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 2002 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 17, 2002
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 17,
2002, 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, 2002 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 15, 2002 Corporate Secretary
PROXY STATEMENT
INTRODUCTION
This proxy statement is furnished on or about March 15, 2002 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 17, 2002 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, 2001, 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, 2002
will be entitled to vote at the Annual Meeting. As of such date, there were
outstanding and entitled to vote 688,632 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.
-1-
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 I directors expire in April 2002.
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, 2002, and certain other information are set forth below.
Directors to be elected at the 2002 Annual Meeting
to serve until the 2005 Annual Meeting (Class I)
Name of Nominee Information Regarding Nominee
- --------------- -----------------------------
James H. DeGraffenreidt, Jr. Mr. DeGraffenreidt is 48 years old and has
served as a director of the Company and of
the Bank since 1996. He is Chairman and
Chief Executive Officer of WGL Holding,
Inc., distributors of natural gas.
13,875 shares (1.98%)/(1)/
Joe Louis Gladney Mr. Gladney is 67 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).
39,878 shares (5.73%)/(2)/
-2-
Louis J. Grasmick Mr. Grasmick 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 Chief Executive Officer
of Grasmick Lumber Company, Inc.
23,103 shares (3.29%)/(3)(4)/
Joseph Haskins, Jr. Mr. Haskins is 54 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, Chairman of the Board of the
Company and the Bank since 1995 and Chief
Executive Officer of the Bank since 1995.
78,035 shares (10.66%)/(5)/
John D. Ryder Mr. Ryder is 54 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 *
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 2003 Annual Meeting (Class II)
Name of Class II Director Information Regarding Class II Director
- ------------------------- ---------------------------------------
Sachinder Gupta Mr. Gupta is 57 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 E2CR, Inc., an
engineering company.
17,619 shares (2.52%)/(6)(7)/
Nathaniel Higgs Reverend Higgs is 71 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 (1.37%)/(6)(8)(9)/
-3-
Delores G. Kelley Dr. Kelley is 65 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.
20,479 shares (2.91%)/(4)(10)/
Erich March Mr. March is 50 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.
29,523 shares (4.20%)/(4)(6)(11)/
Stanley W. Tucker Mr. Tucker is 54 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 (7.77%)/(6)(12)/
Directors to serve until the 2004 Annual Meeting (Class III)
Name of Class III Director Information Regarding Class III Director
- -------------------------- ----------------------------------------
John Paterakis Mr. Paterakis is 73 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 (8.37%)/(13)/
James Scott, Jr. Mr. Scott is 44 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 */(6)(14)/
Edward St. John Mr. St. John is 63 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.
13,106 shares (1.90%)
-4-
Walter S. Thomas Pastor Thomas is 51 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 */(15)/
George F. Vaeth, Jr. Mr. Vaeth is 68 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 an architect with
George Vaeth Associates, Inc.
21,855 shares (3.12%)/(6)(16)/
Beneficial ownership of
Common Stock of all
directors and executive
officers as a group
(21 persons) 386,922 shares (45.53%)/(17)/
__________________
* Less than 1%.
(1) Includes currently exercisable options to purchase 10,000 shares.
(2) Includes currently exercisable options to purchase 7,026 shares.
(3) Includes 3,796 shares owned jointly by Mr. Grasmick and his son and 5,066
jointly with his wife.
(4) Includes currently exercisable options to purchase 14,053 shares.
(5) Includes currently exercisable options to purchase 43,329 shares.
(6) Member of the Audit Committee of the Bank.
(7) Includes currently exercisable options to purchase 9,053 shares.
(8) Includes 2,781 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.
(9) Includes currently exercisable options to purchase 6,572 shares.
(10) Includes 611 shares owned by Dr. Kelley and her husband.
(11) Includes 15,242 shares owned by a corporation over which Mr. March has the
power to vote.
(12) Includes 53,492 shares under the name of MMG Ventures L.P.
(13) 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 Foods, Inc., 10,133 shares), and 11,146 shares
owned by Paterakis Limited Partnership, LLP.
(14) Includes 2,891 shares owned jointly with his wife.
-5-
(15) Does not include 2,941 shares owned by a religious organization over which
Pastor Thomas has the power to vote.
