EXHIBIT 10.1

THE UNITS (AND UNDERLYING SECURITIES) WHICH ARE THE SUBJECT OF THIS SUBSCRIPTION AGREEMENT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS.  THE UNITS (AND UNDERLYING SECURITIES) ACQUIRED BY INVESTORS MAY NOT BE SOLD OR OFFERED FOR SALE IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND SUCH STATE LAWS AS MAY BE APPLICABLE, OR DELIVERY TO THE COMPANY OF AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.

 

AN INVESTMENT IN THE UNITS IS SUBJECT TO CERTAIN RISKS.  SEE “RISK FACTORS” IN THE CONFIDENTIAL PRIVATE PLACEMENT MEMORANDUM, DATED AUGUST 7, 2008.

 

This Subscription Agreement, the Confidential Private Placement Memorandum and the Exhibits attached thereto are highly confidential.  This Subscription Agreement does not constitute an offer to any person other than the subscriber named below or to the public generally to subscribe for or otherwise acquire any Units.  No one is permitted to distribute this Subscription Agreement, the Confidential Private Placement Memorandum and the Exhibits attached thereto to any person other than the subscriber and those persons, if any, retained to advise such subscriber, and any disclosure of any of the contents hereof without our prior written consent is prohibited.  Each prospective purchaser, by accepting delivery of this Subscription Agreement, the Confidential Private Placement Memorandum and the Exhibits attached thereto, agrees to the foregoing and to make no photocopies of this Subscription Agreement or the Confidential Private Placement Memorandum and the Exhibits attached thereto or any documents delivered in connection herewith and if the subscriber does not purchase any Units, or the offering is terminated, to return this Subscription Agreement and the Confidential Private Placement Memorandum and the Exhibits attached thereto and all such documents delivered herewith to us.

Each person receiving this Subscription Agreement and the Confidential Private Placement and the Exhibits attached thereto, prior to delivery hereof, has agreed, and its acceptance hereof constitutes its further agreement, that it will hold the information contained or referred to herein and the transactions contemplated hereby in confidence.

FOR FLORIDA RESIDENTS ONLY: PURSUANT TO SECTION 517.061(11)(A)(5) OF THE FLORIDA SECURITIES ACT, WHEN SALES ARE MADE TO FIVE OR MORE PERSONS IN FLORIDA, ANY SALE IN THE STATE OF FLORIDA IS VOIDABLE BY THE PURCHASER IN SUCH SALE EITHER WITHIN THREE (3) DAYS AFTER THE FIRST TENDER OF CONSIDERATION IS MADE BY SUCH PURCHASER TO THE ISSUER, AN AGENT OF THE ISSUER OR AN ESCROW AGENT OR WITHIN THREE (3) DAYS AFTER THE AVAILABILITY OF THAT PRIVILEGE IS COMMUNICATED TO SUCH PURCHASER, WHICHEVER OCCURS LATER.  EACH FLORIDA RESIDENT WHO SUBSCRIBES FOR THE PURCHASE OF UNITS HAS THE RIGHT, PURSUANT TO SECTION 517.061(11)(A)(5) OF THE FLORIDA SECURITIES ACT, TO WITHDRAW HIS, HER OR ITS SUBSCRIPTION FOR THE PURCHASE AND RECEIVE A FULL REFUND OF ALL MONIES PAID WITHIN THREE (3) BUSINESS DAYS AFTER THE EXECUTION OF THE SUBSCRIPTION AGREEMENT OR PAYMENT FOR THE PURCHASE HAS BEEN MADE, WHICHEVER IS LATER.  WITHDRAWAL WILL BE WITHOUT ANY FURTHER LIABILITY TO ANY PERSON.  TO ACCOMPLISH THIS WITHDRAWAL , A SUBSCRIBER NEED ONLY SEND A LETTER OR TELEGRAM TO THE COMPANY C/O THOMAS BEVIVINO, EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER, SEVERN BANCORP, INC., 200 WESTGATE CIRCLE, SUITE 200, ANNAPOLIS, MARYLAND 21401,   INDICATING HIS, HER OR ITS INTENTION   TO WITHDRAW.

 

 

 

SUCH LETTER OR TELEGRAM SHOULD BE SENT AND POSTMARKED PRIOR TO THE END OF THE AFOREMENTIONED THIRD BUSINESS DAY.  IT IS ADVISABLE TO SEND SUCH LETTER BY CERTIFIED MAIL, RETURN RECEIPT REQUESTED, TO ENSURE THAT IT IS RECEIVED AND ALSO TO EVIDENCE THE TIME IT WAS MAILED.  IF THE REQUEST IS MADE ORALLY, IN PERSON OR BY TELEPHONE TO AN OFFICER OF THE COMPANY, A WRITTEN CONFIRMATION THAT THE REQUEST HAS BEEN RECEIVED SHOULD BE REQUESTED.

SUBSCRIPTION AGREEMENT

 

Parties :             Severn Bancorp, Inc.

a Maryland Corporation (the “ Company ”)

200 Westgate Circle

Annapolis, MD 21401

__________________________ (the “ Subscriber ”)

(Print Name)

 

__________________________

(Street Address)

 

__________________________

(City, State, Zip Code)

Date :                                         , 2008

 

BACKGROUND

 

The Company is offering to sell a minimum of 100 Units and a maximum of 250 Units in a private placement (the “ Offering ”).  Each Unit is being offered at a purchase price of $100,000 per Unit and consists of 6,250 shares of Series A Convertible Preferred Stock, par value $.01 per share, of the Company (the “ Preferred Stock ”) with an aggregate liquidation preference of $50,000, and a redeemable Subordinated Note in the original principal amount of $50,000 (“ Subordinated Note ”).  The Subscriber desires to purchase, and subject to acceptance by the Company, the Company desires to sell, the number of Units designated on the Signature Page of this Agreement, upon the terms and conditions contained herein.

 

NOW, THEREFORE, in consideration of the mutual promises and covenants contained herein and for the other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto, intending to be legally bound, agree as follows:

 

1.	SUBSCRIPTION

 

Subject to the terms and conditions set forth herein, the Subscriber hereby subscribes for and agrees to purchase the number of Units designated on the Signature Page of this Agreement at the purchase price per Unit of One Hundred Thousand Dollars ($100,000) for total amount as set forth on the signature page of this Agreement (the “ Subscription Price ”).  In payment of the Subscription Price, Subscriber encloses herewith a check, bank draft or money order payable to the order of “Severn Bancorp, Inc.” in the amount of the Subscription Price.

 

 

 

2.	SUBSCRIPTION IRREVOCABLE BY SUBSCRIBER BUT SUBJECT TO ACCEPTANCE OR REJECTION BY THE COMPANY.

 

(a)   Except as to Florida subscribers as  described above, this Subscription Agreement is not, and shall not be, revocable by Subscriber.

 

(b)   The Subscriber understands and agrees that: (i) this subscription shall not be binding upon the Company until accepted by the Company, (ii) the Company reserves the right to reject the Subscriber’s subscription for any reason or no reason, (iii) the Company may accept this subscription in whole or in part and (iv) the Company reserves the right, in its sole discretion, to accept subscriptions for a partial Unit from any subscriber in the Offering.  The Subscriber shall not have any recourse against the Company if the subscription is rejected in whole or in part.  If the subscription is rejected, the Company will promptly return to Subscriber, without deduction or interest, the rejected Subscription Price.

 

3.	SUBSCRIBER’S REPRESENTATIONS AND WARRANTIES.

 

Subscriber hereby represents and warrants that:

 

(a)   Subscriber has received, has carefully read and understands the Confidential Private Placement Memorandum, dated August 7, 2008 and the Exhibits attached thereto  (the “Memorandum”), including without limitation the Form of Subordinated Note attached as Exhibit H to the Memorandum (“Form of Subordinated Note”) and Form of Articles of Amendment attached as Exhibit J to the Memorandum (“Form of Articles of Amendment”).  Subscriber has based his, her or its decision to invest on the information contained in the Memorandum, has not been furnished with any other offering literature or prospectus and has not received any representations or warranties from the Company, the officers or directors of the Company or any agent of any of the foregoing other than as set forth herein or in the Memorandum.

