SHORE BANCSHARES INC
S-8, 1998-09-25
NATIONAL COMMERCIAL BANKS
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   As filed with the Securities and Exchange Commission on September 25, 1998
                                                    Registration No. 333-xxxxxx


                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM S-8
                             REGISTRATION STATEMENT
                                      UNDER
                           THE SECURITIES ACT OF 1933

                             SHORE BANCSHARES, INC.
                 (Name of Small Business Issuer in its Charter)
<TABLE>
<S>     <C>    <C>    <C>    <C>    <C>    <C>

            Maryland                          6712                              52-1974638
(State or other jurisdiction of    (Primary Standard Industrial       (I.R.S. Employer Identification
incorporation or organization)      Classification Code Number)                   Number)
</TABLE>


            Shore Bancshares, Inc. 1998 Employee Stock Purchase Plan

                            (Full title of the plan)

                            109 North Commerce Street
                           Centreville, Maryland 21617
                                 (410) 758-1600
(Address,  including zip code,  and telephone  number,  including  area code, of
registrant's principal executive offices)

                                Daniel T. Cannon
                                    President
                             Shore Bancshares, Inc.
             109 North Commerce Street, Centreville, Maryland 21617
                                 (410) 758-1600

     (Name,  address,  including zip code, and telephone number,  including area
code, of agent for service)

                                   Copies to:
                          Abba David Poliakoff, Esquire
                           Michael A. Refolo, Esquire
                           Gordon, Feinblatt, Rothman,
                           Hoffberger & Hollander, LLC
                              233 E. Redwood Street
                            Baltimore, Maryland 21202
                                 (410) 576-4000


<TABLE>
<CAPTION>

===============================================================================================================================
                                               CALCULATION OF REGISTRATION FEE
===============================================================================================================================
<S>     <C>    <C>    <C>    <C>    <C>    <C>
                                                              Proposed              Proposed Maximum           Amount of
    Title of Shares to be           Amount to be          Maximum Offering         Aggregate Offering         Registration
         Registered                  Registered          Price Per Share(1)             Price(1)                  Fee
- -------------------------------------------------------------------------------------------------------------------------------
Common Stock,
par value $.01 per share            20,000 shares              $32.00                   $640,000                $188.80
===============================================================================================================================

<FN>
(1)      Plus  such  additional  number  of Shares  as may  become  issuable  by
         operation of the anti-dilutional provisions of the plan.

(2)      Estimated solely for purposes of determining the registration  fee. The
         proposed maximum  aggregate  offering price per Share has been computed
         pursuant to Rule 457(h) based upon the market price of the Shares as of
         September 25, 1998.
</FN>
</TABLE>


<PAGE>



                 PART I. INFORMATION REQUIRED IN THE PROSPECTUS




Item 1.  Plan Information.

         Omitted pursuant to the instructions and provisions of Form S-8.


Item 2.  Registrant Information and Employee Plan Information.

         Omitted pursuant to the instructions and provisions of Form S-8.



<PAGE>



               PART II. INFORMATION NOT REQUIRED IN THE PROSPECTUS


Item 3.  Incorporation of Certain Documents by Reference.

         The  following  documents  previously  filed  with the  Securities  and
Exchange Commission (the "Commission") by Shore Bancshares, Inc. (the "Company")
pursuant to the Securities Exchange Act of 1934, as amended (the "Exchange Act")
are, as of their  respective  dates,  hereby  incorporated  by reference in this
Registration Statement:

                  (i)  Annual  Report on Form  10-K for the  fiscal  year  ended
December 31, 1997 (which includes certain information contained in the Company's
definitive  Proxy  Statement for the Annual Meeting of Shareholders on April 21,
1998 and incorporated therein by reference);

                  (ii)  Quarterly  Reports on Form 10-Q for the  quarters  ended
March 31, 1998, and June 30, 1998;

                  (iii)  Description of the Company's Common Stock which appears
at  page  28 of  the  Company's  Registration  Statement  on  Form  10,  or  any
description of the Common Stock which appears in any  prospectus  forming a part
of any subsequent  registration  statement of the Company or in any registration
statement  filed  pursuant  to Section 12 of the  Exchange  Act,  including  any
amendments or reports filed for the purpose of updating such description.

         All other documents  filed by the Company with the Commission  pursuant
to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date
of this Prospectus and prior to the filing of a  post-effective  amendment which
indicates that all of the Company's  shares of common stock,  par value $.01 per
share (the  "Shares"),  offered  hereby  have been sold or that all Shares  then
remaining  unsold have been  deregistered  shall be deemed to be incorporated by
reference  in and made a part of this  Registration  Statement  from the date of
filing of such documents.  Any statement contained in a document incorporated or
deemed to be incorporated by reference  herein shall be deemed to be modified or
superseded  for  purposes  of this  Prospectus  to the extent  that a  statement
contained herein or in a document subsequently filed modifies or supersedes such
statement.  Any statement so modified or superseded shall not be deemed,  except
as so  modified  or  superseded,  to  constitute  a part  of  this  Registration
Statement.

