<PAGE>
As filed with the Securities and Exchange Commission on September 29, 2000
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------
SHORE BANCSHARES, INC.
(Exact name of registrant's as specified in its charter)
<TABLE>
<S> <C> <C>
Maryland 6021 52-1974638
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
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:
<TABLE>
<S> <C>
James J. Winn, Jr., Esquire Michael A. Refolo, Esquire
Gordon, Feinblatt, Rothman, Hoffberger & Hollander,
Piper Marbury Rudnick & Wolfe LLP LLC
6225 Smith Avenue 233 East Redwood Street
Baltimore, Maryland 21209 Baltimore, Maryland 21202
(410) 580-3000 (410) 576-4188
</TABLE>
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box. [_]
If this form is filed to register additional securities for an offering by
Rule 462(b) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this form is a post-effective amendment filed by Rule 462(b) under the
Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
Proposed Proposed
Amount maximum maximum Amount of
Title of each class of to be offering price aggregate registration
securities to be registered registered(1) per share(2) offering price(2) fee(2)(3)
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common stock............... 3,407,819 $18.00 $61,340,742 $16,193.96
---------------------------------------------------------------------------------------------------------
</TABLE>
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(1) Based upon the maximum number of the registrant's securities that may be
issued in the merger calculated as the product of (i) the aggregate number
of shares of Talbot Bancshares common stock outstanding on September 22,
2000 plus 850 shares of Talbot Bancshares common stock to be issued on
September 30, 2000 in connection with the Talbot Bancshares 401(k) Plan,
and (ii) the exchange ratio of 2.85 shares of the registrant for each
share of Talbot Bancshares common stock.
(2) Estimated solely for the purpose of calculating the registration fee.
(3) Calculated in accordance with Rule 457(f)(1), on the basis of the average
of the high and low prices of the common stock of Shore Bancshares on
September 22, 2000 of $18.00 and based on 1,195,726 shares of Talbot
Bancshares common stock to be exchanged in the merger.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until the Registration Statement
shall become effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.
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<PAGE>
[LOGO OF TALBOT BANCSHARES] [LOGO OF SHORE BANCSHARES]
----------------
YOUR VOTE ON OUR PROPOSED MERGER IS VERY IMPORTANT
Dear Stockholders:
The boards of directors of Talbot Bancshares, Inc. and Shore Bancshares,
Inc. have approved a proposal to merge Talbot Bancshares into Shore Bancshares.
In the merger, each share of Talbot Bancshares common stock will be exchanged
for 2.85 shares of Shore Bancshares common stock. Conversion of your shares of
Talbot Bancshares common stock generally will not be taxable.
This merger of equals will provide Talbot Bancshares and Shore Bancshares
stockholders with the opportunity to participate in a premier financial
institution serving the Eastern Shore of Maryland that will result from the
combination of our two companies. On the effective date of the merger, current
Talbot Bancshares stockholders will own approximately 64%, and current Shore
Bancshares stockholders will own approximately 36%, of Shore Bancshares common
stock outstanding.
Talbot Bancshares common stock is quoted on the OTC Bulletin Board under the
symbol "TABS." Shore Bancshares common stock is quoted on the OTC Bulletin
Board under the symbol "SHBI."
We believe the merger is a positive development for both Shore Bancshares
and Talbot Bancshares. We are therefore asking for your support in voting for
the merger. Please take the time to vote by completing and mailing the enclosed
proxy card. If you do not vote, the effect will be the same as voting against
the merger.
This proxy statement/prospectus provides you with detailed information about
the proposed merger and the scheduled stockholders' meetings. We encourage you
to read this entire proxy statement/prospectus carefully. In particular, please
see the section entitled "Risk Factors" on page of this proxy
statement/prospectus for a discussion of risks associated with the merger.
Very truly yours,
W. Moorhead Vermilye Daniel T. Cannon
President and Chief Executive Officer President
Talbot Bancshares, Inc. Shore Bancshares, Inc.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of the securities to be issued under
this proxy statement/prospectus or determined if this proxy
statement/prospectus is accurate or complete. Any representation to the
contrary is a criminal offense. The shares of Talbot Bancshares and Shore
Bancshares common stock are not savings or deposit accounts or other
obligations of any bank or savings association, and are not insured by the
Federal Deposit Insurance Corporation or any other governmental agency.
The date of this proxy statement/prospectus is , 2000, and it is being
mailed or otherwise delivered to stockholders on or about , 2000.
<PAGE>
TALBOT BANCSHARES, INC.
18 EAST DOVER STREET
EASTON, MARYLAND 21601
----------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD NOVEMBER 14, 2000
----------------
A special meeting of stockholders of Talbot Bancshares will be held on
Tuesday, November 14, 2000, at , Easton, Maryland, beginning at : p.m.
local time, for the following purposes:
1. To approve the Plan and Agreement to Merge dated July 25, 2000, between
Shore Bancshares and Talbot Bancshares and to approve the merger of
Talbot Bancshares into Shore Bancshares as described in the proxy
statement/prospectus in which:
. Talbot Bancshares will be merged into Shore Bancshares with Shore
Bancshares being the surviving corporation; and
. each share of Talbot Bancshares common stock will be exchanged for
2.85 shares of Shore Bancshares common stock.
The approval of the merger agreement and the merger includes approval of
certain amendments to the Shore Bancshares charter and by-laws and the
election of persons to serve as directors of Shore Bancshares after the
merger as described in the proxy statement/prospectus.
2. To transact such other business as may properly be brought before the
meeting or any adjournment or postponement of the meeting including
potential adjournments for the purpose of soliciting additional proxies
in order to approve and adopt the merger.
The members of the Talbot Bancshares board of directors have unanimously
adopted a resolution declaring the merger advisable and recommend that
stockholders vote "FOR" approval of the merger.
Talbot Bancshares stockholders have appraisal rights under Maryland law in
the merger. To perfect their appraisal rights, Talbot Bancshares stockholders
must strictly comply with the procedures in Sections 3-201 et seq. of the
Maryland General Corporation Law, attached as Appendix J to the proxy
statement/prospectus. Failure to strictly comply with these procedures will
result in the loss of appraisal rights.
We have described the merger in more detail in the proxy
statement/prospectus, which you should read in its entirety before voting. A
copy of the merger agreement is attached as Appendix A to the proxy
statement/prospectus. Only stockholders of record at the close of business on
September 26, 2000 are entitled to notice of and to vote at the meeting or any
adjournments or postponements of the meeting. The affirmative vote of holders
of two-thirds of the Talbot Bancshares common stock outstanding on September
26, 2000 is necessary to approve the merger. If that vote is not obtained, the
merger cannot be completed.
All stockholders are cordially invited to attend the special meeting. To
ensure your representation at the special meeting please complete and promptly
mail your proxy in the enclosed postage-paid envelope. This will not prevent
you from voting in person, but will help to secure a quorum and avoid added
solicitation costs. Your proxy may be revoked at any time before it is voted.
If your shares are not registered in your own name, you will need additional
documentation from the record holder in order to vote personally at the
meeting.
Your vote is important.
Whether or not you plan to attend the meeting, please complete, sign, date
and promptly return the enclosed proxy card in the enclosed postage-paid
envelope.
By Order of the Board of Directors
By___________________________________
Susan E. Leaverton
Secretary
Easton, Maryland
, 2000
<PAGE>
SHORE BANCSHARES, INC.
109 NORTH COMMERCE STREET
CENTREVILLE, MARYLAND 21617
----------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD NOVEMBER 14, 2000
----------------
A special meeting of stockholders of Shore Bancshares will be held on
Tuesday, November 14, 2000, at , Centreville, Maryland, beginning at :
p.m., local time, for the following purposes:
1. To approve the Plan and Agreement to Merge dated July 25, 2000, between
Shore Bancshares and Talbot Bancshares and to approve the merger of
Talbot Bancshares into Shore Bancshares as described in the proxy
statement/prospectus in which:
. Talbot Bancshares will be merged into Shore Bancshares with Shore
Bancshares being the surviving corporation; and
. each share of Talbot Bancshares common stock will be exchanged for
2.85 shares of Shore Bancshares common stock.
The approval of the merger agreement and the merger includes approval of
certain amendments to the Shore Bancshares charter and by-laws and the
election of persons to serve as directors of Shore Bancshares after the
merger as described in the proxy statement/prospectus.
2. To transact such other business as may properly be brought before the
meeting or any adjournment or postponement of the meeting including
potential adjournments for the purpose of soliciting additional proxies
in order to approve and adopt the merger.
The members of the Shore Bancshares board of directors have unanimously
adopted a resolution declaring the merger advisable and recommend that
stockholders vote "FOR" approval of the merger.
Shore Bancshares stockholders do not have appraisal rights under Maryland
law in the merger.
We have described the merger in more detail in the proxy
statement/prospectus, which you should read in its entirety before voting. A
copy of the merger agreement is attached as Appendix A to the proxy
statement/prospectus. Only stockholders of record at the close of business on
September 26, 2000 are entitled to notice of and to vote at the meeting or any
adjournments or postponements of the meeting. The affirmative vote of holders
of two-thirds of the Shore Bancshares common stock outstanding on September 26,
2000 is necessary to approve the merger. If that vote is not obtained, the
merger cannot be completed.
All stockholders are cordially invited to attend the special meeting. To
ensure your representation at the special meeting please complete and promptly
mail your proxy in the enclosed postage-paid envelope. This will not prevent
you from voting in person, but will help to secure a quorum and avoid added
solicitation costs. Your proxy may be revoked at any time before it is voted.
If your shares are not registered in your own name, you will need additional
documentation from the record holder in order to vote personally at the
meeting.
Your vote is important.
Whether or not you plan to attend the meeting, please complete, sign, date
and promptly return the enclosed proxy card in the enclosed postage-paid
envelope.
By Order of the Board of Directors
By___________________________________
Mary Catherine Quimby
Secretary
Centreville, Maryland
, 2000
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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<S> <C>
QUESTIONS AND ANSWERS ABOUT THE MERGER..................................... 1
SUMMARY.................................................................... 6
The Companies............................................................ 6
The Merger............................................................... 7
SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA........................... 13
Talbot Bancshares........................................................ 13
Shore Bancshares......................................................... 15
Unaudited Pro Forma Condensed Combined Selected Financial Data........... 16
Comparative Per Share Data............................................... 18
FORWARD-LOOKING STATEMENTS................................................. 19
RISK FACTORS............................................................... 20
Risks Related to the Merger.............................................. 20
Risks Related to the Combined Companies.................................. 20
GENERAL INFORMATION ABOUT THE MEETINGS..................................... 22
Date, Time and Place of the Meetings..................................... 22
Record Date and Outstanding Shares....................................... 22
Purpose of the Meetings.................................................. 22
Vote Required............................................................ 23
Voting of Proxies........................................................ 24
Authorization to Vote on Adjournments and Other Matters.................. 25
Revocation of Proxies.................................................... 25
Solicitation of Proxies.................................................. 26
PARTIES TO THE MERGER.................................................... 27
Talbot Bancshares........................................................ 27
Shore Bancshares......................................................... 28
THE MERGER................................................................. 30
Background of the Merger................................................. 30
Shore Bancshares Reasons for the Merger.................................. 31
Opinion of Shore Bancshares' Financial Advisor........................... 33
Talbot Bancshares Reasons for the Merger................................. 37
Opinion of Talbot Bancshares' Financial Advisor.......................... 38
Interests of Persons in the Merger Other Than as Stockholders............ 42
Form of the Merger....................................................... 42
Consideration for the Merger............................................. 43
Effective Date of the Merger............................................. 43
Procedures for Exchange of Talbot Bancshares Stock Certificates.......... 43
Procedure for Exchange of Talbot Bancshares Stock Options................ 44
Dividend Policy.......................................................... 44
Amendments to Charter and By-Laws........................................ 45
Anticipated Accounting Treatment......................................... 45
Material Federal Income Tax Considerations............................... 45
Regulatory Approvals Required............................................ 47
Appraisal Rights......................................................... 49
Resale of Shares of Shore Bancshares Common Stock After the Merger....... 51
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
Page
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<S> <C>
THE MERGER AGREEMENT..................................................... 52
General................................................................ 52
Exchange Ratio; Fractional Shares...................................... 52
Certain Representations and Warranties................................. 52
Certain Covenants and Agreements....................................... 53
Conditions to the Merger............................................... 55
Termination............................................................ 56
Termination Fee........................................................ 57
Amendment; Waiver...................................................... 57
Expenses............................................................... 57
STOCK OPTION AGREEMENTS.................................................. 58
General................................................................ 58
Exercise; Expiration................................................... 58
Registration Rights.................................................... 59
Purpose of the Stock Option Agreements................................. 59
SUPPORT AGREEMENTS....................................................... 60
COMPARISON OF THE RIGHTS OF HOLDERS OF TALBOT BANCSHARES CAPITAL STOCK
AND SHORE BANCSHARES CAPITAL STOCK...................................... 61
DESCRIPTION OF SHORE BANCSHARES CAPITAL STOCK............................ 69
General................................................................ 69
Common Stock........................................................... 69
Preferred Stock........................................................ 69
FUTURE STOCKHOLDER PROPOSALS............................................. 70
OTHER MATTERS............................................................ 70
LEGAL MATTERS............................................................ 70
EXPERTS.................................................................. 70
WHERE YOU CAN FIND MORE INFORMATION...................................... 71
TABLE OF APPENDICES...................................................... 73
</TABLE>
ii
<PAGE>
QUESTIONS AND ANSWERS ABOUT THE MERGER
Q: What companies are party to the merger?
A: Talbot Bancshares and Shore Bancshares have signed a definitive merger
agreement whereby Talbot Bancshares will merge into Shore Bancshares.
Talbot Bancshares is the bank holding company for The Talbot Bank of
Easton, Maryland, and Shore Bancshares is the bank holding company for The
Centreville National Bank of Maryland. After the merger, both Talbot Bank
and Centreville National Bank will continue to operate as separate
financial institutions.
Q: Why did the companies decide to merge?
A: The members of the boards of directors of both companies believe that the
merger is advisable and in the best interests of their respective
stockholders. In reaching their decision, they sought to establish the
premier bank holding company headquartered in and serving the Maryland
Eastern Shore and relied on a number of factors which are more fully
described in this proxy statement/prospectus. See "--Shore Bancshares
Reasons for the Merger" on page and "--Talbot Bancshares Reasons for the
Merger" on page .
Q: What should I do?
A: After you have carefully read this proxy statement/prospectus, mail your
signed proxy card in the enclosed postage-paid envelope. The instructions
on the accompanying proxy card will give you more information on how to
vote by mail. This will enable your shares to be represented at the Talbot
Bancshares special meeting or the Shore Bancshares special meeting, as
applicable. If you fail to return a proxy card or abstain from voting, the
effect will be a vote against the merger.
Q: If my shares are held in "street name" by my broker, will my broker vote my
shares for me?
A: Maybe. Your broker will not be able to vote your shares without
instructions from you. You should instruct your broker to vote your shares,
following the directions your broker provides. Your failure to instruct
your broker to vote your shares will result in your shares not being voted,
and the effect will be a vote against the merger.
Q: Can I change my vote after I have submitted my proxy with voting
instructions?
A: Yes. There are three ways you can change your vote. First, you may send a
written notice to the person to whom you submitted your proxy stating that
you would like to revoke your proxy. Second, you may complete and submit a
new proxy card by mail or submit your proxy with new voting instructions.
The proxy dated latest and actually received by Shore Bancshares or Talbot
Bancshares before the stockholders' meeting will be your vote. Any earlier
dated proxy will be revoked. Third, you may attend the Talbot Bancshares
special meeting or the Shore Bancshares special meeting, as applicable, and
vote in person. Any earlier dated proxy will be revoked. Simply attending
the meeting without voting, however, will not revoke your proxy. If you
have instructed a broker to vote your shares, you must follow directions
you will receive from your broker to change or revoke your proxy.
Q: What will I receive in the merger?
A: Each share of Talbot Bancshares common stock will be exchanged for 2.85
shares of Shore Bancshares common stock. If you have options to purchase
shares of Talbot Bancshares common stock, whether vested or unvested, they
will be converted into an option to purchase shares of Shore Bancshares
common stock and will no longer represent a right to acquire shares of
Talbot Bancshares common stock. Talbot Bancshares common stock is quoted on
the OTC Bulletin Board under the symbol "TABS."
3
<PAGE>
Each share of Shore Bancshares common stock will remain outstanding and
continue to represent one share of Shore Bancshares common stock. The number
of shares of Shore Bancshares common stock outstanding will increase from
approximately 1.9 million shares to approximately 5.4 million shares. Shore
Bancshares common stock is quoted on the OTC Bulletin Board under the symbol
"SHBI."
Q: Should I send in my stock certificates?
A: No. You should not send in your stock certificates at this time. Talbot
Bancshares stockholders will exchange their Talbot Bancshares common stock
certificates for Shore Bancshares common stock certificates after we
complete the merger. Instructions for exchanging Talbot Bancshares common
stock certificates will be sent to you promptly after the merger is
completed.
Shore Bancshares stockholders will not exchange their certificates in the
merger. The certificates currently representing the shares of Shore
Bancshares common stock will continue to represent the same number of shares
of Shore Bancshares common stock after the merger.
Q: Who should I call if I have questions?
A: Talbot Bancshares stockholders should call W. Moorhead Vermilye at (410)
822-1400 with any questions about the merger and the related transactions.
Shore Bancshares stockholders should call Daniel T. Cannon at (410) 758-1600
with any questions about the merger and the related transactions.
Q: What vote is required to approve the merger?
A: To complete the merger, holders of two-thirds of the outstanding shares of
Talbot Bancshares common stock and holders of two-thirds of the outstanding
shares of Shore Bancshares common stock must approve the merger.
Q: May dissenting stockholders seek appraisal rights in the merger?
A: Talbot Bancshares stockholders have appraisal rights under Maryland law in
the merger. To perfect their appraisal rights, Talbot Bancshares
stockholders must strictly comply with the procedures in Sections 3-201 et
seq. of the Maryland General Corporation Law. Failure to strictly comply
with these procedures will result in the loss of appraisal rights. We have
attached a copy of Sections 3-201 et seq. of the Maryland General
Corporation Law as Appendix J.
Shore Bancshares stockholders do not have appraisal rights under Maryland
law in the merger. See "--Appraisal Rights" on page .
Q: When do you expect to complete the merger?
A: We are working toward completing the merger as quickly as possible. We must
first obtain the approval of Shore Bancshares common stockholders at the
Shore Bancshares special meeting, the approval of Talbot Bancshares common
stockholders at the Talbot Bancshares special meeting and approvals from
state and federal bank regulators. We have filed applications with the
Board of Governors of the Federal Reserve System and the Maryland
Commissioner of Financial Regulation. The stockholder meetings are
scheduled for November 14, 2000. We hope to complete the merger shortly
after that date.
Q: Who will serve on the Shore Bancshares board of directors after the merger?
A: The new board of directors will consist of six directors who currently
serve on the Talbot Bancshares board of directors and five directors who
currently serve on the Shore Bancshares board of directors. These
individuals are:
4
<PAGE>
. Class I: David L. Pyles, Daniel T. Cannon and Richard C. Granville;
. Class II: David C. Bryan, Ronald N. Fox, Neil R. LeCompte and Herbert L.
Andrew, III; and
. Class III: Paul M. Bowman, Lloyd L. Beatty, Jr., B. Vance Carmean, Jr.
and W. Moorhead Vermilye.
We expect that Mr. Carmean will continue to serve as the Chairman of the
Board. The remaining directors of Shore Bancshares will resign at the
effective time of the merger.
Q: Will I receive dividends on my shares of Talbot Bancshares or Shore
Bancshares common stock before the merger?
A: The merger agreement permits Talbot Bancshares and Shore Bancshares to pay,
before the closing, regular quarterly cash dividends to their respective
stockholders.
Q: Will I receive dividends on my shares of Shore Bancshares common stock
after the merger?
A: After the merger, Shore Bancshares stockholders will be entitled to receive
dividends as declared by the board of directors. The current Shore
Bancshares board of directors has adopted a dividend policy that
establishes a target for cash dividends to be paid to stockholders within a
range of 35% to 45% of net income after taxes. Future cash dividends are to
be declared and paid on a quarterly basis after considering Shore
Bancshares' financial condition, the level of earnings, known trends which
may impact future earnings, and other factors including applicable banking
laws and regulations. The board of directors reviews the policy on a
regular basis and may change the policy when and if conditions warrant.
Based on the combined earnings of the two companies for the first six
months of 2000, total cash dividends paid would have been in the range of
$0.25 to $0.32 per share for the first two quarters.
Q: Where can I find more information about the companies?
A: Both companies file reports and other information with the Securities and
Exchange Commission ("SEC"). You may read and copy this information at the
SEC's public reference facilities. Please call the SEC at 1-800-SEC-0330
for information about these facilities. This information is also available
at the Internet site the SEC maintains at www.sec.gov. You can also request
copies of these documents from us. See "Where You Can Find More
Information" on page .
5
<PAGE>
SUMMARY
This summary highlights selected information from this proxy
statement/prospectus and may not contain all of the information that is
important to you. To understand the merger fully, you should read carefully the
entire proxy statement/prospectus and the other documents attached to this
proxy statement/ prospectus. The merger agreement is attached as Appendix A to
this proxy statement/prospectus. For more information about the two companies,
see "Where You Can Find More Information" (page ). For your reference, we
have included page references to direct you to more complete descriptions of
the topics presented in this summary.
