EXHIBIT 10.2
SEVERN BANCORP, INC.
STOCK OPTION AND INCENTIVE PLAN

1. Purpose of the Plan.

The purpose of this Severn Bancorp, Inc. Stock Option and Incentive Plan (the
"Plan") is to advance the interests of the Company through providing select key
Employees and Directors of the Bank, the Company, and their Affiliates with the
opportunity to acquire Shares. By encouraging such stock ownership, the Company
seeks to attract, retain and motivate the best available personnel for positions
of substantial responsibility and to provide additional incentive to Directors
and key Employees of the Company or any Affiliate to promote the success of the
business.

2. Definitions.

As used herein, the following definitions shall apply.

  (a) "Affiliate" shall mean any "parent corporation" or "subsidiary
corporation" of the Company, as such terms are defined in Section 424 (c) and
(f), respectively, of the Code, and any other subsidiary corporations of a
parent corporation of the Company.

  (b) "Agreement" shall mean a written agreement entered into in accordance with
Section 5(c).

  (c) "Bank" shall mean Severn Savings Bank, FSB.

  (d) "Board" shall mean the Board of Directors of the Company.

  (e) "Code" shall mean the Internal Revenue Code of 1986, as amended.

  (f) "Committee" shall mean the Stock Option Committee appointed by the Board
in accordance with Section 5(a) hereof.

  (g) "Common Stock" shall mean the common stock, par value $.01 per share, of
the Company.

  (h) "Company" shall mean Severn Bancorp, Inc.
 
 
 
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  (i) "Continuous Service" shall mean the absence of any interruption or
termination of service as an Employee or Director of the Company or an
Affiliate. Continuous Service shall not be considered interrupted in the case of
sick leave, military leave, or any other leave of absence approved by the
Company or in the case of transfers between payroll locations of the Company or
between the Company, an Affiliate, or a successor.

  (j) "Control" shall mean the ownership, control, or power to vote ten percent
(10%) or more of the voting stock of the Company or otherwise control in any
manner the election or appointment of a majority of the Board. "Change in
Control" shall mean: (i) the sale of all, or a material portion, of the assets
of the Company; (ii) a merger or recapitalization in the Company whereby the
Company is not the surviving entity; (iii) an Acquisition by which a person
becomes a Controlling Shareholder within the meaning of 12 C.F.R. Part 574 or as
otherwise defined by the Office of Thrift Supervision, or any successor agency
or regulation thereto; or (vi) the acquisition, directly or indirectly, of the
beneficial ownership (within the meaning of that term as it is used in Section
13(d) of the Securities Exchange Act of 1934 and the rules and regulations
promulgated thereunder) of ten percent (10%) or more of the outstanding voting
securities of the Company by any person, entity, or group; provided, however,
that a change in Control of the Company shall not include the acquisition or
disposition of securities of the Company by any person in Control of the Company
at the time of the adoption of this Plan and shall not include any subsequent
acquisition or disposition of the securities of the Company by any person owned
or Controlled by, or under common Control with, a person in Control of the
Company at the time of the adoption of this Plan. This definition shall not
apply to the purchase of Shares by underwriters in connection with a public
offering of securities of the Company, or the purchase of shares of up to 25% of
any class of securities of the Company by a tax-qualified employee stock benefit
plan as defined in 12 C.F.R. §563b.2(a)(39). The term "person" refers to an
individual or a corporation, partnership, trust, association, joint venture,
pool, sole proprietorship, unincorporated organization, syndicate, or any other
form of entity not listed. The decision of the Committee as to whether a change
in Control has occurred shall be conclusive and binding.

  (k) "Director" shall mean any member of the Board, and any member of the board
of directors of any Affiliate that the Board has by resolution designated as
being eligible for participation in this Plan.
 
 
 
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  (l) "Disinterested Person" shall mean any member of the Board who, at the time
discretion under the Plan is exercised, is a "disinterested person" within the
meaning of Rule 16b-3 promulgated pursuant to the Exchange Act.

  (m) "Effective Date" shall mean the date specified in Section 14 hereof.

