/(1)/ Salary($) Bonus($) Awards($)/(2)/ Options(#)
------------------ --------- --------- -------- -------------- ----------
<S> <C> <C> <C> <C> <C> <C>
Michael J. Brown, 1996 $235,550 $22,260 $ 0 2,000 $98,996
Jr. 1995 220,833 25,440 0 0 55,435
President 1994 212,000 0 160,500 45,800 8,060
Robert W. Bluestone 1996 $121,717 $11,780 $ 0 500 $10,510
Senior Vice President - 1995 116,950 11,270 0 0 10,437
Retail Banking 1994 112,700 0 52,920 11,940 3,089
David C. Hankle 1996 $120,717 $11,680 $ 0 500 $14,194
Senior Vice President - 1995 115,967 11,180 0 0 14,387
Credit Administration/ 1994 111,800 0 52,920 11,940 6,108
Commercial Lending
Don W. Bebber 1996 $102,917 $ 9,500 $ 0 500 $11,033
Senior Vice President- 1995 92,500 16,000 0 0 11,047
Chief Financial Officer 1994 80,000 0 52,910 11,940 4,622
Albert L. Fort 1996 $ 96,392 $ 9,485 $ 0 500 $12,286
Senior Vice President- 1995 94,242 9,120 0 0 13,514
Marketing/Operations 1994 90,150 0 52,900 11,940 5,995
</TABLE>
__________________________
/(1)/ Harbor Federal's fiscal year ends September 30.
/(2)/ Represents stock awards granted by the Compensation Committee pursuant to
the Harbor Federal Savings Bank Recognition and Retention Plan. The awards were
granted on January 6, 1994, the date of the formation of the Mutual Holding
Company and minority stock issuance. Two thirds of the shares granted under the
Plan vested on January 6, 1995, and January 6, 1996. The other third will vest
on January 6, 1997. The value of such shares, when awarded, was determined by
multiplying the number of shares awarded by the price at which the shares were
sold in the Bank's public stock issuance. At September 30, 1996, Messrs. Brown,
Bluestone, Hankle, Bebber and Fort held 5,350, 1,764, 1,764, 1,764 and 1,764
shares of common stock, respectively, that remain subject to the Harbor Federal
Savings Bank Recognition and Retention Plan. The fair market value of such
restricted stock on September 30, 1996, based on the last sale reported on the
NASDAQ National Market on
26
<PAGE>
Monday, September 30, 1996, or $29.625 per share, was approximately $158,494,
$52,259, $52,259, $52,259 and $52,289, respectively.
/(3)/ For fiscal 1996 consists of insurance payments of $6,341, $2,499, $4,592,
$4,543 and $4,520 and contributions to Harbor Federal's Employee Stock Ownership
Plan in the equivalent amount of $9,245, $8,011, $7,943, $6,490 and $6,440 for
Messrs. Brown, Bluestone, Hankle, Bebber and Fort, respectively. Additionally,
Harbor Federal contributed $1,860, $1,659 and $1,326 to Messrs. Brown, Hankle
and Fort, respectively, pursuant to Harbor Federal's 401(k) Profit Sharing Plan
and Trust. Harbor Federal also contributed $81,550 to fund Mr. Brown's
Supplemental Executive Retirement Plan. Other personal benefits provided by
Harbor Federal have not been listed. The aggregate amount of such benefits does
not exceed the lesser of $50,000, or 10% of each named executive officers' cash
compensation.
______________________
Option Grants in Last Fiscal Year
The following table provides information on option grants in fiscal 1996 to
Messrs. Brown, Bluestone, Hankle, Bebber and Fort:
<TABLE>
<CAPTION>
Potential Realizable
Value at Assumed
Annualized Rates of
Stock Price Appreciation
Individual Grants for Option Term/(1)/
---------------------------------------------------------- ------------------------
% of Total
Options
Number of Granted to Exercisable
Date of Options Employees in Price Per Expiration
Name Grant/(2)/ Granted Fiscal Year Share/(3)/ Date 5% 10%
---- ----- ------- ---------- ----- ---- -- ---
<S> <C> <C> <C> <C> <C> <C> <C>
Michael J. Brown, Sr. 1/6/96 2,000 44.44% $27.00 1/7/06 $33,960 $86,060
Don W. Bebber 1/6/96 500 11.11 27.00 1/7/06 8,490 21,515
Robert W. Bluestone 1/6/96 500 11.11 27.00 1/7/06 8,490 21,515
David C. Hankle 1/6/96 500 11.11 27.00 1/7/06 8,490 21,515
Albert L. Fort 1/6/96 500 11.11 27.00 1/7/06 8,490 21,515
</TABLE>
/(1)/ "Potential Realized Value" is disclosed in response to the Securities and
Exchange commission rules which require such disclosure for illustration
purposes and is based
27
<PAGE>
on the difference between the potential market value of shares issuable
upon exercise of such options and the exercise price of such options.
The values disclosed are not intended to be, and should not be
interpreted by stockholders as, representations or projections of future
value of Harbor Federal's common stock or of the stock price. To lend
perspective to the illustrative potential realized value, if Harbor
Federal's stock price increased 5% per year for ten years from its
closing price on Friday, January 5, 1996, $27.00 per share,
(disregarding dividends and assuming for purposes of the calculation a
constant number of shares outstanding) the stock price at the end of ten
years would be $43.98 per share for an increase of $16.98 per share; and
if the stock increased 10% per year over such period, the ending stock
price would be $70.03 per share for an increase of $43.03 per share.
/(2)/ All options granted on January 6, 1996, first become exercisable on
January 6, 2001.
/(3)/ The exercise price is equal to the closing price on Friday, January 5,
1996, or $27.00 per share.
Aggregate Option Exercises and Year-End Option Values
The following table sets forth the number of shares acquired on the
exercise of stock options and the aggregate gains realized on the exercise
during fiscal 1996 by Messrs. Brown, Bebber, Bluestone, Fort and Hankle. The
table also sets forth the number of shares covered by exercisable and
unexercisable options held by the named individuals on September 30, 1996, and
the aggregate gains that would have been realized had these options been
exercised on September 30, 1996, even though these options were not exercised,
and the unexercised options could not have been exercised, on September 30,
1996.
<TABLE>
<CAPTION>
Shares Acquired On
Exercise Number of Shares Value of Unexercised
During Fiscal Value Covered by Unexercised In-The-Money
Name 1996 Realized/(1)/ Options on 9/30/96 Options As Of 9/30/96/(2)/
---- ---- -------- ------------------ ---------------------
Exercisable Unexercisable Exercisable Unexercisable
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Michael J. Brown, Sr. 4,000 $66,063 18,900 22,900 $370,913 $449,413
Don W. Bebber 3,988 60,811 791 7,164 15,523 140,594
Robert W. Bluestone 2,388 39,999 0 7,164 0 140,594
Albert L. Fort 2,388 42,984 0 7,164 0 140,594
David C. Hankle 1,500 24,750 3,276 7,164 64,292 140,594
</TABLE>
__________________________
28
<PAGE>
/(1)/ Equals the difference between the aggregate exercise price of the options
exercised and the aggregate fair market value of the common stock received upon
exercise computed using the price of the last sale of the common stock on the
exercise date, as quoted on the NASDAQ National Market. All options exercised
had an exercise price of $10.00 per share. Mr. Brown exercised 2,500 options on
January 25, 1996, when the market price of the common stock was $25.625 per
share and 1,500 options on April 25, 1996, when the market price of the common
stock was $28.00 per share. Mr. Bebber exercised 2,388 options on January 19,
1996, when the market price of the common stock was $25.75 per share and 1,600
options on July 24, 1996, when the market price of the common stock was $24.50
per share. Mr. Bluestone exercised 2,388 options on January 9, 1996, when the
market price of the common stock was $26.75 per share. Mr. Fort exercised 2,388
options on April 22, 1996, when the market price of the common stock was $28.00
per share. Mr. Hankle exercised 1,500 options on January 17, 1996, when the
market price of the common stock was $26.50 per share.
/(2)/ Equals the difference between the aggregate exercise price of such
options and the aggregate fair market value of the common stock that will be
received upon exercise, assuming such exercise occurred on Monday, September 30,
1996, at which date the last sale of the common stock as quoted on the NASDAQ
National Market was at $29.625 per share.
____________________
Compensation Committee Interlocks and Insider Participation
The Compensation Committee consists of Directors Abernethy, Enns, and
Hellstrom, none of whom have ever been an officer or employee of Harbor Federal.
None of the above are members of a compensation committee of the Board of
Directors of any company other than Harbor Federal.
401(k) Profit Sharing Plan
In January 1994, Harbor Federal established the Harbor Federal 401(k)
Profit Sharing Plan and Trust (the "401(k) Plan") through the Financial
Institution Thrift Plan of White Plains, NY. Under the 401(k) Plan, eligible
employees 21 or more years old may make pre-tax contributions through salary
deductions of up to 15% of their annual compensation. Harbor Federal currently
matches these contributions up to 25% of the first 6% of each participant's
contributions. Participants are always 100% vested in their compensation
reduction contributions. Participants become vested in Harbor Federal's
contributions after five years of service. Service date is the equivalent of
hire date. In fiscal 1996, Harbor Federal contributed $1,860, $1,326 and $1,659
to Messrs. Brown, Fort and Hankle, respectively.
Participants may direct the investment of their accounts among five
investment options. The common stock of Harbor Federal is not currently an
investment option.
29
<PAGE>
Pension Plan
Harbor Federal provides a noncontributory, defined benefit pension plan
through the Financial Institutions Retirement Fund of White Plains, New York
(the "Pension Plan") which covers all salaried employees who have one year of
service with Harbor Federal and have attained twenty-one years of age. An
employee is 100% vested in the Pension Plan when he/she completes five years of
employment at Harbor Federal. Employees who reach the age of sixty-five (65)
are also 100% vested in the Pension Plan, regardless of completed years of
employment.
The following table illustrates the annual pension benefits at age 65 under
the most advantageous plan provisions available at various levels of average
annual salary and years of service.
30
<PAGE>
<TABLE>
<CAPTION>
Average
Salary 5 10 15 20 25 30 35
------ - -- -- -- -- -- --
<S> <C> <C> <C> <C> <C> <C> <C>
$ 20,000 $ 2,000 $ 4,000 $ 6,000 $ 8,000 $10,000 $12,000 $ 14,000
$ 40,000 $ 4,000 $ 8,000 $12,000 $16,000 $20,000 $24,000 $ 28,000
$ 60,000 $ 6,000 $12,000 $18,000 $24,000 $30,000 $36,000 $ 42,000
$ 80,000 $ 8,000 $16,000 $24,000 $32,000 $40,000 $48,000 $ 56,000
$ 100,000 $10,000 $20,000 $30,000 $40,000 $50,000 $60,000 $ 70,000
$ 125,000 $12,500 $25,000 $37,500 $50,000 $62,500 $75,000 $ 87,500
$ 150,000 $15,000 $30,000 $45,000 $60,000 $75,000 $90,000 $105,000
</TABLE>
Normal retirement benefits under the Pension Plan are based on retirement at
or after age sixty-five (65), with the amount of the benefit dependent on years
of service as well as average annual salary for the five (5) consecutive years
of highest salary during service. However, the maximum annual compensation
which may be taken into account under the Internal Revenue Code of 1986, as
amended, for calculating contributions under qualified defined benefit plans is
currently $150,000.
Messrs. Brown, Bebber, Bluestone, Fort and Hankle have 20, 20, 18, 12 and 10
credited years of service, respectively, under the Pension Plan. All benefits
are computed as a straight-life annuity and are not subject to deduction for
Social Security.
Supplemental Executive Retirement Program
On September 13, 1995, the Board of Directors approved a Supplemental
Executive Retirement Plan ("SERP") for President Brown. The SERP became
effective on that date. The SERP will pay Mr. Brown an annual retirement
benefit at age 65 of 75% of his final five year average earnings, less the
amount payable from the Pension Plan and less the amount expected to be paid as
a Social Security benefit. The SERP benefit will accrue evenly over Mr. Brown's
career so that if Mr. Brown retires or otherwise terminates his employment
before attaining age 65, his benefit will be reduced on a pro rata basis. In
addition, if Mr. Brown receives his benefit before age 65, such benefit will be
subject to a reduction of 3% multiplied by the number of years prior to age 65
that his benefit commences. The SERP is administered by the Compensation
Committee. Payments by Harbor Federal to fund the SERP were $81,550 in fiscal
1996.
31
<PAGE>
Employment Agreement
The Board of Directors entered into a three-year employment agreement with
President Brown effective January 6, 1994. On November 2, 1995, the Board voted
to approve an extension of this agreement effective January 6, 1996, with a new
initial term to continue through January 6, 1999. During the term of the
agreement, Mr. Brown's salary is equal to the initial salary plus any increases
which the Board of Directors may authorize from time to time. The agreement
also provides for reimbursement of reasonable business expenses, participation
in the employee benefit programs of Harbor Federal and in certain other
perquisites.
In the event Harbor Federal terminates President Brown's employment without
cause, he will receive a severance payment equal to his salary, and will
continue to participate in the employee benefit programs of Harbor Federal, for
the balance of the term of the agreement. Mr. Brown's agreement with Harbor
Federal also provides for certain payments in the event of a change of control
under the Bank Change in Control Act of 1978, a merger or consolidation,
voluntary dissolution, or transfer of all of Harbor Federal's assets and
liabilities. The employment agreement, while not specifically excluding from
its coverage the events encompassed by the Plan of Reorganization, has been
interpreted by the Board of Directors and Mr. Brown as excluding the creation of
a middle tier holding company such as Bancorp. Accordingly, the creation of
Bancorp would not provide Mr. Brown with any of the benefits which would
normally be available to him in the event that Harbor Federal was acquired by an
unaffiliated third party acquiror. Should one of these events occur, Harbor
Federal's agreement with Mr. Brown would be assumed by any acquiring or merging
entity. Further, in the one-year period following one of these events, the
agreement provides Mr. Brown with certain protection against termination other
than for cause and against a material diminution in his duties or reporting
responsibilities under the presumption that such a change would amount to an
involuntary termination of President Brown's employment with Harbor Federal.
Should one of the enumerated events occur, Mr. Brown would be entitled to a
severance benefit of three times his base salary plus the amount of bonuses
received during the twelve month period preceding the involuntary termination
plus the cost of all benefits which Mr. Brown was entitled to in the twelve-
month period preceding the involuntary termination, plus, at his election, the
excess of the fair value of shares subject to options held by him over their
exercise price, which would then be cancelled. Total amounts paid to Mr. Brown
under this provision of the agreement with Harbor Federal will not exceed an
amount which is $100 less than three times the base amount paid to Mr. Brown as
the term "base amount" is defined in Section 280G(b)(3) of the Internal Revenue
Code of 1986. Any payments under the agreement are also conditioned upon their
conformity with the "golden parachute" provisions of Section 18(k) of the FDI
Act. Under the employment agreement of Mr. Brown the events set forth in the
Plan of Reorganization are not deemed events which would require payments to Mr.
Brown and would not be affected by the Plan of Reorganization.
Harbor Federal had previously entered into change-in-control agreements with
each of Messrs. Bluestone, Hankle, Bebber and Fort. These agreements expired
January 6, 1996.
Certain Transactions
The Financial Institutions Reform, Recovery and Enforcement Act of 1989
("FIRREA") requires that all loans or extensions of credit to executive officers
and directors must be made on substantially the same terms, including interest
rates and collateral, as those prevailing at the time for comparable
transactions with the general public and must not involve
32
<PAGE>
more than the normal risk of repayment or present other unfavorable features. In
addition, loans made to a director or an executive officer that exceeded in the
aggregate an amount equal to the greater of $25,000 or 5% of Harbor Federal's
capital and surplus, or in any event $500,000, must be approved in advance by a
majority of the disinterested members of the Board of Directors.
Before FIRREA, Harbor Federal made owner-occupied home mortgage loans from
time to time to directors, officers and other employees on terms substantially
the same as those made in the ordinary course of business on comparable
transactions at the time and which did not involve more than the normal risk of
collectibility. However, before FIRREA it was Harbor Federal's policy to charge
such persons interest tied to an index at a rate adjusted by Harbor Federal's
cost of funds, adjusted annually. The following table presents the loan
outstanding during the fiscal year ended September 30, 1996, to the director
which was made under this loan program. This loan is a fixed rate home
mortgage. Should any of these persons cease his affiliation with Harbor Federal
the rate will revert to the note rate that would have applied at the time of the
loan's origination.
<TABLE>
<CAPTION>
Highest Amount
Outstanding Outstanding at Actual Stated
Name Year Since September September 30, Interest Interest
- ---- ---- --------------- -------------- -------- --------
Made 30, 1995 1996 Rate Rate
---- -------- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Edward G. Enns 1982 $135,723 $66,079 7.5% 16.5%
</TABLE>
33
<PAGE>
In addition, Frank H. Fee, III, a director of Harbor Federal, is also a
director, stockholder and the President of the law firm of Fee & Koblegard, P.A.
which does business under the registered firm name of Fee, Koblegard & DeRoss.
In the year ended September 30, 1996, Harbor Federal paid this firm $191,482 in
monthly retainers and extraordinary fees for general legal services, document
preparation and review and litigation services.
Richard K. Davis, a director of Harbor Federal, is also chairman of Richard K.
Davis Construction Corp. In the year ended September 30, 1996, Harbor Federal
paid this firm a total of $76,887 for a roof on a new branch facility and re-
roofing of an existing branch facility.
Richard N. Bird, a nominee to the Board of Directors of Harbor Federal, is
also President and Principal Broker of Bird Realty Group, Inc. Bird Realty
Group, Inc. has a listing agreement with Harbor Federal on property known as St.
Lucie Crossroads. The listing agreement, executed on June 15, 1996, has a one
year term and provides for a 3% commission. The total listing price is
$3,895,000. The commission could be up to 6% of the selling price if Bird
Realty also becomes the selling broker.
Report of the Compensation Committee
The Compensation Committee (the "Committee") reviews and recommends to the
Board of Directors compensation levels for executive officers and evaluates
executive officer performance. During fiscal 1996 the Committee consisted of
Messrs. Abernethy, Enns and Hellstrom. All are outside directors of Harbor
Federal.
Harbor Federal's compensation policy is to ensure that an appropriate
relationship exists between executive pay and the creation of shareholder value,
while at the same time motivating and retaining key officers. To achieve this
goal, Harbor Federal's compensation policy integrates base salary with annual
bonuses, as well as awards of stock options and restricted stock. The Committee
considers each potential element when determining compensation goals.
34
<PAGE>
President Brown's compensation and related benefits are based principally on
his rights under his employment agreement with Harbor Federal, which is
described elsewhere in this Proxy Statement. However, the Committee also
considers the performance of Harbor Federal as well as the performance of Harbor
Federal's common stock. Pursuant to the employment contract, Mr. Brown's salary
was $235,550 for fiscal 1996. For fiscal 1997, Mr. Brown's salary is $252,440.
Mr. Brown's salary reflects the increase in shareholder value, as reflected in
the increase in the price of the common stock of Harbor Federal since the
reorganization, as well as Harbor Federal's record of profitability. In reaching
its determination, the Committee notes Harbor Federal's return on stockholder's
equity for the period of fiscal 1996 was 10.51% and its return on average assets
of .91%. Its return on average equity for the same period, excluding the one-
time SAIF special assessment which is included in the stockholder's equity
calculation was 13.9%. Harbor Federal's return on average assets for the same
period, excluding the one-time SAIF special assessment, was 1.20%.
Bruce R. Abernethy, Sr., Chairman
Edward G. Enns
Richard B. Hellstrom
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Based solely upon a review of Forms 3 and 4 and amendments thereto furnished
to Harbor Federal pursuant to Rule 16a-3(e) during the fiscal year ended
September 30, 1996, no person who is a director, officer or beneficial owner of
10% of Harbor Federal common stock failed to file on a timely basis reports
required by Section 16(a) of the Securities Exchange Act.
35
<PAGE>
Performance Graph
The following graph shows a 33 month comparison of cumulative total return on
Harbor Federal's Common Stock, based on the market price of the Common Stock
assuming reinvestment of dividends, with the cumulative total return of
companies in the NASDAQ National Market and NASDAQ Bank Stocks for the period
beginning January 6, 1994, the day Harbor Federal's Common Stock began trading,
through September 30, 1996. The graph was derived from a very limited period of
time, in part, and reflects the market's reaction to the initial public offering
of the Common Stock, and, as a result, is not necessarily indicative of possible
future performance of Harbor Federal's Common Stock.
36
<PAGE>
PROPOSAL II - FORMATION OF MIDDLE TIER HOLDING COMPANY
The following descriptions are qualified in their entirety by reference to the
------------------------------------------------------------------------------
Plan of Reorganization, the Certificate of Incorporation of Bancorp, and the
- ----------------------------------------------------------------------------
Bylaws of Bancorp which are attached hereto as Exhibits A, B, and C,
- --------------------------------------------------------------------
respectively.
- ------------
The Board of Directors of Harbor Federal has unanimously approved the
formation, subject to necessary shareholder and regulatory approvals, of a
middle tier stock holding company to be known as Harbor Florida Bancorp, Inc.
(the "Reorganization"), pursuant to the Plan of Reorganization by and among
Harbor Federal, Bancorp and Interim Harbor Federal Savings Bank ("Interim"). A
copy of the Plan of Reorganization is attached as Exhibit A hereto and is
incorporated herein by reference. The following discussion is qualified in its
entirety by reference to the Plan of Reorganization.
Upon completion of the Reorganization, the shareholders of Harbor Federal will
become the shareholders of Bancorp by conversion of their shares of Harbor
Federal common stock into Bancorp common stock on a one-for-one basis. The
diagram below demonstrates the current structure of Harbor Federal and the
proposed structure with the creation of Bancorp. Harbor Federal will continue
its existing business and operations after the Reorganization under its present
name as a wholly-owned subsidiary of Bancorp. Harbor Financial, M.H.C. will
continue to hold a majority of the issued and outstanding common stock of
Bancorp. The consolidated capitalization, assets, liabilities and financial
statements of Bancorp immediately following the Reorganization will be the same
as those of Harbor Federal immediately prior to the Reorganization. After the
Reorganization, the deposits of Harbor Federal will continue to be insured by
the FDIC through the Savings Association Insurance Fund ("SAIF") to the maximum
amount provided by law.
THE MUTUAL HOLDING COMPANY INTENDS TO VOTE FOR THIS PROPOSAL. THE MUTUAL
HOLDING COMPANY CONTROLS 53.79% OF THE ISSUED AND OUTSTANDING SHARES OF HARBOR
FEDERAL'S COMMON STOCK. THEREFORE THE APPROVAL OF THE PLAN OF REORGANIZATION IS
ASSURED.
37
<PAGE>
CURRENT STRUCTURE
-----------------
- --------------------------- ----------------------------
Harbor Financial Minority
M.H.C. Stockholders
- --------------------------- ----------------------------
53.79% of 46.21% of
Harbor Federal's Harbor Federal's
Common Stock Common Stock
-------------------------
Harbor Federal
Savings Bank
-------------------------
RESULTANT STRUCTURE
--------------------
- --------------------------- ----------------------------
Harbor Financial Minority
M.H.C. Shareholders
- --------------------------- ----------------------------
53.79% of 46.21% of
Harbor Florida Harbor Florida
Bancorp common Bancorp common
stock stock
-------------------------
Harbor
Florida
Bancorp, Inc.
-------------------------
--------------100% Owned
-------------------------
Harbor
Federal
Savings Bank
-------------------------
38
<PAGE>
THE BOARD OF DIRECTORS OF HARBOR FEDERAL UNANIMOUSLY RECOMMENDS THAT
SHAREHOLDERS OF HARBOR FEDERAL VOTE FOR APPROVAL OF THE REORGANIZATION. THE
---
AFFIRMATIVE VOTE OF A MAJORITY OF THE SHARES OF COMMON STOCK PRESENT OR
REPRESENTED BY PROXY AT THE ANNUAL MEETING IS REQUIRED TO APPROVE THE
REORGANIZATION.
Reasons for and Risks of the Reorganization
At present the majority of the shares of Harbor Federal are owned by the
Mutual Holding Company. As such the Mutual Holding Company, under the HOLA, is
required to continually own at least 50.1% of the voting shares of Harbor
Federal. The activities of the Mutual Holding Company are governed by the
provisions of Section 10(o) of the HOLA and regulations thereunder. The
authorized activities of a mutual holding company are essentially similar to
those of a multiple savings and loan holding company. See "FORMATION OF MIDDLE
TIER HOLDING COMPANY -- Regulation of Bancorp."
The Mutual Holding Company, has not repurchased Harbor Federal common stock.
The reason this has not occurred is the risk that a repurchase by the Mutual
Holding Company would have adverse tax consequences. Similarly, Harbor Federal
may also not repurchase its common stock because such a repurchase might trigger
unfavorable tax treatment pursuant to (S)593(e) of the Internal Revenue Code.
See "FORMATION OF MIDDLE TIER HOLDING COMPANY -- Income Tax Consequences of the
Reorganization." Harbor Federal has used the percentage of taxable income
method for establishing its bad debt reserves and if Harbor Federal were to
repurchase its outstanding common stock, it might cause recapture of all or part
of its bad debt reserves. The reason for this is that under the tax laws, and
in particular (S)593(e),the repurchase would be treated as a redemption of stock
instead of a repurchase. The creation of Bancorp would permit different tax
treatment and the repurchase of Bancorp's shares would not be treated as a
redemption pursuant to (S)593(e), allowing a repurchase to occur without
triggering bad debt recapture. In the unlikely event of recapture, the reserves
subject to recapture are required to be quantified in Harbor Federal's financial
statements. Such reserves subject to recapture and Harbor Federal's base year
reserves were approximately $7.1 and $14.5 million, respectively, at September
30, 1996 should an event occur triggering recapture. Harbor Federal would be
required generally to recapture into income for tax purposes the portion of its
bad debt reserves (other than the supplemental reserve) that exceeds its base
year reserves (i.e. its tax reserves for the last tax year beginning before
1988).
After the creation of Bancorp, Harbor Federal expects to be able to effect the
repurchase of Bancorp stock while maintaining the present Mutual Holding Company
structure. Management also recognizes that stock repurchase programs, as a
general matter, have enabled companies, including bank holding
39
<PAGE>
companies, with excess capital to reduce such capital and return the excess to
the corporation's shareholders while at the same time creating a mechanism by
which future returns might be improved through capital reduction. The Board of
Directors of Harbor Federal, therefore, has determined to proceed with the
Reorganization with the primary goal of facilitating the future repurchase of
common stock of Bancorp, subject to favorable market conditions. This
flexibility, which will be provided by the Reorganization, will allow Bancorp to
reduce excess capital in a manner which is common among bank and thrift
institutions owned by holding companies and which Harbor Federal's board
believes may enhance shareholder value.
