exhibit102.htm


    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.

     

    


    
      
         

      

      
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    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.

     

     

     

    
      
         

      

      
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    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):

     

     

    
      
         

      

      
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    (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.

     

     

    
      
         

      

      
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    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.

     

    
 

    
      
         

      

      
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    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.

     

     

    
 

    
      
         

      

      
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    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).

     

     

    
      
         

      

      
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    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