The Companies
Talbot Bancshares, Inc.,
18 East Dover Street,
Easton, Maryland 21601
(410) 822-1400
Talbot Bancshares, Inc. is a Maryland corporation organized on March 10,
1997, which became a registered bank holding company on May 1, 1997 under the
Bank Holding Company Act of 1956, as amended. Talbot Bancshares engages in the
business of banking through its sole subsidiary, The Talbot Bank of Easton,
Maryland, a commercial bank chartered under the laws of the State of Maryland.
Talbot Bank currently accounts for substantially all of Talbot Bancshares'
assets.
Talbot Bancshares' and Talbot Bank's main office is located in Talbot
County, Maryland, at 18 East Dover Street, Easton, Maryland 21601. Talbot Bank
began its operations in 1885 and is engaged in general commercial and retail
banking business serving individuals and businesses in Talbot and Dorchester
Counties, Maryland. Talbot Bank currently operates four banking offices in
Talbot County, which include three in Easton, Maryland and one in Saint
Michael's, Maryland. Talbot Bank also operates a branch in Dorchester County,
Maryland in the City of Cambridge.
As of June 30, 2000, Talbot Bancshares had total assets of $325 million,
total loans of $232 million and total deposits of $264 million. Talbot
Bancshares has issued and outstanding 1,194,876 shares of common stock, par
value $0.01 per share, held by 480 holders of record on July 31, 2000. Talbot
Bancshares common stock is quoted on the OTC Bulletin Board under the symbol
"TABS." For additional information about Talbot Bancshares, its business,
financial condition, and operations see page .
Shore Bancshares, Inc.,
109 North Commerce Street,
Centreville, Maryland 21617
(410) 758-1600
Shore Bancshares, Inc. is a Maryland corporation incorporated on March 15,
1996, which became a registered bank holding company on July 1, 1996 under the
Bank Holding Company Act. Shore Bancshares engages in the business of banking
through its sole subsidiary, The Centreville National Bank of Maryland, a
national banking association.
Shore Bancshares' and Centreville National Bank's main office is located at
109 North Commerce Street, Centreville, Maryland 21617. Centreville National
Bank has been doing business in Maryland since 1876 and is engaged in both the
commercial and consumer banking business. Centreville National Bank serves its
customers through a network of five banking offices, including two offices in
Centreville, Maryland, and one in each of Chestertown, Stevensville and
Hillsboro, Maryland. Centreville National Bank also owns one-third of the
outstanding common stock of The Delmarva Bank Data Processing Center, Inc., a
Maryland corporation.
6
<PAGE>
The Delmarva Bank Data Processing Center, located in Easton, Maryland, provides
data processing services to banks located in Maryland, Delaware, Virginia and
the District of Columbia. Shore Bancshares common stock is quoted on the OTC
Bulletin Board under the symbol "SHBI." For additional information about Shore
Bancshares, its business, financial condition, and operations see page .
As of June 30, 2000, Shore Bancshares had total assets of $201 million,
total loans of $133 million, and total deposits of $166 million. Currently,
Shore Bancshares has issued and outstanding 1,914,137 shares of common stock,
par value $0.01 per share, held by 996 holders of record on July 25, 2000.
The Merger
The merger agreement is attached to this proxy statement/prospectus as
Appendix A. We encourage you to read the merger agreement as it is the legal
document that governs the merger between Talbot Bancshares and Shore
Bancshares.
Upon completion of the merger, Talbot Bancshares will merge with Shore
Bancshares, and Talbot Bancshares will cease to exist as a separate company.
The charter and by-laws of Shore Bancshares will be amended in the merger.
Shares of Talbot Bancshares Common Stock Will Be Exchanged For 2.85 Shares
of Shore Bancshares Common Stock (page ). If the merger is completed, as a
stockholder of Talbot Bancshares you will receive 2.85 shares of Shore
Bancshares common stock for each share of Talbot Bancshares common stock you
own plus cash instead of any fractional share; as a stockholder of Shore
Bancshares your shares of Shore Bancshares will not change.
Meetings to be Held November 14, 2000; Record Dates (page ). The Talbot
Bancshares meeting will be held at : p.m. on November 14, 2000 at ,
Easton, Maryland. At the Talbot Bancshares meeting, Talbot Bancshares
stockholders will be asked to consider and vote on a proposal to approve the
merger by approving and adopting the merger agreement. If you held shares of
Talbot Bancshares common stock at the close of business on September 26, 2000,
you are entitled to vote on the merger and any other matters considered at the
Talbot Bancshares meeting or any adjournments or postponements of the meeting.
The Shore Bancshares meeting will be held at p.m. on November 14, 2000 at
, Centreville, Maryland. At the Shore Bancshares meeting, Shore
Bancshares stockholders will be asked to consider and vote on a proposal to
approve the merger by approving and adopting the merger agreement. If you held
shares of Shore Bancshares common stock at the close of business on September
26, 2000, you are entitled to vote on the merger and any other matters
considered at the Shore Bancshares meeting or any adjournments or postponements
of the meeting.
Required Vote (page ). For the merger to be approved, two-thirds of the
outstanding shares of Talbot Bancshares common stock entitled to be voted at
the Talbot Bancshares meeting must vote in favor of the proposal to approve the
merger by approving and adopting the merger agreement. Approval of the merger
agreement also constitutes approval of the Shore Bancshares charter and by-laws
amendments and election of the persons to serve as directors of Shore
Bancshares after the merger. Each share is entitled to one vote on each matter
to be voted on at the Talbot Bancshares meeting. All directors and executive
officers of Talbot Bancshares have executed a support agreement to vote all of
the shares of Talbot Bancshares common stock which they beneficially own in
favor of the merger. As of July 25, 2000, directors and executive officers of
Talbot Bancshares and their affiliates who beneficially owned 212,534 shares of
Talbot Bancshares common stock, which represented 17.25% of the Talbot
Bancshares common stock outstanding on that date and options exercisable within
60 days, have agreed to vote their shares in favor of the merger.
7
<PAGE>
In addition, for the merger to be approved, two-thirds of the outstanding
shares of Shore Bancshares common stock entitled to be voted at the Shore
Bancshares meeting must vote in favor of the proposal to approve the merger by
approving and adopting the merger agreement. Approval of the merger agreement
also serves as approval of the Shore Bancshares charter and by-laws amendments
and election of the persons to serve as directors of Shore Bancshares after the
merger. Each share is entitled to one vote on each matter to be voted on at the
Shore Bancshares meeting. All directors and executive officers of Shore
Bancshares have executed a support agreement to vote all of the shares of Shore
Bancshares common stock which they beneficially own in favor of the merger. As
of July 25, 2000, directors and executive officers of Shore Bancshares and
their affiliates who beneficially owned 73,154 shares of Shore Bancshares
common stock, which represented 3.8% of the outstanding Shore Bancshares common
stock outstanding on that date and options exercisable within 60 days, have
agreed to vote their shares in favor of the merger.
Talbot Bancshares and Shore Bancshares Boards Recommend Stockholder Approval
(page and page ). The Talbot Bancshares board of directors has determined
that the merger is advisable and in the best interests of Talbot Bancshares and
the Talbot Bancshares stockholders. The members of the Talbot Bancshares board
of directors unanimously approved the merger agreement and the merger and
recommend that Talbot Bancshares stockholders vote FOR the proposal to approve
the merger agreement and the merger.
The Shore Bancshares board of directors has determined that the merger is
advisable and in the best interests of Shore Bancshares and the Shore
Bancshares stockholders. The members of the Shore Bancshares board of directors
unanimously approved the merger agreement and the merger and recommend that
Shore Bancshares stockholders vote FOR the proposal to approve the merger
agreement and the merger.
Exchange Ratio Is Fair to Stockholders, According to Financial Advisors
(page and page ). In deciding to approve the merger, the Talbot Bancshares
board of directors received and considered the opinion dated July 25, 2000, of
Danielson Associates, Inc., its financial advisor, as to the fairness to the
Talbot Bancshares stockholders of the share exchange ratio from a financial
point of view as of that date. The opinion of Danielson Associates is not a
recommendation as to how any Talbot Bancshares stockholder should vote with
respect to the proposal to approve the merger. You should read the opinion in
its entirety to understand the assumptions made, matters considered and
limitations of the review undertaken by Danielson Associates in providing its
opinion. A copy of Danielson Associates opinion is attached to the proxy
statement/prospectus as Appendix H. Danielson Associates will receive total
fees of approximately $32,500 for its services as financial advisor to Talbot
Bancshares in connection with the merger.
In deciding to approve the merger, the Shore Bancshares board of directors
received and considered the opinion dated July 25, 2000, of Garland McPherson &
Associates, Inc., its financial advisor, as to the fairness to the Shore
Bancshares stockholders of the share exchange ratio from a financial point of
view as of that date. The opinion of Garland McPherson & Associates is not a
recommendation as to how any Shore Bancshares stockholder should vote with
respect to the proposal to approve the merger. You should read the updated
opinion in its entirety to understand the assumptions made, matters considered
and limitations of the review undertaken by Garland McPherson & Associates in
providing its opinion. A copy of Garland McPherson & Associates' opinion dated
as of the date of this proxy statement/prospectus is attached to the proxy
statement/prospectus as Appendix I. Garland McPherson & Associates will receive
total fees of approximately $75,000 plus reimbursement for reasonable out-of-
pocket expenses in exchange for its services as financial advisor to Shore
Bancshares in connection with the merger.
Benefits to Certain Shore Bancshares and Talbot Bancshares Officers and
Directors in the Merger (page ). Some of our directors and officers have
interests in the merger that are different from, or in addition to, your and
their interests as stockholders.
8
<PAGE>
These interests include, among other things:
. Shore Bancshares will enter into employment agreements with Mr. Vermilye,
who will become president and chief executive officer of Shore
Bancshares, and Mr. Cannon, who will become executive vice president and
chief operating officer of Shore Bancshares;
. Five current directors of Shore Bancshares will remain on the Shore
Bancshares board of directors, one of whom will serve as Chairman of the
Board; and
. Six current directors of Talbot Bancshares will be appointed to the Shore
Bancshares board of directors.
Following the merger, Shore Bancshares will indemnify, and provide
directors' and officers' insurance for, the officers and directors of Talbot
Bancshares for events occurring before the merger, including events that are
related to the merger. The members of our boards of directors knew about these
additional interests, and considered them, when they approved the merger.
Conditions to the Merger (page ). The merger will not be completed unless
we satisfy several conditions, including:
. approval of the merger by Talbot Bancshares stockholders and Shore
Bancshares stockholders;
. the absence of a materially adverse change in the business of Talbot
Bancshares or Shore Bancshares;
. the absence of legal restraints that prevent the completion of the
merger;
. receipt of a legal opinion from Talbot Bancshares' legal counsel that the
merger will be tax-free, except for any cash received in lieu of
fractional shares or by dissenters;
. the continuing accuracy of our representations in the merger agreement;
. the continuing effectiveness of the registration statement filed with the
SEC; and
. the receipt of certain bank regulatory approvals.
In addition, the merger will not be completed unless we receive a letter
from Stegman & Company that the merger will qualify for pooling-of-interests
accounting treatment.
We may not waive any conditions that are required by law to complete the
merger, including the requirements for stockholder approval, the requirements
for regulatory approval and that the registration statement be effective on the
closing date of the merger. Unless prohibited by law, either Talbot Bancshares
or Shore Bancshares could waive a condition that has not been satisfied and
complete the merger. Neither Talbot Bancshares nor Shore Bancshares intends to
waive any material condition to the merger.
Termination and Amendment of the Merger Agreement (page and page ). We
can mutually agree at any time to terminate the merger agreement without
completing the merger. Either of us can also terminate the merger agreement if,
among other reasons:
. any government or court issues an order or takes another action enjoining
or prohibiting the merger;
. any required approval, consent or waiver is denied;
. the other party materially breaches any of its representations,
warranties or agreements under the merger agreement or the merger, and
this breach is not cured within 60 days;
. the merger is not completed by March 1, 2001; or
. either of us fails to obtain stockholder approval.
9
<PAGE>
Either party may terminate the merger agreement if, among other reasons, it
receives and accepts, consistent with the merger agreement, another acquisition
proposal and pays a termination fee to the other party, except where the non-
terminating party chooses to exercise a stock option to purchase shares of
common stock of the terminating party.
At any time before the completion of the merger, we may amend the merger
agreement in any way. Once the merger agreement is approved by stockholders of
either company, any amendment must be approved by Talbot Bancshares and Shore
Bancshares stockholders if this approval is required under Maryland law.
Termination Fee (page ). The merger agreement requires either party to pay
the other party a termination fee of $1.5 million plus fees and expenses
related to the merger upon termination of the merger agreement if that party
receives and accepts another acquisition proposal, unless the non-terminating
party chooses to exercise the stock option to purchase shares of common stock
of the terminating party.
Talbot Bancshares Will Be Required to Issue 237,780 Shares of Talbot
Bancshares Common Stock to Shore Bancshares Under Certain Circumstances if the
Merger Is Not Completed (see page ). In connection with the merger agreement,
Talbot Bancshares granted Shore Bancshares an option to purchase 237,780 shares
of Talbot Bancshares common stock. Under this option, Shore Bancshares may
purchase up to the equivalent of 19.9% of the outstanding shares of Talbot
Bancshares common stock, assuming the option is exercised, at a price per share
of $45.00.
Shore Bancshares cannot exercise this option unless certain events occur
within a specified time period. These events can generally be described as
business combinations or acquisition transactions relating to Talbot Bancshares
and certain related events (other than the merger we are proposing in this
proxy statement/prospectus). We do not know of any event that has occurred as
of the date of this proxy statement/prospectus that would allow Shore
Bancshares to exercise this option.
Talbot Bancshares agreed to grant this option to Shore Bancshares in order
to induce Shore Bancshares to enter into the merger agreement. This option
could have the effect of discouraging other companies from trying to acquire
Talbot Bancshares until the merger is completed.
This option agreement is attached to this proxy statement/prospectus as
Appendix F.
Shore Bancshares Will Be Required to Issue 380,912 Shares of Shore
Bancshares Common Stock to Talbot Bancshares Under Certain Circumstances if the
Merger Is Not Completed (see page ). In connection with the merger agreement,
Shore Bancshares granted Talbot Bancshares an option to purchase 380,912 shares
of Shore Bancshares common stock. Under this option, Talbot Bancshares may
purchase up to the equivalent of 19.9% of the outstanding shares of Shore
Bancshares common stock, assuming the option is exercised, at a price per share
of $14.62.
Talbot Bancshares cannot exercise this option unless certain events occur
within a specified time period. These events can generally be described as
business combinations or acquisition transactions relating to Shore Bancshares
and certain related events (other than the merger we are proposing in this
proxy statement/prospectus). We do not know of any event that has occurred as
of the date of this proxy statement/prospectus that would allow Talbot
Bancshares to exercise this option.
Shore Bancshares agreed to grant this option to Talbot Bancshares to induce
Talbot Bancshares to enter into the merger agreement. This option could have
the effect of discouraging other companies from trying to acquire Shore
Bancshares.
10
<PAGE>
This option agreement is attached to this proxy statement/prospectus as
Appendix G.
Regulatory Approvals We Must Obtain for the Merger (see page ). We cannot
complete the merger unless it is approved by the Board of Governors of the
Federal Reserve System. We have filed applications with the Federal Reserve
Board and the Maryland Commissioner of Financial Regulation seeking their
approval. The U.S. Department of Justice has input into this approval process.
Once the Federal Reserve Board approves the merger, we have to wait for up to
30 days before we can complete the merger. In addition, the merger is subject
to the approval of or notice to certain other federal and state regulatory
authorities. We will also make the necessary filings with these other
regulatory authorities.
Although we do not know of any reason why we cannot obtain these regulatory
approvals in a timely manner, we cannot be certain that we will obtain them, or
when we will obtain them.
Shore Bancshares to Use Pooling-of-Interests Accounting Treatment (page
). We expect the merger to qualify as a pooling-of-interests, which means
that both companies will be treated as if they had always been combined for
accounting and financial reporting purposes. Generally, pooling-of-interests
accounting treatment enhances future earnings by avoiding the creation of
goodwill relating to the merger. Therefore, Shore Bancshares should be able to
avoid charges against future earnings resulting from the amortization of
goodwill which would have been created if this accounting treatment were not
used. We have conditioned the merger upon the receipt of a letter from Stegman
& Company, the independent public accountants of Talbot Bancshares and Shore
Bancshares, stating their opinion that the merger will qualify for pooling-of-
interests accounting treatment. Either Shore Bancshares or Talbot Bancshares
has the right to terminate the merger agreement and be released from all
obligations if, immediately before the effective date, the number of Talbot
Bancshares stockholders who have demanded appraisal rights and not withdrawn
those demands jeopardizes the qualification of the merger for pooling-of-
interests accounting treatment and Stegman & Company fails or refuses to
deliver a letter to us to that effect.
Dissenters' Rights of Appraisal (page ). If the merger is completed,
Talbot Bancshares stockholders who do not vote for the adoption of the merger
agreement and who otherwise comply with Sections 3-201 et seq. of the Maryland
General Corporation Law will be entitled to appraisal rights under Maryland
law. It is a condition to closing the merger that holders of no more than 10%
of the outstanding shares of Talbot Bancshares common stock have demanded
appraisal rights and not withdrawn those demands before the effective date.
Shore Bancshares stockholders do not have appraisal rights under Maryland law
in the merger. A copy of Sections 3-201 et seq. of the Maryland General
Corporation Law is attached as Appendix J.
No Federal Income Tax on Shares Received in the Merger (page ). As a
condition to the merger, we will receive an opinion of Talbot Bancshares' tax
counsel concluding, among other things, that no gain or loss generally will be
recognized by a Talbot Bancshares stockholder for federal income tax purposes
on the exchange of shares of Talbot Bancshares common stock for shares of Shore
Bancshares common stock, except in connection with any cash received in lieu of
fractional shares or by dissenting stockholders.
Tax matters are very complicated and the tax consequences of the merger to
you will depend on your personal circumstances. We urge you to consult your own
tax advisors to understand fully the tax consequences to you.
A Warning About Forward-Looking Statements (page ). We make statements in
this proxy statement/prospectus and in the documents delivered and incorporated
by reference that are forward-looking. You can identify these statements by our
use of words like "may," "will," "expect," "anticipate," "estimate,"
"continue," or similar expressions. Forward-looking statements represent our
judgment about the future and are not guarantees of our future performance.
Certain risks and uncertainties could cause our actual operating results and
financial position to differ materially from our projections. We caution you
not to place
11
<PAGE>
undue reliance on forward-looking statements. Such forward-looking statements
represent our estimates and assumptions only as of the date of this proxy
statement/prospectus.
Share Information and Market Prices. Talbot Bancshares common stock is
quoted on the OTC Bulletin Board under the symbol "TABS." Shore Bancshares
common stock is quoted on the OTC Bulletin Board under the symbol "SHBI." The
following table shows, for the periods indicated, the last sale prices per
share of Talbot Bancshares and Shore Bancshares common stock, and the
equivalent merger consideration per share of Shore Bancshares common stock on
July 18, 2000, the last day on which the common stock of both companies traded
before we announced the merger, and on , 2000, the latest
practicable date before we mailed this proxy statement/prospectus.
<TABLE>
<CAPTION>
Value of merger per
share of Talbot
Talbot Bancshares Shore Bancshares Bancshares Common
Common Stock Common Stock Stock
----------------- ---------------- -------------------
<S> <C> <C> <C>
July 18, 2000............ $41.375 $14.620 $41.667
, 2000.............. $ $ $
</TABLE>
--------
The market prices of both Talbot Bancshares and Shore Bancshares common
stock will fluctuate before the merger. You should obtain current market
quotations for Talbot Bancshares common stock and Shore Bancshares common
stock. Following the merger, shares of Shore Bancshares common stock will be
quoted on the OTC Bulletin Board.
As of July 31, 2000, there were 480 holders of record of shares of Talbot
Bancshares common stock. As of July 25, 2000, there were 996 holders of record
of shares of Shore Bancshares common stock.
12
<PAGE>
SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA
Talbot Bancshares
Talbot Bancshares' selected historical data is based on its Annual Report on
Form 10-K for the year ended December 31, 1999, its Quarterly Report on Form
10-Q for the quarters ended June 30, 2000 and 1999 and other financial
information incorporated by reference in and delivered with this proxy
statement/prospectus. For periods before May 1, 1997, the historical data is
for The Talbot Bank of Easton, Maryland only. You should read this financial
information in conjunction with the information in those Talbot Bancshares
reports and other information incorporated by reference in this proxy
statement/prospectus. See "Where You Can Find More Information" on page .
TALBOT BANCSHARES, INC.