  (n) "Employee" shall mean any person employed by the Company, the Bank, or an
Affiliate who is an employee for federal tax purposes.

  (o) "Exercise Price" shall mean the price per Optioned Share at which an
option may be exercised.

  (p) "ISO" means an option to purchase Common Stock that meets the requirements
set forth in the Plan, and which is intended to be and is identified as an
"incentive stock option" within the meaning of section 422 of the Code.

  (q) "Market Value" shall mean the fair market value of the Common Stock, as
determined under Section 7(b) hereof.

  (r) "Non-ISO" means an option to purchase Common Stock that meets the
requirements set forth in the Plan but which is not intended to be and is not
identified as an ISO.

  (s) "Option" means an ISO and/or a Non-ISO.

  (t) "Optioned Shares" shall mean Shares subject to an Option granted pursuant
to this Plan.

  (u) "Participant" shall mean any key Employee or other person who receives an
Option pursuant to the Plan.

  (v) "Plan" shall mean this Severn Bancorp, Inc., Stock Option and Incentive
Plan.

  (w) "Rule 16b-3"" shall mean Rule 16b-3 of the General Rules and Regulations
under the Securities Exchange Act of 1934, as amended, or any successor
regulation thereto.

  (x) "Share" shall mean one share of Common Stock.
 
 
 
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3. Term of the Plan and Options.

  (a) Term of the Plan. The Plan shall continue in effect for a term of 10 years
from the Effective Date or the date the Plan is adopted by the Board (whichever
period ends earlier), unless sooner terminated pursuant to Section 16 hereof. No
Option shall be granted under the Plan after such 10 year term.

  (b) Term of Options. The term of each Option granted under the Plan shall be
established by the Committee, but shall not exceed 10 years; provided, however,
that in the case of an Employee who owns Shares representing more than 10% of
the outstanding Common Stock at the time an ISO is granted, the term of such ISO
shall not exceed five years, subject to the provisions of Section 8(c) hereof.

4. Shares Subject to the Plan.

Except as otherwise required by the provisions of Section 11 hereof, the
aggregate number of shares deliverable pursuant to Options shall not exceed
75,000 Shares. Such Shares may either be authorized but unissued Shares or
Shares held in treasury. If any Options should expire, become unexercisable, or
be forfeited for any reason without having been exercised or becoming vested in
full, the optioned Shares shall, unless the Plan shall have been terminated, be
available for the grant o£ additional Options under the Plan.

5. Administration of the Plan.

  (a) Composition of the Committee. The Plan shall be administered by the
Committee, which shall consist of not less than 3 members of the Board who are
Disinterested Persons. Members of the Committee shall serve at the pleasure of
the Board. In the absence at any time of a duly appointed committee, the Plan
shall be administered by those members o£ the Board who are Disinterested
Persons.

  (b) Powers of the Committee. Except as limited by the express provisions of
the Plan or by resolutions adopted by the Board, the Committee shall have sole
and complete authority and discretion, subject to compliance with applicable
regulations (i) to select Participants and grant Options, (ii) to determine the
form and content of Options to be issued in the form of Agreements under the
Plan, (iii) to interpret the Plan, (iv) to prescribe, amend and rescind rules
and regulations relating to the Plan, and (v) to make other determinations
necessary or advisable for the administration of the Plan. The Committee shall
have and may exercise such other power and authority as may be delegated to it
by the Board from time to time. A majority of the entire Committee shall
constitute a quorum and the actions of a majority of the members present at any
meeting at which a quorum is present, or acts approved in writing by a majority
of the Committee without a meeting, shall be deemed the action of the Committee.
 
