SCHEDULE 14A
(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
[_] Confidential, for Use of the Commission Only (as permitted by Rule 14a-
6(e)(2))
[X] Definitive proxy statement
[_] Definitive additional materials
[_] Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
HARBOR BANKSHARES CORPORATION
(Name of Registrant as Specified in Its Charter)
TEODORO J. HERNANDEZ, VICE PRESIDENT AND TREASURER
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on the table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies: ___________
(2) Aggregate number of securities to which transaction applies: ______________
(3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (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: _____________________________
HARBOR BANKSHARES CORPORATION
NOTICE OF 2001 ANNUAL MEETING OF STOCKHOLDERS
IMPORTANT- YOUR PROXY IS ENCLOSED
YOU ARE URGED TO SIGN AND RETURN THE ENCLOSED PROXY PROMPTLY. IF YOU ATTEND THE
ANNUAL MEETING AND DECIDE THAT YOU WISH TO VOTE IN PERSON OR FOR ANY OTHER
REASON DESIRE TO REVOKE YOUR PROXY, YOU CAN DO SO AT ANY TIME PRIOR TO ITS USE.
HARBOR BANKSHARES CORPORATION
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD APRIL 18, 2001
To the Stockholders of Harbor Bankshares Corporation:
Notice is hereby given that the Annual Meeting of Stockholders of Harbor
Bankshares Corporation (the "Company") will be held at Harbor Inn - Pier 5
Hotel, 711 Eastern Avenue, Baltimore, Maryland 21202, on Wednesday, April 18,
2001, at 12:00 noon, for the following purposes:
1. To elect five directors of the Company to serve for three-year
terms and until their respective successors are elected and have qualified.
2. To transact such other business as may properly come before the
meeting.
Only stockholders of record at the close of business on March 5, 2001 are
entitled to notice of and to vote at the annual meeting or any adjournments
thereof.
BY ORDER OF THE BOARD OF DIRECTORS
Baltimore, Maryland George F. Vaeth, Jr.
March 16, 2001 Corporate Secretary
PROXY STATEMENT
INTRODUCTION
This proxy statement is furnished on or about March 16, 2001 to
stockholders of Harbor Bankshares Corporation (the "Company") in connection with
the solicitation of proxies by the Company's Board of Directors to be used at
the annual meeting (the "Annual Meeting") of stockholders to be held at Harbor
Inn - Pier 5 Hotel, 711 Eastern Avenue, Baltimore, Maryland 21202, on
Wednesday, April 18, 2001 at 12:00 noon and at any adjournments or postponements
thereof. The purposes of the Annual Meeting are set forth in the accompanying
Notice of Annual Meeting of Stockholders.
PROXIES AND VOTING
The accompanying proxy is solicited by the Board of Directors of the
Company. The Board of Directors has selected Joseph Haskins, Jr. and George F.
Vaeth, Jr., or either of them, to serve as proxies with full power of
substitution. Any stockholder executing a proxy has the power to revoke the
proxy at any time before it is voted. This right of revocation is not limited
or subject to compliance with any formal procedure. Any stockholder may attend
the Annual Meeting and vote in person whether or not he or she has previously
given a proxy.
The cost of solicitation of proxies and preparation of proxy materials will
be borne by the Company. The solicitation of proxies will generally be by mail
and by directors, officers and employees of the Company and its subsidiary, The
Harbor Bank of Maryland (the "Bank"), without additional compensation to them.
In some instances solicitation may be made by telephone or telegraph, the costs
of which will be borne by the Company. The Company may also reimburse brokers,
custodians, nominees and other fiduciaries for reasonable out-of-pocket and
clerical expenses for forwarding proxy materials to their principals.
The Annual Report of the Company, including financial statements for the
fiscal year ended December 31, 2000, is being mailed to the Company's
stockholders concurrently with this proxy statement.
Interested stockholders may obtain, without charge, a copy of the Company's
Form 10-KSB, as filed with the Securities and Exchange Commission, upon written
request to Teodoro J. Hernandez, Treasurer, Harbor Bankshares Corporation, 25
West Fayette Street, Baltimore, Maryland 21201.
OUTSTANDING SHARES AND VOTING RIGHTS
Only stockholders of record at the close of business on March 5, 2001 will
be entitled to vote at the Annual Meeting. As of such date, there were
outstanding and entitled to vote 656,455 shares of common stock, par value $.01
per share (the "Common Stock"), of the Company, each of which is entitled to one
vote at the Annual Meeting. Cumulative voting is not permitted for the election
of directors.
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ELECTION OF DIRECTORS
The charter and by-laws of the Company provide that the directors shall be
classified into three classes as equal in number as possible, with each director
serving a three-year term. Currently, the Board of Directors is composed of 15
members with each class consisting of five members. The terms of the Class III
directors expire in April 2001.