Any stock repurchase program by Bancorp will be subject to the regulations and
policies of the OTS. Under the policies of the OTS, a financial institution
which is converting from the mutual to the stock form may not repurchase its
stock for a period of six months following conversion. Thereafter, the policies
of the OTS permit stock repurchases of up to 5% for each six month period to a
maximum of 20%. OTS policies also permit stock repurchases in greater amounts
upon the approval of the OTS. While it is uncertain how much stock may be
repurchased, the policies of the OTS permit purchases in excess of 20% for valid
and compelling business reasons. The OTS requires the directors of the company
making the repurchase, such as Bancorp, to consider market and economic factors,
the effect on stockholder dilution, adequacy of capital to undertake the
repurchase and any other circumstances that determine whether a purchase would
be in the best interests of the institution and its shareholders. The OTS also
requires a board of directors considering repurchase to conclude that the
repurchase provides an acceptable return that may generally be deemed to be
equal if not better than an alternative similarly safe and sound investment.
Upon completion of the Reorganization, Bancorp will consider all of these
factors and the relevant market conditions to determine if the stock repurchase
is in the best interest of shareholders.
The ability of Bancorp to effect a stock repurchase program without adverse
tax consequences is the primary benefit of the Reorganization.
Another reason, although less significant, for seeking approval to form
Bancorp is the expectation that Bancorp may have the
ability to use a middle tier stock corporation to facilitate acquisitions. In
June 1996, Harbor Federal effected an acquisition of a federal savings
association in a cash acquisition. Because of the requirements of federal law -
- - in particular the requirement that the Mutual Holding Company own a majority
of Harbor Federal at all times -- Harbor Federal as a practical matter could not
make acquisitions through issuance of additional stock at the subsidiary level
nor can it make numerous, large acquisitions under its current structure without
the risk that it might fail to meet capital requirements. Further, the Mutual
Holding Company cannot acquire additional institutions and hold such
institutions as a separate subsidiary because it would be difficult to structure
and accomplish such an acquisition in a way that benefits minority stockholders
and the Mutual Holding Company in proportion to their respective ownership
interest in Harbor Federal since minority stockholders would have no direct
interest in such other financial institution if it is held as a separate
subsidiary of the Mutual Holding Company. In contrast, Bancorp, as a stock
holding company expects, if the Reorganization is consummated, that it may be
able to acquire and hold other financial institutions as separate
40
<PAGE>
subsidiaries in a manner in which all shareholders would receive the same
relative benefits. These benefits would not be available to Harbor Federal
shareholders should the Mutual Holding Company be acquired and hold a financial
institution as a separate subsidiary. Neither Harbor Federal nor Bancorp has
present plans, if the transaction is consummated, to effect any acquisition.
The middle tier stock holding company is not specifically discussed or
specifically authorized in regulations of the OTS. The OTS had, until recently,
taken the position that (S) 10(o) of the Home Owners Loan Act ("HOLA") did not
permit formation of a middle tier holding company in a mutual holding company
structure. On November 1, 1996, the OTS issued an advanced notice of proposed
rulemaking (the "advanced rulemaking") addressing the issues raised by creation
of an intermediate or middle tier holding company. The OTS advised in the
advanced rulemaking that it was soliciting comments on an intermediate holding
company to determine whether to proceed with the development of a proposed rule
to permit formation of intermediate or middle tier holding companies. In
addition to requesting comment on whether such middle tier holding companies
should be permitted to be formed, the OTS is seeking comment on such matters as
whether the middle tier holding company can have greater powers than or engage
in a wider range of activities than the mutual holding company, whether
restrictions of mutual holding companies regarding waiver of dividends,
indemnification and employment contracts should apply to the middle tier holding
company, the extent that the middle tier charter and bylaws should be subject to
OTS review and whether middle tier holding companies can and should retain
capital. At present none of these issues or other issues relating to formation
of a middle tier holding company have been resolved or clarified because the
final regulations on middle tier companies have not been promulgated. Harbor
Federal anticipates that many of the issues raised in the advanced rulemaking
will be resolved when OTS promulgates regulations on this subject. Harbor
Federal is aware of only one middle tier holding company reorganization which
has been approved by the OTS. The OTS approval contained significant conditions,
all of which are likely to be required in connection with any approval of a
middle tier holding company such as Bancorp for Harbor Federal. The OTS
approval, which was issued on November 18, 1996, and contained the following key
conditions of approval affecting activities, governance and stock issuances by
the proposed middle tier holding company:
1. The middle tier holding company approval was subject to a condition
requiring it to be subject to the provisions of the OTS mutual holding
company regulations pertaining to minority stock issuances as if it were a
former mutual savings association that reorganized into an MHC structure.
OTS requires that any stock issued by savings association subsidiaries of
mutual holding companies be issued only pursuant to prior OTS approval and
the requirements of (S) 563b. See "FORMATION OF MIDDLE TIER HOLDING
COMPANY -- Stock Issuance Requirements."
2. The middle tier holding company was required as a condition of approval
to be subject to the same restrictions (including, but not limited to, the
activities limitations), that the parent mutual holding company is subject
to under Section 10(o) of the HOLA and 12 C.F.R. $$575.10, 575.11 and
575.12, as well as any other pertinent statutory or regulatory provisions.
See "FORMATION OF MIDDLE TIER HOLDING COMPANY -- Regulation of Bancorp."
3. The middle tier holding company was required as a condition of approval
to hold all of the issued and outstanding common stock of the savings bank
subsidiary, and the savings bank subsidiary would not issue any other class
of equity security;
4. The middle tier holding company and the savings bank subsidiary were
required as a conditon of approval to obtain approval from the OTS prior to
issuing any securities;
5. The middle tier holding company was requred as a condition of approval
to receive the OTS' non-objection to any proposed amendments to the middle
tier holding company's charter and bylaws;
6. The middle tier holding company was required as a condition of approval
to agree to cease any activity, reverse any action, or amend any provision
of its charter or bylaws, to which the OTS objects as being contrary to OTS
regulations regarding mutual holding companies in effect at this time or as
subsequently amended; and
7. OTS required as a condition of approval that if the mutual holding
company undertakes a mutual-to-stock conversion, OTS policies regarding
purchases of stock in the conversion would apply to shareholders of the
middle tier holding company.
The conditions described in the transaction approved on November 18, 1996,
by the OTS may be substantially similar to those which will be imposed on
Bancorp. However, the OTS has the authority to and could impose additional
conditions or modify conditions previously issued which could be viewed as more
restrictive than those imposed on the November 18, 1996 middle tier holding
company formation.
The conditions described above were imposed on the only middle tier holding
company application approved to date by the OTS. However, until OTS promulgates
regulations on middle tier holding company reorganizations, it is likely that
each such approval of a middle tier holding company application such as that
contemplated by the Plan of Reorganization, will be subject to substantially
similar conditons of approval. Conditions of approval relating to Bancorp,
should such approval be provided by the OTS, will be reviewed and evaluated by
the Board of Directors of Harbor Federal to determine whether they are unduly
burdensome or restrictive. Should the Board of Directors conclude that such
conditions are unduly burdensome or restrictive it is possible that the Board
may decide to abandon the transaction. However, if such conditions are
substantially similar to those imposed in the November 19,
41
<PAGE>
1996 Order of Approval by the OTS, it is likely that the Board of Directors of
Harbor Federal would proceed with the proposed Plan of Reorganization. The
Board of Director's final determination will consider, among other matters, the
primary purposes for which the middle tier holding company reorganization was
undertaken and in particular the ability to facilitate a repurchase of stock
through a middle tier holding company in a manner which substantially lessens
the risk of adverse tax consequences. See "FORMATION OF MIDDLE TIER HOLDING
COMPANY -- Amendment or Termination of Plan of Reorganization" and
"-- Regulation of Bancorp."
Harbor Federal's Board of Directors also recognizes that there will be
increased costs that will be incurred in the operation of a middle tier holding
company and that the securities of Bancorp, unlike those of Harbor Federal,
must be registered with the Commission and may not be legal investments for
institutions as fiduciaries in certain jurisdictions. Nevertheless, for the
reasons stated above, the Board of Directors believes that the holding company
formation is in the best interests of Harbor Federal and its shareholders.
Harbor Federal's Board of Directors chose Delaware as the state of
incorporation of Bancorp because of the flexibility and predictability which the
corporate law of Delaware provides to the shareholders and management of a
Delaware corporation and because of the authority Delaware law provides to limit
the liability of Directors for monetary damages to shareholders. See "FORMATION
OF MIDDLE TIER HOLDING COMPANY -- Limitations on Director Liability."
Future Conversion of the Mutual Holding Company
The Mutual Holding Company has no present intention of effecting a mutual to
stock conversion.
Should such conversion occur, under the current regulations of the OTS dealing
with mutual holding companies, upon consummation of the conversion of a mutual
holding company to the stock form the shares in its publicly held subsidiaries,
such as Harbor Federal or, after the Reorganization, Bancorp, would be exchanged
for common stock of the newly converted institution based upon an exchange ratio
submitted to the OTS. Those holding subscription rights pursuant to the plan of
conversion would be allowed to purchase stock in the subscription offering. OTS
regulations require that subscription rights would be held available for
depositors of Harbor Federal who meet an eligibility record date, the employee
stock ownership plan, supplemental account holders and certain borrowers of
Harbor Federal. Those holding shares of Harbor Federal and later Bancorp would
have the right to exchange their shares for shares in the converting
entity.
Description of the Reorganization
Harbor Federal caused Bancorp to be incorporated as a Delaware corporation on
December 12, 1996, with authorized capitalization of 13,000,000 shares of
common stock, $0.01 par value, and 1,000,000 shares of preferred stock, $0.01
par value. Harbor Federal will, prior to the effectiveness of the
Reorganization, capitalize Bancorp with cash contributions not exceeding $12
million. Bancorp will organize Interim as a corporation with an Interim Federal
Stock Charter. Bancorp will be the sole shareholder of Interim. Contingent
upon regulatory and shareholder approvals, the Reorganization will be
accomplished as follows:
1. Interim as a wholly owned acquisition subsidiary of Bancorp will merge
with and into Harbor Federal with Harbor Federal being the surviving
corporation (the "Merger"). All shares of common stock of Harbor Federal
outstanding immediately before the Merger will be converted in the Merger, on
a share-for-share basis, into shares of common stock of Bancorp. All shares of
common stock of Interim outstanding immediately before the Merger (which will
be held by Bancorp) will be converted in the Merger into shares of common
stock of Harbor Federal on a one share for one share basis. All shares of
common stock of Bancorp outstanding immediately before the Merger (which will
be held by Harbor Federal) will be cancelled in the Merger.
(a) Harbor Federal, as the surviving corporation, will retain all
incidents of its corporate existence prior to the Reorganization, including
its
42
<PAGE>
Federal Stock Charter, bylaws, deposits, loans and other assets and its
operating offices. Harbor Federal will carry on its business and
activities, as before the Merger, under the name Harbor Federal Savings
Bank.
(b) The directors and officers of Harbor Federal in office
immediately before the Reorganization will, immediately after the
Reorganization, be directors and officers of Harbor Federal as the
surviving corporation.
2. As a result of the Merger, the persons who held all of Harbor Federal's
outstanding common stock immediately before the Merger will, immediately
thereafter, hold instead all of the outstanding shares of common stock of
Bancorp. Certificates representing outstanding shares of Harbor Federal's
common stock outstanding immediately before the Merger will, immediately after
the Merger, represent the same number of shares of Bancorp's common stock.
Upon surrender of such stock certificates, the holder will be entitled to
receive stock certificates for shares of common stock of Bancorp. Shareholders
will not be required to surrender their Harbor Federal stock certificates
until they desire to make a transfer.
3. As a result of the Merger, the shares of common stock of Harbor
Federal held by Bancorp immediately after the Merger will constitute the only
issued and outstanding shares of common stock of Harbor Federal. Accordingly,
Harbor Federal will be a wholly-owned subsidiary of Bancorp.
4. As a result of the Merger, Interim will cease to exist as a legal
entity.
5. As a result of the Merger and the Reorganization, Bancorp will be a
publicly held corporation. Bancorp will register its common stock under the
Exchange Act and will seek to have its shares included in the NASDAQ-NMS.
There is no assurance that Bancorp common stock will be included in NASDAQ-
NMS, or that a public trading market will develop in its common stock,
although a market has existed in the past for the common stock of Harbor
Federal.
Upon completion of the Reorganization, the capital of Bancorp will consist
solely of the amount with which it will be capitalized by Harbor Federal before
completion of the Reorganization, which will not exceed $12 million. Subject to
certain regulatory restrictions, additional funds may be obtained from Harbor
Federal after the completion of the Reorganization by payment of dividends by
Harbor Federal to Bancorp. Should acquisitions or engaging in other businesses
occur, Bancorp may need to issue additional common or preferred stock or to
incur debt in the future. Bancorp has no plans to make any such acquisitions or
engage in any other business at this time. Harbor Federal believes that the
Reorganization will be accounted for in a manner similar to a "pooling of
interest" for accounting and other financial reporting purposes.
43
<PAGE>
Effective Date
The Effective Date of the Reorganization (the "Effective Date") will be the
date upon which all the conditions set forth in the Plan of Reorganization are
satisfied, including, but not limited to, receipt of shareholder approval and
all required regulatory approvals and the filing of required documents with the
OTS.
Business of Bancorp and Harbor Federal
Bancorp. Bancorp is a general business corporation formed under the laws of
-------
Delaware on December 12, 1996, for the purpose of becoming the middle tier
stock holding company of Harbor Federal. The principal executive offices of
Bancorp are located at the principal executive offices of Harbor Federal, 100 S.
Second Street, Fort Pierce, Florida, 34950. Its telephone number is (561) 461-
2414. Upon completion of the middle tier holding company formation, Harbor
Federal will become a wholly owned subsidiary of Bancorp. Pursuant to OTS
policy regarding middle tier holding companies such as Bancorp, it is expected
Bancorp will have the same restrictions on its activities as apply to the Mutual
Holding Company. See "FORMATION OF MIDDLE TIER HOLDING COMPANY -- Reasons for
and Risks of the Reorganization." "-- Regulation of Bancorp." Following the
middle tier holding company formation, the primary business of Bancorp will be
the ongoing business of Harbor Federal, and the competitive conditions to be
faced by Bancorp will be the same as those faced by Harbor Federal.
At the present time, Bancorp does not intend to have any employees. Bancorp
will make occasional use of staff of Harbor Federal from time to time. If
Bancorp acquires other savings institutions it may at such time hire employees.
It is currently expected that unless and until Bancorp becomes actively
involved in the operation or acquisition of additional savings institutions no
separate compensation will be paid to the directors and officers of Bancorp.
However, Bancorp may determine that separate compensation is appropriate in the
future.
Upon completion of the middle tier holding company formation, the benefit
plans of Harbor Federal, including the ESOP, the Recognition and Retention Plan,
the Directors' Recognition and Retention Plan, the Stock Option Plan and the
Directors Stock Option Plan will remain the benefit plans of Harbor Federal with
directors, officers and other employees of Harbor Federal eligible to
participate. Since the directors and officers of Bancorp will not initially be
compensated by Bancorp but will continue to serve and be compensated by Harbor
Federal, no Bancorp benefit plans are anticipated at this time. However, the
stock benefit plans of Harbor Federal will, after the Reorganization, hold
Bancorp stock and options to purchase Bancorp stock. Harbor Federal will
continue to maintain its other benefit programs. See "FORMATION OF MIDDLE TIER
HOLDING COMPANY -- Management of Bancorp and Harbor Federal after the
Reorganization."
44
<PAGE>
Initially, Bancorp will neither own nor lease any real property. Bancorp
intends instead to use certain premises, equipment and furniture of Harbor
Federal.
Harbor Federal will request OTS approval to enable it to provide Bancorp with
an initial capitalization of up to $12 million for working capital purposes and
to support Bancorps anticipated repurchase of its stock. Upon formation of the
middle tier holding company, the assets of Bancorp will consist of the initial
capitalization plus all of the then outstanding shares of Harbor Federal common
stock. Bancorp, on an unconsolidated basis, will initially have no indebtedness
or other liabilities. Additional financial resources may be available to Bancorp
in the future through cash dividends from Harbor Federal, borrowings from third
parties, and the public or private sale of equity or debt securities of Bancorp.
Pursuant to OTS policy, Bancorp must obtain approval of the OTS prior to issuing
any additional equity or debt securities.
There can be no assurance, however, as to the amount of additional financial
resources that will be available to Bancorp. There will be substantial
regulatory limitations on borrowings by Bancorp and any nonsavings institution
subsidiaries as well as on cash dividends paid by Harbor Federal to Bancorp. In
addition, Bancorp might have taxable income as the result of the initial
capitalization of Bancorp, and any subsequent transfers by Harbor Federal to
Bancorp, in the form of cash dividends or otherwise. To the extent that such
transfers are deemed to be made out of the reserve for losses on real property
loans (the "bad debt reserve") that Harbor Federal is permitted to establish,
and additions to which it is permitted to deduct, under federal income tax laws,
Harbor Federal will realize taxable income. See "FORMATION OF MIDDLE TIER
HOLDING COMPANY -- Income Tax Consequences of the Reorganization" "-- Dividend
Policy."
Harbor Federal. Harbor Federal conducts business from its main office in Fort
--------------
Pierce, Florida and twenty-three (23) branch offices in six counties in East
Central Florida. At September 30, 1996, Harbor Federal had total assets of
approximately $1.1 billion and net worth of approximately $85 million or 8.62%
of total assets. Net income for the fiscal year ended September 30, 1996 was
approximately $8.6 million. Harbor Federal was established as a federally
chartered savings and loan association in 1934. In 1994, it reorganized into
the mutual holding company form of organization with the Mutual Holding Company
holding the majority of Harbor Federal's outstanding common stock. A minority
of the outstanding stock of Harbor Federal is owned by the public.
Harbor Federal's primary business consists of attracting deposits mainly from
the communities it serves and using these and other funds to originate one to
four family first mortgage loans for retention in its portfolio. Harbor
Federal's principal sources of funds are deposits and principal and interest
payments on loans. Its principal source of income is interest received from
loans, investments and mortgage backed securities. Its principal expenses are
interest paid on deposit accounts and employee compensation and benefits.
Harbor Federal is a member of the FHLB System and its deposits are insured by
the FDIC through the SAIF. It is subject to comprehensive examination and
regulation by the
45
<PAGE>
OTS and the FDIC and to regulations governing such matters as capital standards,
mergers, establishing of branch offices, subsidiary investments and activities
in general investment authority. Such examination and regulation is intended
primarily for the protection of the SAIF and of depositors. The regulatory
structure provides regulatory officials with extensive discretion in connection
with their supervisory and enforcement activities and examination policies.
Harbor Federal competes for real estate loans with other thrift institutions,
and with commercial banks, mortgage companies, insurance companies, governmental
agencies, real estate investment trusts and credit unions. Harbor Federal
competes for real estate loans primarily through the interest rates and loan
fees it charges, by convenient office locations and through personal contact by
its officers with members of the communities served by Harbor Federal.
Competition for real estate loans is affected by, among other matters, the
availability of lendable funds, economic conditions, and prevailing interest
rate levels.
Harbor Federal competes for savings deposits with other thrift institutions,
and with money market mutual funds, commercial banks, credit unions, savings
banks and corporate and government securities. Harbor Federal competes for
deposit accounts primarily through the interest rates it offers, the convenience
of its office locations and personal contacts by its employees with members of
the communities served by Harbor Federal.
Large national or regional financial institutions operate in the areas where
Harbor Federal conducts its business. Many of these institutions have greater
financial resources than Harbor Federal.
At September 30, 1996, Harbor Federal had a total of 286 full-time and 35
part-time employees, none of whom were represented by a collective bargaining
unit. Harbor Federal considers its relations with its employees to be good.
Harbor Federal has twenty-three (23) offices through which it conducts its
banking business. Eighteen of its 23 offices are owned.
<TABLE>
<CAPTION>
Year Lease
Location Opened Owned/Leased Expiration Date
-------- ------ ------------ ---------------
<S> <C> <C> <C>
ST. LUCIE COUNTY
- ----------------
MAIN OFFICE 1934 OWNED
100 SOUTH SECOND STREET
FORT PIERCE, FL 34950
VIRGINIA AVENUE 1968 OWNED
500 VIRGINIA AVENUE
FORT PIERCE, FL 34982
</TABLE>
46
<PAGE>
PSL MAIN 1975 OWNED
7181 SOUTH U.S. #1
PORT ST. LUCIE, FL 34952
H.F. CENTER 1981 OWNED
2400 S.E. MIDPORT RD.
PORT ST. LUCIE, FL 34952
LAKEWOOD PARK 1981 OWNED
5100 TURNPIKE FEEDER RD.
FORT PIERCE, FL 34950
DARWIN SQUARE 1991 LEASED 11/30/97
3251 S.W. PSL BLVD.
PORT ST. LUCIE, FL 34953
ORANGE BLOSSOM 1984 OWNED
4156 OKEECHOBEE ROAD
FORT PIERCE, FL 34947
ST. LUCIE WEST 1993 OWNED
1375 S.W. ST. LUCIE WEST
BLVD.
PORT ST. LUCIE, FL 34986
INDIAN RIVER
- ------------
VERO MAIN 1978 OWNED
655 21st STREET
VERO BEACH, FL 32960
CAUSEWAY 1981 OWNED
1700 S.A1A
VERO BEACH, FL 32963
RYANWOOD CENTER 1986 LEASED 9/30/97
2062 KINGS HIGHWAY
VERO BEACH, FL 32966
SEBASTIAN 1979 OWNED
13397 U.S. HIGHWAY #1
SEBASTIAN, FL 32958
MARTIN COUNTY
- -------------
STUART MAIN 1996 LEASED 8/15/99
789 S. FEDERAL HWY.
STUART, FL 34994
PALM CITY 1978 LEASED 7/31/97
1251 S.W. 27th Street
PALM CITY, FL 34990
EAST OCEAN 1981 OWNED
1500 E. OCEAN BLVD.
STUART, FL 34996
BREVARD COUNTY
- --------------
PALM BAY 1981 OWNED
5245 BABCOCK ST., N.E.
PALM BAY, FL 32905
INDIALANTIC 1981 OWNED
305 5th AVENUE
INDIALANTIC, FL 32903
47
<PAGE>
WEST MELBOURNE 1982 OWNED
2950 W. NEW HAVEN AVENUE
MELBOURNE, FL 32904
VIERA 1995 OWNED
100 CAPRON TRAIL
MELBOURNE, FL 32940
OKEECHOBEE COUNTY
- -----------------
OKEECHOBEE 1980 OWNED
2801 HIGHWAY #441 SOUTH
OKEECHOBEE, FL 34974
VOLUSIA COUNTY
- --------------
NEW SMYRNA 1988 LEASED 09/30/97
REGIONAL SHOPPING CENTER
1940 STATE ROAD #44
NEW SMYRNA BEACH, FL 32069
PORT ORANGE 1983 OWNED
4035 NOVA ROAD
PORT ORANGE, FL 32127
ORMOND BEACH 1984 OWNED
75 N. NOVA ROAD
ORMOND BEACH, FL 32174
Management of Bancorp and Harbor Federal after the Reorganization
No change will occur in the composition of the directors of Harbor Federal by
reason of the Reorganization.
The following table sets forth the name and the year of expiration of the term
of office of each director of Bancorp.
<TABLE>
<CAPTION>
Term of
Name Office Expires
---- --------------
<S> <C>
Michael J. Brown, Sr. 1998
Richard B. Hellstrom 1998
Bruce R. Abernethy, Sr. 1999
Edward G. Enns 1999
Richard N. Bird 2000
Richard K. Davis 2000
Frank H. Fee, III 2000
</TABLE>
Each director of Bancorp is currently a director of Harbor Federal, except
Richard N. Bird, who is a nominee for the Board of Directors. For additional
information concerning the directors of Bancorp and information concerning the
directors of Harbor Federal, see "ELECTION OF DIRECTORS."
48
<PAGE>
The Certificate of Incorporation of Bancorp, like the bylaws of Harbor
Federal, provide that the directors shall serve for terms of three years and
that the terms shall be staggered to provide for the election of approximately
one-third of the board members each year. Approval of the Reorganization by the
holders of Harbor Federal common stock will ratify the appointment of the
persons set forth herein as directors of Bancorp for their respective terms,
without further action by the shareholders of Harbor Federal.
No change will occur in the persons who are officers of Harbor Federal by
reason of the Reorganization.
The executive officers of Bancorp are, and upon completion of the
Reorganization will be the following:
<TABLE>
<CAPTION>
Name Position
---- --------
<S> <C>
Michael J. Brown, Sr. President and Chief Executive
Officer
Don W. Bebber Chief Financial Officer
Christine Fowler Secretary
Michael H. Callahan Controller
Todd P. Bevan Treasurer
</TABLE>
At the present time, Bancorp does not intend to employ any persons other than
its management and the employees of Harbor Federal. No compensation will be
paid to its directors and officers in their capacities as directors and officers
of Bancorp. Bancorp may determine that such separate compensation is
appropriate in the future, however.
For additional information concerning the Directors and officers of Bancorp,
see "ELECTION OF DIRECTORS."
Income Tax Consequences of the Reorganization
Harbor Federal will not seek a ruling from the Internal Revenue Service (the
"IRS") concerning the federal income tax consequences of the proposed middle
tier holding company formation, but will instead rely upon opinions of Harbor
Federal's special counsel, Peabody & Brown, and KPMG Peat Marwick, L.L.P.
Peabody & Brown will advise Harbor Federal that:
1. Provided that the proposed merger of Interim with and into Harbor Federal
qualifies as a statutory merger, the transaction will qualify as a
reorganization within the meaning of Section 368(a)(1)(A) of the Code.
49
<PAGE>
2. Harbor Federal, Bancorp and Interim will each be "a party to a
reorganization" within the meaning of Section 368(b) of the Code.
3. No gain or loss will be recognized for federal income tax purposes by
Interim upon the transfer of its assets to Harbor Federal solely in exchange for
the transfer to Bancorp of the stock of Harbor Federal.
4. No gain or loss will be recognized for federal income tax purposes by
Interim upon the receipt of the assets of Interim in exchange for the transfer
to Bancorp of Interim stock.
5. The basis of Interim's assets in the hands of Harbor Federal will be the
same for federal income tax purposes as the basis of those assets in the hands
of Interim immediately prior to the merger.
6. No gain or loss will be recognized for federal income tax purposes by
Bancorp upon the receipt of Harbor Federal stock solely in exchange for Interim
stock.
7. No gain or loss will be recognized for federal income tax purposes by
Harbor Federal shareholders upon the receipt of Bancorp stock solely in exchange
for their shares of Harbor Federal stock.
8. The basis of Bancorp stock to be received by Harbor Federal shareholders
will be the same for federal income tax purposes as the basis of Harbor Federal
stock surrendered in exchange therefor.
9. The holding period of Bancorp stock to be received by Harbor Federal
shareholders will include for federal income tax purposes the holding period of
Harbor Federal stock surrendered in exchange therefor, provided that Harbor
Federal stock is held as a capital asset on the date of the exchange.
10. The holding period of the assets of Interim in the hands of Harbor
Federal will include for federal income tax purposes the period during which
such assets were held by Interim.
11. No gain or loss will be recognized for federal income tax purposes by
Harbor Federal upon the receipt of the assets of Interim in exchange for Harbor
Federal stock.