 

(b)   Subscriber has such knowledge and experience in financial and business matters and that Subscriber is fully capable of evaluating the merits and risks of the investment in the Company;

 

(c)   Subscriber is acquiring the Units (and underlying securities) for Subscriber’s own account, not for the account of any other person or entity, and for investment and not with a view to resale or distribution and no other person or entity has a direct or indirect beneficial ownership interest in the Units (and underlying securities);

 

(d)   Subscriber can bear the economic risk of losing Subscriber’s entire investment;

 

(e)   By reason of Subscriber’s business or financial experience, Subscriber has the capacity and has taken all steps necessary to protect the Subscriber’s own interests in connection with an investment in the Units (and underlying securities);

 

(f)   Subscriber has not paid or given any commission or other remuneration in connection with the purchase of the Units (and underlying securities);

 

(g)   The Units (and underlying securities) were not offered to the Subscriber by means of any general solicitation or general advertising by the Company or any person acting on its behalf, including, but not limited to: (i) any advertisement, article, notice or other communication published in any newspaper, magazine or similar media or broadcast over television or radio; or (ii) any seminar or meeting to which the Subscriber was invited by any general solicitation or general advertising;

 

 

 

(h)   Subscriber (i) is at least twenty one (21) years of age (if the Subscriber is a natural person, (ii) maintains his, her or its residence or principal place of business (as applicable) (and is not a transient or temporary resident) at the address shown on page 2 hereto and has no present intention of becoming a resident or changing its principal place of business to another state or jurisdiction, (iii) has adequate means of providing for his or her current needs and personal contingencies (if the Subscriber is a natural person), (iv) has no need for liquidity in the investment in the Units (and underlying securities), (v) has investments in and commitments to non liquid investments which are, and after the purchase of the Units (and underlying securities) will be, reasonable in relation to his, her or its net worth and current needs, and (vi) is able to bear the economic risk of losing his, her or its entire investment in the Units (and underlying securities).  The Subscriber acknowledges and agrees that no offer of the Units was made to the Subscriber in any state other than such state of residence or principal place of business;

 

(i)   Subscriber’s overall commitment to investments which are not readily marketable is not disproportionate to Subscriber’s net worth, Subscriber’s investment in the Units (and underlying securities) will not cause such overall commitment to become excessive, and the investment is suitable for Subscriber when viewed in light of Subscriber’s other securities holdings and Subscriber’s financial situation and needs;

 

(j)   Subscriber has adequate means of providing for Subscriber’s current needs and contingencies;

 

(k)   Subscriber has evaluated all the risks of investment in the Company, including without limitation those set forth under “Risk Factors” in the Memorandum, in Part I, Item 1.A "Risk Factors" in the Company's Annual Report on Form 10-K included as Exhibit A to the Memorandum and in Part II, Item 1.A "Risk Factors" in the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2008 included as Exhibit C to the Memorandum;

 

(l)   Subscriber has experience in evaluating and making investment decisions of this kind;

 

(m)   Subscriber has a reasonable understanding of the business in which the Company is engaged;

 

(n)   Subscriber is an “accredited investor” as defined in Rule 501 of Regulation D under the Securities Act of 1933, as amended (the “ Securities Act ”) as indicated on the signature page hereto;

 

(o)   Subscriber otherwise meets any special suitability standards applicable to the Subscriber’s state of residence or principal place of business (as applicable);

 

(p)   Subscriber has been furnished with all additional documents and information which Subscriber has requested;

 

(q)   Subscriber has had the opportunity to ask questions of and received answers from the Company concerning the Company and the Units (and underlying securities) and to obtain any additional information necessary to verify the accuracy of the information furnished;

 

(r)   Subscriber has relied only on the information contained herein and in the Memorandum and the documents attached thereto as exhibits in determining to make this subscription;

 

(s)   Subscriber has not construed the contents of this Subscription Agreement (or the Memorandum and any attachments thereto) or any prior or subsequent communication from the Company or any of its directors, officers, employees, financial advisors, attorneys, accountants or other agents as investment, legal or tax advice.  The Subscriber has been advised to consult with the Subscriber’s own financial advisor, attorneys, and other professional advisors as to investment, legal, tax, or other related matters concerning the proposed investment;

 

 

 

(t)   All documents, records and books pertaining to Subscriber’s investment have been made available for inspection by Subscriber and by Subscriber’s attorney, and/or Subscriber’s accountant and/or Subscriber’s representative, during reasonable business hours at the Company’s principal place of business;

 

(u)   Subscriber recognizes and understands that an investment in the Units (and underlying securities) involves substantial risks and that the Subscriber may lose all of the Subscriber’s investment.  Subscriber is fully aware of and understands all of the risk factors relating the purchase thereof, including, but not limited to, those set forth under “Risk Factors” in the Memorandum,  in Item 1.A "Risk Factors" in the Company's Annual Report on Form 10-K included as Exhibit A to the Memorandum and in Part II, Item 1.A "Risk Factors" in the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2008 included as Exhibit C to the Memorandum;

 

(v)   Subscriber understands that the terms of the Offering (and the underlying securities), including the purchase price per Unit, have been arbitrarily determined by the Company and that no assurances have been given about the increase in value, if any, of the Units (and underlying securities);

 

(w)   Subscriber understands that the Units (and underlying securities) are being offered and sold in reliance on specific exemptions from the registration requirements of federal and state securities laws and that the Company and controlling persons thereof are relying upon the truth and accuracy of the representations, warranties, agreements, acknowledgments and understandings set forth herein to determine the applicability of such exemptions and the suitability of the Subscriber to acquire the Units (and underlying securities), and also to confirm that the Company is not required to register as an investment company under the Investment Company Act of 1940;

 

(x)   Subscriber understands that the offer and sale of the Units (and underlying securities) have not been submitted to, reviewed by, nor have the merits of this investment been endorsed or approved by any state or federal agency, commission, authority or self-regulatory organization;

 

(y)   The written information pertaining to Subscriber which Subscriber has heretofore furnished to the Company, and all information pertaining to Subscriber which is set forth in this Subscription Agreement (including in the signature page hereto), is true and correct as of the date hereof and, if there should be any material change in such information hereafter, Subscriber shall promptly furnish such revised or corrected information to the Company;

 

(z)   Subscriber has full right, power (and capacity, if the Subscriber is a natural person) and authority to execute and deliver this Subscription Agreement and to perform his, her or its other obligations hereunder, and if the Subscriber is an entity, the person signing this Subscription Agreement on behalf of such entity has been duly authorized by such entity to do so, and this Subscription Agreement shall be enforceable against Subscriber in accordance with its terms;

 

(aa)   Subscriber understands, acknowledges and agrees that the Company is relying solely upon the representations and warranties made herein in determining to sell Subscriber the Units (and underlying securities); and

 

 

 

(bb)   Subscriber understands the meaning and legal consequences of the foregoing representations and warranties and certifies that each of the foregoing representations and warranties is true and correct as of the date hereof and shall survive the execution hereof and the purchase of the Units (and underlying securities).

 

4.	TRANSFER RESTRICTIONS.

 

(a)   Subscriber represents that Subscriber understands that the sale or transfer of the Units (and underlying securities) are severely restricted and that:

 

(i)   The Units (and underlying securities) have not been registered under the Securities Act or the laws of any state or other jurisdiction.  The Units (and underlying securities) can not be sold, transferred or otherwise disposed of by Subscriber unless the Units (and underlying securities) are subsequently registered under applicable law or an exemption from registration is available.  The Company is not required to register the Units (and underlying securities) or to make any exemption from registration available, and therefore, the Subscriber may be precluded from selling, transferring or otherwise disposing of the Units (and underlying securities) or any portion thereof and may have to bear the economic risk of Subscriber’s investment for an indefinite period of time; and

 

(ii)   There is no public market and there will probably not be a public market for the Units (and underlying Subordinated Note and Preferred Stock) and Subscriber may not be able to sell the Units (and underlying Subordinated Note and Preferred Stock) at prices equal to or greater than the price paid for them or at all.  Accordingly, the Subscriber may have to bear the economic risk of Subscriber’s investment for an indefinite period of time.

