<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to (S)240.14a-11(c) or (S)240.14a-12
Harbor Federal Bancorp, Inc.
________________________________________________________________________________
(Name of Registrant as Specified in its Charter)
Harbor Federal Bancorp, Inc.
________________________________________________________________________________
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[X] $125 per Exchange Rules 0-11(c)(1)(iii), 14a-6(i)(1), or 14a-6(i)(2).
[ ] $500 per each party to the controversy pursuant to Exchange Act
Rule 14a-6(i)(3).
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1. Title of each class of securities to which transaction applies:
_______________________________________________________________________
2. Aggregate number of securities to which transaction applies:
_______________________________________________________________________
3. Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:
_______________________________________________________________________
4. Proposed maximum aggregate value of transaction:
_______________________________________________________________________
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1. Amount Previously Paid:
_________________________________________________
2. Form, Schedule or Registration Statement No.:
_________________________________________________
3. Filing Party:
_________________________________________________
4. Date Filed:
_________________________________________________
<PAGE>
[HARBOR FEDERAL LETTERHEAD]
June 17, 1996
Dear Stockholder:
We invite you to attend the annual meeting of stockholders of Harbor
Federal Bancorp, Inc. to be held at the Sheraton Baltimore North Hotel, 903
Dulaney Valley Road, Towson, Maryland, on Wednesday, July 17, 1996 at 2:30
p.m.
The accompanying notice and proxy statement describe the formal
business to be transacted at the meeting. During the meeting, we will also
report on the operations of the Company's principal subsidiary, Harbor
Federal Savings Bank. Directors and officers of the Company, as well as
representatives of KPMG Peat Marwick LLP, the Company's independent
auditors, will be present to respond to any questions the stockholders may
have.
ON BEHALF OF THE BOARD OF DIRECTORS, WE URGE YOU TO SIGN, DATE AND
RETURN THE ACCOMPANYING PROXY CARD AS SOON AS POSSIBLE EVEN IF YOU
CURRENTLY PLAN TO ATTEND THE ANNUAL MEETING. Your vote is important,
regardless of the number of shares you own. This will not prevent you from
voting in person but will assure that your vote is counted if you are
unable to attend the meeting.
Sincerely,
/s/ Robert A. Williams
Robert A. Williams
President
<PAGE>
HARBOR FEDERAL BANCORP, INC.
705 York Road
Baltimore, Maryland 21204
(410) 296-1010
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Be Held on July 17, 1996
NOTICE IS HEREBY GIVEN that the annual meeting of stockholders (the "Annual
Meeting") of Harbor Federal Bancorp, Inc. (the "Company") will be held at the
Sheraton Baltimore North Hotel, 903 Dulaney Valley Road, Towson, Maryland, on
Wednesday, July 17, 1996 at 2:30 p.m.
A proxy statement and proxy card for the Annual Meeting accompany this
notice.
The Annual Meeting is for the purpose of considering and acting upon:
1. The election of two directors of the Company; and
2. The transaction of such other matters as may properly come before
the Annual Meeting or any adjournments thereof.
The Board of Directors is not aware of any other business to come before
the Annual Meeting.
Any action may be taken on any one of the foregoing proposals at the Annual
Meeting on the date specified above or on any date or dates to which, by
original or later adjournment, the Annual Meeting may be adjourned.
Stockholders of record at the close of business on June 3, 1996 are the
stockholders entitled to vote at the Annual Meeting and any adjournments
thereof.
You are requested to fill in and sign the accompanying proxy card which is
solicited by the Board of Directors and to mail it promptly in the accompanying
envelope. The proxy card will not be used if you attend and vote at the Annual
Meeting in person.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Joyce A. Lancaster
JOYCE A. LANCASTER
SECRETARY
Baltimore, Maryland
June 17, 1996
IMPORTANT: THE PROMPT RETURN OF PROXIES WILL SAVE THE COMPANY THE EXPENSE
OF FURTHER REQUESTS FOR PROXIES IN ORDER TO INSURE A QUORUM. THE ACCOMPANYING
PROXY CARD IS ACCOMPANIED BY A SELF-ADDRESSED ENVELOPE FOR YOUR CONVENIENCE. NO
POSTAGE IS REQUIRED IF MAILED IN THE UNITED STATES.