<TABLE>
<CAPTION>
As of or for the
six months ended
As of or for the years ended December 31, June 30,
-------------------------------------------- -----------------
1995 1996 1997 1998 1999 1999 2000
-------- -------- -------- -------- -------- -------- --------
(dollars in thousands, except per share data)
(unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Income Statement:
Interest income......... $ 17,435 $ 19,019 $ 19,672 $ 21,048 $ 22,377 $ 10,825 $ 12,000
Interest expense........ 8,207 8,448 8,596 9,463 9,891 4,820 5,284
-------- -------- -------- -------- -------- -------- --------
Net interest income..... 9,228 10,571 11,076 11,585 12,486 6,005 6,716
Provision for credit
losses................. 540 955 225 240 240 120 114
Net interest income
after provision for
credit losses.......... 8,688 9,616 10,851 11,345 12,246 5,885 6,602
Noninterest income...... 617 574 713 787 985 486 587
Noninterest expense..... 5,083 5,219 5,828 5,971 6,302 3,162 3,408
-------- -------- -------- -------- -------- -------- --------
Income before taxes on
income................. 4,222 4,971 5,736 6,161 6,929 3,209 3,781
Federal and state income
taxes.................. 1,538 1,751 2,062 2,146 2,409 1,100 1,328
-------- -------- -------- -------- -------- -------- --------
Net income.............. $ 2,684 $ 3,220 $ 3,674 $ 4,015 $ 4,520 $ 2,109 $ 2,453
======== ======== ======== ======== ======== ======== ========
Balance Sheet (at
period-end):
Assets:
Cash and due from
banks................. $ 4,769 $ 7,014 $ 8,108 $ 8,004 $ 5,535 $ 7,774 $ 7,722
Federal funds sold..... 2,331 7,573 8,057 12,403 24,714 525 11,197
Investment securities,
including those
available-for-sale.... 60,892 62,809 61,478 83,371 73,190 72,856 68,835
Loans, less allowance
for credit losses..... 160,207 168,972 182,756 191,781 216,033 207,376 229,056
Bank premises and
equipment............. 2,968 3,188 3,144 2,977 2,978 3,067 2,960
Accrued interest
receivable on loans
and investment
securities............ 1,754 1,828 1,949 2,169 2,122 2,149 2,218
Investment in
unconsolidated
subsidiaries.......... 200 182 174 124 0 117 0
Deferred income tax
benefits.............. 789 737 455 342 1,431 946 1,534
Other real estate
owned................. 147 299 114 164 74 124 214
Other assets........... 349 582 794 919 992 858 865
-------- -------- -------- -------- -------- -------- --------
Total assets......... $234,406 $253,184 $267,029 $302,254 $327,069 $295,792 $324,601
======== ======== ======== ======== ======== ======== ========
Liabilities and Equity:
Deposits............... $195,447 $215,101 $224,914 $249,929 $273,948 $237,275 $264,400
Short-term
borrowings............ 12,946 9,268 10,263 17,112 16,344 22,884 21,690
Accrued interest
payable on deposits... 359 393 388 483 474 449 550
Other liabilities...... 460 502 492 446 421 323 441
Stockholders' equity... 25,194 27,920 30,972 34,284 35,882 34,861 37,520
-------- -------- -------- -------- -------- -------- --------
Total liabilities and
equity.............. $234,406 $253,184 $267,029 $302,254 $327,069 $295,792 $324,601
======== ======== ======== ======== ======== ======== ========
</TABLE>
13
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Per Share Data: (a)
Number of shares of
common stock
outstanding (in
thousands)............. 1,182 1,186 1,190 1,192 1,193 1,193 1,195
Net income:
Basic.................. $ 2.28 $ 2.72 $3.09 $ 3.37 $ 3.79 $ 1.77 $ 2.05
Diluted................ 2.27 2.72 3.06 3.33 3.72 1.75 2.02
Cash dividends declared:
Common................. 0.625 0.70 0.85 0.95 1.15 0.50 0.60
Tangible book value..... 21.32 23.54 26.04 28.76 30.07 29.22 31.40
Performance and Capital
Ratios:
Return on average
assets................. 1.17% 1.30% 1.44% 1.44% 1.46% 1.39% 1.52%
Return on average
stockholders' equity... 11.25% 12.14% 12.52% 12.22% 12.82% 12.13% 13.28%
Net interest margin
(b).................... 4.22% 4.53% 4.58% 4.37% 4.25% 4.44% 4.20%
Average stockholders'
equity to average total
assets................. 10.37% 10.72% 11.48% 11.77% 11.40% 11.47% 11.46%
Period-end capital to
period-end risk-
weighted assets:
Tier 1................. 14.73% 16.60% 17.13% 17.60% 16.54% 17.16% 16.19%
Total.................. 15.81% 17.75% 18.39% 18.86% 17.78% 18.41% 17.37%
Period-end Tier 1
leverage ratio......... 11.66% 11.04% 11.58% 11.18% 11.47% 11.66% 11.91%
Cash dividends declared
to net income.......... 27.46% 25.74% 27.49% 28.18% 30.34% 28.26% 29.19%
Asset Quality Ratios:
Allowance for credit
losses, at period-end,
to:
Total loans, net of
unearned income....... 1.28% 1.59% 1.37% 1.33% 1.25% 1.24% 1.21%
Nonperforming and past-
due loans............. 68.28% 108.95% 90.06% 155.38% 137.63% 117.82% 290.77%
Annualized net charge-
offs to average total
loans, net of unearned
income................. 0.22% 0.18% 0.24% 0.10% 0.03% 0.10% 0.05%
Nonperforming and past-
due loans to total
loans, net of unearned
income................. 0.01% 0.01% 0.00% 0.01% 0.00% 0.00% 0.01%
Nonperforming assets and
past-due loans to total
assets, at period-end.. 1.30% 0.99% 1.06% 0.55% 0.61% 0.75% 0.30%
</TABLE>
--------
(a) Per share data is restated to reflect the 2-for-1 stock split in the form
of a 100% stock dividend upon conversion to Talbot Bancshares in 1997.
(b) Net interest margin is the ratio of net interest income determined on a
taxable equivalent basis for items exempt from federal tax to average
earning assets.
14
<PAGE>
Shore Bancshares
Shore Bancshares' selected historical data is based on its Annual Report on
Form 10-K for the year ended December 31, 1999, its Quarterly Report on Form
10-Q for the quarters ended June 30, 2000 and 1999 and other financial
information incorporated by reference in and delivered with this proxy
statement/prospectus. For periods before July 1, 1996, the historical data is
for The Centreville National Bank of Maryland only. You should read this
financial information in conjunction with the information in those Shore
Bancshares reports and other information incorporated by reference in this
proxy statement/prospectus. See "Where You Can Find More Information" on page
.
SHORE BANCSHARES, INC.
<TABLE>
<CAPTION>
As of or for the
six months ended
As of or for the years ended December 31, June 30,
-------------------------------------------- -----------------
1995 1996 1997 1998 1999 1999 2000
-------- -------- -------- -------- -------- -------- --------
(dollars in thousands, except per share data)
(unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Income Statement:
Interest income......... $ 10,509 $ 10,741 $ 12,405 $ 13,010 $ 13,058 $ 6,357 $ 7,113
Interest expense........ 4,497 4,476 5,448 5,923 6,148 3,029 3,216
-------- -------- -------- -------- -------- -------- --------
Net interest income..... 6,012 6,265 6,957 7,087 6,910 3,328 3,897
Provision for credit
losses................. 0 0 0 0 0 0 34
Net interest income
after provision for
credit losses.......... 6,012 6,265 6,957 7,087 6,910 3,328 3,863
Noninterest income...... 878 999 909 873 1,153 586 499
Noninterest expense..... 3,785 3,783 4,366 4,663 4,659 2,321 2,359
-------- -------- -------- -------- -------- -------- --------
Income before taxes on
income................. 3,105 3,181 3,500 3,297 3,404 1,593 2,003
Federal and state income
taxes.................. 967 1,173 1,130 1,078 1,119 526 702
-------- -------- -------- -------- -------- -------- --------
Net income.............. $ 2,138 $ 2,308 $ 2,370 $ 2,219 $ 2,285 $ 1,067 $ 1,301
======== ======== ======== ======== ======== ======== ========
Balance Sheet (at
period-end):
Assets:
Cash and due from
banks................. $ 4,887 $ 4,873 $ 5,092 $ 4,536 $ 3,345 $ 4,077 $ 4,893
Federal funds sold..... 4,907 5,390 3,504 9,752 971 8,878 5,097
Investment securities,
including those
available-for-sale.... 37,131 43,653 48,743 47,119 50,937 51,403 49,467
Loans, less allowance
for credit losses..... 85,571 87,389 107,763 109,848 125,767 114,610 131,386
Bank premises and
equipment............. 2,232 2,153 3,259 3,369 3,465 3,297 4,013
Accrued interest
receivable on loans
and investment
securities............ 1,337 1,385 1,476 1,355 1,463 1,540 1,609
Investment in
unconsolidated
subsidiaries.......... 1,073 1,114 1,187 1,167 1,067 1,170 1,057
Goodwill............... 109 98 2,087 1,917 1,770 1,843 1,696
Deferred income tax
benefits.............. 244 269 67 102 425 335 437
Other real estate
owned................. 0 0 0 0 63 0 0
Other assets........... 610 575 1,937 1,889 1,875 2,162 1,756
-------- -------- -------- -------- -------- -------- --------
Total assets........... $138,101 $146,899 $175,115 $181,054 $191,148 $189,315 $201,411
======== ======== ======== ======== ======== ======== ========
Liabilities and Equity:
Deposits............... $116,480 $124,166 $145,813 $153,308 $162,073 $159,897 $166,298
Short term borrowings.. 0 0 0 0 590 1,391 5,799
Accrued interest
payable on deposits... 151 158 189 208 207 202 207
Other liabilities...... 621 479 598 634 675 712 745
Long-term debt......... 0 0 5,000 5,000 5,000 5,000 5,000
Stockholders' equity... 20,849 22,096 23,515 21,904 22,603 22,113 23,362
-------- -------- -------- -------- -------- -------- --------
Total liabilities and
equity................ $138,101 $146,899 $175,115 $181,054 $191,148 $189,315 $201,411
======== ======== ======== ======== ======== ======== ========
</TABLE>
15
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Per Share Data: (a)
Number of shares of
common stock
outstanding (in
thousands)............. 2,015 2,015 2,015 1,914 1,914 1,914 1,914
Net income:
Basic.................. $1.06 $ 1.14 $ 1.18 $ 1.12 $1.19 $ 0.58 $ 0.68
Diluted................ 1.06 1.14 1.18 1.12 1.19 0.56 0.68
Cash dividends declared:
Common................. 0.43 0.46 0.485 0.51 0.54 0.26 0.28
Tangible book value..... 10.29 10.92 10.63 10.44 10.88 10.59 11.32
Performance and Capital
Ratios:
Return on average
assets................. 1.54% 1.63% 1.43% 1.25% 1.21% 1.16% 1.34%
Return on average
stockholders' equity... 10.52% 10.67% 10.40% 9.52% 10.30% 9.71% 11.62%
Net interest margin
(b).................... 4.75% 4.85% 4.64% 4.45% 4.05% 3.97% 4.35%
Average stockholders'
equity to average total
assets................. 14.58% 15.29% 13.75% 13.17% 11.76% 11.92% 11.53%
Period-end capital to
period-end risk-
weighted assets:
Tier 1................. 28.05% 28.44% 22.35% 19.80% 18.69% 19.32% 18.21%
Total.................. 27.85% 28.25% 23.61% 21.05% 19.78% 20.48% 19.27%
Period-end Tier 1
leverage ratio......... 14.86% 14.86% 12.23% 11.08% 11.09% 11.15% 11.38%
Cash dividends declared
to net income.......... 40.04% 40.16% 41.23% 45.62% 45.23% 46.67% 41.12%
Asset Quality Ratios:
Allowance for credit
losses, at period-end,
to:
Total loans, net of
unearned income....... 1.70% 1.69% 1.29% 1.21% 0.98% 1.07% 0.97%
Nonperforming and past-
due loans............. 84.30% 102.68% 317.59% 164.69% 96.19% 446.21% 271.82%
Annualized net charge-
offs to average total
loans, net of unearned
income................. 0.00% 0.03% 0.11% 0.05% 0.09% 0.20% 0.00%
Nonperforming and past-
due loans to total
loans, net of unearned
income................. 0.11% 0.09% 0.03% 0.06% 0.09% 0.02% 0.03%
Nonperforming assets and
past-due loans to total
assets, at period-end.. 1.27% 1.00% 0.25% 0.45% 0.68% 0.15% 0.23%
</TABLE>
--------
(a) Per share data is restated to reflect the 2-for-1 stock split effected in
the form of a 100% stock dividend upon the conversion to Shore Bancshares
in 1996 and the 2-for-1 stock split effected in the form of a 100% stock
dividend on March 31, 1998.
(b) Net interest margin is the ratio of net interest income determined on a
taxable equivalent basis for items exempt from federal tax, to average
earning assets.
16
<PAGE>
Unaudited Pro Forma Condensed Combined Selected Financial Data
We have included this unaudited pro forma condensed combined summary
information only for the purposes of illustration. It does not necessarily
indicate what the operating results or financial position of the combined
company would have been if the merger had been completed at the dates
indicated. Moreover, this information does not necessarily indicate the future
operating results or financial position of the combined company. This unaudited
pro forma condensed combined summary financial information reflects treatment
of the merger as a pooling-of-interests and does not reflect any adjustments to
conform accounting practices or any cost savings or other synergies which may
result from the merger or any future merger-related expenses. The unaudited pro
forma balance sheet data gives effect to the merger as if it had occurred on
the date of each balance sheet presented. The unaudited pro forma results of
operations data gives the effect to the merger as if it occurred at the
beginning of each period presented.
UNAUDITED PRO-FORMA CONDENSED FINANCIAL DATA
<TABLE>
<CAPTION>
As of or for the
six months ended
As of or for the years ended December 31, June 30,
-------------------------------------------- -----------------
1995 1996 1997 1998 1999 1999 2000
-------- -------- -------- -------- -------- -------- --------
(dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Income Statement(a):
Interest income......... $ 27,944 $ 29,760 $ 32,077 $ 34,058 $ 35,435 $ 17,182 $ 19,113
Interest expense........ 12,704 12,924 14,044 15,386 16,039 7,849 8,500
-------- -------- -------- -------- -------- -------- --------
Net interest income..... 15,240 16,836 18,033 18,672 19,396 9,333 10,613
Provision for credit
losses................. 540 955 225 240 240 120 148
-------- -------- -------- -------- -------- -------- --------
Net interest income
after provision for
credit losses.......... 14,700 15,881 17,808 18,432 19,156 9,213 10,465
Noninterest income...... 1,495 1,573 1,622 1,660 2,138 1,072 1,086
Noninterest expense..... 8,868 9,002 10,194 10,634 10,961 5,483 5,767
-------- -------- -------- -------- -------- -------- --------
Income before taxes on
income................. 7,327 8,452 9,236 9,458 10,333 4,802 5,784
Federal and state income
taxes.................. 2,505 2,924 3,192 3,224 3,528 1,626 2,030
-------- -------- -------- -------- -------- -------- --------
Net income.............. $ 4,822 $ 5,528 $ 6,044 $ 6,234 $ 6,805 $ 3,176 $ 3,754
======== ======== ======== ======== ======== ======== ========
Balance Sheet (at
period-end):
Assets:
Cash and due from
banks................. $ 9,656 $ 11,887 $ 13,200 $ 12,540 $ 8,880 $ 11,851 $ 12,615
Federal funds sold..... 7,238 12,963 11,561 22,155 25,685 9,403 16,294
Investment securities,
including those
available for sale.... 98,023 106,462 110,221 130,490 124,127 124,259 118,302
Loans, less allowance
for credit losses..... 245,778 256,361 290,519 301,629 341,800 321,986 360,442
Bank premises and
equipment............. 5,200 5,341 6,403 6,346 6,443 6,364 6,973
Accrued interest
receivable on loans
and investment
securities............ 3,091 3,213 3,425 3,524 3,585 3,689 3,827
Investment in
unconsolidated
subsidiaries.......... 1,273 1,296 1,361 1,291 1,067 1,287 1,057
Goodwill............... 109 98 2,087 1,917 1,770 1,843 1,696
Deferred income tax
benefits.............. 1,033 1,006 522 444 1,856 1,281 1,971
Other real estate
owned................. 147 299 114 164 137 124 214
Other assets........... 959 1,157 2,731 2,808 2,867 3,020 2,621
-------- -------- -------- -------- -------- -------- --------
Total assets......... $372,507 $400,083 $442,144 $483,308 $518,217 $485,107 $526,012
======== ======== ======== ======== ======== ======== ========
Liabilities and Equity:
Deposits............... $311,927 $339,267 $370,727 $403,237 $436,021 $397,172 $430,698
Short-term
borrowings............ 12,946 9,268 10,263 17,112 16,934 24,275 27,489
Accrued interest
payable on deposits... 510 551 577 691 681 651 757
Other liabilities...... 1,081 981 1,090 1,080 1,096 1,035 1,186
Long term debt......... 0 0 5,000 5,000 5,000 5,000 5,000
Stockholders' equity... 46,043 50,016 54,487 56,188 58,485 56,974 60,882
-------- -------- -------- -------- -------- -------- --------
Total liabilities and
equity.............. $372,507 $400,083 $442,144 $483,308 $518,217 $485,107 $526,012
======== ======== ======== ======== ======== ======== ========
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
As of or for
As of or for the years ended the six months
December 31, ended June 30,
------------------------------------------ ----------------
1995 1996 1997 1998 1999 1999 2000
------ ------- ------- ------- ------- ------- -------
(dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Per Share Data(b)(c):
Number of shares of
common stock
outstanding (in
thousands)............. 5,384 5,395 5,407 5,311 5,314 5,314 5,320
Net income:
Basic.................. $ 0.90 $ 1.03 $ 1.12 $ 1.16 $ 1.28 $ 0.60 $ 0.71
Diluted................ 0.90 1.02 1.11 1.15 1.27 0.59 0.70
Cash dividends
declared(d):
Common................. 0.30 0.33 0.37 0.40 0.45 0.21 0.24
Tangible book value(e).. 8.53 9.25 9.69 10.22 10.67 10.37 11.13
Performance and Capital
Ratios:
Return on average
assets................. 1.31% 1.42% 1.43% 1.37% 1.37% 1.30% 1.45%
Return on average
stockholders' equity... 10.91% 11.48% 11.59% 11.10% 11.85% 11.20% 12.65%
Net interest margin(f).. 4.42% 4.64% 4.60% 4.40% 4.18% 4.27% 4.26%
Average stockholders'
equity to average total
assets................. 11.96% 12.39% 12.37% 12.31% 11.54% 11.64% 11.48%
Period-end capital to
period-end risk-
weighted assets:
Tier 1................. 18.69% 20.31% 18.95% 18.36% 17.27% 17.89% 16.87%
Total.................. 19.39% 21.04% 20.20% 19.61% 18.46% 19.11% 18.01%
Period-end Tier 1
leverage ratio......... 12.90% 12.44% 11.84% 11.14% 11.33% 11.47% 11.71%
Cash dividends declared
to net income.......... 33.04% 31.76% 32.88% 34.39% 35.34% 34.45% 33.32%
Asset Quality Ratios:
Allowance for credit
losses, at period-end,
to:
Total loans, net of
unearned income....... 1.43% 1.62% 1.34% 1.29% 1.15% 1.18% 1.12%
Nonperforming and past-
due loans............. 74.14% 106.63% 120.91% 158.44% 121.29% 154.38% 284.54%
Annualized net charge-
offs to average total
loans, net of unearned
income................. 0.14% 0.13% 0.19% 0.08% 0.06% 0.13% 0.03%
Nonperforming and past-
due loans to total
loans, net of unearned
income................. 0.12% 0.08% 0.07% 0.05% 0.07% 0.06% 0.03%
Nonperforming assets and
past-due loans to total
assets, at period-end.. 1.29% 0.99% 0.74% 0.51% 0.63% 0.51% 0.27%
</TABLE>
--------
(a) This unaudited pro-forma condensed consolidated income statement data does
not consider charges or credits which will result directly from the
transaction and which will be included in the income of the combined entity
within the 12 months succeeding the transaction. It is anticipated that, as
a result of the merger, the combined entity will incur approximately
$380,000 in pre-tax merger related expenses for items such as legal,
investment advisory, and accounting.
(b) Per share data is restated to reflect the 2-for-1 stock split effected in
the form of a 100% stock dividend upon the conversion to Shore Bancshares
in 1996, the 2-for-1 stock split effected in the form of a 100% stock
dividend on March 31, 1998, and a 2-for-1 stock split effected in the form
of a 100% stock dividend upon the conversion to Talbot Bancshares in 1997.
(c) Pro-forma earnings per common share, basic and diluted, represents
historical net income divided by the sum of (1) the total number of shares
of Shore Bancshares common stock outstanding at such date and (2) the total
number of shares of Talbot Bancshares common stock outstanding at such date
multiplied by the exchange ratio of 2.85 shares of Shore Bancshares common
stock issued for Talbot Bancshares common stock and including the dilutive
securities in the case of diluted pro-forma income per common share.
(d) Pro-forma cash dividends per share is calculated by dividing the historical
amount of dividends declared by Shore Bancshares and Talbot Bancshares
during the periods by the sum of (1) the total number of shares of Shore
Bancshares common stock outstanding at such date and (2) the total number
of shares of Talbot Bancshares common stock outstanding at such date
multiplied by the exchange ratio of 2.85 shares of Shore Bancshares common
stock issued for Talbot Bancshares common stock.
(e) Pro-forma tangible book value per share is calculated by dividing total
pro-forma combined stockholders' equity less goodwill as of the applicable
date by the sum of (1) the total number of shares of Shore Bancshares
common stock outstanding at such date and (2) the total number of shares of
Talbot Bancshares common stock outstanding at such date multiplied by the
exchange ratio of 2.85 shares of Shore Bancshares common stock issued for
Talbot Bancshares common stock.