KPMG Peat Marwick, LLP will advise Harbor Federal that the conclusions reached
above with respect to the effect of the Reorganization on Harbor Federal,
Interim and Bancorp and their shareholders for federal income tax purposes shall
also apply for Florida income tax purposes.
An opinion of counsel has no binding effect on the IRS.
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Bancorp and Harbor Federal intend to file consolidated federal income tax
returns, which would have the effect of eliminating intercompany distributions,
including dividends or Harbor Federal stock, in the computation of consolidated
taxable income. If Bancorp and Harbor Federal were not permitted to file
consolidated federal income tax returns, they would be adversely affected
because, among other things, intercompany dividends paid out of earnings and
profits of Harbor Federal prior to the Reorganization would be subject to
federal tax.
Moreover, even if Bancorp and Harbor Federal are permitted to file
consolidated federal income tax returns, distributions from Harbor Federal to
Bancorp would have adverse tax consequences to Harbor Federal to the extent that
the distributions were deemed to be out of Harbor Federal's bad debt reserve. A
distribution will be deemed to be out of the bad debt reserve only if it exceeds
the sum of the current and accumulated earnings and profits of Harbor Federal.
As a general rule, income of Bancorp or any subsidiaries other than Harbor
Federal would not be taken into account in determining the bad debt deduction
allowed Harbor Federal, whether or not consolidated tax returns are filed.
However, certain "functionally related" losses of Bancorp or subsidiaries (if
any) other than Harbor Federal included in the consolidated tax returns will
reduce the percentage of taxable income bad debt deduction allowed Harbor
Federal.
Under the laws of the State of Florida, Harbor Federal and subsidiaries are
subject generally to a 5.5% tax on net income. The tax may be reduced by a
credit of up to 65% of the tax due as a result of certain intangible taxes and
taxes deducted by Harbor Federal in determining its federal income tax
liability.
The majority interest in Harbor Federal currently held by the Mutual Holding
Company is exempt from the Florida intangible tax pursuant to Fla. Stat.
199.103(8). Harbor Federal is currently seeking a ruling from the Florida
Department of Revenue to the determine if the majority interest in Bancorp that
will be held by the Mutual Holding Company after the Reorganization will also be
exempt from the state intangible tax. If such a ruling is not forthcoming,
Harbor Federal may reconsider its determination to consummate the
Reorganization, pursuant to the Plan of Reorganization.
After the Reorganization Bancorp will be able to repurchase shares of its own
stock without adverse tax consequences at the corporate level. Prior to the
Reorganization if Harbor Federal engaged in a repurchase plan the repurchase
would be treated as a redemption pursuant to (S) 593(e) of the Internal Revenue
Code and require that portions of Harbor Federal's reserves for bad debt
accumulated pursuant to (S) 593 of the Internal Revenue Code be recaptured. See
"FORMATION OF MIDDLE TIER HOLDING COMPANY -- Reasons For and Risks of the
Reorganization."
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No Dissenters' Rights
Harbor Federal's common stock is traded on the NASDAQ-NMS under the trading
symbol "HARB." Immediately upon consummation of the Reorganization, Bancorp
common stock is also expected to trade on the NASDAQ-NMS under the same symbol.
Because holders of Harbor Federal stock are required to accept only Bancorp
common stock pursuant to the Reorganization and because Harbor Federal and
Bancorp stock are or will be expected to trade on the NASDAQ-NMS where volume
is readily ascertainable, the holders of Harbor Federal common stock will
receive only qualified consideration. Therefore holders of Harbor Federal
common stock will not have, under regulations of the OTS, dissenters' rights in
the proposed Reorganization.
Dividend Policy
Harbor Federal has paid quarterly cash dividends each quarter since the
completion of its mutual holding company reorganization and minority stock
issuance in January 1994. It is the intention of Bancorp to continue to pay
cash dividends. Dividends paid by Bancorp will be determined by Bancorp's Board
of Directors and will be based upon its consolidated financial condition,
results of operations, tax considerations, economic conditions, regulatory
actions which affect the payment of dividends by Harbor Federal to Bancorp, and
other factors. There can be no assurance that dividends will be paid on the
common stock of Bancorp or that, if paid, such dividends will not be reduced or
eliminated in the future. See "FORMATION OF MIDDLE TIER HOLDING COMPANY --
Regulation of Harbor Federal" and "-- Dividends and Other Capital Distribution
Limitations" for information regarding regulatory restrictions on the ability to
pay dividends.
Bancorp as a Delaware corporation is not subject to OTS regulatory
restrictions on the payment of dividends to its stockholders, although the
source of such dividends will be dependent upon the factors set forth above.
Bancorp is subject, however, to the requirements of Delaware law, which
generally limit dividends to an amount equal to the excess of the net assets of
Bancorp (the amount by which total assets exceed total liabilities) over its
stated capital, or if there is no such excess, to its net profits for the
current and/or immediately preceding year.
In the past, the Mutual Holding Company has waived the receipt of cash
dividends paid by Harbor Federal, and expects to do so after the Reorganization.
OTS regulations require the Mutual Holding Company to notify the OTS of any
proposed waiver of the receipt of dividends. Currently, OTS policy is to review
dividend waiver notices on a case-by-case basis, and, in general, not object to
any such waiver if: the Mutual Holding Company's board of directors determines
that such waiver is consistent with such directors' fiduciary duties to the
Mutual Holding Company's members; (ii) for as long as the savings association
subsidiary is controlled by the Mutual Holding Company, the dollar amount of
dividends waived by the Mutual Holding Company are considered as a restriction
on the earnings of the savings association, which restriction, if material, is
disclosed in the public financial statements of the savings association as a
note to the financial statements; (iii) the amount of any dividend waived by the
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Mutual Holding Company is available for declaration as a dividend solely to the
Mutual Holding Company, and where the savings association determines that the
payment of such dividend to the Mutual Holding Company is probable, an
appropriate dollar amount is recorded as a liability; (iv) the amount of any
waived dividend is considered as having been paid by the savings association
(and the savings association's capital ratios adjusted accordingly) in
evaluating any proposed dividend under OTS capital distribution regulations; and
(v) in the event the Mutual Holding Company converts to stock form, the
appraisal submitted to the OTS in connection with the conversion application
takes into account the aggregate amount of the dividends waived by the Mutual
Holding Company.
OTS policy requires the amount of waived dividends received by the Mutual
Holding Company to be adjusted in the formula governing the exchange ratio for
shares held by minority shareholders in a mutual to stock conversion of the
Mutual Holding Company. The adjustment reflects the amount of dividends waived
by the Mutual Holding Company. Mutual holding companies formed prior to
February 1, 1995, are currently exempted from this policy with respect to both
past and future waived dividends, provided the aggregate dividends paid by the
subsidiary are not in the aggregate significantly greater than the amount of
dividends paid by comparable institutions. The Mutual Holding Company was
formed prior to February 1, 1995, and management does not believe the aggregate
dividends paid by Harbor Federal exceed the amount of dividends paid by the
comparable savings association. Accordingly, based on the current OTS policy
regarding waived dividends, management does not anticipate any adjustment of
minority stockholders ownership interest because of past or future waived
dividends by the Mutual Holding Company in the event of a conversion of the
Mutual Holding Company to stock form. AS A POLICY AND NOT A REGULATION THE
CURRENT TREATMENT OF WAIVED DIVIDENDS COULD BE CHANGED BY THE OTS WITHOUT
OPPORTUNITY FOR NOTICE AND COMMENT AS IS THE CASE WITH RESPECT TO REGULATION.
While it is the current intention of the Mutual Holding Company to continue to
waive its receipt of dividends, it may determine to accept such dividends in the
future.
Conditions of Plan of Reorganization
The Plan of Reorganization will not become effective until all of the
following conditions have been satisfied: (i) the Plan of Reorganization is
approved by the stockholders of Harbor Federal; (ii) all regulatory and other
approvals required by the Plan of Reorganization for the consummation of the
Reorganization have been obtained; (iii) the parties to the Plan of
Reorganization have received favorable opinions of counsel concerning the
federal and state income tax consequences of the transaction; and (iv) in the
sole discretion of Harbor Federal's Directors the regulatory and other approvals
contain no unduly burdensome or unfavorable conditions of approval or
restrictions on operations.
Applications will be filed with the OTS seeking its approval of the Plan
of Reorganization and the transactions contemplated therein. The parties
to the Plan of Reorganization will receive favorable opinions of counsel
regarding the federal and state income tax consequences of the Merger.
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Amendment or Termination of Plan of Reorganization
The Plan of Reorganization may be abandoned by Harbor Federal at any time
before the Effective Date in the event that, for any reason, consummation of the
formation of the middle tier holding company contemplated by the Plan of
Reorganization becomes inadvisable in the sole judgment of Harbor Federal's
Board of Directors. In the event of such abandonment Harbor Federal will pay
the fees and expenses incurred in connection with the Plan of Reorganization and
the proposed middle tier holding company formation.
The Plan of Reorganization may be amended at any time by the Boards of
Directors of Harbor Federal and Bancorp either prior to or after its approval by
Harbor Federal's shareholders, provided that after the Plan of Reorganization is
approved by Harbor Federal's shareholders, there shall be no amendment or
modification which would result in a material adverse effect on the benefits
intended to be received by the holders of Harbor Federal's common stock in the
Merger pursuant to the Plan of Reorganization.
If the Plan of Reorganization is approved by the shareholders of Harbor
Federal at the Annual Meeting, the Reorganization is expected to become
effective as soon as possible thereafter. If the Reorganization is not
approved, Harbor Federal will continue to operate without a middle tier holding
company structure. All expenses in connection with the Reorganization will be
paid by Harbor Federal whether or not the Plan of Reorganization is approved by
its shareholders or the Reorganization is completed.
Stock Certificates Need Not But May Be Exchanged; Transfer Agent
After the effectiveness of the Reorganization, the former holders of Harbor
Federal common stock may, but are not required, to exchange their Harbor Federal
stock certificates for new certificates evidencing the same number of shares of
Bancorp common stock. Until exchanged, Harbor Federal stock certificates will,
for all purposes, represent the same number of shares of Bancorp common stock as
the number of shares of Harbor Federal common stock previously represented. The
holders of such certificates will have all the rights of holders of common stock
of Bancorp. American Stock Transfer & Trust Company, the transfer agent and
registrar for Harbor Federal's common stock, is expected to serve in the same
capacities for Bancorp's common stock.
Effect on Stock Benefit Programs
The Plan of Reorganization provides that upon consummation of the
Reorganization all stock benefit plans of Harbor Federal will, by virtue of the
Reorganization, remain the stock benefit plans of Harbor Federal. Stock options
for, and restricted stock awards of, Harbor Federal common stock granted prior
to the consummation of the Reorganization will, immediately upon such
consummation, automatically become stock options for, and restricted stock
awards of, Bancorp common stock with identical terms and conditions and exercise
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prices. Stock options covering 170,106 shares are outstanding but unexercised.
21,404 shares of restricted stock have been awarded but have not vested as of
September 30, 1996. Harbor Federal's Directors, officers and employees will
continue to participate in the stock benefit plans as before the Reorganization.
As a result of the Reorganization, Harbor Federal's ESOP will remain the ESOP
of Harbor Federal. Harbor Federal will continue to make contributions to the
ESOP with respect to its employees. The ESOP Trustees will vote the shares of
Bancorp common stock which are allocated to participants' stock accounts in
accordance with instructions from the participants and all other shares of
common stock of Bancorp held by the ESOP Trustees shall be voted by the Trustees
in their discretion. On September 30, 1996, the ESOP held 151,705 shares, or
approximately 3.07%, of Harbor Federal's outstanding common stock.
All other employee benefit plans of Harbor Federal will be unchanged by the
Reorganization.
Approval by Regulatory Authorities Required
The Reorganization requires the approvals of the OTS. Bancorp will file
applications with OTS in early February and not later than February 15, 1997,
seeking such approvals, but no assurance can be given that such approvals will
be granted or that they will be obtained prior to a substantial period of time
after the Annual Meeting.
Regulation of Harbor Federal
General. As a federally-chartered, SAIF-insured savings association, Harbor
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Federal is subject to extensive regulation by the OTS and the FDIC. Lending
activities and other investments must comply with various federal statutory and
regulatory requirements. Harbor Federal is also subject to certain reserve
requirements promulgated by the Federal Reserve Board. Certain of the
regulatory requirements are referred to below or elsewhere herein.
The OTS, in conjunction with the FDIC, regularly examines Harbor Federal and
prepares reports for the consideration of Harbor Federal's Board of Directors on
any deficiencies that they find in Harbor Federal's operations. Harbor
Federal's relationship with its depositors and borrowers is also regulated to a
great extent by federal law, especially in such matters as the ownership of
savings accounts and the form and content of Harbor Federal's mortgage
documents.
Harbor Federal must file reports with the OTS and the FDIC concerning its
activities and financial condition, in addition to obtaining regulatory
approvals prior to entering into certain transactions such as mergers with or
acquisitions of other savings institutions. This regulation and supervision
establishes a comprehensive framework of activities in which an institution can
engage and is intended primarily for the protection of the SAIF and depositors.
The regulatory structure also gives the regulatory authorities extensive
discretion in connection
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with their supervisory and enforcement activities and examination policies,
including policies with respect to the classification of assets and the
establishment of adequate loan loss reserves for regulatory purposes. Any change
in such regulations, whether by the OTS, the FDIC or the United States Congress
could have a material adverse impact on Harbor Federal and its operations.
Insurance of Deposit Accounts. Harbor Federal's deposit accounts are insured
-----------------------------
by the SAIF to a maximum of $100,000 for each insured member. Harbor Federal's
federal deposit insurance premium for the year ended September 30, 1996,
amounted to $1.7 million, not including the one-time SAIF special assessment
discussed below.
The FDIC has the authority to suspend the deposit insurance of any savings
association without tangible capital. However, if a savings association has
positive capital when it includes qualifying intangible assets, the FDIC cannot
suspend deposit insurance unless capital declines materially, the institution
fails to enter into and remain in compliance with an approved capital plan or
the institution is operating in an unsafe or unsound manner.
Regardless of an institution's capital level, insurance of deposits may be
terminated by the FDIC upon a finding that the institution has engaged in unsafe
or unsound practices, is in an unsafe or unsound condition to continue
operations or has violated any applicable law, regulation, rule, order or
condition imposed by the FDIC or the institution's primary regulator. The
management of Harbor Federal is not aware of any practice, condition or
violation that might lead to termination of its deposit insurance.
Harbor Federal is a member of the SAIF fund of the Federal Deposit Insurance
Corporation. On September 30, 1996, the President signed the Deposit Insurance
Funds Act of 1996 (the "Funds Act") which provided, among other things, a one-
time assessment on SAIF member institutions including Harbor Federal to
capitalize the SAIF. This would, in turn, permit SAIF premiums to be reduced to
levels comparable to those of the commercial banking industry. Specifically, on
November 27, 1996, Harbor Federal, along with other SAIF-insured institutions,
was required to submit a payment of 65.7 basis points of deposits as of March
31, 1995 to the FDIC. In Harbor Federal's case this amount was approximately $5
million and was recognized as an expense for the year ended September 30, 1996.
As a consequence of this payment, the annual premiums of Harbor Federal will,
beginning in January of 1997, be reduced from 23 basis points of deposits to a
level approximating that of commercial banks. The new law also contemplates
shifting of the burden for payment of the Financing Corporation ("FICO") bonds,
bonds issued by a financing subsidiary of the United States Government to cover
the cost of failed thrift institutions. Beginning in January 1997, the interest
on FICO bonds will be shared between the commercial banking and thrift
industries. Harbor Federal will pay approximately 6.44 basis points for FICO
bonds. Commercial banks will pay 20% of that amount for a three year period
through the earlier of December 31, 1999, or the time that last savings
association charter ceases to exist. When either of these events occurs the
responsibility for FICO bonds will be shared pro rata between commercial banks
and thrift institutions such as Harbor Federal.
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The law also contemplates an eventual merger of the BIF and SAIF funds on
January 1, 1999. However, this merger cannot take place unless there is no
insured depository institution, that is, a "savings association on that date."
Since Harbor Federal is deemed a savings association under federal law, Harbor
Federal could at some point, by operation of law, be required to change its
charter to that of either a state chartered bank, a savings bank, a national
bank or an as yet undefined new federal charter. However, if no merger of the
BIF and SAIF funds occurs, then the mandatory charter changes would not be
required and Harbor Federal could continue to operate as a federal savings
association. How or whether that charter change will be mandated and what new
powers Harbor Federal will have under this law cannot be determined at this
juncture.
Examination Fees. In addition to federal deposit insurance premiums, savings
----------------
institutions like Harbor Federal are required by OTS regulations to pay
assessments to the OTS to fund the operations of the OTS. The general
assessment is paid on a semi-annual basis and is computed based on total assets
of the institution, including subsidiaries. Harbor Federal's OTS assessments
for the fiscal year ended September 30, 1996 totaled $189,901.
Regulatory Capital Requirements. OTS capital regulations require savings
-------------------------------
associations to meet three capital standards: (1) a tangible capital requirement
of 1.5% of total adjusted assets; (2) a leverage ratio (core capital)
requirement of 3% of total adjusted assets; and (3) a risk-based capital
requirement equal to 8% of total risk-weighted assets.
Tangible capital is defined as core capital less all intangible assets
(including supervisory goodwill), plus purchased mortgage servicing rights
valued at the lower of the maximum percentage established by the OTS or the
amount includable in core capital. Core capital is defined as common
stockholders' equity (including retained income), noncumulative perpetual
preferred stock and minority interests in the equity accounts of consolidated
subsidiaries, plus purchased mortgage servicing rights valued at the lower of
90% of fair market value, 90% of original cost or 100% of the current amortized
book value as determined under GAAP, and qualifying supervisory goodwill, less
nonqualifying intangible assets.
Savings associations are required to maintain "total capital" equal to 8.0% of
risk-weighted assets. Total capital is defined as core capital plus
supplementary capital, which may include, among other items, cumulative
perpetual preferred stock, perpetual subordinated debt, mandatory convertible
subordinated debt, intermediate-term preferred stock and the allowance for loan
losses. The allowance for loan losses includable in supplementary capital is
limited to 1.25 % of risk-weighted assets. Overall, supplementary capital is
limited to 100% of core capital. A savings association must calculate its risk-
weighted assets by multiplying each asset and off-balance sheet item by various
risk factors, which range from 0% for cash and securities issued by the U.S.
Government or its agencies to 100% for REO.
Savings associations are required to deduct from capital, for purposes of
meeting the leverage ratio requirement, tangible capital requirement and risk-
based capital requirement, their entire investment in and loans to a subsidiary
engaged in activities not permissible for a
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national bank ("nonconforming subsidiaries"). Harbor Federal deducts its
investment in H.F. Development due to its holding REO property for over five (5)
years. This deduction was $263,707 at September 30, 1996.
OTS regulations set forth the methodology for calculating an interest rate
risk ("IRR") component which is added to the risk-based capital requirements for
OTS regulated thrift institutions. Generally, savings associations with a
greater than "normal" level of interest rate exposure will be subject to a
deduction from total capital for purposes of calculating their risk-based
capital requirement. Specifically, interest rate exposure will be measured as
the decline in net portfolio value due to a 200 basis point change in market
interest rates. The IRR component to be deducted from total capital is equal to
one-half the difference between an institution's measured exposure and the
"normal" level of exposure which is defined as two percent of the estimated
economic value of its assets.
The OTS must prohibit asset growth by a savings association that is not in
compliance with the capital standards and require such institution to comply
with a capital directive which may, among other things, restrict the payment of
dividends or officers' salaries.
At September 30, 1996, Harbor Federal met each of its capital
requirements.
Dividend and Other Capital Distribution Limitations. An OTS regulation
---------------------------------------------------
governs capital distributions by savings institutions, which include cash
dividends, stock redemptions or repurchases, cash-out mergers, interest payments
on convertible debt and other transactions charged to the capital account of a
savings association to make capital distributions. Generally, the regulation
creates a safe harbor for specified levels of capital distributions from
institutions meeting at least their minimum capital requirements, so long as
such institutions notify the OTS and receive no objection to the distribution
from the OTS. Institutions and distributions that do not qualify for the safe
harbor are required to obtain prior OTS approval before making any capital
distributions.
Generally, a savings institution that before and after the proposed
distribution meets or exceeds its regulatory capital requirements (a "Tier I
institution") may make capital distributions during any calendar year up to the
higher of (a) 100% of net income for the calendar year-to-date plus 50% of its
"surplus capital ratio" at the beginning of the calendar year or (b) 75% of net
income over the most recent four-quarter period. The "surplus capital ratio" is
defined to mean the percentage by which the institution's ratio of total capital
to assets exceeds the ratio of its capital requirements to assets. An
institution satisfies its regulatory capital requirement if it maintains
tangible capital of not less than 1.5%, core capital of not less than 3.0% of
total adjusted assets and risk-based capital no less than 8.0%. Failure to meet
regulatory capital requirements will result in restrictions on capital
distributions, including possible prohibition of capital distributions without
specific OTS approval. Harbor Federal is a Tier I institution under the OTS
capital distribution regulation.
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In order to make distributions under these safe harbors, a Tier I institution
must submit 30 days notice to the OTS prior to making the distribution. The OTS
may object to the distribution during that 30-day period based on safety and
soundness concerns. In addition, a Tier I institution deemed to be in need of
more than normal supervision by the OTS may have additional limitations imposed
by the OTS on its ability to make a capital distribution.
The ability of Harbor Federal to pay dividends on its common stock is
restricted by tax considerations related to thrift institutions and by federal
regulations applicable to savings associations. Income appropriated to bad debt
reserves and deducted for federal income tax purposes may not be used to pay
cash dividends without the payment of federal income taxes by the Harbor Federal
on the amount of such income removed from reserves for such purpose at the then
current income tax rate. Additionally, Harbor Federal is precluded from paying
dividends on its common stock if its regulatory capital would thereby be reduced
below the regulatory capital requirements prescribed for savings associations.
Harbor Federal currently satisfies its applicable regulatory capital
requirements.
Qualified Thrift Lender Test. Savings institutions are required to meet a
----------------------------
qualified thrift lender ("QTL") test. If Harbor Federal maintains an
appropriate level of Qualified Thrift Investments (primarily residential
mortgages and related investments, including certain mortgage-backed securities)
and, otherwise qualifies as a QTL, it will continue to enjoy full borrowing
privileges from the FHLB of Atlanta. The required percentage of Qualified
Thrift Investments is 65% of portfolio assets (defined as all assets minus
intangible assets, property used by the institution in conducting its business
and liquid assets equal to 10% of total assets). Certain assets are subject to
a percentage limitation of 20% of portfolio assets. In addition, savings
associations may include shares of stock of the Federal Home Loan Banks, Federal
National Mortgage Association ("FNMA") and Federal Home Loan Mortgage
Corporation ("FHLMC") as qualifying QTL assets. Compliance with the QTL test is
determined on a monthly basis in nine out of every 12 months. As of
September 30, 1996, Harbor Federal was in compliance with its QTL requirement
with 96.09% of its portfolio assets invested in Qualified Thrift Investments. In
addition, under the Funds Act the list of investments qualifying for QTL
purposes was expanded to include credit card receivables and educational loans.
Educational and credit card loans can be made by federal associations such as
Harbor Federal in unlimited amounts. Assets in such loans will now count toward
the QTL in the same manner as mortgage loans currently count. The Board of
Directors of Harbor Federal believes that such changes will make QTL compliance
easier to maintain while permitting more flexibility in connection with future
lending activities.
A savings association that does not meet a QTL test must either convert to a
bank charter or comply with the following restrictions on its operations: (i)
the savings association may not engage in any new activity or make any new
investment, directly or indirectly, unless such activity or investment is
permissible for a national bank; (ii) the branching powers of the savings
association shall be restricted to those of a national bank; (iii) the savings
association shall not be eligible to obtain any advances from its FHLB; and (iv)
payment of dividends by the savings association shall be subject to the rules
regarding payment of dividends by a national bank. Upon the expiration of three
years from the date the savings association ceases to be a QTL, it must cease
any activity and not retain any investment not permissible for a national bank
and immediately repay any outstanding FHLB advances (subject to safety and
soundness considerations).
Transactions With Affiliates. Generally, restrictions on transactions with
----------------------------
affiliates require that transactions between a savings association or its
subsidiaries and its affiliates be
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on terms as favorable to Harbor Federal as transactions with non-affiliates. In
addition, certain of these transactions are restricted to a percentage of Harbor
Federal's capital. Affiliates of Harbor Federal include Bancorp and the Mutual
Holding Company, as well as any company which would be under common control with
Harbor Federal. In addition, a savings association may not lend to any affiliate
engaged in activities not permissible for a bank holding company or acquire the
securities of any affiliate which is not a subsidiary.
Harbor Federal's authority to extend credit to executive officers, directors
and 10% shareholders, as well as entities such persons control is currently
governed by Sections 22(g) and 22(h) of the Federal Reserve Act and Regulation O
promulgated by the Federal Reserve Board and administered by the OTS. Among
other things, these regulations require such loans to be made on terms
substantially similar to those offered to unaffiliated individuals, place limits
on the amount of loans Harbor Federal may make to such persons based, in part,
on Harbor Federal's capital position, and require certain approval procedures to
be followed.
Community Reinvestment. Under the Community Reinvestment Act ("CRA"), as
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implemented by OTS regulations, a savings association has a continuing and
affirmative obligation consistent with its safe and sound operation to help meet
the credit needs of its entire community, including low and moderate income
neighborhoods. The CRA does not establish specific lending requirements or
programs for financial institutions nor does it limit an institution's
discretion to develop the types of products and services that it believes are
best suited to its particular community, consistent with the CRA. The CRA
requires the OTS, in connection with its examination of a savings association,
to assess the institution's record of meeting the credit needs of its community
and to take such record into account in its evaluation of certain applications
by such institution, and to provide a written evaluation of an institution's CRA
performance utilizing a four tiered descriptive rating system. Harbor Federal
received an "outstanding record of meeting community credit needs" rating in its
last CRA examination in 1995.
Federal Home Loan Bank System. The FHLB System consists of 12 regional FHLBs
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supervision and regulation by the Federal Housing Finance Board. The FHLBs
provide a central credit facility primarily for member institutions. Harbor
Federal, as a member of the FHLB of Atlanta, is required to acquire and hold
shares of capital stock in the FHLB of Atlanta in an amount at least equal to 1%
of the aggregate principal amount of its unpaid residential mortgage loans, home
purchase contracts, and similar obligations at the beginning of each year, or
1/20th of its advances (borrowings) from the FHLB of Atlanta, whichever is
greater. Harbor Federal is in compliance with this requirement.
Federal Reserve System. The Federal Reserve Board requires all depository
----------------------
institutions to maintain noninterest bearing reserves at specified levels
against their transaction accounts (primarily checking, NOW and Super NOW
checking accounts) and non-personal time deposits. At September 30, 1996,
Harbor Federal was in compliance with these reserve requirements. The balances
maintained to meet the reserve requirements imposed by the
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Federal Reserve Board may be used to satisfy the liquidity requirements that are
imposed by the OTS.
