<PAGE>
<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 Subsection 240.14a-11(c) or
Subsection 240.14a-12
[ ] Confidential, For use of the Commission Only (as permitted
by Rule 14a-6(e)(2))
HARBOR FEDERAL BANCORP, INC.
- ---------------------------------------------------------------
(Name of Registrant as Specified in its Charter)
- ----------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement
if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[x] NO FEE REQUIRED.
[ ] Fee computed on table below per Exchange Act
Rules 14a-6(i)(1) and 0-11.
1. Title of each class of securities to which
transaction applies:
_________________________________________________________________
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 (Set
forth the amount on which the filing fee is calculated and state
how it was determined):
_________________________________________________________________
4. Proposed maximum aggregate value of transaction:
_________________________________________________________________
5. Total fee paid:
_________________________________________________________________
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for which
the offsetting fee was paid previously. Identify the previous
filing by registration statement number, or the Form or Schedule
and the date of its filing.
1. Amount Previously Paid:
____________________________________________
2. Form, Schedule or Registration Statement No.:
____________________________________________
3. Filing Party:
____________________________________________
4. Date Filed:
____________________________________________<PAGE>
<PAGE>
[LETTERHEAD]
June 16, 1997
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 16, 1997 at 3:00 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>
<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 16, 1997
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 16, 1997 at 3:00 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 three 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 pro-
posals 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 2, 1997 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 16, 1997
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>
<PAGE>
PROXY STATEMENT
OF
HARBOR FEDERAL BANCORP, INC.
705 York Road
Baltimore, Maryland 21204
ANNUAL MEETING OF STOCKHOLDERS
July 16, 1997
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 16, 1997 at 3:00 p.m. This
proxy statement and the accompanying notice and proxy card are
being first mailed to stockholders on or about June 16, 1997.
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
2, 1997 (the "Record Date") are entitled to one vote for each
share then held. At the Record Date, the Company had 1,693,420
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>
<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 113,684 (1) 6.71%
All directors and
executive officers
as a group (8 persons) 214,649 (2) 12.68
<FN>
______________
(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
76,261 shares which all directors and executive officers as a
group had a right to purchase pursuant to the exercise of stock
options; excludes 67,584 shares which all executive officers as a
group did not have a right to purchase pursuant to the exercise of
unvested stock options.
</FN>
</TABLE>
ELECTION OF DIRECTORS
General
The Company's Board of Directors consists of seven members,
as a result of the appointment of Lawrence W. Williams, the
Bank's Vice President-Lending, to the Board in December 1996.
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 Joseph J. Lacy,
John H. Riehl, III and Lawrence W. Williams 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>
<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, 1997 the Bank to Expire Record Date(1) of Class
- ---- ------------- ----------- --------- -------------- --------
<S> <C> <C> <C> <C> <C>
BOARD NOMINEE FOR TERM TO EXPIRE IN 2000
Joseph J. Lacy 64 1963 1997 27,896 1.65%
John H. Riehl, III 67 1990 1997 28,418 1.68
Lawrence W. Williams 43 1996 1997 28,288 1.67
DIRECTORS CONTINUING IN OFFICE
Louis V. Koerber 69 1968 1998 15,418 0.91
Robert A. Williams 67 1955 1998 52,992 3.13
J. Kemp Roche 64 1965 1999 2,500 0.15
Gideon N. Stieff, Jr. 67 1969 1999 17,918 1.06
<FN>
____________
(1) Excludes unallocated shares held by the ESOP (see "Voting Securities and Principal
Holders Thereof"); includes 8,720, 8,720, 8,720, 6,220, 11,628 and 21,300 shares
which Messrs. Koerber, Lacy, Riehl, Stieff, L. Williams and R. Williams,
respectively, had a right to purchase pursuant to the exercise of stock options;
excludes 6,977 and 32,702 shares which Messrs. L. Williams and R. Williams,
respectively, did not have a right to purchase pursuant to the exercise of
unvested stock options.
</FN>
</TABLE>
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.
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.
LAWRENCE W. WILLIAMS has been Vice President of Lending and
Compliance Officer at Harbor Federal since 1990. Previously he
was Assistant Vice President of Lending. He is also affiliated
with the St. Ambrose Housing Authority, the Neighborhood Housing
Services, Southeast Development Corp. and Patterson Park
Neighborhoods Initiative.
-3-<PAGE>
<PAGE>
LOUIS V. KOERBER is Chairman of the Board 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.
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.