         The Company  will  provide  without  charge to each person to whom this
Prospectus  is delivered,  on the written or oral request of any such person,  a
copy of any and all  documents  incorporated  herein by  reference  (other  than
exhibits  to such  documents).  Written  requests  should be  directed  to Shore
Bancshares,  Inc., Secretary, 109 North Commerce Street,  Centreville,  Maryland
21617. Telephone requests may be directed to the Company at (410) 758-1600.


Item 4.  Description of Shares.

         Not applicable.


Item 5.  Interests of Named Experts and Counsel

         Not applicable.


Item 6.  Indemnification of Directors and Officers.

         Under Maryland law, a corporation  is permitted to limit,  by provision
in its Articles of  Incorporation,  the  liability of directors  and officers so
that no  director  or  officer  shall be  liable  to the  corporation  or to any
shareholder for money damages except (i) for and to the extent of actual receipt
of an improper  personal  benefit in money,  property or  services,  or (ii) for
active  and  deliberate  dishonesty  established  by a final  judgment  as being
material to the cause of action. The Company's Articles of Incorporation include
these provisions.

         The Company's  Articles of Incorporation and Bylaws require the Company
to indemnify its directors and officers to the maximum  extent  permitted  under
Maryland law. As a result, the Company

                                      II-1

<PAGE>



is required to indemnify any present or former  director or officer  against any
claim or liability,  including all judgments,  penalties, fines, settlements and
expenses, unless it is established that (i) his act or omission was committed in
bad  faith or was the  result  of  active  and  deliberate  dishonesty,  (ii) he
actually received an improper personal benefit in money, property or services or
(iii) in the case of a criminal  proceeding,  he had reasonable cause to believe
that his act or omission was unlawful.  In addition,  the Company is required to
pay or reimburse,  in advance of final  disposition of a proceeding,  reasonable
expenses incurred by such a person provided that the Company shall have received
(i) a written  affirmation  by the  director or officer of his good faith belief
that he has met the standard of conduct  necessary  for  indemnification  by the
Company,  and (ii) a written undertaking by or on his behalf to repay the amount
paid or reimbursed by the Company if it shall  ultimately be determined that the
standard of conduct was not met. the  Company's  Articles of  Incorporation  and
Bylaws  also  require  the  Company  to  provide  indemnification,   payment  or
reimbursement  of expenses to a present or former director or officer who served
a predecessor of the Company in such  capacity,  and to any employee or agent of
the Company or a predecessor of the Company.

         Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted of directors  and officers of the Company  pursuant
to the foregoing  provisions  or  otherwise,  the Company has been advised that,
although the validity and scope of the governing  statute has not been tested in
court, in the opinion of the SEC, such  indemnification is against public policy
as  expressed  in such  Act  and  is,  therefore,  unenforceable.  In  addition,
indemnification may be limited by state securities laws.

Item 7.  Exemption from Registration Claimed.

         Not applicable.


Item 8.  Exhibits.

         Exhibit
         Number   Description of Exhibits

         5        Opinion of Gordon, Feinblatt, Rothman, Hoffberger & Hollander,
                  LLC as to legality of Shares to be issued.

         10       1998 Employee Stock Purchase Plan.

         23.1     Consent of Gordon, Feinblatt, Rothman, Hoffberger & Hollander,
                  LLC (included in their opinion in Exhibit 5).

         23.2     Consent  of Stegman & Company,  independent  certified  public
                  accountants.


Item 9.  Undertakings.

(a)      The undersigned Registrant hereby undertakes:

         (1) To file, during any period in which offers or sales are being made,
a  post-effective   amendment  to  this  registration   statement  any  material
information with respect to the plan of distribution not previously disclosed in
the  registration  statement or any material  change to such  information in the
registration statement.

         (2) That,  for the  purpose  of  determining  any  liability  under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such  securities at that time shall be deemed to be the initial bona
fide offering thereof.

         (3) To remove from registration by means of a post-effective  amendment
any of the securities being registered which remain unsold at the termination of
the offering.

(b)  The  undersigned   registrant  hereby  undertakes  that,  for  purposes  of
determining  any liability  under the Securities Act of 1933, each filing of the
Registrant's  annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange  Act of 1934 that is  incorporated  by  reference  in the  registration
statement shall

                                      II-2

<PAGE>



be deemed to be a new registration  statement relating to the securities offered
therein,  and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.