<PAGE>
PROXY STATEMENT
OF
HARBOR FEDERAL BANCORP, INC.
705 York Road
Baltimore, Maryland 21204
ANNUAL MEETING OF STOCKHOLDERS
July 17, 1996
GENERAL
This proxy statement is furnished in connection with the solicitation
of proxies by the Board of Directors of Harbor Federal Bancorp, Inc. (the
"Company") to be used at the annual meeting of stockholders (the "Annual
Meeting") which will be held at the Sheraton Baltimore North Hotel, 903 Dulaney
Valley Road, Towson, Maryland, on Wednesday, July 17, 1996 at 2:30 p.m. This
proxy statement and the accompanying notice and proxy card are being first
mailed to stockholders on or about June 17, 1996.
VOTING AND REVOCABILITY OF PROXIES
Stockholders who execute proxies retain the right to revoke them at
any time. Unless so revoked, the shares represented by such proxies will be
voted at the Annual Meeting and all adjournments thereof. Proxies may be
revoked by written notice to Joyce A. Lancaster, Secretary of the Company, at
the address shown above, by filing a later dated proxy prior to a vote being
taken on a particular proposal at the Annual Meeting or by attending the Annual
Meeting and voting in person.
Proxies solicited by the Board of Directors of the Company will be
voted in accordance with the directions given therein. Where no instructions
are indicated, proxies will be voted for the nominees for directors set forth in
this proxy statement. The proxy confers discretionary authority on the persons
named therein to vote with respect to the election of any person as a director
where the nominee is unable to serve or for good cause will not serve, and
matters incident to the conduct of the Annual Meeting. If any other business is
presented at the Annual Meeting, proxies will be voted by those named therein in
accordance with the determination of a majority of the Board of Directors.
Proxies marked as abstentions will not be counted as votes cast. In addition,
shares held in street name which have been designated by brokers on proxy cards
as not voted will not be counted as votes cast. Proxies marked as abstentions
or as broker non-votes, however, will be treated as shares present for purposes
of determining whether a quorum is present.
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
Stockholders of record as of the close of business on June 3, 1996
(the "Record Date") are entitled to one vote for each share then held. At the
Record Date, the Company had 1,754,420 shares of common stock, par value $.01
per share (the "Common Stock"), issued and outstanding. The presence, in person
or by proxy, of at least one-third of the total number of shares of Common Stock
outstanding and entitled to vote will be necessary to constitute a quorum at the
Annual Meeting.
Persons and groups owning in excess of 5% of the Company's Common
Stock are required to file certain reports regarding such ownership pursuant to
the Securities Exchange Act of 1934, as amended (the "Exchange Act"). The
following table sets forth, at the Record Date, certain information as to the
Common Stock believed by management to be beneficially owned by persons owning
in excess of 5% of the Company's Common Stock and by all directors and executive
officers of the Company as a group.
-1-
<PAGE>
<TABLE>
<CAPTION>
Amount and Percent of
Nature of Shares of
Name and Address Beneficial Common Stock
of Beneficial Owner Ownership Outstanding
- ------------------- ---------- ------------
<S> <C> <C>
Harbor Federal Bancorp, Inc.
Employee Stock Ownership Plan
("ESOP")
705 York Road
Baltimore, Maryland 21204 136,325/1/ 7.77
All directors and
executive officers
as a group (9 persons) 198,717/2/ 11.33
- ---------------------
</TABLE>
/1/ These are unallocated shares held in a suspense account for future
allocation among participating employees as the loan used to purchase the
shares is repaid. The ESOP trustees, currently Directors Lacy, Riehl and
Stieff, vote all allocated shares in accordance with instructions of the
participants. Unallocated shares and shares for which no instructions have
been received are voted by the ESOP trustees in the same ratio as
participants direct the voting of allocated shares or, in the absence of
such direction, in the ESOP trustees' best judgment.
/2/ Excludes unallocated shares held by the ESOP (see above); includes 60,722
shares which all directors and executive officers as a group had a right to
purchase pursuant to the exercise of stock options; excludes 113,367 shares
which all executive officers as a group did not have a right to purchase
pursuant to the exercise unvested of stock options.
