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:
____________________________________________
[LETTERHEAD]
June 14, 1999
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 14, 1999 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
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
HARBOR FEDERAL BANCORP, INC.
705 YORK ROAD
BALTIMORE, MARYLAND 21204
(410) 296-1010
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JULY 14, 1999
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 14, 1999 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 two directors of the Company;
2. The approval of the Harbor Federal Bancorp,
Inc. 1999 Stock Incentive Plan; and
3. 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 May 28, 1999 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 14, 1999
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.
PROXY STATEMENT
OF
HARBOR FEDERAL BANCORP, INC.
705 YORK ROAD
BALTIMORE, MARYLAND 21204
ANNUAL MEETING OF STOCKHOLDERS
JULY 14, 1999
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 14, 1999 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 14,
1999.
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 May
28, 1999 (the "Record Date") are entitled to one vote for each
share then held. At the Record Date, the Company had 1,676,515
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-
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.
Amount and Percent of
Nature of Shares of
Name and Address Beneficial Common Stock
of Beneficial Owner Ownership Outstanding
- ------------------- ---------- ------------
Harbor Federal Bancorp, Inc. 72,826 (1) 4.34% (1)
Employee Stock Ownership Plan ("ESOP")
705 York Road
Baltimore, Maryland 21204
John Hancock Mutual Life Insurance
Company ("JHMLICO") 106,500 (2) 6.35
John Hancock Place
P.O. Box 111
Boston, MA 02117
All directors and 284,719 (3) 16.98
executive officers
as a group (7 persons)
<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. Does not include
113,208 shares that are owned by the ESOP and have been allocated to the
accounts of participants. The ESOP trustees vote all allocated shares in
accordance with the instructions of the participating employees. As of
the Record Date, the ESOP owned an aggregate of 186,034 shares, which
represented 11.10% of the outstanding shares of Common Stock.
(2) Based on a Schedule 13G filed by JHMLICO dated January 19, 1999. John
Hancock Advisers, Inc. ("JHA") has direct beneficial ownership of these
shares. JHA is a wholly owned subsidiary of The Berkeley Financial Group,
Inc. ("TBFG"). TBFG is a wholly owned subsidiary of John Hancock
Subsidiaries, Inc. ("JHSI"), and JHSI is a wholly owned subsidiary of
JHMLICO. JHMLICO, JHSI and TBFG have indirect beneficial ownership of
these shares.
(3) Excludes 186,034 shares held by the ESOP (see above). Includes 90,426
shares which all directors and executive officers as a group had a right
to purchase pursuant to the exercise of stock options; excludes 24,784
shares which all executive officers as a group did not have a right to
purchase pursuant to the exercise of unvested stock options.
</FN>
-2-
PROPOSAL I -- 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 a director for a three-
year period. The 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.
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. 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.
Shares of
Year First Common Stock
Elected as Current Beneficially
Age at Director of Term Owned at the Percent
Name June 30, 1999 the Bank to Expire Record Date(1) of Class
- ---- ------------- ----------- --------- -------------- --------
BOARD NOMINEE FOR TERM TO EXPIRE IN 2002
J. Kemp Roche 66 1965 1999 1,650 .10%
Gideon N. Stieff, Jr. 69 1969 1999 19,700 1.18
DIRECTORS CONTINUING IN OFFICE
Joseph J. Lacy 66 1963 2000 27,771 1.66
John H. Riehl, III 69 1990 2000 31,630 1.89
Lawrence W. Williams 45 1996 2000 53,576 3.20
Robert A. Williams 69 1955 2001 93,927 5.60
<FN>
__________
(1) Excludes unallocated shares held by the ESOP (see "Voting Securities and
Principal Holders Thereof"); includes 6,272, 4,492, 2,592, 25,580 and 41,210
shares which Messrs. Lacy, Riehl, Stieff, L. Williams and R. Williams,
respectively, had a right to purchase pursuant to the exercise of stock
options; excludes 6,396 and 11,992 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>
-3-
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 sales representative
for 29 years at St. Joe Paper Co. of Jacksonville, Florida. 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 served until 1998 as President of Lacy
Foundries, Inc., a manufacturer of iron, brass and aluminum
castings in Baltimore, Maryland. He has been a member of the
Board of Directors of Mercy Medical Center, Jenkins Nursing Home
and associated Catholic charities..
JOHN H. RIEHL, III is General Partner of Riehl Estate
Management Co. in Baltimore, Maryland. He is a former trustee
of Saint Mary's Spiritual Center and a member of the Parish
Council - Shrine of the Sacred Heart Church.
LAWRENCE W. WILLIAMS is Executive Vice President and
Community Reinvestment Officer for Harbor Federal. Mr. Williams
serves as a Board Member for Bel Air Edison Housing Services and
is a certified instructor for the Institute of Financial
Education. He also hosts "The Bankers Hour", a weekly radio
show which airs on WCBM, Baltimore.
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, 1999, the Boards of the Company
and the Bank met seven and 12 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 1999 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
-4-
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. The Company's Articles of Incorporation
set forth procedures that must be followed by stockholders
seeking to make nominations for directors. In order for a
stockholder of the Company to make any nominations, he or she
must give written notice thereof to the Secretary of the Company
not less than thirty days nor more than sixty days prior to the
date of any such meeting; provided, however, that if less than
forty days' notice of the meeting is given to stockholders, such
written notice shall be delivered or mailed, as prescribed, to
the Secretary of the Company not later than the close of
business on the tenth day following the day on which notice of
the meeting was mailed to stockholders. Each such notice given
by a stockholder with respect to nominations for the election of
directors must set forth (i) the name, age, business address
and, if known, residence address of each nominee proposed in
such notice; (ii) the principal occupation or employment of each
such nominee; and (iii) the number of shares of stock of the
Company which are beneficially owned by each such nominee. In
addition, the stockholder making such nomination must promptly
provide any other information reasonably requested by the
Company.
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, 1999 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.
Annual Compensation
Name and Fiscal ---------------------------
Principal Positions Year Salary Bonus Other(1)
- ------------------- ------ ------ ----- --------
Robert A. Williams 1999 $122,372 $47,845 $45,352
Chief Executive Officer, 1998 118,360 49,755 44,452
President and Director 1997 114,750 38,242 44,152
Norbert J. Luken 1999 $ 97,094 $35,006 $30,000
Chief Financial Officer, 1998 94,024 37,041 30,000
Treasurer 1997 91,364 28,506 30,000
<FN>
__________________
1 Reflects combined compensation under the Company's ESOP and
money purchase plan of $30,000 per year; for Mr. Williams,
also reflects annual deferred compensation funded by the
payment of premium on life insurance policy and annual
director's fees.
</FN>
-5-
Stock Options. The following table sets forth information
regarding option exercises during the fiscal year ended March
31, 1999 and the number and potential value at March 31, 1999 of
options held by the named executive officers. No options were
granted to executive officers during the year ended March 31,
1999.
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options
Options at Fiscal Year-End(#) at Fiscal Year-End($)(1)
Shares Acquired Value --------------------------- --------------------------
on exercise(#) Realized($) Exercisable Unexercisable Exercisable Unexercisable
--------------- ---------- ----------- ------------- ----------- -------------
Robert A. Williams 5,050 95,088 41,210 11,992 287,065 83,535
Norbert J. Luken 13,000 257,750 10,280 6,396 71,609 44,554
<FN>
__________________
1 Based on the difference between the closing sale price of the Common Stock on
March 31, 1999 as reported on the Nasdaq National Market ($16.625 per share) and
the exercise price ($9.6591 per share).