(c) Insofar as indemnification  for liabilities arising under the Securities Act
of 1933 may be permitted to directors,  officers and controlling  persons of the
registrant pursuant to the foregoing  provisions,  or otherwise,  the registrant
has been advised that in the opinion of the Securities  and Exchange  Commission
such  indemnification  is against  public policy as expressed in the Act and is,
therefore,  unenforceable. In the event that a claim for indemnification against
such liabilities  (other than the payment by the registrant of expenses incurred
or paid by a director,  officer or  controlling  person of the registrant in the
successful  defense of any  action,  suit or  proceeding)  is  asserted  by such
director,  officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been  settled by  controlling  precedent,  submit to a court of  appropriate
jurisdiction the question whether such  indemnification  by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.




                                      II-3

<PAGE>



                                   SIGNATURES

         Pursuant  to the  requirements  of the  Securities  Act  of  1933,  the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-8 and has duly caused this registration
statement  to be  signed  on its  behalf  by  the  undersigned,  thereunto  duly
authorized,  in the City of Centreville,  State of Maryland,  on the 18th day of
August, 1998.

                                          SHORE BANCSHARES, INC.


                                          By:  /s/ Danial T. Cannon
                                               ---------------------------------
                                               Daniel T. Cannon, President


                                          By:  /s/ Carol I. Brownawell
                                               ---------------------------------
                                               Carol I. Brownawell, Treasurer


         Pursuant  to the  requirements  of the  Securities  Act of  1933,  this
registration  statement has been signed by the following  persons as of the date
indicated below.

Signature                          Title                        Date
- ---------                          -----                        ----

/s/ Robert Barton                  Director               August 18, 1998
- ---------------------------
Robert Barton

/s/ Paul M. Bowman                 Director               August 18, 1998
- ---------------------------
Paul M. Bowman

/s/ David C. Bryan                 Director               August 18, 1998
- ---------------------------
David C. Bryan

/s/ B. Vance Carmean, Jr.          Director               August 18, 1998
- ---------------------------
B. Vance Carmean, Jr.

/s/ Mark M. Freestate              Director               August 18, 1998
- ---------------------------
Mark M. Freestate

/s/ Neil R. LeCompte               Director               August 18, 1998
- ---------------------------
Neil R. LeCompte

/s/ Susanne K. Nuttle              Director               August 18, 1998
- ---------------------------
Susanne K. Nuttle

/s/ Jerry F. Pierson               Director               August 18, 1998
- ---------------------------
Jerry F. Pierson

                                   Director               August   , 1998
- ---------------------------
Wm. Maurice Sanger

/s/ Walter E. Schmidt              Director               August 18, 1998
- ---------------------------
Walter E. Schmidt



f6100.600 Y:2

                                      II-4

<PAGE>



                                  Exhibit Index


Exhibit
Number   Description of Exhibits
- ------   -----------------------

5        Opinion of Gordon, Feinblatt,  Rothman,  Hoffberger & Hollander, LLC as
         to legality of Shares to be issued

10       1998 Employee Stock Purchase Plan

23.1     Consent of Gordon,  Feinblatt,  Rothman,  Hoffberger &  Hollander,  LLC
         (included in their opinion in Exhibit 5)

23.2     Consent of Stegman & Company, independent certified public accountants

<PAGE>

                                    Exhibit 5


<PAGE>



                                   LAW OFFICES
             GORDON, FEINBLATT, ROTHMAN, HOFFBERGER & HOLLANDER, LLC
                              THE GARRETT BUILDING
                             233 EAST REDWOOD STREET
                         BALTIMORE, MARYLAND 21202-3332

                                  410-576-4000
                                  ------------

                                Telex 908041 BAL
                                Fax 410-576-4246





                               September 25, 1998


Shore Bancshares, Inc.
109 North Commerce Street
Centreville, MD 21617

                  Re:   Shore Bancshares, Inc.
                        Registration Statement on Form S-8 for the
                        Shore Bancshares, Inc. 1998 Employee Stock Purchase Plan
                        --------------------------------------------------------

Ladies and Gentlemen:

         We have  acted  as  counsel  to  Shore  Bancshares,  Inc.,  a  Maryland
corporation (the  "Company"),  in connection with the issuance by the Company of
up to 20,000  shares of common stock,  par value $.01 per share (the  "Shares"),
under the Company's 1998 Employee Stock Purchase Plan (the "Plan"),  pursuant to
the above-referenced Registration Statement (the "Registration Statement") under
the Securities  Act of 1933, as amended (the  "Securities  Act"),  filed on this
date  by  the  Company  with  the  Securities  and  Exchange   Commission   (the
"Commission").

         We have  examined  copies of (i) the Articles of  Incorporation  of the
Company,  as amended  (the  "Charter"),  certified  by the State  Department  of
Assessments and Taxation of Maryland,  (ii) the Bylaws of the Company, (iii) the
Plan,  and (iv)  resolutions  adopted by the Board of  Directors  of the Company
relating  to  the  matters  referred  to  herein.  We  have  also  examined  the
Registration  Statement and Exhibits thereto  (collectively,  with the documents
described in the preceding sentence, referred to as the "Documents").