ELECTION OF DIRECTORS
General
The Company's Board of Directors consists of six members. The Company's
Articles of Incorporation require that directors be divided into three classes,
as nearly equal in number as possible, with approximately one-third of the
directors elected each year. The Board of Directors has nominated J. Kemp Roche
and Gideon N. Stieff, Jr. to serve as directors for a three-year period. All
nominees currently are members of the Board. Under Maryland law, directors are
elected by a plurality of all votes cast at a meeting at which a quorum is
present.
If any nominee is unable to serve, the shares represented by all valid
proxies will be voted for the election of such substitute as the Board of
Directors may recommend or the size of the Board may be reduced to eliminate the
vacancy. At this time, the Board knows of no reason why any nominee might be
unavailable to serve.
-2-
<PAGE>
The following table sets forth the names of the Board of Director's nominees
for election as directors. Also set forth is certain other information with
respect to each person's age, the year he first became a director of the
Company's principal subsidiary, Harbor Federal Savings Bank ("Harbor Federal" or
the "Bank"), the expiration of his term as a director, and the number and
percentage of shares of Common Stock beneficially owned. Each director of the
Company is also a member of the Board of Directors of the Bank.
<TABLE>
<CAPTION>
Shares of
Year First Common Stock
Elected as Current Beneficially
Age at Director of Term Owned at the Percent
Name June 30, 1996 the Bank to Expire Record Date /1/ of Class
---- ------------- -------- --------- --------------- --------
BOARD NOMINEES FOR TERMS TO EXPIRE IN 1999
<S> <C> <C> <C> <C> <C>
J. Kemp Roche 63 1965 1996 3,198 0.2
Gideon N. Stieff, Jr. 66 1969 1996 17,918 1.0
DIRECTORS CONTINUING IN OFFICE
Joseph J. Lacy 63 1963 1997 27,896 1.6
John H. Riehl, III 66 1990 1997 28,418 1.6
Louis V. Koerber 68 1968 1998 15,418 0.9
Robert A. Williams 66 1955 1998 35,186 2.0
- ---------------------
</TABLE>
/1/ Excludes unallocated shares held by the ESOP (see "Voting Securities and
Principal Holders Thereof"); includes 8,720, 8,720, 8,720, 6,220 and 10,900
shares which Messrs. Koerber, Lacy, Riehl, Stieff and Williams,
respectively, had a right to purchase pursuant to the exercise of stock
options; excludes 43,602 shares which Mr. Williams did not have a right to
purchase pursuant to the exercise unvested of stock options.
Set forth below is information concerning the Company's directors. Unless
otherwise stated, all directors have held the positions indicated for at least
the past five years.
J. Kemp Roche had been employed as a supervisor in charge of warehouses
with B. Von Paris & Sons Inc., a moving and storage company in Timonium,
Maryland from 1985 to 1994. He is currently retired.
Gideon N. Stieff, Jr. served until 1990 as Executive Vice President of
Kirk-Stieff Co., a manufacturer of silver products, in Baltimore, Maryland. He
has served on the Board of Directors of the Baltimore Opera Company and as
Chairman of the Board of the Mount Clare Plantation Foundation, and he is a
member of the Kiwanis Club of Baltimore City.
Joseph J. Lacy is President of Lacy Foundries, Inc., a foundry for metal
machinery in Baltimore, Maryland. He has been a member of the Board of Directors
of Mercy Medical Center and the Jenkins Nursing Home.
John H. Riehl, III is President of Riehl Estate Management Co. in
Baltimore, Maryland. He is a trustee of Saint Mary's Spiritual Center and a
member of the Parish Council - Shrine of the Sacred Heart Church.
-3-
<PAGE>
Louis V. Koerber is retired President of Budekes Paints, Inc., a paint supply
house in Baltimore, Maryland. Mr. Koerber is Trustee of Church Home & Hospital
Corp., and has served on the Board of Directors of Allpro Corp., the Better
Business Bureau of Central Maryland, National Flag Day Foundation, Inc. and the
Star-Spangled Banner Flag House Association. He is also a member of the Rotary
Club of Baltimore City.
Robert A. Williams has been affiliated with Harbor Federal since 1955 when he
was appointed to the Board of Directors. In March of 1964 he was elected
President of Harbor Federal. Mr. Williams is a past director of the Greater
Baltimore Real Estate Board and for many years was a Director of Neighborhood
Housing Services of Baltimore. He has also served as Chairman of the Maryland
League of Financial Institutions and on the Boards of the Foundation for Savings
Institutions, the South-East Conference of the U.S. League for Financial
Institutions and the Federal Home Loan Bank of Atlanta.