 
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  (c) Agreement. Each Option shall be evidenced by a written agreement
containing such provisions as may be approved by the Committee. Each such
Agreement shall constitute a binding contract between the Company and the
Participant, and every Participant, upon acceptance of such Agreement, shall be
bound by the terms and restrictions of the Plan and of such Agreement. The terms
of each such Agreement shall be in accordance with the Plan, but each Agreement
may include such additional provisions and restrictions determined by the
Committee, in its discretion, subject to compliance with applicable regulations,
provided that such additional provisions and restrictions are not inconsistent
with the terms of the Plan. In particular, the Committee shall set forth in each
Agreement (i) the Exercise Price of an option, (ii) the number of Shares subject
to, and the expiration date of, the Option, (iii) the manner, time, and rate
(cumulative or otherwise) of exercise or vesting of such Option, (iv) the
restrictions, if to be placed upon such option, or upon Shares which may be
issued upon exercise of such option, and (v) whether the Option is ended to be
an ISO or a Non-ISO.

The Chairman of the Committee and such other Directors and officers as shall be
designated by the Committee are hereby authorized to execute Agreements on
behalf of the Company and to cause them to be delivered to the recipients of
Options.

  (d) Effect of the Committee’s Decisions. All decisions, determinations and
interpretations of the Committee shall be final persons affected thereby.

  (e) Indemnification. In addition to such other rights of indemnification as
they may have, the members Of the Committee shall be indemnified by the Company
in connection with any claim, action, suit, or proceeding relating to any action
taken or failure to act under or in connection, with the Plan or any Option,
granted hereunder to the full extent provided for under the Company's Articles
of Incorporation and Bylaws with respect to the indemnification of Directors.
 
 
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6. Grant of Options.
 
  (a) General Rule. On and after the Effective Date, key Employees and
Non-Employee Directors shall be eligible to receive discretionary grants of
Options (or other Options) pursuant to the Plan; provided that such grant shall
not be made to an Employee or Non-Employee Director whose Continuous Service
terminates on or before the date of grant.

  (b) The Option granted to the optionee hereunder (i) shall become vested and
exercisable in accordance with the Agreement regarding such option, (ii) shall
have a term of not more than 10 years from the date of the option, and (iii)
shall be subject to the general rule set forth in Section 8(c) with respect to
the effect of an optionee's termination of Continuous Service on the Optionee's
right to exercise his or her options.

  (c) Special Rules for ISOs.

   (1) The option granted to the optionee hereunder (i) shall become vested and
exercisable, on a cumulative basis, with respect to 20% of the Optioned Shares
upon each of the first five anniversary dates of the date of grant, provided
that vesting shall not occur on a particular date if the Optionee's Continuous
Service has terminated on or before such date and (ii) shall have a term not to
exceed 10 years from the date of the option.

  (2) The aggregate Market Value, as of the date the Option is grated, of the
Shares with respect to which ISOs are exercisable for the first time by an
Employee during any calendar year (under all incentive stock option plans, as
defined in Section 422 of the Code, of the Company or any present or future
Parent or Subsidiary of the Company) shall not exceed $100,000. Notwithstanding
the foregoing, the Committee may grant Options in excess of the foregoing
limitations, in which case such options granted in excess of such limitation
shall be options which are Non-ISOs.

7. Exercise Price for Options.

  (a) Limits on Committee Discretion. The Exercise Price as to any particular
option shall not be less than 100% of the Market Value of the Optioned Shares on
the date of grant without taking into account any restrictions on the optioned
Shares. In the case of an Employee who owns Shares representing more than 10% of
the Company's outstanding Shares of Common Stock at the time an ISO is granted,
the Exercise Price shall not be less than 110% of the Market Value of the
Optioned Shares at the time the ISO is granted.
 
 
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  (b) Standards for Determining Exercise Price. If the Common Stock is listed on
a national securities exchange (including the Nasdaq National Market or Small
Cap System) on the date in question, then the Market Value per Share shall be
the average of the highest and lowest selling price on such exchange on such
date, or if there were no sales on such date, then the Exercise Price shall be
the mean between the bid and asked price on such date. If the Common Stock is
traded otherwise than on a national securities exchange on the date in question,
then the market value per Share shall be the mean between the bid and asked
price on such date, or, if there is no bid and asked price on such date, then on
the next prior business day on which there was a bid and asked price. If no such
bid and asked price is available, then the Market Value per Share shall be its
fair market value as determined by the Committee, in its sole and absolute
discretion.
 
