PLAN AND AGREEMENT TO MERGE
TABLE OF CONTENTS
1. Effective Date 1
2. Events Preceding Effectiveness 1
3. Representations and Warranties of Shore Bancshares 2
3.1. Organization, Standing, and Capitalization of Shore Bancshares and the Shore
Subsidiaries 2
3.2. Financial Statements 4
3.3. Taxes 4
3.4. No Undisclosed Liabilities 4
3.5. Absence of Certain Changes or Events 5
3.6. Complete and Accurate Disclosure 5
3.7. Title to Properties; Absence of Liens and Encumbrances; Compliance with Laws 5
3.8. Contracts6
3.9. Litigation, Etc. 7
3.10. Environmental Matters 8
3.11. Labor Matters 10
3.12. Pension and Welfare Matters 10
3.13. Related Party Transactions 13
3.14. No Conflict with Other Documents 14
3.15. Compliance with Laws; Governmental Authorizations 14
3.16. Authority; Enforceability 15
3.17. Insurance15
3.18. Financial Institutions Bond 15
3.19. Brokers; Financial Advisor 15
3.20. Beneficial Ownership of Talbot Bancshares Common Stock 15
3.21. Year 200016
3.22. Reports 16
3.23. Agreements with Regulatory Agencies 16
3.24. State Takeover Laws and Control Share Acquisition Act 17
4. Representations and Warranties of Talbot Bancshares 17
4.1. Organization, Standing, and Capitalization of Talbot Bancshares and the Talbot
Subsidiaries 17
4.2. Financial Statements 18
4.3. Taxes 18
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4.4. No Undisclosed Liabilities 19
4.5. Absence of Certain Changes or Events 19
4.6. Complete and Accurate Disclosure 19
4.7. Title to Properties; Absence of Liens and Encumbrances; Compliance with Laws 20
4.8. Contracts20
4.9. Litigation, Etc. 21
4.10. Environmental Matters 22
4.11. Labor Matters 23
4.12. Pension and Welfare Matters 24
4.13. Related Party Transactions 27
4.14. No Conflict with Other Documents 27
4.15. Compliance with Laws; Governmental Authorizations 27
4.16. Authority; Enforceability 28
4.17. Insurance28
4.18. Financial Institutions Bond 28
4.19. Brokers; Financial Advisor 28
4.20. Beneficial Ownership of Shore Bancshares Common Stock 29
4.21. Year 200029
4.22. Reports 29
4.23. Agreements with Regulatory Agencies 29
4.24. State Takeover Laws and Control Share Acquisition Act 30
5. Covenants of Shore Bancshares 30
5.1. Information 30
5.2. Events Preceding Effectiveness 31
5.3. Meeting of Stockholders of Shore Bancshares 31
5.4. Conduct of Business 31
5.5. Reservation of Shares 32
5.6. Regulatory Matters; Document Preparation 32
5.7. Consents 33
5.8. Current Information; Advice of Changes 33
5.9. No Solicitation of Other Offers 33
5.10. Affiliate and Support Agreements 34
5.11. Pooling-of-Interests 34
5.12. Taxes 35
5.13. Public Announcements 35
6. Covenants of Talbot Bancshares 35
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6.1. Information 35
6.2. Events Preceding Effectiveness 36
6.3. Meeting of Stockholders of Talbot Bancshares 36
6.4. Conduct of Business 36
6.5. Reservation of Shares 37
6.6. Regulatory Matters; Document Preparation 37
6.7. Consents 38
6.8. Current Information; Advice of Changes 38
6.9. No Solicitation of Other Offers 39
6.10. Affiliate and Support Agreements 39
6.11. Pooling-of-Interests 40
6.12. Taxes 40
6.13. Public Announcements 40
7. Conditions Precedent to Shore Bancshares' Obligations 40
7.1. Representations, Warranties, and Covenants 40
7.2. No Adverse Changes 41
7.3. Events Preceding the Effective Date 41
7.4. Other Evidence 41
7.5. No Adverse Proceedings, Events, or Regulatory Requirements 41
7.6. Consents, Etc. 42
7.7. Fairness Opinion 42
7.8. Opinion of Counsel 42
7.9. Pooling-of-Interests Accounting 42
8. Conditions Precedent to Talbot Bancshares' Obligations 42
8.1. Representations, Warranties, and Covenants 42
8.2. No Adverse Changes 43
8.3. Events Preceding the Effective Date 43
8.4. Other Evidence 43
8.5. No Adverse Proceedings, Events, or Regulatory Requirements 43
8.6. Consents, Etc. 44
8.7. Fairness Opinion 44
8.8. Opinion of Counsel 44
8.9. Pooling-of-Interests Accounting 44
9. Terms of the Merger 44
9.1. Structure of the Merger 44
9.2. Conversion of Stock 44
9.3. Exchange Procedure 45
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9.4. Stock Options 46
9.5. Charter of the Successor Bancshares 46
9.6. By-Laws of the Successor Xxxxxxxxxx 00
00. Boards of Directors and Employment Matters 47
11. Indemnification; Directors' and Officers' Insurance 47
12. Amendment of this Plan 48
13. Abandonment of this Plan; Effect Thereof 49
14. Expenses 50
15. Notices 50
16. Entire Agreement; Effect 51
17. Representations, Warranties, and Agreements 51
18. Governing Law 51
19. General 51
APPENDIX I List of Information 53
APPENDIX II Form of Articles of Merger 56
APPENDIX III Form of Shore Bancshares Amended and Restated By-Laws 70
APPENDIX IV Form of Shore Bancshares Stock Option Agreement 83
APPENDIX V Form of Talbot Bancshares Stock Option Agreement 92
APPENDIX VI Shore Bancshares Affiliate Memorandum 101
APPENDIX VII Talbot Bancshares Affiliate Memorandum 104
APPENDIX VIII Shore Bancshares Stockholders Support Agreement 108
APPENDIX IX Talbot Bancshares Stockholders Support Agreement 113
APPENDIX X Form of Opinion of Tax Counsel 118
APPENDIX XI Form of Opinion of Shore Bancshares Counsel 120
APPENDIX XII Form of Opinion of Talbot Bancshares Counsel 123
APPENDIX XIII Form of Employment Agreement 126
APPENDIX XIV Successor Bancshares Board and Executive Officer Assignments 134
APPENDIX XV Form of Termination and Release of Employment Agreement 135
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PLAN AND AGREEMENT TO MERGE
PLAN and agreement to merge (this "Plan"), dated as of July 25, 2000 by
and between TALBOT BANCSHARES, INC. ("Talbot Bancshares"), a Maryland
corporation, and SHORE BANCSHARES, INC. ("Shore Bancshares"), a Maryland
corporation.
W I T N E S S E T H:
WHEREAS, Talbot Bancshares is a financial holding company and the
holder of all of the issued and outstanding capital stock of The Talbot Bank of
Easton, Maryland ("Talbot Bank"), a Maryland commercial bank; and Shore
Bancshares is a bank holding company and the holder of all of the issued and
outstanding capital stock of The Centreville National Bank of Maryland
("Centreville Bank"), a national banking association; and
WHEREAS, Shore Bancshares and Talbot Bancshares each desires to have
Talbot Bancshares merge with Shore Bancshares in such a manner that, upon the
merger becoming effective, Shore Bancshares will be the surviving Maryland
corporation; and all of the issued and outstanding shares of the Common Stock of
Talbot Bancshares will be converted into the right to receive the Merger
Consideration (as defined in Section 9.2) from Shore Bancshares, subject to the
terms and conditions and based upon Shore Bancshares' and Talbot Bancshares'
representations, warranties, and covenants hereinafter set forth (the "Merger").
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained and the mutual benefits to be derived herefrom, the parties
agree as follows:
1. Effective Date. Pursuant to MD. GENERAL CORPORATION LAW SS.
3-113(a), the effective date of this Plan and the Merger (the "Effective Date")
shall be either (a) the first day of the month following the month in which the
last of the events in Section 2, Section 7, and Section 8 occurs; or (b) such
other date as Talbot Bancshares and Shore Bancshares may agree upon. Talbot
Bancshares and Shore Bancshares will prepare and execute Articles of Merger in
substantially the form attached as Appendix II which will set forth the
Effective Date, and will file the Articles of Merger with the Maryland State
Department of Assessments and Taxation.
2. Events Preceding Effectiveness. On or before the Effective Date the
following shall have occurred:
(a) A majority of the Boards of Directors of each of Shore
Bancshares and Talbot Bancshares shall have approved and agreed to this
Plan and the Merger;
(b) A majority of the Board of Directors of each of Shore
Bancshares and of Talbot Bancshares, respectively, shall have approved
and agreed to the Stock Option Agreements (the "Stock Option
Agreements") in the forms attached as Appendix IV and Appendix V; and
Shore Bancshares and Talbot Bancshares, respectively, shall have
authorized and reserved an adequate number of shares of its Common
Stock for issuance upon exercise of the option granted by such Stock
Option Agreements, and taken all actions necessary to fulfill its
obligations thereunder;
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(c) the Boards of Directors of each of Shore Bancshares and
Talbot Bancshares shall call a meeting of the stockholders of each of
Shore Bancshares and Talbot Bancshares. Notice of the time and place of
the meeting shall be provided in accordance with MD. GENERAL
CORPORATION LAW ss. 2-504, and this Plan and the Merger shall have been
ratified and confirmed by the affirmative vote of not less than
two-thirds of the issued and outstanding voting stock of Shore
Bancshares at its meeting and not less than two-thirds of the issued
and outstanding voting stock of Talbot Bancshares at its meeting, in
accordance with MD. GENERAL CORPORATION Law ss. 3-105(e);
(d) Shore Bancshares and Talbot Bancshares shall have procured
the required approval, consent, waiver, or other administrative action
with respect to this Plan and the transactions contemplated hereby by
the Board of Governors of the Federal Reserve System (the "Federal
Reserve") under Section 3(a)(5) of the Bank Holding Company Act of
1956, as amended;
(e) Shore Bancshares and Talbot Bancshares shall have procured
the required approval, consent, waiver, or other administrative action
with respect to this Plan and the transactions contemplated hereby by
the Maryland Commissioner of Financial Regulation under MD. FIN. INS.
CODEss. 5-904;
(f) Talbot Bank shall have procured the required approval,
consent, waiver, or other administrative action with respect to this
Plan and the transactions contemplated hereby by the Maryland
Commissioner of Financial Regulation under MD. FIN. INS. CODEss. 5-403;
and
(g) the parties shall have procured all other regulatory
approvals, consents, waivers, or administrative actions of governmental
entities or other persons or agencies that are necessary or appropriate
to the consummation of the transactions contemplated by this Plan, and
no approval, consent, waiver, or administrative action referred to in
this Section 2(g) shall have included any condition or requirement that
would result in a materially adverse effect on Talbot Bancshares or
Shore Bancshares or Talbot Bank or Centreville Bank.
3. Representations and Warranties of Shore Bancshares. Shore Bancshares
represents and warrants to Talbot Bancshares as follows:
3.1. Organization, Standing, and Capitalization of Shore
Bancshares and the Shore Subsidiaries. (a) Shore Bancshares is a duly organized
and validly existing corporation and is in good standing under the laws of the
State of Maryland. Shore Bancshares has the corporate power and authority to own
and hold its material properties and to carry on its business as it is now being
conducted. Shore Bancshares is a bank holding company under the Bank Holding
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Company Act of 1956, as amended. Shore Bancshares has no subsidiaries or
directly or indirectly affiliated companies and is not a party to any joint
venture or partnership other than as set forth on a list previously provided to
Talbot Bancshares (collectively, excluding Delmarva Bank Data Processing Center,
Inc., the "Shore Subsidiaries").
(b) Centreville Bank is a duly organized and validly existing
national banking association and is in good standing under the laws of the
United States. The deposits of Centreville Bank are insured under the provisions
of the Federal Deposit Insurance Act, as amended (85.3% by the bank insurance
fund and 14.7% by the savings association insurance fund). Each of the other
Shore Subsidiaries is a duly organized and validly existing corporation or other
entity and is in good standing under the laws of the jurisdiction of its
incorporation or organization as set forth on the list previously provided to
Talbot Bancshares. Centreville Bank does not exercise any fiduciary powers. Each
of the Shore Subsidiaries has the power (corporate or other) and authority to
own and hold its material properties and to carry on its business as it is now
being conducted. All outstanding shares of capital stock or other equity
interests of all of the Shore Subsidiaries are validly issued, fully paid, and
non-assessable. Except as set forth on a list previously provided to Talbot
Bancshares, each of the Shore Subsidiaries is wholly owned by its parent. There
are no outstanding options, warrants, rights, or obligations of any kind
entitling the holder thereof to acquire shares of the capital stock or other
equity interests of any of the Shore Subsidiaries, and there are no outstanding
securities or instruments of any kind that are convertible into shares of the
capital stock or other equity interests of any of the Shore Subsidiaries. Except
as set forth on a list previously provided to Talbot Bancshares, none of the
Shore Subsidiaries is a party to any joint venture or partnership.
(c) Copies of all organizational documents and by-laws of
Shore Bancshares and each of the Shore Subsidiaries have been previously
provided to Talbot Bancshares, and all such copies are true and correct as of
the date hereof. The minute books of Shore Bancshares and each of the Shore
Subsidiaries, which have been made available to Talbot Bancshares for
inspection, are complete in all material respects and accurately record the
actions taken by the stockholders and directors of Shore Bancshares and each of
the Shore Subsidiaries.
(d) The authorized capital stock of Shore Bancshares consists
exclusively of 10,000,000 shares of Common Stock, par value $.01 per share,
1,914,132 of which shares are outstanding at July 25, 2000. All outstanding
shares of Shore Bancshares Common Stock are validly issued, fully paid, and non
assessable. Shore Bancshares has reserved 83,547 shares of its Common Stock for
issuance under its stock option and employee stock purchase plans. On July 25,
2000, there were outstanding options to purchase 15,999 shares of Shore
Bancshares Common Stock at prices ranging from $17.85 to $32.00 pursuant to
these stock option and employee stock purchase plans. Except for the option to
be granted to Talbot Bancshares pursuant to the Stock Option Agreement attached
as Appendix IV and as set forth on a list previously provided to Talbot
Bancshares, there are no other outstanding options, warrants, rights, or
obligations of any kind entitling the holder thereof to acquire shares of the
Common Stock of Shore Bancshares, and there are no outstanding securities or
instruments of any kind that are convertible into shares of the Common Stock of
Shore Bancshares.
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3.2. Financial Statements. Shore Bancshares has previously
provided to Talbot Bancshares copies of the Consolidated Financial Statements of
Shore Bancshares and the Shore Subsidiaries at December 31, 1995, 1996, 1997,
1998, and 1999 and for each of the years then ended, as reported upon by Xxxxxxx
& Company, and at March 31, 1999 and 2000 and for each of the three month
periods then ended, all of which are true and complete in all material respects,
have been prepared in accordance with generally accepted accounting principles
consistently followed throughout the periods covered by such consolidated
financial statements and present fairly the financial position, results of
operations, cash flows, and changes in stockholders' equity of Shore Bancshares
and the Shore Subsidiaries at the dates of and for the periods covered by such
financial statements.
3.3. Taxes. Copies of the tax returns for federal, state,
county, municipal, or foreign taxing authorities for the taxable year ended
December 31, 1995 and all taxable years through and including December 31, 1999
for Shore Bancshares and the Shore Subsidiaries have been previously provided to
Talbot Bancshares. Shore Bancshares and the Shore Subsidiaries have filed with
appropriate federal, state, county, municipal, or foreign taxing authorities all
tax returns required to be filed (taking any applicable extensions into
consideration) and have paid or reserved for all taxes shown to be due on such
returns and all penalties and interest payable in respect thereof. Except as
disclosed in writing to Talbot Bancshares, since January 1, 1995 neither Shore
Bancshares nor any of the Shore Subsidiaries have received from any taxing
authority any notice of deficiency or assessment of additional taxes not paid or
any notice of an intention to commence an examination or audit of its tax
returns, and no tax audits by any taxing authority are in process. Except as
disclosed in writing to Talbot Bancshares, since January 1, 1995 neither Shore
Bancshares nor any of the Shore Subsidiaries have granted any waiver of any
statute of limitations or otherwise agreed to any extension of a period for the
assessment of any federal, state, county, municipal, or foreign income tax. The
accruals and reserves reflected in the consolidated financial statements which
Shore Bancshares has provided to Talbot Bancshares as described in Section 3.2
are adequate to cover all taxes (including interest and penalties, if any,
thereon) that are payable or accrued as a result of the operations of Shore
Bancshares and the Shore Subsidiaries for all periods prior to the date of such
consolidated financial statements. For purposes of this Section 3.3, any
reference to the Shore Subsidiaries shall be deemed to include any entity
previously identified on the list delivered to Talbot Bancshares pursuant to
3.1(a) and 3.1(b).
3.4. No Undisclosed Liabilities. Except as and to the extent
reflected or reserved against in the consolidated financial statements delivered
under Section 3.2, neither Shore Bancshares nor any of the Shore Subsidiaries at
the dates of such consolidated financial statements had any material liabilities
or obligations (whether accrued, absolute, or contingent) required under
generally accepted accounting principles to be reflected thereon which would
materially and adversely affect the fair presentation of such financial
statements. Neither Shore Bancshares nor any of the Shore Subsidiaries has
incurred any liability since the date of the consolidated financial statements
delivered under Section 3.2 (including any liability for taxes) which would
materially and adversely affect the condition (financial or otherwise), assets,
liabilities, business, or operations of Shore Bancshares and the Shore
Subsidiaries, taken as a whole, other than liabilities which have been incurred
in the ordinary course of business.
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3.5. Absence of Certain Changes or Events. Except as
previously disclosed in writing to Talbot Bancshares, since December 31, 1999
there has not been:
(a) Any materially adverse change in the financial
position, results of operations, assets, liabilities, or business of
Shore Bancshares or the Shore Subsidiaries, other than changes in the
ordinary course of business;
(b) any increase in salaries or wages of directors,
officers, or employees of Shore Bancshares or the Shore Subsidiaries
other than in the ordinary course of business; or any establishment or
increase of any employment, compensation, bonus, pension, option,
incentive or deferred compensation, retirement payments, profit
sharing, or similar agreement or benefit, authorized, granted, or
accrued to any directors, officers, or employees of Shore Bancshares or
the Shore Subsidiaries other than in the ordinary course of business;
or
(c) any declaration, payment, or set aside by Shore
Bancshares of any dividend or distribution in respect of its Common
Stock (other than regular quarterly cash dividends), or any purchase,
issuance, or sale by Shore Bancshares of any of its Common Stock.
3.6. Complete and Accurate Disclosure. Neither this Plan
(insofar as it relates to Shore Bancshares and the Shore Subsidiaries, the
Common Stock of Shore Bancshares, and the involvement of Shore Bancshares in the
transactions contemplated hereby) nor any financial statement, schedule,
certificate, or other statement or document previously disclosed in writing
under this Agreement delivered by Shore Bancshares to Talbot Bancshares in
connection with this Plan, when considered in the aggregate, contains any
statement which, at the time and in light of the circumstances under which it is
made, is false or misleading with respect to any material fact or omits to state
any material fact necessary to make the statements contained herein or therein
not false or misleading.
3.7. Title to Properties; Absence of Liens and Encumbrances;
Compliance with Laws. Except as previously disclosed in writing to Talbot
Bancshares, Shore Bancshares and each of the Shore Subsidiaries has good and
marketable title to all of their respective properties and assets, including
those reflected in the consolidated financial statements delivered pursuant to
Section 3.2, except as sold or otherwise disposed of for fair value and only in
the ordinary course of business, free and clear of all liens and encumbrances,
except (i) with respect to property as to which they are lessees, (ii) with
respect to real estate owned by Shore Bancshares or the Shore Subsidiaries, for
use, occupancy, and similar restrictions of public record that may be observed
by an inspection of the property, and such other utility and other easements and
encumbrances as do not materially adversely affect the fair market value of such
real property, and (iii) liens to secure borrowings, liens to secure
governmental deposits, and liens for current taxes not yet due and payable.
Neither Shore Bancshares nor any of the Shore Subsidiaries owns or leases real
property except as previously disclosed in writing to Talbot Bancshares, and is
not in default under any material lease of real or personal property to which it
is a party. As of the date hereof, except as previously disclosed in writing to
Talbot Bancshares, the real properties, structures, buildings, equipment, and
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the tangible personal property owned, operated, or leased by Shore Bancshares or
any of the Shore Subsidiaries are (x) in good repair, order, and condition,
except for depletion, depreciation, and ordinary wear and tear, (y) suitable for
the uses for which they were intended, and (z) free from any known structural
defects. As of the date hereof, there are no laws, conditions of record, or
other impediments which materially interfere with the intended uses by Shore
Bancshares or any of the Shore Subsidiaries of the real property or tangible
personal property owned or leased by it, except as previously disclosed in
writing to Talbot Bancshares. Neither Shore Bancshares nor any of the Shore
Subsidiaries have received any notice of any violation of any applicable law,
building code, zoning ordinance, or other similar law. Shore Bancshares and the
Shore Subsidiaries own or have the rights to use all real and personal
properties and assets that are material to the conduct of the business as now
conducted of Shore Bancshares and the Shore Subsidiaries, taken as a whole.
3.8. Contracts. Except for the plans, contracts, and
agreements of Shore Bancshares and the Shore Subsidiaries (or of any plan under
Section 3.8(b)) set forth on the list previously provided to Talbot Bancshares,
neither Shore Bancshares nor any of the Shore Subsidiaries (nor any plan under
Section 3.8(b)) is a party to or subject to:
(a) Any employment, consultation, or compensation
contract or arrangement (other than those terminable at will) with any
current or former officer, consultant, director, agent or employee (or
beneficiary of any of them);
(b) any plan, contract, program, understanding, or
agreement providing for bonuses, pensions, severance pay, executive
compensation, options, stock purchases, or any other form of
retirement, incentive or deferred compensation, retirement payments,
death benefits, profit sharing, branch closing benefits, workers'
compensation, tuition reimbursement or scholarship program, any plans
providing benefits or payments in the event of a change in control,
change in ownership, or sale of a substantial portion (including all or
substantially all) of the assets of Shore Bancshares or any of the
Shore Subsidiaries, or any health, accident, disability, sick leave,
vacation pay, life insurance, or other welfare benefit, or any other
employee or retired employee benefit (including, without limitation,
any "employee benefit plan" as defined in Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA")) in which
any current or former officer, consultant, employee, director, or agent
(or beneficiary of any of them) of Shore Bancshares or any of the Shore
Subsidiaries is or was, within the last six years, entitled to
participate;
(c) any contract or agreement with any labor union;
(d) any lease of real or personal property with
annual rentals in excess of $15,000;
(e) any agreement for services in excess of $30,000
per year (other than any employment, arbitration or compensation
contract or arrangement with any current or former officer, consultant,
director, agent or employee) or any agreement for the purchase or
disposition of any equipment or supplies except individual purchase
orders for office supplies incurred in the ordinary course of business
of $10,000 or less;
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(f) any instrument evidencing or relating to
indebtedness for borrowed money except for customer accounts, deposits,
certificates of deposit, federal funds purchased, repurchase agreements
and the like which may be construed as borrowings and except for loans
made by Centreville Bank as lender in the ordinary course of its
business;
(g) any lease or other contract containing covenants
not to enter into or consummate the transactions contemplated hereby or
which provides for payments in excess of $2,000 and will be terminated
or violated by the Merger or in respect of which the Merger would cause
a default or acceleration of obligations; or
(h) any other contract or agreement not of the type
covered by any of the other specific terms of this Section 3.8
obligating Shore Bancshares or any Shore Subsidiary to expenditures in
excess of $25,000.
Each of the instruments set forth on the list previously provided to Talbot
Bancshares is valid and in full force and effect. Neither Shore Bancshares nor
any of the Shore Subsidiaries are in default nor have any of them received any
notice that they are in default, nor to their actual knowledge is any other
party in default, under any material agreements, instruments, or obligations to
which Shore Bancshares or any of the Shore Subsidiaries is a party or by which
they are bound.
3.9. Litigation, Etc. Except as set forth on the list
previously provided to Talbot Bancshares, (a) there is no litigation,
proceeding, or investigation pending or, to the knowledge of Shore Bancshares,
threatened against Shore Bancshares or any of the Shore Subsidiaries which would
result in any materially adverse change in the condition (financial or
otherwise), assets, liabilities, business, operations, or future prospects of
Shore Bancshares and the Shore Subsidiaries, taken as a whole; (b) there are no
outstanding orders, writs, injunctions, judgments, decrees, directives, consent
agreements, or memoranda of understanding issued by any federal, state, or local
court or governmental authority or arbitration tribunal issued against or with
the consent of Shore Bancshares or any of the Shore Subsidiaries that materially
and adversely affect the condition (financial or otherwise), assets,
liabilities, business, operations, or future prospects or that in any manner
restrict Shore Bancshares' right to carry on its business or that of the Shore
Subsidiaries as now conducted; and (c) Shore Bancshares is aware of no fact or
condition now existing that might give rise to any litigation, investigation, or
proceeding which, if determined adversely to Shore Bancshares or any of the
Shore Subsidiaries, would materially and adversely affect the condition
(financial or otherwise), assets, liabilities, business, operations, or future
prospects of Shore Bancshares and the Shore Subsidiaries, taken as a whole, or
would restrict in any manner Shore Bancshares' right to carry on its business or
that of the Shore Subsidiaries as now conducted. Shore Bancshares has set forth
on the list previously provided to Talbot Bancshares all litigation in which
Shore Bancshares or any of the Shore Subsidiaries is involved as a party (other
than bankruptcy proceedings in which Shore Bancshares or any of the Shore
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Subsidiaries has filed proofs of claim or routine collection and foreclosure
suits initiated in the ordinary course of business).
3.10. Environmental Matters. (a) The following terms shall
have the indicated meaning:
"Property" or "Properties" means all branch
properties now or formerly owned or operated, all other real property
now owned or operated, and any real properties owned or operated on or
after January 1, 1990 and subsequently disposed of.
"Environmental Law" means (i) any applicable federal,
state, or local statute, law, ordinance, rule, regulation, code,
license, permit, authorization, approval, consent, order, judgment,
decree, directive, requirement, or agreement with any court,
governmental authority, or other regulatory or administrative agency or
commission, domestic or foreign ("Governmental Entity") concerning
protection or preservation of the environment, human health or natural
resources, including without limitation, those relating to the use,
storage, treatment, generation, transportation, processing, handling,
labeling, production, release, or disposal of Hazardous Substances,
each as amended, or (ii) any common law that may impose liability or
obligations for injuries or damages due to the presence of or exposure
to any Hazardous Substance.
"Hazardous Substance" means any substance, whether
liquid, solid, or gas, listed, defined, designated, or classified as
hazardous, toxic, radioactive, or dangerous under any applicable
Environmental Law, whether by type or by quantity, and any other
substance, waste or material (regardless of physical form or
concentration) which is hazardous, dangerous, damaging or toxic to
living things or the environment. Hazardous Substance includes, without
limitation, any "hazardous substance" as defined in the Comprehensive
Environmental Response, Compensation and Liability Act, as amended
("CERCLA"), and any other substance regulated or subject to any
Environmental Law, including, but not limited to the Toxic Substance
Control Act, Clean Water Act, Clean Air Act, Oil Pollution Act and
Resource Conservation and Recovery Act, or a similar state statute,
regardless of the amount of the Hazardous Substance.
(b) Except as previously disclosed in writing to Talbot
Bancshares or as would not individually or in the aggregate have a materially
adverse effect on the condition (financial or otherwise), assets, liabilities,
business, or operations of Shore Bancshares and the Shore Subsidiaries, taken as
a whole:
(i) neither Shore Bancshares nor any of the Shore
Subsidiaries has received any written notices, demand letters, or
written requests for information from any Governmental Entity or any
third party indicating that Shore Bancshares or any Shore Subsidiary
may be in violation of, or liable under, any Environmental Law;
8
(ii) there are no civil, criminal, or administrative
actions, suits, demands, claims, hearings, investigations, or
proceedings pending or to the knowledge of Shore Bancshares threatened
against Shore Bancshares or any Shore Subsidiary alleging that they may
be in violation of, or liable under, any Environmental Law;
(iii) no reports have been filed with any
Governmental Entity, nor to the knowledge of Shore Bancshares are any
reports required to be filed with any Governmental Entity, concerning
the release of any Hazardous Substance or the violation of any
Environmental Law on or at any of the Properties of Shore Bancshares or
any of the Shore Subsidiaries;
(iv) except as previously disclosed in writing to
Talbot Bancshares, there are no underground storage tanks on, in, or
under any of the Properties of Shore Bancshares or any of the Shore
Subsidiaries, and no underground storage tanks have been closed or
removed from any Property of Shore Bancshares or any of the Shore
Subsidiaries while such Property was owned or operated by Shore
Bancshares or any of the Shore Subsidiaries;
(v) except as previously disclosed in writing to
Talbot Bancshares, no Hazardous Substance has been generated, used,
stored, processed, disposed of, or discharged on or into any of the
Properties of Shore Bancshares or any of the Shore Subsidiaries, except
for the lawful storage and use of such hazardous substances as are used
in the everyday business of a bank office; and
(vi) except as previously disclosed in writing to
Talbot Bancshares, no materials containing asbestos have been used or
incorporated in any building or other structure or improvement located
on any of the Properties of Shore Bancshares or any of the Shore
Subsidiaries.
(c) There are no permits or licenses or agency filings or
reports required under any Environmental Law in respect of any operation of
Shore Bancshares or any of the Shore Subsidiaries or in respect of the
Properties of Shore Bancshares or any of the Shore Subsidiaries the absence or
violation of which could, individually or in the aggregate, have a materially
adverse effect on the condition (financial or otherwise), assets, liabilities,
business, or operations of Shore Bancshares and the Shore Subsidiaries, taken as
a whole.
(d) Shore Bancshares and each of the Shore Subsidiaries are
and have been in compliance with all Environmental Laws except for such
noncompliance as would not, individually or in the aggregate, have a materially
adverse effect on the condition (financial or otherwise), assets, liabilities,
business or operations of Shore Bancshares and the Shore Subsidiaries, taken as
a whole.
9
(e) Shore Bancshares has previously provided to Talbot
Bancshares a copy of any current policy regarding compliance with Environmental
Laws and its policies on screening proposed collateral for potential
environmental liabilities.
(f) Copies of each environmental site assessment report
possessed or available to Shore Bancshares prepared in connection with any of
the Properties of Shore Bancshares or any of the Shore Subsidiaries have been
previously provided to Talbot Bancshares.
(g) Neither Shore Bancshares nor any of the Shore Subsidiaries
is an "owner or operator" of any property in which it or they hold or have held
a security interest, as that term is defined under CERCLA.
3.11. Labor Matters. To Shore Bancshares' knowledge, no
organization effort with respect to any of the employees of Shore Bancshares or
any of the Shore Subsidiaries is pending or threatened, and no labor dispute,
strike, work stoppage, employee action, or labor relation problem which may
materially affect Shore Bancshares or any of the Shore Subsidiaries currently is
pending or threatened. Since January 1, 1995, Shore Bancshares and each of the
Shore Subsidiaries have at all times in all material respects complied with all
applicable employee termination notice and similar laws. Since January 1, 1995,
Shore Bancshares and each of the Shore Subsidiaries have at all times complied
in all material respects with all applicable family medical leave and similar
laws. If applicable, Shore Bancshares and each of the Shore Subsidiaries have at
all times complied in all material respects with all applicable requirements of
the Worker Adjustment and Retraining Notification Act and all similar state
laws.
3.12. Pension and Welfare Matters. With respect to the plans,
contracts, programs, understandings, or agreements identified pursuant to
Sections 3.8(a) and (b) (for purposes of this Section 3.12, the "plans"):
(a) Shore Bancshares has clearly identified on the
list previously provided to Talbot Bancshares all of the plans which
are (i) Multiemployer Plans (as defined in (l) below), (ii) multiple
employer plans subject to Sections 4063 and 4064 of ERISA ("Multiple
Employer Plans"), (iii) plans other than Multiemployer Plans and
Multiple Employer Plans that are subject to Section 412 of the Internal
Revenue Code of 1986, as amended (the "Code"), (iv) plans intended to
qualify under Section 401(a) of the Code, and (v) "welfare benefit
plans" within the meaning of Section 3(1) of ERISA which provide for
continuing benefits or coverage for any participant or any beneficiary
of a participant after such participant's termination of employment
except coverage or benefits required by Section 4980B of the Code if
paid 100% by the participant;
(b) true, correct and complete copies of the
following documents, with respect to each of the plans have been made
available or delivered to Talbot Bancshares: (i) all plan documents,
including trust agreements, insurance policies, loan documents, and
service agreements and amendments thereto, (ii) the most recent Forms
5500 and any financial statements attached thereto and those for the
10
prior three years, (iii) the last Internal Revenue Service
determination letter and the application with respect thereto, (iv)
summary plan descriptions, (v) the most recent actuarial statements and
those for the prior three years, (vi) written descriptions of all
non-written agreements relating to any such plan, as applicable, for
Shore Bancshares and each of the Shore Subsidiaries, and (vii) all
filings with a governmental agency or entity within the last three
years, including, without limitation, filings under the voluntary
compliance programs of the U.S. Department of Labor or the Internal
Revenue Service;
(c) each of the plans has been operated in all
material respects in accordance with its terms and in accordance with
all previously and currently effective laws applicable to such plans,
including, but not limited to, ERISA, the Code, the Consolidated
Omnibus Budget Reconciliation Act of 1985, the Health Insurance
Portability and Accountability Act of 1996, and state health care
continuation laws;
(d) all reporting and disclosure requirements of
ERISA imposed upon each such plan have been complied with in all
material respects, and all required governmental filings, including
registration and other filings under applicable securities law, have
been made with respect to the plans;
(e) none of (i) the plans, (ii) the Shore
Subsidiaries, and (iii) Shore Bancshares, and to Shore Bancshares'
knowledge, (x) no current or former director, officer, employee, agent,
or representative of Shore Bancshares or any of the Shore Subsidiaries,
and (y) no fiduciary, "party in interest" (as defined in Section 3(14)
of ERISA) or "disqualified person" (as defined in Section 4975 of the
Code) with respect to any of the plans has engaged in any non-exempt
"prohibited transaction" in connection with any of the plans within the
meaning of Section 4975 of the Code or Title I, Part 4 of ERISA as to
which the applicable statute of limitations has not run;
(f) none of the plans has any accumulated funding
deficiency (as defined in Section 302 of ERISA and Section 412 of the
Code), whether or not waived, with respect to the latest five plan
years, nor any liability to the Pension Benefit Guaranty Corporation
(the "PBGC") (other than normal premium payments);
(g) with respect to plans which are pension plans (as
defined in Section 3(2) of ERISA) subject to Title IV of ERISA, the
assets of each such funded plans equal or exceed the liabilities (as
defined in Section 4001(a)(16) of ERISA) under such plans when such
liabilities are valued on a termination basis using PBGC interest and
other assumptions;
(h) no contributions to any of the plans from Shore
Bancshares or any of the Shore Subsidiaries are currently past due and,
if applicable, all past service and other liabilities currently
existing but payable in the future, if any, are reflected in the latest
actuarial report in accordance with sound actuarial principles;
11
(i) no audits, proceedings, investigations, filings,
or other matters (excluding any determination letter application that
has been or may be filed prior to the Effective Date) are pending
before the Internal Revenue Service (the "IRS"), the Department of
Labor, the PBGC, or other public or quasi-public body in connection
with any such plans;
(j) each plan intended to qualify under Section
401(a) of the Code is so qualified and the trust maintained pursuant
thereto is exempt from taxation under Section 501 of the Code and
nothing has occurred with respect to the operation or administration of
such plan which would cause the loss of such qualification or exemption
or the imposition of any liability, penalty, or tax under ERISA or the
Code that could reasonably be expected to have a material adverse
effect on the condition (financial or otherwise), assets, liabilities,
business, or operations of Shore Bancshares and the Shore Subsidiaries,
taken as a whole, or on such plan;
(k) except as previously disclosed in writing to
Talbot Bancshares, through the Effective Date, there will be no changes
in the operation of the plans or in the documents constituting or
affecting the plans except for amendments and operational changes
required by applicable law which do not materially increase the cost of
such plans;
(l) no employees, former employees, or retired
employees of Shore Bancshares or any of the Shore Subsidiaries, as a
result of their employment with Shore Bancshares or any of the Shore
Subsidiaries, are participants in any "multiemployer plan" which is a
"pension plan," as such terms are defined in Sections 3(37) and 3(2) of
ERISA, respectively, ("Multiemployer Plan") and neither Shore
Bancshares nor any of the Shore Subsidiaries has any current,
contingent or potential liability with respect to any such plan;
(m) no "reportable event," as such term is defined in
Section 4043(c) of ERISA, has occurred with respect to any plan since
the effective date of ERISA, other than a reportable event for which
the 30 days notice requirement under regulations of the PBGC has been
waived;
(n) there are no pending or threatened claims by or
disputes with any participants or beneficiaries of the plans, except
plan benefit claims arising in the normal course of the operations of
the plans (other than terminated plans) and as to which no dispute
exists;
(o) Shore Bancshares has no knowledge of any facts
which could give rise to any claims against any plan or any fiduciary
of any plan, except for plan benefit claims which arise in the normal
course of the operations of the plans (other than terminated plans) and
are not disputed;
12
(p) neither Shore Bancshares nor any of the Shore
Subsidiaries nor any fiduciary of any plan has given notice to any
fiduciary liability insurer of any claims or potential claims in
connection with any of the plans;
(q) except as previously disclosed in writing to
Talbot Bancshares as plans that cannot be amended or terminated, each
of the plans may effectively be terminated or amended, in any manner
and at any time, without further accrual of liability to its
participants, by its sponsoring or participating employer;
(r) neither Shore Bancshares nor any of the Shore
Subsidiaries has provided, nor is required to provide, security to any
pension plan or to any single-employer plan pursuant to Section
401(a)(29) of the Code or Section 307 of ERISA;
(s) there has been no announcement or legally binding
commitment by Shore Bancshares or any of the Shore Subsidiaries to
create an additional plan, or to amend a plan except for amendments
required by applicable law which do not materially increase the cost of
such plan;
(t) as to any terminated plans, all obligations
for plan benefits or other Liabilities have been satisfied in full;
(u) none of the plans contains any provision which
would prohibit the transactions contemplated by this Plan or which,
except as previously disclosed in writing to Talbot Bancshares, would
give rise to any severance, termination, or other payments or
liabilities, or any forgiveness of indebtedness, vesting, distribution,
increase in benefits, or obligations to fund benefits as a result of
the transactions contemplated by this Plan; no payment that is owed or
may become due any director, officer, employee, independent contractor
or agent of Shore Bancshares or any of the Shore Subsidiaries in
connection with a plan will be non-deductible to the payor under
Section 280G of the Code, and none of the Shore Subsidiaries, Talbot
Subsidiaries (as defined in Section 4.1), Shore Bancshares and Talbot
Bancshares will be required to "gross up" or otherwise compensate any
person in connection with a plan because of the imposition of any
excise tax under Section 4999 of the Code; and
(v) no plan is funded by, associated with, or related
to a "voluntary employees' beneficiary association" within the meaning
of Section 501(c)(9) of the Code.
3.13. Related Party Transactions. Except as disclosed on a
list previously provided to Talbot Bancshares, neither Shore Bancshares nor any
of the Shore Subsidiaries has any contract, extension of credit, business
13
arrangement, or other relationship of any kind with any of the following
persons: (a) any executive officer or director of Shore Bancshares or any of the
Shore Subsidiaries; (b) any stockholder owning five percent or more of the
outstanding Common Stock of Shore Bancshares; or (c) any "affiliate" (as defined
in the Securities and Exchange Commission (the "SEC") Rule 405) of the foregoing
persons or any business in which any of the foregoing persons is an officer,
director, employee, or five percent or greater equity owner.
3.14. No Conflict with Other Documents. Except as disclosed on
a list previously provided to Talbot Bancshares, neither the execution and
delivery of this Plan nor the carrying out of the transactions contemplated
hereunder will result in any violation, termination, or default or acceleration
of, or be in conflict with, any terms of any contract or other instrument to
which Shore Bancshares or any of the Shore Subsidiaries is a party, or of any
judgment, decree, or order applicable to Shore Bancshares or any of the Shore
Subsidiaries, or result in the creation of any lien, charge, or encumbrance upon
any of their properties or assets, except for any of the foregoing which would
not have a material adverse effect upon the condition (financial or otherwise),
assets, liabilities, business, or operations of Shore Bancshares and the Shore
Subsidiaries, taken as a whole.