Meetings and Committees of the Board of Directors
The Boards of Directors of the Company and Harbor Federal hold regular
monthly meetings and special meetings as needed. During the year ended March
31, 1996, the Boards of the Company and the Bank met ten and twelve times,
respectively. No director attended fewer than 75% in the aggregate of the total
number of Board and committee meetings held while he was a member during the
year. The Board of Directors of Harbor Federal has standing Executive, Loan and
Compensation Committees. The full Boards of Directors of the Company and the
Bank act as audit committees, and each of the Boards met once in this capacity
to examine and approve the fiscal 1996 independent audit report.
The Executive Committee consists of Directors Robert A. Williams and at least
three others, and meets only when business decisions need to be made for the
Board before the monthly meeting.
The Loan Committee consists of Directors Robert A. Williams and at least
three others. This committee meets at the call of the chair to analyze loans of
a magnitude in excess of $300,000. This committee also acts on commercial
business loans and acquisition, development and construction loans regardless of
amount.
The Compensation Committee consists of Directors Joseph J. Lacy (Chairman),
John H. Riehl, III and Gideon N. Stieff, Jr. This committee meets twice a year
to review performance appraisals on Harbor Federal's managers and to issue
parameters for monitoring performance in Harbor Federal's personnel. The
committee meets in the middle of the calendar year to discuss salary adjustments
for personnel following suggested increments by their supervisors and senior
management. The Committee also meets at the end of the calendar year to declare
bonuses.
The Company does not have a standing Nominating Committee. Under the
Company's Bylaws, the Board of Directors acts as a nominating committee for
selecting the management nominees for election as directors.
-4-
<PAGE>
Executive Compensation
Compensation Summary. The following table sets forth information regarding
cash and noncash compensation for each of the three fiscal years ended March 31,
1996 awarded to or earned by the named executive officers for services rendered
in all capacities to the Company and Harbor Federal and its subsidiaries during
those years.
<TABLE>
<CAPTION>
Long-Term
Compensation Awards
--------------------------
Annual Compensation Restricted Securities
Name and Fiscal ------------------------------- Stock Underlying
Principal Positions Year Salary Bonus Other Award($)/2/ Options(#)/2/
- ---------------------------- ------ -------- --------- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Robert A. Williams 1996 $111,484 $62,235 $14,952 -- --
Chief Executive Officer, 1995 108,732 31,451 18,113 231,636 54,502
President and Director 1994 104,489 22,000 8,513 -- --
Norbert J. Luken 1996 88,723 45,963 -- -- --
Chief Financial Officer, 1995 87,828 23,187 -- 123,537 29,069
Treasurer 1994 85,471 9,000 -- -- --
</TABLE>
__________________
/1/ Reflects annual deferred compensation funded by the payment of premium
on life insurance policy and annual director's fees.
/2/ Subject to vesting over five years.
Stock Options. The following table sets forth information regarding the
number and potential value at the end of the year of options held by the named
executive officers.
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options
Options at Fiscal Year-End (#) at Fiscal Year-End ($)/1/
------------------------------ --------------------------
Exercisable Unexercisable Exercisable Unexercisable
------------- --------------- ----------- -------------
<S> <C> <C> <C> <C>
Robert A. Williams 10,900 43,602 29,975 119,905
Norbert J. Luken 5,814 23,255 15,989 63,951
- ------------------
</TABLE>
/1/ Based on the difference between the closing sale price of the Common
Stock on March 31, 1996 as reported on the Nasdaq National Market ($13.375
per share) and the exercise price ($10.625 per share).
Director Compensation
Fees. Directors currently receive fees of $800 per monthly meeting.
During fiscal 1996, directors' fees totaled $57,600.