Directors are elected by a plurality of the votes cast by the holders of
shares of Common Stock present in person or represented by proxy at the Annual
Meeting with a quorum present. Abstentions and broker non-votes are not
considered to be votes cast.
NOMINEES
Unless otherwise indicated in the enclosed proxy, the persons named in such
proxy intend to nominate and vote for the election of the following five
nominees for the office of director of the Company, to serve as directors for
three years and until their respective successors have been duly elected and
qualified. All such nominees are currently serving as directors. The Board of
Directors is not aware that any nominee named herein will be unable or unwilling
to accept nomination or election. Should any nominee for the office of director
become unable to accept nomination or election, the persons named in the proxy
will vote for the election of such other persons, if any, as the Board of
Directors may recommend.
The names and ages of persons nominated by the Board of Directors, their
principal occupations and business experience for the past five years, the
number of shares of Common Stock of the Company beneficially owned by them on
March 5, 2001, and certain other information are set forth below.
Directors to be elected at the 2001 Annual Meeting
to serve until the 2004 Annual Meeting (Class III)
NAME OF NOMINEE INFORMATION REGARDING NOMINEE
- --------------- -----------------------------
John Paterakis Mr. Paterakis is 72 years old and has served as a director
of the Company since its formation in 1992 and of the Bank
since 1982. He is President and Chief Executive Officer of
H & S Bakery, Inc. and Northeast Foods, Inc.
57,625 shares (8.60%)/(1)(2)/
James Scott, Jr. Mr. Scott is 43 years old and has served as a director of
the Company and the Bank since November 2000. He is a
principal of Pennan & Scott P.C., an accounting firm.
2,941 shares */(3)(4)/
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Edward St. John Mr. St. John is 62 years old and has served as a director
of the Company since its formation in 1992 and of the Bank
since 1990. He is President and Chief Executive Officer of
M.I.E. Investment Company, a real estate development
company.
11,080 shares (1.67%)/(5)/
Walter S. Thomas Pastor Thomas is 50 years old and has served as a director
of the Company and the Bank since November 2000. He is the
Pastor of New Psalmist Church.
50 shares */(6)/
George F. Vaeth, Jr. Mr. Vaeth is 67 years old and has served as a director of
the Company since its formation in 1992 and of the Bank
since 1981. He has served as Secretary of the Company
since its formation and of the Bank since 1982. He is
President of George Vaeth Associates, Inc. (architects).
21,855 shares (3.26%)/(3)(7)/
CONTINUING DIRECTORS
The following information is provided with respect to directors who will
continue to serve as directors of the Company until the expiration of their
terms at the times indicated.
Directors to serve until the 2002 Annual Meeting (Class I)
NAME OF CLASS I DIRECTOR INFORMATION REGARDING CLASS I DIRECTOR
- ------------------------ --------------------------------------
James H. DeGraffenreidt, Jr. Mr. DeGraffenreidt is 47 years old and has served
as a director of the Company and of the Bank since
1996. He is President and Chief Operating Officer
of Washington Gas Light Company, distributors of
natural gas.
13,875 shares (2.07%)/(8)/
Joe Louis Gladney Mr. Gladney is 66 years old and has served as a
director of the Company since its formation in
1992 and of the Bank since 1982. He is President
of Gladney Transportation & Oil Company (heating
oil sales and bus transportation).
38,618 shares (5.82%)/(9)/
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Louis J. Grasmick Mr. Grasmick is 71 years old and has served as a
director of the Company since its formation in
1992 and of the Bank since 1982. He is Chief
Executive Officer of Grasmick Lumber Company, Inc.
23,103 shares (3.45%)/(7)(10)/
Joseph Haskins, Jr. Mr. Haskins is 53 years old and has served as a
director of the Company since its formation in
1992 and of the Bank since 1980. He has served as
Chief Executive Officer of the Company since its
formation in 1992 and Chairman of the Board of the
Company and the Bank since 1995. He had served as
President of the Bank from 1986 to 2000.
76,380 shares (10.94%)/(11)/
John D. Ryder Mr. Ryder is 53 years old and has served as a
director of the Company and the Bank since January
2000. He was President and Chief Operating Officer
of Metro Food Markets, a supermarket chain, until
2000. He is currently President of AXS
Technologies, a software company.
3,000 shares /*/
Directors to serve until the 2003 Annual Meeting (Class II)
NAME OF CLASS II DIRECTOR INFORMATION REGARDING CLASS II DIRECTOR
- ------------------------- ---------------------------------------
Sachinder Gupta Mr. Gupta is 56 years old and has served as a
director of the Company since its formation in
1992 and of the Bank since 1989. He is President
of Earth Engineering Sciences, Inc., an
engineering company.