3.15. Compliance with Laws; Governmental Authorizations. (a)
Except where noncompliance would not have a material and adverse effect upon the
condition (financial or otherwise), assets, liabilities, business, or operations
of Shore Bancshares and the Shore Subsidiaries, taken as a whole, (i) Shore
Bancshares and each of the Shore Subsidiaries are in compliance with all
statutes, laws, ordinances, rules, regulations, judgments, orders, decrees,
directives, consent agreements, memoranda of understanding, permits,
concessions, grants franchises, licenses, and other governmental authorizations
or approvals applicable to Shore Bancshares, the Shore Subsidiaries, or any of
their properties; and (ii) all permits, concessions, grants, franchises,
licenses, and other governmental authorizations and approvals necessary for the
conduct of the business of Shore Bancshares and the Shore Subsidiaries as now
conducted have been duly obtained and are in full force and effect, and there
are no proceedings pending or, to Shore Bancshares' knowledge, threatened which
may result in the revocation, cancellation, suspension, or materially adverse
modification of any thereof. Except as disclosed on a list previously provided
to Talbot Bancshares, neither Shore Bancshares nor any of the Shore Subsidiaries
engages in any business or owns any assets that may not be engaged in or owned
by a registered bank holding company, a national banking association, or their
subsidiaries or affiliates.
(b) Since January 1, 1995, Shore Bancshares has filed all
reports that it was required to file with the SEC under the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), all of which complied in all
material respects with all applicable requirements of the Exchange Act and the
rules and regulations adopted thereunder. As of their respective dates, each
such report, statement, form, or other document, including without limitation,
any financial statements or schedules included therein, did not contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, provided, that
14
information as of a later date shall be deemed to modify information as of an
earlier date.
3.16. Authority; Enforceability. The execution, delivery, and
performance of this Plan by Shore Bancshares have been duly and validly
authorized by its Board of Directors, subject only to requisite approval by the
stockholders of Shore Bancshares and appropriate governmental regulatory
authorities. This Plan is a valid and binding agreement of Shore Bancshares,
enforceable against it in accordance with its terms, subject as to enforcement
to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium, and
similar laws of general applicability relating to or affecting creditors' rights
and to general equity principles.
3.17. Insurance. All insurance policies held by Shore
Bancshares and the Shore Subsidiaries relating to their operations (except for
title insurance policies), including without limitation all financial
institutions bonds, are set forth on a list previously provided to Talbot
Bancshares. All such policies are in full force and effect. Neither Shore
Bancshares nor any of the Shore Subsidiaries has received any notice of
cancellation with respect to any such policies and has no reason to expect that
it will receive a notice of cancellation from any of its present insurance
carriers; provided, however, that Shore Bancshares makes no representation as to
the effect of this Plan or the Merger on its present financial institutions bond
or bonds.
3.18. Financial Institutions Bond. Since April 1, 1994, Shore
Bancshares and the Shore Subsidiaries have continuously maintained in full force
and effect one or more financial institutions bonds insuring Shore Bancshares
and the Shore Subsidiaries against acts of dishonesty by each of their
employees. No claim has been made under any such bond since such date, and Shore
Bancshares is not aware of any fact or condition now existing which forms the
basis of a claim under any such bond. Shore Bancshares and the Shore
Subsidiaries have no reason to expect that their present financial institutions
bond or bonds will not be renewed by their carrier on substantially the same
terms as those now in effect; provided, however, that Shore Bancshares makes no
representation as to the effect of this Plan or the Merger on its present
financial institutions bond or bonds.
3.19. Brokers; Financial Advisor. All negotiations relating to
this Plan and the transactions contemplated hereunder have been carried on by
Shore Bancshares directly or through its counsel or financial advisor, and there
has been no intervention of any person as the result of any action of Shore
Bancshares (and, so far as known to Shore Bancshares, no intervention of any
other person) in such manner as to give rise to any valid claim against any of
the parties hereto for a brokerage commission, finder's fee, or other like
payment (other than to its financial advisor, Xxxxxxx XxXxxxxxx & Associates,
Inc. ("GM&A")). A copy of the agreement with GM&A which has been engaged by
Shore Bancshares as its financial advisor and to deliver an opinion as to the
fairness of the transactions contemplated by this Plan to Shore Bancshares has
been previously delivered to Talbot Bancshares.
3.20. Beneficial Ownership of Talbot Bancshares Common Stock.
As of the date hereof, Shore Bancshares does not beneficially own any shares of
Talbot Bancshares Common Stock or have any option, warrant, or right of any kind
to acquire the beneficial ownership of any Talbot Bancshares Common Stock.
15
3.21. Year 2000. Shore Bancshares has carried out a review to
evaluate the extent to which the business or operations of Shore Bancshares or
any of the Shore Subsidiaries will be affected by the Year 2000 Problem (as
defined below). As a result of such review, Shore Bancshares has no reason to
believe, and does not believe, that the Year 2000 Problem will have a material
adverse effect on the condition (financial or otherwise), assets, liabilities,
business, or operations of Shore Bancshares and the Shore Subsidiaries, taken as
a whole. Shore Bancshares reasonably believes that the suppliers, vendors,
customers or other material third parties used or served by Shore Bancshares and
the Shore Subsidiaries are addressing or will address the Year 2000 Problem in a
timely manner. Shore Bancshares is in compliance with all applicable
requirements of any Governmental Entity relating to the Year 2000 Problem and
has not received any correspondence from or provided any written information to
any Governmental Entity relating to the Year 2000 Problem. "Year 2000 Problem"
means the risk that computer hardware or software applications will not record,
store, process, calculate and present calendar dates falling on and after
January 1, 2000, and calculate information dependent upon or relating to such
dates, in the same manner and with the same functionality, data integrity and
performance as such products record, store, process, calculate and present
calendar dates falling on or before December 31, 1999, and calculate information
dependent on or relating to such dates.
3.22 Reports. Shore Bancshares and each of the Shore
Subsidiaries have timely filed all reports, registrations and statements,
together with any amendments required to be made with respect thereto, that they
were required to file since January 1, 1995 with (i) the Federal Reserve, (ii)
the Federal Deposit Insurance Corporation ("FDIC") and/or Office of the
Comptroller of the Currency ("OCC"), (iii) any state banking commissions or any
other state regulatory authority (each a "State Regulator") and (iv) and any
self-regulatory organization ("SRO") (collectively, the "Regulatory Agencies"),
and have paid all fees and assessments due and payable in connection therewith.
Except for normal examinations conducted by a Regulatory Agency in the regular
course of the business of Shore Bancshares and the Shore Subsidiaries, and no
Regulatory Agency has initiated any proceeding or investigation into the
business or operations of Shore Bancshares or the Shore Subsidiaries since
January 1, 1995. There is no unresolved material violation, criticism, or
exception by any Regulatory Agency with respect to any report or statement
relating to any examinations of Shore Bancshares or the Shore Subsidiaries.
3.23 Agreements with Regulatory Agencies. Neither Shore
Bancshares nor the Shore Subsidiaries is subject to any cease-and-desist or
other order issued by, or is a party to any written agreement, consent agreement
or memorandum of understanding with, or is a party to any commitment letter or
similar undertaking to, or is subject to any order or directive by, or is a
recipient of any extraordinary supervisory letter from, or has adopted any board
resolutions at the request of (each "Company Regulatory Agreement"), any
Regulatory Agency or other Governmental Entity that restricts the conduct of its
business or that in any manner relates to its capital adequacy, its credit
policies, its management or its business, nor has Shore Bancshares or the Shore
Subsidiaries been advised in writing by any Regulatory Agency or other
Governmental Entity that it is considering issuing or requesting any Company
Regulatory Agreement.
16
3.24 State Takeover Laws and Control Share Acquisition Act.
The Board of Directors of Shore Bancshares has approved this Plan, the Shore
Bancshares Option Agreement and the transactions contemplated hereby prior to
the date of this Plan such that the provisions of Sections 3-602 and 3-702 of
the MGCL will not apply to this Plan, or the Shore Bancshares Option Agreement
or any of the transactions contemplated hereby or thereby.
4. Representations and Warranties of Talbot Bancshares. Talbot
Bancshares represents and warrants to Shore Bancshares as follows:
4.1. Organization, Standing, and Capitalization of Talbot
Bancshares and the Talbot Subsidiaries. (a) Talbot Bancshares is a duly
organized and validly existing corporation and is in good standing under the
laws of the State of Maryland. Talbot Bancshares has the corporate power and
authority to own and hold its material properties and to carry on its business
as it is now being conducted. Talbot Bancshares is a financial holding company
under the Bank Holding Company Act of 1956, as amended. Talbot Bancshares has no
subsidiaries or directly or indirectly affiliated companies and is not a party
to any joint venture or partnership other than as set forth on a list previously
provided to Shore Bancshares (collectively, the "Talbot Subsidiaries").
(b) Talbot Bank is a duly organized and validly existing
Maryland commercial bank and is in good standing under the laws of the State of
Maryland. The deposits of Talbot Bank are insured under the provisions of the
Federal Deposit Insurance Act, as amended (100% by the bank insurance fund).
Each of the other Talbot Subsidiaries is a duly organized and validly existing
corporation or other entity and is in good standing under the laws of the
jurisdiction of its incorporation or organization as set forth on the list
previously provided to Shore Bancshares. Talbot Bank does not exercise any
fiduciary powers. Each of the Talbot Subsidiaries has the power (corporate or
other) and authority to own and hold its material properties and to carry on its
business as it is now being conducted. All outstanding shares of capital stock
or other equity interests of all of the Talbot Subsidiaries are validly issued,
fully paid, and non-assessable. Except as set forth on a list previously
provided to Shore Bancshares, each of the Talbot Subsidiaries is wholly owned by
its parent. There are no outstanding options, warrants, rights, or obligations
of any kind entitling the holder thereof to acquire shares of the capital stock
or other equity interests of any of the Talbot Subsidiaries, and there are no
outstanding securities or instruments of any kind that are convertible into
shares of the capital stock or other equity interests of any of the Talbot
Subsidiaries. Except as set forth on a list previously provided to Shore
Bancshares, none of the Talbot Subsidiaries is a party to any joint venture or
partnership.
(c) Copies of all organizational documents and by-laws of
Talbot Bancshares and each of the Talbot Subsidiaries have been previously
provided to Shore Bancshares, and all such copies are true and correct as of the
date hereof. The minute books of Talbot Bancshares and each of the Talbot
Subsidiaries, which have been made available to Shore Bancshares for inspection,
are complete in all material respects and accurately record the actions taken by
the stockholders and directors of Talbot Bancshares and each of the Talbot
Subsidiaries.
17
(d) The authorized capital stock of Talbot Bancshares consists
exclusively of 25,000,000 shares of Common Stock, par value $.01 per share,
1,194,876 of which shares are outstanding at July 25, 2000. All outstanding
shares of Talbot Bancshares Common Stock are validly issued, fully paid, and non
assessable. Talbot Bancshares has reserved 125,000 shares of its Common Stock
for issuance under its stock option plans. On July 25, 2000, there were
outstanding options to purchase 37,344 shares of Talbot Bancshares Common Stock
at prices ranging from $19.50 to $25.00 pursuant to these stock option plans.
Except for the option to be granted to Shore Bancshares pursuant to the Stock
Option Agreement attached as Appendix V and as set forth on a list previously
provided to Shore Bancshares, there are no other outstanding options, warrants,
rights, or obligations of any kind entitling the holder thereof to acquire
shares of the Common Stock of Talbot Bancshares, and there are no outstanding
securities or instruments of any kind that are convertible into shares of the
Common Stock of Talbot Bancshares.
4.2. Financial Statements. Talbot Bancshares has previously
provided to Shore Bancshares copies of the Consolidated Financial Statements of
Talbot Bancshares and the Talbot Subsidiaries at December 31, 1995, 1996, 1997,
1998, and 1999 and for each of the years then ended, as reported upon by Xxxxxxx
& Company, and at March 31, 1999 and 2000 and for each of the three month
periods then ended, all of which are true and complete in all material respects,
have been prepared in accordance with generally accepted accounting principles
consistently followed throughout the periods covered by such consolidated
financial statements and present fairly the financial position, results of
operations, cash flows, and changes in stockholders' equity of Talbot Bancshares
and the Talbot Subsidiaries at the dates of and for the periods covered by such
financial statements.
4.3. Taxes. Copies of the tax returns for federal, state,
county, municipal, or foreign taxing authorities for the taxable year ended
December 31, 1995 and all taxable years through and including December 31, 1999
for Talbot Bancshares and the Talbot Subsidiaries have been previously provided
to Shore Bancshares. Talbot Bancshares and the Talbot Subsidiaries have filed
with appropriate federal, state, county, municipal, or foreign taxing
authorities all tax returns required to be filed (taking any applicable
extensions into consideration) and have paid or reserved for all taxes shown to
be due on such returns and all penalties and interest payable in respect
thereof. Except as disclosed in writing to Shore Bancshares, since January 1,
1995 neither Talbot Bancshares nor any of the Talbot Subsidiaries have received
from any taxing authority any notice of deficiency or assessment of additional
taxes not paid or any notice of an intention to commence an examination or audit
of its tax returns, and no tax audits by any taxing authority are in process.
Except as disclosed in writing to Shore Bancshares, since January 1, 1995
neither Talbot Bancshares nor any of the Talbot Subsidiaries have granted any
waiver of any statute of limitations or otherwise agreed to any extension of a
period for the assessment of any federal, state, county, municipal, or foreign
income tax. The accruals and reserves reflected in the consolidated financial
statements which Talbot Bancshares has provided to Shore Bancshares as described
in Section 4.2 are adequate to cover all taxes (including interest and
penalties, if any, thereon) that are payable or accrued as a result of the
operations of Talbot Bancshares and the Talbot Subsidiaries for all periods
prior to the date of such consolidated financial statements. For purposes of
this Section 4.3, any reference to the Talbot Subsidiaries shall be deemed to
18
include any entity previously identified on the list delivered to Shore
Bancshares pursuant to 4.1(a) and 4.1(b).
4.4. No Undisclosed Liabilities. Except as and to the extent
reflected or reserved against in the consolidated financial statements delivered
under Section 4.2, neither Talbot Bancshares nor any of the Talbot Subsidiaries
at the dates of such consolidated financial statements had any material
liabilities or obligations (whether accrued, absolute, or contingent) required
under generally accepted accounting principles to be reflected thereon which
would materially and adversely affect the fair presentation of such financial
statements. Neither Talbot Bancshares nor any of the Talbot Subsidiaries has
incurred any liability since the date of the consolidated financial statements
delivered under Section 4.2 (including any liability for taxes) which would
materially and adversely affect the condition (financial or otherwise), assets,
liabilities, business, or operations of Talbot Bancshares and the Talbot
Subsidiaries, taken as a whole, other than liabilities which have been incurred
in the ordinary course of business.
4.5. Absence of Certain Changes or Events. Except as
previously disclosed in writing to Shore Bancshares, since December 31, 1999
there has not been:
(a) Any materially adverse change in the financial
position, results of operations, assets, liabilities, or business of
Talbot Bancshares or the Talbot Subsidiaries, other than changes in the
ordinary course of business;
(b) any increase in salaries or wages of directors,
officers, or employees of Talbot Bancshares or the Talbot Subsidiaries
other than in the ordinary course of business; or any establishment or
increase of any employment, compensation, bonus, pension, option,
incentive or deferred compensation, retirement payments, profit
sharing, or similar agreement or benefit, authorized, granted, or
accrued to any directors, officers, or employees of Talbot Bancshares
or the Talbot Subsidiaries other than in the ordinary course of
business; or
(c) any declaration, payment, or set aside by Talbot
Bancshares of any dividend or distribution in respect of its Common
Stock (other than regular quarterly cash dividends), or any purchase,
issuance, or sale by Talbot Bancshares of any of its Common Stock.
4.6. Complete and Accurate Disclosure. Neither this Plan
(insofar as it relates to Talbot Bancshares and the Talbot Subsidiaries, the
Common Stock of Talbot Bancshares, and the involvement of Talbot Bancshares in
the transactions contemplated hereby) nor any financial statement, schedule,
certificate, or other statement or document previously disclosed in writing
under this Agreement delivered by Talbot Bancshares to Shore Bancshares in
connection with this Plan, when considered in the aggregate, contains any
statement which, at the time and in light of the circumstances under which it is
made, is false or misleading with respect to any material fact or omits to state
any material fact necessary to make the statements contained herein or therein
not false or misleading.
19
4.7. Title to Properties; Absence of Liens and Encumbrances;
Compliance with Laws. Except as previously disclosed in writing to Shore
Bancshares, Talbot Bancshares and each of the Talbot Subsidiaries has good and
marketable title to all of their respective properties and assets, including
those reflected in the consolidated financial statements delivered pursuant to
Section 4.2, except as sold or otherwise disposed of for fair value and only in
the ordinary course of business, free and clear of all liens and encumbrances,
except (i) with respect to property as to which they are lessees, (ii) with
respect to real estate owned by Talbot Bancshares or the Talbot Subsidiaries,
for use, occupancy, and similar restrictions of public record that may be
observed by an inspection of the property, and such other utility and other
easements and encumbrances as do not materially adversely affect the fair market
value of such real property, and (iii) liens to secure borrowings, liens to
secure governmental deposits, and liens for current taxes not yet due and
payable. Neither Talbot Bancshares nor any of the Talbot Subsidiaries owns or
leases real property except as previously disclosed in writing to Shore
Bancshares, and is not in default under any material lease of real or personal
property to which it is a party. As of the date hereof, except as previously
disclosed in writing to Shore Bancshares, the real properties, structures,
buildings, equipment, and the tangible personal property owned, operated, or
leased by Talbot Bancshares or any of the Talbot Subsidiaries are (x) in good
repair, order, and condition, except for depletion, depreciation, and ordinary
wear and tear, (y) suitable for the uses for which they were intended, and (z)
free from any known structural defects. As of the date hereof, there are no
laws, conditions of record, or other impediments which materially interfere with
the intended uses by Talbot Bancshares or any of the Talbot Subsidiaries of the
real property or tangible personal property owned or leased by it, except as
previously disclosed in writing to Shore Bancshares. Neither Talbot Bancshares
nor any of the Talbot Subsidiaries have received any notice of any violation of
any applicable law, building code, zoning ordinance, or other similar law.
Talbot Bancshares and the Talbot Subsidiaries own or have the rights to use all
real and personal properties and assets that are material to the conduct of the
business as now conducted of Talbot Bancshares and the Talbot Subsidiaries,
taken as a whole.
4.8. Contracts. Except for the plans, contracts, and
agreements of Talbot Bancshares and the Talbot Subsidiaries (or of any plan
under Section 4.8(b)) set forth on the list previously provided to Shore
Bancshares, neither Talbot Bancshares nor any of the Talbot Subsidiaries (nor
any plan under Section 4.8(b)) is a party to or subject to:
(a) Any employment, consultation, or compensation
contract or arrangement (other than those terminable at will) with any
officer, consultant, director, or employee;
(b) any plan, contract, program, understanding, or
agreement providing for bonuses, pensions, severance pay, executive
compensation, options, stock purchases, or any other form of
retirement, incentive or deferred compensation, retirement payments,
death benefits, profit sharing, branch closing benefits, workers'
compensation, tuition reimbursement or scholarship program, any plans
providing benefits or payments in the event of a change in control,
change in ownership, or sale of a substantial portion (including all or
substantially all) of the assets of Talbot Bancshares or any of the
20
Talbot Subsidiaries, or any health, accident, disability, sick leave,
vacation pay, life insurance, or other welfare benefit, or any other
employee or retired employee benefit (including, without limitation,
any "employee benefit plan" as defined in Section 3(3) of ERISA) in
which any current or former employee, director, or agent (or
beneficiary of any of them) of Talbot Bancshares or any of the Talbot
Subsidiaries is or was, within the last six years, entitled to
participate;
(c) any contract or agreement with any labor union;
(d) any lease of real or personal property with
annual rentals in excess of $15,000;
(e) any agreement for services in excess of $30,000
per year or for the purchase or disposition of any equipment or
supplies except individual purchase orders for office supplies incurred
in the ordinary course of business of $10,000 or less;
(f) any instrument evidencing or relating to
indebtedness for borrowed money except for customer accounts, deposits,
certificates of deposit, federal funds purchased, repurchase agreements
and the like which may be construed as borrowings and except for loans
made by Talbot Bank as lender in the ordinary course of its business;
(g) any lease or other contract containing covenants
not to enter into or consummate the transactions contemplated hereby or
which provides for payments in excess of $2,000 and will be terminated
or violated by the Merger or in respect of which the Merger would cause
a default or acceleration of obligations; or
(h) any other contract or agreement not of the type
covered by any of the other specific terms of this Section 4.8
obligating Talbot Bancshares or any Talbot Subsidiary to expenditures
in excess of $25,000.
Each of the instruments set forth on the list previously provided to Shore
Bancshares is valid and in full force and effect. Neither Talbot Bancshares nor
any of the Talbot Subsidiaries are in default nor have any of them received any
notice that they are in default, nor to their actual knowledge is any other
party in default, under any material agreements, instruments, or obligations to
which Talbot Bancshares or any of the Talbot Subsidiaries is a party or by which
they are bound.
4.9. Litigation, Etc. Except as set forth on the list
previously provided to Shore Bancshares, (a) there is no litigation, proceeding,
or investigation pending or, to the knowledge of Talbot Bancshares, threatened
against Talbot Bancshares or any of the Talbot Subsidiaries which would result
in any materially adverse change in the condition (financial or otherwise),
assets, liabilities, business, operations, or future prospects of Talbot
Bancshares and the Talbot Subsidiaries, taken as a whole; (b) there are no
21
outstanding orders, writs, injunctions, judgments, decrees, directives, consent
agreements, or memoranda of understanding issued by any federal, state, or local
court or governmental authority or arbitration tribunal issued against or with
the consent of Talbot Bancshares or any of the Talbot Subsidiaries that
materially and adversely affect the condition (financial or otherwise), assets,
liabilities, business, operations, or future prospects or that in any manner
restrict Talbot Bancshares' right to carry on its business or that of the Talbot
Subsidiaries as now conducted; and (c) Talbot Bancshares is aware of no fact or
condition now existing that might give rise to any litigation, investigation, or
proceeding which, if determined adversely to Talbot Bancshares or any of the
Talbot Subsidiaries, would materially and adversely affect the condition
(financial or otherwise), assets, liabilities, business, operations, or future
prospects of Talbot Bancshares and the Talbot Subsidiaries, taken as a whole, or
would restrict in any manner Talbot Bancshares' right to carry on its business
or that of the Talbot Subsidiaries as now conducted. Talbot Bancshares has set
forth on the list previously provided to Shore Bancshares all litigation in
which Talbot Bancshares or any of the Talbot Subsidiaries is involved as a party
(other than bankruptcy proceedings in which Talbot Bancshares or any of the
Talbot Subsidiaries has filed proofs of claim or routine collection and
foreclosure suits initiated in the ordinary course of business).
4.10. Environmental Matters. (a) Except as previously
disclosed in writing to Shore Bancshares or as would not individually or in the
aggregate have a materially adverse effect on the condition (financial or
otherwise), assets, liabilities, business, or operations of Talbot Bancshares
and the Talbot Subsidiaries, taken as a whole:
(i) neither Talbot Bancshares nor any of the Talbot
Subsidiaries has received any written notices, demand letters, or
written requests for information from any Governmental Entity or any
third party indicating that Talbot Bancshares or any Talbot Subsidiary
may be in violation of, or liable under, any Environmental Law;
(ii) there are no civil, criminal, or administrative
actions, suits, demands, claims, hearings, investigations, or
proceedings pending or to the knowledge of Talbot Bancshares threatened
against Talbot Bancshares or any Talbot Subsidiary alleging that they
may be in violation of, or liable under, any Environmental Law;
(iii) no reports have been filed with any
Governmental Entity, nor to the knowledge of Talbot Bancshares are any
reports required to be filed with any Governmental Entity, concerning
the release of any Hazardous Substance or the violation of any
Environmental Law on or at any of the Properties of Talbot Bancshares
or any of the Talbot Subsidiaries;
(iv) except as previously disclosed in writing to
Shore Bancshares, there are no underground storage tanks on, in, or
under any of the Properties of Talbot Bancshares or any of the Talbot
Subsidiaries, and no underground storage tanks have been closed or
removed from any Property of Talbot Bancshares or any of the Talbot
Subsidiaries while such Property was owned or operated by Talbot
Bancshares or any of the Talbot Subsidiaries;
22
(v) except as previously disclosed in writing to
Shore Bancshares, no Hazardous Substance has been generated, used,
stored, processed, disposed of, or discharged on or into any of the
Properties of Talbot Bancshares or any of the Talbot Subsidiaries,
except for the lawful storage and use of such hazardous substances as
are used in the everyday business of a bank office; and
(vi) except as previously disclosed in writing to
Shore Bancshares, no materials containing asbestos have been used or
incorporated in any building or other structure or improvement located
on any of the Properties of Talbot Bancshares or any of the Talbot
Subsidiaries.
(b) There are no permits or licenses or agency filings or
reports required under any Environmental Law in respect of any operation of
Talbot Bancshares or any of the Talbot Subsidiaries or in respect of the
Properties of Talbot Bancshares or any of the Talbot Subsidiaries the absence or
violation of which could, individually or in the aggregate, have a materially
adverse effect on the condition (financial or otherwise), assets, liabilities,
business, or operations of Talbot Bancshares and the Talbot Subsidiaries, taken
as a whole.
(c) Talbot Bancshares and each of the Talbot Subsidiaries are
and have been in compliance with all Environmental Laws except for such
noncompliance as would not, individually or in the aggregate, have a materially
adverse effect on the condition (financial or otherwise), assets, liabilities,
business or operations of Talbot Bancshares and the Talbot Subsidiaries, taken
as a whole.
(d) Talbot Bancshares has previously provided to Shore
Bancshares a copy of any current policy regarding compliance with Environmental
Laws and its policies on screening proposed collateral for potential
environmental liabilities.
(e) Copies of each environmental site assessment report
possessed or available to Talbot Bancshares prepared in connection with any of
the Properties of Talbot Bancshares or any of the Talbot Subsidiaries have been
previously provided to Shore Bancshares.
(f) Neither Talbot Bancshares nor any of the Talbot
Subsidiaries is an "owner or operator" of any property in which it or they hold
or have held a security interest, as that term is defined under CERCLA.
4.11. Labor Matters. To Talbot Bancshares' knowledge, no
organization effort with respect to any of the employees of Talbot Bancshares or
any of the Talbot Subsidiaries is pending or threatened, and no labor dispute,
strike, work stoppage, employee action, or labor relation problem which may
materially affect Talbot Bancshares or any of the Talbot Subsidiaries currently
is pending or threatened. Since January 1, 1995, Talbot Bancshares and each of
the Talbot Subsidiaries have at all times in all material respects complied with
23
all applicable employee termination notice and similar laws. Since January 1,
1995, Talbot Bancshares and each of the Talbot Subsidiaries have at all times
complied in all material respects with all applicable family medical leave and
similar laws. If applicable, Talbot Bancshares and each of the Talbot
Subsidiaries have at all times complied in all material respects with all
applicable requirements of the Worker Adjustment and Retraining Notification Act
and all similar state laws.
4.12. Pension and Welfare Matters. With respect to the plans,
contracts, programs, understandings, or agreements identified pursuant to
Sections 4.8(a) and (b) (for purposes of this Section 4.12, the "plans"):
(a) Talbot Bancshares has clearly identified on the
list previously provided to Shore Bancshares all of the plans which are
(i) Multiemployer Plans, (ii) Multiple Employer Plans, (iii) plans
other than Multiemployer Plans and Multiple Employer Plans that are
subject to Section 412 of the Code, (iv) plans intended to qualify
under Section 401(a) of the Code, and (v) "welfare benefit plans"
within the meaning of Section 3(1) of ERISA which provide for
continuing benefits or coverage for any participant or any beneficiary
of a participant after such participant's termination of employment
except coverage or benefits required by Section 4980B of the Code if
paid 100% by the participant;
(b) true, correct and complete copies of the
following documents, with respect to each of the plans have been made
available or delivered to Shore Bancshares: (i) all plan documents,
including trust agreements, insurance policies, loan documents, and
service agreements and amendments thereto, (ii) the most recent Forms
5500 and any financial statements attached thereto and those for the
prior three years, (iii) the last Internal Revenue Service
determination letter and the application with respect thereto, (iv)
summary plan descriptions, (v) the most recent actuarial statements and
those for the prior three years, (vi) written descriptions of all
non-written agreements relating to any such plan, as applicable, for
Talbot Bancshares and each of the Talbot Subsidiaries, and (vii) all
filings with a governmental agency or entity within the last three
years, including, without limitation, filings under the voluntary or
other compliance programs of the U.S. Department of Labor or the
Internal Revenue Service;
(c) each of the plans has been operated in all
material respects in accordance with its terms and in accordance with
all applicable laws including, but not limited to, ERISA, the Code, the
Consolidated Omnibus Budget Reconciliation Act of 1985, the Health
Insurance Portability and Accountability Act of 1996, and state health
care continuation laws;
(d) all reporting and disclosure requirements of
ERISA imposed upon each such plan have been complied with in all
material respects, and all required governmental filings, including
registration and other filings under applicable securities law, have
been made with respect to the plans;
(e) none of (i) the plans, (ii) the Talbot
Subsidiaries, and (iii) Talbot Bancshares, and to Talbot Bancshares'
knowledge, (x) no current or former director, officer, employee, agent,
or representative of Talbot Bancshares or any of the Talbot
Subsidiaries, and (y) no fiduciary, "party in interest" (as defined in
24
Section 3(14) of ERISA) or "disqualified person" (as defined in Section
4975 of the Code) with respect to any of the plans has engaged in any
non-exempt "prohibited transaction" in connection with any of the plans
within the meaning of Section 4975 of the Code or Title I, Part 4 of
ERISA;
(f) none of the plans has any accumulated funding
deficiency (as defined in Section 302 of ERISA and Section 412 of the
Code), whether or not waived, with respect to the latest five plan
years, nor any liability to the PBGC (other than normal premium
payments);
(g) with respect to plans which are pension plans (as
defined in Section 3(2) of ERISA) subject to Title IV of ERISA, the
assets of each such funded plans equal or exceed the liabilities (as
defined in Section 4001(a)(16) of ERISA) under such plans when such
liabilities are valued on a termination basis using PBGC interest and
other assumptions;
(h) no contributions to any of the plans from Talbot
Bancshares or any of the Talbot Subsidiaries are currently past due
and, if applicable, all past service and other liabilities currently
existing but payable in the future, if any, are reflected in the latest
actuarial report in accordance with sound actuarial principles;
(i) no audits, proceedings, investigations, filings,
or other matters (excluding any determination letter application that
has been or may be filed prior to the Effective Date) are pending
before the IRS, the Department of Labor, the PBGC, or other public or
quasi-public body in connection with any such plans;
(j) each plan intended to qualify under Section
401(a) of the Code is so qualified and the trust maintained pursuant
thereto is exempt from taxation under Section 501 of the Code and
nothing has occurred with respect to the operation or administration of
such plan which would cause the loss of such qualification or exemption
or the imposition of any liability, penalty, or tax under ERISA or the
Code that could reasonably be expected to have a material adverse
effect on the condition (financial or otherwise), assets, liabilities,
business, or operations of Talbot Bancshares and the Talbot
Subsidiaries, taken as a whole, or on such plan;
(k) except as previously disclosed in writing to
Shore Bancshares, through the Effective Date, there will be no changes
in the operation of the plans or in the documents constituting or
affecting the plans except for amendments and operational changes
required by applicable law which do not materially increase the cost of
such plans;
(l) no employees, former employees, or retired
employees of Talbot Bancshares or any of the Talbot Subsidiaries, as a
result of their employment with Talbot Bancshares or any of the Talbot
25
Subsidiaries, are participants in any Multiemployer Plan and neither
Talbot Bancshares nor any of the Talbot Subsidiaries has any current,
contingent or potential liability with respect to any such plan;
(m) no "reportable event," as such term is defined in
Section 4043(c) of ERISA, has occurred with respect to any plan since
the effective date of ERISA, other than a reportable event for which
the 30 days notice requirement under regulations of the PBGC has been
waived;
(n) there are no pending or threatened claims by or
disputes with any participants or beneficiaries of the plans, except
plan benefit claims arising in the normal course of the operations of
the plans (other than terminated plans) and as to which no dispute
exists;
(o) Talbot Bancshares has no knowledge of any facts
which could give rise to any claims against any plan or any fiduciary
of any plan, except for plan benefit claims which arise in the normal
course of the operations of the plans (other than terminated plans) and
are not disputed;
(p) neither Talbot Bancshares nor any of the Talbot
Subsidiaries nor any fiduciary of any plan has given notice to any
fiduciary liability insurer of any claims or potential claims in
connection with any of the plans;
(q) except as previously disclosed in writing to
Shore Bancshares as plans that cannot be amended or terminated, each of
the plans may effectively be terminated or amended, in any manner and
at any time, without further accrual of liability to its participants,
by its sponsoring or participating employer;
(r) neither Talbot Bancshares nor any of the Talbot
Subsidiaries has provided, nor is required to provide, security to any
pension plan or to any single-employer plan pursuant to Section
401(a)(29) of the Code or Section 307 of ERISA;
(s) there has been no announcement or legally binding
commitment by Talbot Bancshares or any of the Talbot Subsidiaries to
create an additional plan, or to amend a plan except for amendments
required by applicable law which do not materially increase the cost of
such plan;
(t) as to any terminated plans, all obligations for
plan benefits or other liabilities have been satisfied in full;
(u) none of the plans contains any provision which
would prohibit the transactions contemplated by this Plan or which,
except as previously disclosed in writing to Shore Bancshares, would
give rise to any severance, termination, or other payments or
liabilities, or any forgiveness of indebtedness, vesting, distribution,
increase in benefits, or obligations to fund benefits as a result of
26
the transactions contemplated by this Plan; no payment that is owed or
may become due any director, officer, employee, or agent of Talbot
Bancshares or any of the Talbot Subsidiaries in connection with a plan
will be non-deductible to the payor under Section 280G of the Code, and
none of the Talbot Subsidiaries, Shore Subsidiaries, Talbot Bancshares
or Shore Bancshares will be required to "gross up" or otherwise
compensate any person in connection with a plan because of the
imposition of any excise tax under Section 4999 of the Code; and
(v) no plan is funded by, associated with, or related
to a "voluntary employees' beneficiary association" within the meaning
of Section 501(c)(9) of the Code.
4.13. Related Party Transactions. Except as disclosed on a
list previously provided to Shore Bancshares, neither Talbot Bancshares nor any
of the Talbot Subsidiaries has any contract, extension of credit, business
arrangement, or other relationship of any kind with any of the following
persons: (a) any executive officer or director of Talbot Bancshares or any of
the Talbot Subsidiaries; (b) any stockholder owning five percent or more of the
outstanding Common Stock of Talbot Bancshares; or (c) any "affiliate" (as
defined in the SEC Rule 405) of the foregoing persons or any business in which
any of the foregoing persons is an officer, director, employee, or five percent
or greater equity owner.
4.14. No Conflict with Other Documents. Except as disclosed on
a list previously provided to Shore Bancshares, neither the execution and
delivery of this Plan nor the carrying out of the transactions contemplated
hereunder will result in any violation, termination, or default or acceleration
of, or be in conflict with, any terms of any contract or other instrument to
which Talbot Bancshares or any of the Talbot Subsidiaries is a party, or of any
judgment, decree, or order applicable to Talbot Bancshares or any of the Talbot
Subsidiaries, or result in the creation of any lien, charge, or encumbrance upon
any of their properties or assets, except for any of the foregoing which would
not have a material adverse effect upon the condition (financial or otherwise),
assets, liabilities, business, or operations of Talbot Bancshares and the Talbot
Subsidiaries, taken as a whole.
4.15. Compliance with Laws; Governmental Authorizations. (a)
Except where noncompliance would not have a material and adverse effect upon the
condition (financial or otherwise), assets, liabilities, business, or operations
of Talbot Bancshares and the Talbot Subsidiaries, taken as a whole, (i) Talbot
Bancshares and each of the Talbot Subsidiaries are in compliance with all
statutes, laws, ordinances, rules, regulations, judgments, orders, decrees,
directives, consent agreements, memoranda of understanding, permits,
concessions, grants franchises, licenses, and other governmental authorizations
or approvals applicable to Talbot Bancshares, the Talbot Subsidiaries, or any of
their properties; and (ii) all permits, concessions, grants, franchises,
licenses, and other governmental authorizations and approvals necessary for the
conduct of the business of Talbot Bancshares and the Talbot Subsidiaries as now
conducted have been duly obtained and are in full force and effect, and there
are no proceedings pending or, to Talbot Bancshares' knowledge, threatened which
may result in the revocation, cancellation, suspension, or materially adverse
modification of any thereof. Except as disclosed on a list previously provided
27
to Shore Bancshares, neither Talbot Bancshares nor any of the Talbot
Subsidiaries engages in any business or owns any assets that may not be engaged
in or owned by a registered bank holding company, a commercial bank, or their
subsidiaries or affiliates.
(b) Since January 1, 1995 Talbot Bancshares has filed all
reports that it was required to file with the SEC under the Exchange Act, all of
which complied in all material respects with all applicable requirements of the
Exchange Act and the rules and regulations adopted thereunder. As of their
respective dates, each such report, statement, form, or other document,
including without limitation, any financial statements or schedules included
therein, did not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading, provided, that information as of a later date shall be deemed to
modify information as of an earlier date.
4.16. Authority; Enforceability. The execution, delivery, and
performance of this Plan by Talbot Bancshares have been duly and validly
authorized by its Board of Directors, subject only to requisite approval by the
stockholders of Talbot Bancshares and appropriate governmental regulatory
authorities. This Plan is a valid and binding agreement of Talbot Bancshares,
enforceable against it in accordance with its terms, subject as to enforcement
to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium, and
similar laws of general applicability relating to or affecting creditors' rights
and to general equity principles.
4.17. Insurance. All insurance policies held by Talbot
Bancshares and the Talbot Subsidiaries relating to their operations (except for
title insurance policies), including without limitation all financial
institutions bonds, are set forth on a list previously provided to Shore
Bancshares. All such policies are in full force and effect. Neither Talbot
Bancshares nor any of the Talbot Subsidiaries has received any notice of
cancellation with respect to any such policies and has no reason to expect that
it will receive a notice of cancellation from any of its present insurance
carriers; provided, however, that Talbot Bancshares makes no representation as
to the effect of this Plan or the Merger on its present financial institutions
bond or bonds.
4.18. Financial Institutions Bond. Since April 1, 1994, Talbot
Bancshares and the Talbot Subsidiaries have continuously maintained in full
force and effect one or more financial institutions bonds insuring Talbot
Bancshares and the Talbot Subsidiaries against acts of dishonesty by each of
their employees. No claim has been made under any such bond since such date, and
Talbot Bancshares is not aware of any fact or condition now existing which forms
the basis of a claim under any such bond. Talbot Bancshares and the Talbot
Subsidiaries have no reason to expect that their present financial institutions
bond or bonds will not be renewed by their carrier on substantially the same
terms as those now in effect; provided, however, that Talbot Bancshares makes no
representation as to the effect of this Plan or the Merger on its present
financial institutions bond or bonds.
4.19. Brokers; Financial Advisor. All negotiations relating to
this Plan and the transactions contemplated hereunder have been carried on by
Talbot Bancshares directly or through its counsel or financial advisor, and
there has been no intervention of any person as the result of any action of
Talbot Bancshares (and, so far as known to Talbot Bancshares, no intervention of
28
any other person) in such manner as to give rise to any valid claim against any
of the parties hereto for a brokerage commission, finder's fee, or other like
payment (other than to its financial advisor, Xxxxxxxxx Associates Inc.
("Xxxxxxxxx")). A copy of the agreement with Xxxxxxxxx which has been engaged by
Talbot Bancshares as its financial advisor and to deliver an opinion as to the
fairness of the transactions contemplated by this Plan to Talbot Bancshares has
been previously delivered to Shore Bancshares.