         In expressing the opinions set forth below, we have assumed, and so far
as is known to us there are no facts inconsistent therewith,  that all Documents
submitted to us as originals are  authentic,  all  documents  submitted to us as
certified  or  photostatic  copies  conform  to  the  original  documents,   all
signatures on all such  Documents are genuine,  all public  records  reviewed or
relied upon by us or on our behalf are true and complete, and all statements and
information contained in the Documents are true and complete.

         Based on the  foregoing,  it is our  opinion  that  Shares  sold by the
Company  to  participants  under the Plan,  upon  receipt  of the  consideration
required to be paid therefor,  will be duly and validly  issued,  fully paid and
nonassessable.

         The  foregoing  opinion is limited to the laws of the State of Maryland
and of the United  States of America and we do not  express  any opinion  herein
concerning any other law. We assume no obligation to supplement  this opinion if
any  applicable  law changes  after the date hereof or if we become aware of any
fact that might change the opinion expressed herein after the date hereof.

         This opinion is being furnished to you for your benefit, and may not be
relied upon by any other person without our prior written consent.



<PAGE>



         We hereby  consent to the  filing of this  opinion as an exhibit to the
Registration Statement and to the use of the name of our firm therein. In giving
this  opinion,  we do not admit that we are within the category of persons whose
consent is required by Section 7 of the Securities Act of 1933.

                                                     Very truly yours,

                                                     GORDON, FEINBLATT, ROTHMAN,
                                                     HOFFBERGER & HOLLANDER, LLC




<PAGE>


                                   Exhibit 10


<PAGE>



                             SHORE BANCSHARES, INC.
                        1998 EMPLOYEE STOCK PURCHASE PLAN

                  1. Purpose.  The purpose of this 1998 EMPLOYEE  STOCK PURCHASE
PLAN ("Plan") is to further the interests of SHORE BANCSHARES,  INC., a Maryland
corporation, and its subsidiaries (collectively referred to as the "Company") by
providing  eligible  employees  the  opportunity  to acquire an  interest in the
Company,  and to provide additional means of attracting and retaining  competent
personnel.

                  2.  Administration.  The  Plan  shall be  administered  by the
Company's  Executive  Committee  (the  "Committee")  which shall  consist of the
Executive Committee (the "Committee"). Subject to the provisions of the Plan and
applicable  law,  the  Committee  is  authorized  to  interpret  the Plan and to
prescribe,  amend and rescind rules and regulations  relating to the Plan and to
any options granted thereunder,  and to make all other determinations  necessary
or advisable  for the  administration  of the Plan.  No member of the  Committee
shall  vote upon or decide  any  matter  relating  to himself or a member of his
immediate family or to any of his rights or benefits (or rights or benefits of a
member of his immediate family) under the Plan.

                  3. Limitation on Aggregate  Shares;  Adjustments.  The Company
has  reserved  20,000  shares of common  stock,  par value  $.01 per share  (the
"Shares"),  for issuance  upon the exercise of options  granted  under the Plan.
Unless otherwise authorized by the Board, options to purchase no more than 4,000
Shares may be granted under the Plan in any calendar year. If any option granted
under the Plan shall terminate, be forfeited or expire unexercised,  in whole or
in  part,  the  Shares  so  released  from  option  may be made the  subject  of
additional  options  granted under the Plan.  The Company shall reserve and keep
available  such  number  of  Shares  as will  satisfy  the  requirements  of all
outstanding options granted under the Plan. Appropriate adjustment shall be made
to the number of Shares  available  for the grant of  options  and the number of
Shares which are subject to outstanding  options  granted under the Plan to give
effect to any stock splits,  stock  dividends,  or other relevant changes in the
capitalization  of the Company  occurring  after the adoption of the Plan by the
Committee. The decision of the Committee as to the amount and timing of any such
adjustment shall be conclusive.

                  4.       Accelerated Exercise.

                           (a)  Anything in the Plan or in any Option  Agreement
or any option granted hereunder to the contrary notwithstanding, in the event of
the commencement of a tender offer (other than by the Company) for any Shares of
the  Company,  or a sale or  transfer,  in one or a series of  transactions,  of
assets having a fair market value of 50% or more of the fair market value of all
assets of the Company, or a merger,  consolidation or share exchange pursuant to
which the Shares of the Company are or may be exchanged  for or  converted  into
cash,  property or  securities  of another  issuer,  or the  liquidation  of the
Company  (an  "Extraordinary  Event"),  then  regardless  of whether  any option
granted pursuant to the Plan has vested or become fully exercisable, all options
granted pursuant to the Plan shall immediately vest and become fully exercisable
for the full number of Shares subject to any such option.

                           (b)  The  accelerated   exercise  right  pursuant  to
subsection  (a) shall be effective on and at all times after the "Event Date" of
the  Extraordinary  Event. The "Event Date" is the date of the commencement of a
tender offer, if the  Extraordinary  Event is a tender offer, and in the case of
any other  Extraordinary  Event, the day preceding the record date in respect of
such  Extraordinary  Event, or if no record date is fixed, the day preceding the
date as of which  shareholders  of record become  entitled to the  consideration
payable in respect of such Extraordinary Event.