(f) Net interest margin is the ratio of net interest income, determined on a
taxable equivalent basis for items exempt from federal tax, to average
earning assets.
18
<PAGE>
Comparative Per Share Data
The following table provides certain historical and unaudited pro forma per
share data of Talbot Bancshares and Shore Bancshares as well as equivalent per
share data with respect to one share of Shore Bancshares common stock on a pro
forma basis for the merger. You should read the data presented below in
conjunction with the unaudited pro forma combined condensed financial data, and
related notes, and historical financial statements, and related notes, of
Talbot Bancshares and Shore Bancshares, which are incorporated by reference in
this document or included elsewhere in this document. See "Where You Can Find
More Information" on page .
<TABLE>
<CAPTION>
December 31, June 30,
----------------------- --------------
1997 1998 1999 1999 2000
------- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Talbot Bancshares--historical
Basic earnings per share............ $ 3.09 $ 3.37 $ 3.79 $ 1.77 $ 2.05
Diluted earnings per share.......... 3.06 3.33 3.72 1.75 2.02
Dividends declared per share........ 0.85 0.95 1.15 0.50 0.60
Tangible book value per share....... 26.04 28.76 30.07 29.22 31.40
Percent cash dividends declared to
net income......................... 27.49 % 28.18% 30.34% 28.26% 29.19%
Shore Bancshares--historical
Basic earnings per share............ $ 1.18 $ 1.12 $ 1.19 $ 0.58 $ 0.68
Diluted earnings per share.......... 1.18 1.12 1.19 0.56 0.68
Dividends declared per share........ 0.485 0.51 0.54 0.26 0.28
Tangible book value per share....... 10.63 10.44 10.88 10.59 11.32
Percent cash dividends declared to
net income......................... 41.23 % 45.62% 45.23% 46.67% 41.12%
Pro Forma Combined--2.85 Conversion
Factor
Pro forma basic earnings per share
(a)................................ $ 1.12 $ 1.16 $ 1.28 $ 0.60 $ 0.71
Pro forma diluted earnings per share
(a)................................ 1.11 1.15 1.27 0.59 0.70
Pro forma dividends declared per
share (b).......................... 0.37 0.40 0.45 0.21 0.24
Pro forma tangible book value per
share (c).......................... 9.69 10.22 10.67 10.37 11.13
</TABLE>
--------
(a) Shore Bancshares pro-forma earnings per common share, basic and diluted,
represents historical net income for Shore Bancshares and Talbot
Bancshares combined on the assumption that Shore Bancshares and Talbot
Bancshares has been combined for the periods presented on a pooling of
interests basis, divided by the sum of (1) the total number of shares of
Shore Bancshares common stock outstanding at such date and (2) the total
number of shares of Talbot Bancshares common stock outstanding at such
date multiplied by the exchange ratio of 2.85 shares of Shore Bancshares
common stock issued for Talbot Bancshares common stock, and including the
dilutive securities in the case of diluted pro-forma income per common
share.
(b) Pro-forma cash dividends per share of Shore Bancshares common stock is
calculated by dividing the historical amount of dividends declared by
Shore Bancshares and Talbot Bancshares by the sum of (1) the total number
of shares of Shore Bancshares common stock outstanding at such date and
(2) the total number of shares of Talbot Bancshares common stock
outstanding at such date multiplied by the exchange ratio of 2.85 shares
of Shore Bancshares common stock issued for Talbot Bancshares common
stock.
(c) Pro-forma tangible book value per share of Shore Bancshares common stock
is calculated by dividing total pro-forma combined stockholders' equity,
less goodwill, as of the applicable date by the sum of (1) the total
number of shares of Shore Bancshares common stock outstanding at such date
and (2) the total number of shares of Talbot Bancshares common stock
outstanding at such date multiplied by the exchange ratio of 2.85 shares
of Shore Bancshares common stock issued for Talbot Bancshares common
stock.
19
<PAGE>
FORWARD-LOOKING STATEMENTS
This proxy statement/prospectus contains and incorporates by reference
statements that are "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995. These statements relate,
among other things, to information or assumptions about earnings per share,
capital and other expenditures, dividends, financing plans, capital structure,
cash flows, future economic performance, operating income improvements, cost
savings and management's plans, goals and objectives for future operations.
These forward-looking statements generally may be identified by their reference
to a future period or periods or by the use of forward-looking terminology such
as "may," "will," "intend," "should," "expect," "anticipate," "believe,"
"estimate," "continue," the negatives of those terms or similar expressions.
You should understand that forward-looking statements are estimates reflecting
the judgment of management of Talbot Bancshares and Shore Bancshares, not
guarantees of future performance. These statements are subject to risks,
uncertainties and assumptions, including, but not limited to:
. combining the businesses of Talbot Bancshares and Shore Bancshares may
cost more than we expect;
. integrating the businesses of Talbot Bancshares and Shore Bancshares and
retaining key personnel may be more difficult than we expect;
. our revenues after the merger may be lower than we expect, or our
operating costs may be higher than we expect;
. expected cost savings from the merger may not be fully realized or may
not be realized within the expected time frame;
. growth in business and/or customers after the merger may be different
than we expect;
. there may be increases in competitive pressure among financial
institutions;
. changes in the interest rate environment may reduce interest margins;
. general economic conditions, either nationally or in the region in which
the combined company will be doing business, or conditions in securities
markets, may be less favorable than we currently anticipate;
. legislation or regulatory changes may adversely affect our business;
. technological changes may be more difficult or expensive than
anticipated; or
. other risks and uncertainties described in "Risk Factors" or in the other
SEC filings of Talbot Bancshares and Shore Bancshares.
Should one or more of these risks or uncertainties affect the business of
Talbot Bancshares and Shore Bancshares or should underlying assumptions prove
incorrect, actual results, performance or achievements in 2000 and beyond could
differ materially from those expressed in, or implied by, these forward-looking
statements.
20
<PAGE>
RISK FACTORS
In addition to the other information provided or incorporated by reference
in this proxy statement/prospectus, you should consider the following factors
carefully in evaluating whether to vote in favor of the merger. You should also
refer to "Forward-Looking Statements" on page .
Risks Related to the Merger
Shore Bancshares may not successfully integrate and manage the operations of
Talbot Bancshares and Shore Bancshares which could adversely affect future
earnings. Talbot Bancshares has agreed to merge into Shore Bancshares. If Shore
Bancshares cannot manage the banks successfully, it will reduce the operating
results of Shore Bancshares. The risks of this acquisition include the
following:
. management will have to divert time to integrate the businesses;
. Shore Bancshares may encounter unexpected problems or risks associated
with its operations, personnel, technology or credit;
. Shore Bancshares may lose the customers and employees of Centreville
National Bank and Talbot Bank;
. the assimilation of new operations, sites and personnel could divert
resources from regular banking operations; and
. Shore Bancshares may have trouble instituting and maintaining uniform
standards, controls, procedures and policies.
Shore Bancshares may not realize anticipated operating efficiencies, which
could hurt Shore Bancshares' profitability. Shore Bancshares' business plan
calls for Shore Bancshares to increase profits by reducing costs, expanding
services and integrating administrative functions. Shore Bancshares may not
realize these operating efficiencies, or may not realize them as soon as
anticipated. If Shore Bancshares does not realize operating efficiencies as
anticipated, it could hurt profitability.
Unanticipated costs relating to the merger could reduce Shore Bancshares'
future earnings per share. We believe that we have reasonably estimated the
likely costs of integrating the operations of Talbot Bancshares and Shore
Bancshares, and the incremental costs of operating as a combined company.
However, it is possible that unexpected transaction costs such as taxes, fees
or professional expenses or unexpected future operating expenses such as
increased personnel costs or increased taxes, as well as other types of
unanticipated adverse developments, could have a material adverse effect on our
results of operations and financial condition. If unexpected costs are
incurred, the merger could adversely affect Shore Bancshares earnings per
share.
Talbot Bancshares stockholders may incur federal income tax on shares
received in the merger if the merger does not qualify as a tax-free
reorganization. We have structured the merger to qualify as a tax-free
reorganization under Section 368(a) of the Internal Revenue Code of 1986.
Although the Internal Revenue Service has not provided a ruling on the matter,
we will obtain a legal opinion that the merger qualifies as a tax-free
reorganization. This opinion neither binds the IRS nor prevents the IRS from
adopting a contrary position. If the merger fails to qualify as a tax-free
reorganization, Talbot Bancshares stockholders would recognize gain or loss on
each share of Talbot Bancshares common stock surrendered in the amount of the
difference between the basis in their shares and the fair market value of the
shares of Shore Bancshares and cash for any fractional shares received in
exchange for the shares at the time of the merger.
Risks Related to the Combined Companies
If Shore Bancshares loses key employees subsequent to the merger, Shore
Bancshares' business may suffer. Following the merger, if Shore Bancshares lost
key employees temporarily or permanently, it could
21
<PAGE>
hurt Shore Bancshares' business. Shore Bancshares could be particularly hurt if
Shore Bancshares' key employees went to work for competitors. Shore Bancshares'
future success depends on the continued contributions of the existing senior
management personnel of Talbot Bancshares and Shore Bancshares, some of whom
have agreements which include provisions that limit their ability to compete
against Shore Bancshares at another company. Shore Bancshares will not maintain
key-person life insurance on any of its personnel.
Provisions in Shore Bancshares' charter documents and agreements may delay
or prevent changes in control of our company or our management. These
provisions make it more difficult for another company to acquire Shore
Bancshares, which could reduce the market price of Shore Bancshares' common
stock and the price that you will receive if you sell your shares of Shore
Bancshares common stock in the future. These existing provisions include the
following:
. a provision requiring that 80% of all shares held by the stockholders
approve certain amendments to the charter and by-laws;
. broad authorization for the board of directors to classify unissued
shares of capital stock into classes, including preferred stock;
. staggered terms of office for members of the board of directors.
Approval of the merger agreement also constitutes approval of the Shore
Bancshares charter and by-law amendments. These new provisions include the
following:
. a provision permitting the board of directors to increase the number of
authorized shares of capital stock of Shore Bancshares;
. a requirement that the board of directors weigh a broad range of factors
when considering a proposal to acquire Shore Bancshares;
. a requirement that stockholders give advance notice of matters to be
raised at a meeting of stockholders; and
. a provision reducing from two-thirds to a majority the percentage of
stockholders needed to approve most mergers and other business
combinations.
The banking industry is highly competitive and Shore Bancshares cannot
assure you that it will be able to compete effectively subsequent to the
merger. Shore Bancshares will operate in a competitive environment and compete
for deposits and loans with commercial banks, thrift institutions and other
financial institutions that may have greater financial resources than those
available to Shore Bancshares subsequent to the merger. Many of these
institutions may have substantially higher lending limits than Shore Bancshares
and may provide certain additional services for their customers, such as trust
and investment services, which Shore Bancshares does not currently offer
directly to its customers. Shore Bancshares will also compete for deposits with
money market mutual funds.
22
<PAGE>
GENERAL INFORMATION ABOUT THE MEETINGS
Date, Time and Place of the Meetings
The meeting of the Talbot Bancshares stockholders will be held at :
p.m., local time, on November 14, 2000, at ,
Easton, Maryland.
The meeting of the Shore Bancshares stockholders will be held at : p.m.,
local time, on November 14, 2000, at , Centreville,
Maryland.
Record Date and Outstanding Shares
The Talbot Bancshares board of directors has fixed the close of business on
September 26, 2000, as the record date for the determination of the holders of
Talbot Bancshares common stock entitled to receive notice of and to vote at the
Talbot Bancshares meeting or at any adjournments or postponements of the
meeting. Only stockholders of record on the record date are entitled to receive
notice of and to vote at the Talbot Bancshares meeting or any adjournments or
postponements of the meeting. As of the Talbot Bancshares record date, there
were 1,194,876 shares of Talbot Bancshares common stock issued and outstanding
held by approximately 480 holders of record. Each holder of shares of Talbot
Bancshares common stock is entitled to one vote per share held of record on the
record date.
The Shore Bancshares board of directors has fixed the close of business on
September 26, 2000, as the record date for the determination of the holders of
Shore Bancshares common stock entitled to receive notice of and to vote at the
Shore Bancshares meeting or at any adjournments or postponements of the
meeting. Only stockholders of record on the record date are entitled to receive
notice of and to vote at the Shore Bancshares meeting or any adjournments or
postponements of the meeting. As of the Shore Bancshares record date, there
were 1,914,137 shares of Shore Bancshares common stock issued and outstanding
held by approximately 996 holders of record. Each holder of shares of Shore
Bancshares common stock is entitled to one vote per share held of record on the
record date.
Purpose of the Meetings
Talbot Bancshares. Talbot Bancshares is furnishing this proxy
statement/prospectus to its stockholders in connection with the solicitation of
proxies by Talbot Bancshares board of directors for use at the Talbot
Bancshares meeting. The purpose of the meeting is to consider and vote upon the
proposal to approve and adopt the merger agreement and to transact any other
business as may properly come before the meeting or any adjournments or
postponements of the meeting. Pursuant to the merger agreement, on the
effective date of the merger, the former stockholders of Talbot Bancshares will
receive 2.85 shares of Shore Bancshares common stock for each share of Talbot
Bancshares common stock.
No fractional shares will be issued. Instead, Talbot Bancshares stockholders
will be paid in cash the amount equal to the fractional share multiplied by the
market value of Shore Bancshares common stock on the date the merger is
completed, as determined by the Shore Bancshares board of directors.
In unanimously approving the merger agreement and the transactions
contemplated in connection with the merger, the members of the Talbot
Bancshares board of directors have determined that the merger is advisable and
in the best interests of the Talbot Bancshares stockholders and recommend that
the Talbot Bancshares stockholders vote in favor of the approval and adoption
of the merger agreement and the merger.
Shore Bancshares. Shore Bancshares is furnishing this proxy
statement/prospectus to its stockholders in connection with the solicitation of
proxies by Shore Bancshares board of directors for use at the Shore Bancshares
meeting. The purpose of the meeting is to consider and vote upon the proposal
to approve and
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adopt the merger agreement and to transact any other business as may properly
come before the meeting or any adjournments or postponements of the meeting. On
the effective date of the merger, the stockholders of Shore Bancshares will
continue to own the same number of shares of Shore Bancshares common stock as
before the merger.
In unanimously approving the merger agreement and the transactions
contemplated in connection with the merger, the members of the Shore Bancshares
board of directors have determined that the merger is advisable and in the best
interests of the Shore Bancshares stockholders and recommend that the Shore
Bancshares stockholders vote in favor of the approval and adoption of the
merger agreement and the merger.
Vote Required
Talbot Bancshares. Each share of Talbot Bancshares common stock is entitled
to one vote per share with respect to the merger agreement and other matters
properly submitted at the Talbot Bancshares meeting. Assuming that a quorum is
present at the Talbot Bancshares meeting, approval and adoption of the merger
agreement and the merger requires the affirmative vote, in person or by proxy,
of two-thirds of the outstanding shares of Talbot Bancshares common stock
entitled to vote at the Talbot Bancshares meeting, and approval and adoption of
other matters that come before the meeting generally requires the affirmative
vote, in person or by proxy, of a majority of the votes cast on the matter at
the Talbot Bancshares meeting. The approval of the merger agreement and the
merger includes approval of certain amendments to the Shore Bancshares charter
and by-laws as described in this proxy statement/prospectus. Stockholder
approval of the merger agreement is required under Maryland law, and this
approval is a condition to the merger.
If the merger is completed, Talbot Bancshares stockholders who do not vote
for the adoption of the merger agreement and who otherwise comply with Sections
3-201 et seq. of the Maryland General Corporation Law will be entitled to
appraisal rights under Maryland law. We have attached a copy of Sections 3-201
et seq. as Appendix J.
The presence at the Talbot Bancshares meeting, either in person or by proxy,
of the holders of a majority of the shares of Talbot Bancshares common stock
outstanding and entitled to vote at the Talbot Bancshares meeting constitutes a
quorum for the transaction of business. For purposes of determining whether
there is a quorum at the Talbot Bancshares meeting, abstentions and broker non-
votes will be treated as shares that are present.
Under the rules of the National Association of Securities Dealers, Inc.,
brokers who hold shares in street name for customers will not have the
authority to vote on the proposed merger unless they receive specific
instructions from the beneficial owners. Accordingly, the failure to provide
brokers with specific instructions to vote for the merger will have the same
effect as a vote against the merger. As required by Maryland law, abstentions
and broker non-votes will not be counted in determining whether Talbot
Bancshares stockholders have approved the other proposals.
All directors and executive officers and certain of their affiliates of
Talbot Bancshares have executed a support agreement to vote all of the shares
of Talbot Bancshares common stock which they beneficially own in favor of the
merger. As of July 31, 2000, directors and executive officers of Talbot
Bancshares and their affiliates beneficially owned and were entitled to vote
212,534 shares of Talbot Bancshares common stock, which represented 17.25% of
the shares of Talbot Bancshares common stock outstanding, including options
exercisable with 60 days.
Shore Bancshares. Each share of Shore Bancshares common stock is entitled to
one vote per share with respect to the merger agreement and other matters
properly submitted at the Shore Bancshares meeting. Assuming that a quorum is
present at the Shore Bancshares meeting, approval and adoption of the merger
agreement and the merger requires the affirmative vote, in person or by proxy,
of two-thirds of the outstanding
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shares of Shore Bancshares common stock entitled to vote at the Shore
Bancshares meeting, and approval and adoption of other matters that come before
the meeting generally requires the affirmative vote, in person or by proxy, of
a majority of the votes cast on the matter at the Shore Bancshares meeting. The
approval of the merger agreement and the merger includes approval of certain
amendments to the Shore Bancshares charter and by-laws as described in this
proxy statement/prospectus. Stockholder approval of the merger agreement is
required under Maryland law, and this approval is a condition to the merger.
Shore Bancshares stockholders do not have appraisal rights under Maryland
law in the merger.
The presence at the Shore Bancshares meeting, either in person or by proxy,
of the holders of a majority of the shares of Shore Bancshares common stock
outstanding and entitled to vote at the Shore Bancshares meeting constitutes a
quorum for the transaction of business. For purposes of determining whether
there is a quorum at the Shore Bancshares meeting, abstentions and broker non-
votes will be treated as shares that are present.
Under the rules of the National Association of Securities Dealers, Inc.,
brokers who hold shares in street name for customers will not have the
authority to vote on the proposed merger unless they receive specific
instructions from the beneficial owners. Accordingly, the failure to provide
brokers with specific instructions to vote for the merger will have the same
effect as a vote against the merger. As required by Maryland law, abstentions
and broker non-votes will not be counted in determining whether Shore
Bancshares stockholders have approved the other proposals.
All directors and executive officers and certain of their affiliates of
Shore Bancshares have executed a support agreement to vote all of the shares of
Shore Bancshares common stock which they beneficially own in favor of the
merger. As of July 31, 2000, directors and executive officers of Shore
Bancshares and their affiliates beneficially owned and were entitled to vote
73,154 shares of Shore Bancshares common stock, which represented 3.8% of the
shares of the Shore Bancshares common stock outstanding, including options
exercisable within 60 days.
Voting of Proxies
Talbot Bancshares. If the accompanying proxy card is properly signed and
returned to Talbot Bancshares and not revoked before a vote is taken at the
Talbot Bancshares meeting, it will be voted in accordance with the instructions
indicated on the proxy card. If the proxy card is signed and returned without
indicating any voting instructions, shares of Talbot Bancshares common stock
represented by the proxy will be voted FOR approval and adoption of the merger
agreement and the merger. Brokers who hold shares in street name for customers
do not have authority to vote on the proposed merger unless they receive
specific instructions from the beneficial owners. If you hold your shares in
street name, please see the voting form provided by your broker for additional
information regarding the voting of your shares.
Talbot Bancshares is not aware of any business to be acted on at the Talbot
Bancshares meeting, except as described in this proxy statement/prospectus. If
any other matters are properly presented to the Talbot Bancshares meeting, or
any adjournments or postponements of the meeting, the persons appointed as
proxies or their substitutes will have discretion to vote or act on the matter
according to their best judgment and applicable law unless the proxy indicates
otherwise.
Shore Bancshares. If the accompanying proxy card is properly signed and
returned to Shore Bancshares and not revoked before a vote is taken at the
Shore Bancshares meeting, it will be voted in accordance with the instructions
indicated on the proxy card. If the proxy card is signed and returned without
indicating any voting instructions, shares of Shore Bancshares common stock
represented by the proxy will be voted FOR approval and adoption of the merger
agreement and the merger. Brokers who hold shares in street name for customers
do not have authority to vote on the proposed merger unless they receive
specific instructions from the beneficial owners. If you hold your shares in
street name, please see the voting form provided by your broker for additional
information regarding the voting of your shares.
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Shore Bancshares is not aware of any business to be acted upon at the Shore
Bancshares meeting, except as described in this proxy statement/prospectus. If
any other matters are properly presented to the Shore Bancshares meeting, or
any adjournments or postponements of the meeting, the persons appointed as
proxies or their substitutes will have discretion to vote or act on the matter
according to their best judgment and applicable law unless the proxy indicates
otherwise.