17,619 shares (2.65%)/(3)(12)/
Nathaniel Higgs Reverend Higgs is 70 years old and has served as a
director of the Company since its formation in
1992 and of the Bank since 1981. He is the Pastor
of Southern Baptist Church.
9,505 shares (1.43%)/(3)(9)(13)/
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Delores G. Kelley Dr. Kelley is 64 years old and has served as a
director of the Company since its formation in
1992 and of the Bank since 1980. She is a Senator
in the Maryland State Senate.
20,536 shares (3.06%)/(7)(14)/
Erich March Mr. March is 49 years old and has served as a
director of the Company since its formation in
1992 and of the Bank since 1981. He is Vice
President of March Funeral Homes, Inc.
29,253 shares (4.36%)/(3)(7)(15)/
Stanley W. Tucker Mr. Tucker is 53 years old and has served as a
director of the Company and of the Bank since
1996. He is President of Meridian Management
Company, Inc., which is the managing general
partner of MMG Ventures L.P. (an investment
management company).
53,526 shares (8.07%)/(3)(9)(16)/
Beneficial ownership of
Common Stock of all
directors and executive
officers as a group
(21 persons) 404,397 shares (47.44%)/(17)/
- ----------------
/*/ Less than 1%.
/(1)/ Includes 32,426 shares owned by three corporations controlled by Mr.
Paterakis (J and B Associates Inc., 16,213 shares, H & S Bakery, Inc.,
6,080 shares, and Northeast Food Inc., 10,133 shares), and 11,146 shares
owned by Paterakis Limited Partnership, LLP.
/(2)/ Includes currently exercisable options to purchase 13,753 shares.
/(3)/ Member of the Audit Committee of the Bank.
/(4)/ Includes 2,891 shares owned jointly with his wife.
/(5)/ Includes currently exercisable options to purchase 5,000 shares.
/(6)/ Does not include 2,941 shares owned by a religious organization over
which Pastor Thomas has the power to vote.
/(7)/ Includes currently exercisable options to purchase 14,053 shares.
/(8)/ Includes currently exercisable options to purchase 12,026 shares.
/(9)/ Includes currently exercisable options to purchase 6,815 shares.
/(10)/ Includes 3,796 shares owned jointly by Mr. Grasmick and his son.
-5-
/(11)/ Includes currently exercisable options to purchase 41,674 shares.
/(12)/ Includes currently exercisable options to purchase 9,053 shares.
/(13)/ Includes 2,690 shares owned jointly by Reverend Higgs and his wife. Does
not include 13,517 shares owned by a religious organization over which
Reverend Higgs has the power to vote.
/(14)/ Includes 611 shares owned by Dr. Kelley and her husband.
/(15)/ Includes 15,242 shares owned by a corporation over which Mr. March has
the power to vote.
/(16)/ Includes 46,466 shares under the name of MMG Ventures L.P.
/(17)/ Includes exercisable options to purchase 200,135 shares held by all
executive officers and directors as a group.
BOARD AND COMMITTEE MEETINGS
The Board of Directors of the Company held 12 meetings during 2000. With
the exception of Messrs. Gladney, Ryder, and St. John who attended 42%, 50% and
66% of the meetings, respectively, each director attended at least 75% of the
meetings of the Board of Directors and committees of the Company on which he
served.
The Board of Directors of the Company has not established any standing
committees other than the Executive Committee. The Executive Committee, which
is currently composed of Messrs. Paterakis (Chairman), Haskins, DeGraffenreidt,
Grasmick, March and Vaeth and Dr. Kelley, met 16 times during 2000. The
Executive Committee generally has the authority to exercise all of the powers of
the Board of Directors in the management and direction of the affairs of the
Company, subject to specific directions of the Board of Directors and the
limitations of the Maryland General Corporation Law.
The Audit Committee of the Bank meets with the Company's independent
accountants to review whether satisfactory accounting procedures are being
followed and whether internal accounting controls are adequate and to inform
itself with regard to non-audit services performed by the independent
accountants. During 2000, the directors designated by footnote (3) above were
members of the Audit Committee, which met four times.
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COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
SUMMARY COMPENSATION TABLE
The following table shows compensation paid to the chief executive officer
of the Company and the chief operating officer of the Bank for the three-year
period ended December 31, 2000. No other executive officer received total
annual salary and bonus in excess of $100,000 during such period.
ANNUAL COMPENSATION
----------------------------
ALL OTHER
NAME AND POSITION YEAR SALARY BONUS COMPENSATION /(2)/
- ----------------- ---- ------ ----- ------------------
Joseph Haskins, Jr............................ 2000 $182,324 $56,708/(1)/ $9,197/ (3)/
Chairman, President and 1999 173,952 -- 6,961
Chief Executive Officer of the Company 1998 165,375 50,313/(1)/ 6,961
Lester W. Johnson............................. 2000 90,914 10,266 2,310
President and Chief Operating Officer
of the Bank
- ----------------
/(1)/ Bonus paid pursuant to the terms of Mr. Haskins' employment agreement.
