<PAGE>
<PAGE>
SCHEDULE 14A INFORMATION
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
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 Rule 14a-11(c) or
Rule 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 15, 1998
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 15, 1998 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 15, 1998
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 15, 1998 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 one director 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 1, 1998 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 15, 1998
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 15, 1998
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 15, 1998 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 15,
1998.
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 NOMINEE FOR DIRECTOR 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 a 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
1, 1998 (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.
-1-<PAGE>
<PAGE>
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.
<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 91,283 (1) 5.39%
All directors and
executive officers
as a group (8 persons) 215,538 (2) 12.73
<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 91,464 shares which all directors and executive
officers as a group had a right to purchase pursuant to
the exercise of stock options; excludes 45,056 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,
but will be reduced to six with the retirement of Louis V.
Koerber as of the Annual Meeting. 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 Robert A. Williams to serve as
a director for a three-year period. The nominee currently is a
member 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 name of the Board of
Director's nominee for election as director and the names of the
directors continuing in office after the Annual Meeting and the
director retiring as of the Annual Meeting. 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, 1998 the Bank to Expire Record Date(1) of Class
- ---- ------------- ----------- --------- -------------- --------
<S> <C> <C> <C> <C> <C>
BOARD NOMINEE FOR TERM TO EXPIRE IN 2001
Robert A. Williams 68 1955 1998 65,086 3.84%
DIRECTORS CONTINUING IN OFFICE OR RETIRING
J. Kemp Roche 65 1965 1999 1,500 0.09
Gideon N. Stieff, Jr. 68 1969 1999 17,918 1.06
Joseph J. Lacy 65 1963 2000 26,496 1.56
John H. Riehl, III 68 1990 2000 28,418 1.68
Lawrence W. Williams 44 1996 2000 38,232 2.26
Louis V. Koerber 70 1968 1998 16,814 0.99
<FN>
____________
(1) Excludes unallocated shares held by the ESOP (see "Voting
Securities and Principal Holders Thereof"); includes 8,720,
7,220, 7,720, 3,720, 17,442 and 31,200 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 11,627 and 21,802 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.
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
-3-<PAGE>
<PAGE>
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.
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.
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. Mr. Koerber will retire from the Board as of
the Annual Meeting.
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, 1998, 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 1998 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, 1998 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>
Annual Compensation
Name and Fiscal ---------------------------
Principal Positions Year Salary Bonus Other(1)
- ------------------- ------ ------ ----- --------
<S> <C> <C> <C> <C>
Robert A. Williams 1998 $118,360 $49,755 $44,452
Chief Executive Officer, 1997 114,750 38,242 44,152
President and Director 1996 111,484 62,235 44,952
Norbert J. Luken 1998 94,024 37,041 30,000
Chief Financial Officer, 1997 91,364 28,506 30,000
Treasurer 1996 88,723 45,963 30,000
<FN>
__________________
(1) Reflects combined compensation under the Company's
ESOP and money purchase plan of $30,000 per year;
for Mr. Williams, also reflects annual deferred
compensation funded by the payment of premium on
life insurance policy and annual director's fees.
</FN>
</TABLE>
Stock Options. The following table sets forth information
regarding the number and potential value at March 31, 1998 of
options held by the named executive officers. No options were
granted to executive officers during the year ended March 31,
1998.
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options
Options at Fiscal Year-End(#) at Fiscal Year-End($)(1)
Shares Acquired Value --------------------------- --------------------------
on exercise(#) Realized($) Exercisable Unexercisable Exercisable Unexercisable
--------------- ---------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Robert A. Williams 1,500 28,813 31,200 21,802 448,500 313,404
Norbert J. Luken 2,000 34,522 15,442 11,627 221,979 167,138
<FN>
__________________
(1) Based on the difference between the closing sale price of the
Common Stock on March 31, 1998 as reported on the Nasdaq National
Market ($25.00 per share) and the exercise price ($10.625 per
share).
</FN>
</TABLE>
DIRECTOR COMPENSATION
Fees. Directors received fees of $800 per meeting until
January 1998, when fees increased to $900 per meeting. During
fiscal 1998, directors' fees totaled $69,300.
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,
which merged into
-5-<PAGE>
<PAGE>
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, 1998 would have been approximately $534,000. 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, 1998 would have been approximately $392,000. 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.
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>
<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, 1999. 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 15, 1999. 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 15, 1998
FORM 10-KSB
A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-KSB FOR
THE FISCAL YEAR ENDED MARCH 31, 1998 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>
[X] PLEASE MARK VOTES REVOCABLE PROXY
AS IN THIS EXAMPLE HARBOR FEDERAL BANCORP, INC.
ANNUAL MEETING OF STOCKHOLDERS
July 15, 1998
The undersigned hereby appoints John H. Riehl, III 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 15, 1998 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): [ ] [ ] [ ]
Robert A. Williams
INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR THE
NOMINEE, MARK "EXCEPT" AND WRITE THAT NOMINEE'S NAME
IN THE SPACE PROVIDED BELOW.
______________________________________________
</TABLE>
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE NAMED
NOMINEE.
THIS PROXY WILL BE VOTED AS DIRECTED, BUT, IF NO INSTRUCTIONS
ARE SPECIFIED, THIS PROXY WILL BE VOTED FOR THE NAMED NOMINEE.
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 15, 1998 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