</FN>
DIRECTOR COMPENSATION
Fees. Directors received fees of $900 per meeting.
During fiscal 1999, directors' fees totaled $67,500.
Director Retirement Plan. Harbor Federal maintains 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" 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 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; provided that a participant's
"benefit percentage" accelerates to 100% if the participant
completes five years of service and retires from service on the
Board on or after age 70. 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 disability payments had commenced prior to the
participant's death). 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.
It is now being proposed that directors be allowed to convert
their past and future benefits into Common Stock issued pursuant
to the 1999 Stock Incentive Plan. See "Proposal II -- Approval
of the Harbor Federal Bancorp, Inc. 1999 Stock Incentive Plan."
Deferred Compensation Plan. Harbor Federal has
established a Deferred Compensation Plan (the "Deferred
Compensation Plan") for the exclusive benefit of members of
Harbor Federal's Board of Directors and executive officers of
Harbor Federal. Pursuant to the terms of the Deferred
Compensation Plan, directors may elect to defer the receipt of
all or part of their future fees, and eligible officers may
elect to defer receipt of up to 25% of their future
compensation. Deferred amounts will be credited to a
bookkeeping account in the participant's name, which will also
be credited quarterly with the investment return which would
have resulted if such deferred amounts had been invested, based
upon the participant's choice, in either Common Stock or Harbor
Federal's highest annual rate of interest on certificates of
deposit, regardless of their term. Participants may cease
future deferrals any time. Each participant may elect the time
and manner of distribution for amounts deferred and any related
accumulated earnings.
-6-
Stock Incentive Plan. Directors are eligible to
participate in the Harbor Federal Bancorp, Inc. 1999 Stock
Incentive Plan. For a description of this plan, see "Proposal
II -- Approval of the Harbor Federal Bancorp, Inc. 1999 Stock
Incentive Plan."
EMPLOYMENT AND OTHER 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 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. 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.
The employment agreement contains provisions stating that
in the event of Mr. Williams' involuntary termination of
employment in connection with, or within 24 months after, any
change in control of Harbor Federal or the Company, other than
for "just cause," or Mr. Williams voluntarily terminates his
employment within 30 days of such change in control. 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
-7-
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, 1999 would have been approximately $684,000. 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.
Harbor Federal has entered into a supplemental executive
retirement agreement (the "SERA") with Mr. Williams. Pursuant
to the terms of the SERA, upon Mr. Williams's termination of
employment with the Company or Harbor Federal for reasons other
than death, disability or removal for just cause, he will be
entitled to receive annual payments from Harbor Federal in an
amount equal to 60% of his "Average Annual Compensation" less
his "Annual Offset Amount." "Average Annual Compensation" means
the average of Mr. Williams highest annual compensation for
three of the five calendar years preceding his termination of
employment, and "Annual Offset Amount" means the benefits Mr.
Williams would receive in the form of an annuity under Harbor
Federal's Money Purchase Plan upon his termination of
employment. Such annual payments shall be made for 10 years,
unless Mr. Williams elects an alternative time and manner of
payment. Harbor Federal has established an irrevocable grantor
trust to hold assets to provide itself with a source of funds to
assist Harbor Federal in meeting its liabilities under the SERA.
In the event Mr. Williams terminates employment due to
disability as determined under his employment agreement, Mr.
Williams would receive annual payments for 10 years in the
amount equal to 60% of his Average Annual Compensation less his
Annual Offset Amount, beginning on the first day of the second
month after his termination of employment. Termination for
"just cause" (as determined under Mr. Williams' employment
agreement ) would result in his forfeiture of all retirement
benefits under the SERA. In the event Harbor Federal terminates
Mr. Williams's employment for other than "just cause" or in the
event of termination of employment in connection with a change
in control (as defined in Mr. Williams's employment agreement)
which triggers the payment of compensation to Mr. Williams under
the terms of his employment agreement, then the present value of
the benefits payable to Mr. Williams would be paid in one lump
sum within 10 days of termination of employment or within 10
days following a change in control, if earlier. It is now being
proposed to permit Mr. Williams to convert his past and future
benefits under the SERA into Common Stock issued pursuant to the
1999 Stock Incentive Plan. See "Proposal II -- Approval of the
Harbor Federal Bancorp, Inc. 1999 Stock Incentive Plan."
The Company and Harbor Federal have entered into a
severance agreement with Norbert J. Luken. The severance
agreement 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 24 months 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)
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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
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, 1999 would have been approximately $483,000. 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.
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PROPOSAL II -- APPROVAL OF THE HARBOR FEDERAL BANCORP, INC.
1999 STOCK INCENTIVE PLAN
GENERAL
The Board of Directors of the Company is seeking stockholder
approval of the Harbor Federal Bancorp, Inc. 1999 Stock
Incentive Plan (the "SIP"). A copy of the SIP is attached
hereto as Exhibit A and should be consulted for detailed
information. All statements made herein regarding the SIP are
only intended to summarize the SIP and are qualified in their
entirety by reference to the SIP.
PURPOSE OF THE SIP
The purpose of the SIP is to advance the interests of the
Company by providing eligible directors and employees of the
Company and its affiliates, including the Bank, with the
opportunity to acquire shares of Common Stock. By encouraging
such stock ownership, the Company seeks to attract, retain, and
motivate the best available personnel for positions of
substantial responsibility and to provide additional incentives
to directors and employees of the Company and its affiliates to
promote the success of the business.
DESCRIPTION OF THE SIP
Effective Date. The SIP became effective May 24, 1999 (the
"Effective Date"), although the effectiveness of the SIP and any
awards thereunder is contingent on approval of the SIP by the
Company's stockholders at the Annual Meeting. No awards will be
granted under the SIP prior to the Annual Meeting, and no
determination has been made regarding the grant of awards under
the SIP if it is approved at the Annual Meeting.
Administration. The SIP is administered by a committee (the
"Committee"), appointed by the Board of Directors, and
consisting of at least two directors of the Company who are
"non-employee directors" within the meaning of the federal
securities laws. The Committee has discretionary authority to
select participants and grant awards, to determine the form and
content of any awards granted under the SIP, to interpret the
SIP, to prescribe, amend and rescind rules and regulations
relating to the SIP, and to make other decisions necessary or
advisable for the administration of the SIP. All decisions,
determinations and interpretations of the Committee are final
and conclusive on all persons affected thereby. Members of the
Committee will be indemnified to the full extent permissible
under the Company's governing instruments in connection with any
claims or other actions relating to any action taken under
the SIP. The Committee currently consists of Directors Joseph
J. Lacy, John H. Riehl, III and Gideon N. Stieff, Jr.
Eligible Persons; Types of Awards. Under the SIP, the
Committee has discretionary authority to grant stock options
("Options"), stock appreciation rights ("SARs"), and deferred
share awards ('Deferred Share Awards") (collectively, "Awards")
to such employees and directors, including members of the
Committee, as the Committee shall designate. As of the Record
Date, the Company and its subsidiaries had seven employees and
four non-employee directors who were eligible to participate in
the SIP.