/(2)/ Represents $2,000 annual contribution to an individual retirement account
and the Company's matching contribution to the Bank's 401(k) Profit
Sharing Plan.
/(3)/ Includes a $3,694 premium for term life benefit paid by the Company.
OPTION GRANTS IN LAST FISCAL YEAR
The Company has adopted stock option plans, pursuant to which it has
reserved 226,886 shares of its Common Stock for the issuance of options. The
following table sets forth information regarding the options granted to the
named executive officers during 2000:
NUMBER OF PERCENT OF TOTAL EXERCISE OR MARKET PRICE PER
SHARES UNDERLYING OPTIONS GRANTED TO BASE PRICE SHARE ON DATE
NAME OPTIONS GRANTED EMPLOYEES IN FISCAL YEAR PER SHARE OF GRANT EXPIRATION DATE
- ---- --------------- ----------------------- --------- -------- ----------------
Joseph Haskins, Jr... 25,000/(1)/ 86.2% $15.75 $15.75 6/30/2010
Lester W. Johnson.... 4,000/(1)/ 13.8 15.24 15.75 8/10/2008
- ----------------
/(1)/ The options became exercisable on the date of grant.
-7-
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND YEAR END VALUE OF OPTIONS
The following table sets forth the aggregated option exercises in 2000 and
the option values at December 31, 2000, based upon a market value for Company
Common Stock of $17.00 per share:
NUMBER OF NUMBER OF VALUE OF UNEXERCISED
SHARES ACQUIRED VALUE UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
NAME AND POSITION ON EXERCISE REALIZED AT FISCAL YEAR-END/(1)/ AT FISCAL YEAR-END
- ----------------- ----------- -------- ----------------------- ------------------
Joseph Haskins, Jr.................. - - 40,066 $64,892
Lester W. Johnson................... - - 5,000 8,800
- ----------------
/(1)/ Currently exercisable options.
COMPENSATION OF DIRECTORS
Directors of the Company receive a fee of $325 for each board meeting
attended ($433 if the director is a member of the Company's Executive
Committee), but do not receive a fee for attendance at committee meetings.
Total fees paid to directors of the Company during 2000 were $32,320. Directors
who are not employed by the Company or the Bank are permitted to elect whether
to receive their fees in the form of cash or in the form of options to purchase
Common Stock of the Company under the 1995 Director Stock Option Plan which has
been approved by the Company's stockholders. The exercise prices of the options
will equal the market price of the Common Stock on the date of grant. The
Company did not grant any options to its directors in 2000.
MR. HASKINS' EMPLOYMENT AGREEMENT AND RETIREMENT BENEFIT
Joseph Haskins, Jr. has an employment agreement with the Company and the
Bank for a four-year term commencing as of January 1, 2000, which term may be
automatically renewed for additional three-year terms unless earlier terminated.
The employment agreement provides that Mr. Haskins will serve as Chairman of the
Board, President and Chief Executive Officer of the Company and Chairman of the
Board and Chief Executive Officer of the Bank at an annual salary of $182,330,
subject to annual increases approved by the Company and the Bank. Under the
employment agreement, Mr. Haskins may also receive an annual incentive bonus
based upon the attainment of goals and objectives set by the Company's Board of
Directors. If the minimum level of such goals and objectives is not met, Mr.
Haskins will not be entitled to an incentive bonus. If the Company's Board of
Directors awards Mr. Haskins an incentive bonus, the amount of the bonus will
range from 60% to 100% of Mr. Haskins' then current salary, as determined by the
Company Board of Directors. In addition to the benefit programs, plans, and
arrangements of the Company and the Bank generally available to their employees
and the normal perquisites provided to their senior executive officers, the
employment agreement provides that Mr. Haskins will receive long-term disability
insurance, life insurance, and an automobile allowance. Further,
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the Company must maintain a key man life insurance policy on the life of Mr.
Haskins in order to provide the funds necessary to buy his shares of Company
Common Stock from his estate or his heirs.
If the Company terminates Mr. Haskins' employment because he becomes
disabled, the Company will continue to provide Mr. Haskins with long-term
disability insurance and medical and group life insurance until he attains age
65. Upon termination without cause or resignation with good reason (as those
terms are used in the employment agreement), Mr. Haskins would be entitled to
(1) severance pay equal to three times his base salary at the time of
termination, payable in three equal annual installments, the first of which is
due within 30 days of termination, (2) a pro rated bonus based upon the bonus
paid in the year prior to termination or resignation, and (3) immediate vesting
of his outstanding options. If Mr. Haskins voluntarily resigns without good
reason or if the Company terminates his employment for cause, the Company would
not have any further obligations to Mr. Haskins under his employment agreement.
