EXHIBIT 10.2

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

Principal Amount: $ ____________
  Dated: ______________________
Subordinated Note No: _________

SEVERN BANCORP, INC.

8.0% SUBORDINATED NOTE
DUE DECEMBER  31, 2018

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

 
 
 

--------------------------------------------------------------------------------

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

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

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

The Subordinated Notes are not entitled to the benefit of any sinking fund.
 
The term “Business Day” shall mean any weekday that is not a legal holiday in
New York, New York and is not a day on which banking institutions in New York,
New York are authorized or required by law or regulation to be closed.
 
The term “Person” shall mean any legal person, including individual,
corporation, estate, partnership, joint venture, association, joint-stock
company, limited liability company or trust.
 

 
2

--------------------------------------------------------------------------------

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

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

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

--------------------------------------------------------------------------------

 

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

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

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

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

5.           Events of Default.     One or more of the following events of
default shall constitute an Event of Default hereunder (whatever the reason for
such Event of Default and whether it shall be voluntary or involuntary or be
effected by operation of law or pursuant to any judgment, decree or order of any
court or any order, rule or regulation of any administrative or governmental
body):
 
 
 
4

--------------------------------------------------------------------------------

 

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

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

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

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

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

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

If an Event of Default with respect to Subordinated Notes at the time
outstanding occurs and is continuing, then in every such case the holders of not
less than 25% in aggregate principal amount of the Subordinated Notes then
outstanding may declare the principal amount of all Subordinated Notes to be due
and payable immediately, by a notice in writing to the Corporation, and upon any
such declaration the same shall become immediately due and payable.
 
 
 
5

--------------------------------------------------------------------------------

 

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

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

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

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

 
 
6

--------------------------------------------------------------------------------

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

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

 
 
7

--------------------------------------------------------------------------------

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

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

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

In the event and during the continuation of any Default by the Corporation in
the payment of principal, interest or any other payment due on any Senior
Indebtedness, or in the event that the maturity of any Senior Indebtedness has
been accelerated because of an Event of Default, or if any judicial proceeding
shall be pending with respect to any such Default, then, in any such case, no
payment shall be made by the Corporation with respect to the principal
(including redemption payments) of or interest on the Subordinated Notes or any
other amounts which may be due on the Subordinated Notes pursuant to the terms
hereof or otherwise.
In the event of the acceleration of the maturity of the Subordinated Notes, then
no payment shall be made by the Corporation with respect to the principal
(including redemption payments) or interest on the Subordinated Notes or any
other amounts which may be due on the Subordinated Notes pursuant to the terms
hereof or otherwise until the holders of all Senior Indebtedness outstanding at
the time of such acceleration shall receive payment in full of such Senior
Indebtedness (including any amounts due upon acceleration).
 
 
 
8

--------------------------------------------------------------------------------

 

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

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

In the event that, notwithstanding the foregoing, any payment or distribution of
assets of the Corporation of any kind or character prohibited by the foregoing,
whether in cash, property or securities, shall be received by the holders of the
Subordinated Notes before all Senior Indebtedness is paid in full, or provision
is made for such payment in money in accordance with its terms, such payment or
distribution shall be held in trust for the benefit of and shall be paid over or
delivered to the holders of such Senior Indebtedness or their representative or
representatives, or to the trustee or trustees under any indenture pursuant to
which any instruments evidencing such Senior Indebtedness may have been issued,
as their respective interests may appear, as calculated by the Corporation, for
application to the payment of all Senior Indebtedness remaining unpaid to the
extent necessary to pay all such Senior Indebtedness in full in money in
accordance with its terms, after giving effect to any concurrent payment or
distribution to or for the benefit of the holders of such Senior Indebtedness. 
For purposes of this Section 7, the words “cash, property or securities” shall
not be deemed to include shares of stock of the Corporation as reorganized or
readjusted, or securities of the Corporation or any other corporation provided
for by a plan of reorganization or readjustment, the payment of which is
subordinated at least to the extent provided in this Section 7 with respect to
the Subordinated Notes to the payment of Senior Indebtedness that may at the
time be outstanding, provided that (i) such Senior Indebtedness is assumed by
the new corporation, if any, resulting from any such reorganization or
readjustment, and (ii) the rights of the holders of such Senior Indebtedness are
not, without the consent of such holders, altered by such reorganization or
readjustment.  The consolidation of the Corporation with, or the merger of the
Corporation into, another Person or the liquidation or dissolution of the
Corporation following the sale, conveyance, transfer or lease of its property as
an entirety, or substantially as an entirety, to another Person upon the terms
and conditions provided for in Section 6 of this Subordinated Note shall not be
deemed a dissolution, winding up, liquidation or reorganization for the purposes
of this Section 7 if such other Person shall, as a part of such consolidation,
merger, sale, conveyance, transfer or lease, comply with the conditions stated
in Section 6 of this Subordinated Note.
 