4.20. Beneficial Ownership of Shore Bancshares Common Stock.
As of the date hereof, Talbot Bancshares does not beneficially own any shares of
Shore Bancshares Common Stock or have any option, warrant, or right of any kind
to acquire the beneficial ownership of any Shore Bancshares Common Stock.
4.21. Year 2000. Talbot Bancshares has carried out a review to
evaluate the extent to which the business or operations of Talbot Bancshares or
any of the Talbot Subsidiaries will be affected by the Year 2000 Problem. As a
result of such review, Talbot Bancshares has no reason to believe, and does not
believe, that the Year 2000 Problem will have a material adverse effect on the
condition (financial or otherwise), assets, liabilities, business, or operations
of Talbot Bancshares and the Talbot Subsidiaries, taken as a whole. Talbot
Bancshares reasonably believes that the suppliers, vendors, customers or other
material third parties used or served by Talbot Bancshares and the Talbot
Subsidiaries are addressing or will address the Year 2000 Problem in a timely
manner. Talbot Bancshares is in compliance with all applicable requirements of
any Governmental Entity relating to the Year 2000 Problem and has not received
any correspondence from or provided any written information to any Governmental
Entity relating to the Year 2000 Problem.
4.22. Reports. Talbot Bancshares and the Talbot Subsidiaries
have timely filed all reports, registrations and statements, together with any
amendments required to be made with respect thereto, that they were required to
file since January 1, 1995 with (i) the Federal Reserve, (ii) the FDIC and/or
OCC, (iii) any State Regulator, and (iv) and any SRO, and have paid all fees and
assessments due and payable in connection therewith. Except for normal
examinations conducted by a Regulatory Agency in the regular course of the
business of Talbot Bancshares and the Talbot Subsidiaries, and no Regulatory
Agency has initiated any proceeding or investigation into the business or
operations of Talbot Bancshares or the Talbot Subsidiaries since January 1,
1995. There is no unresolved material violation, criticism, or exception by any
Regulatory Agency with respect to any report or statement relating to any
examinations of Talbot Bancshares or the Talbot Subsidiaries.
4.23. Agreements with Regulatory Agencies. Neither Talbot
Bancshares nor the Talbot Subsidiaries is subject to any cease-and-desist or
other order issued by, or is a party to any Company Regulatory Agreement with
any Regulatory Agency or other Governmental Entity that restricts the conduct of
its business or that in any manner relates to its capital adequacy, its credit
policies, its management or its business, nor has Talbot Bancshares or the
Talbot Subsidiaries been advised in writing by any Regulatory Agency or other
Governmental Entity that it is considering issuing or requesting any Company
Regulatory Agreement.
29
4.24. State Takeover Laws and Control Share Acquisition Act.
The Board of Directors of Talbot Bancshares has approved this Plan, the Talbot
Bancshares Option Agreement and the transactions contemplated hereby prior to
the date of this Plan such that the provisions of Sections 3-602 and 3-702 of
the MGCL will not apply to this Plan, or the Talbot Bancshares Option Agreement
or any of the transactions contemplated hereby or thereby.
5. Covenants of Shore Bancshares. Except as otherwise consented to in
writing by Talbot Bancshares after the date of this Plan, Shore Bancshares
covenants to and agrees with Talbot Bancshares as follows:
5.1. Information. (a) Shore Bancshares shall, upon reasonable
notice, give to Talbot Bancshares and to its officers, accountants, counsel,
financial advisors, and other representatives, reasonable access during Shore
Bancshares' and the Shore Subsidiaries' normal business hours throughout the
period prior to the Effective Date to all of their properties, books, contracts,
commitments, reports of examination (consistent with applicable law), depositor
and stockholder lists, and records. Shore Bancshares and the Shore Subsidiaries
will, at their own expense, furnish Talbot Bancshares during such period with
all such information concerning their affairs as Talbot Bancshares may
reasonably request, including information for use in determining if the
conditions of Section 7.1 through Section 7.9 have been satisfied, necessary to
prepare the regulatory filings or applications to be filed with governmental
regulatory authorities to obtain the approvals referred to in Section 2, and for
use in any other necessary filings to be made with appropriate governmental
regulatory authorities.
(b) Shore Bancshares acknowledges that information received by
it concerning Talbot Bancshares and the Talbot Subsidiaries and their operations
is subject to the Confidentiality Agreement dated February 15, 2000 between
Talbot Bancshares and Shore Bancshares (the "Confidentiality Agreement").
Without limiting the foregoing, Shore Bancshares will not, and will cause its
representatives not to, use any information obtained pursuant to Section 6.1 for
any purpose unrelated to the consummation of the transactions contemplated by
this Plan. Subject to the requirements of law, Shore Bancshares will keep
confidential, and will cause its representatives to keep confidential, all
information and documents obtained pursuant to Section 6.1 unless such
information (i) was already known to Shore Bancshares, (ii) becomes available to
Shore Bancshares from other sources not known by Shore Bancshares to be bound by
a confidentiality obligation, (iii) is disclosed with prior written approval of
Talbot Bancshares and the Talbot Subsidiaries, or (iv) is or becomes readily
ascertainable from published information or trade sources. In the event that
this Plan is terminated or the transactions contemplated by this Plan shall
otherwise fail to be consummated, Shore Bancshares shall promptly cause all
copies of documents or extracts thereof containing information and data as to
Talbot Bancshares and the Talbot Subsidiaries to be returned. In the event that
this Plan has been terminated or the transactions contemplated hereby shall have
failed to be consummated and Shore Bancshares or any of its agents or
representatives are requested or required (by oral questions, interrogatories,
requests for information, or documents in legal proceedings, subpoena, civil
investigative demand, or other similar process) to disclose any of the materials
delivered or obtained pursuant to the Plan (the "Talbot Documentation"), Shore
30
Bancshares shall provide Talbot Bancshares with prompt written notice of any
such request or requirement so that Talbot Bancshares may seek a protective
order or other appropriate remedy. If, in the absence of a protective order or
other remedy, Shore Bancshares or any of its agents or representatives are
compelled to disclose any of such Talbot Documentation to any tribunal or else
stand liable for contempt or suffer other censure or penalty, Shore Bancshares
or its agents or representatives may, without liability hereunder, disclose to
such tribunal only that portion of the Talbot Documentation which Shore
Bancshares' counsel advises Shore Bancshares is legally required to be
disclosed, provided, that Shore Bancshares shall exercise its best efforts to
preserve the confidentiality of the Talbot Documentation, including, without
limitation, by cooperating with Talbot Bancshares to obtain an appropriate
protective order or other reliable assurance that confidential treatment will be
accorded the Talbot Documentation by such tribunal.
5.2. Events Preceding Effectiveness. Shore Bancshares and the
Shore Subsidiaries will use commercially reasonable efforts to assure that each
of the events specified in Section 2 which require action on its part shall
occur on or before the Effective Date.
5.3. Meeting of Stockholders of Shore Bancshares. Shore
Bancshares will duly call and convene a meeting of its stockholders to act upon
the transactions contemplated hereby as soon as practicable. Except to the
extent legally required for the discharge by the board of directors of its
fiduciary duties, Shore Bancshares will recommend approval of this Plan and the
Merger to its stockholders, and will use commercially reasonable efforts to
obtain a favorable vote thereon. The calling and holding of such meeting and all
notices, transactions, documents, and information related thereto will be in
material compliance with all applicable laws. Shore Bancshares shall take all
such steps as may be required to cause the transactions contemplated by this
Plan and any other dispositions of Shore Bancshares equity securities (including
derivative securities) or acquisitions of Shore Bancshares equity securities
(including derivative securities) in connection with this Plan by each
individual who (i) is a director or officer of Shore Bancshares or (ii) at the
Effective Time, will become a director or officer of Shore Bancshares, to be
exempt under Rule 16b-3 promulgated under the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), such steps to be taken in accordance with the
No-Action Letter dated January 12, 1999, issued by the SEC to Skadden, Arps,
Slate, Xxxxxxx & Xxxx LLP.
5.4. Conduct of Business. After the date of this Plan and
pending the Effective Date, (a) Shore Bancshares and the Shore Subsidiaries will
conduct their business only in the ordinary course; (b) Shore Bancshares and the
Shore Subsidiaries shall not effect any change or amendment in their respective
charters or by-laws; (c) except with respect to Shore Bancshares stock options
outstanding on the date of this Plan which are or may become subject to
exercise, Shore Bancshares and the Shore Subsidiaries shall not change their
authorized, issued, or outstanding capital stock; (d) Shore Bancshares shall not
declare cash dividends in respect of its Common Stock (except regular quarterly
cash dividends not in excess of $0.20 per share); (e) except as previously
disclosed in writing to Talbot Bancshares, Shore Bancshares and the Shore
Subsidiaries shall not increase employee compensation or benefit levels (except
for annual increases not in excess of amounts established by its regular past
practices), shall not establish or make any increase in any employment,
compensation, bonus, pension, option, incentive or deferred compensation,
31
retirement, death, profit sharing, or similar agreements or benefits of any of
its past, present, or future officers or employees, other than additional
premiums to obtain an extension of directors' and officers' liability coverage
for six years (which Talbot Bancshares is authorized to obtain), and except as
provided in this Plan, shall not modify the existing employment agreements with
any officers or employees; (f) Shore Bancshares and the Shore Subsidiaries shall
not make any change in any of their accounting policies or practices unless
required by generally accepted accounting principles; and (g) Shore Bancshares
and the Shore Subsidiaries shall not incur any liability for borrowed money
except in the ordinary course of their banking business (i.e., may only incur
variable rate loans with terms not greater than one year) or place upon or
permit any lien or encumbrance upon any of their properties or assets except
liens of the type permitted in the exceptions to Section 3.7. Pending the
Effective Date, Shore Bancshares and the Shore Subsidiaries shall (x) use
commercially reasonable efforts to preserve their business organization and
assets and to keep available the services of their full-time officers and
employees, (y) continue in effect the present method of conducting their
business, and (z) advise Talbot Bancshares regarding decisions or actions in
matters (i) other than those in the ordinary course of business, or (ii) except
as previously disclosed in writing to Talbot Bancshares, involving any capital
expenditures in excess of $25,000.
5.5. Reservation of Shares. Shore Bancshares shall have
reserved a sufficient number of shares of its Common Stock for issuance upon
exercise of the option granted pursuant to the Stock Option Agreement attached
as Appendix IV, which is to be executed by Talbot Bancshares and Shore
Bancshares, and shall have taken all other actions necessary to fulfill its
obligations thereunder.
5.6. Regulatory Matters; Document Preparation. (a) Shore
Bancshares and the Shore Subsidiaries, with the assistance of Talbot Bancshares,
the Talbot Subsidiaries, and their representatives, will promptly prepare and
file with the appropriate governmental regulatory authorities an application
requesting the regulatory approvals referred to in Sections 2(d), 2(e), 2(f),
and 2(g) and will use commercially reasonable efforts to secure favorable action
on such applications, including without limitation commercially reasonable
efforts to pursue an appeal of a denial of a regulatory approval. Shore
Bancshares shall furnish Talbot Bancshares with copies of all such filings and
shall promptly notify Talbot Bancshares of all communications, oral or written,
with the governmental regulatory authorities concerning such applications.
(b) Shore Bancshares shall furnish Talbot Bancshares with such
information concerning Shore Bancshares and the Shore Subsidiaries as is
necessary in order to cause the Proxy Statement/Prospectus (as defined in
Section 6.6(b)), insofar as it relates to such corporations, to comply with
Section 6.6(b). Shore Bancshares agrees promptly to advise Talbot Bancshares if,
at any time prior to the Shore Bancshares or Talbot Bancshares stockholders'
meetings, any information provided by Shore Bancshares in the Proxy
Statement/Prospectus becomes incorrect or incomplete in any material respect and
to provide Talbot Bancshares with the information needed to correct such
inaccuracy or omission. Shore Bancshares shall furnish Talbot Bancshares with
such supplemental information as may be necessary in order to cause the Proxy
Statement/Prospectus, insofar as it relates to Shore Bancshares and the Shore
Subsidiaries, to comply with Section 6.6(b) after the mailing thereof to Shore
32
Bancshares and Talbot Bancshares stockholders. The information provided and the
representations made by Shore Bancshares to Talbot Bancshares in connection with
the Proxy Statement/Prospectus, both at the time such information and
representations are provided and made and at the Effective Date, will be true
and accurate in all material respects and will not contain any false or
misleading statement with respect to any material fact or omit to state any
material fact required to be stated therein or necessary in order (i) to make
the statements made therein not false or misleading, or (ii) to correct any
statement contained in an earlier communication with respect to such information
or representations which has become false or misleading. Talbot Bancshares may
rely upon all information provided to it by Shore Bancshares and its
representatives in the preparation of the Proxy Statement/Prospectus and shall
not be liable for any untrue statement of a material fact or any omission to
state a material fact in the Proxy Statement/Prospectus, if such statement is
made in reliance upon any information provided to it by Shore Bancshares or by
any of its officers or authorized representatives.
(c) Shore Bancshares shall promptly furnish Talbot Bancshares
with such information regarding the Shore Bancshares stockholders as Talbot
Bancshares requires to enable it to determine what filings are required under
applicable state securities laws. Shore Bancshares authorizes Talbot Bancshares
to utilize in such filings the information concerning Shore Bancshares and the
Shore Subsidiaries provided to Talbot Bancshares in connection with, or
contained in, the Proxy Statement/Prospectus.
5.7. Consents. Shore Bancshares and the Shore Subsidiaries
will use commercially reasonable efforts to obtain any consents, approvals, or
waivers from third parties required in connection with the transactions
contemplated hereunder.
5.8. Current Information; Advice of Changes. (a) During the
period from the date of this Plan to the Effective Date, Shore Bancshares will
cause one or more of its designated representatives to confer on a monthly or
more frequent basis with representatives of Talbot Bancshares regarding its
business, operations, properties, assets, and condition (financial or otherwise)
and matters relating to the completion of the transactions contemplated herein.
As soon as reasonably available, but in no event more than 45 days after the end
of each calendar quarter (other than the last calendar quarter of each calendar
year) ending after the date of this Plan, Shore Bancshares will deliver to
Talbot Bancshares its quarterly reports on Form 10-Q, as filed with the SEC
under the Exchange Act. As soon as reasonably available, but in no event more
than 90 days after the calendar year, Shore Bancshares will deliver to Talbot
Bancshares its Annual Report on Form 10-K as filed with the SEC under the
Exchange Act.
(b) Between the date of this Plan and the Effective Date,
Shore Bancshares shall promptly advise Talbot Bancshares in writing of any fact
which, if existing or known at the date hereof, would have been required to be
set forth or disclosed in or pursuant to this Plan or of any fact which, if
existing or known as of the date hereof, would have made any of the
representations contained herein untrue in any material respect.
5.9. No Solicitation of Other Offers. Shore Bancshares agrees
that neither it nor any of the Shore Subsidiaries nor any of their respective
officers, directors, and employees shall, and Shore Bancshares shall direct and
33
use its best efforts to cause its and the Shore Subsidiaries' agents and
representatives (including, without limitation, any investment banker, attorney,
or accountant retained by it or any of the Shore Subsidiaries) not to, directly
or indirectly, take any action to solicit or initiate any inquiries or the
making of any offer or proposal (including without limitation any proposal to
stockholders of Shore Bancshares) with respect to a merger, consolidation,
business combination, liquidation, reorganization, sale or other disposition of
any significant portion of assets (except problem assets shown on a list
previously provided to Talbot Bancshares), sale of shares of capital stock, or
similar transactions involving Shore Bancshares or any of the Shore Subsidiaries
(any such inquiry, offer, or proposal, a "Shore Acquisition Proposal"), or,
except in the opinion of outside counsel to Shore Bancshares as may be legally
required to comply with the duties the Board of Directors of Shore Bancshares
under applicable law and upon termination of this Plan under Section 13(f),
engage in any negotiations concerning, or provide any confidential information
or data to, or have any discussions with, any person relating to a Shore
Acquisition Proposal. As of the time hereof, Shore Bancshares is not engaged in
any negotiations or discussions relating to a Shore Acquisition Proposal. Shore
Bancshares shall promptly notify Talbot Bancshares orally and in writing of, and
keep it fully and currently informed on, any Shore Acquisition Proposal or any
inquiries with respect thereto, such written notification to include the
identity of the Person making such inquiry or Shore Acquisition Proposal and
such other information with respect thereto as is reasonably necessary to
apprise Talbot Bancshares of the material terms of such Shore Acquisition
Proposal. Shore Bancshares shall give Talbot Bancshares contemporaneous written
notice upon engaging in discussions or negotiations with, or providing any
information regarding Shore Bancshares or any of the Shore Subsidiaries to, any
such person regarding a Shore Acquisition Proposal.
5.10. Affiliate and Support Agreements. Within 10 days of the
date of this Plan, Shore Bancshares shall deliver or cause to be delivered to
Talbot Bancshares memoranda substantially in the form attached as Appendix VI
(the "Shore Bancshares Affiliates' Memoranda") and agreements substantially in
the form attached as Appendix VIII (the "Shore Bancshares Support Agreements")
from each of its executive officers and directors (and shall use commercially
reasonable efforts to obtain and deliver such memoranda from each stockholder of
Shore Bancshares who may be restricted under the accounting rules applicable to
a pooling-of-interests. Under the terms of the Shore Bancshares Affiliates'
Memoranda, each such officer, director or stockholder shall acknowledge and
agree to abide by all limitations imposed by the accounting rules for the Merger
to be accounted for as a pooling-of-interests. Under the terms of the Shore
Bancshares Support Agreements, each such officer or director shall agree to
support and vote the shares of Common Stock of Shore Bancshares owned or
controlled by him or her to ratify and confirm this Plan and the Merger.
5.11. Pooling-of-Interests. Shore Bancshares shall use its
best efforts not to permit any of the directors, officers, employees,
stockholders, agents, consultants, or other representatives of Shore Bancshares
or any of the Shore Subsidiaries to take any action that would preclude Shore
Bancshares from treating the Merger as a pooling-of-interests for financial
reporting purposes.
34
5.12. Taxes. Shore Bancshares shall have filed with
appropriate federal, state, county, municipal, or foreign taxing authorities all
tax returns required to be filed (taking any applicable extensions into
consideration) on or before the Effective Date and shall have paid (or shall
have made adequate provision or set up an adequate actual reserve on the
financial statements referred to in Section 3.2 for the payment of) all taxes
imposed by any taxing authority with respect to any such returns, together with
any interest, additions, or penalties related to any such taxes.
5.13. Public Announcements. Between the date of this Plan and
the Effective Date, Shore Bancshares and the Shore Subsidiaries will consult
with Talbot Bancshares before issuing any press release or otherwise making any
public statements with respect to this Plan and the transactions contemplated
hereby and shall not issue any such press release or make any such public
statement prior to such consultation, except as counsel may advise is required
by law.
6. Covenants of Talbot Bancshares. Except as otherwise consented to in
writing by Shore Bancshares after the date of this Plan, Talbot Bancshares
covenants to and agrees with Shore Bancshares as follows:
6.1. Information. (a) Talbot Bancshares shall, upon reasonable
notice, give to Shore Bancshares and to its officers, accountants, counsel,
financial advisors, and other representatives, reasonable access during Talbot
Bancshares' and the Talbot Subsidiaries' normal business hours throughout the
period prior to the Effective Date to all of their properties, books, contracts,
commitments, reports of examination (consistent with applicable law), depositor
and stockholder lists, and records. Talbot Bancshares and the Talbot
Subsidiaries will, at their own expense, furnish Shore Bancshares during such
period with all such information concerning their affairs as Shore Bancshares
may reasonably request, including information for use in determining if the
conditions of Section 8.1 through Section 8.9 have been satisfied, necessary to
prepare the regulatory filings or applications to be filed with governmental
regulatory authorities to obtain the approvals referred to in Section 2, and for
use in any other necessary filings to be made with appropriate governmental
regulatory authorities.
(b) Talbot Bancshares acknowledges that information received
by it concerning Shore Bancshares and the Shore Subsidiaries and their
operations is subject to the Confidentiality Agreement. Without limiting the
foregoing, Talbot Bancshares will not, and will cause its representatives not
to, use any information obtained pursuant to Section 5.1 for any purpose
unrelated to the consummation of the transactions contemplated by this Plan.
Subject to the requirements of law, Talbot Bancshares will keep confidential,
and will cause its representatives to keep confidential, all information and
documents obtained pursuant to Section 5.1 unless such information (i) was
already known to Talbot Bancshares, (ii) becomes available to Talbot Bancshares
from other sources not known by Talbot Bancshares to be bound by a
confidentiality obligation, (iii) is disclosed with prior written approval of
Shore Bancshares and the Shore Subsidiaries, or (iv) is or becomes readily
ascertainable from published information or trade sources. In the event that
this Plan is terminated or the transactions contemplated by this Plan shall
otherwise fail to be consummated, Talbot Bancshares shall promptly cause all
35
copies of documents or extracts thereof containing information and data as to
Shore Bancshares and the Shore Subsidiaries to be returned. In the event that
this Plan has been terminated or the transactions contemplated hereby shall have
failed to be consummated and Talbot Bancshares or any of its agents or
representatives are requested or required (by oral questions, interrogatories,
requests for information, or documents in legal proceedings, subpoena, civil
investigative demand, or other similar process) to disclose any of the materials
delivered or obtained pursuant to the Plan (the "Shore Documentation"), Talbot
Bancshares shall provide Shore Bancshares with prompt written notice of any such
request or requirement so that Shore Bancshares may seek a protective order or
other appropriate remedy. If, in the absence of a protective order or other
remedy, Talbot Bancshares or any of its agents or representatives are compelled
to disclose any of such Xxxx Documentation to any tribunal or else stand liable
for contempt or suffer other censure or penalty, Talbot Bancshares or its agents
or representatives may, without liability hereunder, disclose to such tribunal
only that portion of the Xxxx Documentation which Talbot Bancshares' counsel
advises Talbot Bancshares is legally required to be disclosed, provided, that
Talbot Bancshares shall exercise its best efforts to preserve the
confidentiality of the Xxxx Documentation, including, without limitation, by
cooperating with Shore Bancshares to obtain an appropriate protective order or
other reliable assurance that confidential treatment will be accorded the Xxxx
Documentation by such tribunal.
6.2. Events Preceding Effectiveness. Talbot Bancshares and the
Talbot Subsidiaries will use commercially reasonable efforts to assure that each
of the events specified in Section 2 which require action on its part shall
occur on or before the Effective Date.
6.3. Meeting of Stockholders of Talbot Bancshares. Talbot
Bancshares will duly call and convene a meeting of its stockholders to act upon
the transactions contemplated hereby as soon as practicable. Except to the
extent legally required for the discharge by the board of directors of its
fiduciary duties, Talbot Bancshares will recommend approval of this Plan and the
Merger to its stockholders, and will use commercially reasonable efforts to
obtain a favorable vote thereon. The calling and holding of such meeting and all
notices, transactions, documents, and information related thereto will be in
material compliance with all applicable laws. Talbot Bancshares shall take all
such steps as may be required to cause the transactions contemplated by this
Plan and any other dispositions of Talbot Bancshares equity securities
(including derivative securities) or acquisitions of Shore Bancshares equity
securities (including derivative securities) in connection with this Plan by
each individual who (i) is a director or officer of Talbot Bancshares or (ii) at
the Effective Time, will become a director or officer of Shore Bancshares, to be
exempt under Rule 16b-3 promulgated under the Exchange Act, such steps to be
taken in accordance with the No-Action Letter dated January 12, 1999, issued by
the SEC to Skadden, Arps, Slate, Xxxxxxx & Xxxx LLP.
6.4. Conduct of Business. After the date of this Plan and
pending the Effective Date, (a) Talbot Bancshares and the Talbot Subsidiaries
will conduct their business only in the ordinary course; (b) Talbot Bancshares
and the Talbot Subsidiaries shall not effect any change or amendment in their
respective charters or by-laws; (c) except with respect to Talbot Bancshares
stock options outstanding on the date of this Plan which are or may become
subject to exercise, Talbot Bancshares and the Talbot Subsidiaries shall not
change their authorized, issued, or outstanding capital stock; (d) Talbot
Bancshares shall not declare cash dividends in respect of its Common Stock
36
(except regular quarterly cash dividends not in excess of $0.50 per share to be
paid to holders of record as of the same date as dividends declared by Shore
Bancshares); (e) except as previously disclosed in writing to Shore Bancshares,
Talbot Bancshares and the Talbot Subsidiaries shall not increase employee
compensation or benefit levels (except for annual increases not in excess of
amounts established by its regular past practices), shall not establish or make
any increase in any employment, compensation, bonus, pension, option, incentive
or deferred compensation, retirement, death, profit sharing, or similar
agreements or benefits of any of its past, present, or future officers or
employees, other than additional premiums to obtain an extension of directors'
and officers' liability coverage for six years (which Shore Bancshares is
authorized to obtain), and except as provided in this Plan, shall not modify the
existing employment agreements with any officers or employees; (f) Talbot
Bancshares and the Talbot Subsidiaries shall not make any change in any of their
accounting policies or practices unless required by generally accepted
accounting principles; and (g) Talbot Bancshares and the Talbot Subsidiaries
shall not incur any liability for borrowed money except in the ordinary course
of their banking business (i.e., may only incur variable rate loans with terms
not greater than one year) or place upon or permit any lien or encumbrance upon
any of their properties or assets except liens of the type permitted in the
exceptions to Section 3.7. Pending the Effective Date, Talbot Bancshares and the
Talbot Subsidiaries shall (x) use commercially reasonable efforts to preserve
their business organization and assets and to keep available the services of
their full-time officers and employees, (y) continue in effect the present
method of conducting their business, and (z) advise Shore Bancshares regarding
decisions or actions in matters (i) other than those in the ordinary course of
business, or (ii) except as previously disclosed in writing to Shore Bancshares,
involving any capital expenditures in excess of $25,000.
6.5. Reservation of Shares. Talbot Bancshares shall have
reserved a sufficient number of shares of its Common Stock for issuance upon
exercise of the option granted pursuant to the Stock Option Agreement attached
as Appendix V, which is to be executed by Shore Bancshares and Talbot
Bancshares, and shall have taken all other actions necessary to fulfill its
obligations thereunder.
6.6. Regulatory Matters; Document Preparation. (a) Talbot
Bancshares and the Talbot Subsidiaries will provide the information necessary
and, where necessary, cooperate with Shore Bancshares' efforts to obtain all
necessary regulatory approvals of the transactions contemplated by this Plan.
(b) Talbot Bancshares, with the assistance of Shore Bancshares
and its representatives, will promptly file a Registration Statement with the
SEC which shall include a joint proxy statement for Talbot Bancshares and Shore
Bancshares and a prospectus of Shore Bancshares which shall satisfy all
applicable requirements of applicable state and federal laws, including the
Securities Act, the Exchange Act, and applicable state securities laws and the
rules and regulations thereunder (such joint proxy statement and prospectus,
together with any and all amendments or supplements thereto, the "Proxy
Statement/Prospectus", and the various documents to be filed under the
Securities Act with the SEC to register the Shore Bancshares Common Stock into
which shares of Talbot Bancshares Common Stock will be converted, including the
Proxy Statement/Prospectus, the "Registration Statement"). Talbot Bancshares
37
will use commercially reasonable efforts to secure the effectiveness of the
Registration Statement. Talbot Bancshares shall promptly take all such actions
as may be necessary or appropriate in order to comply in all material respects
with all applicable securities laws of any state having jurisdiction over the
transactions contemplated by this Plan and the Merger. Talbot Bancshares shall
furnish Shore Bancshares with copies of all such filings and shall promptly
notify Shore Bancshares of all communications, oral or written, with the SEC
concerning the Registration Statement and the Proxy Statement/Prospectus.
(c) Talbot Bancshares shall furnish such information
concerning Talbot Bancshares and the Talbot Subsidiaries as is necessary in
order to cause the Proxy Statement/Prospectus, insofar as it relates to such
corporations, to comply with Section 6.6(b). Talbot Bancshares agrees promptly
to advise Shore Bancshares if, at any time prior to the Shore Bancshares
stockholders' meeting, any information provided by Talbot Bancshares in the
Proxy Statement/Prospectus becomes incorrect or incomplete in any material
respect and to provide Shore Bancshares with the information needed to correct
such inaccuracy or omission. Talbot Bancshares shall furnish Shore Bancshares
with such supplemental information as may be necessary in order to cause the
Proxy Statement/Prospectus, insofar as it relates to Talbot Bancshares and the
Talbot Subsidiaries, to comply with Section 6.6(b) after the mailing thereof to
Shore Bancshares stockholders. The information provided and the representations
made by Talbot Bancshares to Shore Bancshares in connection with the Proxy
Statement/Prospectus, both at the time such information and representations are
provided and made and at the Effective Date, will be true and accurate in all
material respects and will not contain any false or misleading statement with
respect to any material fact or omit to state any material fact required to be
stated therein or necessary in order (i) to make the statements made therein not
false or misleading, or (ii) to correct any statement contained in an earlier
communication with respect to such information or representations which has
become false or misleading. Shore Bancshares may rely upon all information
provided to it by Talbot Bancshares and its representatives in the preparation
of the Proxy Statement/Prospectus and shall not be liable for any untrue
statement of a material fact or any omission to state a material fact in the
Proxy Statement/Prospectus, if such statement is made in reliance upon any
information provided to it by Talbot Bancshares or by any of its officers or
authorized representatives.
6.7. Consents. Talbot Bancshares and the Talbot Subsidiaries
will use commercially reasonable efforts to obtain any consents, approvals, or
waivers from third parties required in connection with the transactions
contemplated hereunder.
6.8. Current Information; Advice of Changes. (a) During the
period from the date of this Plan to the Effective Date, Talbot Bancshares will
cause one or more of its designated representatives to confer on a monthly or
more frequent basis with representatives of Shore Bancshares regarding its
business, operations, properties, assets, and condition (financial or otherwise)
and matters relating to the completion of the transactions contemplated herein.
As soon as reasonably available, but in no event more than 45 days after the end
38
of each calendar quarter (other than the last calendar quarter of each calendar
year) ending after the date of this Plan, Talbot Bancshares will deliver to
Shore Bancshares its quarterly reports on Form 10-Q, as filed with the SEC under
the Exchange Act. As soon as reasonably available, but in no event more than 90
days after the calendar year, Talbot Bancshares will deliver to Shore Bancshares
its Annual Report on Form 10-K as filed with the SEC under the Exchange Act.
(b) Between the date of this Plan and the Effective Date,
Talbot Bancshares shall promptly advise Shore Bancshares in writing of any fact
which, if existing or known at the date hereof, would have been required to be
set forth or disclosed in or pursuant to this Plan or of any fact which, if
existing or known as of the date hereof, would have made any of the
representations contained herein untrue in any material respect.
6.9. No Solicitation of Other Offers. Talbot Bancshares agrees
that neither it nor any of the Talbot Subsidiaries nor any of their respective
officers, directors, and employees shall, and Talbot Bancshares shall direct and
use its best efforts to cause its and the Talbot Subsidiaries' agents and
representatives (including, without limitation, any investment banker, attorney,
or accountant retained by it or any of the Talbot Subsidiaries) not to, directly
or indirectly, take any action to solicit or initiate any inquiries or the
making of any offer or proposal (including without limitation any proposal to
stockholders of Talbot Bancshares) with respect to a merger, consolidation,
business combination, liquidation, reorganization, sale or other disposition of
any significant portion of assets (except problem assets shown on the list
previously provided to Shore Bancshares, sale of shares of capital stock, or
similar transactions involving Talbot Bancshares or any of the Talbot
Subsidiaries (any such inquiry, offer, or proposal, a "Talbot Acquisition
Proposal"), or, except in the opinion of outside counsel to Talbot Bancshares as
may be legally required to comply with the duties the Board of Directors of
Talbot Bancshares under applicable law and upon termination of this Plan under
Section 13(f), engage in any negotiations concerning, or provide any
confidential information or data to, or have any discussions with, any person
relating to a Talbot Acquisition Proposal. As of the time hereof, Talbot
Bancshares is not engaged in any negotiations or discussions relating to a
Talbot Acquisition Proposal. Talbot Bancshares shall promptly notify Shore
Bancshares orally and in writing of, and keep it fully and currently informed
on, any Talbot Acquisition Proposal or any inquiries with respect thereto, such
written notification to include the identity of the Person making such inquiry
or Talbot Acquisition Proposal and such other information with respect thereto
as is reasonably necessary to apprise Shore Bancshares of the material terms of
such Talbot Acquisition Proposal. Talbot Bancshares shall give Shore Bancshares
contemporaneous written notice upon engaging in discussions or negotiations
with, or providing any information regarding Talbot Bancshares or any of the
Talbot Subsidiaries to, any such person regarding a Talbot Acquisition Proposal.
6.10. Affiliate and Support Agreements. Within 10 days of the
date of this Plan, Talbot Bancshares shall deliver or cause to be delivered to
Shore Bancshares memoranda substantially in the form attached as Appendix VII
(the "Talbot Bancshares Affiliates' Memoranda") and agreements substantially in
the form attached as Appendix IX (the "Talbot Bancshares Support Agreements")
from each of its executive officers and directors (and shall use commercially
reasonable efforts to obtain and deliver such memoranda from each stockholder of
Talbot Bancshares who (a) may be deemed to be an "affiliate" of Talbot
Bancshares, as that term is defined for purposes of the SEC Rules 145 and 405,
or (b) may be restricted under the accounting rules applicable to a
39
pooling-of-interests). Under the terms of the Talbot Bancshares Affiliates'
Memoranda, each such officer, director or stockholder shall acknowledge and
agree (i) to abide by all limitations imposed by the Securities Act and by all
rules, regulations, and releases promulgated thereunder by the SEC with respect
to the sale or other disposition of the shares of the Common Stock of Shore
Bancshares to be received by such person pursuant to the Merger, and (ii) to
abide by all limitations imposed by the accounting rules for the Merger to be
accounted for as a pooling-of-interests. Under the terms of the Talbot
Bancshares Support Agreements, each such officer or director shall agree to
support and vote the shares of Common Stock of Talbot Bancshares owned or
controlled by him or her to ratify and confirm this Plan and the Merger.
6.11. Pooling-of-Interests. Talbot Bancshares shall use its
best efforts not to permit any of the directors, officers, employees,
stockholders, agents, consultants, or other representatives of Talbot Bancshares
or any of the Talbot Subsidiaries to take any action that would preclude Shore
Bancshares from treating the Merger as a pooling-of-interests for financial
reporting purposes.
6.12. Taxes. Talbot Bancshares shall have filed with
appropriate federal, state, county, municipal, or foreign taxing authorities all
tax returns required to be filed (taking any applicable extensions into
consideration) on or before the Effective Date and shall have paid (or shall
have made adequate provision or set up an adequate actual reserve on the
financial statements referred to in Section 4.2 for the payment of) all taxes
imposed by any taxing authority with respect to any such returns, together with
any interest, additions, or penalties related to any such taxes.
6.13. Public Announcements. Between the date of this Plan and
the Effective Date, Talbot Bancshares and the Talbot Subsidiaries will consult
with Shore Bancshares before issuing any press release or otherwise making any
public statements with respect to this Plan and the transactions contemplated
hereby and shall not issue any such press release or make any such public
statement prior to such consultation, except as counsel may advise is required
by law.
7. Conditions Precedent to Shore Bancshares' Obligations. Unless waived
in writing by Shore Bancshares in its sole discretion, all obligations of Shore
Bancshares hereunder shall be subject to the fulfillment prior to or at the
Effective Date of the following conditions:
7.1. Representations, Warranties, and Covenants. The
representations and warranties of Talbot Bancshares herein contained shall be
true in all material respects as of the date hereof, shall be deemed made again
at and as of the Effective Date except as contemplated herein, and shall be true
in all material respects as so made again; Talbot Bancshares and the Talbot
Subsidiaries shall have performed in all material respects all obligations and
agreements, and complied in all material respects with all covenants and
conditions required by this Plan to be performed or complied with by them on or
prior to the Effective Date; and Shore Bancshares shall have received from
Talbot Bancshares an officers' certificate to their knowledge, information, and
belief in such detail as Shore Bancshares may reasonably request, dated the
Effective Date and signed by its Chief Executive Officer and its Secretary, to
the foregoing effect.
40
7.2. No Adverse Changes. There shall not have been any
materially adverse change in the condition (financial or otherwise), results of
operations, assets, liabilities, or business of Talbot Bancshares and the Talbot
Subsidiaries, taken as a whole, from December 31, 1999 to the Effective Date,
other than any such change attributable to or resulting from (A) any change in
banking or similar laws, rules or regulations of general applicability or
interpretations thereof by courts or governmental authorities, (B) any change in
GAAP or regulatory accounting principles applicable to banks or their holding
companies generally, (C) any change in general economic or business conditions
affecting banks, thrifts or holding companies generally, provided that such
change does not affect Talbot Bancshares to a materially greater extent than
banks, thrifts or holding companies generally, and provided further that such
change does not have a materially adverse effect on (i) the results of
operations or financial condition of Talbot Bancshares, (ii) any action or
omission of Talbot Bancshares or the Talbot Subsidiaries taken in contemplation
of the Merger with the prior written consent of Shore Bancshares, or (iii) the
ability of Talbot Bancshares and the Talbot Subsidiaries to consummate the
transactions contemplated by this Plan. For purposes of this Section 7.2, a
"materially adverse change" shall also include, without limitation, (a) a
reduction of the stockholders' equity of Talbot Bancshares to less than
$36,486,000 (plus such additions to stockholders' equity as a result of the
issuance of any Common Stock after the date of this Plan), (b) a decrease in the
net income of Talbot Bancshares from January 1, 2000 through the Effective Date
to less than the net income for the same period but beginning on January 1,
1999, or (c) an increase in Talbot Bancshares' ratio of non-performing assets to
total assets to above 0.5%, and a "materially adverse change" shall not include
expenses of the transactions under this Plan.
7.3. Events Preceding the Effective Date. Each of the events
set forth in Section 2 shall have occurred and any other required regulatory
approvals shall have been obtained and no more than 10% of the outstanding
shares of Talbot Bancshares shall have voted against the Plan and delivered a
written demand for appraisal of such shares before the vote on the proposal to
adopt the Plan.
7.4. Other Evidence. Talbot Bancshares shall have delivered to
Shore Bancshares such further certificates and documents evidencing due action
in accordance with this Plan, including certified copies of all applicable
proceedings of stockholders and directors of Talbot Bancshares and Talbot Bank
pertaining to the transactions under this Plan, as Shore Bancshares shall
reasonably request.
7.5. No Adverse Proceedings, Events, or Regulatory
Requirements. No action or proceeding against Shore Bancshares or any of the
Shore Subsidiaries or against Talbot Bancshares or any of the Talbot
Subsidiaries shall be pending which seeks to prevent consummation of the
transactions contemplated by this Plan; and no order of any court shall have
been entered which prohibits consummation of the Merger and the transactions
contemplated by this Plan. No approval, consent, waiver, or administrative
action shall have included any condition or requirement that would (i) result in
a materially adverse effect on Shore Bancshares or Talbot Bancshares, or (ii) so
materially and adversely affect the economic or business benefits of the Merger
that Shore Bancshares, in the sole judgment of Shore Bancshares, would not have
entered into this Plan had such conditions or requirements been known at the
date hereof.
41
7.6. Consents, Etc. All requisite consents, approvals,
waivers, undertakings, memoranda, agreements, exercises, and terminations by
third parties which Talbot Bancshares and the Talbot Subsidiaries have
covenanted to use commercially reasonable efforts to obtain under Sections 6.7,
6.10, and 6.11 shall have been obtained by Talbot Bancshares or waived by Shore
Bancshares except where the failure to obtain such consent would not,
individually or in the aggregate, result in a materially adverse change.
7.7 Fairness Opinion. Shore Bancshares shall have received a
written opinion from GM&A (or such other recognized investment firm as Shore
Bancshares may select), dated contemporaneously with the date of the Proxy
Statement/Prospectus, to the effect that the exchange ratio is fair to the
stockholders of Shore Bancshares from a financial point of view.
7.8. Opinion of Counsel. Shore Bancshares shall have received
opinions of tax counsel and counsel to Talbot Bancshares, dated the Effective
Date, in forms and substance reasonably satisfactory to Shore Bancshares,
covering the matters set forth in Appendix X and Appendix XII, respectively. In
rendering such tax opinion, tax counsel shall require delivery of and rely upon
certain representation letters delivered by Shore Bancshares, Talbot Bancshares,
and certain stockholders of Talbot Bancshares, which letters shall be in form
and substance satisfactory to tax counsel.