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, 1997, the Boards of the Company
and the Bank met seven 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 is expected to meet once in
this capacity to review and approve the fiscal year 1997
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>
<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, 1997 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 Position Year Salary Bonus Other(1) Awards(2)(3) Options(#)(2)
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Robert A. Williams 1997 $114,750 $38,242 $14,152 -- --
Chief Executive Officer, 1996 111,484 62,235 14,952 -- --
President and Director 1995 108,732 31,451 18,113 231,636 54,502
Norbert J. Luken 1997 91,364 28,506 -- -- --
Chief Financial Officer, 1996 88,723 45,963 -- -- --
Treasurer 1995 87,828 23,187 -- 123,537 29,069
<FN>
_____________
(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.
(3) The values of the unvested restricted stock awards for Messrs. Williams and Luken
at March 31, 1997 were $212,566 and $113,376, respectively.
</FN>
</TABLE>
Stock Options. The following table sets forth information
regarding the number and potential value at March 31, 1997 of
options held by the named executive officers. No options were
granted to executive officers during the year ended March 31,
1997.
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options
Options at Fiscal Year-End(#) at Fiscal Year-End($)(1)
Shares Acquired Value --------------------------- --------------------------
on exercise(#) Realized($) Exercisable Unexercisable Exercisable Unexercisable
--------------- ---------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Robert A. Williams 500 6,188 21,300 32,702 119,813 183,948
Norbert J. Luken 675 8,353 10,953 17,441 61,610 98,106
<FN>
_____________
(1) Based on the difference between the closing sale price of the Common Stock on March 31, 1997 as
reported on the Nasdaq National Market ($16.25 per share) and the exercise price ($10.625 per
share).
</FN>
</TABLE>
DIRECTOR COMPENSATION
Fees. Directors receive fees of $800 per meeting. During
fiscal 1997, directors' fees totaled $59,200.
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
-5-<PAGE>
<PAGE>
the Board of Directors of Harbor Federal (and Highland Federal
Savings and Loan Association, 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>
<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, 1997 would have been approximately $526,000. 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
-7-<PAGE>
<PAGE>
policies of Harbor Federal or the Company. In addition, under
the severance 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, 1997 would have been approximately $368,000. 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 to such persons above the greater of $25,000
or 5% of Harbor Federal's capital and surplus must be approved in
advance by a disinterested majority of the Board of Directors.
In July 1996, a proposal for new loans to an organization in
which Robert A. Williams retains a 50% stock interest was
presented to the Board of Directors. Mr. Williams is not a
director or officer and has no operational planning or decision
making authority in this organization. The Board of Directors
approved the following loans, with Robert A. Williams abstaining:
$300,000 line of credit at First National Bank of Maryland's
prime + 1.5%; $700,000 line of credit at First National Bank of
Maryland's prime + 1.0%; 1,000,000 line of credit at First
National Bank of Maryland's prime + 1.0%. These loans were made
on the same terms as those prevailing for comparable transactions
and do not involve more than the normal risk of repayment or
present other unfavorable features. At March 31, 1997 the
aggregate outstanding balance was $380,000, and these loans were
fully performing in accordance with their terms.
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.
-8-<PAGE>
<PAGE>
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.
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, 1998. 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 16, 1998. 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 16, 1997
FORM 10-KSB
A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-KSB FOR THE
FISCAL YEAR ENDED MARCH 31, 1997 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>
<PAGE>
[ ]PLEASE MARK VOTES REVOCABLE PROXY
AS IN THIS EXAMPLE HARBOR FEDERAL BANCORP, INC.
ANNUAL MEETING OF STOCKHOLDERS
July 16, 1997
The undersigned hereby appoints Robert A. Williams and Gideon N.
Stieff, Jr., 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 16, 1997 at 3:00 p.m., and at any and all
adjournments thereof, as follows:
<TABLE>
<CAPTION>
FOR WITHHOLD EXCEPT
--- ------- -------
<S> <C> <C> <C>
1. The election as directors of all
nominees listed (except as
marked to the contrary below): [ ] [ ] [ ]
JOSEPH J. LACY
JOHN H. RIEHL, III
LAWRENCE W. WILLIAMS
</TABLE>
INSTRUCTION: To withhold authority to 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.
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS.
Please be sure to sign and date
this proxy in the box below Date
Stockholders sign above ------ Co-holder (if any) sign above ---
Should the undersigned be present and elect to vote at the annual
meeting or at any adjournment thereof and after notification to
the Secretary of the Company at the annual meeting of the
stockholder's decision to terminate this proxy, then the power of
said attorneys and proxies shall be deemed terminated and of no
further force and effect.
The undersigned acknowledges receipt from the Company prior to
the execution of this proxy of notice of the annual meeting, a
proxy statement dated June 16, 1997 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 AND MAIL YOUR PROXY TODAY