Savings associations have authority to borrow from the Federal Reserve Bank
"discount window," but Federal Reserve Board policy generally requires savings
associations to exhaust all FHLB and other sources before borrowing from the
Federal Reserve System. Harbor Federal had no discount window borrowings at
September 30, 1996.
Regulation of Bancorp
General. Upon completion of the Reorganization, Bancorp will be a savings and
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loan holding company subject to regulatory oversight by the OTS. As such,
Bancorp is required to register and file reports with the OTS and is subject to
regulation and examination by the OTS. In addition, the OTS will have
enforcement authority over Bancorp and its non-savings association subsidiaries,
should such subsidiaries be formed, which also permits the OTS to restrict or
prohibit activities that are determined to be a serious risk to the subsidiary
savings association. This regulation and oversight is intended primarily for
the protection of the depositors of Harbor Federal and not for the benefit of
stockholders of Bancorp. Bancorp will also be required to file certain reports
with, and otherwise comply with, the rules and regulations of the OTS and the
SEC. See "FORMATION OF MIDDLE TIER HOLDING COMPANY -- Reasons for and Risks of
the Reorganization."
Further, the Board of Directors believes based on a recent approval of a
substantially similar transaction involving a middle tier holding company in a
mutual holding company structure that approval (if received) of the
Reorganization by the OTS will be conditioned on Bancorp's being subject to the
same activities restrictions as the Mutual Holding Company. As such, Bancorp,
which will operate under activities restrictions applicable to multiple savings
and loan holding companies, and would be subject to certain limitations on the
type of business activities in which it could engage. The HOLA limits the
activities of a multiple savings and loan holding company and its non-insured
institution subsidiaries, primarily to activities specifically permissible by
statue for multiple savings and loan holding companies and to activities of bank
holding companies which the Federal Reserve Board has deemed permissible by
regulation under Section 4(c)(8) of the Bank Holding Company Act, as amended
(the "BHCA"), subject to prior approval of the OTS, and to other activities
authorized by OTS regulation.
In addition, the HOLA prohibits a savings and loan holding company, as well
as a mutual holding company, directly or indirectly, from (i) acquiring control
(as defined) of another insured institution (or holding company thereof) without
prior OTS approval; (ii) acquiring more than 5% of the voting shares of another
insured institution (or holding company thereof) which is not a subsidiary,
subject to certain exceptions; (iii) acquiring through merger, consolidation or
purchase of assets, another savings association (whether or not it is insured by
the SAIF) or holding company thereof, or acquiring all or substantially all of
the assets of such institution (or holding company thereof) without prior OTS
approval; or (iv) acquiring (or retaining control for more than one year) of an
uninsured institution (except through a
61
<PAGE>
merger with and into the holding company's savings association subsidiary that
is approved by the OTS). A savings and loan holding company may acquire up to
15% of the voting shares of an undercapitalized savings association. A savings
and loan holding company may not acquire as a separate subsidiary an insured
institution that has principal offices outside of the state where the principal
offices of its subsidiary institution is located, except (i) in the case of
certain emergency acquisitions approved by the FDIC, (ii) if the holding company
controlled (as defined) such insured institution as of March 5, 1987, or (iii)
if the laws of the state in which the insured institution to be acquired is
located specifically authorize a savings association chartered by that state to
be acquired by a savings association chartered by the state where the acquiring
savings association or savings and loan holding company is located, or by a
holding company that controls such a state chartered association. No director
or officer of a savings and loan holding company or person owning or controlling
more than 25% of such holding company's voting shares may, except with the prior
approval of the OTS, acquire control of any SAIF-insured institution that is not
a subsidiary of such holding company. If the OTS approves such an acquisition,
any holding company controlled by such officer, director or person shall be
subject to the activities limitations that apply to multiple savings and loan
holding companies, unless certain supervisory exceptions apply.
Further, Section 10(o) of the HOLA places additional restrictions on mutual
holding companies. Pursuant to OTS policy, the following restrictions will
apply to Bancorp. Specifically, a mutual holding company may engage in the
following activities:
(i) Investing in the stock of a savings association.
(ii) Acquiring a mutual association through the merger of such
association into a savings association subsidiary of such mutual holding company
or an interim savings association of such mutual holding company.
(iii) Merging with or acquiring another holding company, one of whose
subsidiaries is a savings association.
(iv) Investing in a corporation the capital stock of which is
available for purchase by savings association under federal law or under the law
of any state where the subsidiary savings association or associations share
their home offices.
(v) Furnishing or performing management services for a savings
association subsidiary of such company.
(vi) Holding, managing, or liquidating assets owned or acquired from
a savings association subsidiary of such company.
(vii) Holding or managing properties used or occupied by a savings
association subsidiary of such company.
(viii) Acting as trustee under deed of trust.
(ix) Any other activity (A) that the Federal Reserve Board, by
regulation, has determined to be permissible for bank holding companies under
section 4(c) of the Bank Holding Company Act of 1956 ("BHCA"), unless the
Director, by regulation, prohibits or limits any such activity for savings and
loan holding companies; or (B) in which multiple savings and loan holding
companies were authorized (by regulation) to directly engage on March 5, 1987.
(x) Purchasing, holding, or disposing of stock acquired in
connection with a qualified stock issuance if the purchase of such stock by such
savings and loan holding company is approved by the Director.
The OTS has not adopted rules governing the establishment of a middle tier
holding company in a mutual holding company structure such as Bancorp. Pending
promulgation, the OTS has advised Harbor Federal that applications for middle
tier holding companies may be approved pursuant to enumerated conditions of
approval in lieu of regulations. Each application will differ and it is
impossible, therefore, to determine the specific conditions of approval which
OTS will impose upon Harbor Federal or any other applicant. However, until
regulations are promulgated by the OTS, all applications of this nature are
likely to be subject to the imposition of such detailed conditions. See
"FORMATION OF MIDDLE TIER HOLDING COMPANY -- Reasons for and Risks of the
Reorganization." The conditions are significant and may restrict the activities,
securities and corporate governance of middle tier entities as well as the
rights of shareholders of Bancorp in the event of a mutual to stock conversion
of the Mutual Holding Company. Harbor Federal believes that some or all of the
conditions described below are likely to be imposed by the OTS on Bancorp.
Acquisitions. The Mutual Holding Company, is restricted to the activities
------------
of a mutual savings and loan holding company under Sec. 10(o) of the HOLA.
Harbor Federal anticipates, based on a recent approval by the OTS of a middle
tier holding company reorganization substantially similar to the Plan of
Reorganization, that it is likely that the OTS will require as a condition of
approval that the activities of Bancorp also be limited to those of a mutual
savings and loan holding company. See "Regulation of Bancorp - General." Harbor
Federal believes that this restriction will not be unduly burdensome or unduly
limit the activities of Bancorp. In particular this limitation should not
restrict the ability of Bancorp to repurchase its common stock.
Cessation or Reversal of Activities. Amendment of Charter or Bylaws.
-------------------------------------------------------------------
Harbor Federal believes that the OTS may also impose a condition of approval on
Bancorp's application requiring reversal or cessation of future activities or
actions if they conflict with existing OTS regulations on mutual holding
companies or with regulations on mutual holding companies which may be
promulgated in the future. There is no specific
<PAGE>
date by which regulations on middle tier holding companies such as Bancorp will
be promulgated by the OTS. During that interim period an activity undertaken in
reliance on current regulations governing mutual holding companies may be deemed
inappropriate under future regulations. Harbor Federal and the Mutual Holding
Company will use their best efforts to confer closely with OTS, with respect to
any activities or actions undertaken by Bancorp.
Stock Issuance Requirements. Harbor Federal also anticipates the OTS
will require that Bancorp be required to obtain approval from the OTS for the
issuance of any securities and that Bancorp will be required to hold all of the
issued and outstanding common stock of Harbor Federal. Harbor Federal also will
not be permitted to issue any other class of equity security such as preferred
stock. Further, the OTS is also likely to require that both Bancorp and Harbor
Federal may not issue any securities including common stock without prior OTS
approval. OTS regulations at Part 563b require the approval of an application
and declaration of effectiveness of a securities offering document, disseminated
in connection with the offering before securities may be issued. These
regulations, among other things, limit the aggregate amounts shareholders and
their associates may purchase, the amount directors as a group may purchase and
contains certain limits on the time within which executive officers and
directors may sell shares. If the Reorganization is approved, Bancorp may be
subject to these limitations as well as the other limitations Harbor Federal is
currently subject to pursuant to 12 C.F.R. Part 575, OTS regulations governing
mutual holding companies.
Governance. Bancorp anticipates the OTS will require as a condition of
----------
approval that its Certificate of Incorporation and Bylaws will be subject to
review and approval by the OTS. Bancorp will also be required under anticipated
conditons of approval to obtain the approval of the OTS prior to amending its
Certificate of Incorporation and bylaws.
Mutual to Stock Conversion. The anticipated conditions expected to be
--------------------------
imposed by the OTS will also govern the shareholders of Bancorp should the
Mutual Holding Company undertake a mutual to stock conversion in the future. The
Mutual Holding Company has no plans to undertake such a conversion. Current OTS
policies which now apply to the shareholders of Harbor Federal will also apply
to shareholders who receive shares of Bancorp in the Reorganization. As a
general matter those shareholders have received the right to exchange shares of
the subsidiary institution such as Harbor Federal in exchange for shares of the
newly converted mutual holding company. See "FORMATION OF MIDDLE TIER HOLDING
COMPANY -- Reasons For and Risks of the Reorganization." Shareholders of Bancorp
will not, however, receive any greater rights than those which were available to
former holders of Harbor Federal stock.
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(ix) Any other activity (A) that the Federal Reserve Board, by
regulation, has determined to be permissible for bank holding companies under
section 4(c) of the Bank Holding Company Act of 1956 ("BHCA"), unless the
Director, by regulation, prohibits or limits any such activity for savings and
loan holding companies; or (B) in which multiple savings and loan holding
companies were authorized (by regulation) to directly engage on March 5, 1987.
(x) Purchasing, holding, or disposing of stock acquired in connection
with a qualified stock issuance if the purchase of such stock by such savings
and loan holding company is approved by the Director.
The OTS has not adopted rules governing the establishment of a middle tier
holding company in a mutual holding company structure such as Bancorp. Pending
promulgation, the OTS has advised Harbor Federal that applications for middle
tier holding companies may be approved pursuant to enumerated conditions of
approval in lieu of regulations. Each application will differ and it is
impossible, therefore, to determine the specific conditions of approval which
OTS will impose upon Harbor Federal or any other applicant. However, until
regulations are promulgated by the OTS, all applications of this nature are
likely to be subject to the imposition of such detailed conditions. See
"FORMATION OF MIDDLE TIER HOLDING COMPANY--Reasons for and Risks of the
Reorganization." The conditions are significant and may restrict the
activities, securities and corporate governance of middle tier entities as well
as the rights of shareholders of Bancorp in the event of a mutual to stock
conversion of the Mutual Holding Company. Harbor Federal believes that some or
all of the conditions described below are likely to be imposed by the OTS on
Bancorp.
Acquisitions. The Mutual Holding Company, is restricted to the activities
------------
of a mutual savings and loan holding company under Sec. 10(o) of the HOLA.
Harbor Federal anticipates, based on a recent approval by the OTS of a middle
tier holding company reorganization substantially similar to the Plan of
Reorganization, that it is likely that the OTS will require as a condition of
approval that the activities of Bancorp also be limited to those of a mutual
savings and loan holding company. See "Regulation of Bancorp--General." Harbor
Federal believes that this restriction will not be unduly burdensome or unduly
limit the activities of Bancorp. In particular this limitation should not
restrict the ability of Bancorp to repurchase its common stock.
Cessation or Reversal of Activities, Amendment of Charter or Bylaws.
-------------------------------------------------------------------
Harbor Federal believes that the OTS may also impose a condition of approval on
Bancorp's application requiring reversal or cessation of future activities or
action if they conflict with existing OTS regulations on mutual holding
companies or with regulations on mutual holding companies which may be
promulgated in the future. There is no specific
Description of Bancorp Capital Stock
The 14,000,000 shares of capital stock authorized by the Certificate of
Incorporation of Bancorp are divided into two classes consisting of 13,000,000
shares of common stock (par value $0.01 per share) and 1,000,000 shares of
preferred stock (par value $0.01 per share). Harbor Federal's Federal Stock
Charter authorize 20,000,000 shares of common stock (par value $1.00 per share)
and 1,000,000 shares of preferred stock (par value $1.00 per share). On
September 30, 1996, Harbor Federal had 4,934,454 outstanding shares of common
stock and no shares of preferred stock outstanding. The number of shares of
Bancorp common stock to be outstanding upon consummation of the Plan of
Reorganization will be the same as the number of shares of Harbor Federal's
common stock outstanding immediately prior to such consummation. Each share of
common stock of Bancorp will have the same relative rights and will be identical
in all respects with each other share of its common stock.
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<PAGE>
There are no material differences between the common stock of Bancorp and of
Harbor Federal as to voting, liquidation, preemptive or redemption rights.
Each holder of the common stock of Bancorp will be entitled to one vote for
each share held on all matters voted upon by shareholders.
In the event of any liquidation or dissolution of Bancorp, the holders of the
common stock would be entitled to receive -- after payment or provision for
payment of all debts and liabilities of Bancorp and the full preferential
amounts to which holders of any preferred stock may be entitled -- all remaining
assets of Bancorp available for distribution, in cash or in kind. Distributions
of the assets of Harbor Federal upon liquidation are subject to the payment of
Harbor Federal's debts and liabilities, including all deposits and accrued
interest thereon.
The holders of common stock of Bancorp will not be entitled to preemptive
rights with respect to any shares which may be issued. The common stock will
not be subject to call for redemption. Upon receipt by Bancorp of the full
consideration therefor each share of the common stock will be fully paid and
nonassessable.
Bancorp has no present plans for the issuance of the additional authorized
shares of common or preferred stock (other than pursuant to the exercise of
outstanding stock options). In the future, the authorized but unissued and
unreserved shares of common stock of Bancorp will be available for general
corporate purposes, including, but not limited to, possible issuance as stock
dividends or stock splits, in future mergers or other acquisitions, under a cash
dividend reinvestment and stock purchase plan, in a future public offering or
private placement or under the stock benefit plans of Harbor Federal.
No shareholder approval would be required after the Merger for the issuance of
additional shares of common stock. Accordingly, the Board of Directors of
Bancorp (as is currently the case for the Board of Directors of Harbor Federal),
without shareholder approval, could in the future issue additional shares of
common stock on a dilutive basis and could also issue shares of serial preferred
stock with voting or other rights that might adversely affect the rights of
holders of common stock. However, pursuant to OTS policy, approval of the
Reorganization by the OTS is likely to be conditioned on the requirement that
Bancorp and Harbor Federal must obtain approval from the OTS prior to issuing
any equity or debt securities. See "FORMATION OF MIDDLE TIER HOLDING COMPANY --
Dividend Policy," "-- Income Tax Consequences of the Reorganization," "--
Regulation of Bancorp" and "-- Regulation of Harbor Federal" for a description
of certain matters relating to the future payment of dividends on Bancorp's
common stock.
Anti-Takeover Provisions
If the Reorganization is approved and takes place, Bancorp's Certificate of
Incorporation and bylaws will contain certain takeover defense provisions. These
provisions, while similar in many respects to those of Harbor Federal's Federal
Stock Charter and bylaws, also contain certain differences. However, the Mutual
65
<PAGE>
Holding Company, which currently holds a majority of the outstanding shares of
common stock of Harbor Federal will also own the majority of the outstanding
common stock of Bancorp. Further, the Mutual Holding Company is required by law
and OTS regulation to own at least a majority of the outstanding common stock of
Bancorp as long as it is in existence. As the Mutual Holding Company is not a
stock entity but instead is owned by the depositors of Harbor Federal, control
of Bancorp cannot be gained without the consent of the Board of Directors of the
Mutual Holding Company and approval of the OTS pursuant to Part 574 of its
regulations dealing with acquisitions of control of savings associations. The
Board of Directors of the Mutual Holding Company is currently identical to that
of Harbor Federal. It is anticipated that for the foreseeable future the
individuals who serve on the Board of Directors of Harbor Federal and Bancorp
will also serve on the Board of Directors of the Mutual Holding Company.
In addition, the state of Delaware has a statute designed to provide Delaware
corporations with additional protection against hostile takeovers. The takeover
statute, which is codified in Section 203 of the Delaware General Corporation
law ("Section 203"), is intended to discourage certain takeover practices by
impeding the ability of a hostile acquiror to engage in certain transactions
with the target company.
In general Section 203 provides that a "Person" (as defined therein) who owns
15% or more of the outstanding voting stock of a Delaware corporation (an
"Interested Stockholder") may not consummate a merger or other business
combination transaction with such corporation at any time during the three-year
period following the date such "Person" became an Interested Stockholder. The
term "business combination" is defined broadly to cover a wide range of
corporate transactions including mergers, sales of assets, issuances of stock,
transactions with subsidiaries and the receipt of disproportionate financial
benefits.
The statute exempts the following transactions from the requirements of
Section 203: (i) any business combination if, prior to the date a person became
an Interested Stockholder, the Board of Directors approved either the business
combination or the transaction which resulted in the stockholder becoming an
Interested Stockholder; (ii) any business combination involving a person who
acquired at least 85% of the outstanding voting stock in the transaction in
which he became an Interested Stockholder, with the number of shares outstanding
calculated without regard to those shares owned by the corporation's directors
who are also officers and by certain employee stock plans; (iii) any business
combination with an Interested Stockholder that is approved by the Board of
Directors and by a two-thirds vote of the outstanding voting stock not owned by
the Interested Stockholder; and (iv) certain business combinations that are
proposed after the corporation had received other acquisition proposals and
which are approved or not opposed by a majority of certain continuing members of
the Board of Directors. A corporation may exempt itself from the requirements
of the statute by adopting an amendment to its Certificate of Incorporation or
Bylaws electing not to be governed by Section 203. At the present time, the
Board of Directors does not intend to propose any such amendment.
66
<PAGE>
Indemnification
Bancorp's Certificate of Incorporation or bylaws provide that it will
indemnify its directors and officers and may indemnify its employees and agents
to the full extent authorized by Delaware law in connection with certain matters
in which they may be involved because of their positions with Bancorp, including
criminal, civil, administrative or investigative proceedings. Delaware law
permits indemnification against expenses (including attorneys' fees), judgments,
fines, penalties and amounts paid in settlement in third-party actions involving
such persons, provided there is a determination by a majority vote of the
disinterested directors, by independent legal counsel, by the shareholders or by
a court that the person seeking indemnification acted in good faith and in a
manner reasonably believed to be in or not opposed to the best interests of
Bancorp and, in the case of any criminal action, had no reason to believe his
conduct was unlawful.
In the case of derivative actions on behalf of Bancorp, Delaware law generally
permits indemnification for expenses (including attorneys' fees) in defending
oneself, assuming a determination as to the conduct of the person seeking to be
indemnified similar to that required for third-party actions.
Delaware law provides for advances of legal expenses as they are incurred to
persons seeking to be indemnified, provided that the person receiving the
advances undertakes to repay such amounts if it is subsequently determined that
he or she is not entitled to indemnification.
The obligation of Bancorp to provide indemnification as described above will
continue, even if the Certificate of Incorporation or bylaws are subsequently
amended to restrict or eliminate the right to indemnification, with respect to
any state of facts existing at or before the time of such amendment and any
proceeding, whenever brought, based in whole or in part upon any such state of
facts. Bancorp is presently unaware of any actual or threatened actions or
proceedings that might result in a claim for indemnification under Bancorp's
bylaws.
In recent years, there has been a significant increase in the number and
amount of claims brought against Directors and officers of corporations. As a
result, certain corporations have experienced difficulties in attracting and
retaining qualified persons to serve on their Boards of Directors. To date,
Harbor Federal has not encountered a problem in attracting or retaining
qualified Directors, nor has Harbor Federal encountered a problem in obtaining
adequate insurance coverage. It is expected that such insurance will be
extended to cover Directors and officers of Bancorp upon completion of the
middle tier holding company formation. If liability insurance coverage for
-----------------------------------
Directors and officers of Bancorp were to become unavailable or prohibitively
- -----------------------------------------------------------------------------
expensive in the future, Bancorp would be required to act as a self-insurer and
- -------------------------------------------------------------------------------
bear the full cost of any indemnification provided.
- ---------------------------------------------------
67
<PAGE>
Limitations on Director Liability
In performing their duties, Directors, and officers acting in the capacity of
Directors, of a Delaware corporation such as Bancorp are obligated as
fiduciaries to exercise their business judgment and to act in what they
reasonably believe in good faith, after consideration, to be in the best
interests of the corporation and its shareholders. Such actions are generally
protected by the so-called "business judgment" rule and will normally be upheld
by a court in the event of a lawsuit challenging them. Under Delaware law
Directors can be held liable for gross negligence, as that term may be defined
by the Delaware courts, in connection with decisions made in the performance of
their duties, but generally not for ordinary negligence in most circumstances.
Bancorp has included in its Certificate of Incorporation a provision which
eliminates the personal liability of Directors and officers acting in the
capacity of Directors or performing duties as a Director, for monetary damages
to Bancorp and its shareholders for breach of their fiduciary duty except for
liability for: (i) willful or negligent violations of certain provisions of the
Delaware General Corporation Law with respect to the unlawful payment of
dividends or unlawful stock purchases or redemptions; (ii) a breach of a
Director's duty of loyalty to the Bancorp or its shareholders; (iii) acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law; or (iv) a transaction from which the Director derived improper
personal benefit. This provision relieves Bancorp's directors of liability to
Bancorp and to shareholders for negligence in the performance of their duties,
including gross negligence, subject to the limitations specified below. It thus
could eliminate liability of Directors, and officers acting as Directors, even
for grossly negligent business decisions in certain circumstances. It does not
eliminate or limit liability of Directors arising in connection with causes of
action brought under the federal securities laws or to parties other than
Bancorp or its shareholders. The provision has no effect on the availability of
equitable remedies, such as an injunction or rescission, based upon a Director's
breach of his fiduciary duty to Bancorp and to shareholders. At present, there
are no pending or contemplated actions or proceedings against any Directors of
Bancorp, and Bancorp knows of no threatened litigation against its Directors
that would be affected by the foregoing provisions of law.
The SEC and the OTS take the position that similar provisions limiting the
liability of directors under state laws would not protect those corporations'
directors from liability for violations of the federal securities laws. Federal
banking regulators may also take the same position with respect to violations of
federal banking laws and regulations.
Currently federal law does not permit federally chartered savings banks such
as Harbor Federal to limit the personal liability of directors in the manner
provided for by Delaware law and the laws of many other states.
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<PAGE>
Changes in Shareholders' Rights
As a result of the middle tier holding company formation, shareholders of
Harbor Federal, whose rights are presently governed by Federal law and Harbor
Federal's Federal Stock Charter and bylaws, will become shareholders of Bancorp.
As such, their rights will be governed by the Delaware General Corporation Law
and Bancorp's Certificate of Incorporation and bylaws. The Mutual Holding
Company, the majority shareholder of Harbor Federal, will remain the majority
stockholder of Bancorp.
Although the governing instruments of Harbor Federal and Bancorp are similar
in most material respects, there are certain material differences. The
---
following discussion does not purport to be a complete statement of the
- -----------------------------------------------------------------------
differences affecting the rights of shareholders but summarizes those
- ---------------------------------------------------------------------
differences that are deemed by Harbor Federal to be material. See the
- ----------------------------------------------------------------------
Certificate of Incorporation and bylaws of Harbor Federal attached as Exhibits B
- --------------------------------------------------------------------------------
and C to this Proxy Statement/Prospectus.
- -----------------------------------------
Purpose Clause. The Certificate of Incorporation of Bancorp provides that
--------------
it may engage in any lawful act or activity for which corporations may be formed
under the Delaware General Corporation Law. Harbor Federal's Federal Stock
Charter limit its activities to all lawful objectives of a Federal savings bank.
However, pursuant to OTS policy, Bancorp is subject to the same restrictions on
activities as the Mutual Holding Company. See "FORMATION OF MIDDLE TIER HOLDING
COMPANY -- Regulation of Bancorp."
Dividend Rights and Policies. The shareholders of both Harbor Federal and
----------------------------
Bancorp are entitled to dividends if, when and as declared by their respective
Boards of Directors. The declaration of future dividends, whether by the Board
of Directors of Harbor Federal or of Bancorp, will be subject to favorable
operating results, financial conditions, regulatory limitations and other
relevant factors. Accordingly, no assurance can be given as to the likelihood,
amount or timing of any future dividend payments.
Harbor Federal may not pay cash dividends at any time when payment of such
dividends would reduce its regulatory capital below the regulatory capital
requirements of the OTS. After the Reorganization, Harbor Federal as Bancorp's
subsidiary will be required to give the OTS 30 days advance notice of any
proposed declaration of cash dividends to Bancorp.
The Mutual Holding Company has currently waived receipt of all dividends on
its shares of common stock of Harbor Federal. It anticipates the continued
waiver of all such dividends on Bancorp stock. Pursuant to OTS policy, the
Mutual Holding Company is a "grandfathered" entity.
In addition, to the extent that certain distributions by Harbor Federal to
Bancorp exceed Harbor Federal's accumulated earnings and profits and current
earnings and profits (as computed for federal income tax purposes), such
distributions will be treated for tax purposes as being made out of Harbor
Federal's bad debt reserve and such reserve will be subject to
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<PAGE>
recapture for income tax purposes. See "FORMATION OF MIDDLE TIER HOLDING
COMPANY -- Income Tax Consequences of the Reorganization."
Harbor Federal, as have most federal association, made extensive use of
provisions in the Internal Revenue Code under (S) 593 which permitted a
deduction for bad debts based on a percentage of taxable income. This
deduction, which was 60% in 1969, has been gradually scaled back since then and
the effective tax rate on savings associations such as Harbor Federal has
increased. Since passage of the Tax Reform Act of 1986, the applicable
percentage of taxable income deduction has been 8%. The Tax Reform Act of 1986
allows associations such as Harbor Federal to utilize their actual loss
experience on lending activities, i.e. the specific charge off method, as well.
The tax laws require that whenever a distribution for dividends exceeds income
that the distribution of dividends be paid from the bad debt reserve. When such
dividend distributions are made from the bad debt reserve the portion
distributed is treated for tax purposes as a recapture and is includable in
income. Harbor Federal in any one year may utilize the percentage of taxable
income method, or the specific charge off method, in connection with deductions
for bad debt reserves.
Voting Rights. All voting rights are currently vested in the holders of
-------------
Harbor Federal's common stock. Each share of common stock is currently entitled
to one vote on all matters voted upon by shareholders. Cumulative voting is not
currently permitted. Holders of Bancorp's common stock will have the same
voting rights.
Call of Special Meetings. Harbor Federal's bylaws provide that special
------------------------
meetings of shareholders may be called at any time by the Chairman of the Board,
President, by the majority of Board of Directors or by shareholders entitled to
cast at least 10% of the votes which all shareholders are entitled to cast at a
particular meeting. Harbor Federal's Federal Stock Charter provides that
Special Meetings relating to change in control of the savings bank shall be
called only upon the direction of the Board of Directors. Bancorp's bylaws
provide that special meetings for any purpose may be called only by a majority
of the Board of Directors.