7.9. Pooling-of-Interests Accounting. Shore Bancshares shall
have received a letter from Xxxxxxx & Company stating the accounting treatment
of the transaction if consummated in accordance with this Plan; provided, that
such condition shall be void and of no further force and effect if Shore
Bancshares has not received such letter because of any action or inaction of
Shore Bancshares. In rendering such letter, Xxxxxxx & Company shall require
delivery of and rely upon certain representation letters delivered by Shore
Bancshares and Talbot Bancshares, which letters shall be in form and substance
satisfactory to Xxxxxxx & Company.
8. Conditions Precedent to Talbot Bancshares' Obligations. Unless
waived in writing by Talbot Bancshares in its sole discretion, all obligations
of Talbot Bancshares hereunder shall be subject to the fulfillment prior to or
at the Effective Date of the following conditions:
8.1. Representations, Warranties, and Covenants. The
representations and warranties of Shore Bancshares herein contained shall be
true in all material respects as of the date hereof, shall be deemed made again
at and as of the Effective Date except as contemplated herein, and shall be true
in all material respects as so made again; Shore Bancshares and the Shore
Subsidiaries shall have performed in all material respects all obligations and
agreements, and complied in all material respects with all covenants and
conditions required by this Plan to be performed or complied with by them on or
prior to the Effective Date; and Talbot Bancshares shall have received from
Shore Bancshares an officers' certificate to their knowledge, information, and
belief in such detail as Talbot Bancshares may reasonably request, dated the
Effective Date and signed by its Chief Executive Officer and its Secretary, to
the foregoing effect.
42
8.2. No Adverse Changes. There shall not have been any
materially adverse change in the condition (financial or otherwise), results of
operations, assets, liabilities, or business of Shore Bancshares and the Shore
Subsidiaries, taken as a whole, from December 31, 1999 to the Effective Date,
other than any such change attributable to or resulting from (A) any change in
banking or similar laws, rules or regulations of general applicability or
interpretations thereof by courts or governmental authorities, (B) any change in
GAAP or regulatory accounting principles applicable to banks or their holding
companies generally, (C) any change in general economic or business conditions
affecting banks, thrifts or holding companies generally, provided that such
change does not affect Shore Bancshares to a materially greater extent than
banks, thrifts or holding companies generally, and provided further that such
change does not have a materially adverse effect on the results of operations or
financial condition of Shore Bancshares or (D) any action or omission of Shore
Bancshares or the Shore Subsidiaries taken in contemplation of the Merger with
the prior written consent to Talbot Bancshares, or (ii) the ability of Shore
Bancshares and the Shore Subsidiaries to consummate the transactions
contemplated by this Plan. For purposes of this Section 8.2, a "materially
adverse change" shall also include, without limitation, (a) a reduction of the
stockholders' equity of Shore Bancshares to less than $22,773,000 (plus such
additions to stockholders' equity as a result of the issuance of any Common
Stock after the date of this Plan), (b) a decrease in the net income of Shore
Bancshares from January 1, 2000 through the Effective Date to less than the net
income for the same period but beginning on January 1, 1999, or (c) an increase
in Shore Bancshares' ratio of non-performing assets to total assets to above
0.5%, and a "materially adverse change" shall not include expenses of the
transactions under this Plan.
8.3. Events Preceding the Effective Date. Each of the events
set forth in Section 2 shall have occurred and any other required regulatory
approvals shall have been obtained and no more than 10% of the outstanding
shares of Shore Bancshares shall have been voted against the Plan.
8.4. Other Evidence. Shore Bancshares shall have delivered to
Talbot Bancshares such further certificates and documents evidencing due action
in accordance with this Plan, including certified copies of all applicable
proceedings of stockholders and directors of Shore Bancshares and Centreville
Bank pertaining to the transactions under this Plan, as Talbot Bancshares shall
reasonably request.
8.5. No Adverse Proceedings, Events, or Regulatory
Requirements. No action or proceeding against Talbot Bancshares or any of the
Talbot Subsidiaries or against Shore Bancshares or any of the Shore Subsidiaries
shall be pending which seeks to prevent consummation of the transactions
contemplated by this Plan; and no order of any court shall have been entered
which prohibits consummation of the Merger and the transactions contemplated by
this Plan. No approval, consent, waiver, or administrative action shall have
included any condition or requirement that would (i) result in a materially
adverse effect on Talbot Bancshares or Shore Bancshares, or (ii) so materially
and adversely affect the economic or business benefits of the Merger that Talbot
Bancshares, in the sole judgment of Talbot Bancshares, would not have entered
into this Plan had such conditions or requirements been known at the date
hereof.
43
8.6. Consents, Etc. All requisite consents, approvals,
waivers, undertakings, memoranda, agreements, exercises, and terminations by
third parties which Shore Bancshares and the Shore Subsidiaries have covenanted
to use commercially reasonable efforts to obtain under Sections 5.7, 5.10, and
5.11 shall have been obtained by Shore Bancshares or waived by Talbot Bancshares
except where the failure to obtain such consent would not, individually or in
the aggregate, result in a materially adverse change.
8.7 Fairness Opinion. Talbot Bancshares shall have received a
written opinion from Xxxxxxxxx (or such other recognized investment firm as
Talbot Bancshares may select), dated contemporaneously with the date of the
Proxy Statement/Prospectus, to the effect that the consideration to be received
in the Merger is fair to the stockholders of Talbot Bancshares from a financial
point of view.
8.8. Opinion of Counsel. Talbot Bancshares shall have received
opinions of tax counsel and counsel to Shore Bancshares, dated the Effective
Date, in forms and substance reasonably satisfactory to Talbot Bancshares,
covering the matters set forth in Appendix X and Appendix XI, respectively. In
rendering such tax opinion, tax counsel shall require delivery of and rely upon
certain representation letters delivered by Shore Bancshares, Talbot Bancshares,
and certain stockholders of Talbot Bancshares, which letters shall be in form
and substance satisfactory to tax counsel.
8.9. Pooling-of-Interests Accounting. Talbot Bancshares shall
have received a letter from Xxxxxxx & Company stating the accounting treatment
of the transaction if consummated in accordance with this Plan; provided, that
such condition shall be void and of no further force and effect if Talbot
Bancshares has not received such letter because of any action or inaction of
Talbot Bancshares. In rendering such letter, Xxxxxxx & Company shall require
delivery of and rely upon certain representation letters delivered by Talbot
Bancshares and Shore Bancshares, which letters shall be in form and substance
satisfactory to Xxxxxxx & Company.
9. Terms of the Merger.
9.1. Structure of the Merger. At the Effective Date, subject
to the terms and conditions of this Plan, Talbot Bancshares will merge with and
into Shore Bancshares, the separate corporate existence of Talbot Bancshares
shall cease, and Shore Bancshares shall continue as the successor corporation
(the "Successor Bancshares"). From and after the Effective Date, the Merger
shall have the effects set forth in MD. GENERAL CORPORATION LAW SS. 3-114.
9.2. Conversion of Stock. (a) On the Effective Date, each
share of the Talbot Bancshares Common Stock outstanding immediately prior to the
Effective Date (other than shares ("Dissenters' Shares") with respect to which
dissenter's rights shall have been perfected in accordance with MD. GENERAL
CORPORATION LAW xx.xx. 3-201 et seq.), shall, without any action on the part of
44
the holder thereof, be canceled and converted into 2.85 shares of Successor
Bancshares Common Stock (rounded to the nearest 0.01 share) (the "Merger
Consideration"). There will be no issued and outstanding shares of preferred
stock of Shore Bancshares on the Effective Date of the Merger.
(b) No certificates for fractional shares of Successor
Bancshares Common Stock shall be issued; in lieu thereof, each holder otherwise
entitled to a fractional interest shall receive an amount in cash based on the
market value of Successor Bancshares Common Stock at the Effective Date
(determined in good faith by the Board of Directors of Successor Bancshares ).
Each such holder shall have no other rights with respect to such fractional
interest.
(c) Dissenters' Shares shall be paid for in accordance with
MD. GENERAL CORPORATION LAW xx.xx. 3-201 et seq. and thereupon shall be
cancelled, retired and cease to exist.
(d) Notwithstanding any provision of this Plan to the
contrary, any Dissenters' Shares, which as of the Effective Date the holder
thereof has not withdrawn or lost any right to such appraisal shall not be
exchanged, or represent a right to receive shares of Successor Bancshares Common
Stock, but the holder shall only be entitled to such rights as are granted by
MD. GENERAL CORPORATION LAW xx.xx. 3-201 et seq. If a stockholder of Talbot
Bancshares who demands appraisal of his or her shares under MD. GENERAL
CORPORATION LAW xx.xx. 3-201 et seq. shall effectively withdraw or lose (through
failure to perfect or otherwise) the right to appraisal, then, as of the
Effective Date or the occurrence of such event, whichever last occurs, that
stockholder's shares of the Talbot Bancshares Common Stock shall be exchanged
and represent only the right to receive shares of Successor Bancshares Common
Stock as provided in Section 9.2(a) pursuant to the procedures in Section 9.3.
Notwithstanding any provision of this Plan to the contrary, Shore Bancshares
shall have the right to terminate this Plan and be released from all obligations
hereunder if, immediately prior to the proposed Effective Date, Talbot
Bancshares stockholders have demanded appraisal rights (which demands
theretofore have not been withdrawn) in such numbers so as to jeopardize the
accounting treatment specified in Section 7.9 and Section 8.9 and Xxxxxxx &
Company fails or refuses to deliver a letter to Shore Bancshares or Talbot
Bancshares to the effect that the Merger qualifies for pooling-of-interests
accounting treatment, as provided in Section 7.9 and Section 8.9.
9.3. Exchange Procedure. (a) After the Effective Date,
certificates representing such shares of Common Stock of Talbot Bancshares shall
represent the right to receive certificates representing shares of Common Stock
of Successor Bancshares determined in accordance with Section 9.2; such Talbot
Bancshares certificates at any time after the Effective Date may be exchanged by
the holders thereof for new certificates for the appropriate number of shares of
Common Stock of Successor Bancshares by forwarding such Talbot Bancshares Common
Stock certificates and the letter of transmittal provided by Successor
Bancshares to the transfer agent for Successor Bancshares Common Stock, and the
payment of cash in lieu of fractions, dividends, and other distributions on said
stock may be withheld until the Talbot Bancshares certificates are surrendered
for exchange to the transfer agent for Successor Bancshares Common Stock; when
such new certificates are issued, the holders thereof shall be entitled to be
paid the amount (without any interest thereon) of all such withheld cash in lieu
of fractions, dividends, or other distributions which have theretofore become
payable with respect to such shares of Common Stock of Successor Bancshares.
45
(b) As soon as possible after the Effective Date, the transfer
agent for Successor Bancshares Common Stock shall send or cause to be sent a
notice and transmittal form to each record holder of a certificate theretofore
evidencing shares of the Talbot Bancshares Common Stock.
(c) All shares of Successor Bancshares Common Stock into which
shares of Talbot Bancshares shall have been converted shall be deemed to have
been issued in full satisfaction of all rights pertaining to such shares of
Talbot Bancshares Common Stock.
9.4. Stock Options. (a) At the Effective Date, all options
granted by Talbot Bancshares which are outstanding under all stock option plans
previously adopted by Talbot Bancshares to purchase shares of Talbot Bancshares
Common Stock, which are outstanding and unexercised immediately prior thereto
(each, an "Outstanding Option"), shall be converted as to each whole share
subject to such Outstanding Option into an option (each, an "Exchange Option")
to purchase a number of shares of Successor Bancshares Common Stock equal to the
number of shares of Talbot Bancshares Common Stock which could have been
purchased under the Outstanding Option adjusted for the Merger Consideration,
with the total for each holder's Exchange Options with the same option price and
expiration date rounded down to the next whole share. Promptly after the
Effective Time Successor Bancshares shall file a registration statement on Form
S-8 or another appropriate form to register the shares of Successor Bancshares
Common Stock to be issued in exchange for the Exchange Options under the
Securities Act.
(b) The per share exercise price of each Exchange Option shall
be equal to the price per share set forth in the Outstanding Option adjusted for
the Merger Consideration, rounded up to the nearest whole cent.
(c) The Exchange Option shall otherwise have the same duration
and other terms as the Outstanding Option.
(d) The adjustments provided herein with respect to any
options which are "incentive stock options" (as defined in Section 422 of the
Code) shall be effected in a manner consistent with Section 424(a) of the Code.
9.5. Charter of the Shore Bancshares. The Charter of Successor
Bancshares in the form attached as Exhibit A to the Articles of Merger set forth
in Appendix II shall be the Charter of the Successor Bancshares until thereafter
amended as provided by law.
9.6. By-Laws of the Successor Bancshares. The By-Laws of
Successor Bancshares as amended and restated in the form set forth in Appendix
III shall be the By-Laws of the Successor Bancshares until thereafter amended as
provided by law.
46
10. Boards of Directors and Employment Matters. Upon the Effective Date
or as otherwise indicated:
(a) At Effective Date, the Board of Directors of
Successor Bancshares will be as shown on Appendix XIV.
(b) The members the Boards of Directors having board
titles and the persons serving as executive officers of Successor
Bancshares at the Effective Date are listed on Appendix XIV.
(c) The directors, officers, and employees of
Centreville Bank and Talbot Bank will not change as of the Effective
Date.
(d) The President and Chief Executive Officer of
Successor Bancshares named in Appendix XIV shall be offered an
employment agreement by Successor Bancshares and Talbot Bank in the
form of Appendix XIII with terms commencing on the Effective Date. The
Executive Vice President of Successor Bancshares named in Appendix XIV
shall be offered an employment agreement by Successor Bancshares and
Centreville Bank in the form of Appendix XIII with terms commencing on
the Effective Date. The President and Chief Executive Officer of Shore
Bancshares and Centreville Bank prior to the Effective Date will
execute an agreement in the form of Appendix XV pursuant to which he
agrees that his current employment agreement will terminate at the
Effective Date and that the change in control provisions therein will
not be activated by the Merger and the transactions contemplated by
this Plan.
(e) It is the intention of Shore Bancshares and
Talbot Bancshares that the employee benefit plans and policies of Shore
Bancshares and Talbot Bancshares will become the employee benefit plans
and policies of Successor Bancshares (unless required to continue the
qualification of the plans); it is the intention of Shore Bancshares
and Talbot Bancshares that that the employee benefit plans and policies
of Centreville Bank and Talbot Bank will not change at the Effective
Date (unless required to continue the qualification of the plans);
however, Successor Bancshares will review the employee benefit plans
and policies of Shore Bancshares, Talbot Bancshares, Centreville Bank,
and Talbot Bank and in its sole discretion, may amend, freeze, or
terminate such employee benefit plans and policies, merge them
together, or continue to maintain them.
11. Indemnification; Directors' and Officers' Insurance. (a) From and
after the Effective Date, Successor Bancshares will indemnify and hold harmless
each present and former director and officer of Talbot Bancshares or the Talbot
Subsidiaries (the "Indemnified Parties"), against any and all costs or expenses
(including reasonable attorneys' fees), judgments, fines, penalties,
settlements, losses, claims, damages or liabilities incurred in connection with
any and all claims, actions, suits, proceedings or investigations, whether
civil, criminal, administrative or investigative, arising out of or pertaining
to matters arising out of or in connection with such party's position as, or
47
actions taken as, a director or officer of Talbot Bancshares or the Talbot
Subsidiaries (collectively, "Claims"), at or prior to the Effective Date,
whether asserted or claimed prior to, at or after the Effective Date, to the
fullest extent permitted by applicable law (and also advance expenses incurred
to the fullest extent permitted by Maryland law and Successor Bancshares'
Charter and By-Laws); provided, however, that Successor Bancshares' obligation
to provide such indemnification shall not apply to any litigation, proceeding or
investigation required to be disclosed pursuant to Section 4.9 that has not been
previously disclosed in writing by Talbot Bancshares, nor to Claims asserted or
claimed more than six years after the Effective Date. Successor Bancshares shall
not have any obligation hereunder to any Indemnified Party when and if a court
of competent jurisdiction shall ultimately determine, and such determination
shall have become final and non-appealable, that the indemnification of such
Indemnified Party in the manner contemplated hereby is prohibited by applicable
law or if such obligation is not covered (without considering retention) by the
liability insurance policies contemplated in Section 11(c).
(b) Any Indemnified Party wishing to claim indemnification
under Section 11(a), upon learning of any such claim, action, suit, proceeding
or investigation, shall within 30 days thereof notify Successor Bancshares
thereof, but the failure to so notify shall not relieve Successor Bancshares of
any liability it may have to such Indemnified Party if such failure does not
materially prejudice Successor Bancshares. In the event of any such claim,
action, suit, proceeding or investigation (whether arising before or after the
Effective Date) (i) Successor Bancshares shall have the right to assume the
defense thereof and Successor Bancshares shall not be liable to such Indemnified
Parties for any legal expenses of other counsel or any other expenses
subsequently incurred by such Indemnified Parties in connection with the defense
thereof, except that if Successor Bancshares elects not to assume such defense,
or counsel for the Indemnified Parties advises that there are issues which raise
conflicts of interest between Successor Bancshares and the Indemnified Parties,
the Indemnified Parties may retain counsel satisfactory to them, and Successor
Bancshares shall pay the reasonable fees and expenses of such counsel for the
Indemnified Parties promptly as statements therefor are received, (ii) the
Indemnified Parties will cooperate in the defense of any such matter, and (iii)
Successor Bancshares shall not be liable for any settlement effected without its
prior written consent which shall not be unreasonably withheld.
(c) For a period of six years after the Effective Date,
Successor Bancshares shall cause to be maintained in effect an extension of the
current policies of directors' and officers' liability insurance maintained by
Shore Bancshares and Centreville Bank as contemplated by Section 5.4(e) and
Talbot Bancshares and Talbot Bank as contemplated by Section 6.4(e) (provided
that Successor Bancshares may substitute therefor policies of at least the same
coverage and amounts containing terms and conditions which are no less
advantageous in any material respect to the Indemnified Parties) with respect to
matters arising before the Effective Date.
12. Amendment of this Plan. This Plan may be amended at any time prior
to the Effective Date in response to comments of governmental regulatory
authorities, or otherwise; provided, that any such amendment is in writing and
is approved by the Board of Directors of each of the parties hereto.
48
13. Abandonment of this Plan; Effect Thereof. Anything herein to the
contrary notwithstanding, and notwithstanding any stockholder vote or approval,
this Plan may be terminated and abandoned:
(a) by mutual consent of the Boards of Directors of
Shore Bancshares and Talbot Bancshares;
(b) by Talbot Bancshares or Shore Bancshares, if its
Board of Directors so determines, in the event of the failure of the
stockholders of Talbot Bancshares or the stockholders of Shore
Bancshares to approve this Plan at the meetings called to consider such
approval, unless in each case the failure of such occurrence shall be
due to the failure of the party seeking to terminate this Plan to
perform or observe its agreement set forth herein to be performed or
observed by such party at or before the Effective Date;
(c) by Talbot Bancshares or Shore Bancshares, if its
Board of Directors so determines, in the event of a material breach by
the other party hereto of any representation, warranty, covenant, or
agreement contained herein which is not cured or not curable within 60
days after written notice of such breach is given to the party
committing such breach by the other party;
(d) by Talbot Bancshares or Shore Bancshares by
written notice to the other party hereto if prior to March 1, 2001 (i)
any approval, consent, or waiver of any Governmental Entity required to
permit consummation of the transactions contemplated hereby shall have
been denied, (ii) any approval, consent, or waiver of any Governmental
Entity required to permit consummation of the transactions contemplated
hereby shall include any condition or requirement that would (A) result
in a materially adverse effect on Talbot Bancshares or Shore
Bancshares, or (B) so materially and adversely affect the economic or
business benefits of the Merger that Talbot Bancshares, in the sole
judgment of Talbot Bancshares, or Shore Bancshares, in the sole
judgment of Shore Bancshares, would not have entered into this Plan had
such conditions or requirements been known at the date hereof, (iii)
any action or proceeding against Talbot Bancshares or any of the Talbot
Subsidiaries or against Shore Bancshares or any of the Shore
Subsidiaries shall be pending which seeks to prevent consummation of
the transactions contemplated by this Plan;
(e) by Talbot Bancshares or Shore Bancshares, by
action of the Board of Directors of either party and the delivery of
written notice by either party to the other, in the event that (i) the
Merger is not consummated by March 1, 2001, unless the failure to so
consummate by such time is due to the breach of any material
representation, warranty, agreement, or covenant contained in this Plan
by the party seeking to terminate, or (ii) if prior to March 1, 2001,
any court shall have entered an order which prohibits consummation of
the Merger and the transactions contemplated by this Plan; or
49
(f) by action of the Board of Directors of Shore
Bancshares in their sole discretion if they determine to negotiate a
Shore Acquisition Proposal under Section 5.9 or by action of the Board
of Directors of Talbot Bancshares in their sole discretion if they
determine to negotiate a Talbot Acquisition Proposal under Section 6.9.
If this Plan is terminated by the Board of Directors of Shore
Bancshares in order to accept a Shore Acquisition Proposal under
Section 5.9, Shore Bancshares shall be obligated to pay Talbot
Bancshares, within five business days of such termination, a fee (the
"Termination Fee") in cash in an amount equal to $1.5 million, plus all
reasonable expenses, including, without limitation, legal, accounting,
valuation, printing, and tax expenses, incurred by Talbot Bancshares in
connection with the due diligence investigation of Shore Bancshares,
the negotiation and preparation of this Plan, and the transactions
contemplated herein. Notwithstanding, if the Plan is terminated under
Section 5.9, Shore Bancshares shall not be obligated to pay such
Termination Fee if Talbot Bancshares exercises the Stock Option
Agreement granted by Shore Bancshares. If this Plan is terminated by
the Board of Directors of Talbot Bancshares in order to accept a Talbot
Acquisition Proposal under Section 6.9, Talbot Bancshares shall be
obligated to pay Shore Bancshares, within five business days of such
termination, a fee (the "Termination Fee") in cash in an amount equal
to $1.5 million, plus all reasonable expenses, including, without
limitation, legal, accounting, valuation, printing, and tax expenses,
incurred by Shore Bancshares in connection with the due diligence
investigation of Talbot Bancshares, the negotiation and preparation of
this Plan, and the transactions contemplated herein. Notwithstanding,
if the Plan is terminated under Section 6.9, Talbot Bancshares shall
not be obligated to pay such Termination Fee if Shore Bancshares
exercises the Stock Option Agreement granted by Talbot Bancshares.
Except as provided in Section 17, in the event of the termination of this Plan
by either Talbot Bancshares or Shore Bancshares, as provided above, this Plan
shall thereafter become void, and, except as provided in Section 13(f), there
shall be no liability on the part of any party hereto or their respective
officers or directors, except that any such termination shall be without
prejudice to the rights of any party hereto arising out of the willful breach of
any other party of any covenant or willful misrepresentation contained in this
Plan.
14. Expenses. Whether or not the transactions hereunder are
consummated, each party to the Plan shall pay its own expenses relating hereto,
including fees and disbursements of its counsel, accountants, and financial
advisor, one half of filing fees in respect of regulatory applications or
registration statements required in order to consummate the Merger, and one half
of the costs of printing and mailing the Proxy Statement/Prospectus. The
foregoing shall not be construed as a limitation of damages in the event of
breach.
15. Notices. All notices, requests, demands, and other communications
under or connected with this Plan shall be in writing, and (a) if to Shore
Bancshares, shall be addressed to Shore Bancshares, Inc., 000 Xxxxx Xxxxxxxx
Xxxxxx, X.X. Xxx 000, Xxxxxxxxxxx, Xxxxxxxx 00000, attention of Xxxxxx X.
Xxxxxx, President and Chief Executive Officer, with a copy to its counsel,
50
Xxxxxx, Feinblatt, Rothman, Hoffberger & Xxxxxxxxx, LLC, The Xxxxxxx Building,
000 Xxxx Xxxxxxx Xxxxxx, Xxxxxxxxx, Xxxxxxxx 00000, attention of Xxxxxxx X.
Xxxxxx, Esquire; or (b) if to Talbot Bancshares, shall be addressed to Talbot
Bancshares, Inc., 00 Xxxx Xxxxx Xxxxxx, Xxxxxx, Xxxxxxxx 00000, attention of X.
Xxxxxxxx Xxxxxxxx, President and Chief Executive Officer, with a copy to its
counsel, Xxxxx Xxxxxxx Xxxxxxx & Xxxxx LLP, 0000 Xxxxx Xxxxxx, Xxxxxxxxx,
Xxxxxxxx 00000-0000, attention of Xxxxx X. Xxxx, Xx., Esquire. Any such notices,
requests, demands, and other communications shall be mailed, postage prepaid,
first class mail, or delivered personally and shall be sufficient and effective
when delivered to or received at the address as specified. Each of the parties
may change the address at which it is to receive communications by like written
notice to the other.
16. Entire Agreement; Effect. Subject to Sections 5.1(b) and 6.1(b),
this Plan (including the financial statements, lists, schedules, and documents
delivered pursuant hereto, which are made a part hereof) is intended by the
parties to and does constitute the entire agreement of the parties with respect
to the transaction contemplated hereunder. This Plan supersedes any and all
prior understandings, including prior letters of intent, and it may not be
changed, waived, discharged, or terminated orally, but only in writing by a
party against which enforcement of the change, waiver, discharge, or termination
is sought.
17. Representations, Warranties, and Agreements. Except as set forth in
this Section 17, all representations, warranties, and agreements of Talbot
Bancshares and Shore Bancshares made in this Plan, or in any instrument
delivered by Talbot Bancshares or Shore Bancshares pursuant to this Plan, shall
expire at the Effective Date. In the event of the consummation of the
transactions contemplated hereby, the agreements contained in or referred to in
Sections 9, 10, and 11 shall survive the Effective Date. In the event of the
termination of this Plan in accordance with its terms, the agreements contained
in or referred to in Sections 5.1(b), 5.5, 5.9, 6.1(b), 6.5, 6.9 13(f), and 14
or in the Stock Option Agreements and the Support Agreements (which agreements
shall only terminate in accordance with their respective terms) shall survive
such termination. Except to the extent that representations, warranties, and
agreements of Talbot Bancshares and Shore Bancshares made in this Plan, or in
any instrument delivered by Talbot Bancshares or Shore Bancshares pursuant to
this Plan, shall expire at the Effective Date, nothing contained herein shall be
construed to limit the liability of a party to another party for damages caused
by a breach of this Plan.
18. Governing Law. This Plan shall be governed by, and shall be
interpreted in accordance with, the laws of the State of Maryland or, to the
extent applicable, the federal laws of the United States.
19. General. The section headings contained in this Plan are for
reference purposes only and shall not affect in any way the meaning or
interpretations of this Plan. This Plan may be executed simultaneously in two or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument. This Plan shall inure to
the benefit of and be binding upon the parties hereto and their respective
successors but shall not be assigned to and shall not create any rights in favor
of any other party. Any purported assignment in violation of this Section 19
shall be void.
51
IN WITNESS WHEREOF, Talbot Bancshares and Shore Bancshares have caused
this Plan to be duly executed by their respective presidents, and witnessed by
their respective secretaries, thereunto duly authorized as of the date first
above written.
WITNESS TALBOT BANCSHARES, INC.
By:
----------------------------- ------------------------------------
X. Xxxxxxxx Xxxxxxxx
Secretary President and Chief Executive Officer
WITNESS SHORE BANCSHARES, INC.
By:
----------------------------- ------------------------------------
Xxxxxx X. Xxxxxx
Secretary President and Chief Executive Officer
52
APPENDIX I
LIST OF INFORMATION TO BE PROVIDED
PURSUANT TO THE PLAN
A. Information to be Provided by Shore Bancshares to Talbot Bancshares.
Section 3.1(a). List of subsidiaries of Shore Bancshares and their places of
incorporation.
Section 3.1(b). Ownership of Shore Subsidiaries, Joint Ventures, and
Partnerships.
Section 3.1(c). Charters and By-Laws of Shore Bancshares and each of the
Shore Subsidiaries.
Section 3.1(d). List of outstanding options, warrants, rights, restricted
stock, or obligations of any kind entitling the holder
thereof to acquire shares of the Common Stock of Shore
Bancshares or outstanding securities or instruments that are
convertible into shares of the Common Stock of Shore
Bancshares.
Section 3.2. Consolidated Financial Statements of Shore Bancshares and
the Shore Subsidiaries at December 31, 1995, 1996, 1997,
1998, and 1999 and for each of the years then ended, as
reported upon by Xxxxxxx & Company, and at March 31, 1999
and 2000 and for each of the three month periods then ended.
Section 3.3. Tax Returns of Shore Bancshares to Federal, State, County,
Municipal, or Foreign Taxing Authorities for the taxable
years December 31, 1995, 1996, 1997, 1998, and 1999.
Section 3.5. Increase of Salaries or Benefits to Directors, Officers, or
Employees since December 31, 1999.
Section 3.7. List of Liens and Encumbrances on Property, Etc.
Section 3.8. Plans, Contracts, and Agreements.
Section 3.9. Litigation, Etc.
Section 3.10. Environmental Matters.
Section 3.12. Pension and Welfare Matters.
Section 3.13. Related Party Transactions.
53
Section 3.14. No Conflicts with Other Documents.
Section 3.15 Non Permitted Business and Assets.
Section 3.17. Insurance Policies, including Financial Institutions Bonds.
Section 3.19. Agreement between Shore Bancshares and GM&A.
Section 3.21. Year 2000.
Section 5.4(e). Increases in Employee Compensation or Benefit Levels.
Section 5.4(z)(ii). Capital Expenditures in Excess of $25,000.
Section 5.9. List of Shore Bancshares' loans classified as substandard,
doubtful, or loss; and real estate owned; Shore Bancshares'
Allowance for Possible Losses.
B. Information to be Provided by Talbot Bancshares to Shore Bancshares.
Section 4.1(a). List of subsidiaries of Talbot Bancshares and their places
of incorporation.
Section 4.1(b). Ownership of Talbot Subsidiaries, Joint Ventures, and
Partnerships.
Section 4.1(c). Charters and By-Laws of Talbot Bancshares and each of the
Talbot Subsidiaries.
Section 4.1(d). List of outstanding options, warrants, rights, restricted
stock, or obligations of any kind entitling the holder
thereof to acquire shares of the Common Stock of Talbot
Bancshares or outstanding securities or instruments that are
convertible into shares of the Common Stock of Talbot
Bancshares.
Section 4.2. Consolidated Financial Statements of Talbot Bancshares and
the Talbot Subsidiaries at December 31, 1995, 1996, 1997,
1998, and 1999 and for each of the years then ended, as
reported upon by Xxxxxxx & Company, and at March 31, 1999
and 2000 and for each of the three month periods then ended.
Section 4.3. Tax Returns of Talbot Bancshares to Federal, State, County,
Municipal, or Foreign Taxing Authorities for the taxable
years December 31, 1995, 1996, 1997, 1998, and 1999.
Section 4.5. Increase of Salaries or Benefits to Directors, Officers, or
Employees since December 31, 1999.
54
Section 4.7. List of Liens and Encumbrances on Property, Etc.
Section 4.8. Plans, Contracts, and Agreements.
Section 4.9. Litigation, Etc.
Section 4.10. Environmental Matters.
Section 4.12. Pension and Welfare Matters.
Section 4.13. Related Party Transactions.
Section 4.14. No Conflicts with Other Documents.
Section 4.15 Non Permitted Business and Assets.
Section 4.17. Insurance Policies, including Financial Institutions Bonds.
Section 4.19. Agreement between Talbot Bancshares and Xxxxxxxxx.
Section 4.21. Year 2000.
Section 6.4(e). Increases in Employee Compensation or Benefit Levels.
Section 6.4(z)(ii). Capital Expenditures in Excess of $25,000.
Section 6.9. List of Talbot Bancshares' loans classified as substandard,
doubtful, or loss; and real estate owned; Talbot Bancshares'
Allowance for Possible Losses.
55
APPENDIX II
FORM OF ARTICLES OF MERGER
BETWEEN
TALBOT BANCSHARES, INC.
(a Maryland Corporation)
AND
SHORE BANCSHARES, INC.
(a Maryland Corporation)
TALBOT BANCSHARES, INC., a corporation duly organized and existing
under the laws of the State of Maryland ("Talbot Bancshares"), and SHORE
BANCSHARES, INC., a corporation duly organized and existing under the laws of
the State of Maryland ("Shore Bancshares"), do hereby certify that:
FIRST: Talbot Bancshares and Shore Bancshares agree to merge.
SECOND: The name and place of incorporation of each party to these
Articles of Merger are Talbot Bancshares, Inc., a Maryland corporation, and
Shore Bancshares, Inc., a Maryland corporation. Shore Bancshares shall survive
the merger and shall continue under the name "Shore Bancshares, Inc." as a
corporation of the State of Maryland.
THIRD: Talbot Bancshares has its principal office in the State of
Maryland in Talbot County and owns an interest in land in the State of Maryland
in _______ County. Shore Bancshares has its principal office in the State of
Maryland in Queen Anne's County and owns an interest in land in the State of
Maryland in _______ County. Pursuant to these Articles of Merger Shore
Bancshares will change its principal office in the State of Maryland to Talbot
County.
FOURTH: The terms and conditions of the transaction set forth in these
Articles of Merger were advised, authorized, and approved by Talbot Bancshares
or Shore Bancshares, respectively, in the manner and by the vote required by its
Charter and the laws of the State of Maryland. The manner of approval was as
follows:
(a) The Board of Directors of Talbot Bancshares at a
meeting held on ______, 2000 adopted resolutions which declared that
the proposed merger was advisable on substantially the terms and
conditions set forth or referred to in the resolutions and directed
that the proposed merger be submitted for consideration at a special
meeting of stockholders of Talbot Bancshares. Notice which stated that
a purpose of the special meeting was to act on the proposed merger was
given by Talbot Bancshares as required by law. The proposed merger was
approved by the stockholders of Talbot Bancshares at a special meeting
of stockholders held ______, 2000 by the affirmative vote of a majority
of all the votes entitled to be cast on the matter.
56
(b) The Board of Directors of Shore Bancshares at a
meeting held on ______, 2000 adopted resolutions which declared that
the proposed merger was advisable on substantially the terms and
conditions set forth or referred to in the resolutions and directed
that the proposed merger be submitted for consideration at a special
meeting of stockholders of Shore Bancshares. Notice which stated that a
purpose of the special meeting was to act on the proposed merger was
given by Shore Bancshares as required by law. The proposed merger was
approved by the stockholders of Shore Bancshares at a special meeting
of stockholders held ______, 2000 by the affirmative vote of a majority
of all the votes entitled to be cast on the matter.
FIFTH: The Charter of Shore Bancshares is to be amended and restated as
part of the merger to read as set forth in Exhibit A hereto.
SIXTH: The total number of shares of capital stock of all classes which
Talbot Bancshares or Shore Bancshares, respectively, has authority to issue, the
number of shares of each class which Talbot Bancshares or Shore Bancshares,
respectively, has authority to issue, and the par value of the shares of each
class which Talbot Bancshares or Shore Bancshares, respectively, has authority
to issue are as follows:
(a) The total number of shares of stock of all
classes which Talbot Bancshares has authority to issue is 25,000,000
shares, all of which shares are now classified as Common Stock (par
value $.01 per share). The aggregate par value of all the shares of
stock of all classes of Talbot Bancshares is $250,000.00.
(b) The total number of shares of stock of all
classes which Shore Bancshares has authority to issue is 10,000,000
shares, all of which shares are now classified as Common Stock (par
value $.01 per share). The aggregate par value of all the shares of
stock of all classes of Shore Bancshares is $100,000.00.
SEVENTH: The merger changes the authorized stock of Shore Bancshares as
follows:
(a) As of immediately before the merger the total
number of shares of stock of all classes which Shore Bancshares has
authority to issue is 10,000,000 shares, of which no shares are
classified as Preferred Stock and 10,000,000 shares are classified as
Common Stock (par value $.01 per share).
(b) As changed by the merger the total number of
shares of stock of all classes which Shore Bancshares has authority to
issue is 35,000,000 shares, of which no shares are classified as
Preferred Stock and 35,000,000 shares are classified as Common Stock
(par value $.01 per share).
57
(c) The aggregate par value of all shares of stock of
all classes of Shore Bancshares is $100,000 before the merger and
$350,000 as changed by the merger.
EIGHTH: The manner and basis of converting or exchanging issued stock
of the merging corporations into different stock of a corporation or other
consideration and the treatment of any issued stock of the merging corporations
not to be converted or exchanged are as follows:
(a) Each issued and outstanding share of Common Stock
of Shore Bancshares on the effective date of the merger shall continue,
without change, to be issued and outstanding share of Common Stock of
Shore Bancshares. There will be no issued and outstanding shares of
Preferred Stock of Shore Bancshares on the effective date of the
merger.
(b) Each issued and outstanding share of Common Stock
of Talbot Bancshares on the effective date of the merger, shall upon
effectiveness and without further act, be automatically converted into,
and become 2.85 shares of Common Stock of Shore Bancshares. Cash will
be paid in lieu of fractional shares at the rate of $_____ per share.
There will be no issued and outstanding shares of Preferred Stock of
Talbot Bancshares on the effective date of the merger.
(c) After the effective date of the merger,
certificates representing shares of Common Stock of Talbot Bancshares
shall represent the right to receive certificates representing shares
of Common Stock of Shore Bancshares; such Talbot Bancshares
certificates at any time after the effective date of the merger may be
exchanged by the holders thereof for new certificates for the
appropriate number of shares of Common Stock of Shore Bancshares by
forwarding such Talbot Bancshares Common Stock certificates and the
letter of transmittal provided by Shore Bancshares to the transfer
agent for Shore Bancshares Common Stock, and the payment of cash in
lieu of fractions, dividends, and other distributions on said stock may
be withheld until the Talbot Bancshares certificates are surrendered
for exchange to the transfer agent for Shore Bancshares Common Stock;
and when such new certificates are issued, the holders thereof shall be
entitled to be paid the amount (without any interest thereon) of all
such withheld cash in lieu of fractions, dividends, or other
distributions which have therefore become payable with respect to such
shares of Common Stock of Shore Bancshares.
NINTH: Other provisions necessary to effect the merger are as follows:
(a) In addition to any other purposes and powers set
forth herein, after the effective time of the merger Shore Bancshares
shall have the all of purposes and powers of both Talbot Bancshares and
Shore Bancshares prior to the effective time of the merger.
58
(b) The persons named as directors in Exhibit A
hereto shall become the directors of Shore Bancshares at the effective
time of the merger
(c) The By-Laws of Shore Bancshares is to be amended
and restated as a part of the merger to read as set forth in Appendix
III to the Plan and Agreement to Merge dated as of July 25, 2000
between Talbot Bancshares and Shore Bancshares.
TENTH: The merger shall become effective at _________ _.m. ET on
________, 2000.
IN WITNESS WHEREOF, TALBOT BANCSHARES, INC. and SHORE BANCSHARES, INC.
have caused this Articles of Merger to be signed in their respective names and
on their respective behalves by their respective presidents and witnessed by
their respective secretaries on ____________, 2000.
WITNESS: TALBOT BANCSHARES, INC.
(a Maryland corporation)
____________________________________ By: _____________________________________
X. Xxxxxxxx Xxxxxxxx
Secretary President and Chief Executive Officer
WITNESS: SHORE BANCSHARES, INC.
(a Maryland corporation)
____________________________________ By: _____________________________________
Xxxxxx X. Xxxxxx
Secretary President and Chief Executive Officer
59
THE UNDERSIGNED, President and Chief Executive Officer of TALBOT
BANCSHARES, INC., a Maryland corporation, who executed on behalf of the
Corporation the foregoing Articles of Merger of which this certificate is made a
part, hereby acknowledges in the name and on behalf of said Corporation the
foregoing Articles of Merger to be the corporate act of said Corporation and
hereby certifies that to the best of his knowledge, information and belief the
matters and facts set forth therein with respect to the authorization and
approval thereof are true in all material respects under the penalties of
perjury.