8. Exercise of Options.

  (a) Generally. Subject to (e) below, any option granted hereunder shall be
exercisable at such times and under such conditions as shall be permissible
under the terms of the Plan and of the Agreement granted to a Participant. An
Option may not be exercised for a fractional Share.

  (b) Procedure for Exercise. A Participant may exercise options, subject to
provisions relative to its termination and limitations on its exercise, only by
(1) written notice of intent to exercise the Option with respect to a specified
number of Shares, and (2) payment to the Company (contemporaneously with
delivery of such notice) in cash, in Common Stock, or a combination of cash and
Common Stock, of the amount of the Exercise Price for the number of Shares with
respect to which the Option is then being exercised. Each such notice (and
payment where required) shall be delivered, or mailed by prepaid registered or
certified mail, addressed to the Treasurer of the Company at the Company's
executive offices. Common Stock utilized in full or partial payment of the
Exercise Price for options shall be valued at its Market value at the date of
exercise.

  (c) Period of Exercisability. Except to the extent, otherwise provided in more
restrictive terms of an Agreement, an option may be exercised by a Participant
only with respect to the vested portion of such option and only while a
Participant is an Employee or Director that has maintained Continuous Service
from the date of the grant of the Option, or within 3 months after
termination of such Continuous Service (but not later than the date on which the
Option would otherwise expire), except if the Employee's or Director's
Continuous Service terminates by reason of:
 
 
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    (1) "Just Cause" which for purposes hereof shall have the meaning set forth
in any unexpired employment agreement between the Participant and the Bank
and/or the Company (and, in the absence of any such agreement, shall mean
termination because of the Employee's or Director's personal dishonesty,
incompetence, willful misconduct, breach of fiduciary duty involving personal
profit, intentional failure to perform stated duties, willful violation of any
law, rule or regulation (other than traffic violations or similar offenses) or
final cease and desist order, then the Participant's rights to exercise such
Option shall expire on the date of such termination;

    (2) death, then all Options of the deceased Participant shall become
immediately exercisable and may be exercised within 2 years from the date of his
death (but not later than the date on which the option would otherwise expire)
by the personal representatives of his estate or person or persons to whom his
rights under such Option shall have passed by will or by laws of descent and
distribution.

    (3) Permanent and Total Disability (as such term is defined in Section
22(e)(3) of the Code), then all Options of the disabled participant shall become
immediately exercisable and may be exercised within 1 year from the date of such
Permanent and Total Disability, but not later than the date on which the option
would otherwise expire.

    (d) Effect of the Committee's Decisions. The Committee's determination
whether a Participant’s Continuous Service has ceased, and the effective date
thereof, and conclusive on all persons affected thereby.

    (e) Vesting of all options shall cease immediately upon the termination of
employment or directorship of an optionee. The vesting schedule for ISOs set
forth in Section 6(c)(1) of this Plan is the most rapid vesting permitted under
the Plan for ISOs, except in the case of death or disability (which shall be
governed by Sections 8(c)(2) and (3) above) or a change in Control (which shall
be governed by Section 10).
 
 
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9. Grants of Options to Non-Employee Directors

  (a) Automatic Grants. Notwithstanding any other provisions of this Plan, each
Director who is not an employee but is a Director on the Effective Date shall
receive, on said date, Non-ISOs to purchase 4,000 Shares. Such Non-ISOs shall
have an Exercise Price per Share equal to the market value of a Share on the
date of grant.

Each Director who joins the Board after the Effective Date and who is not then
an Employee shall be eligible to receive, on the date of joining the Board, a
discretionary grant of Non-ISOs in accordance with Section 6 of the Plan, at an
Exercise Price per Share equal to the market Value on the date of grant.

  (b) Terms of Exercise. Options received under the provisions of this Section
may be exercised in accordance with Section 8 above.