Authorization to Vote on Adjournments and Other Matters
Talbot Bancshares. By signing the proxy, a Talbot Bancshares stockholder
authorizes the proxy holder to vote in his or her discretion regarding any
procedural motions which may come before the Talbot Bancshares meeting. For
example, this authority could be used to adjourn the meeting if Talbot
Bancshares believes it is desirable to do so. Adjournment or other procedural
matters could be used to obtain more time before a stockholder vote to solicit
additional proxies or to provide additional information to Talbot Bancshares
stockholders. To the extent a Talbot Bancshares stockholder intends to vote
against the merger agreement and the merger, this stockholder would have no
incentive to vote in favor of discretionary adjournment by the Talbot
Bancshares board of directors, which would allow Talbot Bancshares to adjourn
the meeting to solicit additional votes in favor of the merger agreement and
the merger. Talbot Bancshares has no plans to adjourn the meeting at this time,
but Talbot Bancshares intends to attempt to adjourn the meeting if it believes
that an adjournment would promote stockholder interests.
The failure to return a proxy or to vote in person will have no effect on
the vote on adjournment, except to reduce the total number of votes counted.
Brokers who hold shares in street name for customers will not have the
authority to vote unless they receive specific instructions from beneficial
owners. Under Maryland law, an adjournment proposal requires the affirmative
vote of a majority of the votes cast by Talbot Bancshares stockholders present
or represented at the meeting. Therefore, broker non-votes and abstentions will
have no effect.
Shore Bancshares. By signing the proxy, a Shore Bancshares stockholder
authorizes the proxy holder to vote in his or her discretion regarding any
procedural motions which may come before the Shore Bancshares meeting. For
example, this authority could be used to adjourn the meeting if Shore
Bancshares believes it is desirable to do so. Adjournment or other procedural
matters could be used to obtain more time before a stockholder vote to solicit
additional proxies or to provide additional information to Shore Bancshares
stockholders. To the extent a Shore Bancshares stockholder intends to vote
against the merger agreement and the merger, this stockholder would have no
incentive to vote in favor of discretionary adjournment by the Shore Bancshares
board of directors, which would allow Shore Bancshares to adjourn the meeting
in order to solicit additional votes in favor of the merger agreement and
merger. Shore Bancshares has no plans to adjourn the meeting at this time, but
Shore Bancshares intends to attempt to adjourn the meeting if it believes that
an adjournment would promote stockholder interests.
The failure to return a proxy or to vote in person will have no effect on
the vote on adjournment, except to reduce the total number of votes counted.
Brokers who hold shares in street name for customers will not have the
authority to vote unless they receive specific instructions from beneficial
owners. Under Maryland law, an adjournment proposal requires the affirmative
vote of a majority of the votes cast by Shore Bancshares stockholders present
or represented at the meeting. Therefore, broker non-votes and abstentions will
have no effect.
Revocation of Proxies
A stockholder of Talbot Bancshares or of Shore Bancshares may revoke a proxy
at any time before it is voted by:
. filing written notice of revocation with the Secretary of Talbot
Bancshares or Shore Bancshares (as applicable) which is actually received
before the vote of stockholders;
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. filing a duly executed proxy bearing a later date; or
. attending the Talbot Bancshares or Shore Bancshares meeting (as
applicable) and voting in person. Attendance at the meeting will not by
itself revoke the proxy.
To change or revoke a proxy for any shares held by a broker in street name,
a stockholder must follow the instructions received from their broker.
A Talbot Bancshares stockholder should deliver any filing to the Secretary
of Talbot Bancshares at Talbot Bancshares, Inc., 18 East Dover Street, Easton,
Maryland 21601, Attn.: Susan E. Leaverton. A Shore Bancshares stockholder
should deliver any filing to the Secretary of Shore Bancshares at Shore
Bancshares, Inc., 109 North Commerce Street, P.O. Box 400, Centreville,
Maryland 21617, Attn: Mary Catherine Quimby.
If you hold your shares in street name, please see the instructions provided
by your broker regarding revocation of your proxy. If you vote your shares
through your broker, you may not change or revoke your vote by contacting
Talbot Bancshares or Shore Bancshares directly. You will need additional
documentation from your broker to vote your shares in person at the meeting if
they are held in street name.
Solicitation of Proxies
We will each bear our own cost of soliciting proxies from our stockholders.
In addition to solicitation by mail, our directors, officers and employees may
solicit proxies from our stockholders by telephone or personal communication or
by other means. These persons will not receive additional compensation, but
they may be reimbursed for reasonable out-of-pocket expenses in connection with
this solicitation.
We will make arrangements with brokerage houses and other custodians,
nominees and fiduciaries to forward solicitation materials to the beneficial
owners of Talbot Bancshares and Shore Bancshares stock held of record by these
persons, and we will each reimburse custodians, nominees and fiduciaries for
their reasonable out-of-pocket expenses in connection with this service.
We may engage one or more proxy solicitation firms to assist in obtaining
proxies from our stockholders on a timely basis. As of the date of this proxy
statement/prospectus, neither of us has engaged a proxy solicitation firm or
has committed itself to pay any fees related to this service.
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PARTIES TO THE MERGER
Talbot Bancshares
Talbot Bancshares, Inc. is a Maryland corporation incorporated on March 10,
1997 which became a registered bank holding company on May 1, 1997 under the
Bank Holding Company Act. Talbot Bancshares engages in the business of banking
through its sole subsidiary, The Talbot Bank of Easton, Maryland, a commercial
bank chartered under the laws of the State of Maryland. Talbot Bancshares has
issued and outstanding 1,194,876 shares of common stock , par value $0.01 per
share held by 480 holders of record as of July 31, 2000.
Talbot Bank currently accounts for substantially all of Talbot Bancshares'
assets. Talbot Bancshares' and Talbot Bank's main office is located in Talbot
County, Maryland, at 18 East Dover Street, Easton, Maryland 21601. Talbot Bank
began operations in 1885 and is engaged in general commercial and retail
banking business serving individuals and businesses in Talbot and Dorchester
Counties, Maryland. Talbot Bank currently operates four banking offices in
Talbot County, three of which are in Easton, Maryland and one in Saint
Michael's, Maryland. Talbot Bank also operates a branch in Dorchester County,
Maryland in the City of Cambridge. As of June 30, 2000 Talbot Bancshares had
total assets of $325 million, total loans of $232 million and total deposits of
$264 million.
Principal Services. Talbot Bank is an independent community bank providing
services to businesses and individuals in its market area. The services Talbot
Bank offers are essentially the same as those services offered by larger
regional institutions which compete with Talbot Bank. Talbot Bank currently
provides the following services to businesses:
. commercial checking accounts;
. savings accounts;
. certificates of deposit;
. overnight investment sweep accounts;
. direct deposit of payroll;
. PC banking; and
. telephone banking.
Talbot Bank offers all forms of commercial lending including:
. secured and unsecured loans;
. working capital loans;
. lines of credit;
. term loans;
. accounts receivable financing;
. real estate acquisition development;
. construction loans; and
. letters of credit.
Individual services include:
. checking accounts;
. various savings programs;
. mortgage loans;
. home improvement loans;
. installment and other personal loans;
. credit cards;
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. personal lines of credit;
. automobile and other consumer financing;
. safe deposit services;
. debit cards;
. non-deposit investment products;
. 24 hour telephone banking;
. PC banking; and
. 24 hour automatic teller machine services.
Talbot Bank's branch in Cambridge, Maryland offers full service banking six
days per week with extended hours.
Shore Bancshares
Shore Bancshares, Inc., a Maryland corporation incorporated on March 15,
1996, became a registered bank holding company on July 1, 1996 under the Bank
Holding Company Act. Shore Bancshares engages in the banking business through
its sole subsidiary, The Centreville National Bank of Maryland, a national
banking association. Shore Bancshares has issued and outstanding 1,914,137
shares of common stock, par value $0.01 per share, held by 996 holders of
record on July 25, 2000.
Shore Bancshares' and Centreville National Bank's main office is located at
109 North Commerce Street, Centreville, Maryland 21617. Centreville National
Bank has been doing business in Maryland since 1876 and is engaged in both the
commercial and consumer banking business. Centreville National Bank has five
full service offices located in Centreville, Chestertown, Stevensville and
Hillsboro, Maryland. As of June 30, 2000, Shore Bancshares had total assets of
$201 million, total loans of $133 million, and total deposits of $166 million.
Banking Products And Services. Centreville National Bank serves its
customers through a network of five banking offices. Centreville National Bank
provides a wide range of commercial and personal banking services designed to
meet the needs of local businesses and consumers. Among the services
Centreville National Bank provides are:
. checking accounts;
. savings and time accounts;
. sweep accounts;
. safe deposit boxes;
. installment and other personal loans;
. residential mortgages;
. home equity loans, automobile, and other consumer financing;
. Saturday banking hours;
. drive-thru teller windows;
. internet banking;
. telephone banking services;
. debit cards; and
. 24-hour automated teller machines.
Centreville National Bank is also engaged in the financing of commerce and
industry by providing credit and deposit services for small-to-medium sized
businesses and for the agricultural community in Centreville National Bank's
market area. Centreville National Bank offers many forms of commercial lending,
including:
. lines of credit;
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. revolving credit;
. term loans;
. accounts receivable financing;
. real estate development loans; and
. commercial real estate mortgage lending and other forms of secured
financing.
Centreville National Bank offers a full range of commercial banking
services, including the acceptance of checking and savings deposits.
Centreville National Bank offers additional types of real estate loans,
discount brokerage services, credit cards and related services through
affiliates or correspondent banks. Centreville National Bank does not offer
trust services and does not engage in municipal trading services.
Bank Service Corporation. Centreville National Bank owns one-third of the
outstanding common stock of The Delmarva Bank Data Processing Center, Inc., a
Maryland corporation. The Delmarva Bank Data Processing Center, Inc., located
in Easton, Maryland, provides data processing services to banks located in
Maryland, Delaware, Virginia and the District of Columbia.
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THE MERGER
Background of the Merger
Management of each company has, over time, regularly considered the
possibility of acquisitions and strategic combinations with a variety of
financial institutions, and the potential strategic fit with institutions based
on their lines of business, their management and employee cultures and their
geographic locations. As part of our operations, Talbot Bancshares and Shore
Bancshares also regularly scrutinize the financial services industry
environment, including the recent wave of mergers in the industry, and from
time to time have informal discussions with the management of various financial
institutions.
On March 24, 1999, W. Moorhead Vermilye and Susan E. Leaverton of Talbot
Bancshares met with Daniel T. Cannon and Carol I. Brownawell of Shore
Bancshares to discuss the potential of a merger of the two bank holding
companies. At the end of the meeting, the parties agreed to meet again to
discuss the specific benefits of a potential business combination. On March 30,
1999, Messrs. Vermilye and Cannon met to discuss the business issues of a
possible combination, including management of the combined companies and the
composition of the board of directors. Over the next few months the parties had
several telephone conversations concerning the issues raised in previous
discussions.
On November 9, 1999, W. Moorhead Vermilye, Scott Beatty, Daniel T. Cannon,
B. Vance Carmean, Jr. and Jerry Pierson met to discuss the possible combination
of the two companies and potential benefits of the combined companies. The
group agreed that the goal of the combination would be to create the premier
financial holding company on the Maryland Eastern Shore.
On November 12, 1999, Messrs. Vermilye and Cannon, together with Ms.
Brownawell, participated in a telephone conference with representatives of
Stegman & Company, independent accountants for both companies, to discuss
accounting treatment of the potential transaction.
On November 18, 1999, Messrs. Vermilye and Cannon met with Arnold Danielson,
of Danielson & Associates, to discuss the possible combination. The parties
discussed their desire to combine the two companies to create increased
stockholder value for both companies and to enable the combined companies to
further expand through acquisitions or new branches. On December 2, 1999,
Talbot Bancshares and Danielson Associates executed an engagement letter for
Danielson Associates to render a fairness opinion to the Talbot Bancshares
board of directors.
On February 17, 2000, Messrs. Vermilye, Beatty, Cannon and Carmean met to
identify the regulatory and stockholder approvals that would be required to
effect the business combination.
On March 28, 2000, Messrs. Vermilye and Cannon met with representatives of
Piper Marbury Rudnick & Wolfe LLP, legal counsel for Talbot Bancshares, and a
representative of Gordon, Feinblatt, Rothman, Hoffberger & Hollander, LLC,
legal counsel for Shore Bancshares, to discuss the terms of the transaction.
On April 11, 2000, Messrs. Vermilye and Cannon, together with Ms. Leaverton
and Ms. Brownawell, met to discuss the pro forma impact of the potential
business combination, and the potential expense savings and operating
efficiencies that might be generated by the transaction.
On April 12, 2000, Shore Bancshares and Garland McPherson & Associates
executed an engagement letter for Garland McPherson & Associates to conduct due
diligence in connection with the possible transaction and render a fairness
opinion to the Shore Bancshares board of directors.
On June 1, 2000, Messrs. Vermilye, Beatty, Cannon and Carmean met with
representatives of Danielson & Associates, the financial advisors to Talbot
Bancshares, and Garland McPherson & Associates, the financial advisors to Shore
Bancshares, to negotiate an exchange rate for the proposed transaction.
On July 5, 2000, Shore Bancshares and Talbot Bancshares executed a
confidentiality agreement regarding the sharing of confidential information and
began the due diligence process.
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The two companies and their respective legal and financial advisors began
conducting mutual due diligence. Messrs. Vermilye and Cannon met to discuss the
results of the due diligence and each indicated his interest in continuing to
pursue a business combination between their companies. Over the next several
weeks, senior management of the two companies and their respective legal
counsel negotiated the terms of the proposed agreements. On July 11, 2000,
Messrs. Vermilye and Cannon, together with their respective legal counsel, met
together to discuss the proposed transaction and to finalize the definitive
agreements.
On July 25, 2000, the Talbot Bancshares board of directors held a special
meeting to consider the proposed merger with Shore Bancshares. At this meeting,
senior management of Talbot Bancshares, together with legal advisors, reviewed
the strategic investigation and due diligence Talbot Bancshares had conducted,
the discussions and contacts with Shore Bancshares to date, the historical
performance and strategies of Shore Bancshares and Talbot Bancshares, the
financial and other terms of the proposed transaction, including the potential
pro forma impact of the merger (taking into account possible expense savings
and operating efficiencies that might be generated by the transaction) and the
proposed composition of Shore Bancshares board of directors and management
after the merger. Also at this meeting, the Talbot Bancshares board of
directors discussed with representatives of Piper Marbury Rudnick & Wolfe LLP,
legal counsel for Talbot Bancshares, the terms of the proposed merger
agreement, the stock option agreement and other agreements.
Danielson Associates, based on the financial analysis described under "--
Opinion of Talbot Bancshares' Financial Advisor," gave its opinion to the
Talbot Bancshares board of directors that, as of the date of the meeting, the
proposed exchange rate in the merger was fair, from a financial point of view,
to Talbot Bancshares and its stockholders. The Talbot Bancshares board of
directors also reviewed the proposed employment arrangements with Shore
Bancshares' President and Talbot Bancshares' President in connection with the
proposed merger. After questions by, and discussion among, the members of the
Talbot Bancshares board of directors, and after consideration of the factors
described under "--Talbot Bancshares Reasons for the Merger," the Talbot
Bancshares board of directors voted unanimously to approve the merger agreement
and the transactions contemplated by that agreement.
On July 25, 2000, the Shore Bancshares board of directors held a special
meeting at which senior management of Shore Bancshares reviewed its discussions
and negotiations with Talbot Bancshares regarding a business combination, as
well as the results of its due diligence investigation of Talbot Bancshares.
Mr. Cannon reviewed Shore Bancshares' board of directors' prior discussions of
possible strategic directions for Shore Bancshares, reviewed the course of
discussions with Talbot Bancshares and outlined the strategic rationale for the
proposed merger. Garland McPherson & Associates summarized certain financial
information with respect to Talbot Bancshares and the potential transaction to
the Shore Bancshares board of directors, and based on the financial analysis
described under "--Opinion of Shore Bancshares Financial Advisor", Garland
McPherson & Associates rendered an opinion that, as of July 25, 2000, the
exchange rate set forth in the merger agreement was fair to Shore Bancshares'
stockholders from a financial point of view. Also at this meeting the Shore
Bancshares board of directors discussed with representatives of Gordon,
Feinblatt, Rothman, Hoffberger & Hollander, LLC, Shore Bancshares' legal
counsel, the terms of the merger and the agreements documenting the
transaction. After questions by, and discussion among, the members of the Shore
Bancshares board of directors, and after consideration of the factors described
under "--Shore Bancshares Reasons for the Merger," the Shore Bancshares board
of directors voted unanimously to approve the merger agreement and the
transactions contemplated by that agreement.
Representatives of Talbot Bancshares and Shore Bancshares executed and
delivered the merger agreement on July 25, 2000, and the stock option
agreements on July 26, 2000. On July 26, 2000, Talbot Bancshares and Shore
Bancshares issued a joint press release announcing the transaction.
Shore Bancshares Reasons for the Merger
The members of the board of directors of Shore Bancshares have unanimously
approved the merger agreement and the merger and have determined that the
merger is advisable and in the best interests of Shore
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Bancshares and its stockholders. The Shore Bancshares board of directors,
therefore, recommends that the holders of Shore Bancshares common stock, vote
FOR the merger, the merger agreement and the transactions contemplated by the
merger agreement.
The Shore Bancshares board of directors believes that the merger presents a
unique opportunity to combine two of the Maryland Eastern Shore's leading
community banks to create a premier banking and financial services company that
can offer a full range of financial products and services in the Maryland
Eastern Shore's most attractive markets.
In reaching its decision to approve the merger agreement, the Shore
Bancshares board of directors consulted with management of Shore Bancshares and
Centreville National Bank, as well as with its financial and legal advisors,
and considered a number of factors, including the following:
. its knowledge of Shore Bancshares' business, operations, financial
condition, earnings and earnings potential, including future dividend
payments and estimated stock value;
. the business, operations, financial condition and earnings of Talbot
Bancshares. In making its determination, the board of directors took into
account the results of Shore Bancshares' due diligence review of Talbot
Bancshares;
. the consistency of the merger with Shore Bancshares' long-term goals of
achieving superior financial performance and stockholder returns;
. its expectation that the combined company would benefit from greater
economies of scale than either Shore Bancshares or Talbot Bancshares
separately in its consumer banking, commercial banking and other
businesses;
. its view that the combination of Shore Bancshares and Talbot Bancshares
presents manageable execution risk in view of the similar markets and
customer demographics served by Shore Bancshares and Talbot Bancshares,
the complementary and contiguous geographic areas served by our companies
and assumptions regarding synergies;
. its belief, and that of the Shore Bancshares senior management, that
Shore Bancshares and Talbot Bancshares share a common vision about the
importance of delivering financial performance and stockholder value and
that management and employees of Centreville National Bank and Talbot
Bank possess complementary skills and expertise;
. the structure of the merger and the terms of the merger agreement and the
stock option agreements, and the fact that the merger is intended to
qualify as a "reorganization" for federal income tax purposes and as a
"pooling-of-interests" for accounting and financial reporting purposes;
. the proposed merger doubles the number of branches operated by the
companies, potentially enhancing the convenience for customers of both
institutions without the typical costs associated with adding additional
branches;
. policy-making and management decisions are retained at the local level as
a result of the respective bank boards of directors remaining in place.
Additionally, the holding company board of directors will be comprised of
members of the subsidiary bank boards of directors;
. the proposed arrangements with members of management of Talbot Bancshares
and Shore Bancshares, including the fact that Mr. Cannon would continue
with Shore Bancshares' as the Executive Vice President and Chief
Operating Officer, that Mr. Vermilye would enter into an employment
agreement with Shore Bancshares and would become the Chief Executive
Officer of Shore Bancshares; and that the board of directors of the
combined company would be comprised of six directors designated by Talbot
Bancshares and five directors designated by Shore Bancshares, one of whom
would serve as the Chairman of the Board;
. the fact that directors and executive officers of Shore Bancshares could
be expected to receive benefits in the merger beyond their interests as
stockholders of Shore Bancshares, both under existing
33
<PAGE>
arrangements with Shore Bancshares and, in the case of Mr. Vermilye and
Mr. Cannon, as a result of new employment agreements with Shore
Bancshares. See "--Interests of Persons in the Merger Other Than as
Stockholders"; and
. the opinion of Garland McPherson & Associates that, as of July 25, 2000,
the exchange rate was fair from a financial point of view to Shore
Bancshares stockholders. See "--Opinion of Shore Bancshares' Financial
Advisor."
This discussion of the information and factors considered by the Shore
Bancshares board of directors is not intended to be exhaustive but is believed
to include all material factors considered by the Shore Bancshares board of
directors. In view of the variety of factors considered in connection with its
evaluation of the merger, the Shore Bancshares board of directors did not find
it practicable to and did not quantify or otherwise assign relative weights to
the specific factors considered in reaching its determination. In addition,
individual members of the Shore Bancshares board of directors may have given
different weights to different factors. However, after taking into account all
of the factors described above, the Shore Bancshares board of directors
unanimously agreed that the merger agreement and the merger were fair to, and
in the best interests of, Shore Bancshares and its stockholders and that Shore
Bancshares should proceed with the merger agreement and the merger.
The members of the Shore Bancshares board of directors have unanimously
declared the merger advisable and recommend that Shore Bancshares stockholders
vote FOR approval and adoption of the merger agreement and approval of the
merger.