Quorum for Shareholder Meeting. Both Harbor Federal's bylaws and Bancorp's
------------------------------
provide that generally a majority of the outstanding shares entitled to vote,
represented in person or by proxy, constitutes the necessary quorum for a
shareholder meeting.
Inspection of Stock Ledger and Corporate Books and Records. Bancorp's
----------------------------------------------------------
bylaws and Delaware law require a list of shareholders as of the applicable
record date to be made available for inspection by any shareholder at any
meeting of shareholders. Federal law has a substantially identical requirement
which additionally requires such list to be available twenty (20) days before
the meeting.
Business Combinations. Harbor Federal may, in general, effect a merger or
---------------------
consolidation (other than with an interim association) or sell all or
substantially all of its assets, if authorized by holders of at least a majority
of the outstanding common stock. However, no person other than the Mutual
Holding Company may acquire more than 10% of
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the stock of Harbor Federal until January 4, 1999. See "Proposal II -- Amendment
of Federal Stock Charter." Under Delaware law the approval of the holders of at
least a majority of the voting shares of the corporation is required for Bancorp
to merge or consolidate with other companies. In addition, Delaware law and
Bancorp's Certificate of Incorporation requires the approval of the holders of
at least 66 2/3% of the voting shares (excluding those of the interested
shareholder), when a business combination, which is defined to include a merger,
is with an interested shareholder (defined generally as a holder of more than
15% of the outstanding voting shares or an affiliate of such a shareholder).
Additionally, Bancorp's Certificate of Incorporation does not permit any person
or entity, except the Mutual Holding Company or the ESOP, to own or to have
beneficial ownership of more than 10% of the outstanding stock of Bancorp.
Amendment of Certificate and Federal Stock Charter. Delaware law requires
--------------------------------------------------
that any amendment to the Certificate of Incorporation must be approved by the
affirmative vote of a majority of the votes which all shareholders are entitled
to cast thereon and the affirmative vote of the holders of at least a majority
of the outstanding shares in each class of shares entitled to vote as a class
thereon. However, the approval of the Reorganization by the OTS is expected to
be conditioned upon the requirement that Bancorp must receive the OTS' non-
objection to any proposed amendments to its Certificate of Incorporation. See
"FORMATION OF MIDDLE TIER HOLDING COMPANY -- Regulations of Bancorp." Federal
law requires approval of amendments of Harbor Federal's charter by (i) the Board
of Directors; (ii) the OTS; and (iii) by the stockholders by a majority of the
total votes eligible to be cast thereon.
Amendment of Bylaws. Harbor Federal's bylaws provide they may be amended in a
-------------------
manner consistent with OTS regulation by a majority vote of the Board of
Directors or by the majority of votes cast by the stockholders at any legal
meeting. Bancorp's bylaws allow the shareholders or the Board of Directors to
amend or repeal the bylaws or adopt new bylaws. Bancorp's bylaw provisions
governing the calling of special meetings of stockholders and governing the
numbers, terms, replacement, removal and nomination of Directors may only be
amended or repealed by a vote of two-thirds of all the votes entitled to be cast
in the election of Directors. Further, the approval of the Reorganization by
the OTS is expected to be conditioned upon the requirement that Bancorp must
receive the OTS' non-objection to any proposed amendments to its Bylaws. See
"FORMATION OF MIDDLE TIER HOLDING COMPANY -- Regulations of Bancorp."
Shareholder Nomination and New Business. The nominating committee of Harbor
---------------------------------------
Federal's Board of Directors selects the management nominees for election as
directors. Except where a nominee is substituted as a result of the death or
incapacity of a management nominee, Harbor Federal's bylaws require the
nominating committee to submit nominations to the secretary of Harbor Federal at
least 30 days prior to the date of the shareholder meeting at which directors
are to be elected. Nominations may be made by shareholders, provided they are
made in writing and are delivered to the secretary of Harbor Federal at least 20
days before the date of such meeting. Bancorp's bylaws require that nominations
for Director made by the Board of Directors shall be made not less than 5 days
prior to the date of the meeting at
71
<PAGE>
which Directors are to be elected. If made by stockholders, such nominations
must be made at least 90 days prior to such meeting, if it is the Annual
Meeting, or within 7 days following the date of notice of the meeting, if a
special meeting.
Directors. The Federal Stock Charter of Harbor Federal provides for a Board
---------
of not less than 5 nor more than 15 Directors. The Certificate of Incorporation
of Bancorp provides for a minimum of 5 Directors and a maximum of 15 Directors.
Under the bylaws of Harbor Federal, vacancies existing of the Board of
Directors arising from death, resignation, retirement, disqualification, removal
from office or other cause are filled by a majority vote of the Directors then
in office. A Director who is appointed by the Board of Directors to fill a
vacancy on the Board serves until the next annual meeting of shareholders.
Bancorp's Certificate of Incorporation provides that a Director who is
appointed by the Board of Directors to fill a vacancy on the board serves for
the unexpired term of the class in which the vacancy occurs but that a Director
who has been appointed to fill a vacancy caused by an increase in the number of
directors shall serve only until the next annual meeting of shareholders.
Bancorp's Certificate of Incorporation provides for removal of a Director
only for cause and only with the affirmative vote of 66 2/3% of the voting power
of Bancorp's outstanding stock. Harbor Federal's bylaws provide that at a
meeting called expressly for that purpose, any director may be removed for cause
by a vote of the holders of a majority of the shares entitled to vote at an
election of directors. Under Delaware law, any Director or the entire Board of
Directors may be removed with or without cause by the holders of a majority of
the shares then entitled to vote at an election of Directors except where a
Board is classified, such removal can be only for cause (unless the Certificate
of Incorporation otherwise provides). Bancorp's Board will be classified and its
certificates does not provide for removal for other than cause.
Bancorp's bylaws permit Directors to participate in any Board meetings
telephonically as long as all parties to the meeting can hear each other.
Telephonic participation will qualify as presence at the meeting for all
purposes. Federal law permits attendance at Board meetings by means of
conference telephone but providing that such participation does not constitute
attendance for the purpose of compensation for service on the Board.
Federal Securities Laws
Bancorp has filed with the Commission a registration statement under the
Securities Act for the registration of the common stock of Bancorp to be issued
in connection with the Reorganization. This Proxy Statement/Prospectus
constitutes the prospectus of Bancorp filed as part of such registration
statement. Upon consummation of the Reorganization, the common stock of Bancorp
will be registered under the Exchange Act with the Commission.
72
<PAGE>
Bancorp will then be subject to the information, proxy solicitation and other
requirements of the Commission under the Exchange Act.
This Proxy Statement/Prospectus also constitutes proxy material of Harbor
Federal and has been filed with the OTS under the Exchange Act. Upon completion
of the Reorganization, the common stock of Harbor Federal will be deregistered
with the OTS under the Exchange Act.
Resales of Bancorp Common Stock
All shares of the Bancorp Common Stock received by shareholders of Harbor
Federal in connection with the Reorganization will be freely transferable,
except for shares issued to any shareholders of Harbor Federal who may be deemed
to be "affiliates" of Harbor Federal for purposes of Rule 144 under the
Securities Act. Such shareholders may resell their shares only in transactions
permitted by the resale provisions of Rule 144, or as otherwise permitted under
the Securities Act.
LEGAL PROCEEDINGS
Harbor Federal is involved in various legal proceedings occurring in the
ordinary course of its business. None is believed by management to be material
to the financial condition of Harbor Federal.
MARKET FOR COMMON STOCK
Since January 6, 1994, the date of the reorganization, the common stock of
Harbor Federal has been quoted on the NASDAQ-NMS. The following table presents
quarterly information on the range of high and low prices since that time.
<TABLE>
<CAPTION>
Quarter Ended High Low Dividends Declared Per Share
------------- ---- --- ----------------------------
<S> <C> <C> <C>
March 31, 1994 $14.50 $12.125 $.1125
June 30, 1994 15.25 11.875 .1125
September 30, 1994 20.25 14.438 .1125
December 31, 1994 18.50 15.00 .2250
March 31, 1995 18.50 16.00 .2250
June 30, 1995 19.75 17.75 .2250
September 30, 1995 23.50 19.50 .2250
December 31, 1995 27.50 22.50 .30
March 31, 1996 28.00 24.75 .30
June 30, 1996 29.25 25.50 .30
September 30, 1996 30.00 23.75 .30
</TABLE>
73
<PAGE>
On January 7, 1997, the closing price for Harbor Federal's common stock as
reported in The Wall Street Journal was 33 1/2. On that date, there were
-----------------------
approximately 2,274 holders of such common stock.
74
<PAGE>
PROPOSAL III - AMENDMENT OF FEDERAL STOCK CHARTER
The Federal Stock Charter of Harbor Federal currently contains a standard
prohibition against acquisition by any persons, directly or indirectly, of more
than 10% of the common stock shares of Harbor Federal. The prohibition does not
apply to acquisition of shares which are acquired by the Mutual Holding Company.
The Board of Directors has proposed an amendment which would allow Bancorp to
assume ownership of 100% of the equity securities of Harbor Federal for the
purpose of the consummation of the Reorganization.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR AMENDMENT TO THE
FEDERAL STOCK CHARTER OF HARBOR FEDERAL UNDER THIS PROPOSAL III.
At the time that Harbor Federal converted from the mutual to the stock form,
in 1994, one of the standard charter provisions required by OTS regulations was
that the Federal Stock Charter contain a prohibition against direct or indirect
acquisition by any person of more than 10% of any class of stock of the
institution for five years. This prohibition does not expire until January 6,
1999. The Board of Directors does not believe that the purpose of this provision
of the Federal Stock Charter was to prevent reorganizations of the type
involving Bancorp and Harbor Federal. Nonetheless, a technical acquisition of
ownership will occur when Bancorp acquires all of the equity securities of
Harbor Federal and the Mutual Holding Company exchanges its shares of Harbor
Federal for the Bancorp pursuant to the Plan of Reorganization. Therefore, in
order to effect the Plan of Reorganization it is necessary to amend the Federal
Stock Charter of Harbor Federal to allow an exception to the prohibition in the
case of a reorganization as contemplated by the Plan of Reorganization. Under
the terms of the proposed amendment, the Federal Stock Charter will provide that
no person other than the Mutual Holding Company or a company the majority of
whose voting shares are or will be owned by the Mutual Holding Company shall be
permitted to directly or indirectly acquire or offer to acquire more than 10% of
shares of Harbor Federal. This amendment will allow the Plan of Reorganization
to take place as contemplated by the Board of Directors and is necessary to
enable the Plan of Reorganization to be effected. The common stock of Harbor
Federal held by the Mutual Holding Company shall be cast in favor of this
Proposal III, which assures that it shall be adopted.
The language of the proposed amendment to Harbor Federal's Federal Stock
Charter is set forth below. The new language for which shareholder approval is
sought is bolded.
Section 8. Certain Provisions Applicable for Five Years. Notwithstanding
anything contained in the savings bank's charter or bylaws to the contrary,
for a period of five years from the date of completion of the conversion of
the savings bank from mutual to stock form, the following provisions shall
apply;
A. Beneficial Ownership Limitation. No person other than Harbor
Financial, M.H.C. or a corporation, the majority of whose common stock is
owned by Harbor Financial, M.H.C., shall directly or indirectly offer to
acquire the beneficial ownership of more than 10 percent of any class of
any equity security of the savings bank. This limitation shall not apply
to the purchase of shares by underwriters in connection with a public
offering, or the purchase of shares by a tax-qualified employee stock
benefit plan which is exempt from the approval requirements under
(S)574.3(c)(1)(vi) of the Office's regulations. . . .
Following shareholder approval the amendment is required to be submitted to
the OTS. The Board reserves the right to make non-material changes to the
amendment based on comments received from the OTS.
PROPOSAL IV - RATIFICATION OF APPOINTMENT
OF INDEPENDENT AUDITORS
The Board of Directors of Harbor Federal has appointed the firm of KPMG Peat
Marwick LLP, Certified Public Accountants, to continue as independent auditors
for Harbor Federal for the fiscal year ending September 30, 1997, subject to
ratification of such appointment by the stockholders. A representative of KPMG
Peat Marwick LLP will be present at the Annual Meeting, will be given an
opportunity to make a statement if he or she desires to do so and will be
available to respond to appropriate questions.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR RATIFICATION OF THE APPOINTMENT
---
OF KPMG PEAT MARWICK LLP AS HARBOR FEDERAL'S INDEPENDENT AUDITORS FOR FISCAL
1997 UNDER THIS PROPOSAL IV.
SHAREHOLDER PROPOSALS FOR 1998 ANNUAL MEETING
If the middle tier holding company formation is consummated, any shareholder
proposal intended for inclusion in Bancorp's proxy statement and form of proxy
relating to Bancorp's Annual Meeting of Shareholders expected to be held on or
about January 26, 1998 must be received by Bancorp on or before September 19,
1997 pursuant to the proxy solicitation regulations of the Commission. If the
middle tier holding company formation is not consummated, any shareholder
proposal intended for inclusion in Harbor Federal's proxy statement and form of
proxy relating to Harbor Federal's annual meeting of shareholders expected to be
held on or about January 19, 1998 must be received by Harbor Federal on or
before September 18, 1997 pursuant to the proxy solicitation rules of the
Securities and Exchange Commission as administered by the OTS. Nothing in this
paragraph shall be deemed to require Bancorp or Harbor Federal to include in its
proxy statement and form of proxy any shareholder proposal which does not meet
the requirements of the Commission or the OTS in effect at the time.
75
<PAGE>
FURTHER INFORMATION
This proxy statement is also a prospectus of Bancorp delivered in compliance
with the Securities Act. A registration statement under the Securities Act has
been filed by Bancorp with the Commission and the OTS, with respect to the
securities offered hereby. This Proxy Statement/Prospectus does not contain all
the information set forth in the registration statement, certain parts of which
are omitted in accordance with the rules and regulations of the Commission. The
registration statement may be inspected at the offices of the Commission 450
Fifth Street, N.W. Washington, D.C. 20549 without charge, and copies of all or
any part of it may be obtained on payment of the fee prescribed by the
Commission. For further information pertaining to Bancorp and the securities
offered hereby, reference is made to the registration statement, including the
exhibits filed as a part thereof. The summaries or descriptions of documents,
statutes or regulations in this Proxy Statement/Prospectus do not purport to be
complete. Reference is made to the copies of such documents attached to this
Proxy Statement/Prospectus or otherwise filed as part of the registration
statement and to such statutes or regulations for a full and complete statement
of their provisions, and such summaries and descriptions are qualified in their
entirety by such reference.
This proxy statement has been filed by Harbor Federal with the OTS, 1700 G
Street, N.W., Washington, D.C. 20052, under the Exchange Act. Harbor Federal has
also filed reports and other information with the OTS under the Exchange Act.
Such information can be inspected and copied at the OTS.
LEGAL OPINION
The legality of the Bancorp common stock to be issued pursuant to the
Reorganization will be passed upon for Bancorp by Peabody & Brown, 1255 23rd
Street, N.W., Washington, D.C. 20037.
FINANCIAL INFORMATION
No financial statement disclosure is included herein because, in accordance
with the rules of the Commission: (i) the only parties to the Reorganization
(other than Harbor Federal) are Bancorp and its wholly-owned subsidiary,
Interim, neither of which has any significant assets or liabilities; (ii)
Bancorp's only substantial asset if the Reorganization is effected will be cash
and its investment in Harbor Federal; and (iii) the consolidated financial
statements of Bancorp immediately after the Reorganization will be substantially
identical to the financial statements of Harbor Federal immediately before the
Reorganization. The Reorganization will be characterized and accounted for at
historical cost in a manner similar to a "pooling of interest" for financial
reporting and related purposes.
Harbor Federal's Annual Report for 1996 has been previously mailed to
shareholders and includes Harbor Federal's audited financial statements for the
fiscal year ended September 30, 1996, including a comparative statement of
financial
76
<PAGE>
condition, a comparative statement of operations, a comparative statement of
cash flows, and a comparative statement of changes in shareholders' equity. Any
present shareholder who did not receive an Annual Report, or who has misplaced
his or her copy, will be furnished a copy without charge, upon telephonic
written request to the Secretary of Harbor Federal at the address shown on the
cover hereof.
A copy of Harbor Federal's Annual Report on Form 10-K for the fiscal year
ended September 30, 1996, as filed with the Office of Thrift Supervision
(excluding exhibits) may be obtained by any stockholder, without charge, upon
written request to Anne W. Satterlee, Stockholder Relations, Harbor Federal
Savings Bank, P.O. Box 249, Fort Pierce, Florida 34954. (561) 461-7046
OTHER BUSINESS
As of the date of this Proxy Statement/Prospectus, the Board of Directors of
Harbor Federal knows of no matters to be brought before the Annual Meeting other
than procedural matters incident to the conduct of the Annual Meeting. If
further business is properly presented, the proxy holders will vote proxies, as
determined by a majority of the Board of Directors.
The Board of Directors of Harbor Federal urges each shareholder, whether or
not he or she intends to be present at the Annual Meeting, to complete, sign and
return the enclosed proxy as promptly as possible.
By Order of the Board of Directors of
Harbor Federal Savings Bank
/s/
---------------------------
Michael J. Brown, Sr.
President and CEO
77
<PAGE>
EXHIBIT A
AGREEMENT AND PLAN OF REORGANIZATION
------------------------------------
THIS AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement"), dated as
of November 27, 1996, between Harbor Federal Savings Bank, a federally chartered
savings bank (the "Bank") and Harbor Florida Bancorp, Inc., a Delaware
corporation (the "Holding Company") which is wholly-owned by the Bank. Promptly
after its incorporation, Interim Harbor Federal Savings Bank ("Interim"), a
stock savings bank to be organized by the Holding Company under Federal law for
the sole purpose of consummating the reorganization provided herein, will
execute and deliver this Agreement and, thereby, become a Party hereto.
BACKGROUND
----------
The Board of Directors of the Bank has determined that it is in the
best interests of the Bank and its stockholders for the Bank to be reorganized
into a middle tier stock holding company form of ownership in accordance with
the terms of this Agreement as follows:
A. Upon the organization of Interim, the Holding Company will be the
sole stockholder of Interim.
B. Interim will thereafter merge into the Bank, on terms whereby the
stockholders of the Bank will exchange all of the outstanding shares of common
stock of the Bank for Shares of the Holding Company, and the Holding Company (as
the former sole stockholder of Interim) will receive all of the outstanding
shares of common stock of the Bank.
C. Whereupon, the former stockholders of the Bank will be all of the
stockholders of the Holding Company which, in turn, will own all of the
outstanding shares of stock of the Bank.
TERMS
-----
The parties hereto, intending to be legally bound hereby, agree as
follows:
ARTICLE ONE
DEFINITIONS
The following terms used herein have the meanings specified below:
A-1
<PAGE>
1.1 "Agreement" means this Agreement and Plan of Reorganization.
1.2 The "Bank" means Harbor Federal Savings Bank a federally chartered
savings bank organized under Federal law.
1.3 "Bank Common Stock" means the shares of $1.00 par value common stock
of the Bank.
1.4 "Effective Date" means that the date provided for in Section 8.1 on
which the Merger shall become effective.
1.5 "Effective Time" means the time on the Effective Date when the Merger
shall become effective.
1.6 "Holding Company" means Harbor Florida Bancorp, Inc., a corporation
organized under Delaware law.
1.7 "Holding Company Common Stock" means the shares of $0.01 par value
common stock of the Holding Company.
1.8 "Interim" means Interim Harbor Federal Savings Bank, an interim stock
savings bank to be organized under Federal law.
1.9 "Internal Revenue Code" means the Internal Revenue Code of 1986, as
amended.
1.10 "Merger" means the merger of Interim with and into the Bank provided
for in Section 2.1 of this Agreement.
1.11 "OTS" means the Office of Thrift Supervision.
1.12 "Party" means each of the Bank, the Holding Company and Interim, as a
Party to this Agreement.
1.13 "Resulting Institution" means the Bank as the surviving Party to the
Merger,
1.14 "SEC" means the Securities and Exchange Commission .
ARTICLE TWO
MERGER OF INTERIM INTO THE BANK AND RELATED MATTERS
A-2
<PAGE>
2.1 The Merger. On the Effective Date, Interim will merge with and into
----------
the Bank pursuant to the terms of this Agreement, and thereupon the separate
existence of Interim will cease. The Bank, as the Resulting Institution, will
possess all of the rights, privileges, powers and franchises, and be subject to
all the restrictions, duties and liabilities of Interim, and all property, real,
personal and mixed, and all debts due to Interim on whatever account, shall be
vested in the Bank, and all such property, rights, privileges, powers and
franchises, and all and every other interest of Interim shall be as effectively
the property of the Bank as they were of Interim.
2.2 Continued Existence of the Bank. Following the Merger, the existence
-------------------------------
of the Bank will continue unaffected and unimpaired by the Merger, with all the
rights, privileges, immunities and powers, and subject to all the duties and
liabilities of a savings bank organized under the laws of the United States. The
home and branch offices of the Bank will be at the location of the home and
branch offices of the Bank immediately prior to the Effective Time. The Federal
Stock Charter and bylaws of the Bank, as presently in effect, will continue in
full force and effect and shall not be changed in any manner whatsoever by the
Merger. The Bank will continue to operate immediately after the Effective Time
under its present name, "Harbor Federal Savings Bank."
2.3 Continued Business of the Bank. From and after the Effective Time, the
------------------------------
business presently conducted by the Bank will continue to be conducted by it as
a wholly-owned subsidiary of the Holding Company, subject to the management and
control of the board of directors of the Bank and, subject to such action as the
board of directors of the Bank might take hereafter, the present officers of the
Bank will continue in their present positions. It is the Parties' intention that
a continuity of operation of the Bank business and a continuity of present
management will be maintained.
2.4 Directors of the Holding Company. On the Effective Date, the directors
--------------------------------
of the Holding Company who will serve until the expiration of the respective
terms for which they were elected and until their respective successors are
elected and duly qualified will be as follows:
<TABLE>
<CAPTION>
<S> <C>
Name and Address Term
---------------- ----
Bruce R. Abernethy, Sr. 1999
100 S. Second Street
Fort Pierce, FL 34950
Richard N. Bird 2000
100 S. Second Street
Fort Pierce, FL 34950
</TABLE>
A-3
<PAGE>
<TABLE>
<S> <C>
Michael J. Brown, Sr. 1998
100 S. Second Street
Fort Pierce, FL 34950
Richard K. Davis 2000
100 S. Second Street
Fort Pierce, FL 34950
Edward G. Enns 1999
100 S. Second Street
Fort Pierce, FL 34950
Frank H. Fee, III 2000
100 S. Second Street
Fort Pierce, FL 34950
Richard B. Hellstrom 1998
100 S. Second Street
Fort Pierce, FL 34950
</TABLE>
2.5 Directors of the Bank. On the Effective Date, the directors of the
---------------------
Bank, who will serve until the expiration of the respective terms for which they
were elected and until their respective successors elected and qualified, will
be as follows:
<TABLE>
<S> <C>
Name and Address Term
---------------- ----
Bruce R. Abernethy, Sr. 1999
100 S. Second Street
Fort Pierce, FL 34950
Richard N. Bird 2000*
100 S. Second Street
For Pierce, FL 34950
Michael J. Brown, Sr. 1998
100 S. Second Street
Fort Pierce, FL 34950
Richard K. Davis 2000*
100 S. Second Street
Fort Pierce, FL 34950
</TABLE>
A-4
<PAGE>
<TABLE>
<S> <C>
Edward G. Enns 1999
100 S. Second Street
Fort Pierce, FL 34950
Frank H. Fee, III 2000*
100 S. Second Street
Fort Pierce, FL 34950
Richard B. Hellstrom 1998
100 S. Second Street
Fort Pierce, FL 34950
</TABLE>
* Assumes election at the 1997 Annual Meeting of Stockholders of the Bank.
2.6 Savings Accounts. Immediately after the Effective Time, the Bank will
----------------
continue to issue savings accounts on the same basis as immediately prior
thereto.
ARTICLE THREE
CONVERSION OF SHARES
3.1 Terms and Conditions of Merger. The manner and basis of converting the
------------------------------
shares of the Bank and Interim in the Merger will be as follows:
(a) The Bank's Common Stock.
(i) Conversion. Each share of Bank Common Stock issued and
outstanding immediately prior to the Effective Time shall immediately
and by virtue of the Merger, without any action on the part of the
Bank or the holder of such share, be converted into and become one
fully paid and nonassessable share of Holding Company Common Stock.
Such shares of Bank Common Stock shall thereupon, without any further
action on the part of the Bank, be cancelled and retired, shall no
longer be outstanding and the number of such shares shall be restored
to the number of authorized but unissued shares of Bank Common Stock.
(ii) Stock Certificates. At any time after the Effective Time,
the holder of an outstanding certificate which prior to the Effective
Time represented shares of Bank Common Stock may surrender the same to
the Holding Company's Stock Registrar and Transfer Agent, or to its
corporate Secretary, and such holder thereupon shall be entitled to
receive, in exchange therefor, one or more certificates representing
the number of shares of Holding Company Common Stock into which such
shares of Bank Common Stock shall have been converted. Until so
surrendered, each outstanding certificate which,
A-5
<PAGE>
prior to the Effective Time represented shares of Bank Common Stock,
shall be deemed for all purposes (including the payment of dividends)
to evidence ownership of the number of shares of Holding Company
Common Stock into which such shares of Bank Common Stock shall have
been so converted.
(iii) Satisfaction of All Rights. All shares of Holding Company
Common Stock into which shares of Bank Common Stock shall have been
converted pursuant to the Merger shall be deemed to have been issued
in full satisfaction of all rights pertaining to such converted
shares.
(iv) Sole Right, Etc. At the Effective Time, the holders of
certificates formerly representing shares of Bank Common Stock
outstanding immediately prior to the Effective Time shall cease to
have any rights with respect to Bank Common Stock and their sole
rights on and following the Effective Time shall be with respect to
the shares of Holding Company Common Stock into which their shares of
Bank Common Stock shall have been converted by the Merger.
(b) Holding Company Stock Owned Directly or Indirectly by the Bank.
At the Effective Time, all shares of Holding Company Common Stock issued
and outstanding immediately prior to the Effective Time shall, by virtue of
the Merger and without any action on the part of the Holding Company or the
holder of any such share, be cancelled and returned, shall no longer be
outstanding, and the number of such shares shall be restored to the number
of authorized but unissued shares of Holding Company Common Stock. All such
shares of Holding Company Common Stock outstanding at the date of this
Agreement are owned by the Bank.
(c) Interim Common Stock. Each share of Interim common stock issued
and outstanding immediately prior to the Effective Time shall immediately
and by virtue of the Merger, without any action on the part of Interim or
the holder of such share, be converted into and become one fully paid and
nonassessable share of Bank Common Stock, whereupon the Holding Company as
the holder of such shares of common stock of Interim will be the holder of
all of the outstanding shares of common stock of the Bank.