10. Change in Control.

All outstanding options shall become immediately exercisable in the event of a
change in Control of the Company, as determined by the Committee in its sole
discretion. In the event of a change in Control, the Committee and the Board of
Directors, at their discretion, will take one or a combination of the following
actions to be effective as of the date of such change in Control:

  (1) provide that such options shall be assumed, or equivalent options shall be
substituted ("Substitute options") by the acquiring or succeeding corporation
(or an Affiliate thereof), provided that (a) any such Substitute Option
exchanged for ISOs shall meet the requirements of Section 424(a) of the Code,
and (b) the shares of stock issuable upon the exercise of such Substitute option
shall constitute securities registered in accordance with the Securities Act of
1933, as amended ("Securities Act"), or such securities shall be exempt from
such registration in accordance with Sections 3(a)(2) or 3(a)(5) of the
Securities Act, or

  (2) provide that the Participants will receive upon the consummation of the
change in Control transaction a cash payment for each option surrendered equal
to the difference between (1) the Market Value of the consideration to be
received for each share of common Stock in the change in Control transaction
times the number of Shares subject to a surrendered Option, and (2) the
aggregate exercise price of such surrendered Options. Options to which the
Committee or the Board has determined to provide a cash payment in lieu of the
option pursuant to this section shall be and become, upon the change in Control
the right to receive the cash payment only and shall cease to be an Option.
 
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The individual agreements concerning options under this Plan or other
agreements between Participants and the Company, the Bank, or any Affiliate
thereof, may provide restrictions on options in the case of a change in Control
in order to avoid adverse tax results under Section 280G and/or Section 4999 of
the Code.

11. Effect of Changes in Common Stock Subject to the Plan.

  (a) Recapitalization Stock Splits, Etc. The number and kind of Shares reserved
for issuance under the Plan, and the number and kind of shares subject to
outstanding options, and the Exercise Price thereof, shall be proportionately
adjusted for any increase, decrease, change, or exchange of Shares for a
different number or kind of shares or other securities of the Company which
results from a merger, consolidation, recapitalization, reorganization,
reclassification, stock dividend, split-up, combination of shares, or similar
event in which the number or kind of Shares is changed without the receipt or
payment of consideration by the Company.

  (b) Special Rule for ISOs. Any adjustment made pursuant to subsection (a)
hereof shall be made in such a manner as not to constitute a modification,
within the meaning of Section 424(h) of the Code, of outstanding ISOs.

  (c) Conditions and Restrictions on New, Additional, or Different Shares or
Securities. If, by reason of any adjustment made pursuant to this Section, a
Participant becomes entitled to new, additional, or different shares of stock or
securities, such new, additional, or different shares of stock or securities
shall thereupon be subject to all of the conditions and restrictions that were
applicable to the Shares pursuant to the option before the adjustment was made.

  (d) Other Issuances. Except as expressly provided in this Section, the
issuance by the Company or an Affiliate of shares of stock of any class, or of
securities convertible into Shares or stock of another class, for cash or
property or for labor or services either upon direct sale or upon the exercise
of rights or warrants to subscribe therefor, shall not affect, and no adjustment
shall be made with respect to, the number, class or Exercise Price of Shares
then subject to Options or reserved for issuance under the Plan.
 
 
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12. Non-Transferability of Options.

Options may not be sold, pledged, assigned, hypothecated, transferred or
disposed of in any manner other than by will or by the laws of descent and
distribution, or pursuant to the terms of a "qualified domestic relations order"
(within the meaning of Section 414(p) of the Code and the regulations and
rulings thereunder). An option may be exercised only by a Participant, the
Participant's personal representative, or a permitted transferee.

13. Time of Granting Options.

The date of grant of an option shall, for all purposes, be the later of the date
on which the Committee makes the determination of granting such option, and the
Effective Date. Notice of the determination shall be given to each Participant
to whom an option is so granted within a reasonable time after the date of such
grant.

14. Effective Date.

The Plan shall become effective immediately upon its approval by the Board;
provided, however, that the plan shall be approved by a favorable vote of
stockholders owning at least a majority of the Shares cast at a meeting duly
held in accordance with the applicable laws within 12 months of the adoption of
the Plan by the Board. If such approval of stockholders is not obtained within
12 months of the adoption of the Plan, the Plan shall continue in existence,
however, all ISOs granted pursuant to the Plan shall become Non-ISOs.