Opinion of Shore Bancshares' Financial Advisor
Pursuant to an engagement letter dated April 12, 2000, the Shore Bancshares
board of directors retained Garland McPherson & Associates to render financial
advisory and investment banking services to Shore Bancshares in connection with
the possible merger of Shore Bancshares and Talbot Bancshares, including
rendering an opinion to the Shore Bancshares board of directors that the terms
of a proposed merger agreement were fair, from a financial point of view, to
its stockholders.
Garland McPherson & Associates, as part of its investment banking and bank
consulting business, is routinely engaged in the valuation of financial
institution securities for a variety of purposes, including mergers and
acquisitions, and the determination of adequate consideration in merger and
acquisition transactions. The Shore Bancshares board of directors selected
Garland McPherson & Associates based on its experience in and knowledge of the
banking industry and its ability to evaluate the fairness of the exchange ratio
from a financial point of view. Garland McPherson & Associates acted
exclusively for the Shore Bancshares board of directors in rendering its
fairness opinion and has received fees from Shore Bancshares in rendering its
fairness opinion and for its services. There are no other material
relationships between Garland McPherson & Associates, its affiliates and
representatives and Shore Bancshares or its affiliates.
Garland McPherson & Associates rendered a fairness opinion to the Shore
Bancshares board of directors on July 25, 2000, and subsequently updated that
opinion as of the date of this proxy statement/prospectus. The full text of the
updated Garland McPherson & Associates opinion is attached as Appendix I to
this proxy statement/prospectus and is incorporated in this proxy
statement/prospectus by reference. We urge you to read the opinion in its
entirety for a description of the procedures followed, assumptions made,
matters considered and qualifications and limitations on the review undertaken
by Garland McPherson & Associates. The following summary of the opinion is
qualified in its entirety by the full text of the opinion. The exchange ratio
was determined by negotiation between Shore Bancshares and Talbot Bancshares
and was not determined by Garland McPherson & Associates.
34
<PAGE>
In rendering the Garland McPherson & Associates opinion, Garland McPherson &
Associates:
. reviewed the historical financial performances, current financial
positions and general prospects of Shore Bancshares and Talbot
Bancshares;
. reviewed the agreement;
. reviewed the proxy statement/prospectus;
. reviewed and analyzed the stock market performance of Shore Bancshares
and Talbot Bancshares;
. studied and analyzed the operations, historical financial statements and
future prospects of Shore Bancshares;
. reviewed the respective history of dividends paid by the two
institutions;
. considered the terms and conditions of the proposed transaction as
compared with the terms and conditions of comparable bank mergers and
acquisitions;
. discussed with various senior officers of Shore Bancshares and Talbot
Bancshares the above items as well as other matters it believed relevant
to its opinion; and
. conducted other analyses, studies and investigations as were deemed
appropriate.
Garland McPherson & Associates relied without independent verification upon
the accuracy and completeness of all the financial and other information that
it reviewed or discussed for purposes of its opinion. With respect to the Shore
Bancshares and Talbot Bancshares financial forecasts reviewed by Garland
McPherson & Associates in rendering its opinion, Garland McPherson & Associates
assumed that these financial forecasts were reasonably prepared on the basis
reflecting the best currently available estimates and judgments of the
respective managements as to the future financial performance of Shore
Bancshares and Talbot Bancshares. Garland McPherson & Associates did not make
an independent evaluation or appraisal of the assets (including loans) or
liabilities of Shore Bancshares or Talbot Bancshares nor was it furnished with
any appraisal. Garland McPherson & Associates also did not independently
verify, and has relied on and assumed, that all allowances for loan losses
provided in the balance sheets of Shore Bancshares and Talbot Bancshares were
adequate and complied fully with all applicable law, regulatory policy and
sound banking practice as of the date of the financial statements.
In rendering the opinion, Garland McPherson & Associates performed a variety
of financial analyses. Although the evaluation of the fairness, from a
financial point of view, of the exchange ratio was to some extent subjective
based on the experience and judgment of Garland McPherson & Associates and not
merely the result of mathematical analysis of financial data, Garland McPherson
& Associates principally relied on the financial evaluation methodology
summarized below in its determinations. Garland McPherson & Associates believes
its analyses must be considered as a whole and that selecting portions of
analyses and factors considered by Garland McPherson & Associates without
considering all analyses and factors could create an incomplete view of the
process underlying Garland McPherson & Associates' opinion. In its analysis,
Garland McPherson & Associates made numerous assumptions with respect to
business, market, monetary and economic conditions, industry performance and
other matters, many of which are beyond Shore Bancshares' and Talbot
Bancshares' control. Any estimates contained in Garland McPherson & Associates'
analyses are not necessarily indicative of future results or values, which may
be significantly more or less favorable than any estimates.
The following is a summary of selective analyses prepared by Garland
McPherson & Associates and analyzed by Garland McPherson & Associates in
rendering their opinion.
Comparable Company Analysis. Garland McPherson & Associates compared
selected financial and operating data for Shore Bancshares with those of Talbot
Bancshares and a peer group of the pro forma combined organization consisting
of fourteen Maryland and Virginia financial institutions from 1996 through
35
<PAGE>
March 31, 2000. This data included, but was not limited to: return on average
assets, return on average equity, certain capital adequacy ratios and certain
asset quality ratios. Garland McPherson & Associates excluded securities gains
and items of a non-recurring nature in computing profitability ratios. Selected
data for the first quarter of 2000 is provided below:
Comparable Company Analysis
<TABLE>
<CAPTION>
Shore Talbot
Bancshares Bancshares Peers
---------- ---------- -----
<S> <C> <C> <C>
Return on average assets........................ 1.1% 1.5% 1.2%
Return on average equity........................ 9.0% 13.1% 13.3%
Leverage ratio.................................. 11.4% 11.8% 10.2%
Non-performing assets/total assets.............. 0.5% 0.3% 0.3%
Loan loss reserve/non-performing assets......... 116.7% 328.0% 229.4%
</TABLE>
Stock Trading History. Garland McPherson & Associates reviewed the history
of stock market data of Shore Bancshares, Talbot Bancshares and the peer
group's common stock. Garland McPherson & Associates noted that the trading
volume of Shore Bancshares and Talbot Bancshares is limited and that there was
considerable variability in their trading prices. Accordingly, Garland
McPherson & Associates concluded there could be no assurance that their trading
prices reflect the true underlying value of the respective organizations.
Analysis of Key Valuation Indices. Garland McPherson & Associates examined
pricing multiples of each of the institutions included in the peer group and
noticed considerable variability in the multiples. Garland McPherson &
Associates believes this variability is the result of insufficient trading
volume to allow the forces of supply and demand to ensure that the trading
prices reflect the true underlying value of the organizations. Therefore,
Garland McPherson & Associates also examined pricing multiples of selected
larger super-community banking organizations operating in Maryland, Virginia
and Pennsylvania. As a preliminary step in computing price/earnings ratios and
price/cash basis earnings ratios for these institutions, Garland McPherson &
Associates adjusted earnings to eliminate the effect of securities gains and
non-recurring items based on data provided by SNL Securities, a nationally
recognized provider of financial data regarding financial institutions.
Garland McPherson & Associates applied the median pricing multiples of the
selected super-community banking organizations to relevant financial data for
Shore Bancshares and Talbot Bancshares. Garland McPherson & Associates noted
that Shore Bancshares has not made any provisions for loan losses in recent
history. For comparability and analytical purposes, Garland McPherson &
Associates reduced Shore Bancshares' earnings by allocating a provision equal
to 0.11% of average loans before applying the median pricing multiples. This
allocation equals Talbot Bancshares ratio of loan loss provisions to average
loans for the twelve months ended March 31, 2000. This analysis yielded the
following values:
<TABLE>
<CAPTION>
Shore Talbot
Bancshares Bancshares
---------- ----------
<S> <C> <C>
Book value multiple.................................... $22.18 $56.97
Tangible book value multiple........................... 20.82 57.86
Price/earnings......................................... 15.53 51.38
Price/cash basis earnings.............................. 15.00 47.69
</TABLE>
Discounted Dividend Analysis. Using discounted dividend analysis, Garland
McPherson & Associates estimated the present value of the future dividend
streams that Shore Bancshares and Talbot Bancshares could produce over a five-
year period under various earnings growth scenarios as independent going
concerns. The future cash flows were discounted to determine the present value
using discount rates ranging from 9.0% to 10.0%. This analysis indicated a
range of per share values from $13.44 to $17.51 for Shore Bancshares and $48.09
to $62.70 for Talbot Bancshares.
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<PAGE>
Pro Forma Combined Analysis. To further assess the proposed merger, Garland
McPherson & Associates conducted the following studies and analyses:
. Exchange Ratio Analysis--Garland McPherson & Associates computed the
exchange ratios suggested by comparing the relative values for Shore
Bancshares and Talbot Bancshares indicated by the various valuation
methodologies examined. This analysis suggested exchange ratios ranging
from 2.568 to 3.448.
. Contribution Analysis--Garland McPherson & Associates examined the
relative contribution that would be made by Shore Bancshares and Talbot
Bancshares to various key financial statistics of the combined entity on
a pro forma basis as of March 31, 2000 before consideration to any
economies or expenses that may result from the merger. This analysis
indicated that the relative contributions would have been as follows:
<TABLE>
<CAPTION>
Shore Talbot
Bancshares Bancshares
---------- ----------
<S> <C> <C>
Net income........................................... 33.0% 67.0%
Net income adjusted for allocation of loan loss
provision........................................... 32.2% 67.8%
Total assets......................................... 37.6% 62.4%
Gross loans.......................................... 36.5% 63.5%
Total deposits....................................... 37.4% 62.6%
Total equity......................................... 38.4% 61.6%
Shares outstanding after the merger.................. 36.0% 64.0%
</TABLE>
. Key Financial Statistics--Garland McPherson & Associates also analyzed,
using projections derived from discussions with management of Shore
Bancshares and Talbot Bancshares, certain pro forma projected effects
resulting from the merger. The analysis indicated that, under all
earnings scenarios considered, Shore Bancshares stockholders are
projected to realize significant accretion in earnings per share
subsequent to the merger.
. Consolidated Discounted Cash Flow Analysis--Garland McPherson &
Associates determined the present value of the projected merger economies
at a 9.0% discount rate is approximately $3.3 million. Garland McPherson
& Associates added the present value of the projected merger economies to
the present values of Shore Bancshares and Talbot Bancshares under the
moderate scenario for both institutions. This analysis indicates that the
present value of the combined organization is $18.69 per share at a 9.0%
discount rate. This value is significantly higher than Shore Bancshares'
closing price as of July 17, 2000 of $14.50 and its weighted appraisal
value of $15.50.
In reaching its opinion as to fairness, none of the analyses performed by
Garland McPherson & Associates was assigned a greater significance by Garland
McPherson & Associates than any other analysis. As a result of its
consideration of the aggregate of all factors present and analyses performed,
Garland McPherson & Associates reached the conclusion, and opines, that the
exchange ratio, as set forth in the agreement, is fair, from a financial point
of view, to holders of Shore Bancshares' securities.
In delivering the Garland McPherson & Associates opinion dated as of the
date of this proxy statement/prospectus, Garland McPherson & Associates updated
certain of its analyses and reviewed the assumptions on which its analyses were
based and other related factors.
In delivering its opinion, Garland McPherson & Associates assumed that in
the course of obtaining the necessary regulatory and governmental approvals for
the transaction, no restrictions would be imposed on Shore Bancshares or Talbot
Bancshares that would have a material adverse affect on the contemplated
benefits of the transaction. Garland McPherson & Associates also assumed that
there would not occur any change in applicable law or regulation that would
cause a material adverse change in the prospects or operations of Talbot
Bancshares after the effective date. Pursuant to the terms of the engagement
letter, Shore Bancshares paid Garland McPherson & Associates $45,000 and agreed
to reimburse Garland McPherson & Associates for its reasonable out-of-pocket
expenses. In addition, Shore Bancshares agreed to pay Garland McPherson &
Associates $30,000 upon completion of the merger. Whether or not the merger is
completed, Shore Bancshares
37
<PAGE>
has agreed to indemnify Garland McPherson & Associates and certain related
persons against liabilities relating to or arising out of its engagement.
This summary does not purport to be a complete description of the analyses
and procedures performed by Garland McPherson & Associates in the course of
arriving at its opinions.
The full text of the updated opinion of Garland McPherson & Associates dated
as of the date of this proxy statement/prospectus, which sets forth assumptions
made and matters considered, is attached to this proxy statement/prospectus as
Appendix I. Shore Bancshares stockholders are urged to read this opinion in its
entirety. Garland McPherson & Associates' opinion is directed only to the
exchange ratio and is not a recommendation to any Shore Bancshares stockholder
as to how such stockholder should vote at the Shore Bancshares special meeting.
Talbot Bancshares Reasons for the Merger
The members of the board of directors of Talbot Bancshares have unanimously
approved the merger agreement and the merger and have determined that the
merger is advisable and in the best interests of Talbot Bancshares and its
stockholders. In reaching this decision, the Talbot Bancshares board of
directors evaluated the information at its disposal, consulted with the Talbot
Bancshares management and outside advisors, and considered certain factors,
including the following:
. the complementary and compatible nature of Talbot Bancshares' and Shore
Bancshares' businesses in contiguous markets. The board of directors of
Talbot Bancshares specifically considered the current businesses,
operations, financial condition and earnings of Shore Bancshares, as well
as the future prospects of Shore Bancshares. In making its determination,
the Talbot Bancshares board of directors took into account the results of
its due diligence investigation of Shore Bancshares;
. the total assets of the combined companies of $526 million;
. expansion geographically of the combined companies' branch network to
include Queen Anne's County, Maryland, representing a market with strong
business and retail demographics and markets with which Talbot Bancshares
is familiar as a result of existing lending activities;
. the proposed arrangements with members of management of Talbot Bancshares
and Shore Bancshares, including the fact that Mr. Cannon would continue
with Shore Bancshares as the Executive Vice President and Chief Operating
Officer, that Mr. Vermilye would enter into an employment agreement with
Shore Bancshares and would become the Chief Executive Officer of Shore
Bancshares, and that the board of directors of the combined company would
be comprised of six directors designated by Talbot Bancshares and five
directors designated by Shore Bancshares;
. the opportunity to provide customers and prospects of Talbot Bancshares
and Shore Bancshares a broader array of financial services. In
particular, Talbot Bancshares' commercial banking capabilities will
complement the current commercial banking capabilities of Shore
Bancshares;
. diversification of the combined companies' revenue and earnings mix; and
. the opinion of its financial advisor, Danielson Associates, which
indicated that the exchange ratio, as of July 25, 2000, was fair from a
financial point of view to Talbot Bancshares' stockholders.
This discussion of the information and factors considered and given weight
by the Talbot Bancshares board of directors is not intended to be exhaustive.
In reaching the determination to approve and recommend approval and adoption of
the merger agreement, in view of the wide variety of factors considered in
connection with its evaluation, the board of directors of Talbot Bancshares did
not assign any relative or specific weights to these or other factors, and
individual directors may have given different weights to the various factors.
The terms of the merger were the result of arm's-length negotiations between
representatives of Shore Bancshares and representatives of Talbot Bancshares.
Based upon the consideration of these factors, the Talbot Bancshares
38
<PAGE>
board of directors approved the merger agreement and the merger as being
advisable and in the best interests of Talbot Bancshares and its stockholders.
The members of the Talbot Bancshares board of directors have unanimously
declared the merger advisable and recommend that Talbot Bancshares stockholders
vote FOR approval and adoption of the merger agreement and approval of the
merger.
Opinion of Talbot Bancshares' Financial Advisor
Talbot Bancshares retained Danielson Associates Inc. to advise the Talbot
Bancshares board of directors as to its "fair" exchange ratio and the fairness
to its stockholders of the financial terms of the merger with Shore Bancshares.
Danielson Associates is regularly engaged in the valuation of banks and bank
holding companies in the connection with mergers, acquisitions, and other
securities transactions; and has knowledge of, and experience with, Maryland
banking markets and banking organizations operating in those markets. Danielson
Associates was selected by Talbot Bancshares because of its knowledge of,
expertise with, and reputation in the financial services industry.
Danielson Associates reviewed the merger agreement with respect to the
exchange ratio and other terms and conditions of the merger, but the decision
to accept the offer was ultimately made by the board of directors of Talbot
Bancshares. Danielson Associates rendered its oral opinion to the Talbot
Bancshares board of directors, which it subsequently confirmed in writing, that
as of the date of the opinion, the exchange ratio and the financial terms of
the merger agreement were "fair" to Talbot Bancshares and its stockholders. No
limitations were imposed by the Talbot Bancshares board of directors upon
Danielson Associates with respect to the investigation made or procedures
followed by it in arriving at its opinion.
In arriving at its opinion, Danielson Associates:
. reviewed certain business and financial information relating to Talbot
Bancshares and Shore Bancshares including annual reports for the fiscal
years ended December 31, 1998 and December 31, 1999; call report data
from 1990 through June 30, 2000; and the Annual Reports on Form 10-K and
the Quarterly Reports on Form 10-Q for 1998, 1999 and March 31, 2000;
. discussed the past and current operations, financial condition and
prospects of Shore Bancshares with its senior executives;
. reviewed the reported prices and trading activity for the Shore
Bancshares common stock and Talbot Bancshares common stock and compared
it to similar bank holding companies;
. reviewed and compared the exchange ratios, to the extent publicly
available, with comparable transactions;
. reviewed the merger agreement and certain related documents; and
. considered other factors as were deemed appropriate.
Danielson Associates did not obtain any independent appraisal of assets or
liabilities of Talbot Bancshares or Shore Bancshares or their respective
subsidiaries. Further, Danielson Associates did not independently verify the
information provided by Talbot Bancshares or Shore Bancshares and assumed the
accuracy and completeness of all information provided.
In arriving at its opinion, Danielson Associates performed a variety of
financial analyses. Danielson Associates believes that its analyses must be
considered as a whole and that consideration of portions of the analyses could
create an incomplete view of Danielson Associates' opinion. The preparation of
a fairness opinion is a complex process involving subjective judgments and is
not necessarily susceptible to partial analysis or summary description.
39
<PAGE>
In its analyses, Danielson Associates made assumptions with respect to
industry performance, business and economic conditions, and other matters, many
of which were beyond Talbot Bancshares' or Shore Bancshares' control. Any
estimates contained in Danielson Associates' analyses are not necessarily
indicative of future results of value, which may be significantly more or less
favorable than the estimates. Estimates of the value of companies do not
purport to be appraisals or necessarily reflect the prices at which companies
or their securities may actually be sold.
The following is a summary of selected analyses considered by Danielson
Associates in rendering its opinion letter.
Pro Forma Merger Analyses. Danielson Associates analyzed the changes in the
amount of earnings and book value represented by the receipt of about $50
million, based on Shore Bancshares' July 24, 2000 stock price, for all of the
outstanding shares of Talbot Bancshares common stock and options to purchase
common stock, which will be paid in Shore Bancshares common stock or options to
purchase Shore Bancshares common stock. The analysis evaluated, among other
things, possible dilution in earnings and capital per share for Shore
Bancshares common stock.
Comparable Banks. Shore Bancshares and Talbot Bancshares were compared to
eleven publicly-traded bank holding companies. These comparable banks had
assets in the $150 million to $500 million range, no extraordinary
characteristics and were located in Maryland and eastern and northern Virginia.
Summary And Description Of Comparable Banks (a)
<TABLE>
<CAPTION>
Assets(b) City State
--------- ------------ -----
(In
millions)
<S> <C> <C> <C>
Calvin B. Taylor Bancshares, Inc................... $280 Berlin MD
Carrollton Bancorp................................. 379 Baltimore MD
Glen Burnie Bancorp, Inc........................... 219 Glen Burnie MD
BOE Financial Services of Virginia Inc............. 174 Tappahannock VA
Bay Banks of Virginia, Inc......................... 206 Kilmarnock VA
C&F Financial Corporation.......................... 322 West Point VA
Chesapeake Financial Shares, Inc................... 203 Kilmarnock VA
Eastern Virginia Bankshares, Inc................... 392 Tappahannock VA
Fauquier Bankshares, Inc........................... 229 Warrenton VA
First National Corporation......................... 210 Strasburg VA
Old Point Financial Corp........................... 459 Hampton VA
Shore Bancshares, Inc.............................. $201 Centreville MD
Talbot Bancshares, Inc............................. 325 Easton MD
</TABLE>
--------
(a) Publicly-traded with assets between $150 million and $500 million in
Maryland and eastern and northern Virginia.
(b) June 30, 2000.
Source: SNL Securities LC, Charlottesville, Virginia.
Danielson Associates compared:
. Stock prices as of July 24, 2000 equal to 11.1 times earnings and 120% of
book for Shore Bancshares and 10.2 times earnings and 132% of book for
Talbot Bancshares;
. Dividend yield based on trailing four quarters as of June 30, 2000 and
stock price as of July 24, 2000 of 3.83% for Shore Bancshares and 2.90%
for Talbot Bancshares;
40
<PAGE>
. Equity as of June 30, 2000 of 11.59% of assets for Shore Bancshares and
11.56% for Talbot Bancshares;
. Nonperforming assets including loans 90 days past due as of March 31,
2000 equal to 0.61% of total assets for Shore Bancshares and 0.30%for
Talbot Bancshares as of June 30, 2000;
. Return on average assets adjusted for nonrecurring items for the twelve
months ended June 30, 2000 of 1.30% for Shore Bancshares and 1.54% for
Talbot Bancshares; and
. Return on average equity for the twelve months ended June 30, 2000, of
11.13% for Shore Bancshares and 13.49% for Talbot Bancshares.