 

(b)   Subscriber agrees that Subscriber will not sell, offer to sell, transfer or otherwise dispose of the Units (and underlying securities) or any part thereof or interest therein without registration under the Securities Act and applicable state securities laws or an exemption from such registration, other than a sale or transfer to the Company at an agreed upon price.

 

(c)   Restrictive Legend and Stop Transfer Order .  The Subscriber acknowledges that:

 

(i)   any certificates representing the securities underlying the Units will bear a legend similar to the following:

 

The securities represented by this certificate have not been registered under the Securities Act of 1933, as amended, or the securities laws of any state.  The securities may not be offered, sold, transferred, pledged or otherwise disposed of unless (i) there is an effective registration statement under the Securities Act of 1933, as amended, and under any applicable state securities laws,  or (ii)  the Company has received an opinion of counsel satisfactory to the Company and its counsel that the proposed transaction will be exempt from such registration; and

 

(ii)   the Company reserves the right to place a stop order against any securities underlying the Units and to refuse to effect any transfers thereof in the absence of an effective registration statement with respect to thereto or in the absence of an opinion of counsel to the Company that such transfer is exempt from registration under the Securities Act and under applicable state securities laws.

 

 

 

5.	INDEMNIFICATION AND HOLD HARMLESS.

 

Subscriber agrees that if Subscriber breaches any agreement, representation or warranty Subscriber has made in this Subscription Agreement, Subscriber agrees to indemnify and hold harmless the Company, including its directors, officers, employees and shareholders, against any claim, liability, loss, damage or expense (including attorneys’ fees and other costs of investigating and litigating claims) caused, directly or indirectly, by Subscriber’s breach.

 

6.	CONFIDENTIAL INFORMATION; NON-DISCLOSURE.

 

(a)   Confidential Information .  Subscriber recognizes and acknowledges that this Subscription Agreement creates a confidential relationship between Subscriber and the Company and that any and all information provided in connection with this offering, including but not limited to, finances, business strategies, marketing and marketing strategies, products, policies, financial information, documentation, and other such information, whether written, oral or otherwise, is confidential in nature (hereinafter collectively referred to as “ Company Confidential Information ”).  Company Confidential Information shall not include information that: (x) is in the public domain through no breach of the obligation of non-disclosure set forth below; (y) is independently communicated to Subscriber by a third party free of any obligation of confidentiality; or (z) is developed by Subscriber independently of and without reference to any Company Confidential Information.  All Company Confidential Information supplied to Subscriber hereunder is and shall remain the sole and exclusive property of the Company.

 

(b)   Non-Disclosure .  Subscriber agrees that, except as expressly authorized in writing by the Company, Subscriber will not at any time disclose any Company Confidential Information to any person whatsoever or use any Company Confidential Information for any purpose other than in his, her or its role as an investor in the Company.  Notwithstanding the foregoing, Subscriber may disclose such Company Confidential Information to Subscriber’s personal advisors provided that such advisors agree to be bound by the foregoing confidentiality and non-disclosure provisions.

 

7.	MISCELLANEOUS .

 

(a)   Additional Information .  The Company may request from Subscriber such additional information as it may deem necessary to evaluate the eligibility of Subscriber to acquire Units (and underlying securities), and may request from time to time such information as it may deem necessary to determine the eligibility of Subscriber to hold the Units (and underlying securities) or to enable the Company to determine the Company’s compliance with applicable regulatory requirements, and the Subscriber agrees to provide such information as may reasonably be requested.

 

(b)   Acceptance or Rejection of Subscription . This Subscription Agreement shall not be binding on the Company until it shall be accepted by the Company, such acceptance to be indicated by the execution of this Subscription Agreement by the Company.  The Company may reject this Subscription Agreement in whole or in part, for any reason or no reason, in its sole and absolute discretion.

 

(c)   Entire Understanding .  This Subscription Agreement states the entire understanding between the parties with respect to the subject matter hereof, and supersedes all prior oral and written communications and agreements, and all contemporaneous oral communications and agreements, with respect to the subject matter hereof.

 

(d)   Parties in Interest .  This Subscription Agreement, upon acceptance by the Company, shall bind, benefit, and be enforceable by and against each party hereto and his, her or its successor, assigns, heirs administrators and executors.

 

 

 

 

(e)   Severability .  If any provision of this Subscription Agreement is construed to be invalid, illegal or unenforceable, then the remaining provisions hereof shall not be affected thereby and shall be enforceable without regard thereto.

 

(f)   Section Headings .  Article and section headings in this Subscription Agreement are for convenience of reference only, do not constitute a part of this Subscription Agreement, and shall not affect its interpretation.

 

(g)   References .  All words used in this Subscription Agreement shall be construed to be of such number and gender as the context requires or permits.  Unless a particular context clearly provides otherwise, the words “hereof” and “hereunder” and similar references refer to this Subscription Agreement in its entirety and not to any specific Section or subsection.

 

(h)   Controlling Law .  THIS SUBSCRIPTION AGREEMENT IS MADE UNDER, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF MARYLAND APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED SOLELY THEREIN, WITHOUT GIVING EFFECT TO PRINCIPLES OF CONFLICTS OF LAW.

 

[Remainder of page intentionally left blank.]

 

ALL SUBSCRIBERS MUST COMPLETE AND SIGN BELOW

 

The Subscriber, by executing this Signature Page, hereby agrees to all the terms, conditions, representations and warranties of this Subscription Agreement and agrees to purchase the number of Units set forth below.

 

Number of Units subscribed for:  _____ Units

Subscription Price (number of Unit(s) subscribed for x $100,000):   $_______________

Further, the Subscriber hereby represents and warrants that the Subscriber is an "accredited investor" as defined in Regulation D under the Securities Act of 1933 as indicated below:

Please check and complete all applicable responses:

If the Subscriber is an individual:

¨   My individual net worth, or joint net worth with my spouse, currently exceeds $1,000,000.  If this box is checked, please provide estimated net worth (may include joint net worth with spouse):  $________________.

¨   I had an individual income in excess of $200,000 in each of 2006 and 2007 or joint income with my spouse in excess of $300,000 in each of those years and I have a reasonable expectation of reaching the same income level in 2008.  If this box is checked, please provide income amounts for you and your spouse as follows:   2006 (actual)                                           your income: $___________                                                      spouse’s income: $___________ 2007 (actual)                                           your income: $___________                                                      spouse’s income: $___________ 2008 (estimated)                                your income: $___________                                                      spouse’s income: $___________

¨   I am a director or executive officer of Severn Bancorp, Inc.

If the Subscriber is an entity:

¨   The entity is a bank as defined in Section 3(a)(2) of the Securities Act of 1933, as amended (the "Securities Act") or savings and loan association or other institution as defined in Section 3(a)(5)(A) of the Securities Act.

¨   The entity is a broker or dealer registered pursuant to section 15 of the Securities Exchange Act of 1934, as amended.

¨   The entity is an insurance company as defined in Section 2(13) of the Securities Act.

¨   The entity is an investment company registered under the Investment Company Act of 1940, as amended (the “1940 Act”) or a business development company as defined in Section 2(a)(48) of the 1940 Act.

¨   The entity is a small business investment company licensed by the U.S. Small Business Administration under Section 301(c) or (d) of the Small Business Investment Act of 1958, as amended.

¨   The entity is a plan established and maintained by a state, its political subdivisions, or any agency or instrumentality of a state or its political subdivisions, for the benefit of its employees with total assets in excess of $5,000,000.

Please continue on the following page.

 

 

 

Please check and complete all applicable responses:

¨   The entity is an employee benefit plan within the meaning of the Employee Retirement Income Security Act of 1974, as amended (“Employee Benefit Plan”) and the investment decision is made by a plan fiduciary which is either a bank, savings and loan association, insurance company or registered investment advisor.

¨   The entity is an Employee Benefit Plan with assets in excess of $5,000,000.

¨   The entity is a self-directed Employee Benefit Plan where the investment decisions are made solely by persons that are accredited investors.

¨   The entity is a private business development company as defined in Section 202(a)(22) of the 1940 Act.

¨   The entity is an organization described in section 501(c)(3) of the Internal Revenue Code, corporation, Massachusetts or similar business trust, or partnership, not formed for the specific purpose of acquiring the Units offered, with total assets in excess of $5,000,000.