3.2 The Bank's Employee Stock Benefit Programs. At the Effective Time, the
------------------------------------------
Harbor Federal Savings Bank Employee Stock Ownership Plan (the "ESOP") shall
automatically by virtue of the Merger, be continued as the Employee Stock
Ownership Plan of the Bank with its Bank Common Stock exchanged for Holding
Company Common Stock. The Harbor Federal Savings Bank 1993 Incentive Stock
Option Plan and the Harbor Federal Savings Bank Option Plan for Non-Employee
Directors (collectively, the "Option Plans") including each stock option granted
under the Option Plans outstanding and unexercised, in whole or in part,
immediately prior to the Effective Time shall, by virtue of the Merger, without
any action on the part of the Bank, the Holding Company or the holder of such
option,
A-6
<PAGE>
remain the Option Plans of the Bank with each option to purchase under the
Option Plans becoming the same number of shares of Holding Company Common Stock,
and subject to the same terms and conditions (including, but not limited to, the
exercise price), as the shares of Bank Common Stock which such holder would then
or thereafter be entitled to purchase or receive pursuant to such option. The
Harbor Federal Savings Bank Recognition and Retention Plan and Harbor Federal
Outside Directors' Recognition and Retention Plan (collectively, the
"Recognition and Retention Plans") shall automatically, by virtue of the Merger,
be continued as the Recognition and Retention Plan of the Bank with their Bank
Common Stock exchanged for Holding Company Common Stock. The Bank and the
Holding Company will amend the ESOP, the Option Plans and the Recognition and
Retention Plans to provide for stock or options granted after the Effective Time
to be granted with respect to Holding Company Common Stock in lieu of Bank
Common Stock.
3.3 Reservation or Issuance of Stock. At the Effective Time, the Board of
--------------------------------
Directors of the Holding Company shall be deemed to have reserved for issuance
or to have authorized the issuance of a number of shares of Holding Company
Common Stock, and such shares shall automatically be so reserved and so
authorized in respect of the Employee Stock Benefit Programs and options granted
thereunder mentioned in Section 3.2, equal to the number of shares of the Bank
Common Stock that the Bank had reserved for issuance and had authorized the
issuance of in respect of such Programs immediately prior to the Effective Time.
3.4 Employment Agreement. At the Effective Time the employment agreement
--------------------
between Mr. Brown and the Bank shall remain in full force and effect and any
references in such agreements to shares of stock under any Employee Benefit
Programs of the Bank shall be deemed to apply to shares of Holding Company
Common Stock.
ARTICLE FOUR
REPRESENTATIONS AND WARRANTIES
4.1 Representation and Warranties of the Bank. The Bank represents and
-----------------------------------------
warrants as follows:
(a) The Bank Corporate Standing. The Bank is a federally chartered
---------------------------
stock savings bank organized, existing and in good standing under the laws
of the United States, and it has all requisite corporate power, licenses
and authority to own its property and to carry on its business as now
conducted.
(b) Authorized Stock of the Bank. The Bank is authorized to issue
----------------------------
20,000,000 shares of common stock, par value $1.00 per share, of which
4,934,454 shares are issued and outstanding, and 1,000,000 shares of
preferred stock, par value $1.00 per share, of which no shares are issued
and outstanding.
A-7
<PAGE>
(c) Financial Information of the Bank. The balance sheet of the Bank
---------------------------------
at September 30, 1995, and 1996 and the related consolidated statements of
operations, stockholders' equity and changes in financial position have
been audited by independent certified public accountants, as contained in
the 1996 Annual Report of the Bank, and fairly present the financial
condition of the Bank and the results of its operations, as of the dates
and for the periods indicated, in accordance with generally accepted
accounting principles consistently applied. Since September 30, 1996, there
has been no adverse change in the business, assets or condition, financial
or otherwise, of the Bank, nor any damage, destruction nor loss of a
material nature affecting the business, properties or financial condition
of the Bank.
(d) Legal Proceedings of the Bank. The Bank is not a party to, nor
-----------------------------
has it been threatened with, any litigation or governmental proceedings
which, if adversely decided, would have a material adverse effect upon the
transactions contemplated hereby or upon the financial condition,
regulatory capital or business of the Bank or which would create a
material liability of the Bank.
4.2 Representations and Warranties of the Holding Company. The Holding
-----------------------------------------------------
Company represents and warrants as follows:
(a) Corporate Standing of the Holding Company. The Holding Company is
-----------------------------------------
a corporation organized, existing and in good standing under the laws of
the State of Delaware and has all requisite corporate power, licenses and
authority to own its own property and to carry on its business as now
conducted.
(b) Authorized Stock of the Holding Company. The Holding Company is
---------------------------------------
authorized to issue 13,000,000 shares of common stock, par value $0.01 per share
of which 10 shares are issued and outstanding and are owned by the Bank and
1,000,000 shares of preferred stock, none of which are issued or outstanding.
(c) Legal Proceedings of the Holding Company. The Holding Company is
----------------------------------------
not a party to, nor has it been threatened with, any litigation or
governmental proceedings which if adversely decided would have a material
adverse effect upon the transactions contemplated hereby or upon the
financial condition, regulatory capital or business of the Holding Company,
or which would create a material liability of the Holding Company.
(d) Interim Corporate Standing. Before the Effective Date, the
--------------------------
Holding Company will take all necessary or appropriate action to organize
and incorporate Interim in accordance with Federal law for the sole purpose
of facilitating the merger of Interim with and into the Bank pursuant
hereto, and at the Effective Time Interim will be duly organized and
existing in good standing under the laws of the United States, will have
all requisite corporate power, licenses and authority to own its
A-8
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property, and carry on its business as then conducted and all its
outstanding shares of common stock will be owned by the Holding Company.
ARTICLE FIVE
TRANSACTIONS PRIOR TO EFFECTIVE DATE
5.1 Restrictions on Certain Activities. Except as contemplated by this
----------------------------------
Agreement, prior to the Effective Time none of the Parties will, without the
prior consent of the others, do any of the following:
(a) Amend its Federal Stock Charter or Certificate of Incorporation
or bylaws, or merge into or consolidate with any other corporation, or
change in any manner the rights of its outstanding shares of capital stock
or the character of its principal business.
(b) Issue or sell, or issue options or rights to acquire, or enter
into any contract or commitment to issue or sell, any shares of its capital
stock, or subdivide or in any way reclassify any shares of its capital
stock, except for (i) shares of common stock issued under the ESOP; (ii)
options and rights which may be granted by the Bank pursuant to its Option
Plans and shares of its common stock issued upon exercise of options; (iii)
shares of common stock issued under the Recognition and Retention Plans;
and, (iv) the shares of its common stock to be issued by Interim to the
Holding Company;
(c) Acquire or agree to acquire any shares of its capital stock;
(d) Make or contract for any substantial acquisition of assets except
in the ordinary course of business; or
(e) Sell, dispose of or encumber any substantial and material
property or assets, or engage in any material activity or transaction,
except in the ordinary course of business.
5.2 Stockholder Approvals. The execution and delivery of this Agreement
---------------------
has been duly authorized and approved by the Boards of Directors of the Bank and
the Holding Company. A meeting of the stockholders of the Bank will be held,
inter alia, for the purpose of adopting and approving this Agreement. In
addition, the incorporators of Interim, and the Holding Company as the sole
owner of all the outstanding shares of capital stock of Interim, will execute
such written consents and take all such other action as may be required for the
adoption and approval of this Agreement.
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<PAGE>
ARTICLE SIX
CONDITIONS
6.1 Conditions to Performance by the Holding Company and Interim. The
------------------------------------------------------------
obligations of each of the Parties to effect the Merger pursuant hereto is
subject to the following conditions:
(a) Representations and Warranties and Covenants of Each Party.
The representations and warranties of each Party contained herein
shall be true on and as of the Effective Time with the same effect as
though made as of such time, except for such variations as may be
permitted hereby or pursuant hereto. Each Party shall have performed
all covenants and obligations and complied with all conditions
required by this Agreement to be performed or complied with by it
prior to the Effective Time.
(b) Approval by the Bank's Stockholders. The holders of a
-----------------------------------
majority of the shares of the Bank Common Stock present in person or
by proxy shall, at a meeting thereof duly called, inter alia, for the
purpose of considering and acting upon this Agreement, have voted in
favor of this Agreement and the consummation of the Merger
contemplated hereby.
(c) Registration of Shares of Holding Company Common Stock:
------------------------------------------------------
Compliance with Securities Laws. A registration statement covering the
shares of Holding Company Common Stock to be issued to the
stockholders of the Bank pursuant to the Merger shall have been filed
with and declared effective by the OTS in accordance with the
provisions of the Securities Act of 1933, as amended, and the Holding
Company shall have complied with the requirements of all applicable
state securities or "blue sky" laws necessary to offer and issue
lawfully such shares pursuant hereto.
(d) Listing of Holding Company Common Stock. The shares of
Holding Company Common Stock shall have been approved for trading,
when issued, on the NASDAQ-NMS .
(e) Government Approval. All approvals by the OTS and the SEC and
such other governmental agency as may be required for the lawful
consummation of the Merger and the issuance and delivery of Holding
Company Common Stock as contemplated by this Agreement shall have been
obtained. If any approval contains any restriction or condition which,
in the sole discretion of the Board of Directors of Harbor Federal, is
deemed to be not beneficial to Harbor Federal, Harbor Florida or the
stockholders thereof, the Board of Directors may terminate the
transaction pursuant to the Article Seven hereof.
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(f) Federal Tax Ruling or opinion. The Bank shall have received
either (i) a ruling from the Internal Revenue Service or (ii) an
opinion of its counsel in form and substance satisfactory to it that:
(1) Provided that the proposed merger of Interim with and
into Harbor Federal qualifies as a statutory merger, the
transaction will qualify as a reorganization within the meaning
of Section 368(a)(1)(A) of the Code.
(2) Harbor Federal, Bancorp and Interim will each be "a
party to a reorganization" within the meaning of Section 368(b) of the
Code.
(3) No gain or loss will be recognized for federal income
tax purposes by Interim upon the transfer of its assets to Harbor
Federal solely in exchange for the transfer to Bancorp of the stock of
Harbor Federal.
(4) No gain or loss will be recognized for federal income
tax purposes by Interim upon the receipt of the assets of Interim in
exchange for the transfer to Bancorp of Interim stock.
(5) The basis of Interim's assets in the hands of Harbor
Federal will be the same for federal income tax purposes as the basis
of those assets in the hands of Interim immediately prior to the
merger.
(6) No gain or loss will be recognized for federal income
tax purposes by Bancorp upon the receipt of Harbor Federal stock
solely in exchange for Interim stock.
(7) No gain or loss will be recognized for federal income
tax purposes by Harbor Federal shareholders upon the receipt of
Bancorp stock solely in exchange for their shares of Harbor Federal
stock.
(8) The basis of Bancorp stock to be received by Harbor
Federal shareholders will be the same for federal income tax purposes
as the basis of Harbor Federal stock surrendered in exchange therefor.
(9) The holding period of Bancorp stock to be received by
Harbor Federal shareholders will include for federal income tax
purposes the holding period of Harbor Federal stock surrendered in
exchange therefor, provided that Harbor Federal stock is held as a
capital asset on the date of the exchange.
(10) The holding period of the assets of Interim in the
hands of Harbor Federal will include for federal income tax purposes
the period during which such assets were held by Interim.
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<PAGE>
(11) No gain or loss will be recognized for federal income
tax purposes by Harbor Federal upon the receipt of the assets of
Interim in exchange for Harbor Federal stock.
(g) Florida Tax Ruling or Opinion. The Bank shall have received either
-----------------------------
a ruling or an opinion in form and substance satisfactory to it with respect to
Florida income taxation as to the matters set forth in paragraph (f) of this
Section.
(h) The reorganization will be characterized and accounted for at
historical cost in a manner similar to a "pooling of interest" for
financial reporting and related purposes.
(i) Consents of Third Parties. Each of the Parties shall have received
-------------------------
such approvals, permits or consents of third parties, including
governmental bodies or agencies, as may be required to permit them to
perform this Agreement in accordance with its terms, except for such
consents with regard to agreements and arrangements which are not in the
aggregate material to the Bank, the Holding Company and Interim, considered
on a consolidated basis.
ARTICLE SEVEN
TERMINATION
7.1 Termination. This Agreement may be terminated at any time prior to the
-----------
Effective Time (i) at the election of any Party if any of the conditions
specified in Article Six shall not have been fulfilled and shall have become
incapable of fulfillment or (ii) by mutual consent of the respective boards of
directors of the parties.
7.2 No Further Liability. In the event of the termination of this
--------------------
Agreement pursuant to any of the foregoing provisions, the Bank will pay all the
costs and expenses incurred by the Parties in connection with this Agreement and
the transactions contemplated hereby, and no Party shall have any further
liability or obligation of any nature to any other Party.
ARTICLE EIGHT
EFFECTIVE DATE OF MERGER
8.1 Effective Date and Effective Time. Upon satisfaction of the conditions
---------------------------------
set forth in Article Six (unless waived in accordance with this Agreement) the
Parties shall execute and cause to be filed (i) with the OTS articles of merger,
consistent with the terms hereof, and such other agreements, certificates and
other documents as may be required by applicable law and (ii) with such other
federal and state government agencies or authorities, including the OTS, such
other agreements, certificates and documents as may be required by applicable
law
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<PAGE>
to cause the Merger to become effective. The date and time by which all of such
filings are completed and the Merger becomes effective are referred to in this
Agreement, respectively, as the "Effective Date" and the "Effective Time."
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<PAGE>
ARTICLE NINE
MISCELLANEOUS
9.1 Waiver, Amendment, etc. Any of the terms or conditions of this
----------------------
Agreement which legally may be waived may be waived at any time by any Party
hereto which is, or the shareholders of which are, entitled to the benefit
thereof, by action taken or authorized by the Board of Directors of such Party,
or any of such terms or conditions may be amended or modified in whole or in
part at any time, to the extent authorized by applicable law, by an agreement in
writing, executed in the same manner as this Agreement after authorization to do
so by the Boards of Directors of the Parties hereto; provided, however that no
such waiver, amendment or modification shall have a material adverse effect on
the benefits intended to be received in the Merger pursuant to this Agreement by
the holders of shares of Bank Common Stock.
9.2 Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be an original, but such counterparts together
shall constitute one and the same instrument.
9.3 Governing Law. This Agreement is made pursuant to, and shall be
-------------
construed under and be governed by the laws of Delaware, unless in conflict with
federal law and if so, then by such federal law, including the rules and
regulations of the OTS.
9.4 Execution by Interim. At the date hereof, Interim is in the process of
--------------------
organization and has not been granted a Federal stock charter under Federal law
and therefore does not have the legal capacity to execute this Agreement. The
Holding Company agrees to cause Interim to execute this Agreement promptly
following the issuance of Interim's Federal stock charter. The Bank and the
Holding Company agree to be bound by this Agreement prior to and following such
execution by Interim.
A-14
<PAGE>
IN WITNESS WHEREOF, each of the Parties hereto have caused this Agreement
and Plan of Reorganization to be signed on its behalf by its officers thereunto
duly authorized, all as of the date first set forth above.
HARBOR FEDERAL SAVINGS BANK HARBOR FLORIDA BANCORP, INC.
By: /s/ By: /s/
_____________________________ ______________________________
Michael J. Brown, Sr. Michael J. Brown, Sr.
President and CEO President and CEO
INTERIM HARBOR FEDERAL SAVINGS BANK
By: _____________________________
Michael J. Brown, Sr.
President and CEO
A-15
<PAGE>
EXHIBIT B
CERTIFICATE OF INCORPORATION
OF
HARBOR FLORIDA BANCORP, INC.
ARTICLE I
Name
The name of the corporation is HARBOR FLORIDA BANCORP, INC. (the
"Corporation").
ARTICLE II
Registered Office
The address of the Corporation's registered office in the State of Delaware
is Corporation Service Company, 1013 Centre Road, Wilmington, Delaware 19805.
The name of the Corporation's registered agent at such address is the
Corporation Service Company.
ARTICLE III
Purpose and Powers
The purpose of the Corporation is to engage in any lawful act or activity
for which a corporation may be organized under the General Corporation Law of
Delaware.
ARTICLE IV
Capital Stock
SECTION 1. Authorized Shares. The total number of shares of all
----------
classes of stock which the Corporation shall have authority to issue is
14,000,000 shares, divided into two classes consisting of 13,000,000 shares of
Common Stock, par value $0.01 per share ("Common Stock"), and 1,000,000 shares
of Preferred Stock, par value $0.01 per share ("Preferred Stock"). The Board of
Directors shall have authority by resolution to issue the shares of Preferred
Stock from time to time on such terms as it may determine and to divide the
Preferred Stock into one or more series and, in connection with the creation of
any such series, to determine and fix by the resolution or resolutions providing
for the issuance of shares thereof:
B-1
<PAGE>
(a) the distinctive designation of such series, the number of shares
which shall constitute such series, which number may be increased or
decreased (but not below the number of shares then outstanding) from time
to time by action of the Board of Directors, and the stated value thereof,
if different from the par value thereof;
(b) the dividend rate, the times of payment of dividends on the shares
of such series, whether dividends shall be cumulative, and, if so, from
what date or dates, and the preference or relation which such dividends
will bear to the dividends payable on any shares of stock of any other
class or any other series of this class;
(c) the price or prices at which, and the terms and conditions on
which, the shares of such series may be redeemed;
(d) whether or not the shares of such series shall be entitled to the
benefit of a retirement or sinking fund to be applied to the purchase or
redemption of such shares and, if so entitled the amount of such fund and
the terms and provisions relative to the operation thereof;
(e) whether or not the shares of such series shall be convertible
into, or exchangeable for, any other shares of stock of the Corporation or
any other securities and, if so convertible or exchangeable, the conversion
price or prices, or the rates of exchange, and any adjustments thereof, at
which such conversion or exchange may be made, and any other terms and
conditions of such conversion or exchange;
(f) the rights of the shares of such series in the event of voluntary
or involuntary liquidation, dissolution or winding up or upon any
distribution of the assets of the Corporation;
(g) whether or not the shares of such series shall have priority over
or parity with or be junior to the shares of any other class or series in
any respect, or shall be entitled to the benefit of limitations restricting
(i) the creation of indebtedness of the Corporation, (ii) the issuance of
shares of any other class or series having priority over or being on a
parity with the shares of such series in any respect, or (iii) the payment
of dividends on, the making of other distributions in respect of, or the
purchase or redemption of shares of any other class or series on parity
with or ranking junior to the shares of such series as to dividends or
assets, and the terms of any such restrictions, or any other restriction
with respect to shares of any other class or series on parity with or
ranking junior to the share of such series in any respect;
B-2
<PAGE>
(h) whether such series shall have voting rights, in addition to
any voting rights provided by law, and, if so, the terms of such
voting rights, which may be general or limited; and
(i) any other powers, preferences, privileges, and relative
participating, optional, or other special rights of such series, and
the qualifications, limitations or restrictions thereof, to the full
extent now or hereafter permitted by law.
The powers, preferences and relative participating, optional and other
special rights of each series of Preferred Stock, and the qualifications,
limitations or restrictions thereof, if any, may differ from those of any and
all other series at any time outstanding. All shares of any one series of
Preferred Stock shall be identical in all respects with all other shares of such
series, except that shares of any one series issued at different times may
differ as to the dates from which dividends thereon shall be cumulative.
SECTION 2. Rights of Holders of Common Stock. Each holder of Common
---------------------------------
Stock shall be entitled to one vote for each share of Common Stock held of
record on all matters on which stockholders generally are entitled to vote.
Subject to the provisions of law and the rights of the holders of the Preferred
Stock and any other class or series of stock having a preference as to dividends
over the Common Stock then outstanding, dividends may be paid on the Common
Stock at such times and in such amounts as the Board of Directors may determine.
Upon the dissolution, liquidation or winding up of the Corporation, after any
preferential amounts to be distributed to the holders of the Preferred Stock and
any other class or series of stock having a preference over the Common Stock
then outstanding have been paid or declared and set apart for payment, the
holders of the Common Stock shall be entitled to receive all the remaining
assets of the Corporation available for distribution to its stockholders ratably
in proportion to the number of shares held by them, respectively.
There shall be no cumulation of votes for the election of Directors or for
any other purpose.
Every share of Common Stock shall have the same relative rights as, and be
identical in all respects with, all the other shares of Common Stock.
ARTICLE V
Business Combinations
The provisions of Section 203 of the Delaware General Corporation Law or
any successor provision shall govern the Corporation.
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<PAGE>
ARTICLE VI
Board of Directors
SECTION 1. Number. The business and affairs of the Corporation shall
------
be managed under the direction of the Board of Directors which, subject to any
right of the holders of any series of Preferred Stock then outstanding to elect
additional Directors under specified circumstances, shall consist of not less
than five nor more than 15 persons. The exact number of Directors within the
minimum and maximum limitations specified in the preceding sentence shall be
fixed from time to time by the Board of Directors pursuant to a resolution
adopted by a majority of the entire Board of Directors.
SECTION 2. Terms. Beginning with the first annual meeting of
-----
stockholders held after the filing of this Certificate of Incorporation, the
Board of Directors, other than those who may be elected by the holders of any
class or series of stock having a preference over the Common Stock as to
dividends or upon liquidation, shall be divided into three classes, class I,
class II and class III, as nearly equal in number as possible. The terms of
office of the classes of Directors elected at the initial annual meeting shall
expire as follows: the term of office of class I will expire at the 1998 Annual
Meeting of Stockholders, the term of office of class II will expire at the 1999
Annual Meeting of Stockholders and the term of office of class III will expire
at the 2000 Annual Meeting of Stockholders. At each Annual Meeting of
Stockholders following such initial classification and election, Directors
elected to succeed those Directors whose terms expire shall be elected for a
term of office to expire at the third succeeding Annual Meeting of Stockholders
after their election.
SECTION 3. Stockholder Nomination of Director Candidates.
---------------------------------------------
Stockholder nominations for the election of Directors shall be given in the
manner provided in the Bylaws of the Corporation.
SECTION 4. Newly Created Directorships and Vacancies. Subject to the
-----------------------------------------
rights of the holders of any series of Preferred Stock then outstanding,
Directors serving in newly created Directorships resulting from any increase in
the authorized number of Directors shall serve until the next Annual Meeting of
Stockholders. Vacancies on the Board of Directors resulting from death,
resignation, retirement, disqualification, removal from office or other cause
shall be filled by a majority vote of the Directors then in office, and
Directors so chosen shall hold office for a term expiring at the Annual Meeting
of Stockholders at which the term of the class to which they have been elected
expires. No decrease in the number of Directors constituting the Board of
Directors shall shorten the term of any incumbent Director.
SECTION 5. Removal. Subject to the rights of the holders of any
-------
series of Preferred Stock then outstanding, any Director, or the entire Board of
Directors, may be removed from office at any time, but only for cause and only
by the affirmative vote of the holders of at least two-thirds of the voting
power of all of the shares of the Corporation entitled to vote generally in the
election of Directors, voting together as a single class.
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<PAGE>
SECTION 6. Initial Directors. The names and addresses of the persons
-----------------
who are to serve as Directors until the first annual meeting of stockholders or
until their successors are elected and qualified are as follows:
Name and Address Term
---------------- ----
Bruce R. Abernethy, Sr. 1999
100 S. Second Street
Fort Pierce, FL 34950
Richard N. Bird 2000
100 S. Second Street
Fort Pierce, FL 34950
Michael J. Brown, Sr. 1998
100 S. Second Street
Fort Pierce, FL 34950
Richard K. Davis 2000
100 S. Second Street
Fort Pierce, FL 34950
Edward G. Enns 1999
100 S. Second Street
Fort Pierce, FL 34950
Frank H. Fee, III 2000
100 S. Second Street
Fort Pierce, FL 34950
Richard B. Hellstrom 1998
100 S. Second Street
Fort Pierce, FL 34950
ARTICLE VII
Stockholder Action
Any action required or permitted to be taken by the stockholders of the
Corporation must be effected at a duly called annual or special meeting of
stockholders of the Corporation and may not be effected by any consent in
writing by such stockholders. Except as otherwise required by law and subject to
the rights of the holders of any class of preferred stock having a preference
over the Common Stock as to dividends or upon liquidation, special meetings of
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<PAGE>
stockholders of the Corporation may be called only by the Board of Directors
pursuant to a resolution approved by a majority of the entire Board of
Directors.
ARTICLE VIII
Bylaw Amendments
The Board of Directors shall have power to make, alter, amend and repeal
the Bylaws of the Corporation (except so far as the Bylaws of the Corporation
adopted by the stockholders shall otherwise provide). Any Bylaws made by the
Board of Directors under the powers conferred hereby may be altered, amended or
repealed by the Board of Directors or by the stockholders. Notwithstanding the
foregoing and anything contained in this Certificate of Incorporation or the
Bylaws to the contrary, Section 2 of Article I and Sections 1 through 5 of
Article II of the Bylaws shall not be altered, amended or repealed and no
provision inconsistent therewith shall be adopted without the affirmative vote
of the holders of two-thirds of all votes entitled to be cast in the election of
Directors, voting together as a single class.
ARTICLE IX
Purchase of Equity Securities
SECTION 1. Prevention of "Greenmail". Any direct or indirect purchase or
-------------------------
other acquisition by the Corporation of any Equity Security of any class from
any Substantial Securityholder who has beneficially owned such securities for
less than two years prior to the date of such purchase or any agreement in
respect thereof shall, except as hereinafter expressly provided, require the
affirmative vote of the holders of at least a majority of all votes entitled to
be cast in the election of Directors, excluding Voting Stock beneficially owned
by such Substantial Securityholder, voting together as a single class. Such
affirmative vote shall be required notwithstanding the fact that no vote may be
required, or that a lesser percentage may be specified, by law or any agreement
with any national securities exchange, or otherwise, but no such affirmative
vote shall be required with respect to any purchase or other acquisition of
securities made as part of a tender or exchange offer by the Corporation to
purchase securities of the same class made on the same terms to all holders of
such securities and complying with the applicable requirements of the Securities
Exchange Act of 1934 and the rules and regulations thereunder (or any subsequent
provisions replacing such Act, rules or regulations).
SECTION 2. Certain Definitions. For the purposes of this Article IX:
-------------------
(a) A "Person" shall mean any individual, firm, corporation or other
entity.
(b) "Substantial Securityholder" shall mean any person (other than the
Corporation or any corporation of which a majority of any class of Equity
Security is owned, directly or indirectly, by the Corporation or Harbor
Financial, M.H.C.) who or which:
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<PAGE>
(i) is the beneficial owner, directly or indirectly, of five
percent or more of the class or securities to be acquired;
(ii) is an Affiliate of the Corporation and at any time within
the two-year period immediately prior to the date in question was the
beneficial owner, directly or indirectly, of five percent or more of
the class of securities to be acquired;
(iii) is an assignee or has otherwise succeeded to any shares of
the class of securities to be acquired which were at any time within
the two-year period immediately prior to the date in question
beneficially owned by a Substantial Securityholder, if such assignment
or succession shall have occurred in the course of a transaction or
transactions not involving a public offering within the meaning of the
Securities Act of 1933.