Director Retirement Plan. Harbor Federal has adopted a retirement plan for
non-employee directors (the "Director Retirement Plan") for its directors (i)
who were members of Harbor Federal's Board of Directors at the date of
completion of the conversion of Harbor Federal from mutual to stock form (the
"Conversion"), and (ii) who were not then employees. A participant in the
Director Retirement Plan will receive, on each of the ten annual anniversary
dates of his or her retirement, an amount equal to the product of his or her
"benefit percentage," his or her "vested percentage," and the amount of the
annual fee he or she received for service on the Board during the calendar year
preceding his or her retirement. A participant's "benefit percentage" is based
on his or her overall years of service on the Board of Directors of Harbor
Federal (and Highland Federal Savings and Loan Association,
-5-
<PAGE>
which merged into Harbor Federal in 1981), and increases in increments of
33-1/3% from 0% for less than six years of service, to 33-1/3% for six years or
more of service, to 66-2/3% for 15 years or more of service, to 100% for 25 or
more years of service. A participant's "vested percentage" equals 33-1/3% if
the participant was serving on the Board on the date of the Conversion,
increases to 66-2/3% if the participant completes one year of service following
the Conversion, and becomes 100% if the participant completes a second year of
service following the Conversion. However, in the event a participant
terminates service on the Board due to "disability" or in the event of a "change
in control" (as such terms are defined in the Director Retirement Plan), the
participant's vested percentage becomes 100% regardless of his or her years of
service. This provision may have the effect of deferring a hostile change in
control by increasing the costs of acquiring control. If a participant dies,
his or her surviving spouse will receive an amount equal to 50% of the benefits
that would have been paid to the participant under the Director Retirement Plan
if the participant had survived to collect the full benefits payable for
retirement or disability (provided that these payments had commenced prior to
the participant's death), and had a vested percentage equal to 100%.
Notwithstanding the foregoing, if a deceased participant had not both terminated
service on the Board prior to his or her death, and had a vested percentage
below 100%, the participant's vested percentage is not increased to 100% but is
determined pursuant to the schedule set forth above (with no payments being
otherwise made). The Director Retirement Plan became effective upon completion
of the Conversion. Harbor Federal will pay such benefits from its general
assets, and has established a trust in order to hold assets with which to pay
benefits. Trust assets are subject to the claims of Harbor Federal's general
creditors.
Employment and Severance Agreements
The Company and Harbor Federal have entered into an employment agreement
with Robert A. Williams, President and Chief Executive Officer of Harbor Federal
and of the Company. In such capacities, Mr. Williams is responsible for
overseeing all operations of Harbor Federal and the Company, and for
implementing the policies adopted by the Board of Directors.
The employment agreement became effective on the date of completion of the
Conversion and provides for a term of three years, with an annual base salary
equal to Mr. Williams' existing base salary rate in effect on the date of
Conversion. On each anniversary date from the date of commencement of the
employment agreement, the term of employment is extended for an additional one-
year period beyond the then effective expiration date, upon a determination by
the Board of Directors that the performance of Mr. Williams has met the required
performance standards and that such employment agreement should be extended.
The employment agreement provides Mr. Williams with a salary review by the Board
of Directors not less often than annually, as well as with inclusion in any
discretionary bonus plans, retirement and medical plans, customary fringe
benefits and vacation and sick leave. In addition, if the Company terminates
Mr. Williams' employment with the Company for any reason other than termination
for "just cause", then notwithstanding termination of Mr. Williams' employment
and the employment agreement, Mr. Williams' and his dependents shall continue to
participate in the Company's group health insurance plan for the life of Mr.
Williams. The employment agreement will terminate upon Mr. Williams' death or
disability, and is terminable by Harbor Federal for "just cause" as defined in
the employment agreement. In the event of termination for just cause, no
severance benefits are available. If the Company or Harbor Federal terminates
Mr. Williams without just cause, he will be entitled to a continuation of his
salary and benefits from the date of termination through the remaining term of
the employment agreement plus an additional 12-month period. If the employment
agreement is terminated due to Mr. Williams' "disability" (as defined in the
employment agreement), he will be entitled to a continuation of his salary and
benefits for up to 180 days following such termination. In the event of Mr.
Williams' death during the term of the employment agreement, his estate will be
entitled to receive his salary through the remaining term of the employment
agreement. Severance benefits payable to Mr. Williams or to his estate will be
paid in a lump sum or in installments, as he (or his estate) elects. Mr.
Williams is able to voluntarily terminate his employment agreement by providing
60 days' written notice to the Boards of Directors of Harbor Federal and the
Company, in which case he is entitled to receive only his compensation, vested
rights and benefits up to the date of termination.