Shares Available for Grants. The SIP reserves 170,000
shares of Common Stock for issuance upon the exercise of Options
or SARs, as well as upon the distribution of Deferred Share
Awards. Such shares may be (i) authorized but unissued shares,
(ii) shares held in treasury, or (iii) shares held in a grantor
trust. In the event of any merger, consolidation,
recapitalization, reorganization, reclassification, stock
dividend, split-up, combination of shares, or similar event in
which the number or kind of shares is changed without receipt or
payment of consideration by the Company, the Committee will
adjust the number and kind of shares reserved for issuance under
the SIP, the number of and kind of shares subject to outstanding
Awards, and the exercise prices of Options or SARs. To the
extent Awards expire, become unexercisable, or are forfeited
for any reason without having resulted in the issuance of Common
Stock to Award holders, those shares shall, unless the SIP shall
have been terminated, be available for the grant of additional
Awards.
Options; Exercise Price. Options may be either incentive
stock options ("ISOs") as defined in Section 422 of the Internal
Revenue Code, or Options that are not ISOs ("Non-ISOs"). The
exercise price as to any Option may not
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be less than the fair market value (determined under the SIP) of
the optioned shares on the date of grant. The last reported
sale price of the Common Stock on June 2, 1999 was $16.00 per
share. In the case of a participant who owns more than 10% of
the outstanding Common Stock on the date of receiving an ISO
grant, its exercise price may not be less than 110% of fair
market value of the shares. As required by federal tax laws, to
the extent that the aggregate fair market value (determined when
an ISO is granted) of the Common Stock with respect to which
ISOs are exercisable by a participant for the first time during
any calendar year (under all plans of the Company and of any
subsidiary) exceeds $100,000, the Options granted in excess of
$100,000 will be treated as Non-ISOs.
SARs. An SAR may be granted in tandem with all or part of
any Option granted under the SIP, or without any relationship to
any Option. An SAR granted in tandem with an ISO must expire no
later than the ISO, may be for no more than the difference
between the exercise price of the ISO and the market value of
the underlying shares at the time the SAR is exercised, must be
transferable only when the ISO is transferable, and may be
exercised only when the ISO is exercisable and when the fair
market value of the shares subject to the ISO exceeds the
exercise price of the ISO. For SARs granted in tandem with
Options, the participant's exercise of the SAR cancels his or
her right to exercise the Option, and vice versa. Regardless of
whether an SAR is granted in tandem with an Option, exercise of
the SAR will entitle the participant to receive, as the
Committee prescribes in the grant, all or a percentage of the
difference between (i) the fair market value of the shares of
Common Stock subject to the SAR at the time of its exercise, and
(ii) the fair market value of such shares at the time the SAR
was granted (or, in the case of SARs granted in tandem with
Options, the exercise price). The exercise price as to any
particular SAR may not be less than the fair market value of the
optioned shares on the date of grant.
Exercise of Options and SARs. The exercise of Options and
SARs will be subject to such terms and conditions as are
established by the Committee in a written agreement between the
Committee and the participant. Only Common Stock is subject to
purchase upon exercise of the Options, and an Option may not be
exercised for a fractional share.
Method for Exercise. A participant may exercise Options and
SARs, subject to provisions relative to their termination and
limitations on their exercise, only by (i) written notice of
intent to exercise the Option or SAR with respect to a specified
number of shares of Common Stock, and (ii) in the case of
Options, payment to the Company (contemporaneously with delivery
of such notice) in cash, in Common Stock that has been held for
at least six months, or a combination of cash and Common Stock,
of the amount of the exercise price for the number of shares
with respect to which the Option is then being exercised.
Common Stock utilized in full or partial payment of the exercise
price for Options shall be valued at its market value at the
date of exercise.
Effect of Termination of Service. In the absence of
Committee action to the contrary, an otherwise unexpired Option
shall cease to be exercisable upon (i) a participant's
termination of employment for "just cause" as defined in the
SIP, (ii) the date that is one year after a participant
terminates service for a reason other than just cause or death,
or (iii) the date that is two years after a participant's death.
Deferred Share Credits. The Committee may make
discretionary Deferred Share Awards to select employees and
directors (including members of the Committee). Automatic
credits will be made on the last day of each fiscal year of the
Company with respect to 300 shares to the account of each
director who had elected to forego benefits during the fiscal
year under either the Director Retirement Plan or the SERA
(together, the "Nonqualified Plans"). In addition, each
employee or director who has previously accrued benefits under
either of the Nonqualified Plans may elect at any time to cancel
his rights to all or a whole percentage of those benefits, and
in consideration to receive a credit under the SIP for a number
of deferred shares that have a value on that date equal to the
benefits being canceled. The Plan also reserves to the
Committee the discretion to make Deferred Share Awards as part
of a deferred compensation program for executives and directors.
If the SIP had been in effect during the prior fiscal year and
if all directors had elected to convert their nonqualified plan
benefits into deferred shares issued under the SIP as of March
31, 1999, then 34,127 shares would have been credited in the
aggregate to their accounts in the form of Deferred Share Awards
(based on the closing price for the Common Stock of $16.625 per
share on March 31, 1999). See "-- Financial Effects of Awards"
below.
In all cases, the Company will hold the Common Stock
associated with a Deferred Share Award for distribution over the
five-year period after the Award holder terminates service,
subject to the holder's right to elect a different
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payout term and commencement date. Any distribution of Common
Stock will include dividends that accrued after the date of the
Deferred Share Award (with cash dividends being converted into
deferred shares at the end of each fiscal year).
Conditions on Issuance of Shares. The Committee will have
the discretionary authority to impose, in agreements, such
restrictions on shares of Common Stock issued pursuant to the
SIP as it may deem appropriate or desirable, including but not
limited to the authority to impose a right of first refusal or
to establish repurchase rights or both of these restrictions.
In addition, the Committee may not issue shares unless the
issuance complies with applicable securities laws, and to that
end may require that a participant make certain representations
or warranties.
Nontransferability. Participants may transfer non-ISOs and
SARs to family members or trusts under specified circumstances.
Awards may not otherwise be sold, pledged, assigned,
hypothecated, transferred or disposed of in any manner other
than by will or by the laws of descent and distribution. In
addition, Common Stock that is purchased upon the exercise of an
Option or SAR may not be sold within the six-month period
following the grant date of that Option or SAR, except in the
event of the participant's death or disability, or such other
event as the Board of Directors may specifically deem
appropriate. A participant may not assign his or her claim to
deferred shares and associated earnings during his or her
lifetime. A participant's right to deferred shares and
associated earnings shall at all times constitute an unsecured
promise of the Company to pay benefits as they come due.
Neither the participant nor his or her beneficiary will have any
claim against or rights in any specific assets of the Company.
Effect of Dissolution and Related Transactions. Upon the
earlier of a change in control (as defined in the Plan) or the
execution of an agreement to effect a change in control, all
Options and SARs will become fully exercisable. In the event of
(i) the liquidation or dissolution of the Company, (ii) a merger
or consolidation in which the Company is not the surviving
entity, or (iii) the sale or disposition of all or substantially
all of the Company's assets (any of the foregoing to be referred
to herein as a "Transaction"), all outstanding Awards, together
with the exercise prices thereof, will be equitably adjusted for
any change or exchange of shares for a different number or kind
of shares or other securities which results from the
Transaction. However, any such adjustment will be made in such
a manner as to not constitute a modification, within the meaning
of Section 424(h) of the Internal Revenue Code, of outstanding
ISOs.