(c) A person shall be a "beneficial owner" of any security of any class of
the Corporation:
(i) which such person or any of its Affiliates or Associates
(as hereinafter defined) beneficially owns, directly or indirectly;
(ii) which such person or any of its Affiliates or Associates
has (A) the right to acquire (whether such right is exercisable
immediately or only after the passage of time), pursuant to any
agreement, arrangement or understanding or upon the exercise of
conversion rights, exchange rights, warrants or options, or otherwise,
or (B) any right to vote pursuant to any agreement, arrangement or
understanding; or
(iii) which is beneficially owned, directly or indirectly, by
any such person with which such person or any of its Affiliates or
Associates has any agreement, arrangement or understanding for the
purpose of acquiring, holding, voting or disposing any security of any
class of the Corporation.
(d) For the purposes of determining whether a person is a Substantial
Securityholder pursuant to paragraph (b) of this Section 2, the relevant class
of securities outstanding shall be deemed to comprise all such securities deemed
owned through application of paragraph (c) of this Section 2, but shall not
include other securities of such class which may be issuable pursuant to any
agreement, arrangement or understanding, or upon exercise of conversion rights,
warrants or options, or otherwise.
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<PAGE>
(e) "Affiliate" or "Associate" shall have the respective meanings
ascribed to such terms in Rule 12b-2 of the General Rules and Regulations
under the Securities Exchange Act of 1934, as in effect on December 31,
1996.
(f) "Equity Security" shall have the meaning ascribed to such term in
Section 3(a)(11) of the Securities Exchange Act of 1934, as in effect on
December 31, 1996.
ARTICLE X
Acquisition of Stock
Notwithstanding anything contained in this Certificate of Incorporation to
the contrary:
SECTION 1. Restriction. No person shall directly or indirectly offer to
-----------
acquire or acquire the beneficial ownership of more than 10% of any class of any
equity security of the Corporation. This limitation shall not apply to Harbor
Financial, M.H.C., any tax qualified employee stock benefit plan of the
Corporation, or to any transaction in which Harbor Financial, M.H.C. converts
from the mutual form of organization to the stock form of organization.
In the event shares are acquired in violation of this Article X, all shares
beneficially owned by any person in excess of 10% shall be considered "excess
shares" and shall not be counted as shares entitled to vote and shall not be
voted by any person or counted as voting shares in connection with any matters
submitted to the stockholders for a vote.
SECTION 2. Certain Definitions. For the purposes of this Article X, the
-------------------
following definitions apply:
(a) The term "person" includes an individual, a group acting in
concert, a corporation, a partnership, an association, a joint stock
company, a trust, and any unincorporated organization or similar
company, a syndicate or any other group formed for the purpose of
acquiring, holding or disposing of securities of the Corporation.
(b) The term "offer" includes every offer to buy or otherwise
acquire, solicitation of an offer to sell, tender offer for, or
request or invitation for tenders of, a security or interest in a
security for value.
(c) The term "acquire" includes every type of acquisition,
whether effected by purchase, exchange, operation of law or otherwise.
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(d) The term "acting in concert" means (i) knowing participation
in a joint activity or conscious parallel action towards a common goal
whether or not pursuant to an express agreement, or (ii) a combination
or pooling of voting or other interests in the securities of an issuer
or a common purpose pursuant to any contract, understanding,
relationship, agreement or other arrangement, whether written or
otherwise.
ARTICLE XI
Director Liability
No Director of officer acting in the capacity of a Director or performing
duties as Director shall be personally liable to the Corporation or any
stockholder for monetary damages for a breach of fiduciary duty as a Director,
except for any matter in respect of which such Director or officer acting as a
Director shall be liable under Section 174 of Title 8 of the Delaware Code
(relating to the Delaware Corporation Law) or any amendment thereto or successor
provision thereto or shall be liable by reason that, in addition to any and all
other requirements for such liability, he (i) shall have breached his duty of
loyalty to the Corporation or its stockholders, (ii) shall not have acted in
good faith or, in failing to act, shall not have acted in good faith, (iii)
shall have acted in a manner involving intentional misconduct or a knowing
violation of law or, in failing to act, shall have acted in a manner involving
intentional misconduct or a knowing violation of law or (iv) shall have derived
an improper personal benefit. Neither the Amendment nor repeal of this Article,
nor the adoption of any provision of the Certificate of Incorporation
inconsistent with this Article, shall eliminate or reduce the effect of this
Article in respect of any matter occurring, or any cause of action, suit or
claim, that, but for this Article, would accrue or arise, prior to such
amendment, repeal or adoption of an inconsistent provision.
ARTICLE XII
Amendments to Certificate of Incorporation
Notwithstanding any other provisions of this Certificate of Incorporation
or the Bylaws of the Corporation (and notwithstanding the fact that a lesser
percentage may be specified by law, this Certificate of Incorporation or the
Bylaws of the Corporation), the affirmative vote of the holders of at least two-
thirds of all votes entitled to be cast in the election of Directors, voting
together as a single class, shall be required to amend or repeal, or adopt any
provisions inconsistent with, Articles V, VI, VII, VIII, IX or this Article XII
of this Certificate of Incorporation.
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ARTICLE XIII
Certain Business Combinations
SECTION 1. Vote Required for Certain Business Combinations.
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(a) Higher Vote for Certain Business Combinations. Unless
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otherwise required by law, in addition to any affirmative vote required by
law or this Certificate of Incorporation or the Bylaws of the Corporation,
and except as otherwise expressly provided in Section 2 of this Article
XIII, a Business Combination with, or proposed by or on behalf of, any
Interested Stockholder or any Affiliate or Associate of any Interested
Stockholder or any person who after such Business Combination would be an
Affiliate or Associate of such Interested Stockholder, shall require the
approval of the Board of Directors and the affirmative vote of the holders
of at least 66-2/3% of the voting power of the then outstanding Voting
Stock which is not owned by the Interested Stockholder or any Affiliate or
Associate of such Interested Stockholder. Such affirmative vote shall be
required notwithstanding the fact that no vote may be required, or that a
lesser percentage may be specified, by law or in any agreement with any
national securities exchange or otherwise.
(b) Definition of "Business Combination". The term "Business
------------------------------------
Combination" as used in this Article XIII shall mean:
(i) any merger, consolidation or share exchange of the
Corporation or any Subsidiary with (A) any Interested Stockholder
or (B) any other corporation (whether or not itself an Interested
Stockholder) which is, or after such merger or consolidation
would be, an Affiliate or Associate of an Interested Stockholder;
(ii) any sale, lease, exchange, mortgage, pledge, transfer
or other disposition (in one transaction or a series of
transactions), except proportionately as a stockholder of such
corporation, to or with any Interested Stockholder or any
Affiliate or Associate of any Interested Stockholder of any
assets of the Corporation or any Subsidiary having an aggregate
Market Value equal to 10% or more of either the aggregate market
value of all the assets of the Corporation determined on a
consolidated basis or the aggregate market value of all of the
outstanding stock of the Corporation;
(iii) any transaction which results in the issuance or
transfer by the Corporation or any Subsidiary (in one transaction
or a series of transactions) of any securities of the Corporation
or any Subsidiary to any Interested Stockholder or any Affiliate
or Associate of any Interested Stockholder except (A) pursuant to
the exercise, exchange or conversion
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of securities exercisable for, exchangeable for or convertible
into stock of the Corporation or any Subsidiary which securities
were outstanding prior to the time the Interested Stockholder
became such, (B) pursuant to a dividend or distribution paid or
made, or the exercise, exchange or conversion of securities
exercisable for, exchangeable for or convertible into stock of
the Corporation or any Subsidiary which security is distributed
pro rata to all holders of a class or series of stock of the
Corporation subsequent to the time the Interested Stockholder
became such, (C) pursuant to an exchange offer by the Corporation
to purchase stock made on the same terms to all holders of such
stock or (D) any issuance or transfer of stock by the
Corporation, provided, however, that in no case under (B) through
(D) above shall there be an increase in the Interested
Stockholder's proportionate share of the stock of any class or
series of the Corporation or of the Voting Stock of the
Corporation;
(iv) the adoption of any plan or proposal for the
liquidation or dissolution of the Corporation or any Subsidiary
proposed by or on behalf of an Interested Stockholder or any
Affiliate or Associate of any Interested Stockholder; or
(v) any reclassification of securities (including any
reverse stock split), or recapitalization of the Corporation, or
any merger, consolidation or share exchange of the Corporation
with any of its Subsidiaries or any other transaction (whether or
not with or into or otherwise involving an Interested
Stockholder) which in any such case has the effect, directly or
indirectly, of increasing the proportionate share of the
outstanding shares of any class of equity or convertible
securities of the Corporation or any Subsidiary which is directly
or indirectly owned by any Interested Stockholder or any
Affiliate or Associate of any Interested Stockholder;
(vi) any transaction involving the Corporation or any
Subsidiary which has the effect, directly or indirectly, of
increasing the proportionate share of the stock of any class or
securities convertible into the stock of any class or series
owned by the Interested Stockholder of the Corporation or of any
Subsidiary, except as a result of immaterial changes due to
fractional share adjustments or as a result of any purchase or
redemption of any shares of stock not caused, directly or
indirectly, by the Interested Stockholder; or
(vii) any receipt by the Interested Stockholder of the
benefit, directly or indirectly (except proportionately as a
stockholder of such corporation) of any loans, advances,
guarantees, pledges, or other financial benefits (other than
those expressly permitted in subparagraphs
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(i)-(vi) above) provided by or through the Corporation or any
Subsidiary.
SECTION 2. When Higher Vote is Not Required. The provisions of Section
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1 of this Article XIII shall not be applicable to any particular Business
Combination, and such Business Combination shall require only such affirmative
vote as is required by law and any other provisions of this Certificate of
Incorporation or the bylaws of the Corporation, if all of the conditions
specified in either the following paragraphs (a) or (b) are met:
(a) Approval by Disinterested Directors. The Business
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Combination shall have been approved by a majority of the
Disinterested Directors.
(b) Price and Procedure Requirements. All of the following
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conditions shall have been met:
(1) Minimum Price Requirements. With respect to every
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class or series of Voting Stock of the Corporation, whether or
not the Interested Stockholder has previously acquired beneficial
ownership of any shares of such class or series of Voting Stock:
(i) The aggregate amount of the cash and the Fair
Market Value as of the date of the consummation of the
Business Combination of consideration other than cash to be
received per share by holders of Common Stock in such
Business Combination shall be at least equal to the higher
of the following:
(A) (if applicable) the highest per share price
(including any brokerage commissions, transfer taxes
and soliciting dealers' fees) paid by or on behalf of
the Interested Stockholder for any share of Common
Stock in connection with the acquisition by the
Interested Stockholder of beneficial ownership of
shares of Common Stock (1) within the two-year period
immediately prior to the first public announcement of
the proposal of the Business Combination (the
"Announcement Date"), or (2) in the transaction or
series of related transactions in which it became an
Interested Stockholder, whichever is higher, in either
case as adjusted for any subsequent stock split, stock
dividend, subdivision or reclassification with respect
to Common Stock; and
(B) the Fair Market Value per share of Common
Stock on the Announcement Date or on the date on which
the Interested
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Stockholder became an Interested Stockholder (such
latter date is referred to in this Article XIII as the
"Determination Date"), whichever is higher, as adjusted
for any subsequent stock split, stock dividend,
subdivision or reclassification with respect to Common
Stock.
(ii) The aggregate amount of the cash and the Fair
Market Value as of the date of the consummation of the
Business Combination of consideration other than cash to be
received per share by holders of shares of any other class
or series of outstanding Voting Stock shall be at least
equal to the highest of the following (it being intended
that the requirements of this paragraph (b)(ii) shall be
required to be met with respect to every class or series of
outstanding Voting Stock, whether or not the Interested
Stockholder has previously acquired any shares of a
particular class or series of Voting Stock):
(A) (if applicable) the highest per share price
(including any brokerage commissions, transfer taxes
and soliciting dealers' fees) paid by or on behalf of
the Interested Stockholder for any shares of such class
or series of Voting Stock in connection with the
acquisition by the Interested Stockholder of beneficial
ownership of such shares (1) within the two-year period
immediately prior to the Announcement Date, or (2) in
the transaction in which it became an Interested
Stockholder, whichever is higher, in either case as
adjusted for any subsequent stock split, stock
dividend, subdivision or reclassification with respect
to such class or series of Voting Stock;
(B) (if applicable) the highest preferential
amount per share to which the holders of shares of such
class or series of Voting Stock are entitled in the
event of any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation; and
(C) the Fair Market Value per share of such class
or series of Voting Stock on the Announcement Date or
on the Determination Date, whichever is higher, in
either case as adjusted for any subsequent stock split,
stock dividend, subdivision or reclassification with
respect to such class or series of Voting Stock.
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(2) Other Requirements.
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(i) The consideration to be received by holders of a
particular class or series of outstanding Voting Stock (including
Common Stock) shall be in cash or in the same form as the
Interested Stockholder has previously paid for shares of such
class or series of Voting Stock. If the Interested Stockholder
has paid for shares of any class or series of Voting Stock with
varying forms of consideration, the form of consideration for
such class or series of Voting Stock shall be either cash or the
form used to acquire the largest number of shares of such class
or series of Voting Stock previously acquired by it.
(ii) After such Interested Stockholder has become an
Interested Stockholder and prior to the consummation of such
Business Combination: (A) except as approved by a majority of the
Disinterested Directors, there shall have been no failure to
declare and pay at the regular date therefor any full periodic
dividends (whether or not cumulative) on any outstanding
Preferred Stock; (B) there shall have been (1) no reduction in
the annual rate of dividends paid on the Common Stock (except as
necessary to reflect any subdivision of the Common Stock), except
as approved by a majority of the Disinterested Directors, and (2)
an increase in such annual rate of dividends as necessary to
reflect any reclassification (including any reverse stock split),
recapitalization, reorganization or any similar transaction which
has the effect of reducing the number of outstanding shares of
the Common Stock, unless the failure so to increase such annual
rate is approved by a majority of the Disinterested Directors;
and (C) such Interested Stockholder shall have not become the
beneficial owner of any additional shares of Voting Stock except
as part of the transaction which results in such Interested
Stockholder becoming an Interested Stockholder or by virtue of
proportionate stock splits or stock dividends.
(iii) After such Interested Stockholder has become an
Interested Stockholder, such Interested Stockholder shall not
have received the benefit, directly or indirectly (except
proportionately as a stockholder), of any loans, advances,
guarantees, pledges or other financial assistance or any tax
credits or other tax advantages provided by the Corporation or
any Subsidiary, whether in anticipation of or in connection with
such Business Combination or otherwise.
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(iv) A proxy or information statement describing the
proposed Business Combination and complying with the
requirements of the Securities Exchange Act of 1934 and the
rules and regulations thereunder (or any subsequent
provisions replacing such Act, rules or regulations) shall
be mailed to the stockholders of the Corporation at least 30
days prior to the consummation of such Business Combination
(whether or not such proxy or information statement is
required to be mailed pursuant to such Act or subsequent
provisions).
(v) After such Interested Stockholder has become an
Interested Stockholder, such Interested Stockholder shall
not have made any major change in the Corporation's business
or capital structure without the approval of a majority of
the Disinterested Directors.
SECTION 3. Certain Definitions. For the purpose of this Article XIII:
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(a) A "person" shall mean any individual or firm, corporation,
partnership, limited partnership, joint venture, trust, unincorporated
association, government or any political subdivision or agency or
instrumentality of a government or other entity and shall include any
group comprised of any person and any other person with whom such
person or any Affiliate or Associate of such person has any agreement,
arrangement or understanding, directly or indirectly, for the purpose
of acquiring, holding, voting or disposing of Voting Stock.
(b) "Interested Stockholder" shall mean any person (other than
the Corporation, any Subsidiary or Harbor Financial, M.H.C.) who or
which:
(i) is the beneficial owner, directly or
indirectly, of Voting Stock entitled to cast more than 15%
of the votes in the election of Directors; is an Affiliate
or Associate of the Corporation and at any time within the
two-year period immediately prior to the date in question
was the beneficial owner, directly or indirectly, of 15%
or more of the combined voting power of the then
outstanding Voting Stock; or
(ii) is an assignee of or has otherwise succeeded
to any shares of Voting Stock which were at any time
within the two-year period immediately prior to the date
in question beneficially owned by any Interested
Stockholder, if such assignment or succession shall have
occurred in the course of a transaction or
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series of transactions not involving a public offering within the
meaning of the Securities Act of 1933.
(c) A person shall be a "beneficial owner" of any Voting Stock:
(i) which such person or any of its Affiliates or
Associates beneficially owns, directly or indirectly;
(ii) which such person or any of its Affiliates or
Associates has (A) the right to acquire (whether such right is
exercisable immediately or only after the passage of time),
pursuant to any agreement, arrangement or understanding or upon
the exercise of conversion rights, exchange rights, warrants or
options, or otherwise, or (B) the right to vote or direct the
voting pursuant to any agreement, arrangement or understanding,
or (C) the right to dispose of or direct the disposition of
pursuant to any agreement, arrangement or understanding; or
(iii) which is beneficially owned, directly or indirectly,
by any other person with which such person or any of its
Affiliates or Associates has any agreement, arrangement or
understanding for the purpose of acquiring, holding, voting or
disposing of any shares of Voting Stock.
(d) For the purpose of determining whether a person is an Interested
Stockholder pursuant to paragraph (b) of this Section 3, the number of
shares of Voting Stock deemed to be outstanding shall include shares deemed
owned through application of paragraph (c) of this Section 3 but shall not
include any other shares of Voting Stock which may be issuable pursuant to
any agreement, arrangement or understanding, or upon exercise of conversion
rights, warrants or options, or otherwise.
(e) "Affiliate" or "Associate" shall have the respective meanings
ascribed to such terms in Rule 12b-2 of the General Rules and Regulations
under the Securities Exchange Act of 1934, as in effect on December 31,
1996, except that the Corporation or any Subsidiary shall not be deemed to
be an Affiliate or an Associate of any Interested Stockholder.
(f) "Subsidiary" means any corporation of which a majority of any
class of equity security is owned, directly or indirectly, by the
Corporation; provided, however, that for the purposes of the definition of
Interested Stockholder set forth in paragraph (b) of this Section 3, the
term "Subsidiary" shall mean only a corporation of which a majority of each
class of equity security is owned, directly or indirectly, by the
Corporation.
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(g) "Disinterested Director" means any member of the Board of
Directors of the Corporation who is unaffiliated with the Interested
Stockholder and was a member of the Board of Directors prior to the
time that the Interested Stockholder became an Interested Stockholder,
and any successor of a Disinterested Director who is not an Affiliate
of the Interested Stockholder and is recommended to succeed a
Disinterested Director by a majority of Disinterested Directors then
serving on the Board of Directors.
(h) "Fair Market Value" means: (i) in the case of stock, the
highest closing sale price during the 30-day period immediately
preceding the date in question of a share of such stock on the
Composite Tape for New York Stock Exchange-Listed Stocks, or, if such
stock is not quoted on the Composite Tape, on such exchange, or, if
such stock is not listed on such exchange, on the principal United
States securities exchange registered under the Securities Exchange
Act of 1934 on which such stock is listed, or, if such stock is not
listed on such exchange, on the National Association of Securities
Dealers, Inc. Automated Quotations System ("NASDAQ") National Market
("NMS"), or if such stock is not included on NASDAQ-NMS, the highest
closing bid quotation with respect to a share of such stock during the
30-day period preceding the date in question on the NASDAQ or any
system then in use, or if no such quotations are available, the fair
market value on the date in question of a share of such stock as
determined by the Board of Directors in good faith; and (ii) in the
case of property other than cash or stock, the fair market value of
such property on the date in question as determined by the Board of
Directors in good faith.
(i) In the event of any Business Combination in which
the Corporation survives, the phrase "consideration other than
cash to be received" as used in paragraphs (b)(1)(i) and (ii)
of Section 2 of this Article XIII shall include the shares of
Common Stock and/or the shares of any other class or series of
outstanding Voting Stock retained by the holders of such
shares.
(ii) "Voting Stock" means the then outstanding shares
of capital stock of the Corporation entitled to vote generally
in the election of Directors.
SECTION 4. Powers of the Board of Directors. A majority of the Directors
--------------------------------
of the Corporation shall have the power and duty to determine for the purposes
of this Article XIII, on the basis of information known to them after reasonable
inquiry (a) whether a person is an Interested Stockholder, (b) the number of
shares of Voting Stock beneficially owned by any persons, (c) whether a person
is an Affiliate or Associate of another, and (d) whether the requirements of
Section 2(b) have been met.
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SECTION 5. No Effect on Fiduciary Obligations of Interested Stockholders.
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Nothing contained in this Article XIII shall be construed to relieve any
Interested Stockholder from any fiduciary obligation imposed by law.
SECTION 6. Amendment, Repeal, Etc. Notwithstanding any other provision of
-----------------
this Certificate of Incorporation or the bylaws of the Corporation (and
notwithstanding the fact that a lesser percentage or separate class vote may be
specified by law, this Certificate of Incorporation or the bylaws of the
Corporation), any proposal to amend or repeal this Article XIII or adopt any
provision of this Certificate of Incorporation inconsistent with it which is
proposed by or on behalf of an Interested Stockholder or any Affiliate or
Associate of such Interested Stockholder shall require the affirmative vote of
the holders of at least 66-2/3% of the Voting Stock entitled to be cast at the
election of Directors, excluding Voting Stock beneficially owned by such
Interested Stockholder, unless such amendment, repeal or adoption is declared
advisable by the affirmative vote of two thirds of the entire Board of Directors
and a majority of the Disinterested Directors.
ARTICLE XIV
Indemnification
Indemnification shall be provided for to the fullest extent authorized in
the Bylaws. Any repeal or amendment of this Article XIV shall not effect
indemnification provided under this Article with respect to any state of facts
existing at or before the time of such amendment and any proceeding, whenever
brought, based in whole or in part upon any such state of facts.
ARTICLE XV
Incorporator
The name and mailing address of the incorporator of the Corporation is
Anthony Johnson, Corporation Service Company, 1090 Vermont Avenue, N.W.
Washington D.C. 20005.
The undersigned being the sole incorporator hereinbefore named, for the
purpose of forming a corporation pursuant to the General Corporation Law of the
State of Delaware, makes this certificate, hereby declaring and certifying that
this is my act and deed and the facts herein stated are true, and accordingly
have hereunto set my hand this 10th day of December, 1996.
/s/
____________________________________
Anthony Johnson, Incorporator
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EXHIBIT C
BYLAWS
OF
HARBOR FLORIDA BANCORP, INC.
ARTICLE I
Name
SECTION 1. Annual Meeting of Stockholders.
(a) The annual meeting of stockholders of the Corporation, for the
purpose of electing Directors and of transacting such other business as may
properly come before the meeting, shall be held on such date, at such place and
such time as shall be designated by the Board of Directors.
(b) To be properly brought before an annual meeting, business must
be either (i) specified in the notice of meeting (or any supplement thereto)
given by or at the direction of the Board of Directors, (ii) otherwise properly
brought before the meeting by or at the direction of the Board of Directors, or
(iii) otherwise properly brought before the meeting by a stockholder.
(c) In addition to any other applicable requirements, for business
to be properly brought before an annual meeting by a stockholder, the
stockholder must have given timely notice thereof in writing to the Secretary of
the Corporation. To be timely, a stockholder's notice must be delivered to or
mailed and received at the principal executive office of the Corporation, not
later than 120 days prior to the anniversary date of the immediately preceding
annual meeting. A stockholder's notice to the Secretary shall set forth as to
each matter the stockholder proposes to bring before the annual meeting (i) a
brief description of the business desired to be brought before the annual
meeting and the reasons for conducting such business at the annual meeting, (ii)
the name and record address of the Stockholder proposing such business, (iii)
the class and number of shares of the Corporation which are beneficially owned
by the stockholder, and (iv) any material interest of the stockholder in such
business.
(d) Notwithstanding anything in these Bylaws to the contrary, no
business shall be conducted at the annual meeting except in accordance with the
procedures set forth in this Article I, provided, however, that nothing in this
Article I shall be deemed to preclude discussion by any stockholder of any
business properly brought before the annual meeting.
(e) The Chairman of an annual meeting shall, if the facts warrant,
determine and declare to the meeting that business was not properly brought
before the meeting in
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accordance with the provisions of this Article 1, and if he should so determine,
he shall so declare to the meeting and any such business not properly brought
before the meeting shall not be transacted.
SECTION 2. Special Meetings of Stockholders.
Subject to the rights of the holders of any class or series of stock having
a preference over the Common Stock as to dividends or upon liquidation, special
meetings of the stockholders for any purpose may be called only by a majority of
the entire Board of Directors.
SECTION 3. Notice of Meeting.
The Secretary shall cause written notice of the time, place and purposes of
each meeting to be mailed, or delivered personally, not less than 10 nor more
than 60 days before the date of the meeting, to each stockholder of record
entitled to vote at the meeting.
Attendance of a person at a meeting of stockholders, in person or by proxy,
constitutes a waiver of notice of the meeting, except when the stockholder
attends a meeting for the express purpose of objecting, at the beginning of the
meeting, to the transaction of any business because the meeting is not lawfully
called or convened.
SECTION 4. Quorum.
At any meeting of stockholders the holders of a majority of the shares of
the capital stock of the Corporation issued and outstanding and entitled to
vote, present in person or represented by proxy, shall constitute a quorum of
the stockholders for all purposes unless a greater or lesser quorum shall be
provided by law or by the Certificate of Incorporation and in such case the
representation of the number so required shall constitute a quorum. The
stockholders present in person or by proxy at a meeting at which a quorum is
present may continue to do business until adjournment, notwithstanding
withdrawal of enough stockholders to leave less than a quorum.
Whether or not a quorum is present, the meeting may be adjourned from time
to time by a vote of the shares present. At any such adjourned meeting, at which
a quorum shall be present, any business may be transacted which might have been
transacted at the meeting if held at the time specified in the notice thereof.
SECTION 5. Organization.
The Chairman of the Board of Directors, the Vice Chairman of the Board of
Directors, the President, Senior Vice President or Vice President as the
Chairman of the Board of Directors may designate, shall act as Chairman of
meetings of the stockholders. The Board of Directors or the stockholders may
appoint any stockholder to act as Chairman of any meeting
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in the absence of the Chairman of the Board of Directors, the Vice Chairman of
the Board of Directors, the President, Senior Vice President or Vice President.
The Secretary of the Corporation shall act as Secretary at all meetings of
the stockholders; but in the absence of the Secretary, the Chairman of the
meeting may appoint any person to act as Secretary of the meeting.
SECTION 6. Voting.
Each holder of Common Stock and any series of Preferred Stock having voting
rights shall be entitled to one vote for each share of Common Stock or such
Preferred Stock held of record on all matters on which stockholders generally
are entitled to vote.
Directors shall be elected by ballot and upon demand of any stockholder the
vote upon any question before the meeting shall be by ballot.
Directors shall be elected by a plurality of the votes cast at an election.
