Shore Bancshares, Inc. (NasdaqGS:SHBI) entered into an definitive agreement and plan of merger to acquire Severn Bancorp, Inc. (NasdaqCM:SVBI) for approximately $150 million on March 3, 2021. Consideration payable is a mix of approximately 85% in stock and 15% in cash. The consideration payable to Severn shareholders upon completion of the proposed transaction will consist of whole shares of SHBI common stock, par value $0.01 per share, cash consideration, and cash in lieu of fractional shares of SHBI common stock. Upon consummation of the corporate merger, each share of Severn common stock, par value $0.01 per share, issued and outstanding immediately prior to the effective time of the corporate merger will be canceled and converted into the right to receive 0.6207 shares of SHBI common stock and $1.59 in cash. Upon consummation of the corporate merger, each outstanding and unexercised option to acquire shares of Severn common stock, whether vested or unvested, will be canceled in exchange for the right to receive from Severn, immediately prior to the effective time of the corporate merger, a single-lump sum cash payment, equal to the product of (i) the number of shares of Severn common stock subject to such Severn option immediately prior to the effective time, and (ii) the excess, if any, of (A) $10.60 over (B) the exercise price per share of such Severn option, less any applicable taxes required to be withheld with respect to such payment. If the exercise price per share of any such Severn option is equal to or greater than $10.60, such Severn option shall be canceled without any cash payment being made in respect thereof. In connection with the closing of the transaction, SHBI will assume the obligations under the indenture relating to Severn's junior subordinated debentures due in 2035. Existing Shore shareholders will own approximately 59.6% of the outstanding shares of the combined company and Severn shareholders are expected to own approximately 40.4%. Pursuant to transaction Severn will be merged with and into SHBI, with SHBI as the surviving corporation. Following the corporate merger, Severn's wholly owned bank subsidiary, Severn Savings Bank, FSB will be merged with and into Shore United Bank, which is the wholly owned subsidiary of SHBI, with Shore United as the surviving bank. The name of the surviving corporation shall be “Shore Bancshares, Inc.” and the main office of the surviving corporation Easton, Maryland. The name of the Surviving Bank shall be “Shore United Bank, National Association” and the main office of the Surviving Bank shall be at 18 East Dover Street, Easton, Maryland 21601. Severn must pay SHBI a termination fee in the amount of $5 million if the merger agreement is terminated.

Pursuant to the terms of the merger agreement, SHBI is required to appoint Severn, four individuals who are members of the Severn Board of Directors immediately prior to the effective time of the transaction, each of whom must be mutually agreeable to SHBI and Severn and one of whom shall be Alan Hyatt, the Chairman, President and Chief Executive Officer of Severn, as Directors of SHBI and Shore United, with Alan Hyatt being appointed as the Chairman of the SHBI board of directors and Shore United Board of Directors. Each individual will be assigned to a SHBI Board of Directors class and shall serve for a term that coincides with the remaining term of that class and until his or her successor is elected and qualified. Each of SHBI and Severn and their respective Boards of Directors shall, if any state antitakeover statute or similar statute becomes applicable to this agreement and the transaction, take all action reasonably necessary to ensure that the transaction may be consummated. Post-closing of the merger the Directors of the surviving bank shall be the persons serving as directors of Shore United Bank, National Association immediately prior to the effective time and four new Directors who shall be appointed pursuant to the terms of the merger agreement. Scott Beatty will continue as Chief Executive Officer of the combined company. Severn Directors, executive officers and certain shareholders have entered into agreements with Shore pursuant to which they have committed to vote their shares of Severn common stock in favor of the merger of Severn with and into Shore. Shore directors and executive officers have entered into agreements with Severn pursuant to which they have committed to vote their shares of Shore common stock in favor of the issuance of shares of Shore to Severn shareholders in the merger.

The transaction is subject to following conditions such as the approval of the merger agreement by Severn's shareholders and the approval of the issuance of shares of SHBI common stock by SHBI's shareholders; the receipt of all necessary regulatory approvals by Shore United for the approval of the Office of the Comptroller of the Currency to convert to a national banking association and the transaction; the effective registration of the shares of SHBI common stock with the Securities and Exchange Commission to be issued to Severn's shareholders and the approval of such shares for listing on the Nasdaq Global Market. The transaction was unanimously approved by the Board of Directors of Shore Bancshares and Severn Bancorp. The board recommends the shareholder to vote in favor of the transaction on the shareholder meeting to be held on October 22, 2021. Shore United Bank and Severn Savings Bank Receive Shareholder Approval for Merger. The closing of the bank merger will take place immediately following the merger. As of September 27, 2021, Shore Bancshares has received regulatory approval from the Office of the Comptroller of the Currency to convert Shore United Bank to a national bank and, for Severn Savings Bank, FSB to be merged with and into Shore United Bank, National Association. Severn and Shore shareholders approved the transaction at special meetings of their respective shareholders held on October 22, 2021. The transaction is expected to close in third quarter of 2021. The parties expect to complete the merger during the fourth quarter of 2021. As of October 22, 2021, the transaction is expected to close on October 31, 2021. Shore expects the transaction to be over 30% accretive to EPS in 2022, based on anticipated cost savings of approximately 35% and will increase Shore's total assets to approximately $2.9 billion on a pro forma basis as of December 31, 2020.

Janney Montgomery Scott LLC acted as financial advisor to Shore in the transaction and delivered a fairness opinion to the Board of Directors of Shore. Kevin Houlihan and William Levay, Holland & Knight LLP served as legal counsel to Shore. Piper Sandler & Co. acted as financial advisor to Severn and delivered a fairness opinion to the Board of Directors of Severn. Benjamin Azoff and Gary Lax of Luse Gorman, PC served as legal counsel to Severn. Broadridge Corporate Issuer Solutions, Inc. is the transfer agent and registrar for Shore's common stock. Alliance Advisors, LLC is the proxy solicitation agent for Shore and Severn. Janney will receive a fee of 0.75% of the aggregate purchase price. At the time of announcement of the merger, Janney's fee was approximately $1.1 million. Janney also received a $100,000 fee from SHBI upon rending its opinion, which opinion fee will be credited in full, upon request of SHBI, towards the advisory fee. Piper Sandler will receive a fee for its services, which fee is equal to 1.0% of the aggregate purchase price. At the time of announcement of the Merger, Piper Sandler's fee was approximately $1.5 million. Piper Sandler also received a $125,000 fee from Severn upon rending its opinion, which opinion fee will be credited in full towards the advisory fee.