-------------------------------------
X. Xxxxxxxx Xxxxxxxx
President and Chief Executive Officer
THE UNDERSIGNED, President and Chief Executive Officer of SHORE
BANCSHARES, INC., a Maryland corporation, who executed on behalf of the
Corporation the foregoing Articles of Merger of which this certificate is made a
part, hereby acknowledges in the name and on behalf of said Corporation the
foregoing Articles of Merger to be the corporate act of said Corporation and
hereby certifies that to the best of his knowledge, information and belief the
matters and facts set forth therein with respect to the authorization and
approval thereof are true in all material respects under the penalties of
perjury.
-------------------------------------
Xxxxxx X. Xxxxxx
President and Chief Executive Officer
60
Exhibit A
SHORE BANCSHARES, INC.
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
FIRST: SHORE BANCSHARES, INC., a Maryland corporation (hereinafter
called the "Corporation"), having its principal office in Centreville, Maryland,
hereby certifies to the State Department of Assessments and Taxation of Maryland
that:
SECOND: The name of the Corporation is:
SHORE BANCSHARES, INC.
THIRD: The purposes for which the Corporation is formed are to engage
in lawful act or activities permitted by a corporation organized under the laws
of the State of Maryland.
FOURTH: The present address of the principal office of the Corporation
in this State is 00 Xxxx Xxxxx Xxxxxx, Xxxxxx, Xxxxxxxx 00000.
FIFTH: The name and address of the resident agent of the Corporation in
this State are X. Xxxxxxxx Xxxxxxxx, c/o 00 Xxxx Xxxxx Xxxxxx, Xxxxxx, Xxxxxxxx
00000. Said resident agent is a citizen of the State of Maryland who resides
there.
SIXTH: (a) The total number of shares of stock of all classes which the
Corporation has authority to issue is 35,000,000 shares of capital stock (par
value $.01 per share), amounting in aggregate par value to $350,000.00. All of
such shares are initially classified as "Common Stock". The Board of Directors
may classify and reclassify any unissued shares of capital stock by setting or
changing in any one or more respects the preferences, conversion or other
rights, voting powers, restrictions, limitations as to dividends, qualifications
or terms or conditions of redemption of such shares of capital stock. A majority
of the entire Board of Directors, without action by the stockholders, may amend
the Charter to increase or decrease the aggregate number of shares of stock or
the number of shares of stock of any class that the Corporation has authority to
issue.
(b) The following is a description of the preferences, conversion and
other rights, voting powers, restrictions, limitations as to dividends,
qualifications and terms and conditions of redemption of the Common Stock of the
Corporation:
(1) Each share of Common Stock shall have one vote, and, except
as otherwise provided in respect of any class of stock hereafter
classified or reclassified, the exclusive voting power for all purposes
shall be vested in the holders of the Common Stock. Shares of Common
Stock shall not have cumulative voting rights.
61
(2) Subject to the provisions of law and any preferences of any
class of stock hereafter classified or reclassified, dividends, including
dividends payable in shares of another class of the Corporation's stock,
may be paid ratably on the Common Stock at such time and in such amounts
as the Board of Directors may deem advisable.
(3) In the event of any liquidation, dissolution or winding up
of the Corporation, whether voluntary or involuntary, the holders of the
Common Stock shall be entitled, together with the holders of any other
class of stock hereafter classified or reclassified not having a
preference on distributions in the liquidation, dissolution or winding up
of the Corporation, to share ratably in the net assets of the Corporation
remaining, after payment or provision for payment of the debts and other
liabilities of the Corporation and the amount to which the holders of any
class of stock hereafter classified or reclassified having a preference
on distributions in the liquidation, dissolution or winding up of the
Corporation shall be entitled.
(c) Subject to the foregoing, the power of the Board of Directors to
classify and reclassify any of the shares of capital stock shall include,
without limitation, subject to the provisions of the Charter, authority to
classify or reclassify any unissued shares of such stock into a class or classes
of preferred stock, preference stock, special stock or other stock, and to
divide and classify shares of any class into one or more series of such class,
by determining, fixing, or altering one or more of the following:
(1) The distinctive designation of such class or series and the
number of shares to constitute such class or series; provided that,
unless otherwise prohibited by the terms of such or any other class or
series, the number of shares of any class or series may be decreased by
the Board of Directors in connection with any classification or
reclassification of unissued shares and the number of shares of such
class or series may be increased by the Board of Directors in connection
with any such classification or reclassification, and any shares of any
class or series which have been redeemed, purchased, otherwise acquired
or converted into shares of Common Stock or any other class or series
shall become part of the authorized capital stock and be subject to
classification and reclassification as provided in this sub-paragraph.
(2) Whether or not and, if so, the rates, amounts and times at
which, and the conditions under which, dividends shall be payable on
shares of such class or series, whether any such dividends shall rank
senior or junior to or on a parity with the dividends payable on any
other class or series of stock, and the status of any such dividends as
cumulative, cumulative to a limited extent or non-cumulative and as
participating or non-participating.
(3) Whether or not shares of such class or series shall have
voting rights, in addition to any voting rights provided by law and, if
so, the terms of such voting rights.
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(4) Whether or not shares of such class or series shall have
conversion or exchange privileges and, if so, the terms and conditions
thereof, including provision for adjustment of the conversion or exchange
rate in such events or at such times as the Board of Directors shall
determine.
(5) Whether or not shares of such class or series shall be
subject to redemption and, if so, the terms and conditions of such
redemption, including the date or dates upon or after which they shall be
redeemable and the amount per share payable in case of redemption, which
amount may vary under different conditions and at different redemption
dates; and whether or not there shall be any sinking fund or purchase
account in respect thereof, and if so, the terms thereof.
(6) The rights of the holders of shares of such class or series
upon the liquidation, dissolution or winding up of the affairs of, or
upon any distribution of the assets of, the Corporation, which rights may
vary depending upon whether such liquidation, dissolution or winding up
is voluntary or involuntary and, if voluntary, may vary at different
dates, and whether such rights shall rank senior or junior to or on a
parity with such rights of any other class or series of stock.
(7) Whether or not there shall be any limitations applicable,
while shares of such class or series are outstanding, upon the payment of
dividends or making of distributions on, or the acquisition of, or the
use of moneys for purchase or redemption of, any stock of the
Corporation, or upon any other action of the Corporation, including
action under this sub-paragraph, and, if so, the terms and conditions
thereof.
(8) Any other preferences, rights, restrictions, including
restrictions on transferability, and qualifications of shares of such
class or series, not inconsistent with law and the Charter of the
Corporation.
(d) For the purposes hereof and of any articles supplementary to the
Charter providing for the classification or reclassification of any shares of
capital stock or of any other Charter document of the Corporation (unless
otherwise provided in any such articles or document), any class or series of
stock of the Corporation shall be deemed to rank:
(1) prior to another class or series either as to dividends or
upon liquidation, if the holders of such class or series shall be
entitled to the receipt of dividends or of amounts distributable on
liquidation, dissolution or winding up, as the case may be, in preference
or priority to holders of such other class or series;
(2) on a parity with another class or series either as to
dividends or upon liquidation, whether or not the dividend rates,
dividend payment dates or redemption or liquidation price per share
thereof be different from those of such others, if the holders of such
class or series of stock shall be entitled to receipt of dividends or
amounts distributable upon liquidation, dissolution or winding up, as the
case may be, in proportion to their respective dividend rates or
redemption or liquidation prices, without preference or priority over the
holders of such other class or series; and
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(3) junior to another class or series either as to dividends or
upon liquidation, if the rights of the holders of such class or series
shall be subject or subordinate to the rights of the holders of such
other class or series in respect of the receipt of dividends or the
amounts distributable upon liquidation, dissolution or winding up, as the
case may be.
SEVENTH: The number of Directors of the Corporation shall be not less
than three (3) nor more than twenty-five (25). The number of Directors may be
increased or decreased in accordance with the Bylaws of the Corporation. The
Directors shall be divided into three classes with respect to the time for which
they shall hold office. Directors of Class I shall hold office for one year or
until the first annual meeting of stockholders following their election;
Directors of Class II shall hold office for two years or until the second annual
meeting of stockholders following their election; and Directors of Class III
shall hold office for three years or until the third annual meeting of
stockholders following their election; and in each case until their successors
are elected and qualify. At each future annual meeting of stockholders, the
successors to the Class of Directors whose term shall expire at that time shall
be elected to hold office for a term of three years, so that the term of office
of one Class of Directors shall expire in each year. The provisions of this
Article Seventh may not be amended or modified unless such amendment or
modification is authorized by the Board of Directors and approved by holders of
80% of the stock of the Corporation entitled to vote on the matter. As of the
date hereof, the Directors of the Corporation are:
(1) [Insert names of directors elected to serve until
2001 from Schedule to Plan]
(2) [Insert names of directors elected to serve until
2002 from Schedule to Plan]
(3) [Insert names of directors elected to serve until
2003 from Schedule to Plan]
EIGHTH: (a) The following provisions are hereby adopted for the purpose
of defining, limiting, and regulating the powers of the Corporation and of the
directors and the stockholders:
(1) The Board of Directors is hereby empowered to authorize the
issuance from time to time of shares of its stock of any class, whether
now or hereafter authorized, or securities convertible into shares of its
stock of any class or classes, whether now or hereafter authorized, for
such consideration as may be deemed advisable by the Board of Directors
and without any action by the stockholders.
(2) No holder of any stock or any other securities of the
Corporation, whether now or hereafter authorized, shall have any
preemptive right to subscribe for or purchase any stock or any other
securities of the Corporation other than such, if any, as the Board of
Directors, in its sole discretion, may determine and at such price or
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prices and upon such other terms as the Board of Directors, in its sole
discretion, may fix; and any stock or other securities which the Board of
Directors may determine to offer for subscription may, as the Board of
Directors in its sole discretion shall determine, be offered to the
holders of any class, series or type of stock or other securities at the
time outstanding to the exclusion of the holders of any or all other
classes, series or types of stock or other securities at the time
outstanding.
(3) The Board of Directors of the Corporation shall, consistent
with applicable law, have power in its sole discretion to determine from
time to time in accordance with sound accounting practice or other
reasonable valuation methods what constitutes annual or other net
profits, earnings, surplus or net assets in excess of capital; to fix and
vary from time to time the amount to be reserved as working capital, or
determine that retained earnings or surplus shall remain in the hands of
the Corporation; to set apart out of any funds of the Corporation such
reserve or reserves in such amount or amounts and for such proper purpose
or purposes as it shall determine and to abolish any such reserve or any
part thereof; to redeem or purchase its stock or to distribute and pay
distributions or dividends in stock, cash or other securities or
property, out of surplus or any other funds or amounts legally available
therefor, at such times and to the stockholders of record on such dates
as it may, from time to time, determine; to determine the amount,
purpose, time of creation, increase or decrease, alteration or
cancellation of any reserves or charges and the propriety thereof
(whether or not any obligation or liability for which such reserves or
charges shall have been created shall have been paid or discharged); and
to determine the fair value and any matters relating to the acquisition,
holding and disposition of any assets by the Corporation.
(4) Notwithstanding any provision of law requiring the
authorization of any action by a greater proportion than a majority of
the total number of shares of all classes of capital stock or of the
total number of shares of any class of capital stock, such action shall
be valid and effective if authorized by the affirmative vote of the
holders of a majority of the total number of shares of all classes
outstanding and entitled to vote thereon, except as otherwise provided in
the Charter.
(5) The Corporation shall indemnify (A) its directors and
officers, whether serving the Corporation or at its request any other
entity, to the full extent required or permitted by the General Laws of
the State of Maryland now or hereafter in force, including the advance of
expenses under the procedures and to the full extent permitted by law and
(B) other employees and agents to such extent as shall be authorized by
the Board of Directors or the Corporation's By-Laws and be permitted by
law. The foregoing rights of indemnification shall not be exclusive of
any other rights to which those seeking indemnification may be entitled.
The Board of Directors may take such action as is necessary to carry out
65
these indemnification provisions and is expressly empowered to adopt,
approve and amend from time to time such by-laws, resolutions or
contracts implementing such provisions or such further indemnification
arrangements as may be permitted by law. No amendment of the Charter of
the Corporation or repeal of any of its provisions shall limit or
eliminate the right to indemnification provided hereunder with respect to
acts or omissions occurring prior to such amendment or repeal.
(6) To the fullest extent permitted by Maryland statutory or
decisional law, as amended or interpreted, no director or officer of the
Corporation shall be personally liable to the Corporation or its
stockholders for money damages. No amendment of the Charter of the
Corporation or repeal of any of its provisions shall limit or eliminate
the limitation on liability provided to directors and officers hereunder
with respect to any act or omission occurring prior to such amendment or
repeal.
(7) For any stockholder proposal to be presented in connection
with an annual or special meeting of stockholders of the Corporation,
including any proposal relating to the nomination of a director to be
elected to the Board of Directors of the Corporation, the stockholders
must have given timely written notice thereof in writing to the Secretary
of the Corporation in the manner and containing the information required
by the By-Laws. Stockholder proposals to be presented in connection with
a special meeting of stockholders, including any proposal relating to the
nomination of a director to be elected to the Board of Directors of the
Corporation, will be presented by the Corporation only to the extent
required by Section 2-502 of the Maryland General Corporation Law and the
By-Laws.
(8) Notwithstanding any other provision in the charter or
by-laws, each vacancy on the board of directors resulting from (a) an
increase in the size of the board of directors or (b) the death,
resignation or removal of a director may be filled only by the
affirmative vote of a majority of the remaining directors in office,
even if the remaining directors do not constitute a quorum, provided
however, that until September 30, 2005 such directors shall be elected
from the directors of the same financial institution subsidiary in which
the vacating director served. Any director elected to fill a vacancy
shall hold office for the remainder of the full term of the class of
directors in which the vacancy occurred and until a successor is elected
and qualifies.
(9) The Directors of the Corporation shall consider all factors
they deem relevant in evaluating any proposed offer for the Corporation
or any of its stock, any proposed merger or consolidation of the
Corporation or subsidiary of the Corporation with or into another
entity, any proposal to purchase or otherwise acquire all or
substantially all the assets of the Corporation or any subsidiary of the
Corporation, and any other business combination (as such term is defined
in the Maryland General Corporation Law). The Directors shall evaluate
whether the proposal is in the best interests of the Corporation and its
subsidiaries by considering the best interests of the stockholders and
other factors the Directors determine to be relevant, including the
social, legal and economic effects on employees, customers, depositors,
and communities served by the Corporation and any subsidiary of the
Corporation. The Directors shall evaluate the consideration being
offered to the stockholders in relation to the then current market value
66
of the Corporation and its subsidiaries, the then current market value
of the stock of the Corporation or any subsidiary in a freely negotiated
transaction, and the Directors' judgment as to the future value of the
stock of the Corporation as an independent entity.
(10) Until September 30, 2005, without the approval of at lease
two-thirds of the entire Board of Directors of the Corporation, the
Corporation may not (i) merge or consolidate with, transfer all or
substantially all of its assets to, or engage in a share exchange with
another entity, (ii) may not cause any subsidiary bank of the Corporation
to merge or consolidate with, to transfer of all or substantially all of
its assets to, or engage in a share exchange with another entity, or
(iii) sell or otherwise dispose of any stock of any subsidiary bank.
(11) The Corporation reserves the right from time to time to
make any amendments of the Charter which may now or hereafter be
authorized by law, including any amendments changing the terms or
contract rights, as expressly set forth in the Charter, of any of its
outstanding stock by classification, reclassification or otherwise and
any objecting stockholder whose rights may or shall be thereby
substantially adversely affected shall not be entitled to demand and
receive payment of the fair value of his stock; provided, however, that
any amendment to, repeal of or adoption of any provision inconsistent
with Article SEVENTH or with sub-paragraphs (5), (6) (7), (8), or (10) of
this paragraph (a) of this Article EIGHTH or with this sub-paragraph (11)
of this paragraph (a) of this Article EIGHTH must be authorized by not
less than 80% of the aggregate votes entitled to be cast thereon
(considered for this purpose as a single class), by vote at a meeting or
in writing with or without a meeting.
(b) The enumeration and definition of particular powers of the Board of
Directors included in the foregoing shall in no way be limited or restricted by
reference to or inference from the terms of any other clause of this or any
other Article of the Charter of the Corporation, or construed as or deemed by
inference or otherwise in any manner to exclude or limit any powers conferred
upon the Board of Directors under the General Laws of the State of Maryland now
or hereafter in force.
NINTH: The duration of the Corporation shall be perpetual.
TENTH: (a) The provisions set forth in these Articles of Amendment and
Restatement are all of the provisions of the Charter of the Corporation in
effect upon acceptance of these Articles of Amendment and Restatement (the
"Articles") for record by the State Department of Assessments and Taxation of
Maryland, and upon such acceptance these Articles shall constitute the entire
Charter of the Corporation and supersede all prior Charter papers.
67
(b) The foregoing complete Amendment and Restatement of the Charter of
the Corporation includes amendments to the Charter duly advised by the Board of
Directors and approved by the stockholders of the Corporation in the manner
required for a Charter amendment under the Charter and By-laws of the
Corporation and the laws of the State of Maryland.
(c) The Board of Directors of the Corporation at a meeting held on July
25, 2000, adopted a resolution in which was set forth the foregoing complete
Amendment and Restatement of the Articles of Incorporation, declaring that said
Amendment and Restatement were advisable, and directing that they be submitted
to the stockholders of the Corporation for their consideration.
(d) The stockholders of the Corporation approved the complete Amendment
and Restatement of the Articles of Incorporation as hereinabove set forth at a
meeting of the stockholders held on _______, 2000.
* * * * * * * *
68
Consent of Resident Agent
THE UNDERSIGNED, hereby consents to act as resident agent in Maryland
for the entity named in the attached instrument.
---------------------------------------
Signature
Printed Name: X. Xxxxxxxx Xxxxxxxx
69
APPENDIX III
FORM OF SHORE BANCSHARES, INC.
AMENDED AND RESTATED BY-LAWS
ARTICLE I
STOCKHOLDERS
SECTION 1. Annual Meeting. The annual meeting of the stockholders of
the Corporation shall be held on a day duly designated by the Board of Directors
in the month of April in each year, for the purpose of electing directors to
succeed those whose terms shall have expired as of the date of such annual
meeting, and for the transaction of such other corporate business as may come
before the meeting.
SECTION 2. Special Meetings. Special meetings of the stockholders may
be called at any time for any purpose or purposes by the Chairman, the
President, or by a majority of the Board of Directors. Subject to the procedures
set forth in Article II, Section 4 and this Section, special meetings of the
stockholders shall be called by the Secretary upon the request in writing of
holders of a majority of all the shares outstanding and entitled to vote on the
business to be transacted at such meeting. Such request shall state the purpose
or purposes of the meeting and the matters proposed to be acted upon at it. The
Secretary shall provide an estimate of the cost of preparing and mailing and,
upon payment of such cost, the notice of the meeting shall be mailed by the
Corporation. Business transacted at all special meetings of stockholders shall
be confined to the purpose or purposes stated in the notice of the meeting. The
Board of Directors shall have the sole power to fix the date and time of the
special meeting. Nominations of persons for election to the Board of Directors
and the proposal of business to be considered by the stockholders may be made at
a special meeting of stockholders (a) only pursuant to the Corporation's notice
of meeting and, (b) in the case of nominations of persons for election to the
Board of Directors, (i) by or at the direction of the Board of Directors or (ii)
by any stockholder of the Corporation (A) who was a stockholder of record at the
time of giving notice provided for in Article II, Section 4, (B) who is entitled
to vote at the meeting and (C) who complied with the notice procedures set forth
in Article II, Section 4.
SECTION 3. Place of Holding Meetings. All meetings of stockholders
shall be held at the principal office of the Corporation or elsewhere in the
United States as designated by the Board of Directors.
SECTION 4. Notice of Meetings; Waiver of Notice. Written notice of each
meeting of the stockholders shall be mailed, postage pre-paid by the Secretary,
to each stockholder entitled to vote thereat at the stockholder's post office
address, as it appears upon the books of the Corporation, at least ten (10) days
but not more than ninety (90) days before, the meeting. Each such notice shall
state the place, day, and hour at which the meeting is to be held and, in the
case of any special meeting, shall state briefly the purpose or purposes
thereof. Notwithstanding the foregoing provisions, each person who is entitled
to notice waives notice if he or she before or after the meeting signs a waiver
70
of the notice which is filed with the records of stockholders' meetings, or is
present at the meeting in person or by proxy.
SECTION 5. Quorum. The presence in person or by proxy of the holders of
record of a majority of the shares of the capital stock of the Corporation
issued and outstanding and entitled to vote thereat shall constitute a quorum at
all meetings of the stockholders, except as otherwise provided by law, by the
Charter or by these By-laws. Whether or not a quorum shall be in attendance at
the time for which the meeting shall have been called, the meeting may be
adjourned from time to time by a majority vote of the stockholders present or
represented to a date not more than 120 days after the original date, without
any notice other than by announcement at the meeting. At any adjourned meeting
at which a quorum shall attend, any business may be deferred and transacted
which might have been transacted if the meeting had been held as originally
called.
SECTION 6. Organization. Meetings of stockholders shall be presided
over by the Chairman of the Board of Directors or, if the Chairman is not
present, the President of the Corporation, or if the President is not present,
by a Vice President, or, if none of said officers is present, by a chairman to
be elected at the meeting. The Secretary of the Corporation, or if the Secretary
is not present, any Assistant Secretary shall act as Secretary of such meetings;
in the absence of the Secretary and any Assistant Secretary, the presiding
officer may appoint a person to act as Secretary of the meeting.
SECTION 7. Voting. Unless the Charter provides otherwise, at all
meetings of stockholders, every stockholder entitled to vote thereat shall have
one (l) vote for each share of stock standing in the stockholder's name on the
books of the Corporation on the date for the determination of stockholders
entitled to vote at such meeting. Such vote may be either in person or by proxy
appointed by an instrument in writing subscribed by such stockholder or the
stockholder's duly authorized attorney, bearing a date not more than eleven (11)
months prior to said meeting, unless said instrument provides for a longer
period. Such proxy shall be dated, but need not be sealed, witnessed or
acknowledged. All elections shall be had and all questions shall be decided by a
majority of the votes cast at a duly constituted meeting, except as otherwise
provided by law, in the Charter or by these By-laws. Notwithstanding, a
plurality of all the votes cast at a meeting at which a quorum is present is
sufficient to elect a director.
SECTION 8. Advance Notice Provisions for Business to be Transacted at
Annual Meeting. No business may be transacted at an annual meeting of
stockholders, other than business that is either (a) specified in the notice of
meeting (or any supplement thereto) given by or at the direction of the Board of
Directors (or any duly authorized committee thereof), (b) otherwise properly
brought before the annual meeting by or at the direction of the Board of
Directors (or any duly authorized committee thereof) or (c) otherwise properly
brought before the annual meeting by any stockholder of the Corporation (i) who
is stockholder of record on the date of the giving of the notice provided for in
this Section and on the record date for the determination of stockholders
entitled to vote at such annual meeting and (ii) who complies with the notice
procedures set forth in this Section. A stockholder's notice must be delivered
to or mailed and received by the Secretary at the principal executive offices of
the Corporation not less than 60 days nor more than 90 days prior to the first
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anniversary of the preceding year's annual meeting; provided, however, that in
the event that the date of the annual meeting is advanced by more than 30 days
or delayed by more than 60 days from the anniversary date of the preceding
year's annual meeting, notice by the stockholder must be so delivered not
earlier than the 90th day prior to such annual meeting and not later than the
close of business on the later of the 60th day prior to such annual meeting or
the tenth day following the day on which public announcement of the date of such
meeting is first made. A stockholder's notice to the Secretary must be in
writing and set forth as to each matter such stockholder proposes to bring
before the annual meeting (i) a brief description of the business desired to be
brought before the annual meeting and the reasons for conducting such business
at the annual meeting, (ii) the name and address of such stockholder as they
appear on the Corporation's books and of the beneficial owner, if any, on whose
behalf the proposal is made, (iii) the class or series and number of shares of
capital stock of the Corporation which are owned beneficially or of record by
such stockholder and such beneficial owner, (iv) a description of all
arrangements or understandings between such stockholder and any other person or
persons (including their names) in connection with the proposal of such business
by such stockholder and any material interest of such stockholder in such
business and (v) a representation that such stockholder intends to appear in
person or by proxy at the annual meeting to bring such business before the
meeting. No business shall be conducted at the annual meeting of stockholders
except business brought before the annual meeting in accordance with the
procedures set forth in Article II, Section 4 or in this Section, provided,
however, that once business has been properly brought before the annual meeting
in accordance with such procedures, nothing in Article II, Section 4 nor in this
Section shall be deemed to preclude discussion by any stockholder of any such
business. If the chairman of an annual meeting determines that business was not
properly brought before the annual meeting in accordance with the foregoing
procedures, the chairman of the meeting shall declare to the meeting that the
business was not properly brought before the meeting and such business shall not
be transacted. No adjournment or postponement of a meeting of stockholders shall
commence a new period for the giving of notice of a stockholder proposal
hereunder.
ARTICLE II
BOARD OF DIRECTORS
SECTION 1. General Powers. The property and business of the Corporation
shall be managed by the Board of Directors of the Corporation.
SECTION 2. Number of Directors. The Corporation shall have at least one
director. The Corporation shall have the number of directors provided in the
Charter until changed as herein provided. Two-thirds of the entire Board of
Directors may alter the number of directors set by the Charter to not exceeding
25 nor less than the minimum number then permitted herein, but the action may
not affect the tenure of office of any director.
SECTION 3. Election and Term of Office. The Board of Directors shall be
divided into classes as described in the Charter. Each Director shall hold
office until the expiration of the term for which the Director is elected,
except as otherwise stated in these Bylaws, and thereafter until his or her
successor has been elected and qualifies. If the number of directors is changed,
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any increase or decrease shall be apportioned among the classes so as to
maintain the number of directors in each class as nearly equal as possible, and
any additional director of any class shall, subject to Article II, Section 5,
hold office for a term that shall coincide with the remaining term of that
class, but in no case shall a decrease in the number of directors shorten the
term of any incumbent director. Election of Directors need not be by written
ballot, unless required by these Bylaws.
SECTION 4. Nomination of Directors. Nomination for election of members
of the Board of Directors may be made by the Board of Directors or by any
stockholder of any outstanding class of capital stock of the Corporation
entitled to vote for the election of Directors and who complies with the notice
provisions in this Section. Notice by a stockholder of intention to make any
nominations shall be made in writing and shall be delivered or mailed to the
Secretary at the principal executive offices of the Corporation (a) in the case
of an annual meeting, not less than 120 days nor more than 180 days prior to the
date of the meeting of stockholders called for the election of Directors which,
for purposes of this provision, shall be deemed to be on the same date as the
annual meeting of stockholders for the preceding year; provided, however, that
in the event that the date of the annual meeting is advanced by more than 30
days or delayed by more than 60 days from the anniversary date of the preceding
year's annual meeting, notice by the stockholder must be so delivered not
earlier than the 180th day prior to such annual meeting and not later than the
close of business on the later of the 120th day prior to such annual meeting or
the tenth day following the day on which public announcement of the date of such
annual meeting is first made; and (b) in the case of a special meeting of
stockholders called for the purpose of electing directors, not later than the
close of business on the tenth day following the day on which notice of the date
of the special meeting was mailed or public announcement of the date of the
special meeting was made, whichever first occurs. Such notification shall
contain the following information (a) the name and address of each proposed
nominee; (b) the principal occupation of each proposed nominee; (c) the number
of shares of capital stock of the Corporation owned by each proposed nominee;
(d) the name and residence address of the notifying stockholder; (e) the number
of shares of capital stock of the Corporation owned by the notifying
stockholder; (f) the consent in writing of the proposed nominee as to the
proposed nominee's name being placed in nomination for Director; (g) a
description of all arrangements or understandings between such notifying
stockholder and each proposed nominee and any other person or persons (including
their names) pursuant to which the nomination(s) are to be made by such
notifying stockholder, (h) a representation that such notifying stockholder
intends to appear in person or by proxy at the meeting to nominate the persons
named in its notice; and (i) all information relating to such proposed nominee
that would be required to be disclosed by Regulation 14A under the Securities
Exchange Act of 1934, as amended, and Rule 14a-11 promulgated thereunder,
assuming such provisions would be applicable to the solicitation of proxies for
such proposed nominee. Nominations not made in accordance herewith shall be
disregarded and, upon the chairman's instructions, the teller shall disregard
all votes cast for each such nominee.
SECTION 5. Vacancies; Removal of Director. A vacancy on the Board of
Directors may be filled only in accordance with the provisions of the Charter.
Any director or the entire Board of Directors may be removed only in accordance
with the provisions of the Charter.
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SECTION 6. Place of Meeting. The Board of Directors may hold their
meetings and have one or more offices, and keep the books of the Corporation,
either within or outside the State of Maryland, at such place or places as they
may from time to time determine by resolution or by written consent of all the
directors. The Board of Directors may hold their meetings by conference
telephone or other similar electronic communications equipment in accordance
with the provisions of Maryland General Corporation Law.
SECTION 7. Regular Meetings. Regular meetings of the Board of Directors
may be held without notice at such time and place as shall from time to time be
determined by resolution of the Board, provided that notice of every resolution
of the Board fixing or changing the time or place for the holding of regular
meetings of the Board shall be mailed to each director at least three (3) days
before the first meeting held in pursuance thereof. The annual meeting of the
Board of Directors shall be held immediately following the annual stockholders'
meeting at which a Board of Directors is elected. Any business may be transacted
at any regular meeting of the Board.
SECTION 8. Special Meetings. Special meetings of the Board of Directors
shall be held whenever called by direction of the Chairman, or the President,
and must be called by the Chairman, the President or the Secretary upon written
request of a majority of the Board of Directors, by mailing the same at least
two (2) days prior to the meeting, or by personal delivery, facsimile
transmission, telegraphing or telephoning the same on the day before the
meeting, to each director; but such notice may be waived by any director. A
special meeting of the Board of Directors shall be held on such date and at any
place as may be designated from time to time by the Board of Directors. Unless
otherwise indicated in the notice thereof, any and all business may be
transacted at any special meeting. At any meeting at which every director shall
be present, even though without notice, any business may be transacted and any
director may in writing waive notice of the time, place and objects of any
special meeting.
SECTION 9. Quorum. A majority of the whole number of directors shall
constitute a quorum for the transaction of business at all meetings of the Board
of Directors, but, if at any meeting less than a quorum shall be present, a
majority of those present may adjourn the meeting from time to time, and the act
of a majority of the directors present at any meeting at which there is a quorum
shall be the act of the Board of Directors, except as may be otherwise
specifically provided by law or by the Corporation's Charter or by these
By-laws.
SECTION 10. Compensation of Directors. Directors may receive a fixed
sum and expenses for attendance at regular and special meetings and committee
meetings, or any combination of the foregoing as may be determined from time to
time by the Board of Directors, and nothing contained herein shall be construed
to preclude any Director from serving the Corporation in any other capacity and
receiving compensation therefore.
SECTION 11. Advisory Directors. The Board of Directors may by
resolution appoint advisory directors to the Board of Directors, who may also
serve as directors emeriti, and shall have such authority and receive such
compensation and reimbursement as the Board of Directors shall provide. Advisory
directors or directors emeriti shall not have the authority to participate by
vote in the transaction of business.
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SECTION 12. Committees. The Board of Directors may appoint from among
its members an Executive Committee, an Audit Committee, a Compensation
Committee, a Nominating Committee, and other committees composed of one or more
directors and delegate to these committees any of the powers of the Board of
Directors, except the power to authorize dividends on stock, elect directors,
issue stock other than as provided in the next sentence, recommend to the
stockholders any action which requires stockholder approval, amend these
By-Laws, or approve any merger or share exchange which does not require
stockholder approval. If the Board of Directors has given general authorization
for the issuance of stock providing for or establishing a method or procedure
for determining the maximum number of shares to be issued, a committee of the
Board of Directors, in accordance with that general authorization or any stock
option or other plan or program adopted by the Board of Directors, may authorize
or fix the terms of stock subject to classification or reclassification and the
terms on which any stock may be issued, including all terms and conditions
required or permitted to be established or authorized by the Board of Directors.
Until September 30, 2005 the Audit Committee, the Compensation Committee, and
the Nominating Committee shall be composed of an even number of directors of
half of whom are also directors of The Centreville National Bank of Maryland and
half of whom are also directors of The Talbot Bank.
SECTION 13. Committee Procedure. Each committee may fix rules of
procedure for its business. A majority of the members of a committee shall
constitute a quorum for the transaction of business and the act of a majority of
those present at a meeting at which a quorum is present shall be the act of the
committee. The members of a committee present at any meeting, whether or not
they constitute a quorum, may appoint a director to act in the place of an
absent member. Any action required or permitted to be taken at a meeting of a
committee may be taken without a meeting, if an unanimous written consent which
sets forth the action is signed by each member of the committee and filed with
the minutes of the committee.
SECTION 14. Emergency. In the event of a state of disaster of
sufficient severity to prevent the conduct and management of the affairs and
business of the Corporation by its directors and officers as contemplated by the
Charter and these By-Laws, any two or more available members of the then
incumbent Executive Committee shall constitute a quorum of that Committee for
the full conduct and management of the affairs and business of the Corporation
in accordance with the provisions of Article II, Section 13. In the event of the
unavailability, at such time, of a minimum of two members of the then incumbent
Executive Committee, the available directors shall elect an Executive Committee
consisting of any two members of the Board of Directors, whether or not they be
officers of the Corporation, which two members of the Board of Directors,
whether or not they be officers of the Corporation, which two members shall
constitute the Executive Committee for the full conduct and management of the
affairs of the Corporation in accordance with the foregoing provisions of this
Section. This Section shall be subject to implementation by resolution of the
Board of Directors passed from time to time for that purpose, and any provisions
of these By-Laws (other than this Section) and any resolutions which are
contrary to the provisions of this Section or to the provisions of any such
implementary resolutions shall be suspended until it shall be determined by any
interim Executive Committee acting under this Section that it shall be to the
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advantage of the Corporation to resume the conduct and management of its affairs
and business under all the other provisions of these By-Laws.
ARTICLE III
OFFICERS
SECTION 1. Election, Tenure, and Compensation. The officers of the
Corporation shall be a President, one or more Vice-Presidents (if so elected by
the Board of Directors), a Secretary, and a Treasurer, and such other officers
as the Board of Directors from time to time may consider necessary for the
proper conduct of the business of the Corporation. It may also have, and until
September 30, 2005 shall have, a Chairman of the Board. The Board of Directors
shall designate who shall serve as chief executive officer, who shall have
general supervision of the business and affairs of the Corporation, and may
designate a chief operating officer, who shall have supervision of the
operations of the Corporation. In the absence of any designation the Chairman of
the Board, if there be one, shall serve as chief executive officer and the
President shall serve as chief operating officer. In the absence of the Chairman
of the Board, or if there be none, the President shall be the chief executive
officer. The officers shall be elected annually by the Board of Directors at its
first meeting following the annual meeting of the stockholders. The Chairman
shall be a director and the other officers may, but need not be, directors. Any
two or more of the above officers, except those of President and Vice President,
may be held by the same person, but no officer shall execute, acknowledge or
verify any instrument in more than one capacity if such instrument is required
by law or by these By-laws to be executed, acknowledged or verified by any two
or more officers. The compensation or salary paid all officers of the
Corporation shall be fixed by resolutions adopted by the Board of Directors.
Except where otherwise expressly provided in a contract duly authorized
by the Board of Directors, all officers and agents of the Corporation shall be
subject to removal at any time by the affirmative vote of a majority of the
whole Board of Directors, and all officers, agents, and employees, other than
officers appointed by the Board of Directors, shall hold office at the
discretion of the Board of Directors or of the officers appointing them.
SECTION 2. Powers and Duties of the Chairman. The Chairman, if one be
elected, shall preside at all meetings of the stockholders and of the Board of
Directors. Until September 30, 2005 the Chairman of the Board shall be a
director that is also a non-employee director of The Centreville National Bank
of Maryland. The Chairman shall be ex-officio a member of all the standing
committees. The Chairman shall do and perform such other duties as may, from
time to time, be assigned to the Chairman by the Board of Directors.
SECTION 3. Powers and Duties of the President. The President shall be
the chief executive officer of the Corporation and shall have general charge and
control of all its business affairs and properties. The President may sign and
execute all authorized bonds, contracts or other obligations in the name of the
Corporation. The President shall have the general powers and duties of
supervision and management usually vested in the office of President of a
corporation. The President shall do and perform such other duties as may, from
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time to time, be assigned to the President by the Board of Directors. Until
September 30, 2005, the President shall be the President of The Talbot Bank
unless the entire Board of Directors by two-thirds vote determines otherwise.
SECTION 4. Powers and Duties of the Vice President. The Board of
Directors may elect one or more Vice Presidents. Any Vice President (unless
otherwise provided by resolution of the Board of Directors) may sign and execute
all authorized bonds, contracts, or other obligations in the name of the
Corporation. Each Vice President shall have such other powers and shall perform
such other duties as may be assigned to the Vice President by the Board of
Directors or by the Chairman or the President. In case of the absence or
disability of the President, the duties of that office shall be performed by any
Vice President, and the taking of any action by such Vice President in place of
the President shall be conclusive evidence of the absence or disability of the
President. Until September 30, 2005, the Corporation shall also have an
Executive Vice President, who shall also serve as the Chief Operating Officer,
who shall be the President of The Centreville National Bank of Maryland unless
the entire Board of Directors by two-thirds vote determines otherwise.
SECTION 5. Secretary. The Secretary shall give, or cause to be given,
notice of all meetings of stockholders and directors and all other notices
required by law or by these By-laws, and in case of the Secretary's absence or
refusal or neglect to do so, any such notice may be given by any person
thereunto directed by the Chairman or the President, or by the directors or
stockholders upon whose written requisition the meeting is called as provided in
these By-laws. The Secretary shall record all the proceedings of the meetings of
the stockholders and of the directors in books provided for that purpose, and
shall perform such other duties as may be assigned to him by the directors, the
Chairman, or the President. The Secretary shall have custody of the seal of the
Corporation and shall affix the same to all instruments requiring it, when
authorized by the Board of Directors, the Chairman, or the President, and attest
the same. In general, the Secretary shall perform all the duties generally
incident to the office of Secretary, subject to the control of the Board of
Directors, the Chairman, and the President.
SECTION 6. Treasurer. The Treasurer shall have custody of all the funds
and securities of the Corporation, and shall keep full and accurate account of
receipts and disbursements in books belonging to the Corporation. The Treasurer
shall deposit all moneys and other valuables in the name and to the credit of
the Corporation in such depository or depositories as may be designated by the
Board of Directors.
The Treasurer shall disburse the funds of the Corporation as may be
ordered by the Board of Directors, taking proper vouchers for such
disbursements. The Treasurer shall render to the Chairman, the President and the
Board of Directors, whenever any of them so requests, an account of all
transactions as Treasurer and of the financial condition of the Corporation.
The Treasurer shall give the Corporation a bond, if required by the
Board of Directors, in a sum, and with one or more sureties, satisfactory to the
Board of Directors, for the faithful performance of the duties of the office and
for the restoration to the Corporation in case of the Treasurer's death,
resignation, retirement or removal from office of all books, papers, vouchers,
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moneys, and other properties of whatever kind in the Treasurer's possession or
under the Treasurer's control belonging to the Corporation.
The Treasurer shall perform all the duties generally incident to the
office of the Treasurer, subject to the control of the Board of Directors, the
Chairman, and the President.
SECTION 7. Assistant Secretary. The Board of Directors may appoint an
Assistant Secretary or more than one Assistant Secretary. Each Assistant
Secretary shall (except as otherwise provided by resolution of the Board of
Directors) have power to perform all duties of the Secretary in the absence or
disability of the Secretary and shall have such other powers and shall perform
such other duties as may be assigned by the Board of Directors, the Chairman, or
the President. In case of the absence or disability of the Secretary, the duties
of the office shall be performed by any Assistant Secretary, and the taking of
any action by any such Assistant Secretary in place of the Secretary shall be
conclusive evidence of the absence or disability of the Secretary.
SECTION 8. Assistant Treasurer. The Board of Directors may appoint an
Assistant Treasurer or more than one Assistant Treasurer. Each Assistant
Treasurer shall (except as otherwise provided by resolution of the Board of
Directors) have power to perform all duties of the Treasurer in the absence or
disability of the Treasurer and shall have such other powers and shall perform
such other duties as may be assigned by the Board of Directors, the Chairman or
the President. In case of the absence or disability of the Treasurer, the duties
of the office shall be performed by any Assistant Treasurer, and the taking of
any action by any such Assistant Treasurer in place of the Treasurer shall be
conclusive evidence of the absence or disability of the Treasurer.