All other action shall be authorized by a majority of the votes cast by the
holders of shares entitled to vote thereon, unless a greater vote is required by
law, by the Certificate of Incorporation or these Bylaws.
A stockholder entitled to vote at a meeting of stockholders may authorize
another person to act for him by written proxy.
SECTION 7. Inspectors of Elections.
The Board of Directors or Chairman of the meeting of stockholders shall
appoint one or more inspectors to count and tabulate the votes and to perform
such other acts or duties as may be required by the Chairman or required by law.
On request of the Chairman of the meeting, or as otherwise required by law, the
inspectors shall make and execute a written report to the Chairman of the
meeting of any facts found by them and matters determined by them. The report is
prima facie evidence of the facts stated and of the vote certified by the
inspectors.
ARTICLE II
Directors
SECTION 1. Number.
The business and affairs of the Corporation shall be managed under the
direction of the Board of Directors which, subject to any right of the holders
of any series of Preferred Stock then outstanding to elect additional directors
under specified circumstances, shall consist of not
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less than five nor more than 15 persons. The exact number of directors within
the minimum and maximum limitations specified in the preceding sentence shall be
fixed from time to time by the Board of Directors pursuant to a resolution
adopted by a majority of the entire Board of Directors.
SECTION 2. Terms.
The Directors shall be divided into such classes and shall have such terms
as are set forth in the Certificate of Incorporation.
SECTION 3. Newly Created Directorships and Vacancies.
Newly created Directorships and vacancies in the Board of Directors shall
be filled in the manner set forth in the Certificate of Incorporation.
SECTION 4. Removal.
Removal of Directors shall be effected in the manner set forth in the
Certificate of Incorporation.
SECTION 5. Nominations of Director Candidates.
(a) Nominations of candidates for election as Directors of the Corporation
at any meeting of stockholders called for election of Directors (an "Election
Meeting") may be made by the Board of Directors or by any stockholder entitled
to vote at such Election Meeting.
(b) Nominations made by the Board of Directors shall be made at a meeting
of the Board of Directors, or by written consent of Directors in lieu of a
meeting, not less than 20 days prior to the date of the Election Meeting, and
such nominations shall be reflected in the minute books of the Corporation as of
the date made. At the request of the Secretary of the Corporation each proposed
nominee shall provide the Corporation with such information concerning himself
as is required under the rules of the Securities and Exchange Commission, to be
included in the Corporation's proxy statement soliciting proxies for his
election as a Director.
(c) Not less than 90 days prior to the date of the Election Meeting in the
case of an annual meeting, and not more than seven days following the date of
notice of the meeting in the case of a special meeting, any stockholder who
intends to make a nomination at the Election Meeting shall deliver a notice to
the Secretary of the Corporation setting forth (i) the name, age, business
address and residence address of each nominee proposed in such notice, (ii) the
principal occupation or employment of each such nominee, (iii) the number of
shares of capital stock of the Corporation which are beneficially owned by each
such nominee, (iv) a statement that the nominee is willing to be nominated, (v)
a representation that the stockholder is a holder of record of the capital stock
of the Corporation entitled to vote at such meeting
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and intends to appear in person or by proxy at the meeting to nominate the
person or persons specified in the notice, (vi) a description of all
arrangements or understandings between the stockholder and each nominee and any
other person or persons (naming such person or persons) pursuant to which the
nomination or nominations are to be made by the stockholder, and (vii) such
other information concerning each such nominee as would be required, under the
rules of the Securities and Exchange Commission, in a proxy statement soliciting
proxies for the election of such nominees. The presiding officer of the meeting
may refuse to acknowledge the nomination by a stockholder of any person not made
in compliance with the foregoing procedures.
(d) In the event that a person is validly designated as a nominee in
accordance with paragraph (b) or paragraph (c) hereof and shall thereafter
become unable or unwilling to stand for election to the Board of Directors, the
Board of Directors or the stockholder who proposed such nominee, as the case may
be, may designate a substitute nominee.
(e) If the Chairman of the Election Meeting determines that a nomination
was not made in accordance with the procedures as set forth in these Bylaws,
such nomination shall be void.
No person shall be elected a Director of the Corporation after having
attained the age of 70 years.
SECTION 6. Place and Manner of Meeting.
All meetings of the Board of Directors shall be held at the principal
office of the Corporation or at any other place within or without the State of
Delaware as the Board of Directors may from time to time fix therefor. Any
meeting of the Board of Directors, regular or special, may be held by conference
telephone or similar communication equipment so long as all Directors
participating in the meeting can hear one another, and all such Directors shall
be deemed to be present in person at the meeting.
SECTION 7. Regular Meetings.
A regular meeting of the Board of Directors, of which no notice shall be
required to be given, shall be held, if a quorum be present, in each and every
year immediately after the adjournment of the annual meeting of stockholders for
the purpose of electing officers and transacting such other business as might be
transacted at any regular meeting of the Board of Directors. Regular meetings of
the Board of Directors, of which no notice shall be required to be given, shall
be held quarterly in accordance with a schedule established by the Board of
Directors from time to time, except that the scheduled date of any meeting may
be changed by the Chairman of the Board or the President, in the discretion of
either, provided that notice of such change shall be given to all Directors
personally or by mail, telephone or telegraph at least 24 hours prior to such
scheduled date upon which such meeting is to be held.
C-5
<PAGE>
SECTION 8. Special Meetings.
Special meetings of the Board of Directors shall be called by the Secretary
at the direction of the Chairman of the Board, the President, or a majority of
the Directors. Notice of the time and place of any special meeting of the Board
of Directors shall be given by serving the same personally or by telephone or by
telegram addressed to each Director at his post office address as the same shall
appear on the books of the Corporation at least two hours before such meeting.
Each member of the Board of Directors shall, by writing filed with the
Secretary, designate his post office address to which notices or meetings of the
Board of Directors of the Corporation shall be directed, and in the event of any
change therein shall likewise designate his new post office address.
SECTION 9. Quorum.
A majority of the members of the Board of Directors then in office, or of a
committee thereof, shall constitute a quorum for the transaction of business,
and the vote of a majority of the members present at a meeting at which a quorum
is present shall be the act of the Board of Directors or of the Committee
thereof, except for the amendment of the Bylaws which shall require a vote of
not less than a majority of the members of the Board of Directors then in
office.
SECTION 10. Action Without a-Meeting.
Action required or permitted to be taken at a meeting of the Board of
Directors, or a committee thereof, may be taken without a meeting, if all
members of the Board of Directors or of the committee consent thereto in
writing. The written consent shall be filed with the minutes of the proceedings
of the Board of Directors or Committee. The consent shall have the same effect
as a vote of the Board of Directors or Committee thereof for all purposes.
SECTION 11. Organization.
At all meetings of the Board of Directors, the Chairman of the Board of
Directors, the Vice Chairman of the Board of Directors, the President, a Senior
Vice President or a Vice President or in their absence a member of the Board to
be selected by the members present, shall preside as Chairman of the meeting.
The Secretary or an Assistant Secretary of the Corporation shall act as
secretary of all meetings of the Board, except that in their absence the
Chairman of the meeting may designate any other person to act as secretary.
At meetings of the Board of Directors business shall be transacted in such
order as from time to time the Board may determine.
C-6
<PAGE>
SECTION 12. Committees of the Board.
The Board of Directors may designate one or more Committees, including an
Executive Committee, each consisting of one or more Directors of the Corporation
as members with such power and authority as prescribed by the Bylaws or as
provided in a resolution of the Board of Directors. Each Committee, and each
member thereof, shall serve at the pleasure of the Board of Directors.
ARTICLE III
Officers
SECTION 1. Officers.
The officers of the Corporation shall be a President, one or more Senior
Vice Presidents, one or more Vice Presidents, a Secretary, a Treasurer and/or a
Controller, and such additional officers, if any, as shall be elected by the
Board of Directors in accordance with these Bylaws. The Board of Directors,
immediately after each annual meeting of stockholders, shall select a President
and one or more Senior Vice Presidents and Vice Presidents, and a Secretary, a
Treasurer and/or a Controller. The failure to hold such election shall not of
itself terminate the term of office of any officer. All officers shall hold
office at the pleasure of the Board of Directors. Any officer may resign at any
time upon written notice to the Corporation. Officers may, but need not, be
Directors. Any two or more of the above offices may be held by the same persons
except as prohibited by law, but no officer shall execute, acknowledge or verify
an instrument in more than one capacity if the instrument is required by law to
be acknowledged or verified by two or more officers.
All officers shall be subject to removal with or without cause at any time
by the affirmative vote of a majority of the members of the Board of Directors
then in office. The removal of an officer without cause shall be without
prejudice to his contract rights, if any. The election or appointment of an
officer shall not of itself create contract rights. All agents and employees
other than officers elected by the Board of Directors shall also be subject to
removal, with or without cause, at any time by the officers appointing them.
Any vacancy caused by the death of any officer, his resignation, his
removal or otherwise, may be filled by the Board of Directors, and any officer
so elected shall hold office at the pleasure of the Board of Directors.
In addition to the powers and duties of the officers of the Corporation as
set forth in these Bylaws, the officers shall have such authority and shall
perform such duties as from time to time may be determined by the Board of
Directors.
C-7
<PAGE>
SECTION 2. President.
The President shall be the chief executive officer of the Corporation and,
subject to the direction of the Board of Directors, shall have general
management and control of the affairs and business of the Corporation and shall
have general charge, control and supervision over the administration and
operations of the Corporation. He shall have all other powers and perform all
other duties commonly incident to his office or delegated to him by the Board of
Directors or which are or may at any time be authorized or required by law.
SECTION 3. Vice Presidents.
Each Senior Vice President and each of the other Vice Presidents shall have
such powers and perform such duties as may be assigned to him by the Board of
Directors or be delegated to him by the Board of Directors or the President. In
case of death, disability or absence of the President, the powers, duties and
functions of the President shall be temporarily performed and exercised by such
one of the Senior Vice Presidents or the Vice Presidents as shall be designated
by the Board of Directors.
SECTION 4. Secretary.
The Secretary shall keep the minutes of all meetings of the stockholders
and of the Board of Directors, and also (unless otherwise directed) the minutes
of all meetings of Committees. He shall procure and keep in his files copies of
the minutes of all meetings of stockholders and Boards of Directors of all
corporations which the Corporation controls by ownership of stock or otherwise.
He shall attend to the giving and serving of all notices and shall be custodian
of the seal of the Corporation. He may sign with the President or a Vice
President, in the name of the Corporation, all bonds, contracts and instruments
of conveyance authorized by the Board of Directors, and when so ordered by the
Board of Directors he shall affix the seal of the Corporation thereto. He
shall have charge of all such books and papers as the Board of Directors may
direct; all of which shall at all reasonable times be open to the examination of
any Director upon application at the office of the Corporation during business
hours. He shall publish promptly to stockholders any action in respect to
dividends or the allotment of rights for subscription to securities. He or the
Treasurer shall have charge of the capital stock transfer records, ledgers and
unissued and cancelled certificates and shall prepare and certify for use at the
annual meeting of stockholders a list, alphabetically arranged, of the
stockholders entitled to vote at such meeting. He shall, in general, perform all
the duties incident to the office of the Secretary and shall also have such
other powers and shall perform such other duties as may from time to time be
assigned to him by these Bylaws, the Board of Directors or the President.
SECTION 5. Powers and Duties of the Treasurer.
The Treasurer shall have custody of all funds of the Corporation. He is
authorized and empowered to receive and collect all monies due to the
Corporation and to receipt therefor.
C-8
<PAGE>
All monies received by the Treasurer shall be deposited to the credit of the
Corporation with such depositories as may be designated by the Board of
Directors; he may endorse for deposit therein, or for collection, all checks,
drafts, vouchers, notes or other obligations drawn to the order of the
Corporation or payable to it. He is authorized to pay, by check or otherwise,
vouchers, payrolls, drafts and other accounts payable when approved for payment
by the Controller or such person or persons as may be designated by the Board of
Directors or the President. He is authorized to make disbursements which have
been otherwise ordered or provided for by the Board of Directors, and for
dividends on stock when due and payable. He is also authorized to draw checks
against any funds to the credit of the Corporation with any of its depositories;
but all checks drawn by him except as otherwise provided for by resolution of
the Board of Directors shall be countersigned by such person or persons as may
be designated by the Board of Directors or the President from time to time to
countersign the same. He shall sign, with the President or such other person or
persons as may be designated for the purpose by the Board of Directors, all
bills of exchange and promissory notes of the Corporation. He shall enter
regularly in the books of the Corporation, to be kept by him for that purpose, a
full and accurate account of all monies received and paid by him on account of
the Corporation; and shall render reports thereof to the Controller or such
other person as may be designated for the purpose by the Board of Directors at
such times and in such form as the latter may prescribe. Whenever required by
the Board of Directors or such other person or persons as may be designated for
the purpose by the Board of Directors he shall render a statement of his cash
and security accounts, and shall at all reasonable times exhibit his books and
accounts to any director of the Corporation upon application at the office of
the Corporation during business hours. He shall perform all acts incident to the
position of the Treasurer and shall also have such other powers and shall
perform such other duties as may from time to time be assigned to him by these
Bylaws, the Board of Directors, the President or such other person or persons as
may be designated for the purpose by the Board of Directors.
SECTION 6. Additional Officers.
The Board of Directors may from time to time elect such other officers
(who may but need not be Directors), including but not limited to a Controller,
Assistant Treasurers, Assistant Secretaries and Assistant Controllers, as the
Board may deem advisable and such officers shall have such authority and shall
perform such duties as may from time to time be assigned to them by the Board of
Directors or the President.
The Board of Directors may from time to time by resolution delegate to any
Assistant Treasurer or Assistant Treasurers any of the powers or duties herein
assigned to the Treasurer; and may similarly delegate to any Assistant Secretary
or Assistant Secretaries any of the powers or duties herein assigned to the
Secretary.
C-9
<PAGE>
ARTICLE IV
Capital Stock
SECTION 1. Certificates of Stock.
The certificates for shares of the capital stock of the Corporation shall
be in such form as shall be approved by the Board of Directors. The certificates
shall be signed by the President or any Vice President and also by the Treasurer
or the Secretary, and may be sealed with the seal of the Corporation, or a
facsimile thereof.
The signatures of the aforesaid officers may be facsimiles if the
certificate is countersigned by a transfer agent or registered by a registrar
other than the Corporation or its employee. The validity of any stock
certificate of the Corporation signed and executed by or in the name of duly
qualified officers of the Corporation shall not be affected by the subsequent
death, resignation, or the ceasing for any other reason of any such officer to
hold such office, whether before or after the date borne by or the actual
delivery of such certificates.
All certificates for shares of stock shall be consecutively numbered as the
same are issued. The name of the person owning the shares represented thereby,
with the number of such shares and the date of issue, shall be entered on the
Corporation's capital stock records.
Except as hereinafter provided, all certificates surrendered to the
Corporation shall be cancelled, and no new certificates shall be issued until
the former certificate for the same number of shares shall have been surrendered
and cancelled except in case of a lost or destroyed certificate.
The Corporation may treat the holder of record of any share or shares of
stock as the holder in fact thereof, and shall not be bound to recognize any
equitable or other claim to or interest in any such share or shares on the part
of any other person, whether or not it shall have express or other notice
thereof, save as expressly provided by law.
SECTION 2. Lost Certificate.
The Corporation may issue a new certificate for shares in place of a
certificate theretofore issued by it, alleged to have been lost or destroyed,
and the Board of Directors may require the owner of the lost or destroyed
certificate, or his legal representative, to give the Corporation a bond in form
satisfactory to the Corporation sufficient to indemnify the Corporation, its
transfer agents and registrars against any claim that may be made against them
on account of the alleged lost or destroyed certificate or the issuance of such
a new certificate.
C-10
<PAGE>
SECTION 3. Transfer of Shares.
Shares of the capital stock of the Corporation shall be transferable by the
owner thereof in person or by a duly authorized attorney, upon surrender of the
certificates therefor properly endorsed. The Board of Directors, at its option,
may appoint a transfer agent and registrar, or one or more transfer agents and
one or more registrars, or either, for the stock of the Corporation.
SECTION 4. Regulations.
The Board of Directors shall have power and authority to make all such
rules and regulations as they may deem expedient concerning the issue, transfer
and registration of certificates for shares of the capital stock of the
Corporation.
SECTION 5. Record Date.
In order that the Corporation may determine the stockholders entitled to
notice of or to vote at any meeting of stockholders or any adjournment thereof,
or entitled to receive payment of any dividend or other distribution or
allotment of any rights, or entitled to exercise any rights in respect of any
change, conversion or exchange of stock or for the purpose of any other lawful
action, as the case may be, the Board of Directors may fix, in advance, a record
date, which shall not be more than sixty (60) nor less than ten (10) days before
the date of such meeting, nor more than sixty (60) days prior to any other
action.
If no record date is fixed, the record date for determining stockholders
entitled to notice of or to vote at a meeting of stockholders shall be at the
close of business on the day next preceding the day on which notice is given,
or, if notice is waived, at the close of business on the day next preceding the
day on which the meeting is held; and the record date for determining
stockholders for any other purpose shall be at the close of business on the day
on which the Board of Directors adopts the resolution relating thereto. A
determination of stockholders of record entitled to notice of or to vote at a
meeting of stockholders shall apply to any adjournment of the meeting; provided,
however, that the Board of Directors may fix a new record date for the adjourned
meeting.
SECTION 6. Dividends and Stock Repurchases.
Subject to the provisions of the Certificate of Incorporation, the Board of
Directors shall have the power to declare and pay dividends upon shares of, and
authorize repurchase programs for, stock of the Corporation, but only out of
funds available for the payment of dividends or repurchase of shares as provided
by law.
Subject to the provisions of the Certificate of Incorporation, any
dividends declared upon the stock of the Corporation shall be payable on such
date or dates as the Board of Directors shall determine. If the date fixed for
the payment of any dividend shall in any year
C-11
<PAGE>
fall upon a legal holiday, then the dividend payable on such date shall be paid
on the next day not a legal holiday.
SECTION 7. Corporate Seal.
The Board of Directors shall provide a suitable seal, containing the name
of the Corporation, which seal shall be kept in the custody of the Secretary. A
duplicate of the seal may be kept and be used by any officer of the Corporation
designated by the Board or the President.
SECTION 8. Fiscal Year.
The fiscal year of the Corporation shall end on September 30 or shall be
such other fiscal year as the Board of Directors from time-to time by resolution
shall determine.
ARTICLE V
Miscellaneous Provisions
SECTION 1. Checks, Notes, Etc.
All checks, drafts, bills of exchange, acceptances, notes or other
obligations or orders for the payment of money shall be signed by at least one
(1) officer of the Corporation, or by a greater number of officers of the
Corporation and/or other persons as the Board of Directors from time to time
shall designate or as otherwise required by law.
Checks, drafts, bills of exchange, acceptances, notes, obligations and
orders for the payment of money made payable to the Corporation may be endorsed
for deposit to the credit of the Corporation with a duly authorized depositary
by the Treasurer, or otherwise as the Board of Directors may from time to time,
by resolution, determine.
SECTION 2. Loans.
No loans and no renewals of any loans shall be contracted on behalf of the
Corporation except as authorized by the Board of Directors. When authorized so
to do, any officer or agent of the Corporation may effect loans and advances for
the Corporation from any bank, trust company or other institution or from any
firm, corporation or individual, and for such loans and advances may make,
execute and deliver promissory notes, bonds or other evidences of indebtedness
of the Corporation. When authorized so to do, any officer or agent of the
Corporation may pledge, hypothecate or transfer, as security for the payment of
any and all loans,, advances, indebtedness and liabilities of the Corporation,
any and all stocks, securities and other personal property at any time held by
the Corporation, and to that end may endorse, assign and deliver the same. Such
authority may be general or confined to specific instances.
C-12
<PAGE>
SECTION 3. Waivers of Notice.
Whenever any notice whatever is required to be given by law, by the
Certificate of Incorporation or by these Bylaws to any person or persons, a
waiver thereof in writing, signed by the person or persons entitled to the
notice, whether before or after the time stated therein, shall be deemed
equivalent thereto.
SECTION 4. Offices Outside of Delaware.
Except as otherwise required by the laws of the State of Delaware, the
Corporation may have an office or offices and keep its books, documents and
papers outside of the State of Delaware at such place or places as from time to
time may be determined by the Board of Directors or the President.
ARTICLE VI
Indemnification
SECTION 1. Indemnification of Directors, Officers and Employees.
The Corporation shall indemnify to the full extent authorized by law any
Director or officer made or threatened to be made a party to an action, suit or
proceeding, whether criminal, civil, administrative or investigative, by reason
of the fact that he, his testator or intestate is or was a Director or officer
of the Corporation or is or was serving, at the request of the Corporation, as a
Director or officer of another corporation, partnership, joint venture, trust or
other enterprise.
The Corporation may, at the discretion of the Board of Directors, indemnify
to the full extent authorized by law any employee or agent made or threatened to
be made a party to an action, suit or proceeding, whether criminal, civil,
administrative or investigative by reason of the fact that he, his testator or
intestate is or was an employee or agent of the Corporation or is or was serving
at the request of the Corporation as an employee or agent of another
corporation, partnership, joint venture, trust or other enterprise.
SECTION 2. Expenses Advanced.
Expenses incurred with respect to any claim, action or proceeding of the
character, actual or threatened, described in Section 1 of this Article VI, may
be advanced by the Corporation prior to the final disposition thereof upon
receipt of an undertaking by such person to repay the mount so advanced if and.
to the extent it shall ultimately be determined by a court of competent
jurisdiction that he was not entitled to indemnification under this Bylaw.
C-13
<PAGE>
SECTION 3. Automatic Conformity to Law.
The intention of this Bylaw is to provide indemnification with the broadest
and most inclusive coverage permitted by law (a) at the time of the act or
omission to be indemnified against, or (b) so permitted at the time of carrying
out such indemnification, whichever of (a) or (b) may be broader or more
inclusive and permitted by law to be applicable. If the indemnification
permitted by law at this present time, or at any future time, shall be broader
or more inclusive than the provisions of this Bylaw, then indemnification shall
nevertheless extend to the broadest and most inclusive permitted by law at any
time and this Bylaw shall be deemed to have been amended accordingly. If any
provision or portion of this Article shall be found, in any action, suit or
proceeding, to be invalid or ineffective, the validity and effect of the
remaining parts shall not be affected.
ARTICLE VII
Amendments
The stockholders or the Board of Directors of the Corporation may amend or
repeal the Bylaws or adopt new Bylaws. Except as otherwise required by law, the
Certificate of Incorporation or these Bylaws, the vote of a majority of the
shares present or represented by proxy and entitled to vote at any annual or
special meeting shall be required to amend or repeal the Bylaws or to adopt new
Bylaws. Except as otherwise required by law, the Certificate of Incorporation or
these Bylaws, such action by the Board of Directors requires an affirmative vote
of not less than a majority of the members of the Board of Directors then in
office.
C-14
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers.
-----------------------------------------
Article VI of Bancorp's bylaws, which relates to indemnification of
certain persons, including the directors and officers of Bancorp, is set forth
as part of Exhibit C to the Proxy Statement/Prospectus constituting part of this
Registration Statement and is incorporated herein by reference thereto. A
description of the effect of Bancorp's bylaws concerning indemnification of
certain persons is set forth under the caption "FORMATION OF MIDDLE TIER HOLDING
COMPANY -- Indemnification" in the Proxy Statement/Prospectus and is
incorporated herein by reference. It is anticipated that Bancorp will obtain a
directors' and officers' liability insurance policy pursuant to which the
directors and officers of Bancorp will be insured against certain liabilities,
including certain liabilities under the Securities Act of 1933.
Item 21. Exhibits and Financial Statement Schedules.
------------------------------------------
See the list of the Exhibits filed with this Registration Statement
set forth on the Index of Exhibits which appears immediately following the
signature page of this Registration Statement and is incorporated herein by
reference.
Item 22. Undertakings.
------------
1. The undersigned registrant hereby undertakes as follows: that
prior to any public reoffering of the securities registered hereunder through
use of a prospectus which is a part of this registration statement, by any
person or a party who is deemed to be an underwriter within the meaning of Rule
145(c), the issuer undertakes that such reoffering prospectus will contain the
information called for by the applicable registration form with respect to
reofferings by persons who may be deemed underwriters in addition to the
information called for by the other items of the applicable form.
2. The registrant undertakes that every prospectus: (i) that is
filed pursuant to paragraph 1 immediately preceding; or (ii) that purports to
meet the requirements of Section 10(a)(3) of the Act and as used in connection
with an offering of securities subject to Rule 415, will be filed as part of an
amendment to the Registration Statement and will not be used until such
amendment is effective and that for purposes of determining any liability under
the Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered therein
and the offering of such securities at that time shall be deemed an initial bona
fide offering thereof.
1
<PAGE>
3. The undersigned registrant hereby undertakes to supply by means of
a post-effective amendment all information concerning a transaction and the
company being acquired involved therein that was not the subject of and included
in the Registration Statement when it became effective.
2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned thereunto duly authorized in the city of Fort Pierce, state of
Florida, on January 17, 1997.
HARBOR FLORIDA BANCORP, INC.
By:
/s/
----------------------------
Michael J. Brown
President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1993, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<S> <C> <C>
/s/ Vice Chairman of the Board and January 17, 1997
- ---------------------- Director
Bruce R. Abernethy, Sr.
/s/ President and Chief Executive January 17, 1997
- ---------------------- Officer and Director
Michael J. Brown, Sr.
/s/ Director January 17, 1997
- ----------------------
Richard K. Davis
/s/ Chairman of the Board and January 17, 1997
- ---------------------- Director
Edward G. Enns
/s/ Director January 17, 1997
- ----------------------
Frank H. Fee III
</TABLE>
3
<PAGE>
/s/ Director January 17, 1997
- ----------------------
Richard B. Hellstrom
/s/ Director January 17, 1997
- ----------------------
Maltby F. Watkins, M.D.
/s/ Senior Vice President, Finance January 17, 1997
- ----------------------
Don W. Bebber
4
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT NAME
- ----------- ------------
<S> <C>
2 ** Agreement and Plan of Reorganization dated as of
November 27, 1996 between Harbor Federal Savings
Bank, Harbor Florida Bancorp, Inc. and Interim
Harbor Federal Savings Bank
3(a)** Certificate of Incorporation of Bancorp
3(b)** Bylaws of Bancorp
5(a)* Opinion of Peabody & Brown
8(a)* Opinion of Peabody & Brown
8(b)* Opinion of KPMG Peat Marwick, LLP
10(a)** Employment Agreement of Michael J. Brown, Sr.
10(b)** Harbor Federal Savings Bank 1993 Incentive Stock
Option Plan
10(c)** Harbor Federal Savings Bank Stock Option Plan for
Nonemployee Directors
10(d)** Harbor Federal Savings Bank Recognition and
Retention Plan
10(e)** Harbor Federal Savings Bank Outside Directors'
Recognition and Retention Plan
24(a)* Consent of Peabody & Brown
24(b)* Consent of KPMG Peat Marwick, LLP
</TABLE>
- ---------------------
* To Be Filed By Amendment
** Previously Filed