¨   The entity is a trust, with total assets in excess of $5,000,000, not formed for the specific purpose of acquiring the securities offered, whose purchase is directed by an accredited investor that has such knowledge and experience in financial and business matters that he or she is capable of evaluating the merits and risks of the prospective investment.

¨    All of the equity owners of the entity are accredited investors.  If this is the only box checked, each of the owners must separately complete and sign pages 8 and 9.

The total assets of the entity as of a recent date are: $_______ as of ___________, 2008 (date)

 

           IN WITNESS WHEREOF, the Subscriber has executed and delivered this Subscription Agreement on the date first above written.

 

INDIVIDUAL SUBSCRIBERS	ENTITY SUBSCRIBERS
_________________________________	_____________________________
Signature	Print Name of Entity
_________________________________	______________________________
Print Name	By: ___________________________ Authorized Signature
_________________________________	_______________________________
Signature of the Joint Subscriber (if any) (if shares to be held in joint name)	Print Name and Title of Authorized Signer
_________________________________
Print Name of Joint Subscriber
Residence Address: ______________________	Principal Business Address: ________________
______________________________________	_______________________________________
Telephone: _____________________________	Telephone: ______________________________
Social Security No:  __________________	Tax I.D. Number:   __________________
Joint Subscriber Social Security No:  __________________

ACCEPTED AND APPROVED AS TO ___UNITS:

 

SEVERN BANCORP, INC.

 

 

By:                                                                       

         Name:

         Title:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

[Company signature page to the Subscription Agreement]

 

 

EXHIBIT 10.2

THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR ANY STATE SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, REGISTRATION.  THE HOLDER OF THIS SECURITY, BY ITS ACCEPTANCE HEREOF, AGREES TO OFFER, SELL OR OTHERWISE TRANSFER SUCH SECURITY ONLY (A) TO SEVERN BANCORP, INC. OR ANY SUBSIDIARY THEREOF, (B) PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT, OR (C) PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, SUBJECT TO SEVERN BANCORP, INC.’S RIGHT PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER PURSUANT TO CLAUSE (C) TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY, AND IN EACH OF THE FOREGOING CASES, A CERTIFICATE OF TRANSFER IN THE FORM APPEARING BELOW IS COMPLETED AND DELIVERED BY THE TRANSFEROR TO THE TRANSFER AGENT. THE HOLDER OF THIS SECURITY, BY ITS ACCEPTANCE HEREOF, AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THE SECURITY EVIDENCED HEREBY IS TRANSFERRED (OTHER THAN A TRANSFER PURSUANT TO CLAUSE (B) ABOVE) A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND.

Principal Amount: $ ____________

  Dated: ______________________

Subordinated Note No: _________

SEVERN BANCORP, INC.

8.0% SUBORDINATED NOTE

DUE DECEMBER  31, 2018

1.            General .       Severn Bancorp, Inc., a Maryland corporation (the “Corporation”, which term includes any successor Person), for value received, hereby promises to pay to _____________________ (“Holder”) or registered assigns, the principal sum of $_______________________ ($_______________) on December 31, 2018 (the “Maturity Date”), unless previously redeemed, and to pay interest on the outstanding principal amount hereof from the date hereof, or from the most recent interest payment date (each such date, an “Interest Payment Date”) to which interest has been paid or duly provided for, quarterly (subject to deferral as set forth herein) in arrears on the last day of March, June, September and December of each year, commencing December 31, 2008, at the rate of 8.0% per annum until the principal hereof shall have become due and payable, and on any overdue principal and (without duplication and to the extent that payment of such interest is enforceable under applicable law) on any overdue installment of interest at the same rate per annum compounded quarterly.  The amount of interest payable on any Interest Payment Date shall be computed on the basis of a 360-day year of twelve 30-day months and, for any period shorter that a full quarterly period will be computed on the basis of a 30-day month, and for any period less than a full calendar month, the number of days elapsed in such month.  In the event that any date on which the principal of or interest on this Subordinated Note is payable is not a Business Day (as defined below), then the payment payable on such date will be made on the next succeeding day that is a Business Day (and without any interest or other payment in respect of any such delay), except that if such next succeeding Business Day falls in the next calendar year, then such payment shall be made on the immediately preceding Business Day, in each case with the same force and effect as if made on such date.

 

 

 

The interest installment so payable, and punctually paid or duly provided for, on any Interest Payment Date will be paid to the Person in whose name this Subordinated Note (or one or more predecessor Subordinated Notes) is registered at the close of business on the regular record date for such interest installment, which shall be as of 5:00 p.m., New York City time, on the first day of the month, whether or not a Business Day, in which the relevant Interest Payment Date occurs (or would have occurred but for fact that the Interest Payment Date was not a Business Day).  Any such interest installment not punctually paid or duly provided for shall forthwith cease to be payable to the Holders on such regular record date and shall be paid to the Person in whose name this Subordinated Note (or one or more predecessor Subordinated Notes) is registered at the close of business on a special record date to be fixed by the Corporation for the payment of such defaulted interest, notice whereof shall be given to the holders of Subordinated Notes not less than 10 days prior to such special record date, or may be paid at any time in any other lawful manner.

The principal of and interest on this Subordinated Note shall be payable at the office or agency of the Paying Agent maintained for that purpose in any coin or currency of the United States of America that at the time of payment is legal tender for payment of public and private debts; provided , however , that, payment of interest may be made at the option of the Corporation by (i) check mailed to the holder at such address as shall appear in the Subordinated Note Register or (ii) by transfer to an account maintained by the Person entitled thereto, provided that proper written transfer instructions have been received by the relevant record date.

This Subordinated Note is one of a series of Subordinated Notes of the Corporation in an aggregate principal amount of up to $3,500,000 (herein sometimes referred to as the “Subordinated Notes”).

The Subordinated Notes are not entitled to the benefit of any sinking fund.

 

The term “Business Day” shall mean any weekday that is not a legal holiday in New York, New York and is not a day on which banking institutions in New York, New York are authorized or required by law or regulation to be closed.

 

The term “Person” shall mean any legal person, including individual, corporation, estate, partnership, joint venture, association, joint-stock company, limited liability company or trust.

 

 

2.            Extension of Interest Payment Period .  So long as the Corporation is not in Default in the payment of interest on the Subordinated Notes, the Corporation shall have the right, at any time and from time to time during the term of the Subordinated Notes, to defer payments of interest by extending the interest payment period of such Subordinated Notes for a period not exceeding 20 consecutive quarterly periods, including the first such quarterly period during such extension period (an “Extended Interest Payment Period”), during which Extended Interest Payment Period no interest shall be due and payable; provided that no Extended Interest Payment Period shall end on a date other than an Interest Payment Date or extend beyond the Maturity Date or, with respect to any Subordinated Notes called for redemption, the Redemption Date with respect to such Subordinated Notes.  At the end of any Extended Interest Payment Period, the Corporation shall pay all interest then accrued and unpaid (together with interest thereon at an annual rate of 8.0% to the extent that payment of such interest is enforceable under applicable law).  Before the termination of any such Extended Interest Payment Period, the Corporation may further defer payments of interest by further extending such Extended Interest Payment Period, provided that such Extended Interest Payment Period, together with all such previous and further extensions within such Extended Interest Payment Period, (i) shall not exceed 20 consecutive quarterly periods, including the first quarterly period during such Extended Interest Payment Period, (ii) shall not end on any date other than an Interest Payment Date, and (iii) shall not extend beyond the Maturity Date of the Subordinated Notes or, with respect to any Subordinated Notes called for redemption, the Redemption Date with respect to such Subordinated Notes.  Upon the termination of any such Extended Interest Payment Period and the payment of all accrued and unpaid interest and any additional amounts then due, the Corporation may commence a new Extended Interest Payment Period, subject to the foregoing requirements.

The Corporation shall give the holders of the Subordinated Notes written notice of its selection of such Extended Interest Payment Period or its extension of an Extended Interest Payment Period at least 10 Business Days before the Interest Payment Date for the first quarter of such Extended Interest Payment Period.  The quarterly period in which any notice is given pursuant to this paragraph shall be counted as one of the 20 quarterly periods permitted in the maximum Extended Interest Payment Period permitted under this paragraph.