                           (c) If in the case of an  Extraordinary  Event  other
than a tender  offer,  notice that is given by an optionee of the exercise of an
option  pursuant to this Section 4 prior to the Event Date shall be effective on
and as of the Event Date. Upon the exercise of an option after the occurrence of
an Extraordinary Event, the Company shall issue, on and as of the effective date
of such  exercise,  all Shares with  respect to which the option shall have been
exercised.

                           (d)  If an  optionee  fails  to  exercise  his or her
option,  in whole or in part,  pursuant to this  Section  upon an  Extraordinary
Event, or if there shall be any capital  reorganization or  reclassification  of
the Shares,  the Company  shall take such action as may be  necessary  to enable
each optionee to receive such options upon any subsequent exercise of his or her
options,  in whole or in part, in lieu of Shares,  securities or other assets as
were  issuable  or payable  upon such  Extraordinary  Event in respect of, or in
exchange for, such Shares.



<PAGE>



                  5.       Participants; Grant of Options.

                           (a) Each employee who, as of the end of each calendar
year,  has (i)  completed 6 months of employment  with the Company,  (ii) who is
customarily  employed at least 20 hours or more per week, and (iii) who is not a
"Highly  Compensated  Employee,"  shall be eligible to  participate  in the Plan
("Eligible  Employee").  The  Committee  may  grant to such  Eligible  Employees
options to purchase  Shares in such amounts as the Committee  shall from time to
time determine.  Unless otherwise  determined by the Committee,  options for the
purchase of Shares shall be granted on a pro-rata  basis using $1,000  multiples
of each  optionee's  base salary,  provided  that no option shall be granted for
underlying  fractional  Shares,  and provided  further that the Committee is not
required to grant options in any given year. All Eligible  Employees  shall have
the same rights and privileges under the Plan,  except that the amount of Shares
which may be  purchased  pursuant  to an Option  Agreement  shall bear a uniform
relationship  to the  total  compensation,  or the  basic  or  regular  rate  of
compensation,  for the calendar year of Eligible Employees. For purposes of this
Plan,  "Highly  Compensated  Employees"  is  defined  in  Section  414(q) of the
Internal  Revenue  Code of 1986,  as amended  (the  "Code"),  and shall  include
Company  employees who had compensation from the Company for the preceding year,
in excess of $80,000,  as adjusted  pursuant to Section  414(q) of the Code. All
rules and  determinations  of the  Committee in the  administration  of the Plan
shall  be  uniformly  and  consistently   applied  to  all  persons  in  similar
circumstances.

                           (b) The  granting of an option  shall take place only
when an  appropriate  written  Option  Agreement  substantially  in the  form of
Exhibit A attached  hereto is  executed  by the  Company  and the  optionee  and
delivered to the optionee. All options under the Plan shall be evidenced by such
written  Option  Agreement  between the Company  and the  optionee.  Such Option
Agreement shall contain such further terms and conditions, not inconsistent with
the Plan,  related to the grant or the time or times of  exercise  of options as
the Committee shall prescribe.

                           (c) No Eligible  Employee  shall be granted an option
under the Plan if,  immediately  after the option  was  granted,  such  Eligible
Employee would own stock  possessing  five percent or more of the total combined
voting  power or value of all classes of stock of the  Company.  For purposes of
this  subsection,  stock  ownership  shall be  determined  under  the  ownership
attribution  rules of  Section  424(d) of the  Code,  and all  shares  which the
Eligible Employee may purchase under any options outstanding shall be treated as
stock owned by the Eligible Employee.

                           (d) No Eligible  Employee  shall be granted an option
under the Plan  which  permits  his or her  right to  purchase  stock  under all
employee  stock  purchase plans (as described in Section 423 of the Code) of the
Company to accrue at a rate which  exceeds  $25,000 of the fair market  value of
the stock (as  determined  at the time such option is granted) for each calendar
year in which such option is  outstanding  at any time. Any option granted under
the Plan shall be deemed to be modified to the extent  necessary to satisfy this
subsection.  For purposes of this  subsection,  (i) the right to purchase  stock
under an option  accrues when the option (or any portion  thereof) first becomes
exercisable  during the calendar year; (ii) the right to purchase stock under an
option accrues at the rate provided in the option,  but in no case may such rate
exceed $25,000 of the fair market value of such stock (as determined at the time
such  option  is  granted  ) for any one  calendar  year;  and  (iii) a right to
purchase stock which has accrued under one option  granted  pursuant to the plan
may not be carried over to any other option.