Duration of the SIP and Grants. The SIP has a term of 10
years from the Effective Date, after which date no Awards may be
granted. The maximum term for an Option or SAR is 10 years from
the date of grant, except that the maximum term of an ISO (and
an SAR granted in tandem with an ISO) may not exceed five years
if the participant owns more than 10% of the Common Stock on the
date of grant. The expiration of the SIP, or its termination by
the Committee, will not affect any Award then outstanding.
Modification of Options. At any time, and from time to
time, the Board may authorize the Committee to modify any
outstanding Option, provided that no such modification may
confer on the holder of the Option any right or benefit which
could not be conferred on him by the grant of a new Option or
impair the Option without his consent.
Amendment and Termination of the SIP. The Board of
Directors may from time to time amend the terms of the SIP and,
with respect to any shares at the time not subject to Awards,
suspend or terminate the SIP. No amendment, suspension, or
termination of the SIP will, without the consent of any affected
participant, alter or impair any rights or obligations under any
Award previously granted.
Financial Effects of Awards. The Company will receive no
monetary consideration for the granting of Awards under the SIP.
It will receive no monetary consideration other than the
exercise price for shares of Common Stock issued to participants
upon the exercise of their Options, and will receive no monetary
consideration upon the exercise of SARs or the distribution of
Common Stock satisfying Deferred Share Awards. Cash proceeds
from the sale of Common Stock issued pursuant to the exercise of
Options will be added to the general funds of the Company to be
used for general corporate purposes.
Under the intrinsic value method that the Company follows
under applicable accounting standards, recognition of
compensation expense is not required when Options are granted at
an exercise price equal to or exceeding the fair
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market value of the Common Stock on the date the Option is
granted, but disclosure may be required in financial statement
footnotes regarding pro forma effects on earnings and earnings
per share of recognizing as a compensation expense an estimate
of the fair value of such stock-based awards.
In March 1999, the Financial Accounting Standards Board
issued an exposure draft of a proposed interpretation of
existing accounting treatment for stock-based compensation to
individuals who do not qualify as employees of the Company
(including non-employee directors). Among other things, this
change would require recognition of compensation expense when
Options are awarded to these individuals.
The granting of SARs will require charges to the income of
the Company based on the amount of the appreciation, if any, in
the average market price of the Common Stock to which the SARs
relate over the exercise price of those shares. If the average
market price of the Common Stock declines subsequent to a charge
against earnings due to estimated appreciation in the Common
Stock subject to SARs, the amount of the decline will reverse
such prior charges against earnings (but not by more than the
aggregate of such prior charges).
The granting of Deferred Share Awards that cancel benefits
that had accrued under the Nonqualified Plans will not result in
charges to the Company's income. Additional Deferred Share
Awards will require charges to the Company's income in an amount
equal to the fair market value, on the date of award, of the
shares of Common Stock credited pursuant to the Deferred Share
Award.
FEDERAL INCOME TAX CONSEQUENCES
Summarized below are the federal income tax consequences
that the Company expects (based on current tax laws, rules, and
interpretations) with respect to Awards.
Date of Award. The recipient of an Award will not recognize
taxable income upon its grant. Nor will the grant entitle the
Company to a current deduction.
Subsequent Events. The subsequent tax consequences for
Award recipients differ, as follows, depending on the type of
Award. In general, however, the Company will be entitled to a
deduction for federal income tax purposes at the same time and
in the same amount as the ordinary income recognized by the
Award holder.
ISOs. If an Award holder holds the shares purchased upon
exercise of an ISO for at least two years from the date the ISO
is granted, and for at least one year from the date the ISO is
exercised, any gain realized on the sale of the shares received
upon exercise of the ISO is taxed as long-term capital gain.
However, the difference between the fair market value of the
Common Stock on the date of exercise and the exercise price of
the ISO will be treated by the holder as an item of tax
preference in the year of exercise for purposes of the
alternative minimum tax. If a holder disposes of the shares
before the expiration of either of the two special holding
periods noted above, the disposition is a "disqualifying
disposition." In this event, the holder will be required, at
the time of the disposition of the Common Stock, to treat the
lesser of the gain realized or the difference between the
exercise price and the fair market value of the Common Stock at
the date of exercise as ordinary income and the excess, if any,
as capital gain.
The Company will not be entitled to any deduction for
federal income tax purposes as the result of the grant or
exercise of an ISO, regardless of whether or not the exercise of
the ISO results in liability to the holder for alternative
minimum tax. However, if a participant recognizes ordinary
income taxable as compensation as a result of a disqualifying
disposition, the Company will be entitled to deduct an
equivalent amount.
Non-ISOs. A holder will recognize ordinary income upon the
exercise of the Non-ISO in an amount equal to the difference
between the fair market value of the shares on the date of
exercise and the option price (or, if the holder is subject to
certain restrictions imposed by the federal securities laws,
upon the lapse of those restrictions unless the holder makes a
special tax election within 30 days after the date of exercise
to have the general rule apply). Upon a subsequent disposition
of such shares, any amount received by the holder in excess of
the fair market value of the shares as of the exercise date will
be taxed as capital gain.
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SARs. Upon exercise of the SARs, any cash or Common Stock
received by the SAR holder will be treated as compensation
income to the holder.
Deferred Shares. Whenever the Company transfers Common
Stock or associated earnings to a Deferred Share Award holder,
the holder will recognize ordinary income equal to the fair
market value of the property transferred.
RECOMMENDATION AND VOTE REQUIRED
The Board of Directors has determined that the SIP is
desirable, cost effective, and produces incentives that will
benefit the Company and its stockholders. The Board of
Directors is seeking stockholder approval of the SIP in order to
satisfy the requirements of the Internal Revenue Code for
favorable tax treatment of ISOs and to satisfy the listing
requirements of the National Association of Securities Dealers
for national market system securities.
Stockholder approval of the SIP requires the affirmative
vote of the holders of a majority of the votes cast at the
Annual Meeting. THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR"
APPROVAL OF THE SIP.
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.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Pursuant to regulations promulgated under the Exchange Act,
the Company's officers and directors and all persons who
beneficially own more than ten percent of the Common Stock
("Reporting Persons") are required to file reports detailing
their ownership and changes of ownership in the Common Stock and
to furnish the Company with copies of all such ownership reports
that are filed. Based solely on the Company's review of the
copies of such ownership reports which is has received in the
past fiscal year or with respect to the past fiscal year, or
written representations from the Reporting Person that no annual
report of changes in beneficial ownership were required, the
Company believes that during fiscal year 1999 and prior fiscal
years all Reporting Persons have complied with these reporting
requirements.
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 LLP, independent certified
public accountants, to serve as its independent auditor for the
fiscal year ending March 31, 2000. A representative of KPMG 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.
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STOCKHOLDER PROPOSALS
Under the Company's Articles of Incorporation, stockholder
proposals must be submitted in writing to the Secretary of the
Company at the address stated later in this paragraph no less
than 30 days nor more than 60 days prior to the date of such
meeting; provided, however, that if less than forty days' notice
of the meeting is given to stockholders, such written notice
shall be delivered or mailed, as prescribed, to the Secretary of
the Company not later than the close of business on the tenth
day following the day on which notice of the meeting was mailed
to stockholders. For consideration at the Annual Meeting, a
stockholder proposal must be delivered or mailed to the
Company's Secretary no later than February 1, 1999. 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 March 1, 2000. 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 14, 1999
FORM 10-KSB
A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-KSB FOR
THE FISCAL YEAR ENDED MARCH 31, 1999 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.