The Company must pay a change of control benefit to Mr. Haskins if either
(1) within 12 months after a change of control of the Company, the Company
terminates Mr. Haskins' employment without cause or Mr. Haskins terminates his
employment for good reason or (2) within 30 days after the expiration of six
months after the change in control, Mr. Haskins' terminates his employment for
any reason. The change of control benefit would equal the greater of (1) 2.99
times the average of Mr. Haskins' gross compensation from the Company over the
five-year period before the termination or (2) the amount Mr. Haskins would
receive if he was terminated without cause, as described in the prior paragraph.
Further, in such event, Mr. Haskins would be entitled to the immediate vesting
of his options.
Mr. Haskins may be entitled to receive a retirement benefit under an
executive supplemental retirement plan. Mr. Haskins will receive 15 annual
payments of the greater of (1) 63% of his final base salary or (2) $200,000,
payable at the time of retirement, if he retires at or after age 62. Mr.
Haskins will receive 15 annual payments, each payment being equal to 63% of his
final base salary, payable at the time of retirement or termination (or in the
case of a disability, at the age of 65), if before age 62:
. Mr. Haskins terminates his employment for good reason or, within
30 days after the expiration of six months after a change of
control of the Company, Mr. Haskins terminates his employment with
or without good reason; or
. the Company terminates Mr. Haskins' employment without cause or
because of a disability.
If Mr. Haskins terminates his employment before age 62 without good reason,
Mr. Haskins will be entitled to a prorated amount of 63% of his final base
salary based upon the number of years he provided service to the Company from
the year 2000 until such time as he retires. However, if the Company terminates
Mr. Haskins' employment for cause, Mr. Haskins will forfeit his retirement
benefit. In the event of Mr. Haskins' death, Mr. Haskins' beneficiaries
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would be entitled to receive the remainder of the retirement benefit should he
die before receipt of the full retirement benefit.
MR. JOHNSON'S SALARY CONTINUATION AGREEMENT
Lester W. Johnson may be entitled to receive a retirement benefit under his
salary continuation agreement with the Bank. Mr. Johnson will receive 15 annual
payments of $90,000 payable upon his retirement at age 65. The Bank's Board of
Directors may increase the amount of such payments within its discretion. If
Mr. Johnson's employment is terminated before he becomes 65 years of age, for
reasons other than death, disability, termination for cause or after a change in
control of the Bank, Mr. Johnson will be entitled to receive 15 annual payments
of an early retirement benefit, the amount of which is based upon a vesting
schedule. The early retirement benefit vests in the sixth year after the
effective date of Mr. Johnson's salary continuation agreement, and the amount of
the annual benefit ranges from $39,331 in the sixth year after the effective
date of the agreement to $90,000 in the eleventh year after the effective date
of the agreement. The Bank's Board of Directors, within its discretion, may
increase the amount of such payments.
If Mr. Johnson's employment is terminated because of a disability before he
becomes 65 years old, Mr. Johnson will be entitled to receive 15 annual payments
of a disability benefit, the amount of which is based upon a vesting schedule.
The annual benefit ranges from the current amount of $5,321 to $90,000 in the
eleventh year after the effective date of the agreement. The Bank's Board of
Directors, within its discretion, may increase the amount of such payments. If
after a change of control of the Bank Mr. Johnson's employment is terminated,
Mr. Johnson will be entitled to a change of control benefit payable in one lump-
sum payment. The benefit ranges from the current amount of $46,399 to $784,804
in the eleventh year after the effective date of the agreement. The change of
control benefit will not be paid to the extent that any excise tax would occur
under the excess parachute rules under the Internal Revenue Code of 1986, as
amended.
If Mr. Johnson's employment is terminated because of his death while
employed with the Bank, Mr. Johnson's beneficiaries will be entitled to receive
15 annual payments of the greater of (1) $35,000 or (2) a fixed annuity based on
a schedule of accrued amounts that vest during Mr. Johnson's employment with the
Bank. The maximum annual amount payable following the eleventh year after the
effective date of his agreement is $90,000. If Mr. Johnson dies after the
commencement of the payment of another benefit under his salary continuation
agreement, Mr. Johnson's beneficiaries would receive the remainder of such
benefit. In the event the Bank terminates Mr. Johnson's employment for cause,
Mr. Johnson will forfeit all of his benefits under the salary continuation
agreement.
