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 2003 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 16, 2003
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 Radisson Plaza, Lord
Baltimore Hotel, 20 West Baltimore Street, Baltimore, Maryland 21201 on
Wednesday, April 16, 2003, at 12:00 noon, Eastern Time, for the following
purposes:
1. To elect five directors of the Company to serve for three-year
terms and one director of the Company to serve for an initial two-year term
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, 2003 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 14, 2003 Corporate Secretary
PROXY STATEMENT
INTRODUCTION
This proxy statement is furnished on or about March 14, 2003 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 Radisson
Plaza, Lord Baltimore Hotel, 20 West Baltimore Street, Baltimore, Maryland
21201, on Wednesday, April 16, 2003, at 12:00 noon, Eastern Time, 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, 2002, 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, 2003 will
be entitled to vote at the Annual Meeting. As of such date, there were
outstanding and entitled to vote 702,518 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 16
members with Class I consisting of six members and Classes II and III each
consisting of five members. The terms of the Class II directors expire in April
2003. A new director joined the Company's Board of Directors in 2002 as a Class
I director.
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 six nominees
for the office of director of the Company, to serve as directors for three years
for the Class II nominees and for the remainder of the term for the Class I
nominee 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, 2003, and certain other information are set forth below. The address of
each such person is c/o Harbor Bankshares Corporation, 25 West Fayette Street,
Baltimore, Maryland 21201.
Directors to be elected at the 2003 Annual Meeting to serve until
the 2006 Annual Meeting (Class II)
Name of Nominee Information Regarding Nominee
- --------------- -----------------------------
Sachinder Gupta Mr. Gupta is 58 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.
17,737 shares (2.49%)/(1)(2)/
-2-
Nathaniel Higgs Reverend Higgs is 72 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.
9,545 shares (1.35%)/(1)(3)(4)/
Delores G. Kelley Dr. Kelley is 66 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.
20,567 shares (2.87%)/(5)(6)/
Erich March Mr. March is 51 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.
29,737 shares (4.15%)/(1)(5)(7)/
Stanley W. Tucker Mr. Tucker is 55 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).
54,268 shares (7.73%)/(1)(8)/
Director to be elected at the 2003 Annual Meeting to serve until
the 2005 Annual Meeting (Class I)
Name of Nominee Information Regarding Nominee
- --------------- -----------------------------
Carl W. Struever Mr. Struever is 50 years old and has served as a
director of the Company and of the Bank since 2002.
He is President and CEO of Struever Bros. Eccles &
Rouse, Inc., a real estate development company.
2,955 shares *
-3-
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 2005 Annual Meeting (Class I)
Name of Class I Director Information Regarding Class I Director
- ------------------------ --------------------------------------
James H. DeGraffenreidt, Jr. Mr. DeGraffenreidt is 49 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.
13,928 shares (1.96%)/(9)/
Joe Louis Gladney Mr. Gladney is 68 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).
40,333 shares (5.69%)/(10)/
Louis J. Grasmick Mr. Grasmick 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 Chief
Executive Officer of Grasmick Lumber Company, Inc.
23,227 shares (3.25%)/(5)(11)/
Joseph Haskins, Jr. Mr. Haskins is 55 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.
87,607 shares (11.69%)/(12)/
John D. Ryder Mr. Ryder is 55 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.
3,219 shares *
-4-
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 74 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.
58,789 shares (8.37%)/(13)/
James Scott, Jr. Mr. Scott is 45 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.
3,247 shares */(1)(14)/
Edward St. John Mr. St. John is 65 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.
13,488 shares (1.92%)
Walter S. Thomas Pastor Thomas is 52 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.
228 shares */(15)/
George F. Vaeth, Jr. Mr. Vaeth is 69 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.
21,982 shares (3.08%)/(1)(16)/
Beneficial ownership of
Common Stock of all
directors and executive
officers as a group
(20 persons) 422,421 shares (49.40%)/(17)/
- -----------
-5-
* Less than 1%.
/(1)/ Member of the Audit Committee of the Bank.
/(2)/ Includes currently exercisable options to purchase 8,864 shares.
/(3)/ Includes 2,819 shares owned jointly by Reverend Higgs and his wife. Does
not include 13,704 shares owned by a religious organization over which
Reverend Higgs has the power to vote.
/(4)/ Includes currently exercisable options to purchase 6,356 shares.
/(5)/ Includes currently exercisable options to purchase 13,644 shares.
/(6)/ Includes 619 shares owned by Dr. Kelley and her husband.
/(7)/ Includes 15,453 shares owned by a corporation over which Mr. March has
the power to vote.
/(8)/ Includes 54,234 shares under the name of MMG Ventures L.P.
/(9)/ Includes currently exercisable options to purchase 9,603 shares.
/(10)/ Includes currently exercisable options to purchase 6,837 shares.
/(11)/ Includes 3,848 shares owned jointly by Mr. Grasmick and his son and
5,136 jointly with his wife.
/(12)/ Includes currently exercisable options to purchase 46,820 shares.
/(13)/ Includes 32,874 shares owned by three corporations controlled by Mr.
Paterakis (J and B Associates, Inc., 16,437 shares, H & S Bakery, Inc.,
6,164 shares, and Northeast Foods, Inc., 10,273 shares), and 11,300
shares owned by Paterakis Limited Partnership, LLP.