 

3.            Redemption .  The Corporation shall have the right to redeem this Subordinated Note in whole or in part, on one or more occasions at any time beginning on December 31, 2009 until maturity, at an amount equal to 100% of the principal amount of Subordinated Note to be redeemed plus accrued and unpaid interest thereon to the date of such redemption (the “Redemption Price”).  The Redemption Price shall be paid prior to 12:00 noon, New York, New York time, on the date of such redemption or at such earlier time as the Corporation determines.  Any redemption pursuant to this paragraph will be made upon not less than 20 days nor more than 60 days notice.  If the Subordinated Notes are only partially redeemed by the Corporation pursuant to an optional redemption described in the preceding paragraph, the particular Subordinated Notes to be redeemed shall be selected on a pro rata basis not more than 60 days prior to the date fixed for redemption from the outstanding Subordinated Notes not previously called for redemption.

 

 

 

 

In the event of redemption of this Subordinated Note in part only, a new Subordinated Note or Subordinated Notes for the portion hereof that has not been redeemed will be issued in the name of the Holder hereof upon the cancellation hereof.

Notwithstanding the foregoing, any redemption of Subordinated Notes by the Corporation shall be subject to the Corporation obtaining the prior approval of the Corporation’s primary federal regulator, if required by applicable law or regulation, and the receipt of any other required regulatory approvals.

4.            Modification and Waiver .  The Corporation may, with the consent of the holders of a majority in aggregate principal amount of the Subordinated Notes at the time outstanding, modify or amend the Subordinated Notes for the purpose of adding any provision to or changing in any manner or eliminating any of the provisions of the Subordinated Notes or of modifying in any manner the rights of the holders of the Subordinated Notes; provided , however , that no such modification or amendment shall, without the consent of each holder of Subordinated Notes then outstanding and affected thereby: (i) change the Maturity Date of any Subordinated Note, or reduce the principal amount of, or any installment of principal of or interest on the Subordinated Notes; (ii) reduce the rate or extend the time of payment of interest; (iii) change any of the provisions of the Subordinated Note relating to redemption; (iv) make the principal of, or interest payment on, the Subordinated Notes payable in any coin or currency other than that provided in the Subordinated Notes; (v) impair or affect the right of any holder of Subordinated Notes to institute suit for the payment of the Subordinated Notes as provided in the Subordinated Notes; (vi) reduce the percentage of the principal amount of the Subordinated Notes required to consent to modify or amend the Subordinated Notes or for any waiver of compliance with provisions of the Subordinated Notes as stated in the Subordinated Notes or for waiver of Defaults as stated in the Subordinated Notes; (vii) make any change adverse to a Holder with respect to the subordination provisions; or (viii) modify any of the foregoing provisions.

The holders of a majority in aggregate principal amount of the Subordinated Notes at the time outstanding, on behalf of all of the holders of the Subordinated Notes, prior to any declaration accelerating the maturity of the Subordinated Notes, may waive any past Default or Event of Default and its consequences, except a Default in the payment of the principal of or premium, if any, or interest on any of the Subordinated Notes or a Default in respect of any covenant or provision under which the Subordinated Notes cannot be modified or amended without the consent of each holder of Subordinated Notes then outstanding.  Any such consent or waiver by the holder of this Subordinated Note shall be conclusive and binding upon such Holder and upon all future holders and owners of this Subordinated Note and of any Subordinated Note issued in exchange herefor or in place hereof (whether by registration of transfer or otherwise), irrespective of whether or not any notation of such consent or waiver is made upon this Subordinated Note.

5.            Events of Default .     One or more of the following events of default shall constitute an Event of Default hereunder (whatever the reason for such Event of Default and whether it shall be voluntary or involuntary or be effected by operation of law or pursuant to any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body):

 

 

 

(a)           default in the payment of any interest on the Subordinated Notes, whether or not such payment is prohibited by the subordination provisions of the Subordinated Notes, or any other Indebtedness of the Corporation, when due, and continuance of such default for a period of 30 days; provided, however, that a valid extension of an interest payment period by the Corporation in accordance with the terms hereof shall not constitute a default in the payment of interest for this purpose; or

(b)           default in the payment of any principal of the Subordinated Notes (whether or not such payment is prohibited by the subordination provisions of the Subordinated Notes or any other Indebtedness of the Corporation) when due whether at maturity, upon redemption, by declaration of acceleration of maturity or otherwise; or

(c)           default in the performance, or breach, of any covenant of the Corporation in the Subordinated Notes (other than a covenant a default in whose performance or whose breach is elsewhere in this Section specifically dealt with), and continuance of such default or breach for a period of 90 days after there has been given, by registered or certified mail, to the Corporation by the holders of at least 25% in aggregate principal amount of the outstanding Subordinated Notes a written notice specifying such default or breach and requiring it to be remedied and stating that such notice is a “Notice of Default” hereunder; or

(d)           a court having jurisdiction in the premises shall enter a decree or order for relief in respect of the Corporation in an involuntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, or appointing a receiver, liquidator, assignee, custodian, trustee, sequestrator (or similar official) of the Corporation or for any substantial part of its property, or ordering the winding-up or liquidation of its affairs and such decree or order shall remain unstayed and in effect for a period of 90 consecutive days; or

(e)           the Corporation shall commence a voluntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, shall consent to the entry of an order for relief in an involuntary case under any such law, or shall consent to the appointment of or taking possession by a receiver, liquidator, assignee, trustee, custodian, sequestrator (or other similar official) of the Corporation or of any substantial part of its property, or shall make any general assignment for the benefit of creditors, or shall fail generally to pay its debts as they become due; or

(f)           the voluntary or involuntary dissolution, winding-up, or termination of the Corporation, except in connection with mergers, consolidations, sale of assets or certain other transactions set forth in paragraph 6 below.

If an Event of Default with respect to Subordinated Notes at the time outstanding occurs and is continuing, then in every such case the holders of not less than 25% in aggregate principal amount of the Subordinated Notes then outstanding may declare the principal amount of all Subordinated Notes to be due and payable immediately, by a notice in writing to the Corporation, and upon any such declaration the same shall become immediately due and payable.

 

 

 

The foregoing provisions, however, are subject to the condition that if, at any time after the principal of the Subordinated Notes shall have been so declared due and payable, and before any judgment or decree for the payment of the moneys due shall have been obtained or entered as hereinafter provided, (i) the Corporation shall pay or shall deposit with the Paying Agent a sum sufficient to pay  all matured installments of interest upon all the Subordinated Notes and the principal of any and all Subordinated Notes which shall have become due otherwise than by acceleration (with interest upon such principal and, to the extent that payment of such interest is enforceable under applicable law, on overdue installments of interest, at an annual rate of 8.0% to the date of such payment or deposit), and (ii) any and all Events of Default hereunder, other than the non-payment of the principal of the Subordinated Notes which shall have become due solely by such declaration of acceleration, shall have been cured, waived or otherwise remedied as provided herein, then, in every such case, the holders of a majority in aggregate principal amount of the Subordinated Notes then outstanding, by written notice to the Corporation, may rescind and annul such declaration and its consequences, but no such waiver or rescission and annulment shall extend to or shall affect any subsequent Default or shall impair any right consequent thereon.

In case the holders shall have proceeded to enforce any right under the Subordinated Notes and such proceedings shall have been discontinued or abandoned because of such rescission or annulment or for any other reason or shall have been determined adversely to the holders, then and in every such case the Corporation and the holders of the Subordinated Notes shall be restored respectively to their several positions and rights hereunder, and all rights, remedies and powers of the Corporation and the holders of the Subordinated Notes shall continue as though no such proceeding had been taken.