                           (e) An  option  granted  under  this  Plan  shall not
result in income  upon the  receipt of the  Shares  subject to the option to the
extent that the optionee (other than the optionee's estate where the optionee is
deceased)  does not  dispose of the Shares (i) two years from and after the date
the option is granted, and (ii) one year after the date the Shares are issued to
the optionee.  In the event of a disposition of Shares received upon exercise of
an option where the disposition occurs within two years from the date the option
is granted or one year from the receipt of the shares, the optionee shall notify
the  Secretary  of the  Company  in  writing  promptly  as to the  date  of such
disposition, the sale price (if any), and the number of Shares involved.

                  6.       Option Price; Fair Market Value.

                           (a) The price at which Shares may be  purchased  upon
exercise of an Option  shall be equal to 85 percent of the "Fair  Market  Value"
(as hereinafter defined) on the date the option is granted.

                           (b) The  "Fair  Market  Value"  per  Share  as of any
particular  date shall be the closing  market price per Share on the trading day
immediately  preceding  such  date,  as  reported  on the  principal  securities
exchange  or market on which the Shares are then  listed or admitted to trading,
or if


<PAGE>



not so  reported,  the average of the bid and asked  prices on the trading  date
immediately preceding such date as reported by Nasdaq, or if not so reported, as
determined by the Committee in good faith.

                  7. Exercise Period.  Each option granted under the Plan cannot
be  exercised  after the  expiration  of 27 months  from the date such option is
granted.

                  8.  Limitation  Upon  Transfer of Options.  No option shall be
transferable  by an  optionee  other  than by will and the laws of  descent  and
distribution.  Options shall be exercisable  only by the optionee  during his or
her  lifetime  and only in the  manner  set  forth  herein.  Options  may not be
assigned,  pledged  or  hypothecated,  and shall not be  subject  to  execution,
attachment  or similar  process.  Upon any attempt to transfer an option,  or to
assign,  pledge,  hypothecate or otherwise  dispose of an option in violation of
this provision,  or upon the levy of any attachment or similar process upon such
option or such rights,  the option shall  immediately  lapse and become null and
void.

                  9.  Termination  and  Forfeiture  of Options.  In the event of
termination of an optionee of employment for cause,  all unexercised  options of
the optionee shall  immediately  terminate.  In the event of the  termination of
employment of an optionee for any other  reason,  except the death or disability
of the optionee,  all  unexercised  options of the optionee will  terminate,  be
forfeited and will lapse, provided that the optionee,  within three months after
the  optionee's  termination  of employment  with the Company,  may exercise the
option to purchase that number of Shares that were  purchasable  by the optionee
at the time of his or her termination of employment.

                  10. Death or Disability of Optionee. In the event of the death
of  an  optionee,  or if an  optionee's  employment  is  terminated  because  of
permanent  and total  disability,  the option may be  exercised  by the personal
representative, administrator or a person who acquired the right to exercise any
such option by bequest, inheritance or death of the optionee, or by the disabled
optionee,  as the  case may be,  within  three  months  after  the  death of the
optionee  or  termination  of his or her  employment,  as the  case  may be,  to
purchase that number of Shares that were purchasable by the optionee at the time
of his or her death or disability.

                  11. Leaves of Absences.  The Committee  shall  determine  such
rules,  regulations,  and determinations as it deems appropriate with respect to
leaves of absences taken by any optionee. Without limiting the generality of the
foregoing, the Committee shall determine whether any such leave of absence shall
constitute a termination of employment or eligibility for purposes of the Plan.

                  12.  Method of Exercise.  To exercise an option,  the optionee
(or his or her successor)  shall give written notice to the Company's  Secretary
at the Company's principal place of business accompanied by full payment for the
Shares being purchased and a written statement that the Shares are purchased for
investment and not with a view toward distribution; however, this statement will
not be  required  in the event the Shares  subject to the option are  registered
under the Securities Act of 1933, as amended.  If the option is exercised by the
successor of an optionee  following his or her death,  proof shall be submitted,
satisfactory  to the  Committee,  of the right of the successor to exercise such
deceased optionee's option.

                  13. Manner of Payment.  An optionee may pay the exercise price
for the Shares  being  purchased  either (i) in cash or by check made payable to
the order of the  Company,  (ii) with  Shares of the  Company,  to the extent of
their the Fair Market Value on the date of  exercise,  (iii) by surrender to the
Company of options to purchase Shares,  to the extent of the difference  between
the  exercise  price of such  options  and the Fair  Market  Value of the Shares
subject to such options (the  "spread"),  or (iv) a combination of (i), (ii) and
(iii) above.  The Company shall have the right, and the optionee may require the
Company,  to withhold and deduct from the number of Shares  deliverable upon the
exercise of any options  hereunder a number of Shares  having an aggregate  Fair
Market Value equal to the amount of any taxes and other charges that the Company
is obligated to withhold or deduct from amounts payable to the participant.