TRANSACTIONS WITH DIRECTORS, EXECUTIVE OFFICERS, AND AFFILIATES
During the past year the Bank has had loan transactions in the ordinary
course of its banking business with directors and executive officers of the Bank
and with their affiliates. Loans to such persons were made in the ordinary
course of business and did not and do not currently involve more than the normal
risk of collectibility or present other unfavorable
-10-
features. All such loans were made on substantially the same terms, including
interest rates and collateral requirements, as those prevailing at the time for
comparable transactions with non-affiliates. The Bank expects to enter into such
transactions in the future. As of December 31, 2000, loans to directors and
executive officers of the Bank, and their affiliates, including loans guaranteed
by such persons and unfunded commitments made in 2000, aggregated $8,898,550 or
approximately 86.1% of tangible stockholders' equity of the Bank.
PRINCIPAL STOCKHOLDERS
No persons were known by the Company to own beneficially, directly or
indirectly, more than 5% of the Company's Common Stock outstanding on March 5,
2001 except as follows:
NAME OF STOCKHOLDER/(1)/ INFORMATION REGARDING STOCKHOLDER
- ------------------------ ---------------------------------
Joe Louis Gladney Beneficially owns 38,618 shares (5.82%), which includes
currently exercisable options to purchase 6,815 shares.
Joseph Haskins, Jr. Beneficially owns 76,380 shares (10.94%), which
includes currently exercisable options to purchase
41,674 shares.
John Paterakis Beneficially owns 57,625 shares (8.60%), which includes
32,426 shares held by corporations controlled by Mr.
Paterakis, 11,146 shares owned by Paterakis Limited
Partnership, LLP and currently exercisable options to
purchase 13,753 shares.
Stanley W. Tucker Beneficially owns 53,526 shares (8.07%), which includes
46,466 shares under the name of MMG Ventures L.P. and
currently exercisable options to purchase 6,815 shares.
________________
/(1)/ The address of these persons is c/o Harbor Bankshares Corporation, 25 West
Fayette Street, Baltimore, Maryland 21201.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Based solely on the Company's review of the copies of the forms received
by it, or written representations from certain reporting persons that they were
not required to file Form 5, the Company believes that, with regard to the
transactions required to have been reported in 2000 or on a Form 5 for the year
ended December 31, 2000, all of the directors and executive officers of the
Company have made the necessary filings in compliance with Section 16(a) of the
Securities Exchange Act of 1934 and the rules and regulations promulgated
thereunder by the Securities and Exchange Commission.
-11-
AUDIT COMMITTEE REPORT
The Audit Committee of the Board of Directors of the Bank is composed of
six directors, all of whom are independent in accordance with Nasdaq listing
standards. The Audit Committee operates under a written charter adopted by the
Board of Directors, which is attached as Exhibit A to this proxy statement, and
is responsible for overseeing the Company's and the Bank's financial reporting
process on behalf of their Boards of Directors.
Management is responsible for the Company's financial statements and the
financial reporting process, including internal controls. The independent
auditors are responsible for performing an independent audit of the Company's
consolidated financial statements in accordance with generally accepted auditing
standards and for issuing a report thereon. The Audit Committee's
responsibility is to monitor and oversee these processes.
In this context, the Audit Committee has met and held discussions with
management and Stegman & Company, the Company's independent auditors.
Management represented to the Committee that the Company's consolidated
financial statements were prepared in accordance with generally accepted
accounting principles, and the Committee has reviewed and discussed the
consolidated financial statements with management and the independent auditors.
The Audit Committee discussed with Stegman & Company the matters required to be
discussed by Statement on Auditing Standards No. 61 (Communication with Audit
Committees). These matters included a discussion of Stegman & Company's
judgments about the quality (not just the acceptability) of the Company's
accounting principles as applied to financial reporting.
Stegman & Company also provided the Audit Committee with the written
disclosures and letter required by Independence Standards Board Standard No. 1
(Independence Discussions with Audit Committees), and the Audit Committee
discussed with Stegman & Company that firm's independence.
Based upon the Audit Committee's discussion with management and the
independent auditors and the Audit Committee's review of the representation of
management and the disclosures by the independent auditors to the Audit
Committee, the Audit Committee recommended that the Company's audited
consolidated financial statements be included in the Company's Annual Report on
Form 10-KSB for the year ended December 31, 2000, for filing with the Securities
and Exchange Commission. The Audit Committee also recommended the selection of
Stegman & Company as the Company's independent auditors for 2001.
Audit Committee
George F. Vaeth, Jr., Chair
Sachinder Gupta
Nathaniel Higgs
Erich March
James Scott, Jr.
Stanley W. Tucker
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INDEPENDENT PUBLIC ACCOUNTANTS
GENERAL
Management has selected Stegman & Company as independent public accountants
to audit the Company's 2001 financial statements. That firm also audited the
Company's financial statements for 2000. A representative of Stegman & Company
is expected to be present at the Annual Meeting, with the opportunity to make a
statement if he or she decides, and will respond to appropriate questions.