 
 
 
9

--------------------------------------------------------------------------------

 

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

Nothing contained in this Section 7 or elsewhere in this Subordinated Note is
intended to or shall impair, as between the Corporation, its creditors other
than the holders of Senior Indebtedness of the Corporation, and the holders of
the Subordinated Notes, the obligation of the Corporation, which is absolute and
unconditional, to pay to the holders of the Subordinated Notes the principal of
and interest on the Subordinated Notes as and when the same shall become due and
payable in accordance with their terms, or is intended to or shall affect the
relative rights of the holders of the Subordinated Notes and creditors of the
Corporation, as the case may be, other than the holders of Senior Indebtedness
of the Corporation, as the case may be, nor shall anything herein or therein
prevent the holder of any Subordinated Note from exercising all remedies
otherwise permitted by applicable law upon Default under the Subordinated Note,
subject to the rights, if any, under this Section 7 of the holders of such
Senior Indebtedness in respect of cash, property or securities of the
Corporation, as the case may be, received upon the exercise of any such remedy.
Upon any payment or distribution of assets of the Corporation referred to in
this Section 7, the holders of the Subordinated Notes shall be entitled to
conclusively rely upon any order or decree made by any court of competent
jurisdiction in which such dissolution, winding up, liquidation or
reorganization proceedings are pending, or a certificate of the receiver,
trustee in bankruptcy, liquidation trustee, agent or other Person making such
payment or distribution, delivered to the holders of the Subordinated Notes, for
the purposes of ascertaining the Persons entitled to participate in such
distribution, the holders of Senior Indebtedness and other indebtedness of the
Corporation, as the case may be, the amount thereof or payable thereon, the
amount or amounts paid or distributed thereon and all other facts pertinent
thereto or to this Section 7.
 

 
 
10

--------------------------------------------------------------------------------

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

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

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

Without in any way limiting the generality of the foregoing paragraph, the
holders of Senior Indebtedness of the Corporation may, at any time and from time
to time, without the consent of or notice to the holders of the Subordinated
Notes, without incurring responsibility to the holders of the Subordinated Notes
and without impairing or releasing the subordination provided in this Section 7
or the obligations hereunder of the holders of the Subordinated Notes to the
holders of such Senior Indebtedness, do any one or more of the following:  (i)
change the manner, place or terms of payment or extend the time of payment of,
or renew or alter, such Senior Indebtedness, or otherwise amend or supplement in
any manner such Senior Indebtedness or any instrument evidencing the same or any
agreement under which such Senior Indebtedness is outstanding; (ii) sell,
exchange, release or otherwise deal with any property pledged, mortgaged or
otherwise securing such Senior Indebtedness; (iii) release any Person liable in
any manner for the collection of such Senior Indebtedness; and (iv) exercise or
refrain from exercising any rights against the Corporation, as the case may be,
and any other Person.
 
 
 
11

--------------------------------------------------------------------------------

 

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

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

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

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

 
 
12

--------------------------------------------------------------------------------

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

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

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

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

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

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

 
13

--------------------------------------------------------------------------------

 

SEVERN BANCORP, INC.

By: ____________________________
      Name:
      Title:

 

 
14

--------------------------------------------------------------------------------

 

 

ASSIGNMENT

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

--------------------------------------------------------------------------------

 

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

 
b

--------------------------------------------------------------------------------

(Insert address and zip code of assignee)

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

Date: _______________________

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

Signature Guarantee*:  ___________________________________

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

 
15

--------------------------------------------------------------------------------

 

CERTIFICATE TO BE DELIVERED UPON EXCHANGE OR
 
REGISTRATION OF RESTRICTED SECURITIES
 
This certificate relates to $_____________ principal amount of Subordinated
Notes held in  definitive form by the undersigned.
 
 
(A)
The undersigned has requested the Registrar by written order to exchange or
register the transfer of Subordinated Notes.

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

 
 
(1)
 r
transferred to Severn Bancorp, Inc. or a Subsidiary thereof; or

 
(2)
 r
transferred pursuant to an available exemption from the registration
requirements of the Securities Act of 1933, as amended (the “Securities Act”);
or

 
(3)
 r
transferred pursuant to an effective registration statement under the Securities
Act.

Unless the box below is checked, the undersigned confirms that such Subordinated
Notes are not being transferred to an “affiliate” of the Severn Bancorp, Inc. as
defined in Rule 144 under the Securities Act (an “Affiliate”):
 
 
(4)
 r
The transferee is an Affiliate of Severn Bancorp, Inc.

 

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

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

 
16

--------------------------------------------------------------------------------