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EXHIBIT A
HARBOR FEDERAL BANCORP, INC.
1999 STOCK INCENTIVE PLAN
1. PURPOSE OF THE PLAN.
The purpose of this Plan is to advance the interests of the
Company through providing select key Employees and Directors of
the Bank, the Company, and their Affiliates with the opportunity
to receive Options, SARs, and Deferred Shares. By encouraging
stock ownership through these awards, the Company seeks to
attract, retain and motivate the best available personnel for
positions of substantial responsibility and to provide
additional incentives to Directors and key Employees of the
Company or any Affiliate to promote the success of the business.
It is intended that options issued pursuant to this Plan may
constitute either ISOs or Non-ISOs as defined below.
2. DEFINITIONS.
As used herein, the following definitions shall apply.
(a) "Affiliate" shall mean any "parent corporation" or
"subsidiary corporation" of the Company, as such terms are
defined in Section 424(e) and (f), respectively, of the Code.
(b) "Agreement" shall mean a written agreement entered into
in accordance with Paragraph 5(c).
(c) "Awards" shall mean, collectively, Options, SARs, and
Deferred Shares.
(d) "Bank" shall mean Harbor Federal Savings Bank.
(e) "Board" shall mean the Board of Directors of the
Company.
(f) "Change in Control" shall mean any one of the following
events: (1) the acquisition of ownership, holding or power to
vote more than 25% of the Bank's or the Company's voting stock,
(2) the acquisition of the ability to control the election of a
majority of the Bank's or the Company's directors, (3) the
acquisition of a controlling influence over the management or
policies of the Bank or the Company by any person or by persons
acting as a "group" (within the meaning of Section 13(d) of the
Securities Exchange Act of 1934), or (4) during any period of
two consecutive years, individuals (the "Continuing Directors")
who at the beginning of such period constitute the Board of
Directors of the Company or the Bank (the "Existing Board")
cease for any reason to constitute at least two-thirds thereof,
provided that any individual whose election or nomination for
election as a member of the Existing Board was approved by a
vote of at least two-thirds of the Continuing Directors then in
office shall be considered a Continuing Director. In the case
of subsections (1), (2), and (3) above, ownership or control of
the Bank by the Company itself shall not constitute a "Change in
Control." For purposes of defining Change in Control, the term
"person" refers to an individual or a corporation, partnership,
trust, association, joint venture, pool, syndicate, sole
proprietorship,
A-1
unincorporated organization or any other form of entity not
specifically listed herein. The decision of the Committee as to
whether a Change in Control has occurred shall be conclusive and
binding.
(g) "Code" shall mean the Internal Revenue Code of 1986,
as amended.
(h) "Committee" shall mean the Stock Option Committee
appointed by the Board in accordance with Paragraph 5(a) hereof;
provided that the Board may act in lieu of the Committee with
respect to any matter as to which the Committee may act.
(i) "Common Stock" shall mean the common stock of the
Company.
(j) "Company" shall mean Harbor Federal Bancorp, Inc.
(k) "Continuous Service" shall mean the absence of any
interruption or termination of service as an Employee or
Director of the Company or an Affiliate. Continuous Service
shall not be considered interrupted in the case of sick leave,
military leave or any other leave of absence approved by the
Company, in the case of transfers between payroll locations of
the Company or between the Company, an Affiliate or a successor,
or in the case of a Director's performance of services in an
emeritus or advisory capacity.
(l) "Deferred Shares" shall mean Shares that the Company
has credited, pursuant to Paragraph 10 hereof, to a deferred
compensation account in the name of a Participant.
(m) "Director" shall mean any member of the Board, and any
member of the board of directors of any Affiliate that the Board
has by resolution designated as being eligible for participation
in this Plan.
(n) "Disability" shall mean a physical or mental condition,
which in the sole and absolute discretion of the Committee, is
reasonably expected to be of indefinite duration and to
substantially prevent a Participant from fulfilling his or her
duties or responsibilities to the Company or an Affiliate.
(o) "Effective Date" shall mean the date specified in
Paragraph 14 hereof.
(p) "Employee" shall mean any person employed by the
Company, the Bank, or an Affiliate.
(q) "Exercise Price" shall mean the price per Optioned
Share at which an Option may be exercised.
(r) "ISO" means an option to purchase Common Stock which
meets the requirements set forth in the Plan, and which is
intended to be and is identified as an "incentive stock option"
within the meaning of Section 422 of the Code.
(s) "Market Value" shall mean the fair market value of the
Common Stock, as determined under Paragraph 7(b) hereof.
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(t) "Non-Employee Director" shall have the meaning provided
in Rule 16b-3.
(u) "Non-ISO" means an option to purchase Common Stock
which meets the requirements set forth in the Plan but which is
not intended to be and is not identified as an ISO.
(v) "Option" means an ISO and/or a Non-ISO.
(w) "Optioned Shares" shall mean Shares subject to an Award
granted pursuant to this Plan.
(x) "Participant" shall mean any person who receives an
Option, SAR, or Deferred Shares pursuant to the Plan.
(y) "Plan" shall mean The Peoples BancTrust Company, Inc.
1999 Stock Option Plan.
(z) "Rule 16b-3" shall mean Rule 16b-3 of the General Rules
and Regulations under the Securities Exchange Act of 1934, as
amended.
(aa) "Share" shall mean one share of Common Stock.
(bb) "SAR" (or "Stock Appreciation Right") shall mean a
right to receive the appreciation in value, or a portion of the
appreciation in value, of a specified number of shares of Common
Stock.
3. TERM OF THE PLAN AND AWARDS.
(a) Term of the Plan. The Plan shall continue in effect
for a term of ten years from the Effective Date, unless sooner
terminated pursuant to Paragraph 16 hereof. No Option shall be
granted under the Plan after ten years from the Effective Date.
(b) Term of Options. The term of each Option granted under
the Plan shall be established by the Committee, but shall not
exceed 10 years; provided, however, that in the case of an
Employee who owns Shares representing more than 10% of the
outstanding Common Stock at the time an ISO is granted, the term
of such ISO shall not exceed five years.
4. Shares Subject to the Plan.
Except as otherwise required under Paragraph 11, the
aggregate number of Shares deliverable pursuant to the Plan
shall not exceed 170,000 Shares. Such Shares may either be
authorized but unissued Shares, Shares held in treasury, or
Shares held in a grantor trust created by the Company. If any
Awards should expire, become unexercisable, or be forfeited for
any reason without having resulted in the issuance of Shares to
Participants, the Optioned Shares shall, unless the Plan shall
have been terminated, be available for the grant of additional
Awards under the Plan.
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5. ADMINISTRATION OF THE PLAN.
(a) Composition of the Committee. The Plan shall be
administered by the Committee, appointed by the Board,
consisting of at least two members of the Board who are
Non-Employee Directors. Members of the Committee shall serve at
the pleasure of the Board. In the absence at any time of a duly
appointed Committee, the Plan shall be administered by those
members of the Board who are Non-Employee Directors.