15. Modification of Options.

At any time, and from time to time, the board may authorize the Committee to
direct execution of an instrument providing for the modification of any
outstanding option, provided no such modification shall confer on the holder of
said Option any right or benefit which could not be conferred on such person by
the grant of a new Option at such time, or impair the option without the consent
of the holder of the option.
 
 
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16. Amendment and Termination of the Plan.

The Board may from time to time amend the terms of the Plan, subject to
compliance with applicable regulations, and, with respect to any Shares at the
time not subject to options, suspend or terminate the Plan; provided that the
provisions of Section 9 may not be amended more than once every six months
(other than to comport with changes in the Code, the Employee Retirement Income
Security Act of 1974, as amended, or the rules thereunder).

Shareholder approval must be obtained for any amendment of the Plan that would
change the number of Shares subject to the Plan (except in accordance with
Section 12 above), change the category of persons eligible to be Participants,
or materially increase the benefits under the Plan.

No amendment, suspension or termination of the Plan shall, without the consent
of any affected holders of an option, alter or any rights or obligations under
any option theretofore granted.

17. Conditions upon Issuance of Shares.

  (a) Compliance with Securities Laws. Shares of Common Stock shall not be
issued with respect to any option unless the issuance and delivery of such
Shares shall comply with all relevant provisions of law, including, without
limitation, the Securities Act of 1933, as amended, the rules and regulations
promulgated thereunder, any applicable state securities law, and the
requirements of any stock exchange upon which the Shares may then be listed. The
Plan is intended to comply with Rule 16b-3, and any provision of the Plan which
the Committee determines in its sole and absolute discretion to be inconsistent
with said Rule shall, to the extent of such inconsistency, be inoperative and
null and void, and shall not affect the validity of the remaining provisions of
the Plan.

  (b) Special Circumstances. The inability of the Company to obtain approval
from any regulatory body or authority deemed by the Company's counsel to be
necessary to the lawful issuance and sale of any Shares hereunder shall relieve
the Company of any liability in respect of the non-issuance or sale of such
Shares. As a condition to the exercise of an option the Company may require the
person exercising the option to make such representations and warranties as may
be necessary to assure the availability of an exemption from the registration
requirements of federal or state securities law.
 
 
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  (c) Committee Discretion. The Committee shall have the discretionary
authority, subject to compliance with applicable regulations, to impose in
Agreements such restrictions on Shares as it may deem appropriate or desirable,
including but not limited to the authority to impose a right of first refusal or
to establish repurchase rights or both of these restrictions.

18. Reservation of Shares.

The Company, during the term of the Plan, will reserve and keep available a
number of Shares sufficient to satisfy the requirements of the Plan.

19. Withholding Tax.

The Company's obligation to deliver Shares upon exercise of options shall be
subject to the Participant's satisfaction of all applicable federal, state, and
local income and employment tax withholding obligations. The Committee, in its
discretion, may permit the Participant to satisfy the obligation, in whole or in
part, by irrevocably electing to have the company withhold Shares, or to deliver
to the Company Shares that the Participant already owns, having a value equal to
the amount required to be withheld. The value of Shares to be withheld, or
delivered to the Company, shall be based on the Market Value of the Shares on
the date the amount of tax to be withheld is to be determined. As an
alternative, the Company may retain, or sell without notice, a number of such
Shares sufficient to cover the amount required to be withheld.

20. No Employment or Other Rights.

In no event shall an Employee's or Director's eligibility to participate or
participation in the Plan create or be deemed to create any legal or equitable
right of the Employee, Director, or any other party to continue service with the
Company, the Bank, or any Affiliate of such corporations. Except to the extent
provided in Section 9(a), no Employee or Director shall have a right to be
granted an option or, having received an option the right to again be granted an
option. However, an Employee or Director who has been granted an Option may, if
otherwise eligible, be granted an additional option or Options.
 
 
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21. Governing Law.

The Plan shall be governed by and construed in accordance with the laws of the
State of Maryland, except to the extent that federal law shall be deemed to
apply.

 
 
 
 
 
 
 
 
 
 
 
 
 
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