Shore Bancshares And Talbot Bancshares--Comparable Banks Summary
<TABLE>
<CAPTION>
Comparable
Shore Talbot Banks
Bancshares(a) Bancshares(a) Medians(b)
------------- ------------- ----------
<S> <C> <C> <C>
Income:
Net income/average assets............. 1.30% 1.54% 1.10%
Net operating income(c)/average
assets............................... 2.02 2.46 1.90
Return on average equity.............. 11.13 13.49 11.70
Balance Sheet:
Equity/assets......................... 11.59% 11.56% 9.08%
NPAs(d)/assets........................ .61(b) .30 .43
Stock Price:
Price/earnings........................ 11.1x 10.2x 10.6x
Price/book value...................... 120% 132% 132%
Dividend yield........................ 3.83 2.90 3.20
Payout ratio.......................... 45 31 37
Shares traded(e)...................... 241 388 331
</TABLE>
--------
(a) June 30, 2000 or twelve months ended June 30, 2000.
(b) March 31, 2000 or twelve months ended March 31, 2000.
(c) Net interest income plus non-interest income less operating expense.
(d) Non-performing assets including loans 90 days past due and still accruing.
(e) Average daily volume in 2000 through July 24, 2000.
Source: SNL Securities LC, Charlottesville, Virginia.
The comparable banks' medians were:
. stock price equal to 10.6 times earnings and 132% of book;
. dividend yield of 3.20%;
. equity of 9.08% of assets;
. nonperforming assets of 0.43%;
. return on average assets of 1.10%; and
. return on average equity of 11.70%.
Comparable Transaction Analysis. There were eleven reported mergers of
equals with transaction values of less than $1 billion in the last two-and-a-
half years, of which six provide adequate data to suggest what determined the
exchange ratio to accomplish the merger. With the exception of the Santa
Barbara Bancorp merger with Pacific Capital Bancorp, all parties had assets of
less than $600 million individually.
41
<PAGE>
In half of the cases for which data was available, one party was much larger
than the other, and had size relationships similar to Talbot Bancshares and
Shore Bancshares. The three mergers that had the disparate size relationships
were Main Street Banks, Inc. and First Sterling Banks, Inc. in Georgia; South
Branch Valley Bancorp, Inc. and Potomac Valley Bank in West Virginia; and the
previously mentioned Santa Barbara-Pacific Capital merger in California. In
three of the equal mergers the sizes of the parties were similar--Rockingham
Heritage Bank and Marathon Financial Corporation in Virginia; BankIllinois
Financial Corporation and First Decatur Bankshares, Inc. in Illinois; and
Harbor Bancorp, Inc. and Bank of the Pacific in Washington.
Six samples, without knowing the details of the negotiations, are not
conclusive evidence on how equal mergers share apportionment is determined. The
six samples do indicate, though, that there is no set pattern and suggest that
capital plays a much bigger role in determining pricing in equal mergers than
it does in acquisitions where a premium is paid.
Merger Of Equals Analysis (a)
<TABLE>
<CAPTION>
Larger Institution
-------------------------
Earnings Equity Ownership
-------- ------ ---------
<S> <C> <C> <C>
Rockingham/Marathon.................................. 51.9% 55.2% 56.0%
Main Street/First Sterling........................... 67.6 62.6 63.4
BankIllinois/First Decatur........................... 54.9 53.5 53.6
Harbor/Bank of the Pacific........................... 52.6 54.6 52.5
South Branch/Potomac Valley.......................... 64.7 66.9 66.4
Santa Barbara/Pacific Capital........................ 66.7 62.6 61.5
Talbot Bancshares/Shore Bancshares................... 65.9% 61.7% 64.0%
Talbot Bancshares/Shore Bancshares--Adjusted(b)...... 66.4 63.5 64.0
</TABLE>
--------
(a) For merger of equals with data available.
(b) Equalizes contribution to reserves and eliminates nonrecurring items.
Source: SNL Securities LC, Charlottesville, Virginia and Form S-4 filings with
the SEC.
Although the comparable mergers of equals do not indicate a definitive
pattern for pricing around earnings or book value, the comparable mergers of
equals do show that pricing does stay within a tight range around these two
variables with "other factors" unique to each situation determining where the
ownership split falls.
Other Analysis. In addition to performing the analyses summarized above,
Danielson Associates also considered the general market for bank mergers, the
historical financial performance of Talbot Bancshares and Shore Bancshares, the
market positions of both companies and the general economic conditions and
prospects of both companies.
No company or transaction used in this composite analysis is identical to
Talbot Bancshares or Shore Bancshares. Accordingly, an analysis of the results
of the foregoing is not mathematical, rather it involves complex consideration
and judgments concerning differences in financial and operating characteristics
of the companies and other factors that could affect the values of the company
or companies to which they are being compared and thereby affect the exchange
ratio.
This summary does not purport to be a complete description of the analyses
and procedures performed by Danielson Associates in the course of arriving at
its opinions. As payment for its services as the financial advisor to Talbot
Bancshares, Danielson Associates has been paid a fee of $32,500. Other than
this fee, there are no material relationships between Danielson Associates, its
affiliates and representatives and Talbot Bancshares or its affiliates.
The full text of the opinion of Danielson Associates dated as of July 25,
2000, which sets forth assumptions made and matters considered, is attached to
this proxy statement/prospectus as Appendix H. Talbot
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Bancshares stockholders are urged to read this opinion in its entirety.
Danielson Associates' opinion is directed only to the consideration to be
received by Talbot Bancshares stockholders in the merger and is not a
recommendation to any Talbot Bancshares stockholder as to how any stockholder
should vote at the Talbot Bancshares special meeting.
Interests of Persons in the Merger Other Than as Stockholders
Some officers and directors of Talbot Bancshares and Shore Bancshares have
interests in the merger in addition to their interests as stockholders. The
board of directors of each of the companies was aware of these interests and
took these interests into account in approving the merger agreement and the
transactions contemplated by the merger agreement. These interests include:
. the appointment of David L. Pyles, Richard C. Granville, Ronald N. Fox,
Herbert L. Andrew, III, Lloyd L. Beatty, Jr. and W. Moorhead Vermilye,
who are currently serving as directors of Talbot Bancshares, to the Shore
Bancshares board of directors after the merger;
. the appointment of Daniel T. Cannon, David C. Bryan, Neil R. LeCompte,
Paul M. Bowman and B. Vance Carmean, Jr., who are currently serving as
directors of Shore Bancshares, to the Shore Bancshares board of directors
after the merger;
. execution of employment agreements with Mr. Vermilye, who will become
President and Chief Executive Officer of Shore Bancshares, and Mr.
Cannon, who will become Executive Vice President and Chief Operating
Officer of Shore Bancshares;
. an exemption by the Talbot Bancshares and Shore Bancshares boards of
directors from Section 16(b) of the Securities Exchange Act of 1934 of
the disposition of shares of common stock of Talbot Bancshares held by
directors, executive officers and affiliates of Talbot Bancshares; and
. the continuation of the indemnification rights and liability insurance of
directors and officers of Talbot Bancshares.
Employment Agreements. Pursuant to an employment agreement between Shore
Bancshares and W. Moorhead Vermilye, Mr. Vermilye will serve as the President
and Chief Executive Officer of Shore Bancshares and President and Chief
Executive Officer of Talbot Bank with an annual base salary of $170,000. Under
the terms of his employment agreement with Shore Bancshares, Daniel T. Cannon
will serve as the Executive Vice President and Chief Operating Officer of Shore
Bancshares and President and Chief Executive Officer of Centreville National
Bank with an annual base salary of $127,500. In addition, in the event of a
change in control (as defined in the employment agreement) in which the
employee is terminated without cause within 12 months of the change in control,
the employee will receive a lump sum payment equal to 2.99 times his then-
current salary. The term of each of the agreements will expire after five years
and are subject to automatic renewal for one additional five year period and
thereafter for successive one year terms. The new employment agreements
continue the current salary arrangements of each officer of Shore Bancshares
and Talbot Bancshares and have provisions similar to the existing employment
agreement of Mr. Cannon which will be terminated.
Form of the Merger
Talbot Bancshares will merge into Shore Bancshares, with Shore Bancshares
being the surviving corporation after the merger if:
. holders of two-thirds of the Shore Bancshares common stock approve the
merger agreement,
. holders of two-thirds of the Talbot Bancshares common stock approve the
merger agreement, and
. all other conditions to the merger are satisfied or waived, where
permissible.
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In the merger, each share of Talbot Bancshares common stock will be exchanged
for 2.85 shares of Shore Bancshares common stock. Shore Bancshares and Talbot
Bancshares anticipate that the closing date will occur as promptly as
practicable after the stockholder meetings.
Consideration for the Merger
The merger agreement provides that, on the effective date of the merger,
each share of Talbot Bancshares common stock will be exchanged for 2.85 shares
of Shore Bancshares common stock and each share of Shore Bancshares common
stock outstanding on the effective date of the merger will remain outstanding
as one share of Shore Bancshares common stock. Immediately after the merger,
current Shore Bancshares stockholders will hold approximately 36% and current
Talbot Bancshares stockholders will hold approximately 64% of the outstanding
shares of Shore Bancshares common stock.
In lieu of fractional shares of Shore Bancshares common stock, Shore
Bancshares will pay an amount in cash rounded to the nearest cent equal to the
product of (a) the fractional share interest to which a Talbot Bancshares
stockholder (after taking into account all shares of Talbot Bancshares common
stock held immediately before the effective date of the merger by the
stockholder) would otherwise be entitled and (b) the market value per share of
Shore Bancshares common stock upon the completion of the merger, as determined
by the board of directors.
On the effective date, each Talbot Bancshares stock option, whether vested
or unvested, is to be converted into an option to purchase shares of Shore
Bancshares common stock, with the number of shares and options prices adjusted
to give effect to the conversion rate, and will no longer represent a right to
acquire shares of Talbot Bancshares common stock.
Effective Date of the Merger
The "effective date of the merger" will be the date stated in the articles
of merger filed with the Maryland State Department of Assessments and Taxation.
The articles of merger must be filed to complete the merger.
Procedures for Exchange of Talbot Bancshares Stock Certificates
Promptly after the effective date, Shore Bancshares will send transmittal
materials to each Talbot Bancshares stockholder for use in exchanging his or
her certificates representing shares of Talbot Bancshares common stock for
shares of Shore Bancshares common stock. Talbot Bancshares stockholders should
not surrender their certificates for exchange until they receive the letter of
transmittal and instructions. We may withhold dividends until the transfer
agent receives the certificates for Talbot Bancshares common stock from the
Talbot Bancshares stockholder. The transfer agent will deliver certificates for
Shore Bancshares common stock and/or a check for any fractional share interests
or dividends or distributions once it receives the certificates representing a
holder's shares of Talbot Bancshares common stock. No party will be liable to
any stockholder for any amount properly delivered to a public official pursuant
to any applicable abandoned property, escheat or similar law.
If a Talbot Bancshares stockholder requests that any cash or certificates
representing shares of Shore Bancshares common stock be paid to or issued in a
different name, then the certificate surrendered must be properly endorsed and
the Talbot Bancshares stockholder must show that any transfer taxes have been
paid or pay the amount of the taxes to the transfer agent. Shore Bancshares and
the transfer agent may withhold funds from consideration to be paid to any
certificate holder as required by any tax law; however, the holder will be
deemed to have received the full consideration for purposes of the merger
agreement.
After the effective date, there will be no transfers of shares of Talbot
Bancshares common stock on Talbot Bancshares' stock transfer books. If
certificates representing shares of Talbot Bancshares common stock are
presented for transfer after the effective date, the transfer agent will cancel
and exchange them for certificates
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representing shares of Shore Bancshares common stock and a check for the amount
to be paid for fractional shares of Shore Bancshares common stock, if any, and
new certificates bearing the name of the holder will be issued representing
shares of Shore Bancshares common stock.
You should not forward Talbot Bancshares common stock certificates to the
transfer agent until you receive a letter of transmittal.
Fractional Shares. Shore Bancshares will not issue any fractional shares of
Shore Bancshares common stock. Instead, a Talbot Bancshares stockholder who
otherwise would have received a fraction of a share of Shore Bancshares common
stock will receive cash, without interest. The amount of cash received will be
determined by multiplying the fraction of Shore Bancshares common stock the
stockholder would have been entitled to receive by the market value per share
of Shore Bancshares common stock on the effective date as determined by the
board of directors. Holders will not be entitled to dividends, voting rights or
any other rights as a stockholder with respect to any fractional shares.
Procedure for Exchange of Talbot Bancshares Stock Options
On the effective date, each Talbot Bancshares stock option, whether vested
or unvested, will be converted into an option to purchase shares of Shore
Bancshares common stock and will no longer represent a right to acquire shares
of Talbot Bancshares common stock. These options will be adjusted so that:
. the number of shares of Shore Bancshares common stock purchasable upon
exercise of the Talbot Bancshares stock option will be equal to the
number of shares of Talbot Bancshares common stock that were purchasable
under the Talbot Bancshares stock option immediately before the effective
date multiplied by 2.85, and rounded down to the nearest whole share, and
. the per share exercise price under each Talbot Bancshares stock option
will be adjusted by dividing the per share exercise price of the Talbot
Bancshares stock option by 2.85, and rounding down to the nearest cent.
However, each Talbot Bancshares stock option which is intended to be an
"incentive stock option" will be adjusted in accordance with the requirements
of the Internal Revenue Code. Accordingly, with respect to any incentive stock
options, fractional shares will be rounded down to the nearest whole number of
shares and where necessary the per share exercise price will be rounded up to
the nearest cent. On or before the effective date, Shore Bancshares must take
all corporate action necessary to reserve for issuance a sufficient number of
shares of Shore Bancshares common stock for delivery upon exercise of the
Talbot Bancshares stock options assumed by it in accordance with the merger
agreement. As soon as practicable after the effective date, Shore Bancshares
must file a registration statement in appropriate form covering the issuance of
Shore Bancshares common stock subject to the Talbot Bancshares stock options
that are converted pursuant to the terms of the merger.
Dividend Policy
After the merger, Shore Bancshares stockholders will be entitled to receive
dividends as declared by the board of directors. The current Shore Bancshares
board of directors has adopted a dividend policy that establishes a target for
cash dividends to be paid to stockholders within a range of 35% to 45% of net
income after taxes. Future cash dividends are to be declared and paid on a
quarterly basis after considering Shore Bancshares' financial condition, the
level of earnings, known trends which may impact future earnings, and other
factors including applicable banking laws and regulations. The board of
directors reviews the policy on a regular basis and may change the policy when
and if conditions warrant. Based on the combined earnings of the two companies
for the first six months of 2000, total cash dividends paid would have been in
the range of $0.25 to $0.32 per share for the first two quarters.
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Amendments to Charter and By-Laws
Approval of the merger agreement also constitutes approval of the Shore
Bancshares charter and by-law amendments. See "Comparison of the Rights of
Holders of Talbot Bancshares Capital Stock and Shore Bancshares Capital Stock."
The full text of the new Shore Bancshares charter and by-laws are attached as
Appendix B and Appendix C. These new provisions include the following:
. a provision permitting the board of directors to increase the number of
authorized shares of capital stock of Shore Bancshares;
. a requirement that directors weigh a broad range of factors when
considering a proposal to acquire Shore Bancshares;
. broad authorization for the board to classify unissued shares of capital
stock into classes including preferred stock;
. a requirement that stockholders give advance notice of matters to be
raised at a meeting of stockholders; and
. a provision reducing from two-thirds to a majority the percentage of
shares needed to approve most mergers and other business combinations.
Anticipated Accounting Treatment
We intend for the merger to be accounted for as a pooling-of-interests in
accordance with generally accepted accounting principles. Shore Bancshares will
restate, retroactively as of the effective date of the merger, its merged
financial statements to include the assets, liabilities, stockholders' equity
and results of operations of Shore Bancshares and Talbot Bancshares, subject to
any adjustments required to conform with the accounting policies and financial
statement classifications of the two companies, as if the companies had been
combined at the first date covered by the combined financial statements. In
future financial statements, the results of operations of the combined entity
will include the results of both Talbot Bancshares and Shore Bancshares for the
entire fiscal year in which the merger occurs and all prior fiscal periods
presented in the financial statements.
The unaudited pro forma combined condensed financial data contained in this
proxy statement/prospectus with respect to Talbot Bancshares and Shore
Bancshares has been prepared using the pooling-of-interests accounting method
to account for the merger.
Material Federal Income Tax Considerations
The following is a summary of the material U.S. federal income tax
consequences of the merger to holders of Talbot Bancshares common stock who
hold the stock as a "capital asset" within the meaning of Section 1221 of the
Internal Revenue Code of 1986, as amended (the "Code"). Special tax
consequences may be applicable to particular classes of taxpayers, such as
financial institutions, insurance companies, tax-exempt organizations, broker-
dealers, traders in securities that elect to apply a mark-to-market method of
accounting, persons that hold Talbot Bancshares common stock as part of a
hedge, straddle or conversion transaction, persons who are not citizens or
residents of the United States and stockholders who acquired their shares of
Talbot Bancshares common stock through the exercise of an employee stock option
or otherwise as compensation. The following represents general information only
and is based upon the Code, its legislative history, existing and proposed
regulations promulgated under the Code, published rulings and decisions, all as
currently in effect as of the date of this proxy statement/prospectus, and all
of which are subject to change, possibly with retroactive effect. Tax
considerations under state, local and foreign laws are not addressed in this
proxy statement/prospectus. All stockholders should consult with their own tax
advisors as to the particular tax consequences of the merger to them, including
the applicability and effect of the alternative minimum tax and any state,
local or foreign income and other tax laws and of changes in those tax laws.
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Tax Consequences of the Merger Generally. Neither Talbot Bancshares nor
Shore Bancshares will be obligated to complete the merger unless they receive
an opinion of Talbot Bancshares' counsel, Piper Marbury Rudnick & Wolfe LLP,
dated the closing date of the merger, to the effect that, on the basis of
facts, representations and assumptions set forth in that opinion, the merger
will be treated as a reorganization within the meaning of Section 368(a) of the
Code and that Talbot Bancshares and Shore Bancshares will each be a party to
the reorganization under 368(b) of the Code. This tax opinion will not be
binding on the Internal Revenue Service and neither Talbot Bancshares nor Shore
Bancshares intends to request any ruling from the Internal Revenue Service as
to the U.S. federal income tax consequences of the merger.
The above opinion of counsel, which will be delivered on the effective date,
is filed as an exhibit to the registration statement of which this proxy
statement/prospectus is a part. Piper Marbury Rudnick & Wolfe LLP will deliver
its opinion on the basis of facts, representations and assumptions contained in
its opinion that are consistent with the state of facts expected to exist on
the effective date of the merger. In rendering its opinion, Piper Marbury
Rudnick & Wolfe LLP has required and relied upon certain representations
contained in certificates of officers of Talbot Bancshares, Shore Bancshares
and certain significant stockholders of Talbot Bancshares. Based on this
opinion, for U.S. federal income tax purposes:
. no gain or loss will be recognized by Talbot Bancshares pursuant to the
merger, and
. a stockholder of Talbot Bancshares who receives solely Shore Bancshares
common stock in exchange for its shares of Talbot Bancshares common stock
in the merger will not recognize any gain or loss, except, as discussed
below, with respect to cash received instead of fractional shares or
dissenters shares of Talbot Bancshares common stock.
Exchange of Talbot Bancshares Common Stock Solely for Shore Bancshares
Common Stock. A stockholder of Talbot Bancshares who receives solely Shore
Bancshares common stock in exchange for shares of Talbot Bancshares common
stock in the merger generally will not recognize any gain or loss upon the
exchange. The stockholder may recognize gain or loss, however, with respect to
cash received instead of a fractional share of Talbot Bancshares common stock,
as discussed below. The aggregate adjusted tax basis of the shares of Shore
Bancshares common stock received in the exchange (including fractional shares
deemed received and redeemed as described below) will be equal to the aggregate
adjusted tax basis of the shares surrendered, and the holding period of the
Shore Bancshares common stock (including fractional shares deemed received and
redeemed as described below) will include the holding period of the shares of
Talbot Bancshares common stock surrendered.
Cash Received Instead of a Fractional Interest of Shore Bancshares Common
Stock. A stockholder of Talbot Bancshares who receives cash instead of a
fractional share of Shore Bancshares common stock will be treated as having
received the fractional share pursuant to the merger and then as having
exchanged the fractional share for cash in a redemption by Shore Bancshares
subject to Section 302 of the Code. This deemed redemption will be treated as a
sale of the fractional share, provided that it is not "essentially equivalent
to a dividend" or is "substantially disproportionate" with respect to the
Talbot Bancshares stockholder. If the deemed redemption is treated as a sale of
a fractional share, a Talbot Bancshares stockholder will recognize capital gain
or loss equal to the difference between the amount of cash received and the
portion of the basis of the shares of Shore Bancshares common stock allocable
to the fractional interest. This capital gain or loss will be long-term capital
gain or loss if, as of the date of the exchange, the holding period for the
shares is greater than one year.