ARTICLE IV
CAPITAL STOCK
SECTION 1. Issue of Certificates of Stock. The certificates for shares
of the stock of the Corporation shall be of such form not inconsistent with the
Charter, or its amendments, as shall be approved by the Board of Directors. All
certificates shall be signed by the Chairman, the President or by any
Vice-President and counter-signed by the Secretary, an Assistant Secretary,
Treasurer or Assistant Treasurer, and sealed with the seal of the Corporation.
All certificates for each class of stock shall be consecutively numbered. The
name of the person owning the shares issued and the address of the holder, shall
be entered in the Corporation's books. All certificates surrendered to the
Corporation for transfer shall be canceled and no new certificates representing
the same number of shares shall be issued until the former certificate or
certificates for the same number of shares shall have been so surrendered, and
canceled, unless a certificate of stock be lost or destroyed, in which event
another may be issued in its stead upon proof of such loss or destruction and
the giving of a satisfactory bond of indemnity not exceeding an amount double
the value of the stock. Both such proof and such bond shall be in a form
approved by the general counsel of the Corporation and by the Transfer Agent of
the Corporation and by the Registrar of the stock.
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SECTION 2. Transfer of Shares. Shares of the capital stock of the
Corporation shall be transferred on the books of the Corporation only by the
holder thereof in person or by the holder's attorney upon surrender and
cancellation of certificates for a like number of shares as hereinbefore
provided.
SECTION 3. Registered Stockholders. The Corporation shall be entitled
to treat the holder of record of any share or shares of stock as the holder in
fact thereof and accordingly shall not be bound to recognize any equitable or
other claim to or interest in such share in the name of any other person,
whether or not it shall have express or other notice thereof, save as expressly
provided by the Laws of Maryland.
SECTION 4. Closing Transfer Books. The Board of Directors may fix the
period, not exceeding twenty (20) days, during which time the books of the
Corporation shall be closed against transfers of stock, or, in lieu thereof, the
directors may fix a date not less than ten (10) days nor more than sixty (60)
days preceding the date of any meeting of stockholders or any dividend payment
date or any date for the allotment of rights, as a record date for the
determination of the stockholders entitled to notice of and to vote at such
meeting or to receive such dividends or rights as the case may be; and only
stockholders of record on such date shall be entitled to notice of and to vote
at such meeting or to receive such dividends or rights as the case may be.
SECTION 5. Lost Stock Certificates. The Board of Directors may
determine the conditions for issuing a new stock certificate in place of one
which is alleged to have been lost, stolen, or destroyed, or the Board of
Directors may delegate such power to any officer or officers of the Corporation.
In their discretion, the Board of Directors or such officer or officers may
require the owner of the certificate to give bond, with sufficient surety, to
indemnify the Corporation against any loss or claim arising as a result of the
issuance of a new certificate. In their discretion, the Board of Directors or
such officer or officers may refuse to issue such new certificate save upon the
order of some court having jurisdiction in the premises.
SECTION 6. Exemption from Control Share Acquisition Statute. The
provisions of Sections 3-701 to 3-709 of the Maryland General Corporation Law
shall not apply to any share of the capital stock of the Corporation. Such
shares of capital stock are exempted from such Sections to the fullest extent
permitted by Maryland law.
ARTICLE V
BANK ACCOUNTS AND LOANS
SECTION 1. Bank Accounts. Such officers or agents of the Corporation as
from time to time shall be designated by the Board of Directors shall have
authority to deposit any funds of the Corporation in such banks or trust
companies as shall from time to time be designated by the Board of Directors and
such officers or agents as from time to time authorized by the Board of
Directors may withdraw any or all of the funds of the Corporation so deposited
in any bank or trust or trust company, upon checks, drafts or other instruments
or orders for the payment of money, drawn against the account or in the name or
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behalf of this Corporation, and made or signed by such officers or agents; and
each bank or trust company with which funds of the Corporation are so deposited
is authorized to accept, honor, cash and pay, without limit as to amount, all
checks, drafts or other instruments or orders for the payment of money, when
drawn, made or signed by officers or agents so designated by the Board of
Directors until written notice of the revocation of the authority of such
officers or agents by the Board of Directors shall have been received by such
bank or trust company. There shall from time to time be certified to the banks
or trust companies in which funds of the Corporation are deposited, the
signature of the officers or agents of the Corporation so authorized to draw
against the same. In the event that the Board of Directors shall fail to
designate the persons by whom checks, drafts and other instruments or orders for
the payment of money shall be signed, as hereinabove provided in this Section,
all of such checks, drafts and other instruments or orders for the payment of
money shall be signed by the Chairman, the President or a Vice President and
counter-signed by the Secretary or Treasurer or an Assistant Secretary or an
Assistant Treasurer of the Corporation.
SECTION 2. Loans. Such officers or agents of the Corporation as from
time to time shall be designated by the Board of Directors shall have authority
to effect loans, advances or other forms of credit at any time or times for the
Corporation from such banks, trust companies, institutions, corporations, firms
or persons as the Board of Directors shall from time to time designate, and as
security for the repayment of such loans, advances, or other forms of credit to
assign, transfer, endorse, and deliver, either originally or in addition or
substitution, any or all stock, bonds, rights, and interests of any kind in or
to stocks or bonds, certificates of such rights or interests, deposits,
accounts, documents covering merchandise, bills and accounts receivable and
other commercial paper and evidences or debt at any time held by the
Corporation; and for such loans, advances, or other forms of credit to make,
execute and deliver one or more notes, acceptances or written obligations of the
Corporation on such terms, and with such provisions as to the security or sale
or disposition thereof as such officers or agents shall deem proper; and also to
sell to, or discount or rediscount with, such banks, trust companies,
institutions, corporations, firms or persons any and all commercial paper, bills
receivable, acceptances and other instruments and evidences of debt at any time
held by the Corporation, and to that end to endorse, transfer and deliver the
same. There shall from time to time be certified to each bank, trust company,
institution, corporation, firm or person so designated the signature of the
officers or agents so authorized; and each bank, trust company, institution,
corporation, firm or person is authorized to rely upon such certification until
written notice of the revocation by the Board of Directors of the authority of
such officers or agents shall be delivered to such bank, trust company,
institution, corporation, firm or person.
ARTICLE VI
MISCELLANEOUS PROVISIONS
SECTION 1. Fiscal Year. The fiscal year of the Corporation shall begin
on the first day of January of each year.
SECTION 2. Notices. Whenever, under the provisions of these By-laws,
notice is required to be given to any director, officer or stockholder, unless
otherwise provided in these By-laws, such notice shall be deemed given if in
writing, and personally delivered, or sent by telefax, or telegram, or by mail,
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by depositing the same in a post office or letter box, in a postpaid sealed
wrapper, addressed to each stockholder, officer or director, as the case may be,
at such address as appears on the books of the Corporation, or in default of any
other address, to such director, officer or stockholder, at the general post
office in the Town of Centreville, Maryland, and such notice shall be deemed to
be given at the time the same is so personally delivered, telefaxed, telegraphed
or so mailed. Any stockholder, director or officer may waive any notice required
to be given under these By-laws.
SECTION 3. Voting Upon Stocks. Unless otherwise ordered by the Board of
Directors, the President and the Vice President, or any of them, shall have full
power and authority on behalf of the Corporation to attend and to vote and to
grant proxies to be used at any meetings of stockholders of any corporation in
which the Corporation may hold stock. The Board of Directors, however, may by
resolution appoint some other person to vote such shares, in which case such
person shall be entitled to vote such shares upon the production of a certified
copy of such resolution. Until September 30, 2005, any such person voting stock
of a banking institution registered in the name of the Corporation in the
election or removal of directors of such institution must cast votes in favor of
the election or against removal of directors of such institution, unless
otherwise directed by the affirmative vote of not less than two-thirds of the
entire Board of Directors.
ARTICLE VII
AMENDMENT OF BY-LAWS
In accordance with the Charter, these By-Laws may be repealed, altered,
amended or rescinded and new by-laws may be adopted (a) by the stockholders of
the Corporation (considered for this purpose as one class) by the affirmative
vote of not less than a majority of all the votes entitled to be cast by the
outstanding shares of capital stock of the Corporation generally in the election
of directors which are cast on the matter at any meeting of the stockholders
called for that purpose (provided that notice of such proposal is included in
the notice of such meeting) or (b) by the Board of Directors by the affirmative
vote of not less than two-thirds of the Board of Directors at a meeting held in
accordance with the provisions of these By-Laws.
ARTICLE VIII
INDEMNIFICATION
SECTION 1. Definitions. As used in this Article VIII, any word or words
that are defined in Section 2-418 of the Corporations and Associations Article
of the Annotated Code of Maryland (the "Indemnification Section"), as amended
from time to time, shall have the same meaning as provided in the
Indemnification Section.
SECTION 2. Indemnification of Directors and Officers. The Corporation
shall indemnify and advance expenses to a director or officer of the Corporation
in connection with a proceeding to the fullest extent permitted by and in
accordance with the Indemnification Section. Notwithstanding the foregoing, the
Corporation shall be required to indemnify a director or officer in connection
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with a proceeding commenced by such director or officer against the Corporation
or its directors or officers only if the proceeding was authorized by the Board
of Directors.
SECTION 3. Indemnification of Other Agents and Employees. With respect
to an employee or agent, other than a director or officer of the Corporation,
the Corporation may, as determined by and in the discretion of the Board of
Directors of the Corporation, indemnify and advance expenses to such employees
or agents in connection with a proceeding to the extent permitted by and in
accordance with the Indemnification Section.
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APPENDIX IV
FORM OF SHORE BANCSHARES
STOCK OPTION AGREEMENT
This STOCK OPTION AGREEMENT (this "Option Agreement") dated as of July
26, 2000, between SHORE BANCSHARES, INC. ("Shore Bancshares"), a Maryland
corporation, and TALBOT BANCSHARES, INC. ("Talbot Bancshares"), a Maryland
corporation, recites and provides:
A. The Board of Directors of Shore Bancshares and Talbot Bancshares
have approved a Plan and Agreement to Merge dated July 25, 2000 (the "Plan")
providing for the merger (the "Merger") of Shore Bancshares and Talbot
Bancshares.
B. As a condition to and as consideration for Talbot Bancshares' entry
into the Plan and to induce such entry, Shore Bancshares has agreed to grant to
Talbot Bancshares the option set forth herein to purchase authorized but
unissued shares of Shore Bancshares Common Stock.
NOW, THEREFORE, the parties agree as follows:
1. Definitions. Capitalized terms defined in the Plan and used herein
shall have the same meanings as in the Plan.
2. Grant of Option. Subject to the terms and conditions set forth
herein, Shore Bancshares hereby grants to Talbot Bancshares an option (the
"Option") to purchase up to 380,912 shares of Shore Bancshares Common Stock at
an exercise price of $14.62 per share payable in cash as provided in Section 4;
provided, however, that in the event Shore Bancshares issues or agrees to issue
any shares of Shore Bancshares Common Stock (other than as permitted under the
Plan) at a price less than $14.62 per share (as adjusted pursuant to Section 6),
the exercise price shall be such lesser price.
3. Exercise of Option. (a) Unless Talbot Bancshares shall have breached
in any material respect any covenant or representation contained in the Plan and
such breach has not been cured, Talbot Bancshares may exercise the Option, in
whole or part, at any time or from time to time if a Purchase Event (as defined
below) shall have occurred and be continuing; provided, that to the extent the
Option shall not have been exercised, it shall terminate and be of no further
force and effect upon the earliest to occur of (i) the Effective Date of the
Merger, or (ii) the termination of the Plan in accordance with the provisions
thereof prior to the occurrence of a Purchase Event (other than as a result of a
willful breach by Shore Bancshares of any Specified Covenant or as a result of
failure of Shore Bancshares' stockholders to approve the Plan by the vote
required under applicable law or under Shore Bancshares' Charter), or (iii) 12
months after termination of the Plan due to a willful breach by Shore Bancshares
of any Specified Covenant or failure of Shore Bancshares' stockholders to
approve the Plan by the vote required under applicable law or under Shore
Bancshares' Charter; provided, however, that any purchase of shares upon
exercise of the Option shall be subject to compliance with applicable law,
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including, without limitation, the Bank Holding Company Act of 1956, as amended.
Any exercise of the Option shall be subject to compliance with applicable
provisions of law.
(b) As used herein, a "Purchase Event" shall mean any of the
following events or transactions occurring after the date hereof:
(i) Shore Bancshares or The Centreville National Bank
of Maryland ("Centreville Bank"), without having received Talbot
Bancshares' prior written consent, shall have entered into an agreement
with any person (x) to merge or consolidate, or enter into any similar
transaction, except as contemplated in the Plan, (y) to purchase,
lease, or otherwise acquire all or substantially all of the assets of
Shore Bancshares or Centreville Bank, or (z) to purchase or otherwise
acquire (including by way of merger, consolidation, share exchange, or
any similar transaction) securities representing 15% or more of the
voting power of Shore Bancshares or Centreville Bank;
(ii) any person (other than Shore Bancshares or
Centreville Bank in a fiduciary capacity, or Talbot Bancshares or
Talbot Bank in a fiduciary capacity) shall have acquired beneficial
ownership or the right to acquire beneficial ownership of 15% or more
of the outstanding shares of Shore Bancshares Common Stock after the
date hereof (the term "beneficial ownership" for purposes of this
Option Agreement having the meaning assigned thereto in Section 13(d)
of the Securities Exchange Act of 1934 (the "Exchange Act") and the
regulations promulgated thereunder);
(iii) any person shall have made a bona fide proposal
to Shore Bancshares by public announcement or written communication
that is or becomes the subject of public disclosure to acquire Shore
Bancshares or Centreville Bank by merger, consolidation, purchase of
all or substantially all of its assets, or any other similar
transaction, and following such bona fide proposal the stockholders of
Shore Bancshares vote not to adopt the Plan; or
(iv) Shore Bancshares shall have willfully breached
any Specified Covenant following a bona fide proposal to Shore
Bancshares or Centreville Bank to acquire Shore Bancshares or
Centreville Bank by merger, consolidation, purchase of all or
substantially all of its assets, or any other similar transaction,
which breach would entitle Talbot Bancshares to terminate the Plan
(without regard to the cure periods provided for therein) and such
breach shall not have been cured prior to the Notice Date (as defined
below).
If more than one of the transactions giving rise to a Purchase Event under this
Section 3(b) is undertaken or effected, then all such transactions shall give
rise only to one Purchase Event, which Purchase Event shall be deemed continuing
for all purposes hereunder until all such transactions are abandoned. As used in
this Option Agreement, "person" shall have the meanings specified in Sections
3(a)(9) and 13(d)(3) of the Exchange Act.
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(c) In the event Talbot Bancshares wishes to exercise the
Option, it shall send to Shore Bancshares a written notice (the date of which
being herein referred to as the "Notice Date") specifying (i) the total number
of shares it will purchase pursuant to such exercise, and (ii) a place and date
not earlier than three business days nor later than 60 business days after the
Notice Date for the closing of such purchase ("Closing Date"); provided, that if
prior notification to or approval of any federal or state regulatory agency is
required in connection with such purchase, Talbot Bancshares shall promptly file
the required notice or application for approval and shall expeditiously process
the same and the period of time that otherwise would run pursuant to this
sentence shall run instead from the date on which any required notification
period has expired or been terminated or such approval has been obtained and any
requisite waiting period shall have passed.
(d) As used herein, "Specified Covenant" means any covenant
made by Shore Bancshares and contained in Section 5 of the Plan.
4. Payment and Delivery of Certificates. (a) At the closing referred to
in Section 3, Talbot Bancshares shall pay to Shore Bancshares the aggregate
purchase price for the shares of Shore Bancshares Common Stock purchased
pursuant to the exercise of the Option in immediately available funds by a wire
transfer to a bank account designated by Shore Bancshares.
(b) At such closing, simultaneously with the delivery of funds
as provided in subsection (a), Shore Bancshares shall deliver to Talbot
Bancshares a certificate or certificates representing the number of shares of
Shore Bancshares Common Stock purchased by Talbot Bancshares, and Talbot
Bancshares shall deliver to Shore Bancshares a letter agreeing that Talbot
Bancshares will not offer to sell or otherwise dispose of such shares in
violation of applicable law or the provisions of this Option Agreement.
(c) Certificates for Shore Bancshares Common Stock delivered
at a closing hereunder shall be endorsed with a restrictive legend which shall
read substantially as follows:
"The transfer of the shares represented by this certificate is subject
to certain provisions of a Stock Option Agreement between the
registered holder hereof and SHORE BANCSHARES, INC. ("SHORE
BANCSHARES") and to resale restrictions arising under the Securities
Act of 1933, as amended, a copy of which agreement is on file at the
principal office of Shore Bancshares. A copy of such agreement will be
provided to the holder hereof without charge upon receipt by Shore
Bancshares of a written request."
It is understood and agreed that the above legend shall be
removed by delivery of substitute certificate(s) without such legend if Talbot
Bancshares shall have delivered to Shore Bancshares a copy of a letter from the
staff of the Securities and Exchange Commission, or an opinion of counsel, in
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form and substance satisfactory to Shore Bancshares, to the effect that such
legend is not required for purposes of the Securities Act of 1933, as amended
(the "Securities Act").
5. Representations. Shore Bancshares represents, warrants, and
covenants to Talbot Bancshares as follows:
(a) Shore Bancshares shall at all times maintain sufficient
authorized but unissued shares of Shore Bancshares Common Stock so that the
Option may be exercised without authorization of additional shares of Shore
Bancshares Common Stock.
(b) The shares to be issued upon due exercise, in whole or in
part, of the Option, when paid for as provided herein, will be duly authorized,
validly issued, fully paid, and nonassessable.
6. Adjustment Upon Changes in Capitalization. In the event of any
change in Shore Bancshares Common Stock by reason of stock dividends, split-ups,
consolidation, recapitalizations, combinations, exchanges of shares, or the
like, the type and number of shares subject to the Option, and the purchase
price per share, as the case may be, shall be adjusted appropriately. In the
event that any additional shares of Shore Bancshares Common Stock are issued or
otherwise become outstanding after the date of this Option Agreement (other than
pursuant to this Option Agreement), the number of shares of Shore Bancshares
Common Stock subject to the Option shall be adjusted so that, after such
issuance, it equals 19.9% of the number of shares of Shore Bancshares Common
Stock then issued and outstanding without giving effect to any shares subject or
issued pursuant to the Option. Nothing contained in this Section 6 shall be
deemed to authorize Shore Bancshares to breach any provision of the Plan.
7. Registration Rights. If requested by Talbot Bancshares, Shore
Bancshares shall as expeditiously as possible file a registration statement on a
form of general use under the Securities Act if necessary in order to permit the
sale or other disposition of the shares of Shore Bancshares Common Stock that
have been acquired upon exercise of the Option in accordance with the intended
method of sale or other disposition requested by Talbot Bancshares. Talbot
Bancshares shall provide all information reasonably requested by Shore
Bancshares for inclusion in any registration statement to be filed hereunder.
Shore Bancshares will use its best efforts to cause such registration statement
first to become effective and then to remain effective for such period not in
excess of 270 days from the day such registration statement first becomes
effective as may be reasonably necessary to effect such sales or other
dispositions. Only one registration may be effected under this Section 7 at
Shore Bancshares' expense, and which shall not include underwriting commissions
and the fees and disbursements of Talbot Bancshares' counsel attributable to the
registration of such Shore Bancshares Common Stock. The filing of any
registration statement hereunder may be delayed for such period of time as may
reasonably be required to facilitate any public distribution by Shore Bancshares
of Shore Bancshares Common Stock. If requested by Talbot Bancshares, in
connection with any such registration, Shore Bancshares will become a party to
any underwriting agreement relating to the sale of such shares, but only to the
extent of obligating itself in respect of representations, warranties,
indemnities, and other agreements customarily included in such underwriting
agreements. Upon receiving any request from Talbot Bancshares or assignee
thereof under this Section 7, Shore Bancshares agrees to send a copy thereof to
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Talbot Bancshares and to any assignee thereof known to Shore Bancshares, in each
case by promptly mailing the same, postage prepaid, to the address of record of
the persons entitled to receive such copies.
8. Repurchase of Option at the Election of Talbot Bancshares. (a) At
the request of Talbot Bancshares at any time commencing (i) upon the first
occurrence of a Repurchase Event (as defined below) and ending 18 months
immediately thereafter Shore Bancshares (or any successor entity thereof) shall
repurchase from Talbot Bancshares (I) the Option and (II) all shares of Shore
Bancshares Common Stock purchased by Talbot Bancshares pursuant hereto with
respect to which Talbot Bancshares then has beneficial ownership. The date on
which Talbot Bancshares exercises its rights under this Section 8 is referred to
as the "Section 8 Request Date." Such repurchase shall be at an aggregate price
(the "Section 8 Repurchase Consideration") equal to:
(A) the aggregate Purchase Price paid by Talbot Bancshares
for any shares of Shore Bancshares Common Stock acquired pursuant
to the Option with respect to which Talbot Bancshares then has
beneficial ownership; plus
(B) the excess, if any, of (x) the Applicable Price (as
defined below) as of the Section 8 Request Date for a share of
Shore Bancshares Common Stock over (y) the Purchase Price (subject
to adjustment pursuant to Section 6), multiplied by the number of
shares of Shore Bancshares Common Stock with respect to which the
Option has not been exercised; plus
(C) the excess, if any, of the Applicable Price as of the
Section 8 Request Date over the Purchase Price paid (or, in the
case of shares of Shore Bancshares Common Stock with respect to
which the Option has been exercised but the Effective Date has not
occurred, payable (subject to adjustment pursuant to Section 6)) by
Talbot Bancshares for each share of Shore Bancshares Common Stock
with respect to which the Option has been exercised and with
respect to which Talbot Bancshares then has beneficial ownership,
multiplied by the number of such shares; plus
(D) the amount of the documented reasonable out-of-pocket
expenses incurred by Talbot Bancshares in connection with the Plan
and this Option Agreement and the transactions contemplated thereby
and hereby, including reasonable accounting, investment banking and
legal fees.
(b) If Talbot Bancshares exercises its rights under this Section 8,
Shore Bancshares shall, within 10 business days after the Section 8 Request
Date, pay the Section 8 Repurchase Consideration to Talbot Bancshares in
immediately available funds, and Talbot Bancshares shall surrender to Shore
Bancshares the Option and the certificates evidencing the shares of Shore
Bancshares Common Stock purchased hereunder with respect to which Talbot
Bancshares then has beneficial ownership and Talbot Bancshares shall warrant
that it has sole record and beneficial ownership of such shares and that the
same are then free and clear of all liens, claims, charges and encumbrances of
any kind whatsoever. Notwithstanding the foregoing, to the extent that prior
notification to or approval of the Board of Governors of the Federal Reserve
System (the "Federal Reserve") or other regulatory authority is required in
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connection with the payment of all or any portion of the Section 8 Repurchase
Consideration, Shore Bancshares shall deliver from time to time that portion of
the Section 8 Repurchase Consideration that it is not then so prohibited from
paying and shall promptly provide the required notice or application for
approval and shall expeditiously process the same (and Talbot Bancshares shall
cooperate with Shore Bancshares in the filing of any such notice or application
and the obtaining of any such approval), and the period of time that otherwise
would run pursuant to the preceding sentence for the payment of the portion of
the Section 8 Repurchase Consideration requiring such notification or approval
shall run instead from the date on which, as the case may be, (i) any required
notification period has expired or been terminated or (ii) such approval has
been obtained and, in either event, any requisite waiting period shall have
passed. If the Federal Reserve or any other regulatory authority disapproves of
any part of Shore Bancshares proposed repurchase pursuant to this Section 8,
Shore Bancshares shall promptly give notice of such fact to Talbot Bancshares
and redeliver to Talbot Bancshares the shares issued upon exercise of the
Option, it is then prohibited from repurchasing, and Talbot Bancshares shall
have the right to exercise the Option as to the number of shares issued upon
exercise of the Option for which the Option was exercisable at the Section 8
Request Date less the number of shares as to which payment has been made
pursuant to Section 8(a)(B); provided that if the Option shall have terminated
prior to the date of such notice or shall be scheduled to terminate at any time
before the expiration of a period ending on the thirtieth business day after
such date, Talbot Bancshares shall nonetheless have the right so to exercise the
Option or exercise its rights under Section 3 until the expiration of such
period of 30 business days. Notwithstanding anything herein to the contrary,
Shore Bancshares shall not be obligated to repurchase the Option or any shares
of Shore Bancshares Common Stock pursuant to this Section 8 on more than one
occasion.
(c) For purposes of this Option Agreement, the "Applicable Price," as
of any date, means the highest of (i) the highest price per share at which a
Tender Offer has been made for shares of Shore Bancshares Common Stock after the
date hereof and on or prior to such date, (ii) the price per share to be paid by
any third party for shares of Shore Bancshares Common Stock or the consideration
per share to be received by holders of Shore Bancshares Common Stock, in each
case pursuant to an agreement for a merger or other business combination
transaction with Shore Bancshares entered into on or prior to such date or (iii)
the highest bid price per share of Shore Bancshares Common Stock as quoted on
the National Association of Securities Dealers Automated Quotations System or,
if the shares of Shore Bancshares Common Stock are not quoted thereon, the
principal trading market on which such shares are traded as reported by a
recognized source during the 60 business days preceding such date. If the
consideration to be offered, paid or received pursuant to either of the
foregoing clauses (i) or (ii) shall be other than in cash, the value of such
consideration shall be determined in good faith by an independent nationally
recognized investment banking firm selected by Talbot Bancshares and reasonably
acceptable to Shore Bancshares, which determination shall be conclusive for all
purposes of this Option Agreement.
(d) As used herein, a "Repurchase Event" means the occurrence of any of
the Purchase Events specified in Section 3(b).
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9. Severability. If any term, provision, covenant, or restriction
contained in this Option Agreement is held by a court or a federal or state
regulatory agency of competent jurisdiction to be invalid, void, or
unenforceable, the remainder of the terms, provisions, and covenants, and
restrictions contained in this Option Agreement shall remain in full force and
effect, and shall in no way be affected, impaired, or invalidated. If for any
reason such court or regulatory agency determines that the Option will not
permit the holder to acquire the full number of shares of Shore Bancshares
Common Stock provided in Section 2 (as adjusted pursuant to Section 6), it is
the express intention of Shore Bancshares to allow the holder to acquire such
lesser number of shares as may be permissible, without any amendment or
modification hereof.
10. Miscellaneous.
(a) Expenses. Except as otherwise provided herein, each of the
parties hereto shall bear and pay all costs and expenses incurred by it or on
its behalf in connection with the transactions contemplated hereunder, including
fees and expenses of its own financial consultants, investment bankers,
accountants, and counsel.
(b) Entire Agreement. Except as otherwise expressly provided
herein, this Option Agreement contains the entire agreement between the parties
with respect to the transactions contemplated hereunder and supersedes all prior
arrangements or understandings with respect thereto, written or oral. The terms
and conditions of this Option Agreement shall inure to the benefit of and be
binding upon the parties hereto and their respective successors and assigns.
Nothing in this Option Agreement, expressed or implied, is intended to confer
upon any party, other than the parties hereto, and their respective successors
and assigns, any rights, remedies, obligations or liabilities under or by reason
of this Option Agreement, except as expressly provided herein.
(c) Assignment. Neither of the parties hereto may assign any
of its rights or obligations under this Option Agreement or the Option created
hereunder to any other person, without the express written consent of the other
party, except that in the event a Purchase Event shall have occurred and be
continuing Talbot Bancshares may assign in whole or in part its rights and
obligations hereunder; provided, however, that to the extent required by
applicable regulatory authorities, Talbot Bancshares may not assign its rights
under the Option except in (i) a widely dispersed public distribution, (ii) a
private placement in which no one party acquires the right to purchase in excess
of 2% of the voting shares of Shore Bancshares, (iii) an assignment to a single
party (e.g., a broker or investment banker) for the purpose of conducting a
widely dispersed public distribution on Talbot Bancshares' behalf, or (iv) any
other manner approved by applicable regulatory authorities.
(d) Notices. All notices or other communications which are
required or permitted hereunder shall be in writing and sufficient if delivered
in the manner and to the address provided for in or pursuant to Section 15 of
the Plan.
(e) Counterparts. This Option Agreement may be executed in any
number of counterparts, and each such counterpart shall be deemed to be an
original instrument, but all such counterparts together shall constitute but one
agreement.
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(f) Specific Performance. The parties agree that damages would
be an inadequate remedy for a breach of the provisions of this Option Agreement
by either party hereto and that this Option Agreement may be enforced by either
party hereto through injunctive or other equitable relief.
(g) Governing Law. This Option Agreement shall be governed by
and construed in accordance with the laws of the State of Maryland applicable to
agreements made and entirely to be performed within such state and such federal
laws as may be applicable.
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IN WITNESS WHEREOF, each of the parties hereto has executed this Option
Agreement as of the day and year first written above.
SHORE BANCSHARES, INC.
By: ______________________________________
Xxxxxx X. Xxxxxx
President and Chief Executive Officer
TALBOT BANCSHARES, INC.
By: ______________________________________
X. Xxxxxxxx Xxxxxxxx
President and Chief Executive Officer
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APPENDIX V
FORM OF TALBOT BANCSHARES STOCK OPTION AGREEMENT
This STOCK OPTION AGREEMENT (this "Option Agreement") dated as of July
26, 2000, between TALBOT BANCSHARES, INC. ("Talbot Bancshares"), a Maryland
corporation, and SHORE BANCSHARES, INC. ("Shore Bancshares"), a Maryland
corporation, recites and provides:
A. The Board of Directors of Talbot Bancshares and Shore Bancshares
have approved a Plan and Agreement to Merge dated July 25, 2000 (the "Plan")
providing for the merger (the "Merger") of Talbot Bancshares and Shore
Bancshares.
B. As a condition to and as consideration for Shore Bancshares' entry
into the Plan and to induce such entry, Talbot Bancshares has agreed to grant to
Shore Bancshares the option set forth herein to purchase authorized but unissued
shares of Talbot Bancshares Common Stock.
NOW, THEREFORE, the parties agree as follows:
1. Definitions. Capitalized terms defined in the Plan and used herein
shall have the same meanings as in the Plan.
2. Grant of Option. Subject to the terms and conditions set forth
herein, Talbot Bancshares hereby grants to Shore Bancshares an option (the
"Option") to purchase up to 237,780 shares of Talbot Bancshares Common Stock at
an exercise price of $45.00 per share payable in cash as provided in Section 4;
provided, however, that in the event Talbot Bancshares issues or agrees to issue
any shares of Talbot Bancshares Common Stock (other than as permitted under the
Plan) at a price less than $45.00 per share (as adjusted pursuant to Section 6),
the exercise price shall be such lesser price.
3. Exercise of Option. (a) Unless Shore Bancshares shall have breached
in any material respect any covenant or representation contained in the Plan and
such breach has not been cured, Shore Bancshares may exercise the Option, in
whole or part, at any time or from time to time if a Purchase Event (as defined
below) shall have occurred and be continuing; provided, that to the extent the
Option shall not have been exercised, it shall terminate and be of no further
force and effect upon the earliest to occur of (i) the Effective Date of the
Merger, or (ii) the termination of the Plan in accordance with the provisions
thereof prior to the occurrence of a Purchase Event (other than as a result of a
willful breach by Talbot Bancshares of any Specified Covenant or as a result of
failure of Talbot Bancshares' stockholders to approve the Plan by the vote
required under applicable law or under Talbot Bancshares' Charter), or (iii) 12
months after termination of the Plan due to a willful breach by Talbot
Bancshares of any Specified Covenant or failure of Talbot Bancshares'
stockholders to approve the Plan by the vote required under applicable law or
under Talbot Bancshares' Charter; provided, however, that any purchase of shares
upon exercise of the Option shall be subject to compliance with applicable law,
including, without limitation, the Bank Holding Company Act of 1956, as amended.
Any exercise of the Option shall be subject to compliance with applicable
provisions of law.
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(b) As used herein, a "Purchase Event" shall mean any of the
following events or transactions occurring after the date hereof:
(i) Talbot Bancshares or The Talbot Bank of Easton,
Maryland ("Talbot Bank"), without having received Shore Bancshares'
prior written consent, shall have entered into an agreement with any
person (x) to merge or consolidate, or enter into any similar
transaction, except as contemplated in the Plan, (y) to purchase,
lease, or otherwise acquire all or substantially all of the assets of
Talbot Bancshares or Talbot Bank, or (z) to purchase or otherwise
acquire (including by way of merger, consolidation, share exchange, or
any similar transaction) securities representing 15% or more of the
voting power of Talbot Bancshares or Talbot Bank;
(ii) any person (other than Talbot Bancshares or
Talbot Bank in a fiduciary capacity, or Shore Bancshares or Centreville
Bank in a fiduciary capacity) shall have acquired beneficial ownership
or the right to acquire beneficial ownership of 15% or more of the
outstanding shares of Talbot Bancshares Common Stock after the date
hereof (the term "beneficial ownership" for purposes of this Option
Agreement having the meaning assigned thereto in Section 13(d) of the
Securities Exchange Act of 1934 (the "Exchange Act") and the
regulations promulgated thereunder);
(iii) any person shall have made a bona fide proposal
to Talbot Bancshares by public announcement or written communication
that is or becomes the subject of public disclosure to acquire Talbot
Bancshares or Talbot Bank by merger, consolidation, purchase of all or
substantially all of its assets, or any other similar transaction, and
following such bona fide proposal the stockholders of Talbot Bancshares
vote not to adopt the Plan; or
(iv) Talbot Bancshares shall have willfully breached
any Specified Covenant following a bona fide proposal to Talbot
Bancshares or Talbot Bank to acquire Talbot Bancshares or Talbot Bank
by merger, consolidation, purchase of all or substantially all of its
assets, or any other similar transaction, which breach would entitle
Shore Bancshares to terminate the Plan (without regard to the cure
periods provided for therein) and such breach shall not have been cured
prior to the Notice Date (as defined below).
If more than one of the transactions giving rise to a Purchase Event under this
Section 3(b) is undertaken or effected, then all such transactions shall give
rise only to one Purchase Event, which Purchase Event shall be deemed continuing
for all purposes hereunder until all such transactions are abandoned. As used in
this Option Agreement, "person" shall have the meanings specified in Sections
3(a)(9) and 13(d)(3) of the Exchange Act.
(c) In the event Shore Bancshares wishes to exercise the
Option, it shall send to Talbot Bancshares a written notice (the date of which
being herein referred to as the "Notice Date") specifying (i) the total number
of shares it will purchase pursuant to such exercise, and (ii) a place and date
not earlier than three business days nor later than 60 business days after the
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Notice Date for the closing of such purchase ("Closing Date"); provided, that if
prior notification to or approval of any federal or state regulatory agency is
required in connection with such purchase, Shore Bancshares shall promptly file
the required notice or application for approval and shall expeditiously process
the same and the period of time that otherwise would run pursuant to this
sentence shall run instead from the date on which any required notification
period has expired or been terminated or such approval has been obtained and any
requisite waiting period shall have passed.
(d) As used herein, "Specified Covenant" means any covenant
made by Talbot Bancshares and contained in Section 5 of the Plan.
4. Payment and Delivery of Certificates. (a) At the closing referred to
in Section 3, Shore Bancshares shall pay to Talbot Bancshares the aggregate
purchase price for the shares of Talbot Bancshares Common Stock purchased
pursuant to the exercise of the Option in immediately available funds by a wire
transfer to a bank account designated by Talbot Bancshares.
(b) At such closing, simultaneously with the delivery of funds
as provided in subsection (a), Talbot Bancshares shall deliver to Shore
Bancshares a certificate or certificates representing the number of shares of
Talbot Bancshares Common Stock purchased by Shore Bancshares, and Shore
Bancshares shall deliver to Talbot Bancshares a letter agreeing that Shore
Bancshares will not offer to sell or otherwise dispose of such shares in
violation of applicable law or the provisions of this Option Agreement.
(c) Certificates for Talbot Bancshares Common Stock delivered
at a closing hereunder shall be endorsed with a restrictive legend which shall
read substantially as follows:
"The transfer of the shares represented by this certificate is subject
to certain provisions of a Stock Option Agreement between the
registered holder hereof and TALBOT BANCSHARES, INC. ("TALBOT
BANCSHARES") and to resale restrictions arising under the Securities
Act of 1933, as amended, a copy of which agreement is on file at the
principal office of Talbot Bancshares. A copy of such agreement will be
provided to the holder hereof without charge upon receipt by Talbot
Bancshares of a written request."
It is understood and agreed that the above legend shall be
removed by delivery of substitute certificate(s) without such legend if Shore
Bancshares shall have delivered to Talbot Bancshares a copy of a letter from the
staff of the Securities and Exchange Commission, or an opinion of counsel, in
form and substance satisfactory to Talbot Bancshares, to the effect that such
legend is not required for purposes of the Securities Act of 1933, as amended
(the "Securities Act").
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5. Representations. Talbot Bancshares represents, warrants, and
covenants to Shore Bancshares as follows:
(a) Talbot Bancshares shall at all times maintain sufficient
authorized but unissued shares of Talbot Bancshares Common Stock so that the
Option may be exercised without authorization of additional shares of Talbot
Bancshares Common Stock.
(b) The shares to be issued upon due exercise, in whole or in
part, of the Option, when paid for as provided herein, will be duly authorized,
validly issued, fully paid, and nonassessable.
6. Adjustment Upon Changes in Capitalization. In the event of any
change in Talbot Bancshares Common Stock by reason of stock dividends,
split-ups, consolidation, recapitalizations, combinations, exchanges of shares,
or the like, the type and number of shares subject to the Option, and the
purchase price per share, as the case may be, shall be adjusted appropriately.
In the event that any additional shares of Talbot Bancshares Common Stock are
issued or otherwise become outstanding after the date of this Option Agreement
(other than pursuant to this Option Agreement), the number of shares of Talbot
Bancshares Common Stock subject to the Option shall be adjusted so that, after
such issuance, it equals 19.9% of the number of shares of Talbot Bancshares
Common Stock then issued and outstanding without giving effect to any shares
subject or issued pursuant to the Option. Nothing contained in this Section 6
shall be deemed to authorize Talbot Bancshares to breach any provision of the
Plan.
7. Registration Rights. If requested by Shore Bancshares, Talbot
Bancshares shall as expeditiously as possible file a registration statement on a
form of general use under the Securities Act if necessary in order to permit the
sale or other disposition of the shares of Talbot Bancshares Common Stock that
have been acquired upon exercise of the Option in accordance with the intended
method of sale or other disposition requested by Shore Bancshares. Shore
Bancshares shall provide all information reasonably requested by Talbot
Bancshares for inclusion in any registration statement to be filed hereunder.
Talbot Bancshares will use its best efforts to cause such registration statement
first to become effective and then to remain effective for such period not in
excess of 270 days from the day such registration statement first becomes
effective as may be reasonably necessary to effect such sales or other
dispositions. Only one registration may be effected under this Section 7 at
Talbot Bancshares' expense, and which shall not include underwriting commissions
and the fees and disbursements of Shore Bancshares' counsel attributable to the
registration of such Talbot Bancshares Common Stock. The filing of any
registration statement hereunder may be delayed for such period of time as may
reasonably be required to facilitate any public distribution by Talbot
Bancshares of Talbot Bancshares Common Stock. If requested by Shore Bancshares,
in connection with any such registration, Talbot Bancshares will become a party
to any underwriting agreement relating to the sale of such shares, but only to
the extent of obligating itself in respect of representations, warranties,
indemnities, and other agreements customarily included in such underwriting
agreements. Upon receiving any request from Shore Bancshares or assignee thereof
under this Section 7, Talbot Bancshares agrees to send a copy thereof to Shore
Bancshares and to any assignee thereof known to Talbot Bancshares, in each case
95
by promptly mailing the same, postage prepaid, to the address of record of the
persons entitled to receive such copies.