/(14)/ Includes 2,930 shares owned jointly with his wife.
/(15)/ Does not include 3,757 shares owned by a religious organization over
which Pastor Thomas has the power to vote.
/(16)/ Includes currently exercisable options to purchase 12,257 shares.
/(17)/ Includes currently exercisable options to purchase 152,643 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 2002. With
the exception of Messrs. Gladney, Gupta, Ryder, Thomas and Tucker who attended
58%, 58%, 67%, 67% and 67%, respectively, 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 13 times during 2002. 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.
-6-
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 2002, the directors designated by footnote (1) above were
members of the Audit Committee, which met four times.
Compensation of Directors and Executive Officers
Summary Compensation Table
The following table shows compensation paid to certain executive officers
of the Company and the Bank for the three-year period ended December 31, 2002.
No other executive officer received total annual compensation in excess of
$100,000 during such period.
Annual Compensation
-------------------
All Other
Name and Position Year Salary Bonus Compensation
- ----------------- ---- ------ ----- ------------
Joseph Haskins, Jr. (1)(2) .......................... 2002 $197,188 $118,313 $16,186
Chairman, President and 2001 191,443 68,919 15,057
Chief Executive Officer of the Company 2000 182,324 56,708 13,409
Lester W. Johnson (3) ............................... 2002 104,263 -- --
Former President and Chief Operating Officer 2001 109,148 10,500 4,072
of the Bank 2000 90,914 10,266 2,310
- ------------
(1) Bonus paid pursuant to the terms of Mr. Haskins' employment agreement.
(2) Other compensation includes a $6,191 premium for term life benefit paid by
the Company for 2002, $5,662 for 2001 and $3,694 for 2000.
(3) Mr. Johnson terminated his employment with the Bank in December 2002.
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 2002:
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. .... 1,655 54.3% $17.35 $18.00 1/1/2012
Lester W. Johnson ...... -- -- -- -- --
-7-
Aggregated Option Exercises in Last Fiscal Year
and Year End Value of Options
The following table sets forth the aggregated option exercises in 2002
and the option values at December 31, 2002, 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 On Exercise Realized at Fiscal Year-End/(1)/ at Fiscal Year-End
- ---- --------------- -------- ----------------------- --------------------
Joseph Haskins, Jr. ........ -- -- 43,329 $107,730
Lester W. Johnson .......... -- -- -- --
- ---------
/(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 2002 were $64,246. 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 2002.
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.
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 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, 2002, loans to directors and
executive officers of the Bank, and their affiliates, including loans guaranteed
by such persons and unfunded commitments made in 2002, aggregated $3,547,000 or
approximately 34.0% 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,
2003 except as follows:
Name of Stockholder/(1)/ Information Regarding Stockholder
- ------------------------ ---------------------------------
Joe Louis Gladney Beneficially owns 40,333 shares (5.69%), which
includes currently exercisable options to
purchase 6,837 shares.
Joseph Haskins, Jr. Beneficially owns 87,607 shares (11.69%), which
includes currently exercisable options to
purchase 46,820 shares.
John Paterakis Beneficially owns 58,789 shares (8.37%), which
includes 32,874 shares held by corporations
controlled by Mr. Paterakis and 11,300 shares
owned by Paterakis Limited Partnership, LLP.
Stanley W. Tucker Beneficially owns 54,268 shares (7.73%), which
includes 54,234 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 2002 or on a Form 5 for the year
ended December 31, 2002, all of the directors and executive officers of the
Company have made the necessary filings in compliance with Section 16(a) of the
-10-
Securities Exchange Act of 1934 and the rules and regulations promulgated
thereunder by the Securities and Exchange Commission.
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. The Audit Committee
considered whether the provision of tax preparation services by Stegman &
Company to the Company in 2002 was compatible with maintaining their
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, 2002, for filing with the Securities
and Exchange Commission.
-11-
The Audit Committee also recommended the selection of Stegman & Company as
the Company's independent auditors for 2003.
Audit Committee
George F. Vaeth, Jr., Chair
Sachinder Gupta
Nathaniel Higgs
Erich March
James Scott, Jr.
Stanley W. Tucker
INDEPENDENT PUBLIC ACCOUNTANTS
General
Management has selected Stegman & Company as independent public accountants
to audit the Company's 2003 financial statements. That firm also audited the
Company's financial statements for 2002. 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 $45,675 for professional services
rendered in connection with the audit of the Company's financial statements as
of and for the period ended December 31, 2002 and $5,500 for the reviews of the
Company's financial statements included in its quarterly reports filed with the
Securities and Exchange Commission in 2002.
Financial Information Systems Design and Implementation Fees
Stegman & Company has not provided any professional accounting services to
the Company related to financial information systems design and implementation.
All Other Fees
In 2002, Stegman & Company billed the Company $8,750 for professional
services rendered in connection with the preparation of the Company's tax
returns.
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
-12-
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 2004 Annual Meeting of Stockholders by November 15, 2003 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 22, 2004.
-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 16, 2003, 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: Sachinder Gupta, Nathaniel Higgs, Delores G.
Kelley, Erich March and Stanley W. Tucker.
Two-year term: Carl W. Struever.
(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 ____________________________, 2003
______________________________________
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-