No holder of any Subordinated Note shall have any right by virtue of or by availing of any provision of the Subordinated Notes to institute any suit, action or proceeding in equity or at law or for the appointment of a receiver or trustee, or for any other remedy hereunder, unless such holder previously shall have given to the Corporation written notice of an Event of Default and of the continuance thereof with respect to the Subordinated Notes specifying such Event of Default, as hereinbefore provided, and unless also the holders of not less than 25% in aggregate principal amount of the Subordinated Notes then outstanding join in such action, suit or proceeding, it being understood and intended, and being expressly covenanted by the taker and holder of every Subordinated Note with every other taker and holder, that no one or more holders of Subordinated Notes shall have any right in any manner whatever by virtue of or by availing of any provision of the Subordinated Notes to affect, disturb or prejudice the rights of any other holder of Subordinated Notes, or to obtain or seek to obtain priority over or preference to any other such holder, or to enforce any right under the Subordinated Notes, except in the manner herein provided and for the equal, ratable and common benefit of all holders of Subordinated Notes.

All powers and remedies given by this paragraph to the holders of the Subordinated Notes shall, to the extent permitted by law, be deemed cumulative and not exclusive of any other powers and remedies available to the holders of the Subordinated Notes, by judicial proceedings or otherwise, to enforce the performance or observance of the covenants and agreements contained in the Subordinated Notes or otherwise established with respect to the Subordinated Notes, and no delay or omission of any holder of any of the Subordinated Notes to exercise any right or power accruing upon any Event of Default occurring and continuing as aforesaid shall impair any such right or power, or shall be construed to be a waiver of any such Default or an acquiescence therein; and, subject to the provisions of this paragraph, every power and remedy given by this paragraph or by law to the holders may be exercised from time to time, and as often as shall be deemed expedient, by the holders.

 

 

The holders of a majority in aggregate principal amount of the Subordinated Notes at the time outstanding shall have the right to direct the time, method, and place of conducting any proceeding for any remedy available, or exercising any trust or power conferred on the holders.  Prior to any declaration accelerating the maturity of the Subordinated Notes, the holders of a majority in aggregate principal amount of the Subordinated Notes at the time outstanding may on behalf of the holders of all of the Subordinated Notes waive any past Default or Event of Default and its consequences except a Default or Event of Default (a) in the payment of principal of or interest on any of the Subordinated Notes (unless such Default has been cured and a sum sufficient to pay all matured installments of interest and principal due otherwise than by acceleration has been deposited with the Paying Agent) or (b) in respect of covenants or provisions hereof which cannot be modified or amended without the consent of the holder of each Subordinated Note affected.  Upon any such waiver, the Default covered thereby shall be deemed to be cured for all purposes and the Corporation and the holders of the Subordinated Notes shall be restored to their former positions and rights hereunder, respectively; but no such waiver shall extend to any subsequent or other Default or impair any right consequent thereon.  Whenever any Default or Event of Default hereunder shall have been waived as permitted by this paragraph, said Default or Event of Default shall for all purposes of the Subordinated Notes be deemed to have been cured and to be not continuing.

6.            Merger, Consolidation, Sale of Assets and Other Transactions .  Nothing contained in this Subordinated Note shall prevent any consolidation or merger of the Corporation with or into any other Person (whether or not affiliated with the Corporation, as the case may be), or successive consolidations or mergers in which the Corporation or its successor or successors, as the case may be, shall be a party or parties, or shall prevent any sale, conveyance, transfer or lease of all or substantially all the property of the Corporation, or its successor or successors as the case may be, to any other Person (whether or not affiliated with the Corporation, or its successor or successors, as the case may be) authorized to acquire and operate the same; provided, that (a) the Corporation is the surviving Person, or the Person formed by or surviving any such consolidation or merger (if other than the Corporation) or to which such sale, conveyance, transfer or lease of property is made is a Person organized and existing under the laws of the United States or any State thereof or the District of Columbia, and (b) upon any such consolidation, merger, sale, conveyance, transfer or lease, the due and punctual payment of the principal of and interest on the Subordinated Notes according to their tenor and the due and punctual performance and observance of all the covenants and conditions of this Subordinated Note to be kept or performed by the Corporation shall be expressly assumed by the Person formed by such consolidation, or into which the Corporation shall have been merged, or by the Person which shall have acquired such property, as the case may be, and (c) immediately after giving effect to such consolidation, merger, sale, conveyance, transfer or lease, no Default or Event of Default shall exist.

 

 

 

In case of any such consolidation, merger, conveyance or transfer and upon the assumption by the successor corporation of the obligation of due and punctual payment of the principal of (and premium, if any, on) and interest on all of the Subordinated Notes and the due and punctual performance and observance of all of the covenants and conditions of the Subordinated Notes to be performed or observed by the Corporation, such successor Person shall succeed to and be substituted for the Corporation, with the same effect as if it had been named herein as the party of the first part, and the Corporation thereupon shall be relieved of any further liability or obligation hereunder or upon the Subordinated Notes.  Such successor Person thereupon may cause to be signed, and may issue either in its own name or in the name of Severn Bancorp, Inc., any or all of the Subordinated Notes.  All the Subordinated Notes so issued shall in all respects have the same legal rank and benefit under this Subordinated Notes theretofore or thereafter issued as though all of such Subordinated Notes had been issued at the date of the execution hereof.

7.            Agreement to Subordinate; Subordination .       The Corporation covenants and agrees, and by acceptance hereof each holder of this Subordinated Note likewise covenants and agrees, that the Subordinated Notes shall be issued subject to the provisions of this Section 7; and each holder of a Subordinated Note, whether upon original issue or upon transfer or assignment thereof, accepts and agrees to be bound by such provisions.

The payment by the Corporation of the principal of and interest on all Subordinated Notes issued hereunder shall, to the extent and in the manner hereinafter set forth, be subordinated and junior in right of payment to all Senior Indebtedness, whether outstanding at the date of this Subordinated Note or thereafter incurred.  No provision of this Section 7 shall prevent the occurrence of any Default or Event of Default hereunder.

In the event and during the continuation of any Default by the Corporation in the payment of principal, interest or any other payment due on any Senior Indebtedness, or in the event that the maturity of any Senior Indebtedness has been accelerated because of an Event of Default, or if any judicial proceeding shall be pending with respect to any such Default, then, in any such case, no payment shall be made by the Corporation with respect to the principal (including redemption payments) of or interest on the Subordinated Notes or any other amounts which may be due on the Subordinated Notes pursuant to the terms hereof or otherwise.

In the event of the acceleration of the maturity of the Subordinated Notes, then no payment shall be made by the Corporation with respect to the principal (including redemption payments) or interest on the Subordinated Notes or any other amounts which may be due on the Subordinated Notes pursuant to the terms hereof or otherwise until the holders of all Senior Indebtedness outstanding at the time of such acceleration shall receive payment in full of such Senior Indebtedness (including any amounts due upon acceleration).

 

 

 

In the event that, notwithstanding the foregoing, any payment shall be received by the Holder when such payment is prohibited by the preceding paragraphs of this Section 7, such payment shall be held in trust for the benefit of, and shall be paid over or delivered to, the holders of Senior Indebtedness or their respective representatives, or to the trustee or trustees under any indenture pursuant to which any of such Senior Indebtedness may have been issued, as their respective interests may appear, but only to the extent that the holders of the Senior Indebtedness (or their representative or representatives or a trustee) notify the Holder and the Corporation in writing within 90 days of such payment of the amounts then due and owing on such Senior Indebtedness, and only the amounts specified in such notice shall be paid to the holders of such Senior Indebtedness.