8. Repurchase of Option at the Election of Shore Bancshares. (a) At the
request of Shore Bancshares at any time commencing (i) upon the first occurrence
of a Repurchase Event (as defined below) and ending 18 months immediately
thereafter Talbot Bancshares (or any successor entity thereof) shall repurchase
from Shore Bancshares (I) the Option and (II) all shares of Talbot Bancshares
Common Stock purchased by Shore Bancshares pursuant hereto with respect to which
Shore Bancshares then has beneficial ownership. The date on which Shore
Bancshares exercises its rights under this Section 8 is referred to as the
"Section 8 Request Date." Such repurchase shall be at an aggregate price (the
"Section 8 Repurchase Consideration") equal to:
(A) the aggregate Purchase Price paid by Shore Bancshares
for any shares of Talbot Bancshares Common Stock acquired pursuant
to the Option with respect to which Shore Bancshares then has
beneficial ownership; plus
(B) the excess, if any, of (x) the Applicable Price (as
defined below) as of the Section 8 Request Date for a share of
Talbot Bancshares Common Stock over (y) the Purchase Price (subject
to adjustment pursuant to Section 6), multiplied by the number of
shares of Talbot Bancshares Common Stock with respect to which the
Option has not been exercised; plus
(C) the excess, if any, of the Applicable Price as of the
Section 8 Request Date over the Purchase Price paid (or, in the
case of shares of Shore Bancshares Common Stock with respect to
which the Option has been exercised but the Effective Date has not
occurred, payable (subject to adjustment pursuant to Section 6)) by
Shore Bancshares for each share of Talbot Bancshares Common Stock
with respect to which the Option has been exercised and with
respect to which Shore Bancshares then has beneficial ownership,
multiplied by the number of such shares; plus
(D) the amount of the documented reasonable out-of-pocket
expenses incurred by Shore Bancshares in connection with the Plan
and this Option Agreement and the transactions contemplated thereby
and hereby, including reasonable accounting, investment banking and
legal fees.
(b) If Shore Bancshares exercises its rights under this Section 8,
Talbot Bancshares shall, within 10 business days after the Section 8 Request
Date, pay the Section 8 Repurchase Consideration to Shore Bancshares in
immediately available funds, and Shore Bancshares shall surrender to Talbot
Bancshares the Option and the certificates evidencing the shares of Talbot
Bancshares Common Stock purchased hereunder with respect to which Shore
Bancshares then has beneficial ownership and Shore Bancshares shall warrant that
it has sole record and beneficial ownership of such shares and that the same are
then free and clear of all liens, claims, charges and encumbrances of any kind
whatsoever. Notwithstanding the foregoing, to the extent that prior notification
to or approval of the Board of Governors of the Federal Reserve System (the
"Federal Reserve") or other regulatory authority is required in connection with
96
the payment of all or any portion of the Section 8 Repurchase Consideration,
Talbot Bancshares shall deliver from time to time that portion of the Section 8
Repurchase Consideration that it is not then so prohibited from paying and shall
promptly provide the required notice or application for approval and shall
expeditiously process the same (and Shore Bancshares shall cooperate with Talbot
Bancshares in the filing of any such notice or application and the obtaining of
any such approval), and the period of time that otherwise would run pursuant to
the preceding sentence for the payment of the portion of the Section 8
Repurchase Consideration requiring such notification or approval shall run
instead from the date on which, as the case may be, (i) any required
notification period has expired or been terminated or (ii) such approval has
been obtained and, in either event, any requisite waiting period shall have
passed. If the Federal Reserve or any other regulatory authority disapproves of
any part of Talbot Bancshares proposed repurchase pursuant to this Section 8,
Talbot Bancshares shall promptly give notice of such fact to Shore Bancshares
and redeliver to Shore Bancshares the shares issued upon exercise of the Option
it is then prohibited from repurchasing, and Shore Bancshares shall have the
right to exercise the Option as to the number of shares issued upon exercise of
the Option for which the Option was exercisable at the Section 8 Request Date
less the number of shares as to which payment has been made pursuant to Section
8(a)(B); provided that if the Option shall have terminated prior to the date of
such notice or shall be scheduled to terminate at any time before the expiration
of a period ending on the thirtieth business day after such date, Shore
Bancshares shall nonetheless have the right so to exercise the Option or
exercise its rights under Section 3 until the expiration of such period of 30
business days. Notwithstanding anything herein to the contrary, Talbot
Bancshares shall not be obligated to repurchase the Option or any shares of
Talbot Bancshares Common Stock pursuant to this Section 8 on more than one
occasion.
(c) For purposes of this Option Agreement, the "Applicable Price," as
of any date, means the highest of (i) the highest price per share at which a
Tender Offer has been made for shares of Talbot Bancshares Common Stock after
the date hereof and on or prior to such date, (ii) the price per share to be
paid by any third party for shares of Talbot Bancshares Common Stock or the
consideration per share to be received by holders of Talbot Bancshares Common
Stock, in each case pursuant to an agreement for a merger or other business
combination transaction with Talbot Bancshares entered into on or prior to such
date or (iii) the highest bid price per share of Talbot Bancshares Common Stock
as quoted on the National Association of Securities Dealers Automated Quotations
System or, if the shares of Talbot Bancshares Common Stock are not quoted
thereon, the principal trading market on which such shares are traded as
reported by a recognized source during the 60 business days preceding such date.
If the consideration to be offered, paid or received pursuant to either of the
foregoing clauses (i) or (ii) shall be other than in cash, the value of such
consideration shall be determined in good faith by an independent nationally
recognized investment banking firm selected by Shore Bancshares and reasonably
acceptable to Talbot Bancshares, which determination shall be conclusive for all
purposes of this Option Agreement.
(d) As used herein, a "Repurchase Event" means the occurrence of any of
the Purchase Events specified in Section 3(b).
97
9. Severability. If any term, provision, covenant, or restriction
contained in this Option Agreement is held by a court or a federal or state
regulatory agency of competent jurisdiction to be invalid, void, or
unenforceable, the remainder of the terms, provisions, and covenants, and
restrictions contained in this Option Agreement shall remain in full force and
effect, and shall in no way be affected, impaired, or invalidated. If for any
reason such court or regulatory agency determines that the Option will not
permit the holder to acquire the full number of shares of Talbot Bancshares
Common Stock provided in Section 2 (as adjusted pursuant to Section 6), it is
the express intention of Talbot Bancshares to allow the holder to acquire such
lesser number of shares as may be permissible, without any amendment or
modification hereof.
10. Miscellaneous.
(a) Expenses. Except as otherwise provided herein, each of the
parties hereto shall bear and pay all costs and expenses incurred by it or on
its behalf in connection with the transactions contemplated hereunder, including
fees and expenses of its own financial consultants, investment bankers,
accountants, and counsel.
(b) Entire Agreement. Except as otherwise expressly provided
herein, this Option Agreement contains the entire agreement between the parties
with respect to the transactions contemplated hereunder and supersedes all prior
arrangements or understandings with respect thereto, written or oral. The terms
and conditions of this Option Agreement shall inure to the benefit of and be
binding upon the parties hereto and their respective successors and assigns.
Nothing in this Option Agreement, expressed or implied, is intended to confer
upon any party, other than the parties hereto, and their respective successors
and assigns, any rights, remedies, obligations or liabilities under or by reason
of this Option Agreement, except as expressly provided herein.
(c) Assignment. Neither of the parties hereto may assign any
of its rights or obligations under this Option Agreement or the Option created
hereunder to any other person, without the express written consent of the other
party, except that in the event a Purchase Event shall have occurred and be
continuing Shore Bancshares may assign in whole or in part its rights and
obligations hereunder; provided, however, that to the extent required by
applicable regulatory authorities, Shore Bancshares may not assign its rights
under the Option except in (i) a widely dispersed public distribution, (ii) a
private placement in which no one party acquires the right to purchase in excess
of 2% of the voting shares of Talbot Bancshares, (iii) an assignment to a single
party (e.g., a broker or investment banker) for the purpose of conducting a
widely dispersed public distribution on Shore Bancshares' behalf, or (iv) any
other manner approved by applicable regulatory authorities.
(d) Notices. All notices or other communications which are
required or permitted hereunder shall be in writing and sufficient if delivered
in the manner and to the address provided for in or pursuant to Section 15 of
the Plan.
(e) Counterparts. This Option Agreement may be executed in any
number of counterparts, and each such counterpart shall be deemed to be an
original instrument, but all such counterparts together shall constitute but one
agreement.
98
(f) Specific Performance. The parties agree that damages would
be an inadequate remedy for a breach of the provisions of this Option Agreement
by either party hereto and that this Option Agreement may be enforced by either
party hereto through injunctive or other equitable relief.
(g) Governing Law. This Option Agreement shall be governed by
and construed in accordance with the laws of the State of Maryland applicable to
agreements made and entirely to be performed within such state and such federal
laws as may be applicable.
99
IN WITNESS WHEREOF, each of the parties hereto has executed this Option
Agreement as of the day and year first written above.
TALBOT BANCSHARES, INC.
By: _____________________________________________
X. Xxxxxxxx Xxxxxxxx
President and Chief Executive Officer
SHORE BANCSHARES, INC.
By: _____________________________________________
Xxxxxx X. Xxxxxx
President and Chief Executive Officer
100
APPENDIX VI
MEMORANDUM TO SHORE BANCSHARES PERSONS
deemed to be Affiliated Persons
July 25, 2000
This memorandum summarizes certain technical requirements of the
federal securities laws and of the accounting rules relating to treatment as a
pooling-of-interests which will apply following completion of the combination of
TALBOT BANCSHARES, INC. ("Talbot Bancshares") by SHORE BANCSHARES, INC. ("Shore
Bancshares") by effecting the merger of Talbot Bancshares with an into Shore
Bancshares (the "Merger").
Pursuant to the Plan and Agreement to Merge dated as of July 25, 2000
(the "Plan"), shares of the Common Stock of Shore Bancshares will be issued to
the stockholders of Talbot Bancshares for each issued and outstanding share of
Common Stock of Talbot Bancshares. Shore Bancshares will file a Registration
Statement under the Securities Act of 1933, as amended (the "Securities Act")
with the Securities and Exchange Commission (the "SEC") to register shares of
its Common Stock to be issued in connection with the Merger.
Under Section 5.10 of the Plan, Shore Bancshares has agreed to deliver
to Talbot Bancshares written letter agreements (the "Shore Bancshares Support
Agreements") from each of the officers and directors of Shore Bancshares (and
has agreed to use its best efforts to obtain and deliver an Shore Bancshares
Support Agreement from each stockholder of Shore Bancshares who may be deemed to
be an "affiliate" under the rules of the SEC). Under Section 5.11 of the Plan,
Shore Bancshares has agreed to use its best efforts not to permit any of the
directors, officers, employees, stockholders, agents, consultants or other
representatives of Shore Bancshares, The Centreville National Bank of Maryland,
or any of Shore Bancshares' other subsidiaries to take any action that would
preclude Shore Bancshares from treating the Merger as a "pooling-of-interests"
for financial reporting purposes. The purpose of this memorandum is to more
fully describe the sale restrictions imposed by the accounting rules relating to
the treatment of the Merger as a pooling-of-interests.
Restrictions Imposed by Accounting Rules Regarding Treatment as a
Pooling-of-Interests.
In order for the Merger to be treated as a pooling-of-interests for
accounting purposes, affiliates of Talbot Bancshares and affiliates of Shore
Bancshares are required to observe certain restrictions on disposition of their
shares of the Common Stock of Talbot Bancshares and of the Common Stock of Shore
Bancshares. Specifically, such affiliates must agree not to sell, pledge,
transfer or otherwise dispose of any shares of the Common Stock of Talbot
Bancshares or of the Common Stock of Shore Bancshares during the 30-day period
prior to the effective date of the Merger and until after such time as results
covering at least 30 days of operations of Shore Bancshares after the effective
date of the Merger have been published by Shore Bancshares in the form of a
quarterly earnings report, an effective registration statement filed with the
SEC, a report to the SEC on Forms 10-K, 10-Q or 8-K, or any other public
issuance which includes such combined results or operations.
101
To signify your consent to these restrictions a copy of an Undertaking
and Agreement is attached hereto and is to be executed by you (and where any
such shares are owned jointly, by the joint owner or owners) and returned to
Shore Bancshares, Inc., 000 Xxxxx Xxxxxxxx Xxxxxx, X.X. Xxx 000, Xxxxxxxxxxx,
Xxxxxxxx 00000, attention of Xxxxxx X. Xxxxxx, President and Chief Executive
Officer.
102
UNDERTAKING AND AGREEMENT
The undersigned has received a copy of a memorandum dated July 25, 2000
concerning the provisions of certain accounting rules which relate to the Common
Stock of SHORE BANCSHARES, INC. ("Shore Bancshares") in connection with the
Merger of Talbot Bancshares into Shore Bancshares. The undersigned hereby
undertakes and agrees to comply fully with the restrictions on sales of shares
of the Common Stock as outlined in the paragraph entitled "Restrictions Imposed
by Accounting Rules Regarding Treatment as a Pooling-of-Interests."
IN WITNESS WHEREOF, I have hereunto signed my name as of July __, 2000.
________________________, as joint owner
________________________, as joint owner
________________________, as joint owner
103
APPENDIX VII
MEMORANDUM TO TALBOT BANCSHARES PERSONS
deemed to be Affiliated Persons
July 25, 2000
This memorandum summarizes certain technical requirements of the
federal securities laws and of the accounting rules relating to treatment as a
pooling-of-interests which will apply following completion of the combination of
TALBOT BANCSHARES, INC. ("Talbot Bancshares") by SHORE BANCSHARES, INC. ("Shore
Bancshares") by effecting the merger of Talbot Bancshares with and into Shore
Bancshares (the "Merger").
Pursuant to the Plan and Agreement to Merge dated as of July 25, 2000
(the "Plan"), shares of the Common Stock of Shore Bancshares will be issued to
the stockholders of Talbot Bancshares for each issued and outstanding share of
Common Stock of Talbot Bancshares. Shore Bancshares will file a Registration
Statement under the Securities Act of 1933, as amended (the "Securities Act")
with the Securities and Exchange Commission (the "SEC") to register shares of
its Common Stock to be issued in connection with the Merger.
Under Section 6.10 of the Plan, Talbot Bancshares has agreed to deliver
to Shore Bancshares written letter agreements (the "Talbot Bancshares Support
Agreements") from each of the officers and directors of Talbot Bancshares (and
has agreed to use its best efforts to obtain and deliver an Talbot Bancshares
Support Agreement from each stockholder of Talbot Bancshares who may be deemed
to be an "affiliate" under the rules of the SEC). Under the terms of the Shore
Bancshares Support Agreements, each such officer, director or stockholder is to
acknowledge and agree to abide by all limitations imposed by the Securities Act
and by all rules, regulations and releases promulgated thereunder by the SEC
with respect to the sale or other disposition of the shares of the Common Stock
of Shore Bancshares to be received by such person pursuant to the Plan. Under
Section 6.11 of the Plan, Talbot Bancshares has agreed to use its best efforts
not to permit any of the directors, officers, employees, stockholders, agents,
consultants or other representatives of Talbot Bancshares, The Talbot Bank, or
any of Talbot Bancshares' other subsidiaries to take any action that would
preclude Shore Bancshares from treating the Merger as a "pooling-of-interests"
for financial reporting purposes. The purpose of this memorandum is to more
fully describe the sale restrictions imposed by the Securities Act and by all
rules, regulations and releases promulgated thereunder and the accounting rules
relating to the treatment of the Merger as a pooling-of-interests.
Resale Restrictions Imposed by Subparagraph (d) of SEC Rule 145.
For the one-year period following the effective date of the Merger, a
person who is an affiliate of Talbot Bancshares at the time of the Merger may
dispose of his shares of the Common Stock of Shore Bancshares only pursuant to
SEC Rule 145. The limitations are as follows:
104
1. Such sale must be effected (a) in transactions directly
with a market maker or (b) in unsolicited brokerage transactions (i.e.,
neither you nor the broker handling the sale of your shares may solicit
a purchaser for the shares being sold). As there are usually market
makers for the Common Stock of Shore Bancshares, this requirement
should not impair your ability to find a purchaser. In each case it is
quite important to let your broker know that the sale is to be made
under SEC Rule 145; otherwise, compliance with the restrictions will
not be assured.
2. The rule also restricts the number of shares which may be
sold during any three-month period. The rule would permit up to 1% of
the outstanding shares of the Common Stock of Shore Bancshares to be
sold by each affiliate during any three-month period.
3. The rule requires current public information on Shore
Bancshares to be available at the time of your sales. Shore Bancshares
is required by law to file with the SEC reports which are designed to
present on a current basis the affairs of Shore Bancshares. The filing
of these reports will satisfy the current public information
requirements. Since it is possible, however, that a required filing may
be late, at the time of any sale you should check with the Secretary of
Shore Bancshares to ascertain whether public information on Shore
Bancshares is then available.
After the one-year period has run, so long as (a) you are not an
affiliate of Shore Bancshares (that is, not a major stockholder, director, or
principal officer of Shore Bancshares) at the time of the sale, (b) Shore
Bancshares continues to be required to file certain periodic reports with the
SEC, and (c) all such reports required to be filed in the 12 months prior to
your sale have been filed, there will be no restriction on the sale of the
shares of the Common Stock of Shore Bancshares. Prior to a contemplated sale you
should check with the Secretary of Shore Bancshares to determine if requirements
(b) and (c) have been met. In the unlikely event that the three requirements set
forth above are not met at the time of your sale, the procedures for sales
consummated before the end of the one-year period would still apply.
After two years from the Effective Date of the Merger, so long as you
are not, at the time of sale, and have not been during the preceding three
months, an affiliate of Shore Bancshares, you may sell your shares of the Common
Stock of Shore Bancshares with no restrictions.
Restrictions Imposed by Accounting Rules Regarding Treatment as a
Pooling-of-Interests.
In order for the Merger to be treated as a pooling-of-interests for
accounting purposes, affiliates of Shore Bancshares and affiliates of Talbot
Bancshares are required to observe certain restrictions on disposition of their
shares of the Common Stock of Shore Bancshares and of the Common Stock of Talbot
Bancshares. Specifically, such affiliates must agree not to sell, pledge,
transfer or otherwise dispose of any shares of the Common Stock of Shore
Bancshares of the Common Stock of Talbot Bancshares during the 30-day period
prior to the effective date of the Merger and until after such time as results
covering at least 30 days of operations of Shore Bancshares after the effective
date of the Merger have been published by Shore Bancshares in the form of a
105
quarterly earnings report, an effective registration statement filed with the
SEC, a report to the SEC on Forms 10-K, 10-Q or 8-K, or any other public
issuance which includes such combined results or operations.
To signify your consent to these restrictions a copy of an Undertaking
and Agreement is attached hereto and is to be executed by you (and where any
such shares are owned jointly, by the joint owner or owners) and returned to
TALBOT BANCSHARES, INC., 00 Xxxx Xxxxx Xxxxxx, Xxxxxx, Xxxxxxxx 00000, attention
of X. Xxxxxxxx Xxxxxxxx, President and Chief Executive Officer.
106
UNDERTAKING AND AGREEMENT
The undersigned has received a copy of a memorandum dated July 25, 2000
concerning the provisions of the federal securities laws and certain accounting
rules which relate to the Common Stock of TALBOT BANCSHARES, INC. ("Talbot
Bancshares") and to resales of shares of the Common Stock of Shore Bancshares to
be received by the undersigned in connection with the merger of Talbot
Bancshares with and into Shore Bancshares. The undersigned hereby undertakes to
comply fully with the provisions of the federal securities laws as outlined in
the memorandum and hereby agrees to the additional restrictions on sales of the
Common Stock of Talbot Bancshares and resale of shares of the Common Stock of
Shore Bancshares outlined in the paragraph entitled "Restrictions Imposed by
Accounting Rules Regarding Treatment as a Pooling-of-Interests."
IN WITNESS WHEREOF, I have hereunto signed my name as of July __, 2000.
________________________, as joint owner
________________________, as joint owner
________________________, as joint owner
107
APPENDIX VIII
FORM OF SHORE BANCSHARES SUPPORT AGREEMENT
THIS SUPPORT AGREEMENT (this "Agreement") dated as of July 25, 2000,
between TALBOT BANCSHARES, INC., a Maryland corporation ("Talbot Bancshares"),
and each of the individuals listed on Schedule A attached hereto (collectively,
the "Shore Bancshares Stockholders").
W I T N E S S E T H:
WHEREAS, the Shore Bancshares Stockholders (i) collectively possess the
sole or joint right to vote, or direct the voting of, an aggregate of
___________ shares of common stock, par value $___ per share (the "Shares"), of
Shore Bancshares, Inc., a Maryland corporation ("Shore Bancshares"), which
constitute approximately _____ % of the outstanding capital stock of Shore
Bancshares, and (ii) individually possess the right to vote, or to direct the
voting of, the number of Shares set forth opposite such Shore Bancshares
Stockholder's name on Schedule A hereto; and
WHEREAS, the Shore Bancshares Stockholders (i) collectively possess the
sole or joint power to dispose of, or to direct the disposition of, an aggregate
of ___________ Shares, which constitute approximately _____ % of the outstanding
capital stock of Shore Bancshares, and (ii) individually possess the power to
dispose of, or direct the disposition of, the number of Shares set forth
opposite such Shore Bancshares Stockholder's name on Schedule A hereto; and
WHEREAS, Talbot Bancshares has entered into a Plan and Agreement to
Merge with Shore Bancshares, dated as of July 25, 2000 (the "Plan"), pursuant to
which Talbot Bancshares would merge with and into Shore Bancshares (the
"Merger"), with shares of the Common Stock of Shore Bancshares to be issued to
the stockholders of Talbot Bancshares; and
WHEREAS, pursuant to Section 5.10 of the Plan, Shore Bancshares has
covenanted to obtain agreements from each of its executive officers and
directors in which the executive officers and directors of Shore Bancshares (in
their capacity as Shore Bancshares Stockholders) and would agree to support the
Merger; and the Shore Bancshares Stockholders have in accordance with such
covenant agreed to support the Merger.
NOW, THEREFORE, to induce Talbot Bancshares to enter into the Plan and
in consideration of the mutual covenants and agreements set forth herein and in
the Plan and the mutual benefits to be derived herefrom and therefrom, the
parties agree as follows:
1. Representations of the Shore Bancshares Stockholders. Each of the
Shore Bancshares Stockholders, severally, and not jointly, represents that:
(a)(1) such Shore Bancshares Stockholder possesses the sole or
joint right to vote, or direct the voting of, all of the Shares set
forth on Schedule A opposite the Shore Bancshares Stockholder's name,
(2) such number of Shares constitutes all of the Shares with respect to
108
which the Shore Bancshares Stockholder possesses the sole or joint
right to vote, or direct the voting of, as the case may be, and (3)
except as to Shares held only under a power of attorney or as guardian
or custodian, such Shore Bancshares Stockholder has good and
merchantable title to all of the Shares indicated on said list opposite
the Shore Bancshares Stockholder's name, free of all restrictions and
encumbrances of every kind and character, except as indicated on
Schedule A.
(b)(1) such Shore Bancshares Stockholder possesses the sole or
joint power to dispose of, or direct the disposition of, the Shares set
forth on Schedule A opposite the Shore Bancshares Stockholder's name,
(2) such number of Shares constitutes all of the Shares with respect to
which the Shore Bancshares Stockholder possesses or will possess the
sole or joint power to dispose of or direct the disposition of, and (3)
except as to Shares held only under a power of attorney, such Shore
Bancshares Stockholder has good and merchantable title to all of the
Shares indicated on said list opposite the Shore Bancshares
Stockholder's name free of all restrictions and encumbrances of any
kind or character except as indicated on Schedule A.
(c) such Shore Bancshares Stockholder does not own, of record
or beneficially, any Shares that are not reflected on Schedule A. For
the purposes of this Agreement, beneficial ownership has the meaning
set forth in Rule 13d-3 of the Securities Exchange Act of 1934, as
amended.
(d) such Shore Bancshares Stockholder has full right, power,
and authority to enter into, deliver and perform this Agreement; this
Agreement has been duly executed and delivered by such Shore Bancshares
Stockholder; and this Agreement constitutes the legal, valid, and
binding obligation of the Shore Bancshares Stockholder, and is
enforceable in accordance with its terms.
2. Covenants of the Shore Bancshares Stockholders. Each of the Shore
Bancshares Stockholders, severally and not jointly, covenants as follows:
(a) Restrictions on Transfer. With respect to Shares listed on
Schedule A, during the term of this Agreement, such Shore Bancshares
Stockholder shall not voluntarily pledge, hypothecate, grant a security
interest in, sell, transfer, or otherwise dispose of or encumber any of
such Shares and will not enter into any agreement, arrangement, or
understanding (other than a proxy for the purpose of voting his or her
Shares in accordance with Subparagraph 2(c) hereof) which would, during
that term (i) restrict, (ii) establish a right of first refusal to, or
(iii) otherwise relate to the transfer or voting of such Shares;
provided, however, this restriction shall not apply to a transfer of
any of the Shares by the Shore Bancshares Stockholder to his or her
spouse, children, or grandchildren, subject to the conditions that any
transferee, recipient, or custodian of any such transferee or recipient
must execute an agreement substantially in the form of this Agreement
109
in a form satisfactory to Talbot Bancshares, and Schedule A hereto may
be revised by Talbot Bancshares to reflect such transfer.
(b) Other Restrictions. During the term of this Agreement,
such Shore Bancshares Stockholder, as a Shore Bancshares Stockholder,
shall not, directly or indirectly, solicit, initiate, or encourage
inquiries or proposals from, or participate in any discussions or
negotiations with, or provide any information to, any individual,
corporation, partnership, or other person, entity, or group (other than
Talbot Bancshares, any of its subsidiaries, and their respective
officers, employees, representatives, and agents) concerning any sale
of assets, sale of shares of capital stock, merger, consolidation,
share exchange, or similar transactions involving Shore Bancshares.
Such Shore Bancshares Stockholder shall promptly advise Talbot
Bancshares of, and communicate to Talbot Bancshares the terms of, any
such inquiry or proposal addressed either to such Shore Bancshares
Stockholder or to Shore Bancshares that such Shore Bancshares
Stockholder receives or of which such Shore Bancshares Stockholder has
knowledge.
(c) Merger. With respect to the Shares listed on Schedule A
pursuant to Subparagraph 1(a) hereof, each of the Shore Bancshares
Stockholders shall vote such Shares to ratify and confirm the Plan and
the Merger and the transactions contemplated thereby. Each of the Shore
Bancshares Stockholders, as a Shore Bancshares Stockholder, further
agrees to use all commercially reasonable efforts to cause the Merger
to be effected.
(d) Additional Shares. The provisions of subparagraphs (a) and
(c) above shall apply to all Shares currently owned and hereafter
acquired, of record or beneficially, by each of the Shore Bancshares
Stockholders.
3. Termination. This Agreement shall terminate upon the termination of
the Plan.
4. Governing Law. This Agreement shall in all respects be governed by
and construed under the laws of Maryland, all rights and remedies being governed
by such laws.
5. Benefit of Agreement. This Agreement shall be binding upon and inure
to the benefit of, and shall be enforceable by, the parties hereto and their
respective personal representatives, successors, and assigns, except that
neither party may transfer or assign any of its respective rights or obligations
hereunder without the prior written consent of the other party or, if by Talbot
Bancshares, in accordance with the Plan.
6. Counterparts. For convenience of the parties hereto, this Agreement
may be executed in several counterparts, each of which shall be deemed an
original, all of which together shall constitute one and the same instrument.
110
IN WITNESS WHEREOF, Talbot Bancshares and the Shore Bancshares
Stockholders have caused this Agreement to be duly executed as of the day and
year first above written.
TALBOT BANCSHARES, INC.
By:
-------------------------------------------
X. Xxxxxxxx Xxxxxxxx
President and Chief Executive Officer
SHORE BANCSHARES STOCKHOLDERS:
-----------------------------------------------
-----------------------------------------------
-----------------------------------------------
-----------------------------------------------
111
SCHEDULE A
----------------------------- ------------------ ------------------ --------------------- ---------------------- --------------
Name Number of Shares Number of Shares Number oF Shares As Number of Shares As Encumbrance
As to which As to which to which Holder Has to Which Holder Has
Holder has Sole Holder has Joint Direct or Indirect Sole or Shared Power to
Power to Vote Power to Vote Control of Power to Dispose or Direct
Vote Disposition
----------------------------- ------------------ ------------------ --------------------- ---------------------- --------------
----------------------------- ------------------ ------------------ --------------------- ---------------------- --------------
----------------------------- ------------------ ------------------ --------------------- ---------------------- --------------
----------------------------- ------------------ ------------------ --------------------- ---------------------- --------------
----------------------------- ------------------ ------------------ --------------------- ---------------------- --------------
----------------------------- ------------------ ------------------ --------------------- ---------------------- --------------
----------------------------- ------------------ ------------------ --------------------- ---------------------- --------------
----------------------------- ------------------ ------------------ --------------------- ---------------------- --------------
----------------------------- ------------------ ------------------ --------------------- ---------------------- --------------
----------------------------- ------------------ ------------------ --------------------- ---------------------- --------------
----------------------------- ------------------ ------------------ --------------------- ---------------------- --------------
----------------------------- ------------------ ------------------ --------------------- ---------------------- --------------
----------------------------- ------------------ ------------------ --------------------- ---------------------- --------------
----------------------------- ------------------ ------------------ --------------------- ---------------------- --------------
* Pending confirmation on __________.
112
APPENDIX IX
FORM OF TALBOT BANCSHARES SUPPORT AGREEMENT
THIS SUPPORT AGREEMENT (this "Agreement") dated as of July 25, 2000,
between SHORE BANCSHARES, INC., a Maryland corporation ("Shore Bancshares"), and
each of the individuals listed on Schedule A attached hereto (collectively, the
"Talbot Bancshares Stockholders").
W I T N E S S E T H:
WHEREAS, the Talbot Bancshares Stockholders (i) collectively possess
the sole or joint right to vote, or direct the voting of, an aggregate of
___________ shares of common stock, par value $___ per share (the "Shares"), of
Talbot Bancshares, Inc., a Maryland corporation ("Talbot Bancshares"), which
constitute approximately _____ % of the outstanding capital stock of Talbot
Bancshares, and (ii) individually possess the right to vote, or to direct the
voting of, the number of Shares set forth opposite such Talbot Bancshares
Stockholder's name on Schedule A hereto; and
WHEREAS, the Talbot Bancshares Stockholders (i) collectively possess
the sole or joint power to dispose of, or to direct the disposition of, an
aggregate of ___________ Shares, which constitute approximately _____ % of the
outstanding capital stock of Talbot Bancshares, and (ii) individually possess
the power to dispose of, or direct the disposition of, the number of Shares set
forth opposite such Talbot Bancshares Stockholder's name on Schedule A hereto;
and
WHEREAS, Shore Bancshares has entered into a Plan and Agreement to
Merge with Talbot Bancshares, dated as of July 25, 2000 (the "Plan"), pursuant
to which Talbot Bancshares would merge with and into Shore Bancshares (the
"Merger"), with shares of the Common Stock of Shore Bancshares to be issued to
the stockholders of Talbot Bancshares; and
WHEREAS, pursuant to Section 6.10 of the Plan, Talbot Bancshares has
covenanted to obtain agreements from each of its executive officers and
directors in which the executive officers and directors of Talbot Bancshares (in
their capacity as Talbot Bancshares Stockholders) and would agree to support the
Merger; and the Talbot Bancshares Stockholders have in accordance with such
covenant agreed to support the Merger.
NOW, THEREFORE, to induce Shore Bancshares to enter into the Plan and
in consideration of the mutual covenants and agreements set forth herein and in
the Plan and the mutual benefits to be derived herefrom and therefrom, the
parties agree as follows:
1. Representations of the Talbot Bancshares Stockholders. Each of the
Talbot Bancshares Stockholders, severally, and not jointly, represents that:
(a)(1) such Talbot Bancshares Stockholder possesses the sole
or joint right to vote, or direct the voting of, all of the Shares set
forth on Schedule A opposite the Talbot Bancshares Stockholder's name,
(2) such number of Shares constitutes all of the Shares with respect to
113
which the Talbot Bancshares Stockholder possesses the sole or joint
right to vote, or direct the voting of, as the case may be, and (3)
except as to Shares held only under a power of attorney or as guardian
or custodian, such Talbot Bancshares Stockholder has good and
merchantable title to all of the Shares indicated on said list opposite
the Talbot Bancshares Stockholder's name, free of all restrictions and
encumbrances of every kind and character, except as indicated on
Schedule A.
(b)(1) such Talbot Bancshares Stockholder possesses the sole
or joint power to dispose of, or direct the disposition of, the Shares
set forth on Schedule A opposite the Talbot Bancshares Stockholder's
name, (2) such number of Shares constitutes all of the Shares with
respect to which the Talbot Bancshares Stockholder possesses or will
possess the sole or joint power to dispose of or direct the disposition
of, and (3) except as to Shares held only under a power of attorney,
such Talbot Bancshares Stockholder has good and merchantable title to
all of the Shares indicated on said list opposite the Talbot Bancshares
Stockholder's name free of all restrictions and encumbrances of any
kind or character except as indicated on Schedule A.
(c) such Talbot Bancshares Stockholder does not own, of record
or beneficially, any Shares that are not reflected on Schedule A. For
the purposes of this Agreement, beneficial ownership has the meaning
set forth in Rule 13d-3 of the Securities Exchange Act of 1934, as
amended.
(d) such Talbot Bancshares Stockholder has full right, power,
and authority to enter into, deliver and perform this Agreement; this
Agreement has been duly executed and delivered by such Talbot
Bancshares Stockholder; and this Agreement constitutes the legal,
valid, and binding obligation of the Talbot Bancshares Stockholder, and
is enforceable in accordance with its terms.
2. Covenants of the Talbot Bancshares Stockholders. Each of the Talbot
Bancshares Stockholders, severally and not jointly, covenants as follows:
(a) Restrictions on Transfer. With respect to Shares listed on
Schedule A, during the term of this Agreement, such Talbot Bancshares
Stockholder shall not voluntarily pledge, hypothecate, grant a security
interest in, sell, transfer, or otherwise dispose of or encumber any of
such Shares and will not enter into any agreement, arrangement, or
understanding (other than a proxy for the purpose of voting his or her
Shares in accordance with Subparagraph 2(c) hereof) which would, during
that term (i) restrict, (ii) establish a right of first refusal to, or
(iii) otherwise relate to the transfer or voting of such Shares;
provided, however, this restriction shall not apply to a transfer of
any of the Shares by the Talbot Bancshares Stockholder to his or her
spouse, children, or grandchildren, subject to the conditions that any
transferee, recipient, or custodian of any such transferee or recipient
must execute an agreement substantially in the form of this Agreement
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in a form satisfactory to Shore Bancshares, and Schedule A hereto may
be revised by Shore Bancshares to reflect such transfer.
(b) Other Restrictions. During the term of this Agreement,
such Talbot Bancshares Stockholder, as a Talbot Bancshares Stockholder,
shall not, directly or indirectly, solicit, initiate, or encourage
inquiries or proposals from, or participate in any discussions or
negotiations with, or provide any information to, any individual,
corporation, partnership, or other person, entity, or group (other than
Shore Bancshares, any of its subsidiaries, and their respective
officers, employees, representatives, and agents) concerning any sale
of assets, sale of shares of capital stock, merger, consolidation,
share exchange, or similar transactions involving Talbot Bancshares.
Such Talbot Bancshares Stockholder shall promptly advise Shore
Bancshares of, and communicate to Shore Bancshares the terms of, any
such inquiry or proposal addressed either to such Talbot Bancshares
Stockholder or to Talbot Bancshares that such Talbot Bancshares
Stockholder receives or of which such Talbot Bancshares Stockholder has
knowledge.
(c) Merger. With respect to the Shares listed on Schedule A
pursuant to Subparagraph 1(a) hereof, each of the Talbot Bancshares
Stockholders shall vote such Shares to ratify and confirm the Plan and
the Merger and the transactions contemplated thereby. Each of the
Talbot Bancshares Stockholders, as a Talbot Bancshares Stockholder,
further agrees to use all commercially reasonable efforts to cause the
Merger to be effected.
(d) Additional Shares. The provisions of subparagraphs (a) and
(c) above shall apply to all Shares currently owned and hereafter
acquired, of record or beneficially, by each of the Talbot Bancshares
Stockholders.
3. Termination. This Agreement shall terminate upon the termination of
the Plan.
4. Governing Law. This Agreement shall in all respects be governed by
and construed under the laws of Maryland, all rights and remedies being governed
by such laws.
5. Benefit of Agreement. This Agreement shall be binding upon and inure
to the benefit of, and shall be enforceable by, the parties hereto and their
respective personal representatives, successors, and assigns, except that
neither party may transfer or assign any of its respective rights or obligations
hereunder without the prior written consent of the other party or, if by Shore
Bancshares, in accordance with the Plan.
6. Counterparts. For convenience of the parties hereto, this Agreement
may be executed in several counterparts, each of which shall be deemed an
original, all of which together shall constitute one and the same instrument.
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IN WITNESS WHEREOF, Shore Bancshares and the Talbot Bancshares
Stockholders have caused this Agreement to be duly executed as of the day and
year first above written.
SHORE BANCSHARES, INC.
By:
------------------------------------------
Xxxxxx X. Xxxxxx
President and Chief Executive Officer
TALBOT BANCSHARES STOCKHOLDERS:
------------------------------------------------
-----------------------------------------------
-----------------------------------------------
-----------------------------------------------
116
SCHEDULE A
----------------------------- ------------------ ------------------ --------------------- ---------------------- --------------
Name Number of Shares Number of Shares Number oF Shares As Number of Shares As Encumbrance
As to which As to which to which Holder Has to Which Holder Has
Holder has Sole Holder has Joint Direct or Indirect Sole or Shared Power to
Power to Vote Power to Vote Control of Power to Dispose or Direct
Vote Disposition
----------------------------- ------------------ ------------------ --------------------- ---------------------- --------------
----------------------------- ------------------ ------------------ --------------------- ---------------------- --------------
----------------------------- ------------------ ------------------ --------------------- ---------------------- --------------
----------------------------- ------------------ ------------------ --------------------- ---------------------- --------------
----------------------------- ------------------ ------------------ --------------------- ---------------------- --------------
----------------------------- ------------------ ------------------ --------------------- ---------------------- --------------
----------------------------- ------------------ ------------------ --------------------- ---------------------- --------------
----------------------------- ------------------ ------------------ --------------------- ---------------------- --------------
----------------------------- ------------------ ------------------ --------------------- ---------------------- --------------
----------------------------- ------------------ ------------------ --------------------- ---------------------- --------------
----------------------------- ------------------ ------------------ --------------------- ---------------------- --------------
----------------------------- ------------------ ------------------ --------------------- ---------------------- --------------
----------------------------- ------------------ ------------------ --------------------- ---------------------- --------------
----------------------------- ------------------ ------------------ --------------------- ---------------------- --------------
* Pending confirmation on __________.
117
APPENDIX X
FORM OF OPINION OF TAX COUNSEL
(1) The transfer of all of the assets of Talbot Bancshares to
Shore Bancshares, and the assumption by Shore Bancshares of the liabilities of
Talbot Bancshares pursuant to the terms of the Plan, will constitute a
reorganization within the meaning of Section 368(a)(1)(A) of the Code. Shore
Bancshares and Talbot Bancshares will each be a "party to the reorganization"
within the meaning of Section 368(b) of the Code.
(2) A holder of Talbot Bancshares Common Stock who receives
solely shares of Shore Bancshares Common Stock in exchange for his Talbot
Bancshares Common Stock (including fractional shares of Shore Bancshares Common
Stock deemed issued as described below) will not recognize any gain or loss upon
the exchange.
(3) A holder of Talbot Bancshares Common Stock who receives
cash in lieu of a fractional share of Shore Bancshares Common Stock will be
treated as if he received a fractional share of Shore Bancshares Common Stock
pursuant to the Merger and Shore Bancshares then redeemed such fractional share
for the cash received. Such a holder will recognize capital gain or loss on the
constructive redemption of the fractional share in an amount equal to the
difference between the cash received and the adjusted basis of the fractional
share.
(4) The basis of the Shore Bancshares Common Stock received by
a Talbot Bancshares stockholder (including fractional shares of Shore Bancshares
Common Stock deemed issued as described above) will be the same as the basis of
the Talbot Bancshares Common Stock surrendered in exchange therefor.