AUDIT FEES
Stegman & Company has billed the Company $55,625 for professional services
rendered in connection with the audit of the Company's financial statements as
of and for the period ended December 31, 2000 and the reviews of the Company's
financial statements included in its quarterly reports filed with the Securities
and Exchange Commission in the year 2000.
FINANCIAL INFORMATION SYSTEMS DESIGN AND IMPLEMENTATION FEES AND ALL OTHER FEES
Stegman & Company has not provided any professional accounting services to
the Company other than the audit and review of the Company's financial
statements.
PRIOR ACCOUNTANTS
Previously, the Company engaged PricewaterhouseCoopers LLP ("PWC") as its
independent public accountants. Effective September 8, 1999, PWC resigned as
the Company's accountants, and the Company subsequently engaged the firm of
Stegman & Company as its new independent public accountants.
In connection with the audits of the fiscal years ended December 31, 1997
and December 31, 1998 and the subsequent interim period through September 8,
1999, there were no disagreements with PWC on any matter of accounting
principles or practices, financial statement and disclosure, or audit scope or
procedures, which disagreements if not resolved to their satisfaction would have
caused them to make reference in connection with their opinion to the subject
matter of the disagreement. During fiscal years ended December 31, 1997 and
December 31, 1998 and the subsequent interim period, the Company has neither
been advised by PWC of any reportable events nor has the Company consulted with
PWC regarding any matter required to be disclosed upon the appointment by a
registrant of new independent public accountants. The audit reports of PWC on
the consolidated financial statements of the Company of and for the fiscal years
ended December 31, 1997 and 1998, did not contain any adverse opinion or
disclaimer of opinion, nor were they qualified or modified as to uncertainty,
audit scope, or accounting principles.
PWC has furnished the Company with a letter, addressed to the Securities
and Exchange Commission, stating that it agrees with the foregoing statements
made by the Company. A copy of the PWC letter to the Commission is attached as
Exhibit 16 to the Company's Current Report
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on Form 8-K filed with the Commission on October 14, 1999. Interested
stockholders may obtain a copy of such Current Report, without charge, from
Teodoro J. Hernandez, Treasurer, Harbor Bankshares Corporation, 25 West Fayette
Street, Baltimore, Maryland 21201.
OTHER MATTERS
The management of the Company knows of no matters to be presented for
action at the meeting other than those mentioned above; however, if any other
matters properly come before the meeting, it is intended that the persons named
in the accompanying proxy will vote on such other matters in accordance with
their judgment of the best interest of the Company. Other than the election of
directors, each matter to be submitted to the stockholders requires the
affirmative vote of a majority of all the shares voted at the meeting or a
majority of all the shares outstanding and entitled to be voted.
STOCKHOLDER PROPOSALS
The Company must receive any stockholder proposal intended to be presented
at the 2002 Annual Meeting of Stockholders by November 20, 2001 for inclusion in
the Company's proxy statement and proxy relating to that meeting. The Company
will be able to use proxies given to it for next year's meeting to vote for or
against any such proposal at the Company's discretion unless the proposal is
submitted to the Company on or before March 19, 2002.
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EXHIBIT A
THE HARBOR BANK OF MARYLAND
AUDIT COMMITTEE CHARTER
I. ORGANIZATION
This charter governs the operations of the audit committee of the board of
directors of The Harbor Bank of Maryland (the "BANK"). The committee shall
review and reassess the charter at least annually and obtain the approval of the
board of directors. The committee shall be comprised of at least two directors
appointed by the board of directors. All of the members of the committee shall
be independent of management, the Bank and Harbor Bankshares Corporation
("BANKSHARES"). Generally, members of the committee shall be considered
independent if they are not officers or employees of Bankshares or the Bank and
have no other relationship that may interfere with the exercise of their
independence from management, the Bank and Bankshares.
II. STATEMENT OF POLICY
The audit committee shall provide assistance to the board of directors in
fulfilling its oversight responsibility to the stockholders, potential
stockholders and the investment community relating to corporate accounting,
reporting practices of the Bank and Bankshares and the quality and integrity of
the financial reports of the Bank and Bankshares. In so doing, the committee is
responsible for maintaining free and open communication between the committee
and independent auditors and the internal auditors and management of the Bank
and Bankshares. In discharging its oversight role, the committee is empowered
to investigate any matter brought to its attention with full access to all
books, records, facilities, and personnel of the Bank and Bankshares and the
power to retain outside counsel or other experts for this purpose.
III. MEETINGS
The committee shall meet at least four times a year and as many additional
times as the committee deems necessary. The committee will meet in separate
executive sessions with the Cashier, independent auditors and internal auditors
at least once each year and at other times when considered appropriate. The
committee shall maintain minutes or other records of its meetings and other
activities.