-6-
<PAGE>
The employment agreement contains provisions stating that in the event of
Mr. Williams' involuntary termination of employment in connection with, or
within one year after, any change in control of Harbor Federal or the Company,
other than for "just cause," Mr. Williams will be paid within 10 days of such
termination an amount equal to the difference between (i) 2.99 times his "base
amount," as defined in Section 280G(b)(3) of the Internal Revenue Code, and (ii)
the sum of any other parachute payments, as defined under Section 280G(b)(2) of
the Internal Revenue Code, that he receives on account of the change in control.
"Control" generally refers to the acquisition, by any person or entity, of the
ownership or power to vote more than 25% of Harbor Federal's or Company's voting
stock, the control of the election of a majority of Harbor Federal's or the
Company's directors, or the exercise of a controlling influence over the
management or policies of Harbor Federal or the Company. In addition, under the
employment agreement, a change in control occurs when, during any consecutive
two-year period, directors of the Company or Harbor Federal at the beginning of
such period cease to constitute two-thirds of the Board of Directors of the
Company or Harbor Federal, unless the election of replacement directors was
approved by a two-thirds vote of the initial directors then in office. The
employment agreement with Harbor Federal provides that within 5 business days of
a change in control, Harbor Federal shall fund, or cause to be funded, a trust
in the amount of 2.99 times Mr. Williams base amount, that will be used to pay
Mr. Williams amounts owned to him upon termination other than for just cause
within one year of the change in control. The amount to be paid to Mr. Williams
from this trust upon his termination is determined according to the procedures
outlined in the employment agreement with Harbor Federal, and any money not paid
to Mr. Williams is returned to Harbor Federal. The employment agreement also
provides for a similar lump sum payment to be made in the event of Mr. Williams'
voluntary termination of employment within one year following a change in
control, upon the occurrence, or within 90 days thereafter, of certain specified
events following the change in control, which have not been consented to in
writing by Mr. Williams, including (i) the requirement that he perform his
principal executive functions more than 35 miles from Harbor Federal's current
primary office, (ii) a reduction in his base compensation as then in effect,
(iii) the failure of the Company or Harbor Federal to maintain existing or
substantially similar employee benefit plans, including material vacation,
fringe benefits, stock option and retirement plans, (iv) the assignment to Mr.
Williams of duties and responsibilities which are other than those normally
associated with his position with Harbor Federal, (v) a material reduction in
his authority and responsibility, and (vi) the failure to re-elect Mr. Williams
to the Company's or Harbor Federal's Board of Directors. The aggregate payments
that would be made to Mr. Williams assuming his termination of employment under
the foregoing circumstances at March 31, 1996 would have been approximately
$450,000. These provisions may have an anti-takeover effect by making it more
expensive for a potential acquiror to obtain control of the Company. If Mr.
Williams were to prevail over the Company and Harbor Federal in a legal dispute
as to the employment agreement, he would be reimbursed for his legal and other
expenses.
The Company and Harbor Federal have entered into a severance agreement with
Norbert J. Luken. The severance agreement became effective on the date of
completion of the Conversion and will terminate on the earlier of (a) three
years after the date of completion of the Conversion, and (b) the date on which
Mr. Luken terminates employment with the Corporation and Harbor Federal,
provided that the rights under the severance agreement will continue following
termination of employment if the severance agreement was in effect at the date
of the change in control. On each annual anniversary date from the date of
commencement of the severance agreement, the term of the severance agreements
may be extended for an additional one year period beyond the then effective
expiration date, upon determination by the Board of Directors that the
performance of Mr. Luken has met the required performance standards and that
such severance agreement should be extended.
The severance agreement contains provisions stating that in the event of
involuntary termination of employment in connection with, or within one year
after, any change in control of Harbor Federal or the Company, other than for
"just cause," Mr. Luken will be paid within 10 days of such termination an
amount equal to the difference between (i) 2.99 times his "base amount," as
defined in Section 280G(b)(3) of the Internal Revenue Code and (ii) the sum of
any other parachute payments, as defined under Section 280G(b)(2) of the
Internal Revenue Code, that the he receives on account of the change in control.