                  14.  Share  Certificates.   Certificates  representing  Shares
issued pursuant to the Plan which have not been registered  under the Securities
Act of 1933 shall bear a legend to the following effect:

                  "The  shares  represented  by this  certificate  have not been
                  registered  under  the  Securities  Act of 1933 and any  state
                  securities laws, and may not be assigned, transferred, pledged
                  or  otherwise  disposed  of without  registration  except upon
                  presentation  of evidence  satisfactory to the Company that an
                  exemption from registration is available."


<PAGE>




                  The  Company  shall not be required to transfer or deliver any
certificate or certificates for Shares purchased upon any exercise of an option:
(i) until after  compliance  with all then  applicable  requirements of law; and
(ii) prior to admission of such Shares to listing on any stock exchange on which
the  Company's  outstanding  Shares  may then be listed.  In no event  shall the
Company be required to issue fractional Shares to an optionee.

                  15.  Registration.  If the  Company  shall be  advised  by its
counsel that Shares  deliverable  upon any exercise of an option are required to
be registered under the Securities Act of 1933, or that the consent of any other
authority  is  required  for  their  issuance,   the  Company  may  effect  such
registration  or obtain such consent,  and delivery of the Shares by the Company
may be deferred until registration is effected or consent obtained.

                  16.  Issuance of Shares.  No Shares will be issued  until full
payment  for such Shares has been made.  An  optionee  shall have no rights as a
shareholder with respect to optioned Shares until the date the option shall have
been  properly  exercised  and all  conditions to the exercise of the option and
purchase  of  Shares  shall  have  been  complied  with in all  respects  to the
satisfaction of the Company. No adjustment shall be made for dividends (ordinary
or   extraordinary,   whether  in  cash,   securities  or  other   property)  or
distributions  or other  rights for which the  record  date is prior to the date
such option is exercised, except as otherwise provided herein.

                  17. Amendments and Termination.  The Board may amend, suspend,
discontinue or terminate the Plan,  but no such action may,  without the consent
of the holder of any option granted hereunder, alter or impair such option.

                  18. Period of Plan.  The Plan has been adopted by the Board of
the Company on March 3, 1998 subject to approval of the Plan by the stockholders
of the  Company  within  12  months  of the  date  the  Plan  was  adopted.  The
stockholders of the Company  approved the Plan on, and the effective date of the
Plan is, April 21, 1998.

f5214.600


<PAGE>




                                                                      EXHIBIT A
                                                                      ---------


                        EMPLOYEE STOCK PURCHASE AGREEMENT
                                    under the
                             SHORE BANCSHARES, INC.
                        1998 EMPLOYEE STOCK PURCHASE PLAN

         THIS AGREEMENT is made this ____________________,  ____, by and between
Shore   Bancshares,   Inc.,  a  Maryland   corporation  (the   "Company"),   and
___________________________ (the "Optionee").

         WHEREAS,  the Board of Directors of the Company (the "Board") considers
it  desirable  and in the  Company's  interest  that  the  Optionee  be given an
opportunity  to purchase  its shares of common  stock,  par value $.01 per share
("Shares"),  pursuant to the terms and conditions of the Company's 1998 Employee
Stock  Purchase Plan (the "Plan"),  to provide an incentive for the Optionee and
to promote the interests of the Company.

         NOW, THEREFORE, it is agreed as follows:

         1. Grant of Option. The Company hereby grants to the Optionee an option
to purchase from the Company  ________________  Shares ("Option  Shares") at the
exercise  price per Share set forth  below.  Subject  to earlier  expiration  or
termination of the option granted hereunder,  this option shall expire 27 months
from the date hereof.

         2.  Period of  Exercise of Option.  The  Optionee  shall be entitled to
exercise the option granted hereunder to purchase Option Shares as follows:

                                                                Exercise
       Exercise Date             No. of Shares            Price Per Share
       -------------             -------------            ---------------





in each case,  together  with the number of Option Shares which the Optionee was
theretofore  entitled to purchase.  Appropriate  adjustment shall be made to the
number of Shares  available  for the grant of  options  and the number of Shares
which are subject to outstanding  options  granted under the Plan to give effect
to  any  stock  splits,  stock  dividends,  or  other  relevant  changes  in the
capitalization  of the Company  occurring  after the adoption of the Plan by the
Board.  The  decision of the  Committee  as to the amount and timing of any such
adjustment shall be conclusive.

         3. Accelerated  Exercise.  In the event of an  Extraordinary  Event (as
defined in the Plan)  involving  the  Company,  then  regardless  of whether any
option granted pursuant to the Plan has vested or become fully exercisable,  all
Option  Shares  granted  hereunder  shall  immediately  vest  and  become  fully
exercisable  for the full number of Shares  subject to such option on and at all
times  after the  "Event  Date" (as  defined  in the Plan) of the  Extraordinary
Event, in accordance with the terms and conditions described in the Plan.