IV. RESPONSIBILITIES AND PROCESSES
A. General
The primary responsibility of the audit committee is to oversee the Bank's
and Bankshares' financial reporting process on behalf of the board of directors
and report the results
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of its activities to the board. Management is responsible for preparing the
Bank's and Bankshares' financial statements, and the independent auditors are
responsible for auditing those financial statements. The committee in carrying
out its responsibilities believes its policies and procedures should remain
flexible, in order to best react to changing conditions and circumstances. The
committee should take the appropriate actions to set the overall corporate
"tone" for quality financial reporting, sound business risk practices, and
ethical behavior.
B. Independence of Auditors
The committee shall have a clear understanding with management and the
independent auditors that the independent auditors are ultimately accountable to
the board and the audit committee, as representatives of Bankshares'
stockholders. The committee shall have the ultimate authority and
responsibility to evaluate and, where appropriate, replace the independent
auditors. The committee shall discuss with the auditors their independence from
management of the Bank and Bankshares and shall receive from the auditors, at
least annually, a formal written statement delineating all relationships between
the auditors and the Bank and Bankshares consistent with the Independence
Standards Board Standard 1. Annually, the committee shall review and recommend
to the board the selection of the Bank's and Bankshares' independent auditors.
C. Financial Reporting Process
The committee shall discuss with the internal auditors and the independent
auditors the overall scope and plans for their respective audits, including the
adequacy of staffing. Also, the committee shall discuss with management, the
internal auditors, and the independent auditors the adequacy and effectiveness
of the accounting and financial controls. Further, the committee shall meet
separately with the internal auditors and the independent auditors, with and
without management present, to discuss the results of their examinations.
D. Reports Review
1. The committee shall review the interim financial statements with
management and the independent auditors prior to the filing of Bankshares'
Quarterly Report on Form 10-QSB (or prior to the press release of results, if
possible). Also, the committee shall discuss the results of the quarterly
review and any other matters required to be communicated to the committee by the
independent auditors under generally accepted auditing standards. The chair of
the committee may represent the entire committee for the purposes of this
review.
2. The committee shall review with management and the independent auditors
the financial statements to be included in Bankshares' Annual Report on Form 10-
KSB, including their judgment about the quality, not just acceptability, of
accounting principles, the reasonableness of significant judgments, and the
clarity of the disclosures in the financial statements. Also, the committee
shall discuss the results of the annual audit and any other matters required to
be communicated to the committee by the independent auditors under generally
accepted auditing standards.
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3. If deemed appropriate after review and discussion, the committee
will recommend to the board that the financial statements be included in
Bankshares' Annual Report on Form 10-KSB.
E. Proxy Statement Report
After preparation by management, the committee shall approve the
committee report required by the rules of the Securities and Exchange Commission
to be included in Bankshares' annual proxy statement. This charter will be
included as an appendix to the proxy statement at least once every three years.
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HARBOR BANKSHARES CORPORATION
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned stockholder of Harbor Bankshares Corporation (the
"Company") hereby appoints Joseph Haskins, Jr. and George F. Vaeth, Jr., or
either of them, the lawful attorneys and proxies of the undersigned with full
power of substitution to vote, as designated below, all shares of Common Stock
of the Company which the undersigned is entitled to vote at the Annual Meeting
of Stockholders called to convene on April 18, 2001, and at any and all
adjournments or postponements thereof.
(1) Election of directors.
[_] For all nominees listed below (except as marked to the contrary
below).
[_] Withhold authority to vote for all nominees listed below.
Three-year term: John Paterakis, James Scott, Jr., Edward St.
John, Walter S. Thomas and George F. Vaeth, Jr.
(TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE,
STRIKE OUT THE NOMINEE'S NAME.)
(2) In their discretion on such other matters as may properly come before
the meeting.
(CONTINUED AND TO BE SIGNED ON OTHER SIDE)
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SHARES REPRESENTED BY ALL PROPERLY EXECUTED PROXIES WILL BE VOTED IN ACCORDANCE
WITH INSTRUCTIONS APPEARING ON THE PROXY. IN THE ABSENCE OF SPECIFIC
INSTRUCTIONS, PROXIES WILL BE VOTED FOR THE DIRECTORS NAMED IN THE PROXY
STATEMENT AND IN THE BEST DISCRETION OF THE PROXY HOLDERS AS TO ANY OTHER
MATTERS.
Dated ____________________________, 2001
_____________________________________
Signature
_____________________________________
Signature
(Please sign as name(s) appears on stock certificate. If joint account, both
owners must sign. Executors, administrators, trustees or persons signing in a
similar capacity should so indicate.)
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