(16) Includes currently exercisable options to purchase 12,703 shares.
(17) Includes currently exercisable options to purchase 161,142 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 2001.
With the exception of Mr. Thomas who attended 50% of the meetings, 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 15 times during 2001. 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 2001, the directors designated by footnote (6) above were
members of the Audit Committee, which met four times.
-6-
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, 2001. 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
- ----------------- ---- ------ ----- ------------
Joseph Haskins, Jr. ............................... 2001 $191,443 $68,919/(1)/ $ 10,912/(2)/
Chairman, President and 2000 182,324 56,708/(1)/ 9,197/(2)/
Chief Executive Officer of the Company 1999 173,952 -- 6,961/(3)/
Lester W. Johnson ................................. 2001 109,148 10,500 4,072
President and Chief Operating Officer 2000 90,914 10,266 2,310
of the Bank
_________________
(1) Bonus paid pursuant to the terms of Mr. Haskins' employment agreement.
(2) Includes a $5,662 premium for term life benefit paid by the Company for
2001 and $3,694 for 2000.
(3) Includes a $2,000 annual contribution to an individual retirement account
and the Company's matching contribution to the Bank's 401(k) Profit Sharing
Plan.
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 2001:
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. .... 1,608 37.3% $17.00 $17.00 1/1/2011
Lester W. Johnson ...... 917 21.3 17.00 17.00 1/1/2011
-7-
Aggregated Option Exercises in Last Fiscal Year
and Year End Value of Options
The following table sets forth the aggregated option exercises in 2001
and the option values at December 31, 2001, based upon a market value for
Company Common Stock of $18.00 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. -- -- 41,674 $106,654
Lester W. Johnson -- -- 5,917 14,717
_______________
(1) Currently exercisable options.
Compensation of Directors
Directors of the Company receive a fee of $400 for each board meeting
attended ($550 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 2001 were $66,150. 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 2001.
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,
-8-
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
-9-
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, 2001, loans to directors and
executive officers of the Bank, and their affiliates, including loans guaranteed
by such persons and unfunded commitments made in 2001, aggregated $5,585,000 or
approximately 45.6% 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,
2002 except as follows:
Name of Stockholder/(1)/ Information Regarding Stockholder
- ----------------------- ---------------------------------
Joe Louis Gladney Beneficially owns 39,878 shares (5.73%), which
includes currently exercisable options to
purchase 7,026 shares.
Joseph Haskins, Jr. Beneficially owns 78,035 shares (10.66%), which
includes currently exercisable options to
purchase 43,329 shares.
John Paterakis Beneficially owns 57,625 shares (8.37%), which
includes 32,426 shares held by corporations
controlled by Mr. Paterakis and 11,146 shares
owned by Paterakis Limited Partnership, LLP.
Stanley W. Tucker Beneficially owns 53,526 shares (7.77%), which
includes 53,492 shares under the name of MMG
Ventures L.P.
(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 2001 or on a Form 5 for the
year ended December 31, 2001, 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 was attached as an exhibit to a prior year's 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, 2001, 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 2002.
Audit Committee
George F. Vaeth, Jr., Chair
Sachinder Gupta
Nathaniel Higgs
Erich March
James Scott, Jr.
Stanley W. Tucker
-12-
INDEPENDENT PUBLIC ACCOUNTANTS
General
Management has selected Stegman & Company as independent public
accountants to audit the Company's 2002 financial statements. That firm also
audited the Company's financial statements for 2001. 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 Breakdown actual audit lost/and other Fees.
Stegman & Company has billed the Company $57,273 for professional
services rendered in connection with the audit of the Company's financial
statements as of and for the period ended December 31, 2001 and the reviews of
the Company's financial statements included in its quarterly reports filed with
the Securities and Exchange Commission in the year 2001.
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.
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 2003 Annual Meeting of Stockholders by November 15, 2002 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 17, 2003.
-13-
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 17, 2002, 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: James H. DeGraffenreidt, Jr., Joe Louis
Gladney, Louis J. Grasmick, Joseph Haskins, Jr. and John D.
Ryder.
(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)
-1-
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 _________________________, 2002
____________________________________
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.)
- 2 -