(5) The holding period of the Shore Bancshares Common Stock
received by the Talbot Bancshares stockholders will include the period during
which the Talbot Bancshares Common Stock surrendered in exchange therefor was
held, provided that the Talbot Bancshares Common Stock is held as a capital
asset in the hands of the Talbot Bancshares stockholders on the date of the
exchange.
(6) No gain or loss will be recognized by Talbot Bancshares
upon the transfer of all of its assets to Shore Bancshares in exchange for
shares of the Common Stock of Shore Bancshares and the assumption by Shore
Bancshares of the liabilities of Talbot Bancshares.
(7) No gain or loss will be recognized by Shore Bancshares
upon the receipt by Shore Bancshares of all of the assets of Talbot Bancshares
in exchange for shares of the Common Stock of Shore Bancshares and the
assumption by Shore Bancshares of the liabilities of Talbot Bancshares.
(8) The basis of each asset of Talbot Bancshares in the hands
of Shore Bancshares will be the same as the basis of such asset in the hands of
118
Talbot Bancshares immediately prior to the Merger; the holding period of each
such asset in the hands of Shore Bancshares will include the periods during
which such asset was held by Talbot Bancshares.
(9) The accumulated earnings and profits of Talbot Bancshares
on the Effective Date will become the accumulated earnings and profits of Shore
Bancshares and will be available for subsequent distributions of dividends
within the meaning of Section 316 of the Code.
119
APPENDIX XI
FORM OF OPINION OF COUNSEL TO SHORE BANCSHARES
(a) Shore Bancshares has been duly organized and is validly
existing as a corporation under the laws of the State of Maryland, and
Centreville Bank has been duly organized and is validly existing as a national
banking association under the laws of the United States.
(b) The execution and delivery of the Plan and the Stock
Option Agreement by Shore Bancshares and the consummation by Shore Bancshares of
the transactions provided for therein have been duly authorized by all requisite
corporate and stockholder action on the part of Shore Bancshares. Shore
Bancshares has the corporate power and corporate authority to execute and
deliver the Plan and the Stock Option Agreement and to consummate the
transactions contemplated thereby.
(c) The Plan and the Stock Option Agreement have been executed
and delivered by Shore Bancshares and are valid and binding obligations of Shore
Bancshares, enforceable against Shore Bancshares in accordance with their terms,
except to the extent that enforcement thereof may be limited by (i) bankruptcy,
insolvency, moratorium, reorganization, receivership, conservatorship or other
similar laws now or hereinafter in effect relating to or affecting the
enforcement of creditors' rights generally or the rights of creditors of insured
depository institutions or their holding companies and (ii) general principles
of equity, regardless of whether such enforceability is considered in a
proceeding at law or in equity.
(d) The execution and delivery and performance by Shore
Bancshares of the Plan and the Stock Option Agreement do not violate the Charter
or By-Laws of Shore Bancshares.
(e) No consent or approval of, or other action by or filing
with, any court or administrative or governmental body which has not been
obtained, taken or made is required under the Subject Laws (as defined below),
or any court order or judgment specifically applicable to Shore Bancshares and
actually known to such counsel, for Shore Bancshares to execute and deliver the
Plan and the Stock Option Agreement and to consummate the transactions provided
for therein. Such counsel need express no opinion, however, as to any such
consent, approval, action or filing which may be required as the result of
Talbot Bancshares' involvement in the transactions contemplated by the Plan and
the Stock Option Agreement because of such entities' legal or regulatory status
or because of other facts specifically pertaining to Talbot Bancshares.
(f) Assuming due authorization of the Merger by Talbot
Bancshares and the Talbot Bancshares stockholders, upon the filing of an
Articles of Merger with the Maryland State Department of Assessments and
Taxation in accordance with the Plan, the Merger will be effective in accordance
with the laws of the State of Maryland.
(g) The Proxy Statement/Prospectus, insofar as it constituted
a proxy statement for the special meeting (the "Special Meeting") of Shore
120
Bancshares' stockholders held on _____________, 2000, as of the date thereof,
complied as to form in all material respects to the requirements of the Exchange
Act, and the rules and regulations promulgated thereunder, except that such
counsel need express no opinion as to (i) the financial statements, schedules
and other financial, statistical and tabular data included in or incorporated
into the Proxy Statement/Prospectus, (ii) any document incorporated by reference
into the Proxy Statement/Prospectus, (iii) the exhibits to any document
incorporated by reference into the Proxy Statement/Prospectus, (iv) the
description of the analyses performed by the investment banker in rendering its
fairness opinion, or (v) information relating to Talbot Bancshares or the Talbot
Subsidiaries which was included in the Proxy Statement/Prospectus. Such counsel
need not assume any responsibility for the accuracy, completeness of fairness of
the statements contained in the Proxy Statement/Prospectus or any documents
incorporated by reference therein except as set forth in the paragraph
immediately following this one.
In connection with the Merger, such counsel shall state that it
participated in conferences with certain officers and other representatives of
Shore Bancshares and Centreville Bank at which the contents of the Proxy
Statement/Prospectus and related matters were discussed and, although such
counsel is not passing upon and does not assume any responsibility for the
accuracy, fairness or completeness of the statements contained in the Proxy
Statement/Prospectus and made no independent check or verification of the
existence or absence of any matter set forth therein, on the basis of the
foregoing, such counsel shall state that no facts have come to its attention
that leads it to believe that the Proxy Statement/Prospectus as of the date it
was mailed to Shore Bancshares' stockholders and on the date of the Special
Meeting contemplated thereby, contained an untrue statement of a material fact
or omitted to state a material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under which they
were made, not misleading, except that such counsel need not express any belief
with respect to (i) the financial statements, schedules and other financial,
statistical and tabular data included in or incorporated into the Proxy
Statement/Prospectus, (ii) the exhibits thereto and the exhibits to any document
incorporated by reference into the Proxy Statement/Prospectus, (iii) the
documents incorporated by reference therein, (iv) the description of the
analyses performed by the investment banker in rendering its fairness opinion,
or (v) any information relating to Talbot Bancshares or the Talbot Subsidiaries
contained therein. In rendering such statement, such counsel may state that it
has served only as special counsel to Shore Bancshares and Centreville Bank,
that such representation of such entities has been limited to acting as their
special counsel with respect to the Merger and on certain other unrelated
matters on which such counsel has been consulted by the management of Shore
Bancshares or Centreville Bank, and that such counsel has relied solely upon the
examination and inquiries stated therein.
In rendering such opinion, such counsel may, without independent
verification, assume: (i) the genuineness of all signatures and the authenticity
of all documents submitted to such counsel as originals, the conformity to
original documents of all documents submitted to such counsel as certified,
conformed or reproduction copies, and the authenticity of such originals of such
latter documents; (ii) the execution of such documents, acknowledgment as
indicated thereon and receipt of the consideration recited therein by Talbot
Bancshares, (iii) that Talbot Bancshares has the full power, authority and legal
right under its charter and other governing documents and applicable laws, as
121
the case may be, to execute and to perform its obligations under all documents
executed by it in connection with the transactions contemplated by the Plan and
the Stock Option Agreement; (iv) that the foregoing documents, in the forms
submitted to such counsel for review, have not been altered or amended in any
respect material to such counsel's opinion as stated herein; (v) that there are
no other agreements or understandings among the parties that would modify the
terms of the proposed transactions or the respective rights or obligations of
the parties thereunder; (vi) the accuracy of the representations and warranties
of Shore Bancshares and Centreville Bank as set forth in the Plan; (vii) the
accuracy of all certifications made available to such counsel from public
officials and officers of Shore Bancshares and Centreville Bank on which such
counsel is relying in rendering the opinions set forth above; and (viii) the
validity of all laws and regulations applicable to the transactions contemplated
by the Plan and the Stock Option Agreement.
Furthermore, to the extent not inconsistent with the other assumptions,
qualifications and limitations set forth in such counsel's opinion, such
counsel's opinion shall be governed by, and shall be interpreted in accordance
with, the Legal Opinion Accord (the "Accord") of the American Bar Association
Section of Business Law (1991). As a consequence, such opinion shall be subject
to a number of qualifications, exceptions, definitions, limitations on coverage
and other limitations, all as more particularly described in the Accord, and
such counsel's opinion should be read in conjunction therewith. The term "actual
knowledge" when used in such counsel's opinion shall have the meaning set forth
in the Accord. For purposes of the opinion in (e) above, Subject Laws shall mean
the Maryland General Corporation Law, the Financial Institutions Article of the
Annotated Code of Maryland, The Securities Act and the Exchange Act, and the
rules and regulations promulgated thereunder.
122
APPENDIX XII
FORM OF OPINION OF COUNSEL TO TALBOT BANCSHARES
(a) Talbot Bancshares has been duly organized and is validly
existing as a corporation under the laws of the State of Maryland, and Talbot
Bank has been duly organized and is validly existing as a commercial bank under
the laws of the State of Maryland.
(b) The execution and delivery of the Plan and the Stock
Option Agreement by Talbot Bancshares and the consummation by Talbot Bancshares
of the transactions provided for therein have been duly authorized by all
requisite corporate and stockholder action on the part of Talbot Bancshares.
Talbot Bancshares has the corporate power and corporate authority to execute and
deliver the Plan and the Stock Option Agreement and to consummate the
transactions contemplated thereby.
(c) The Plan and the Stock Option Agreement have been executed
and delivered by Talbot Bancshares and are valid and binding obligations of
Talbot Bancshares, enforceable against Talbot Bancshares in accordance with
their terms, except to the extent that enforcement thereof may be limited by (i)
bankruptcy, insolvency, moratorium, reorganization, receivership,
conservatorship or other similar laws now or hereinafter in effect relating to
or affecting the enforcement of creditors' rights generally or the rights of
creditors of insured depository institutions or their holding companies and (ii)
general principles of equity, regardless of whether such enforceability is
considered in a proceeding at law or in equity.
(d) The execution and delivery and performance by Talbot
Bancshares of the Plan and the Stock Option Agreement do not violate the Charter
or By-Laws of Talbot Bancshares.
(e) No consent or approval of, or other action by or filing
with, any court or administrative or governmental body which has not been
obtained, taken or made is required under the Subject Laws (as defined below),
or any court order or judgment specifically applicable to Talbot Bancshares and
actually known to such counsel, for Talbot Bancshares to execute and deliver the
Plan and the Stock Option Agreement and to consummate the transactions provided
for therein. Such counsel need express no opinion, however, as to any such
consent, approval, action or filing which may be required as the result of Shore
Bancshares' involvement in the transactions contemplated by the Plan and the
Stock Option Agreement because of such entities' legal or regulatory status or
because of other facts specifically pertaining to Shore Bancshares.
(f) Assuming due authorization of the Merger by Shore
Bancshares and the Shore Bancshares stockholders, upon the filing of an Articles
of Merger with the Maryland State Department of Assessments and Taxation in
accordance with the Plan, the Merger will be effective in accordance with the
laws of the State of Maryland.
(g) The Proxy Statement/Prospectus, insofar as it constituted
a proxy statement for the special meeting (the "Special Meeting") of Talbot
123
Bancshares' stockholders held on _____________, 2000, as of the date thereof,
complied as to form in all material respects to the requirements of the Exchange
Act, and the rules and regulations promulgated thereunder, except that such
counsel need express no opinion as to (i) the financial statements, schedules
and other financial, statistical and tabular data included in or incorporated
into the Proxy Statement/Prospectus, (ii) any document incorporated by reference
into the Proxy Statement/Prospectus, (iii) the exhibits to any document
incorporated by reference into the Proxy Statement/Prospectus, (iv) the
description of the analyses performed by the investment banker in rendering its
fairness opinion, or (v) information relating to Shore Bancshares or the Shore
Subsidiaries which was included in the Proxy Statement/Prospectus. Such counsel
need not assume any responsibility for the accuracy, completeness of fairness of
the statements contained in the Proxy Statement/Prospectus or any documents
incorporated by reference therein except as set forth in the paragraph
immediately following this one.
In connection with the Merger, such counsel shall state that it
participated in conferences with certain officers and other representatives of
Talbot Bancshares and Talbot Bank at which the contents of the Proxy
Statement/Prospectus and related matters were discussed and, although such
counsel is not passing upon and does not assume any responsibility for the
accuracy, fairness or completeness of the statements contained in the Proxy
Statement/Prospectus and made no independent check or verification of the
existence or absence of any matter set forth therein, on the basis of the
foregoing, such counsel shall state that no facts have come to its attention
that leads it to believe that the Proxy Statement/Prospectus as of the date it
was mailed to Talbot Bancshares' stockholders and on the date of the Special
Meeting contemplated thereby, contained an untrue statement of a material fact
or omitted to state a material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under which they
were made, not misleading, except that such counsel need not express any belief
with respect to (i) the financial statements, schedules and other financial,
statistical and tabular data included in or incorporated into the Proxy
Statement/Prospectus, (ii) the exhibits thereto and the exhibits to any document
incorporated by reference into the Proxy Statement/Prospectus, (iii) the
documents incorporated by reference therein, (iv) the description of the
analyses performed by the investment banker in rendering its fairness opinion,
or (v) any information relating to Shore Bancshares or the Shore Subsidiaries
contained therein. In rendering such statement, such counsel may state that it
has served only as special counsel to Talbot Bancshares and Talbot Bank, that
such representation of such entities has been limited to acting as their special
counsel with respect to the Merger and on certain other unrelated matters on
which such counsel has been consulted by the management of Talbot Bancshares or
Talbot Bank, and that such counsel has relied solely upon the examination and
inquiries stated therein.
In rendering such opinion, such counsel may, without independent
verification, assume: (i) the genuineness of all signatures and the authenticity
of all documents submitted to such counsel as originals, the conformity to
original documents of all documents submitted to such counsel as certified,
conformed or reproduction copies, and the authenticity of such originals of such
latter documents; (ii) the execution of such documents, acknowledgment as
indicated thereon and receipt of the consideration recited therein by Shore
Bancshares, (iii) that Shore Bancshares has the full power, authority and legal
right under its charter and other governing documents and applicable laws, as
the case may be, to execute and to perform its obligations under all documents
124
executed by it in connection with the transactions contemplated by the Plan and
the Stock Option Agreement; (iv) that the foregoing documents, in the forms
submitted to such counsel for review, have not been altered or amended in any
respect material to such counsel's opinion as stated herein; (v) that there are
no other agreements or understandings among the parties that would modify the
terms of the proposed transactions or the respective rights or obligations of
the parties thereunder; (vi) the accuracy of the representations and warranties
of Talbot Bancshares and Talbot Bank as set forth in the Plan; (vii) the
accuracy of all certifications made available to such counsel from public
officials and officers of Talbot Bancshares and Talbot Bank on which such
counsel is relying in rendering the opinions set forth above; and (viii) the
validity of all laws and regulations applicable to the transactions contemplated
by the Plan and the Stock Option Agreement.
Furthermore, to the extent not inconsistent with the other assumptions,
qualifications and limitations set forth in such counsel's opinion, such
counsel's opinion shall be governed by, and shall be interpreted in accordance
with, the Legal Opinion Accord (the "Accord") of the American Bar Association
Section of Business Law (1991). As a consequence, such opinion shall be subject
to a number of qualifications, exceptions, definitions, limitations on coverage
and other limitations, all as more particularly described in the Accord, and
such counsel's opinion should be read in conjunction therewith. The term "actual
knowledge" when used in such counsel's opinion shall have the meaning set forth
in the Accord. For purposes of the opinion in (e) above, Subject Laws shall mean
the Maryland General Corporation Law, the Financial Institutions Article of the
Annotated Code of Maryland, The Securities Act and the Exchange Act, and the
rules and regulations promulgated thereunder.
125
APPENDIX XIII
FORM OF EMPLOYMENT AGREEMENT
THIS AGREEMENT is entered into this as of __________, 2000, (this
"Agreement") by and between [a][The Centreville National Bank of Maryland]
[b][The Talbot Bank of Easton, Maryland] (the "Bank") and Shore Bancshares, Inc.
("Shore Bancshares", and with the Bank, collectively, the "Companies") and
[a][Xxxxxx X. Xxxxxx] [b][X. Xxxxxxxx Xxxxxxxx] (the "Employee").
WHEREAS, Talbot Bancshares, Inc. has merged into Shore Bancshares (the
"Merger"); and
[a][WHEREAS, the Employee has been employed by the Companies as
President and Chief Executive Officer; and
WHEREAS, the Employee has agreed (a) to a termination of the Employment
Agreement dated January 1, 1999 between the Companies and the Employee and (b)
that the Merger shall not be deemed to be a change in control thereunder; and]
[b][WHEREAS, the Employee has been employed by the Bank and, prior to
the Merger, by Talbot Bancshares, Inc. as President and Chief Executive Officer;
and]
WHEREAS, the parties hereto desire by writing to set forth the
continued employment relationship of the Companies and the Employee;
NOW THEREFORE, it is AGREED as follows:
1. The Employee is employed as the [a][Executive Vice President of
Shore Bancshares and the President and Chief Executive Officer of the Bank]
[b][President and Chief Executive Officer of the Companies]. The Employee shall
render administrative and management services to the Companies such as are
customarily performed by persons situated in similar executive capacity. The
Employee shall also promote, by entertainment or otherwise, as and to the extent
permitted by law, the business of the Companies. The Employee's other duties
shall be such as the Boards of Directors of the Companies(the "Boards") may from
time to time reasonably direct, including normal duties of an officer of the
Companies.
2. The Companies agree to pay the Employee during the term of this
Agreement a salary at the rate of [a][$127,500] [b][$170,000] per annum, in cash
not less frequently than twice monthly or at some other reasonable frequency as
other employees of the Companies are paid. Such rate of salary, or increased
rate of salary, if any, as the case may be, shall be reviewed by the Boards, or
by a committee designated by the Boards, no less often than annually and may be
increased; which increases may not be unreasonably denied; but not decreased, in
such amounts as the Boards in their discretion may decide.
126
3. The Employee shall be eligible to participate in an equitable manner
with all other key management in discretionary bonuses authorized and declared
by the Boards to its key management and other employees. No other compensation
provided for in this Agreement shall be deemed a substitute for the Employee's
right to participate in such discretionary bonuses when and as declared by the
Boards.
4. (a) The Employee shall be entitled to participate in any plan of the
Companies relating to pension, profit sharing, or other retirement benefits and
medical coverage or reimbursement plans the Companies may adopt for the benefit
of its employees. The Companies may also at their discretion enter into other
agreements with the Employee to provide supplemental retirement benefits,
additional death benefits, or the like.
(b) The Employee shall be eligible to participate in any
fringe benefits which may be or become applicable to the Companies' executive
employees including participation in any stock option or incentive plans adopted
by the Boards, a country club membership, the use of a luxury class automobile,
a reasonable expense account, and any other benefits which are commensurate with
the responsibilities and functions to be performed by the Employee under this
Agreement. The Companies shall reimburse the Employee for all out of pocket
expenses which the Employee shall incur in connection with his services for the
Companies.
5. The initial term of employment under this Agreement shall be for 60
months commencing on the date of this Agreement. Upon the expiration of the 60
month initial term of employment, the term of employment shall automatically be
extended for another 60 month period and then for successive 12 month periods
without further action by the parties, unless either party shall have served
notice upon the other 90 days prior to the commencement of any period, of its
intention that this Agreement shall terminate at the end of the then current
term of employment.
6. (a) The Employee shall devote his full time and best efforts to the
performance of his employment under this Agreement. During the term of this
Agreement, the Employee shall not, at any time or place, either directly or
indirectly, engage in any business or activity in competition with the business
affairs or interest of the Companies.
(b) During the term of this Agreement and, in the event of
termination prior to expiration of such term, except as otherwise provided in
the next sentence, the Employee will not be a director, officer, or employee of,
or consultant to, any federal or state financial institution operating in Queen
Anne's, Kent, Caroline, Talbot, and Xxxx Arundel Counties in the State of
Maryland, and Kent County, Delaware, other than the Companies or their
subsidiaries or affiliates. Such non compete covenant shall terminate and be of
no further force and effect upon the earliest to occur of (i) the expiration
date of this Agreement or (ii) termination of the Employee's employment under
Subsections 9(c), 9(f), or 9(g).
(c) Nothing contained in this Section 6 shall be deemed to prevent
or limit the right of the Employee to invest in the capital stock or other
securities of any business dissimilar from that of the Companies or, solely as a
passive and minority investor in any business.
127
7. The Employee shall perform his duties under this Agreement in
accordance with such reasonable standards expected of employees with comparable
positions in comparable organizations and as may be established from time to
time by the Boards.
8. At such reasonable times as the Boards shall in their discretion
permit, the Employee shall be entitled, without loss of pay, to absent himself
voluntarily from the performance of his employment under this Agreement, all
such voluntary absences to count as vacation time; provided that:
(a) The Employee shall be entitled to an annual vacation in
accordance with the policies as periodically established by the Boards for
senior management officials of the Companies, which shall in no event be less
than three weeks.
(b) The Employee shall not be entitled to receive any additional
compensation from the Companies on account of his failure to take a vacation;
nor shall he be entitled to accumulate unused vacation from one fiscal year to
the next except to the extent authorized by the Boards for senior management
officials of the Companies.
(c) In addition to the aforesaid paid vacations, the Employee shall
be entitled without loss of pay, to absent himself voluntarily from the
performance of his employment with the Companies for such additional periods of
time and for such valid and legitimate reasons as the Boards in their discretion
may determine.
(d) In addition, the Employee shall be entitled to an annual sick
leave as established by the Boards for senior management officials of the
Companies. In the event any sick leave shall not have been used during any year,
such leave shall accrue to subsequent years only to the extent authorized by the
Boards. Upon termination of his employment, the Employee shall not be entitled
to receive any additional compensation from the Companies for unused sick leave.
9. The Employee's9 employment under this Agreement shall be terminated
upon the following occurrences:
(a) The death of the Employee during the term of this Agreement, in
which event the Employee's estate shall be entitled to receive the compensation
due the Employee through the last day of the calendar month in which the
Employee's death shall have occurred (including any bonus under Section 3, pro
rated through the last day of such calendar month, to which the Employee would
have been eligible to receive had he been alive when bonuses were next
declared), and any vested rights and benefits of the Employee pursuant to any
plan of the Companies, whether or not written.
(b) The Boards may terminate the Employee's employment at any time,
but any termination by the Boards other than termination for Cause (defined
below), shall not prejudice the Employee's right to compensation or other
benefits under this, or other, agreements. The Employee shall have no right to
receive compensation or other benefits, except at the discretion of the Boards
or as may be required by other agreements, after termination for Cause.
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Termination for "Cause" shall mean termination for gross negligence or gross
neglect or the commission of a felony or gross misdemeanor involving moral
turpitude, fraud, dishonesty or willful violation of any law that results in any
adverse effect on either of the Companies, or for intentional failure to perform
stated duties.
(c) In the event the Employee's employment under this Agreement is
terminated by the Boards without Cause, the Companies shall be obligated to
continue to pay the Employee his salary up to the date of termination of the
current term of this Agreement. In no event shall the Employee's compensation be
continued for a period of less than 24 months upon any termination without
Cause.
(d) If the Employee is removed and/or permanently prohibited from
participating in the conduct of the Companies' business by an order issued by
the [a][Office of the Comptroller of the Currency] [b][Maryland Commissioner of
Financial Regulation], the Federal Deposit Insurance Corporation, the Board of
Governors of the Federal Reserve System, or other appropriate supervisory
agency, obligations under this Agreement shall terminate, as of the effective
date of the order, but vested rights of the parties shall not be affected.
(e) The voluntary termination by the Employee during the term of
this Agreement with the delivery of no less than 90 days written notice to the
Boards, in which case the Employee shall be entitled to receive only his
compensation, vested rights, and all employee benefits up the date of his
termination, unless otherwise provided by law.
(f) Notwithstanding any provision herein to the contrary (except
Subsection 9(h)), if the Employee's employment under this Agreement is
terminated by the Companies, without the Employee's consent and for a reason
other than Cause, in connection with or within 12 months after any Change in
Control (defined below) of the Companies, or if the Employee voluntarily
terminates employment for any reason during the 30 day period beginning with
said Change in Control, the Employee shall be paid an amount equal to the
difference between (i) the product of 2.99 times the Employee's "base amount" as
defined in Section 280G(b)(3) of the Internal Revenue Code, as amended (the
"Code") and regulations promulgated thereunder, and (ii) the sum of any other
parachute payments (as defined under Section 280G(b)(2) of the Code) that the
Employee receives on account of the Change in Control. Said sum shall be paid to
the Employee in one lump sum within 10 days of the termination. This Subsection
9(f)is not applicable in the event of a termination of the Employee's employment
due to the Employee's death or voluntary termination (other than voluntary
termination pursuant to Subsection 9(g)).
The term "Change in Control" shall mean any one of the following
events: (i) the acquisition of ownership, holding or power to vote more than 25%
of the Companies' voting stock, (ii) the acquisition of the ability to control
the election of a majority of the Companies' directors, (iii) the acquisition of
a controlling influence over the management or policies of the Companies by any
person or by persons acting as a "group" within the meaning of Section 13(d) of
the Securities Exchange Act of 1934), (iv) the acquisition of control of the
Companies within the meaning of 12 C.F.R. Part 5.50 or its applicable equivalent
(except in the case of (i), (ii), (iii), or (iv) of this paragraph, the
Companies' mere formation of a holding company shall not itself constitute a
Change in Control), or (v) during any period of two consecutive years,
individuals (the "Continuing Directors") who at the beginning of such period
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constitute the Boards of the Companies (the "Existing Board") cease for any
reason to constitute at least two-thirds thereof, provided that any individual
whose election as a member of the Existing Board was approved by a vote of at
least two-thirds of the Continuing Directors then in office shall be considered
a Continuing Director. For purposes of this paragraph only, the term "person"
refers to an individual or a corporation, partnership, trust, association, joint
venture, pool, syndicate, sole proprietorship, unincorporated organization or
any other form of entity not specifically listed herein.
(g) Notwithstanding any other provision of this Agreement to the
contrary (except this Subsection 9(g)), the Employee may voluntarily
terminate the Employee's employment within 12 months following a Change in
Control of the Companies, and the Employee shall thereupon be entitled to
receive the payment described in Subsection 9(f) of this Agreement, upon the
occurrence of any of the following events, or within 90 days thereafter, which
have not been consented to in advance by the Employee in writing: (i) the
requirement that the Employee perform the Employee's principal executive
functions more than 35 miles from the Employee's primary office as of the date
of the Change in Control; (ii) a reduction in the Employee's base compensation
as in effect on the date of the Change in Control or as the same may be
increased from time to time; (iii) the failure by the Companies to continue to
provide the Employee with the compensation and benefits provided for under this
Agreement, as the same may be changed by mutual agreement from time to time, or
with benefits substantially similar to those provided to the Employee under any
employee benefit plan in which the Employee is a participant at the time of the
Change in Control, or the taking of any action which would materially reduce any
of such benefits or deprive the Employee of any material fringe benefit enjoyed
by the Employee at the time of the Change in Control; (iv) the assignment to the
Employee of duties and responsibilities materially different from those normally
associated with the Employee's position as referenced at Section 1; (v) a
failure to elect or reelect the Employee to the Boards of the Companies (if the
Employee is serving on the Boards at the time of the Change in Control); or (vi)
a material diminution or reduction in the Employee's responsibilities or
authority (including reporting responsibilities) in connection with the
Employee's employment with the Companies.
(h) Any payments made to the Employee pursuant to this Agreement, or
otherwise, are subject to, and conditioned upon their compliance with 12 U.S.C.
Section 1828(k) and any regulations promulgated thereunder.
(i) Within 5 business days before or after a Change in Control, as
defined in Subsection 9(f), which was not approved in advance by resolution of
at least two-thirds of the Continuing Directors of the Companies, the Companies
shall (i) deposit, or cause to be deposited, in a grantor trust (the "Trust")
meeting the requirements of Revenue Procedure 92-64 and having an independent
trustee, an amount equal to 2.99 times the Employee's base amount as defined in
Subsection 9(f), and (ii) provide the trustee of the Trust with a written
direction to hold said amount and any investment return thereon in a segregated
account for the benefit of the Employee, and to follow the procedures set forth
in the next paragraph as to the payment of such amounts from the Trust.
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During the 12 consecutive month period following the date on which the
Companies make the deposit referred to in the preceding paragraph, the Employee
may provide the trustee with a written notice requesting that the trustee pay to
the Employee an amount designated in the notice as being payable pursuant to
Subsection 9(f) or 9(g). Within 3 business days after receiving said notice, the
trustee of the Trust shall send a copy of the notice to the Companies via
overnight and registered mail return receipt requested. On the 10th business day
after mailing said notice to the Companies, the trustee of the Trust shall pay
the Employee the amount designated therein in immediately available funds,
unless prior thereto the Companies provide the trustee with a written notice
directing the trustee to withhold such payment. In the latter event, the trustee
shall submit the dispute to non-appealable binding arbitration for a
determination of the amount payable to the Employee pursuant to Subsections 9(f)
or 9(g) hereof. The party responsible for the payment of the costs of such
arbitration (including any legal fees and expenses incurred by the Employee)
shall be determined by the arbitrator. The trustee shall choose the arbitrator
to settle the dispute, and such arbitrator shall be bound by the rules of the
American Arbitration Association in making his or her determination. The parties
and the trustee shall be bound by the results of the arbitration, and within 3
business days of the determination by the arbitrator, the trustee shall pay from
the Trust the amounts required to be paid to the Employee and/or the Companies,
and in no event shall the trustee be liable to either party for making the
payments as determined by the arbitrator.
Upon the earlier of (i) any payment from the Trust to the Employee, or
(ii) the date 12 months after the date on which the Companies make the deposit
referred to in the first paragraph of this Subsection 9(i), the trustee of the
Trust shall pay to the Companies the entire balance remaining in the Trust. The
Employee shall thereafter have no further rights under this Section 9, no
further rights in the Trust pursuant to this Agreement, and no further rights or
claims against the Companies pursuant to this Agreement.
10. (a) The suspension of the Employee from office and/or temporary
prohibition from participation in the conduct of the affairs of the Companies
pursuant to notice served by the appropriate regulatory agency, unless stayed by
appropriate proceedings, shall suspend, as of the date of such service, all
obligations of the Companies under the terms of this Agreement.
(b) In the event the charges specified in a notice served as
provided in Section 10(a) shall be dismissed, the Companies shall (i) pay the
Employee any compensation withheld from the Employee pursuant to the suspension
of the Companies' obligations as required in Section 10(a) and (ii) reinstate
the obligations suspended as required in Section 10(a).
11. If the Employee shall become disabled or incapacitated, as
determined by the Employee's physician, to the extent that he is unable to
perform the duties provided in Section 1, he shall nevertheless continue to
receive the following percentages of his compensation, inclusive of any benefits
which may be payable to the Employee under the provisions of any disability
insurance in effect for the Employee, under Section 2 for the following periods
of disability: 100% for the first 6 months, 75% for the next 12 months, and 50%
thereafter for the remainder of the initial term, or any renewal thereof, of
this Agreement. Upon returning to active full-time employment, the Employee's
full compensation as set forth in this Agreement shall be reinstated. In the
131
event that the Employee returns to active employment on other than a full-time
basis, then his compensation as set forth in Section 2 may be reduced in
proportion to the time spent in said employment. If he is again unable to
perform the duties provided in Section 1 due to illness or other incapacity,
benefits under this Section 11 shall (a) begin again at 100% for the first 6
months if he has been engaged in active full-time employment for more than 12
months immediately prior to such later absence or inability or (b) resume where
benefits left off if he has been engaged in active full-time employment for 12
months or less immediately prior to such later absence or inability.
Notwithstanding any provision of this Section to the contrary, the
Companies may, after 2 years of the Employee's continuing disability (or
immediately if notified by the Employee's physician that, in his opinion, the
Employee will not be able to return to active service/duty within a two year
period), hire or appoint a successor, and if a successor is so hired or
appointed, the Employee is not obligated to return, and is entitled to receive:
(a) the balance of the disability compensation for the remainder of the current
term, as above set forth; [a][(b) the benefits promised in the Executive
Supplemental Retirement Plan upon attaining Normal Retirement Age, as if he had
been continuously employed by the Bank until his Normal Retirement Age; (c) the
Employee shall be 100% vested in the benefits promised in the Life Insurance
Endorsement Method Split Dollar Agreement and, therefore, upon the death of the
Employee, the Employee's beneficiary(ies) (designated in accordance with the
Agreement) shall receive the death benefit provided therein as if the Employee
had died while employed by the Companies (see Subparagraph VI(A) in the Life
Insurance Method Split Dollar Agreement); and (d)] [b][(b) the benefits promised
in any Executive Supplemental Retirement Plan upon attaining Normal Retirement
Age, as if he had been continuously employed by the Bank until his Normal
Retirement Age; and (c)] all other benefits to which the Employee is entitled
under any other of the Companies' plans or agreements then in effect.
12. (a) This Agreement shall inure to the benefit of and be binding
upon any corporate or other successor of the Companies which shall acquire,
directly or indirectly, by merger, consolidation, purchase, or otherwise, all or
substantially all of the assets of the Companies.
(b) Since the Companies are contracting for the unique and personal
skills of the Employee, the Employee shall be precluded from assigning or
delegating his rights or duties hereunder without first obtaining the written
consent of the Companies.
13. In the event a dispute arises over benefits or other provisions
under this Agreement (other than a dispute to be resolved under Section 9(i)),
then the parties hereto agree to submit the dispute to non-appealable binding
arbitration. The Board of arbitrators shall consist of three members, with one
member selected by the Employee, one member selected by the Companies, and the
third member selected by the first two members. The party responsible for the
payment of the costs of such arbitration (including any legal fees and expenses
incurred by the Employee) shall be determined by the Board. The Board shall be
bound by the rules of the American Arbitration Association in making their
determination. The parties hereto agree that they and their heirs, personal
132
representatives, successors, and assigns shall be bound by the decision of such
Board with respect to any controversy properly submitted to it for
determination.
Where a dispute arises as to the Companies' discharge of the Employee
for Cause, such dispute shall likewise be submitted to arbitration as above
described and the parties hereto agree to be bound by the decision hereunder.
14. No amendments or additions to this Agreement shall be valid unless
in writing and signed by both parties, except as herein otherwise provided.
15. This Agreement shall be governed in all respects whether as to
validity, construction, capacity, performance or otherwise, by the laws of the
State of Maryland, except to the extent that Federal law shall be deemed to
apply.
16. The provisions of this Agreement shall be deemed severable and the
invalidity or unenforceability of any provision shall not affect the validity
and enforceability of the other provisions hereof.
IN WITNESS WHEREOF, the parties have executed this Agreement as of
____________, 2000.
[a][THE CENTREVILLE NATIONAL
BANK OF MARYLAND] [b][THE
TALBOT BANK OF EASTON, MARYLAND]
ATTEST:
--------------------------------------
Secretary _________________________________
Chairman
SHORE BANCSHARES, INC
ATTEST: _________________________________
Chairman
-----------------------------------
Secretary
WITNESS: _________________________________
[a][Xxxxxx X. Xxxxxx]
____________________________________ [b][X. Xxxxxxxx Xxxxxxxx],
Employee
133
APPENDIX XIV
SUCCESSOR BANCSHARES
BOARD AND EXECUTIVE OFFICER ASSIGNMENTS AT
THE EFFECTIVE DATE
Designated Directors of Shore Bancshares:
Name ................. Class Designated by
Xxxxx X. Xxxxx ....... 2001 Talbot Bancshares
Xxxxxx X. Xxxxxx ..... 2001 Shore Bancshares
Xxxxxxx X. Xxxxxxxxx . 2001 Talbot Bancshares
Xxxxx X. Xxxxx ....... 2002 Shore Bancshares
Xxxxxx X. Xxx ........ 2002 Talbot Bancshares
Xxxx X. XxXxxxxx ..... 2002 Shore Bancshares
Xxxxxxx X. Xxxxxx, III 2002 Talbot Bancshares
Xxxx X. Xxxxxx ....... 2003 Shore Bancshares
Xxxxx X. Xxxxxx, Xx .. 2003 Talbot Bancshares
B. Xxxxx Xxxxxxx, Xx . 2003 Shore Bancshares
X. Xxxxxxxx Xxxxxxxx . 2003 Talbot Bancshares
Designated titles (director titles and executive officer titles) of Shore
Bancshares:
Name Title
Director Titles:
To Be Determined Chairman of the Board
Executive Officer Titles:
X. Xxxxxxxx Xxxxxxxx President and Chief Executive Officer
Xxxxxx X. Xxxxxx Executive Vice President and Chief Operating
Officer
Xxxxx X. Xxxxxxxxx Treasurer
Xxxxx X. Xxxxxxxxxx Secretary
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APPENDIX XV
FORM OF TERMINATION AND RELEASE OF EMPLOYMENT AGREEMENT
THIS TERMINATION AND RELEASE OF EMPLOYMENT AGREEMENT (this "Agreement")
is entered into as of July 25, 2000, by and among The Centreville National Bank
of Maryland (the "Centreville Bank"), Shore Bancshares, Inc. ("Shore
Bancshares"), TALBOT BANCSHARES, INC. ("Talbot Bancshares"), and XXXXXX X.
XXXXXX (the "Employee").
WHEREAS, Talbot Bancshares has agreed to merge with and into Shore
Bancshares under a Plan and Agreement to Merge dated as of July 25, 2000 (the
"Plan"); and
WHEREAS, the Employee has been employed as President and Chief
Executive Officer of Shore Bancshares and Centreville Bank under an Employment
Agreement dated January 1, 1999 (the "Employment Agreement"); and
WHEREAS, the Employment Agreement provides the Employee with certain
rights in respect to his employment, including rights upon a "change in control"
of Shore Bancshares and Centreville Bank; and
WHEREAS, Centreville Bank and Shore Bancshares wish to employ the
Employee after the consummation of the transaction contemplated by the Plan (the
"Merger") as Executive Vice-President of Shore Bancshares and the President and
Chief Executive Officer of Centreville Bank, but only if the Employee agrees to
terminate the Employment Agreement, to release all of his rights thereunder,
including rights that may arise as a result of the Merger under provisions of
the Employment Agreement relating to a "change in control," and to enter into an
employment agreement (the "New Employment Agreement") in substantially the form
attached hereto as Exhibit A; and
WHEREAS, the Employee has agreed to enter into this Agreement and,
thereby, to terminate the Employment Agreement and release all of his rights
thereunder, including rights that may arise upon a change of control, subject to
the condition that the Merger occurs and that Centreville Bank and Shore
Bancshares execute and deliver to him for signature the New Employment Agreement
in substantially the form attached hereto.
NOW THEREFORE, it is AGREED as follows:
1. The parties agree that effective upon the Merger, and subject to the
condition that at the time of the Merger each of Centreville Bank and Shore
Bancshares execute and deliver to the Employee for signature the New Employment
Agreement in substantially the form attached hereto as Exhibit A, the Employment
Agreement shall terminate and be of no further force or effect, and Centreville
Bank, Shore Bancshares and Talbot Bancshares are and shall be released and
forever discharged from any and all obligations and liabilities under the
Employment Agreement, including but not limited to, any obligations and
liabilities relating to any "change in control" (as defined in Section 9(f) of
135
the Employment Agreement) occurring with respect to Centreville Bank and Talbot
Bancshares as the result of the Merger.
2. This Agreement shall be binding upon the Executive, his heirs,
successors and assigns, and shall inure to the benefit of and be binding upon
any corporate or other successor of Centreville Bank, Shore Bancshares and
Talbot Bancshares, which shall acquire, directly or indirectly, by merger,
consolidation, purchase, or otherwise, all or substantially all of the assets of
Centreville Bank, Shore Bancshares and Talbot Bancshares.
3. This Agreement shall be governed in all respects whether as to
validity, construction, capacity, performance or otherwise, by the laws of the
State of Maryland, except to the extent that Federal law shall be deemed to
apply. No amendments or additions to this Agreement shall be binding unless in
writing and signed by both parties.
136
IN WITNESS WHEREOF, the parties have executed this Agreement as of July
25, 2000.
ATTEST: THE CENTREVILLE NATIONAL BANK OF MARYLAND
------------------------- -----------------------------------------
Secretary Chairman
ATTEST: SHORE BANCSHARES, INC
------------------------- -----------------------------------------
Secretary Chairman
ATTEST: TALBOT BANCSHARES, INC
------------------------- -----------------------------------------
Secretary Chairman
WITNESS:
------------------------- -----------------------------------------
Xxxxxx X. Xxxxxx, Employee
137