Upon any payment by the Corporation or distribution of assets of the Corporation of any kind or character, whether in cash, property or securities, to creditors upon the Corporation’s liquidation, dissolution, winding up, reorganization, assignment for the benefit of its creditors, marshaling of its assets or any bankruptcy, insolvency, debt restructuring or similar proceedings in connection with any insolvency or bankruptcy proceeding involving the Corporation, all Senior Indebtedness of the Corporation shall first be paid in full, or payment thereof provided for in money in accordance with its terms, before any payment is made by the Corporation on account of the principal of or interest on the Subordinated Notes or any other amounts which may be due on the Subordinated Notes pursuant to the terms hereof or otherwise; and upon any such event, any payment by the Corporation, or distribution of assets of the Corporation of any kind or character, whether in cash, property or securities, which the holders of the Subordinated Notes would be entitled to receive from the Corporation, except for the provisions of this Section 7, shall be paid by the Corporation or by any receiver, trustee in bankruptcy, liquidating trustee, agent or other Person making such payment or distribution, or by the holders of the Subordinated Notes if received by them, directly to the holders of Senior Indebtedness of the Corporation (pro rata to such holders on the basis of the respective amounts of Senior Indebtedness held by such holders, as calculated by the Corporation) or their representative or representatives, or to the trustee or trustees under any indenture pursuant to which any instruments evidencing such Senior Indebtedness may have been issued, as their respective interests may appear, to the extent necessary to pay all such Senior Indebtedness in full, in money or money’s worth, after giving effect to any concurrent payment or distribution to or for the holders of such Senior Indebtedness, before any payment or distribution is made to the holders of the Subordinated Notes

In the event that, notwithstanding the foregoing, any payment or distribution of assets of the Corporation of any kind or character prohibited by the foregoing, whether in cash, property or securities, shall be received by the holders of the Subordinated Notes before all Senior Indebtedness is paid in full, or provision is made for such payment in money in accordance with its terms, such payment or distribution shall be held in trust for the benefit of and shall be paid over or delivered to the holders of such Senior Indebtedness or their representative or representatives, or to the trustee or trustees under any indenture pursuant to which any instruments evidencing such Senior Indebtedness may have been issued, as their respective interests may appear, as calculated by the Corporation, for application to the payment of all Senior Indebtedness remaining unpaid to the extent necessary to pay all such Senior Indebtedness in full in money in accordance with its terms, after giving effect to any concurrent payment or distribution to or for the benefit of the holders of such Senior Indebtedness.  For purposes of this Section 7, the words “cash, property or securities” shall not be deemed to include shares of stock of the Corporation as reorganized or readjusted, or securities of the Corporation or any other corporation provided for by a plan of reorganization or readjustment, the payment of which is subordinated at least to the extent provided in this Section 7 with respect to the Subordinated Notes to the payment of Senior Indebtedness that may at the time be outstanding, provided that (i) such Senior Indebtedness is assumed by the new corporation, if any, resulting from any such reorganization or readjustment, and (ii) the rights of the holders of such Senior Indebtedness are not, without the consent of such holders, altered by such reorganization or readjustment.  The consolidation of the Corporation with, or the merger of the Corporation into, another Person or the liquidation or dissolution of the Corporation following the sale, conveyance, transfer or lease of its property as an entirety, or substantially as an entirety, to another Person upon the terms and conditions provided for in Section 6 of this Subordinated Note shall not be deemed a dissolution, winding up, liquidation or reorganization for the purposes of this Section 7 if such other Person shall, as a part of such consolidation, merger, sale, conveyance, transfer or lease, comply with the conditions stated in Section 6 of this Subordinated Note.

 

 

 

 

Subject to the payment in full of all Senior Indebtedness, the rights of the holders of the Subordinated Notes shall be subrogated to the rights of the holders of such Senior Indebtedness to receive payments or distributions of cash, property or securities of the Corporation, as the case may be, applicable to such Senior Indebtedness until the principal of  and interest on the Subordinated Notes shall be paid in full; and, for the purposes of such subrogation, no payments or distributions to the holders of such Senior Indebtedness of any cash, property or securities to which the holders of the Subordinated Notes would be entitled except for the provisions of this Section 7, and no payment over pursuant to the provisions of this Section 7 to or for the benefit of the holders of such Senior Indebtedness by holders of the Subordinated Notes shall, as between the Corporation, its creditors other than holders of Senior Indebtedness of the Corporation, and the holders of the Subordinated Notes, be deemed to be a payment by the Corporation to or on account of such Senior Indebtedness.  It is understood that the provisions of this Section 7 are and are intended solely for the purposes of defining the relative rights of the holders of the Subordinated Notes, on the one hand, and the holders of such Senior Indebtedness on the other hand.

Nothing contained in this Section 7 or elsewhere in this Subordinated Note is intended to or shall impair, as between the Corporation, its creditors other than the holders of Senior Indebtedness of the Corporation, and the holders of the Subordinated Notes, the obligation of the Corporation, which is absolute and unconditional, to pay to the holders of the Subordinated Notes the principal of and interest on the Subordinated Notes as and when the same shall become due and payable in accordance with their terms, or is intended to or shall affect the relative rights of the holders of the Subordinated Notes and creditors of the Corporation, as the case may be, other than the holders of Senior Indebtedness of the Corporation, as the case may be, nor shall anything herein or therein prevent the holder of any Subordinated Note from exercising all remedies otherwise permitted by applicable law upon Default under the Subordinated Note, subject to the rights, if any, under this Section 7 of the holders of such Senior Indebtedness in respect of cash, property or securities of the Corporation, as the case may be, received upon the exercise of any such remedy.

Upon any payment or distribution of assets of the Corporation referred to in this Section 7, the holders of the Subordinated Notes shall be entitled to conclusively rely upon any order or decree made by any court of competent jurisdiction in which such dissolution, winding up, liquidation or reorganization proceedings are pending, or a certificate of the receiver, trustee in bankruptcy, liquidation trustee, agent or other Person making such payment or distribution, delivered to the holders of the Subordinated Notes, for the purposes of ascertaining the Persons entitled to participate in such distribution, the holders of Senior Indebtedness and other indebtedness of the Corporation, as the case may be, the amount thereof or payable thereon, the amount or amounts paid or distributed thereon and all other facts pertinent thereto or to this Section 7.

 

 

Each holder of the Subordinated Notes by such holder’s acceptance thereof authorizes and directs the Corporation on such holder’s behalf to take such action as may be necessary or appropriate to effectuate the subordination provided in this Section 7 and appoints the Corporation such holder’s attorney in fact for any and all such purposes.

Upon any payment or distribution of assets of the Corporation referred to in this Section 7, the holders of the Subordinated Notes shall be entitled to conclusively rely upon any order or decree entered by any court of competent jurisdiction in which such insolvency, bankruptcy, receivership, liquidation, reorganization, dissolution, winding-up or similar case or proceeding is pending, or a certificate of the trustee in bankruptcy, liquidating trustee, custodian, receiver, assignee for the benefit of creditors, agent or other person making such payment or distribution, delivered to the holders of the Subordinated Notes, for the purpose of ascertaining the persons entitled to participate in such payment or distribution, the holders of Senior Indebtedness and other indebtedness of the Corporation, the amount thereof or payable thereon, the amount or amounts paid or distributed thereon and all other facts pertinent thereto or to this Section 7.

No right of any present or future holder of any Senior Indebtedness of the Corporation to enforce subordination as herein provided shall at any time in any way be prejudiced or impaired by any act or failure to act on the part of the Corporation, as the case may be, or by any act or failure to act, in good faith, by any such holder, or by any noncompliance by the Corporation, as the case may be, with the terms, provisions and covenants of the Subordinated Notes, regardless of any knowledge thereof that any such holder may have or otherwise be charged with.

Without in any way limiting the generality of the foregoing paragraph, the holders of Senior Indebtedness of the Corporation may, at any time and from time to time, without the consent of or notice to the holders of the Subordinated Notes, without incurring responsibility to the holders of the Subordinated Notes and without impairing or releasing the subordination provided in this Section 7 or the obligations hereunder of the holders of the Subordinated Notes to the holders of such Senior Indebtedness, do any one or more of the following:  (i) change the manner, place or terms of payment or extend the time of payment of, or renew or alter, such Senior Indebtedness, or otherwise amend or supplement in any manner such Senior Indebtedness or any instrument evidencing the same or any agreement under which such Senior Indebtedness is outstanding; (ii) sell, exchange, release or otherwise deal with any property pledged, mortgaged or otherwise securing such Senior Indebtedness; (iii) release any Person liable in any manner for the collection of such Senior Indebtedness; and (iv) exercise or refrain from exercising any rights against the Corporation, as the case may be, and any other Person.