"Control" generally refers to the acquisition, by any person or entity, of the
ownership or power to vote more than 25% of Harbor Federal's or Company's voting
stock, the control of the election of a majority of Harbor Federal's or the
Company's directors or the exercise of a controlling influence over the
management or policies of Harbor Federal or the Company. In addition, under the
severance
-7-
<PAGE>
agreement, a change in control occurs when, during any consecutive two-year
period, directors of the Company or Harbor Federal at the beginning of such
period cease to constitute two-thirds of the Board of Directors of the Company
or Harbor Federal, unless the election of replacement directors was approved by
a two-thirds vote of the initial directors then in office. The severance
agreement with Harbor Federal provides that within 5 business days of a change
in control, Harbor Federal shall fund, or cause to be funded, a trust in the
amount of 2.99 times the base amount, that will be used to pay amounts owed to
him upon termination other than for just cause within one year of the change in
control. The amount to be paid to Mr. Luken from this trust upon his
termination is determined according to the procedures outlined in the severance
agreement with Harbor Federal, and any money not paid to him is returned to
Harbor Federal. The severance agreement also provides for a similar lump sum
payment to be made in the event of Mr. Luken's voluntary termination of
employment within one year following a change in control, upon the occurrence,
or within 90 days thereafter, of certain specified events following the change
in control, which have not been consented to in writing by him, including (i)
requiring him to perform his principal executive functions more than 35 miles
from Harbor Federal's current primary office, (ii) reducing his base
compensation as then in effect, (iii) failing to maintain existing employee
benefit plans, including material vacation, fringe benefits, stock option and
retirement plans, (iv) assigning material duties and responsibilities to him
which are other than those normally associated with his position with Harbor
Federal, and (v) materially diminishing his authority and responsibility. The
aggregate payment that would be made to Mr. Luken assuming his termination of
employment under the foregoing circumstances at March 31, 1996 would have been
approximately $321,000. These provisions may have an anti-takeover effect by
making it more expensive for a potential acquiror to obtain control of the
Company. In the event that Mr. Luken prevails over the Company and Harbor
Federal in a legal dispute as to the severance agreement, he will be reimbursed
for his legal and other expenses.
Transactions with Management
Harbor Federal offers loans to its directors, officers and employees.
These loans currently are made in the ordinary course of business with the same
collateral, interest rates and underwriting criteria as those of comparable
transactions prevailing at the time and do not involve more than the normal risk
of collectibility or present other unfavorable features. Under current law,
Harbor Federal's loans to directors and executive officers are required to be
made on substantially the same terms, including interest rates, as those
prevailing for comparable transactions and must not involve more than the normal
risk of repayment or present other unfavorable features. Furthermore, loans
above the greater of $25,000 or 5% of Harbor Federal's capital and surplus
(i.e., up to $500,000) to such persons must be approved in advance by a
disinterested majority of the Board of Directors.
OTHER MATTERS
The Board of Directors is not aware of any business to come before the
Annual Meeting other than those matters described above in this proxy statement.
However, if any other matters should properly come before the Annual Meeting, it
is intended that proxies in the accompanying form will be voted in respect
thereof in accordance with the determination of a majority of the Board of
Directors.
MISCELLANEOUS
The cost of soliciting proxies will be borne by the Company. The Company
will reimburse brokerage firms and other custodians, nominees and fiduciaries
for reasonable expenses incurred by them in sending proxy materials to the
beneficial owners of Common Stock. In addition to solicitations by mail,
directors, officers and regular employees of the Company may solicit proxies
personally or by telegraph or telephone without additional compensation.
-8-
<PAGE>
The Company's annual report to stockholders, including financial
statements, is being mailed to all stockholders of record as of the close of
business on the Record Date. Any stockholder who has not received a copy of
such annual report may obtain a copy by writing to the Secretary of the Company.
Such annual report is not to be treated as a part of the proxy solicitation
material or as having been incorporated herein by reference.
The Company has engaged KPMG Peat Marwick LLP, independent certified public
accountants, to serve as its independent auditor for the fiscal year ending
March 31, 1997. A representative of KPMG Peat Marwick LLP is expected to be
present at the Annual Meeting and will have the opportunity to make a statement
if he or she desires to do so and is expected to be available to respond to
appropriate questions.