(b) Powers of the Committee. Except as limited by the
express provisions of the Plan or by resolutions adopted by the
Board, the Committee shall have sole and complete authority and
discretion (i) to select Participants and grant Awards, (ii) to
determine the form and content of Awards to be issued in the
form of Agreements under the Plan, (iii) to interpret the Plan,
(iv) to prescribe, amend and rescind rules and regulations
relating to the Plan, and (v) to make other determinations
necessary or advisable for the administration of the Plan. The
Committee shall have and may exercise such other power and
authority as may be delegated to it by the Board from time to
time. A majority of the entire Committee shall constitute a
quorum and the action of a majority of the members present at
any meeting at which a quorum is present, or acts approved in
writing by a majority of the Committee without a meeting, shall
be deemed the action of the Committee.
(c) Agreement. Each Award shall be evidenced by a written
agreement containing such provisions as may be approved by the
Committee. Each such Agreement shall constitute a binding
contract between the Company and the Participant, and every
Participant, upon acceptance of such Agreement, shall be bound
by the terms and restrictions of the Plan and of such Agreement.
The terms of each such Agreement shall be in accordance with the
Plan, but each Agreement may include such additional provisions
and restrictions determined by the Committee, in its discretion,
provided that such additional provisions and restrictions are
not inconsistent with the terms of the Plan. In particular, the
Committee shall set forth in each Agreement (i) the Exercise
Price of each Option or SAR, (ii) the number of Shares subject
to, and the expiration date of, each Award, (iii) the manner,
time and rate (cumulative or otherwise) of exercise or vesting
of such Award, and (iv) the restrictions, if any, to be placed
upon such Award, or upon Shares which may be issued pursuant to
such Award.
The Chairman of the Committee and such other Directors and
officers as shall be designated by the Committee are hereby
authorized to execute Agreements on behalf of the Company and to
cause them to be delivered to the recipients of Awards.
(d) Effect of the Committee's Decisions. All decisions,
determinations and interpretations of the Committee shall be
final and conclusive on all persons affected thereby.
(e) Indemnification. In addition to such other rights of
indemnification as they may have, the members of the Committee
shall be indemnified by the Company in connection with any
claim, action, suit or proceeding relating to any action taken
or failure to act under or in connection with the Plan or any
Award granted hereunder to the full extent provided for under
the Company's governing instruments with respect to the
indemnification of Directors.
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6. GRANT OF AWARDS.
(a) General Rule. The Committee shall have the discretion
to make discretionary grants of Awards to Employees and
Directors, including members of the Committee.
(b) Special Rules for ISOs. The aggregate Market Value,
as of the date the Option is granted, of the Shares with respect
to which ISOs are exercisable for the first time by an Employee
during any calendar year (under all incentive stock option
plans, as defined in Section 422 of the Code, of the Company or
any present or future Affiliate of the Company) shall not exceed
$100,000. Notwithstanding the foregoing, the Committee may
grant Options in excess of the foregoing limitations, in which
case such Options granted in excess of such limitation shall be
Options which are Non-ISOs.
7. EXERCISE PRICE FOR OPTIONS.
(a) Limits on Committee Discretion. The Exercise Price as
to any particular Option shall not be less than 100% of the
Market Value of the Optioned Shares on the date of grant. In
the case of an Employee who owns Shares representing more than
10% of the Company's outstanding Shares of Common Stock at the
time an ISO is granted, the Exercise Price shall not be less
than 110% of the Market Value of the Optioned Shares at the time
the ISO is granted.
(b) Standards for Determining Exercise Price. If the
Common Stock is listed on a national securities exchange,
including the Nasdaq National Market System, on the date in
question, then the Market Value per Share shall be the average
of the highest and lowest selling price on such exchange on such
date, or if there were no sales on such date, then the Exercise
Price shall be the mean between the bid and asked price on such
date. If the Common Stock is traded otherwise than on a
national securities exchange on the date in question, then the
Market Value per Share shall be the mean between the bid and
asked price on such date, or, if there is no bid and asked price
on such date, then on the next prior business day on which there
was a bid and asked price. If no such bid and asked price is
available, then the Market Value per Share shall be its fair
market value as determined by the Committee, in its sole and
absolute discretion.
8. EXERCISE OF OPTIONS.
(a) Conditions for Exercise. Any Option granted hereunder
shall be exercisable at such times and under such conditions as
the Committee shall specify in the Agreement granting the Option
to the Optionee.
(b) Procedure for Exercise. A Participant may exercise an
Option, subject to provisions relative to its termination and
limitations on its exercise, only by (1) written notice of
intent to exercise the Option with respect to a specified number
of Shares, and (2) payment to the Company (contemporaneously
with delivery of such notice) in cash, in Common Stock, or a
combination of cash and Common Stock, of the amount of the
Exercise Price for the number of Shares with respect to which
the Option is then being exercised. Each such notice, and
payment where required, shall be delivered, or mailed by prepaid
registered or certified mail, addressed to
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the Treasurer of the Company at its executive offices. Common
Stock utilized in full or partial payment of the Exercise Price
for Options shall be valued at its Market Value at the date of
exercise and have been held for at least six months. An Option
may not be exercised for a fractional Share.
(c) Period of Exercisability. Except to the extent
otherwise provided in the terms of an Agreement, an Option may
be exercised by a Participant only during his Continuous
Service, or within one year after termination of such Continuous
Service (but not later than the date on which the Option would
otherwise expire), except if the Participant's Continuous
Service terminates by reason of -
(1) "Just Cause" which for purposes hereof shall have
the meaning set forth in any unexpired employment or
severance agreement between the Participant and the Bank
and/or the Company (and, in the absence of any such
agreement, shall mean termination because of the
Participant's personal dishonesty, incompetence, willful
misconduct, breach of fiduciary duty involving personal
profit, intentional failure to perform stated duties,
willful violation of any law, rule or regulation (other
than traffic violations or similar offenses) or final
cease-and-desist order), then the Participant's rights to
exercise such Option shall expire on the date of such
termination;
(2) death, then to the extent that the Participant
would have been entitled to exercise the Option immediately
prior to his death, such Option of the deceased Participant
may be exercised within two years from the date of his
death, but not later than the date on which the Option
would otherwise expire, by the personal representatives of
his estate or person or persons to whom his rights under
such Option shall have passed by will or by laws of descent
and distribution.
(d) Effect of the Committee's Decisions. The Committee's
determination whether a Participant's Continuous Service has
ceased, and the effective date thereof, shall be final and
conclusive on all persons affected thereby.
(e) Mandatory Six-Month Holding Period. Notwithstanding
any other provision of this Plan to the contrary, Common Stock
that is purchased upon exercise of an Option may not be sold
within the six-month period following the grant date of that
Option, except in the event of the Participant's death or
Disability, or such other event as the Board may specifically
deem appropriate.
9. SARS (STOCK APPRECIATION RIGHTS).
(a) Granting of SARs. In its sole discretion, the
Committee may from time to time grant SARs to Employees or
Directors either in conjunction with, or independently of, any
Options granted under the Plan. An SAR granted in conjunction
with an Option may be an alternative right wherein the exercise
of the Option terminates the SAR to the extent of the number of
shares purchased upon exercise of the Option and,
correspondingly, the exercise of the SAR terminates the Option
to the extent of the number of Shares with respect to which the
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SAR is exercised. Alternatively, an SAR granted in conjunction
with an Option may be an additional right wherein both the SAR
and the Option may be exercised. An SAR may not be granted in
conjunction with an ISO under circumstances in which the
exercise of the SAR affects the right to exercise the ISO or
vice versa, unless the SAR, by its terms, meets all of the
following requirements: (1) the SAR will expire no later than
the ISO; (2) the SAR may be for no more than the difference
between the Exercise Price of the ISO and the Market Value of
the Shares subject to the ISO at the time the SAR is exercised;
(3) the SAR is transferable only when the ISO is transferable,
and under the same conditions; (4) the SAR may be exercised only
when the ISO may be exercised; and (5) the SAR may be exercised
only when the Market Value of the Shares subject to the ISO
exceeds the Exercise Price of the ISO.