         4. Exercise  Periods.  In the event of termination of employment of the
Optionee for cause,  all  unexercised  options  shall  immediately  lapse and be
forfeited.  In the event of the death or disability  of the Optionee,  or in the
event of  termination of his or her  employment  other than for cause,  the Plan
permits certain extended exercise periods.

         5. Method of Exercise.  In order to exercise the Option Shares  granted
hereunder, the Optionee must give written notice to the Secretary of the Company
at the Company's principal place of


<PAGE>




business,  substantially  in the form of Exhibit 1 hereto,  accompanied  by full
payment  of the  exercise  price  for the  Option  Shares  being  purchased,  in
accordance with the terms and provisions of the Plan.

         6. Manner of Payment. An Optionee may pay the exercise price for Option
Shares  purchased  hereunder either (i) in cash or by check payable to the order
of the  Company,  (ii) with Shares of the  Company,  to the extent of their Fair
Market  Value on the date of  exercise,  (iii) by  surrender  to the  Company of
Options to purchase Shares, to the extent of the difference between the exercise
price of such  Options and the Fair Market  Value of the Shares  subject to such
options (the "spread"),  or (iv) a combination of (i), (ii) and (iii) above. The
Company  shall have the right,  and the  Optionee  may require the  Company,  to
withhold  and  deduct  from the  number of Option  Shares  deliverable  upon the
exercise  hereof a number of Option Shares having an aggregate Fair Market Value
equal to the amount of taxes and other  charges that the Company is obligated to
withhold or deduct from amounts payable to the participant.

         7. Limitation upon Transfer.  This option may not be transferred by the
Optionee other than by will and the laws of descent and distribution, may not be
assigned,  pledged  or  hypothecated,  and shall not be  subject  to  execution,
attachment or similar  process.  This option is exercisable only by the Optionee
during his or her lifetime,  and only in the manner set forth  herein.  Upon any
attempt to transfer this option, or to assign, pledge,  hypothecate or otherwise
dispose of this option in violation of this  provision,  or upon the levy of any
attachment  or similar  process upon this option or any rights  hereunder,  this
option shall immediately lapse and become null and void.

         8. Employee Stock Purchase Plan.  This option is intended to be treated
as an option to purchase  shares  under an employee  stock  purchase  plan under
Section 423 of the Internal Revenue Code of 1986, as amended (the "Code").

         9.  Disposition of Shares.  In the event of a disposition of the Option
Shares received  hereunder  where the disposition  occurs within two years after
the date hereof or one year after the receipt of the shares,  the Optionee shall
notify the  Secretary of the Company in writing  promptly as to the date of such
disposition, the sale price (if any), and the number of Shares involved.

         10. Plan;  Applicable Law. This Agreement is subject in all respects to
the  provisions  of the Plan, a copy of which has been provided to the Optionee.
This Agreement shall be governed by and construed in accordance with the laws of
the State of Maryland, excluding its provisions relating to conflicts of laws.

         IN WITNESS  WHEREOF,  the  parties  have caused  this  Agreement  to be
executed under seal,  intending this to be a sealed  instrument,  as of the date
first above written.

ATTEST:                                   SHORE BANCSHARES, INC.


______________________________            By:_____________________________(SEAL)


WITNESS:                                  OPTIONEE:


______________________________            ________________________________(SEAL)

f5214.600



<PAGE>




                                                                      EXHIBIT 1
                                                                      ---------


                                            Date:_____________________

Corporate Secretary
SHORE BANCSHARES, INC.

To the Secretary:

                  I hereby exercise my option to purchase  ______________ shares
of common stock, par value $.01 per share ("Shares"), of Shore Bancshares,  Inc.
(the  "Company")  in accordance  with the terms set forth in the Employee  Stock
Purchase Agreement under the Company's 1998 Employee Stock Purchase Plan.

                  In full payment for such exercise, please find enclosed

                  |_|      check in the amount of $____________

                  |_|      Shares having a Fair Market Value of $__________

                  |_|      Options having an exercise price of  $__________,  to
                           purchase  ______ Shares having a Fair Market Value of
                           $_________, resulting in a "spread" of $-----------.

I authorize  the  Company/|_|  direct the Company to withhold a number of Shares
equal to any withholding obligation applicable to me.

                                        Very truly yours,


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

                                        -----------------------------------
                                                          Print Name





f5214.600


<PAGE>

                                  Exhibit 23.2


<PAGE>


               CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS



         We  hereby   consent  to  the   incorporation   by  reference  in  this
Registration Statement on Form S-8 of Shore Bancshares,  Inc. (the "Company") of
our report dated January 10, 1998, on the 1997 consolidated financial statements
of  the  Company,  which  appears  on  page  33 of the  1997  Annual  Report  to
Stockholders  of the Company that is included in the Company's  annual report on
Form 10-K for the year ended December 31, 1997.


                                                              STEGMAN & COMPANY




Baltimore, Maryland
August 26, 1998



<PAGE>



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