STOCKHOLDER PROPOSALS
In order to be eligible for inclusion in the Company's proxy materials for
next year's Annual Meeting of Stockholders, any stockholder proposal to take
action at such meeting must be received at the Company's main office at 705 York
Road, Baltimore, Maryland 21204, no later than February 17, 1997. Any such
proposal would be subject to the requirements of the proxy rules adopted under
the Exchange Act.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Joyce A. Lancaster
JOYCE A. LANCASTER
SECRETARY
Baltimore, Maryland
June 17, 1996
FORM 10-KSB
A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-KSB FOR THE FISCAL
YEAR ENDED MARCH 31, 1996 AS FILED WITH THE SEC WILL BE FURNISHED WITHOUT CHARGE
TO EACH STOCKHOLDER AS OF THE RECORD DATE UPON WRITTEN REQUEST TO THE SECRETARY,
HARBOR FEDERAL BANCORP, INC., 705 YORK ROAD, BALTIMORE, MARYLAND 21204.
-9-
<PAGE>
[X] Please Mark Votes REVOCABLE PROXY
As In This Example HARBOR FEDERAL BANCORP, INC.
Baltimore, Maryland
ANNUAL MEETING OF STOCKHOLDERS
July 17, 1996
The undersigned hereby appoints Robert A. Williams and Louis V. Koerber, with
full powers of substitution, to act as proxies for the undersigned, to vote all
shares of Common Stock of Harbor Federal Bancorp, Inc. which the undersigned is
entitled to vote at the annual meeting of stockholders, to be held at the
Sheraton Baltimore North Hotel, 903 Dulaney Valley Road, Towson, Maryland, on
Wednesday, July 17, 1996 at 2:30 p.m., and at any and all adjournments thereof,
as follows:
VOTE
FOR WITHHELD Except
--- -------- ------
1. The election as directors of all
nominees listed below (except as
marked to the contrary below). [ ] [ ] [ ]
J. Kemp Roche
Gideon N. Stieff, Jr.
INSTRUCTION: To withhold your vote for any individual nominee,
mark "Except" and write that nominee's name in the space provided below.
------------------------------------
The Board of Directors recommends a vote "FOR" the listed proposition.
THIS PROXY WILL BE VOTED AS DIRECTED, BUT IF NO INSTRUCTIONS ARE SPECIFIED, THIS
PROXY WILL BE VOTED FOR THE PROPOSITION STATED. IF ANY OTHER BUSINESS IS
PRESENTED AT THE ANNUAL MEETING, THIS PROXY WILL BE VOTED BY THOSE NAMED IN THIS
PROXY IN ACCORDANCE WITH THE DETERMINATION OF A MAJORITY OF THE BOARD OF
DIRECTORS. AT THE PRESENT TIME, THE BOARD OF DIRECTORS KNOWS OF NO OTHER
BUSINESS TO BE PRESENTED AT THE ANNUAL MEETING. THIS PROXY CONFERS
DISCRETIONARY AUTHORITY ON THE HOLDERS THEREOF TO VOTE WITH RESPECT TO THE
ELECTION OF ANY PERSON AS DIRECTOR WHERE THE NOMINEE IS UNABLE TO SERVE OR FOR
GOOD CAUSE WILL NOT SERVE AND MATTERS INCIDENT TO THE CONDUCT OF THE ANNUAL
MEETING.
----------------
Please be sure to sign and date | (Date) |
this Proxy in the box below. | |
- -----------------------------------------------|
| | THIS PROXY IS SOLICITED BY
| | THE BOARD OF DIRECTORS
|_Stockholder sign above__ Co-holder (if any)__|
Sign above
<PAGE>
Detach above card, sign, date and mail in postage paid envelope provided.
HARBOR FEDERAL BANCORP, INC.
Baltimore, Maryland
Should the above signed be present and elect to vote at the annual meeting or
at any adjournment thereof and after notification to the Secretary of the
Company at the annual meeting of the stockholder's decision to terminate this
proxy, then the power of said attorneys and proxies shall be deemed terminated
and of no further force and effect.
The above signed acknowledges receipt from the Company prior to the execution
of this proxy of notice of the annual meeting, a proxy statement dated June 17,
1996 and an annual report to stockholders.
Please sign exactly as your name appears on this proxy card. When signing as
attorney, executor, administrator, trustee or guardian, please give your full
title. If shares are held jointly, each holder should sign.
PLEASE ACT PROMPTLY
SIGN, DATE & MAIL YOUR PROXY CARD TODAY