(b) Exercise Price. The Exercise Price as to any
particular SAR shall not be less than the Market Value of the
Optioned Shares on the date of grant.
(c) Timing of Exercise. The provisions of Paragraph 8(b)
regarding the period of exercisability of Options are
incorporated by reference herein, and shall determine the period
of exercisability of SARs.
(d) Exercise of SARs. An SAR granted hereunder shall be
exercisable at such times and under such conditions as shall be
permissible under the terms of the Plan and of the Agreement
granted to a Participant, provided that an SAR may not be
exercised for a fractional Share. Upon exercise of an SAR, the
Participant shall be entitled to receive, without payment to the
Company except for applicable withholding taxes, an amount equal
to the excess of (or, in the discretion of the Committee if
provided in the Agreement, a portion of) the excess of the then
aggregate Market Value of the number of Optioned Shares with
respect to which the Participant exercises the SAR, over the
aggregate Exercise Price of such number of Optioned Shares.
This amount shall be payable by the Company, at the discretion
of the Committee, in cash or in Shares valued at the then Market
Value thereof, or any combination thereof.
(e) Procedure for Exercising SARs. To the extent not
inconsistent herewith, the provisions of Paragraph 8(a) as to
the procedure for exercising Options are incorporated by
reference, and shall determine the procedure for exercising
SARs.
10. DEFERRED SHARE CREDITS.
(a) Annual Awards. The Committee shall have the discretion
to make discretionary awards of Deferred Shares to the accounts
of Employees and Directors (including members of the Committee).
On the last day of each fiscal year of the Company, the
Committee shall credit 300 Deferred Shares to the account of
each Director who has not accrued benefits during the fiscal
year under either the Harbor Federal Savings Bank Retirement
Plan for Non-Employee Directors or the Harbor Federal Savings
Bank Supplemental Executive Retirement Agreement.
(b) Credit for Benefits under Certain Plans. Each Employee
or Director who has accrued benefits under the Bank's Retirement
Plan for Non-Employee Directors, or the Supplemental Executive
Retirement Agreement may elect, at any time, to cancel his
rights to all or a whole percentage of those benefits, and in
consideration to receive a credit under this Plan
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for a number of Deferred Shares that have a value on that date
equal to the benefits being cancelled.
(c) Elections to Defer. The Committee may permit any
Participant who is a member of a select group of management or
highly compensated employees, within the meaning of the
Employees' Retirement Income Security Act of 1973, to
irrevocably elect to forego the receipt of cash compensation and
in lieu thereof to have the Company credit an equal value of
Deferred Shares to an account payable to the Participant.
(d) Vesting. All Deferred Shares shall be 100% vested,
unless an Agreement specifically provides to the contrary.
(e) Cash Earnings on Deferred Shares. On the last day of
each fiscal year of the Company, the Committee shall credit to
each Participant's account Deferred Shares having a value equal
to the sum of any cash dividends paid on Deferred Shares during
the year. The Trustees shall hold each Participant's Deferred
Shares and deferred earnings until distribution is required
pursuant to subparagraph (f) hereof.
(f) Distributions of Deferred Shares and Earnings. The
Trustee shall distribute a Participant's Deferred Shares and
deferred earnings in five substantially equal annual
installments that are paid before the last day of each of the
five fiscal years of the Company that end after the date on
which the Participant's Continuous Service terminates, unless
the Committee has accepted the form attached hereto as Exhibit
"A" (the "Distribution Election Form"), in which case
distributions shall be made in accordance with the method
selected on the form. Acceptance by the Committee shall be
presumed to occur on delivery of a Distribution Election Form to
the Committee, unless (i) the Committee returns it within five
business days, with a written notice that sets forth the reasons
for its rejection, or (ii) the Participant delivers the
Distribution Election Form to the Committee either within 90
days of a Change in Control or within one year of the date on
which the Participant's Continuous Service terminates prior to a
Change in Control for any reason other than the Participant's
death.
(g) Hardship Withdrawals. Notwithstanding any other
provision of the Plan or a Participant's Distribution Election
Form, in the event the Participant suffers an unforeseeable
hardship within the contemplation of this paragraph, the
Participant may apply to the Committee for an immediate
distribution of all or a portion of his Deferred Shares. The
hardship must result from a sudden and unexpected illness or
accident of the Participant or a dependent of the Participant,
casualty loss of property, or other similar conditions beyond
the control of the Participant. Examples of purposes which are
not considered hardships include post-secondary school expenses
or the desire to purchase a residence. In no event will a
distribution be made to the extent the hardship could be
relieved through reimbursement or compensation by insurance or
otherwise, or by liquidation of the Participant's nonessential
assets to the extent such liquidation would not itself cause a
severe financial hardship. The amount of any distribution
hereunder shall be limited to the amount necessary to relieve
the Participant's financial hardship. The determination of
whether a Participant has a qualifying hardship and the amount
which qualifies for distribution, if any, shall be made by the
Committee in its sole discretion. The
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Committee may require evidence of the purpose and amount of the
need, and may establish such application or other procedures as
it deems appropriate.
(h) Rights to Deferred Shares and Earnings. A Participant
may not assign his or her claim to Deferred Shares and
associated earnings during his or her lifetime. A Participant's
right to Deferred Shares and associated earnings shall at all
times constitute an unsecured promise of the Company to pay
benefits as they come due. The right of the Participant or his
or her beneficiary to receive benefits hereunder shall be solely
an unsecured claim against the general assets of the Company.
Neither the Participant nor his or her beneficiary shall have
any claim against or rights in any specific assets or other fund
of the Company.
11. CHANGE IN CONTROL; EFFECT OF CHANGES IN COMMON STOCK
SUBJECT TO THE PLAN.
(a) Change in Control. Upon a Change in Control (or, if
earlier, the execution of an agreement to effect a Change in
Control), all Options and SARs shall become fully exercisable,
notwithstanding any other provision of the Plan or any
Agreement.
(b) Recapitalizations; Stock Splits, Etc. The number and
kind of Shares reserved for issuance under the Plan, and the
number and kind of Shares subject to outstanding Awards, and the
Exercise Price for Options and SARs, shall be proportionately
adjusted for any increase, decrease, change or exchange of
Shares for a different number or kind of shares or other
securities of the Company which results from a merger,
consolidation, recapitalization, reorganization,
reclassification, stock dividend, split-up, combination of
shares, or similar event in which the number or kind of shares
is changed without the receipt or payment of consideration by
the Company.
(c) Transactions in which the Company is Not the Surviving
Entity. In the event of (i) the liquidation or dissolution of
the Company, (ii) a merger or consolidation in which the Company
is not the surviving entity, or (iii) the sale or disposition of
all or substantially all of the Company's assets (any of the
foregoing to be referred to herein as a "Transaction"), all
Deferred Shares and all outstanding Options and SARs, together
with the Exercise Prices thereof, shall be equitably adjusted
for any change or exchange of Shares for a different number or
kind of shares or other securities which results from the
Transaction.