 

 

 

“Indebtedness” shall mean, whether recourse is to all or a portion of the assets of the Corporation and whether or not contingent, (i) every obligation of the Corporation for money borrowed; (ii) every obligation of the Corporation evidenced by bonds, debentures, notes or other similar instruments, including obligations incurred in connection with the acquisition of property, assets or businesses; (iii) every reimbursement obligation of the Corporation with respect to letters of credit, banker’s acceptances or similar facilities issued for the account of the Corporation; (iv) every obligation of the Corporation issued or assumed as the deferred purchase price of property or services (but excluding trade accounts payable or accrued liabilities arising in the ordinary course of business); (v) every capital lease obligation of the Corporation; (vi) all indebtedness of the Corporation whether incurred on or prior to the date of the Subordinated Note or thereafter incurred, for claims in respect of derivative products, including interest rate, foreign exchange rate and commodity forward contracts, options and swaps and similar arrangements; and (vii) every obligation of the type referred to in clauses (i) through (vi) of another Person and all dividends of another Person the payment of which, in either case, the Corporation has guaranteed or is responsible or liable for, directly or indirectly, as obligor or otherwise.

“Indebtedness Ranking on a Parity with the Subordinated Notes” shall mean (i) Indebtedness, whether outstanding on the date of execution of this Subordinated Note or hereafter created, assumed or incurred, to the extent such Indebtedness by its terms ranks equally with and not prior or senior to the Subordinated Notes in the right of payment upon the happening of the dissolution, winding-up, liquidation or reorganization of the Corporation, and (ii) all other debt securities, and guarantees in respect of those debt securities, issued to any trust, or a trustee of such trust, partnership or other entity affiliated with the Corporation, that is a financing vehicle of the Corporation (a “financing entity”) in connection with the issuance by such financing entity of equity securities or other securities guaranteed by the Corporation pursuant to an instrument that ranks pari passu in right of payment to the Subordinated Notes.  It is the intention of the Board of Directors that the Corporation’s Junior Subordinated Debt Securities Due 2035 be treated as Indebtedness Ranking on a Parity with the Subordinated Notes.   The securing of any Indebtedness, otherwise constituting Indebtedness Ranking on a Parity with the Subordinated Notes, shall not be deemed to prevent such Indebtedness from constituting Indebtedness Ranking on a Parity with the Subordinated Notes.

“Indebtedness Ranking Junior to the Subordinated Notes” shall mean any Indebtedness, whether outstanding on the date of execution of this Subordinated Note or hereafter created, assumed or incurred, to the extent such Indebtedness by its terms ranks junior to and not equally with or prior to the Subordinated Notes (and any other Indebtedness Ranking on a Parity with the Subordinated Notes) in right of payment upon the happening of the dissolution, winding-up, liquidation or reorganization of the Corporation.  The securing of any Indebtedness, otherwise constituting Indebtedness Ranking Junior to the Subordinated Notes, shall not be deemed to prevent such Indebtedness from constituting Indebtedness Ranking Junior to the Subordinated Notes.

“Senior Indebtedness” shall mean the principal of (and premium, if any) and interest, if any, on all Indebtedness, whether outstanding on the date of execution of this Subordinated Note or hereafter created, assumed or incurred, except Indebtedness Ranking on a Parity with the Subordinated Notes or Indebtedness Ranking Junior to the Subordinated Notes, and any deferrals, renewals or extensions of such Senior Indebtedness.

 

 

8.            Denominations, Transfer and Exchange .  The Subordinated Notes are issuable only in registered form without coupons in minimum denominations of $1,000 and any integral multiple thereof.  This Subordinated Note is transferable by the holder hereof on the Subordinated Note Register of the Corporation, upon surrender of this Subordinated Note for registration of transfer at the office or agency of the Corporation in Annapolis, Maryland accompanied by a written instrument or instruments of transfer in form satisfactory to the Corporation duly executed by the holder hereof or his attorney duly authorized in writing, and thereupon one or more new Subordinated Notes of authorized denominations and for the same aggregate principal amount and series will be issued to the designated transferee or transferees. No service charge will be made for any such registration of transfer, but the Corporation may require payment of a sum sufficient to cover any tax or other governmental charge payable in relation thereto.

9.            Persons Deemed Owners .  Prior to due presentment for registration of transfer of this Subordinated Note, the Corporation, any authenticating agent, any paying agent, any transfer agent and the registrar may deem and treat the holder hereof as the absolute owner hereof (whether or not this Subordinated Note shall be overdue and notwithstanding any notice of ownership or writing hereon made by anyone other than the security registrar for the Subordinated Notes) for the purpose of receiving payment of or on account of the principal hereof and premium, if any, and interest due hereon and for all other purposes, and neither the Corporation nor any authenticating agent nor any paying agent nor any transfer agent nor any registrar shall be affected by any notice to the contrary.

10.            No Recourse Against Others .  No recourse shall be had for the payment of the principal of or premium, if any, or interest on this Subordinated Note, or for any claim based hereon, or otherwise in respect hereof, or based on or in respect of the Indenture, against any incorporator, stockholder, officer or director, past, present or future, as such, of the Corporation or of any predecessor or successor Person, whether by virtue of any constitution, statute or rule of law, or by the enforcement of any assessment or penalty or otherwise, all such liability being, by the acceptance hereof and as part of the consideration for the issuance hereof, expressly waived and released.

11.            Governing Law .  THE SUBORDINATED NOTES SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF MARYLAND.

12.            Paying Agent and Registrar .  The Corporation shall act as the paying agent and registrar for the Subordinated Notes.

 

IN WITNESS WHEREOF, the Corporation has caused this instrument to be duly executed and sealed this ___ day of ______, 2008.

SEVERN BANCORP, INC.

By: ____________________________

      Name:

      Title:

 

 

ASSIGNMENT

FOR VALUE RECEIVED, the undersigned assigns and transfers $_________ principal amount of this Subordinated Note to:

 

---

 

(Insert assignee’s social security or tax identification number)

---

 

b

(Insert address and zip code of assignee)

and irrevocably appoints_______________________________________________________________________________________________________________________________________

_______________________________________________________________________________________________________________________________________________ agent to transfer this Subordinated Note on the books of the Registrar.  The agent may substitute another to act for him or her.

Date: _______________________

Signature: __________________

(Sign exactly as your name appears on the other side of this Certificate)

Signature Guarantee * :  ___________________________________

*(Signature must be guaranteed by an "eligible guarantor institution" that is, a bank, stockbroker, savings and loan association or credit union meeting the requirements of the Registrar, which requirements include membership or participation in the Subordinated Notes Transfer Agents Medallion Program ("STAMP") or such other "signature guarantee program" as may be determined by the Registrar in addition to, or in substitution for, STAMP, all in accordance with the Subordinated Notes Exchange Act of 1934, as amended).

 

CERTIFICATE TO BE DELIVERED UPON EXCHANGE OR

 

REGISTRATION OF RESTRICTED SECURITIES

 

This certificate relates to $_____________ principal amount of Subordinated Notes held in  definitive form by the undersigned.

 

(A)

The undersigned has requested the Registrar by written order to exchange or register the transfer of Subordinated Notes.

(B)        The undersigned confirms that such Subordinated Notes are being (check one box below):

 

(1)

r

transferred to Severn Bancorp, Inc. or a Subsidiary thereof; or

(2)

r

transferred pursuant to an available exemption from the registration requirements of the Securities Act of 1933, as amended (the “Securities Act”); or

(3)

r

transferred pursuant to an effective registration statement under the Securities Act.

Unless the box below is checked, the undersigned confirms that such Subordinated Notes are not being transferred to an “affiliate” of the Severn Bancorp, Inc. as defined in Rule 144 under the Securities Act (an “Affiliate”):

 

(4)

r

The transferee is an Affiliate of Severn Bancorp, Inc.

 

Unless one of the boxes in (B) above is checked, the Registrar will refuse to register any of the Subordinated Notes evidenced by this certificate in the name of any person other than the registered Holder thereof; provided, however, that if box (2) is checked, the Trustee may require, prior to registering any such transfer of the Subordinated Notes such legal opinions, certifications and other information as the Registrar has reasonably requested to confirm that such transfer is being made pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act, such as the exemption provided by Rule 144 under such Act.

 

_______________________________________
Signature

Signature Guarantee:*

*(Signature must be guaranteed by an "eligible guarantor institution" that is, a bank, stockbroker, savings and loan association or credit union meeting the requirements of the Registrar, which requirements include membership or participation in the Subordinated Notes Transfer Agents Medallion Program ("STAMP") or such other "signature guarantee program" as may be determined by the Registrar in addition to, or in substitution for, STAMP, all in accordance with the Securities Exchange Act of 1934, as amended.)