(d) Special Rule for ISOs. Any adjustment made pursuant
to subparagraphs (a) or (b) hereof shall be made in such a
manner as not to constitute a modification, within the meaning
of Section 424(h) of the Code, of outstanding ISOs, unless a
Participant has consented in writing to the change.
(e) Conditions and Restrictions on New, Additional, or
Different Shares or Securities. If, by reason of any adjustment
made pursuant to this Paragraph, a Participant becomes entitled
to new, additional, or different shares of stock or securities,
such new, additional, or different shares of stock or securities
shall thereupon be subject to all of the conditions and
restrictions which were applicable to the Deferred Shares and
Optioned Shares before the adjustment was made.
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(f) Other Issuances. Except as expressly provided in this
Paragraph, the issuance by the Company or an Affiliate of shares
of stock of any class, or of securities convertible into Shares
or stock of another class, for cash or property or for labor or
services either upon direct sale or upon the exercise of rights
or warrants to subscribe therefor, shall not affect, and no
adjustment shall be made with respect to, the number, class, or
Exercise Price of Shares then subject to Awards or reserved for
issuance under the Plan.
12. NON-TRANSFERABILITY.
Awards may not be sold, pledged, assigned, hypothecated,
transferred or disposed of in any manner other than by will or
by the laws of descent and distribution. Notwithstanding the
foregoing, or any other provision of this Plan, a Participant
who holds SARs or Options may transfer such SARs or Options (but
not ISOs) to his or her spouse, lineal ascendants, lineal
descendants, or to a duly established trust for the benefit of
one or more of these individuals. SARs and Options so
transferred may thereafter be transferred only to the
Participant who originally received the grant or to an
individual or trust to whom the Participant could have initially
transferred the SARs or Options pursuant to this Paragraph.
SARs and Options which are transferred pursuant to this
Paragraph shall be exercisable by the transferee according to
the same terms and conditions as applied to the Participant.
13. TIME OF GRANTING OPTIONS.
The date of grant of an Option or SAR shall, for all
purposes, be the date on which the Committee makes the
determination of granting such Option. Notice of the
determination shall be given to each Participant to whom an
Option is so granted within a reasonable time after the date of
such grant.
14. EFFECTIVE DATE.
The Plan shall become effective May 24, 1999, but its
effectiveness and the effectiveness of any Awards shall be
contingent upon the Plan's approval by a favorable vote of
stockholders owning at least a majority of the total votes cast
at a duly called meeting of the Company's stockholders held in
accordance with applicable laws.
15. MODIFICATION OF AWARDS.
At any time, and from time to time, the Board may authorize
the Committee to direct execution of an instrument providing for
the modification of any outstanding Award, provided no such
modification shall confer on the holder of said Award any right
or benefit which could not be conferred on him by the grant of a
new Award at such time, or impair the Award without the consent
of the holder of the Award.
16. AMENDMENT AND TERMINATION OF THE PLAN.
The Board may from time to time amend the terms of the Plan
and, with respect to any Shares at the time not subject to
outstanding Awards, suspend or terminate the Plan. No
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amendment, suspension or termination of the Plan shall, without
the consent of any affected holders of an Award, alter or impair
any rights or obligations under any Award theretofore granted.
17. CONDITIONS UPON ISSUANCE OF SHARES.
(a) Compliance with Securities Laws. Shares of Common
Stock shall not be issued pursuant to any provision of this Plan
unless the issuance and delivery of such Shares shall comply
with all relevant provisions of law, including, without
limitation, the Securities Act of 1933, as amended, the rules
and regulations promulgated thereunder, any applicable state
securities law, and the requirements of any stock exchange upon
which the Shares may then be listed.
(b) Special Circumstances. The inability of the Company
to obtain approval from any regulatory body or authority deemed
by the Company's counsel to be necessary to the lawful issuance
and sale of any Shares hereunder shall relieve the Company of
any liability in respect of the non-issuance or sale of such
Shares. As a condition to the exercise of an Option or SAR, the
Company may require the person exercising the Option or SAR to
make such representations and warranties as may be necessary to
assure the availability of an exemption from the registration
requirements of federal or state securities law.
(c) Committee Discretion. The Committee shall have the
discretionary authority to impose in Agreements such
restrictions on Shares as it may deem appropriate or desirable,
including but not limited to the authority to impose a right of
first refusal, or to establish repurchase rights, or to pay a
Participant the in-the-money value of his Award in consideration
for its cancellation, or all of these restrictions.
18. RESERVATION OF SHARES.
The Company, during the term of the Plan, will reserve and
keep available a number of Shares sufficient to satisfy the
requirements of the Plan.
19. WITHHOLDING TAX.
The Company's obligation to deliver Shares pursuant to the
Plan shall be subject to the Participant's satisfaction of all
applicable federal, state and local income and employment tax
withholding obligations. The Committee, in its discretion, may
permit the Participant to satisfy the obligation, in whole or in
part, by irrevocably electing to have the Company withhold
Shares, or to deliver to the Company Shares that he already
owns, having a value equal to the amount required to be
withheld. The value of the Shares to be withheld, or delivered
to the Company, shall be based on the Market Value of the Shares
on the date the amount of tax to be withheld is to be
determined. As an alternative, the Company may retain, or sell
without notice, a number of such Shares sufficient to cover the
amount required to be withheld.
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20. NO EMPLOYMENT OR OTHER RIGHTS.
In no event shall an Employee's or Director's eligibility
to participate or participation in the Plan create or be deemed
to create any legal or equitable right of the Employee,
Director, or any other party to continue service with the
Company, the Bank, or any Affiliate of such corporations. No
Employee or Director shall have a right to be granted an Award
or, having received an Award, the right to again be granted an
Award. However, an Employee or Director who has been granted an
Award may, if otherwise eligible, be granted an additional Award
or Awards.
21. GOVERNING LAW.
The Plan shall be governed by and construed in accordance
with the laws of the State of Maryland, except to the extent
that federal law shall be deemed to apply.
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[X] PLEASE MARK VOTES REVOCABLE PROXY
AS IN THIS EXAMPLE HARBOR FEDERAL BANCORP, INC.
ANNUAL MEETING OF STOCKHOLDERS
July 14, 1999
The undersigned hereby appoints Joseph J. Lacy and John H.
Riehl, III, 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 14, 1999 at 3:00 p.m., and at any
and all adjournments thereof, as follows:
FOR WITHHOLD EXCEPT
--- ------- -------
1. The election as directors of the
nominees listed (except as
marked to the contrary below): [ ] [ ] [ ]
J. KEMP ROCHE
GIDEON N. STIEFF, JR.
INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR THE
NOMINEE, MARK "EXCEPT" AND WRITE THAT NOMINEE'S NAME
IN THE SPACE PROVIDED BELOW.
______________________________________________
FOR AGAINST
--- -------
2. The approval of the Harbor Federal
Bancorp, Inc. 1999 Stock Incentive
Plan [ ] [ ]
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE NAMED
NOMINEES AND FOR THE OTHER PROPOSITION STATED.
THIS PROXY WILL BE VOTED AS DIRECTED, BUT, IF NO INSTRUCTIONS
ARE SPECIFIED, THIS PROXY WILL BE VOTED FOR THE NAMED NOMINEES
AND FOR THE OTHER 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 14, 1999 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