Backup Withholding and Information Reporting. Payments of cash to a holder
surrendering shares of Talbot Bancshares common stock will be subject to
information reporting and "backup" withholding at a rate of 31% of the cash
payable to the holder, unless the holder furnishes its taxpayer identification
number in the manner prescribed in applicable U.S. Treasury Regulations,
certifies that the number is correct, certifies as to no loss of exemption from
backup withholding and meets certain other conditions. The transmittal
materials sent to each stockholder of Talbot Bancshares will request
information to make this report. Any amounts withheld from payments to a holder
under the backup withholding rules will be allowed as a refund or credit
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against the holder's U.S. federal income tax liability, provided the required
information is furnished to the Internal Revenue Service.
Tax Consequences to Dissenting Stockholders. If a Talbot Bancshares
stockholder dissents to the merger and receives solely cash in exchange for
shares of Talbot Bancshares common stock, the cash received will be treated as
having been received by the stockholder as a distribution in redemption of its
shares of Talbot Bancshares common stock, subject to the provisions and
limitations of Section 302 of the Code. See "--Appraisal Rights." Unless the
redemption is treated as a dividend under Section 302(d) of the Code, a
stockholder will recognize gain or loss measured by the difference between the
amount of cash received and the tax basis of the shares of Talbot Bancshares
common stock redeemed. This gain or loss will be capital gain or loss if the
shares of Talbot Bancshares common stock was held by the stockholder as a
capital asset at the time of the merger. If, on the other hand, the redemption
is treated as a dividend under Section 302(d) of the Code, the full amount of
cash received by the stockholder will be treated as ordinary income to the
extent of Shore Bancshares' current or accumulated earnings and profits.
Under the tests of Section 302 of the Code, the redemption of a dissenting
Talbot Bancshares stockholder's Talbot Bancshares common stock generally will
be treated as a dividend unless the redemption:
. results in a "complete termination" of the stockholder's direct or
indirect stock interest in Shore Bancshares under Section 302(b)(3) of
the Code,
. is "substantially disproportionate" with respect to the stockholder under
Section 302(b)(2) of the Code, or
. is "not essentially equivalent to a dividend" with respect to the
stockholder under Section 302(b)(1) of the Code.
To determine whether there has been a complete termination, a substantially
disproportionate redemption or a redemption not essentially equivalent to a
dividend with respect to a dissenting Talbot Bancshares stockholder, it is
necessary to consider the common stock owned by persons from whom ownership is
attributed to the stockholder under the rules of Section 318 of the Code. Under
Section 318 of the Code, stockholders are considered to own shares that are
directly or indirectly owned by certain members of their family or by certain
trusts, partnerships or corporations in which they have an ownership or
beneficial interest. Stockholders that are entities are, in some cases,
considered to own shares that are directly or indirectly owned by the holders
of their equity interests. Stockholders are also considered to own any shares
underlying exercisable options they hold. In some cases, a dissenting Talbot
Bancshares stockholder may be deemed to own constructively common stock held by
persons who do not exercise appraisal rights.
Regulatory Approvals Required
We have agreed to use each of our reasonable best efforts to obtain all
regulatory approvals required to complete the transactions contemplated by the
merger agreement, which include approval from the Federal Reserve Board, the
Maryland Commissioner of Financial Regulation and other regulatory authorities,
and will have completed the filing of these applications and notifications
before the date of this proxy statement/prospectus. The merger cannot proceed
in the absence of these regulatory approvals. We cannot assure you that we will
obtain these regulatory approvals, and, if we are able to obtain them, we
cannot assure you when we will receive these approvals or that there will not
be litigation challenging these approvals. Likewise we cannot assure you that
the United States Department of Justice or any state attorney general will not
attempt to challenge the merger on antitrust grounds, or, if a challenge is
made, we cannot assure you as to its result.
We are not aware of any other material governmental approvals or actions
that are required before the completion of the merger other than those
described below. We presently contemplate that if any additional
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governmental approvals or actions are required, we will seek these approvals
or actions. We cannot assure you, however, that we will be able to obtain any
of these additional approvals or actions.
Federal Reserve Board. The merger is subject to approval by the Federal
Reserve Board pursuant to Sections 3 and 4 of the Bank Holding Company Act.
Talbot Bancshares and Shore Bancshares have filed the required application and
notification with the Federal Reserve Board for approval of the merger.
Assuming Federal Reserve Board approval, we may not complete the merger until
30 days after that approval. During that time, the Department of Justice may
challenge the merger on antitrust grounds and seek the divestiture of certain
assets and liabilities. With the approval of the Federal Reserve Board and the
Department of Justice, the waiting period may be reduced to no fewer than 15
days.
The Federal Reserve Board is prohibited from approving any transaction
under the applicable statutes that
. would result in a monopoly,
. would be in furtherance of any combination or conspiracy to monopolize or
to attempt to monopolize the business of banking in any part of the
United States, or
. may have the effect in any section of the United States of substantially
lessening competition, tending to create a monopoly or resulting in a
restraint of trade
unless the Federal Reserve Board finds that the anti-competitive effects of
the transaction are clearly outweighed in the public interest by the probable
effect of the transaction in meeting the convenience and needs of the
communities to be served.
In addition, in reviewing a transaction under the applicable statutes, the
Federal Reserve Board will consider the financial and managerial resources of
the companies and their subsidiary banks and the convenience and needs of the
communities to be served. As part of, or in addition to, consideration of
these factors, we anticipate that the Federal Reserve Board will consider the
regulatory status of Talbot Bancshares and Shore Bancshares, current and
projected economic conditions in the areas of the United States where Talbot
Bancshares and Shore Bancshares operate, and the overall capital and safety
and soundness standards established by the Federal Deposit Insurance
Corporation Improvement Act of 1991 and the regulations promulgated under this
act.
Under the Community Reinvestment Act of 1977, as amended (the "CRA"), the
Federal Reserve Board must take into account the record of performance of each
of Talbot Bancshares and Shore Bancshares in meeting the credit needs of the
entire community, including low- and moderate-income neighborhoods, served by
each company and their subsidiaries. Each of Talbot Bank and Centreville
National Bank has a satisfactory CRA rating with the appropriate federal
regulator. Neither Talbot Bank nor Centreville National Bank received any
negative comments from its respective federal regulator in its last CRA
examination relating to those ratings that were material and remain
unresolved.
The Federal Reserve Board will furnish notice and a copy of the application
for approval of the merger to other federal bank regulatory agencies. These
agencies have 30 days to submit their views and recommendations to the Federal
Reserve Board. The Federal Reserve Board is required to hold a public hearing
in the event it receives a written recommendation of disapproval of the
application from these agencies within that 30-day period. Furthermore, the
Bank Holding Company Act and Federal Reserve Board regulations require
publication of notice of, and the opportunity for public comment on, the
application submitted by Talbot Bancshares and Shore Bancshares for approval
of the merger, and authorize the Federal Reserve Board to hold a public
meeting in connection with the application if the Federal Reserve Board
determines that a meeting would be appropriate. Any meeting or comments
provided by third parties could prolong the period during which the
application is subject to review by the Federal Reserve Board.
As noted above, the merger may not be completed until 30 days after Federal
Reserve Board approval, during which time the Department of Justice may
challenge the merger on antitrust grounds and seek the
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divestiture of certain assets and liabilities. With the approval of the Federal
Reserve Board and the Department of Justice, the waiting period may be reduced
to no fewer than 15 days. The commencement of an antitrust action by the
Department of Justice would stay the effectiveness of Federal Reserve Board
approval of the merger, unless a court specifically orders otherwise. In
reviewing the merger, the Department of Justice could analyze the merger's
effect on competition differently from the Federal Reserve Board, and, thus, it
is possible that the Department of Justice could reach a different conclusion
than the Federal Reserve Board regarding the merger's competitive effects.
While Talbot Bancshares and Shore Bancshares believe there are substantial
arguments to the contrary, failure of the Department of Justice to object to
the merger may not prevent the filing of antitrust actions by private persons
or state attorneys general.
Shore Bancshares' and Talbot Bancshares' rights to exercise their respective
options under the option agreements also require the prior approval of the
Federal Reserve Board, to the extent that the exercise of their options under
the option agreements would cause Shore Bancshares or Talbot Bancshares to own
more than 5% of the outstanding shares of the other. Each of Talbot Bancshares
and Shore Bancshares intends to file the required application and notifications
with the Federal Reserve Board for approval of the exercise of its option under
the relevant option agreement before any exercise of an option under the
relevant option agreement. In considering whether to approve Shore Bancshares'
or Talbot Bancshares' right to exercise its respective option, the Federal
Reserve Board would generally apply the same statutory criteria it would apply
to its consideration of approval of the merger.
State Regulatory Authorities. The merger is also subject to the approval the
Maryland Commissioner of Financial Regulation. In its review of the merger, the
Maryland Commissioner is required to consider, among other things, whether the
merger would be detrimental to the safety and soundness of the banks and
whether the merger would result in an undue concentration of resources or a
substantial reduction in competition in Maryland.
Appraisal Rights
If the merger is completed, Talbot Bancshares stockholders who do not vote
for the adoption of the merger agreement and who otherwise comply with the
provisions of Sections 3-201 et seq. of the Maryland General Corporation Law
summarized below will be entitled to an appraisal by the Circuit Court for
Talbot County, Maryland of the "fair value" of their shares of Talbot
Bancshares common stock. Shore Bancshares stockholders do not have appraisal
rights under Maryland law in the merger. Either Shore Bancshares or Talbot
Bancshares has the right to terminate the merger agreement and be released from
all obligations if, immediately before the effective date, holders having
greater than 10% of the outstanding shares of Talbot Bancshares common stock
have demanded appraisal rights and have not withdrawn those demands before the
effective date of the merger.
To perfect their appraisal rights Talbot Bancshares stockholders must
strictly comply with the procedures in Sections 3-201 et seq. Failure to
strictly comply with these procedures will result in the loss of appraisal
rights. Holders of options to acquire shares of Talbot Bancshares common stock
will not be entitled to appraisal rights with respect to their options.
Under the Maryland General Corporation Law, each holder of shares of Talbot
Bancshares common stock will be entitled to demand and receive payment of the
fair value of the holder's shares in cash, if the holder
. before or at the special meeting, files with Talbot Bancshares a written
objection to the merger,
. does not vote in favor of the merger, and
. within 20 days after articles of merger have been accepted for record by
the Maryland Department, makes written demand on Shore Bancshares for
payment of his or her shares, stating the number of shares for which
payment is demanded.
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Any written objection should be sent to Talbot Bancshares. Any stockholder
who fails to comply with all of the requirements described above will be bound
by the terms of the merger. A demand for payment may be withdrawn only with the
consent of Shore Bancshares. Fair value will be determined as of the close of
business on the date of the stockholders vote on the merger.
Shore Bancshares will promptly deliver or mail to each dissenting
stockholder written notice of the date of acceptance of the articles of merger
for record by the Maryland Department. Shore Bancshares may also deliver or
mail to each objecting stockholder a written offer to pay for his or her stock
at a price deemed by Shore Bancshares to be the stock's fair value. Within 50
days after acceptance of the articles of merger for record by the Maryland
State Department, either Shore Bancshares or any objecting stockholder who has
not received payment for his or her shares may petition the Circuit Court for
Talbot County, Maryland, for an appraisal to determine the fair value of the
shares. If the court finds that an objecting stockholder is entitled to
appraisal of his or her stock, the court will appoint three disinterested
appraisers to determine the fair value of the shares on terms and conditions
the court determines proper, and appraisers will, within 60 days after
appointment (or a longer period as the court may direct) file with the court
and mail to each party to the proceeding their report stating their conclusion
as to the fair value of the shares. Within 15 days after the filing of the
report, any party may object to the report and request a hearing on the matter.
The court will, upon motion of any party, enter an order either confirming,
modifying or rejecting the report and, if confirmed or modified, enter judgment
directing the time within which payment must be made. If the appraisers' report
is rejected, the court may determine the fair value of the shares of the
objecting stockholders or may remit the proceeding to the same or other
appraisers. Any judgment entered pursuant to a court proceeding will include
interest from the date of the stockholders' vote on the action to which
objection was made, unless the court finds that the stockholder's refusal to
accept a written offer to purchase the stock made by Shore Bancshares as
described above was arbitrary and vexatious or not in good faith. Costs of the
proceeding (not including attorneys' fees) will be determined by the court and
will be assessed against Shore Bancshares or, under certain circumstances, the
objecting stockholder, or both.
At any time after the filing of a petition for appraisal, the court may
require any dissenting stockholder to submit his or her certificates
representing shares to the clerk of the court for notation of the pendency of
the appraisal proceedings. To receive payment, whether by agreement with Shore
Bancshares or pursuant to a judgment, the stockholder must surrender the stock
certificates indorsed in blank and in proper form for transfer. A stockholder
demanding payment for shares will not have the right to receive any dividends
or distribution payable to holders of record after the close of business on the
date of the stockholders' vote and will cease to have any rights as a
stockholder with respect to the shares except the right to receive payment of
the fair value of the shares. The stockholder's rights may be restored only
upon the withdrawal, with the consent of Shore Bancshares, of the demand for
payment, the failure of either party to file a petition for appraisal within
the time required, a determination of the court that the stockholder is not
entitled to an appraisal, or the abandonment or rescission of the merger.
This summary of the rights of dissenting stockholders does not purport to be
a complete statement of the procedures to be followed by stockholders desiring
to exercise their dissenters' rights. The preservation and exercise of
dissenters' rights are conditioned on strict adherence to the applicable
provisions of the Maryland General Corporation Law. Each stockholder desiring
to exercise dissenters' rights should refer to Sections 3-201 et seq., entitled
"Rights of Objecting Stockholders," of the Maryland General Corporation Law, a
copy of which is attached as Exhibit J to this proxy statement/prospectus, for
a complete statement of the stockholder's rights and the steps which must be
followed in connection with the exercise of those rights.
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ALL WRITTEN DEMANDS FOR APPRAISAL MUST BE MAILED OR DELIVERED TO:
SHORE BANCSHARES, INC.
18 EAST DOVER STREET
EASTON, MARYLAND 21601
ATTN: CORPORATE SECRETARY
OR SHOULD BE DELIVERED TO THE SECRETARY AT THE TALBOT BANCSHARES SPECIAL
MEETING BEFORE THE VOTE ON THE MERGER AGREEMENT.
Resale of Shares of Shore Bancshares Common Stock After the Merger
Shore Bancshares common stock issued pursuant to the merger will not be
subject to any restrictions on transfer arising under the Securities Act,
except for shares issued to any Talbot Bancshares stockholder who may be deemed
to be an "affiliate" of Shore Bancshares or Talbot Bancshares for purposes of
Rule 145 under the Securities Act.
This proxy statement/prospectus does not cover resales of shares of Shore
Bancshares common stock received by any person who may be deemed to be an
affiliate.
Persons who may be deemed to be affiliates of Shore Bancshares or Talbot
Bancshares generally include individuals or entities that control, are
controlled by, or are under common control with Shore Bancshares or Talbot
Bancshares, and generally include the executive officers and directors of Shore
Bancshares or Talbot Bancshares and entities controlled by directors or
executive officers of Shore Bancshares or Talbot Bancshares. Affiliates may not
sell their shares of Shore Bancshares common stock acquired in connection with
the merger, except pursuant to an effective registration under the Securities
Act covering the shares or in compliance with Rule 145 under the Securities Act
(or Rule 144 under the Securities Act in the case of persons who are or become
affiliates of Shore Bancshares) or another applicable exemption from the
registration requirements of the Securities Act. In general, Rule 145 under the
Securities Act provides that, for one year following the effective date of the
merger, an affiliate (together with certain related persons) would be entitled
to sell shares of Shore Bancshares common stock acquired in connection with the
merger only through unsolicited "broker transactions" or in transactions
directly with a "market maker," as these terms are defined in Rule 144 under
the Securities Act. Additionally, the number of shares to be sold by an
affiliate (together with certain related persons and certain persons acting in
concert) within any three-month period for purposes of Rule 145 under the
Securities Act may not exceed the greater of 1% of the outstanding shares of
Talbot Bancshares common stock or the average weekly trading volume of such
shares during the four calendar weeks preceding the sale (excluding such
persons trading). Rule 145 under the Securities Act will remain available to
affiliates if Shore Bancshares timely files reports under the Securities
Exchange Act of 1934 with the SEC. One year after the effective date of the
merger, an affiliate will be able to sell shares of Shore Bancshares common
stock without being subject to the manner of sale or volume limitations,
provided that Shore Bancshares is current with its Securities Exchange Act
informational filings and the affiliate is not then an affiliate of Shore
Bancshares. Two years after the effective date of the merger, an affiliate will
be able to sell shares of Shore Bancshares common stock without any
restrictions so long as the affiliate had not been an affiliate of Shore
Bancshares for at least three months before the date of this sale.
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THE MERGER AGREEMENT
The following is a summary of certain provisions of the merger agreement.
This summary is not complete and is subject to the full text of and qualified
in its entirety by reference to the merger agreement, which is incorporated by
reference in its entirety and attached to this proxy statement/prospectus as
Appendix A. Talbot Bancshares and Shore Bancshares stockholders are urged to
read the merger agreement in its entirety for a more complete description of
the merger.
General
Pursuant to the merger agreement, Talbot Bancshares will merge into Shore
Bancshares, with Shore Bancshares surviving the merger. The stockholders of
Talbot Bancshares will receive the consideration described below. The effective
date of the merger will occur following the satisfaction or waiver, where
permissible, of all conditions to completion of the merger specified in the
merger agreement. Talbot Bancshares and Shore Bancshares may also mutually
agree on a different effective date. We expect that the effective date of the
merger will occur on , 2000.
On or before the effective date of the merger, we will file articles of
merger with the Maryland State Department of Assessments and Taxation, and this
document will state the effective date of the merger. Either Talbot Bancshares
or Shore Bancshares can terminate the merger agreement if, among other reasons,
the merger does not occur on or before March 1, 2001 and the terminating party
has not breached or failed to perform any of its obligations under the merger
agreement. See " --Termination" on page .
Exchange Ratio; Fractional Shares
At the time the merger becomes effective, each share of issued and
outstanding Talbot Bancshares common stock, except for shares of dissenting
stockholders, will be canceled and cease to be outstanding and will be
exchanged for 2.85 shares of Shore Bancshares common stock. No fractional
shares will be issued. Instead, stockholders will be paid in cash the amount
equal to the fractional share multiplied by the market value per share of Shore
Bancshares common stock on the effective date, as determined by the Shore
Bancshares board of directors.
Certain Representations and Warranties
The merger agreement contains various representations and warranties made by
Talbot Bancshares and Shore Bancshares, many of which are qualified as to
materiality, regarding the following matters, among others:
. corporate existence, organization, standing, authority and
capitalization;
. ownership of the shares of capital stock of its subsidiaries, and the
corporate existence, organization, standing and authority of its
subsidiaries;
. that the merger agreement and the related transactions will not result in
a violation of Talbot Bancshares' or Shore Bancshares' organizational
documents or contracts to which Talbot Bancshares or Shore Bancshares, or
any of their subsidiaries, is a party, or violate any law, rule or
regulation;
. consistency of financial statements with generally accepted accounting
principles;
. the filing of tax returns and payment of taxes;
. absences of undisclosed liabilities;
. absence of certain material adverse events, changes or effects;
. accuracy of information supplied by Talbot Bancshares and Shore
Bancshares in connection with the merger agreement and related documents;
. quality of title to properties and assets;
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. material contracts;
. absence of pending or threatened lawsuits, actions or other proceedings;
. absence of material environmental violations, actions or liabilities;
. labor matters;
. retirement and other employee plans and matters relating to the Employee
Retirement Income Security Act of 1974;
. transactions with affiliates;
. consents and regulatory approvals necessary to complete the merger;
. compliance with laws and required licenses and permits;
. corporate power and authority to execute, deliver and perform its
obligations under the merger agreement, and to complete the merger,
subject only to stockholder approval;
. maintenance of adequate insurance and financial institutions bonds; and
. no claims for brokerage commissions or advisory fees, except to the
financial advisors of Talbot Bancshares and Shore Bancshares in
connection with the merger.
The representations and warranties of Shore Bancshares and Talbot Bancshares
will not be deemed waived or otherwise affected by any investigation made by
any party and do not survive beyond the effective date of the merger.
Certain Covenants and Agreements
Conduct of Business Pending Merger. Pursuant to the merger agreement, Shore
Bancshares and Talbot Bancshares have each agreed (except as permitted by the
other party or as otherwise expressly contemplated by the merger agreement) to
conduct their respective businesses in the ordinary course consistent with past
practice and that, pending the merger, they will not, nor will they permit any
of their subsidiaries to:
. amend their respective charters or by-laws or comparable documents of any
subsidiary;
. change their authorized, issued or outstanding capital stock, except for
outstanding stock options which are then currently exercisable;
. declare any cash dividend on its capital stock, except regular quarterly
cash dividends that do not exceed $0.50 per share for Talbot Bancshares
and $0.20 per share for Shore Bancshares;
. increase the compensation or benefits of any employees, outside the
ordinary course of its business and consistent with past practices or
enter into or modify any employment contract with any of its officers or
employees;
. make any change in any of their accounting policies or practices or take
any action that would prevent Shore Bancshares from accounting for the
merger as a pooling-of-interests; or
. incur any liability for borrowed money except extensions of credit other
than in the ordinary course of business, provided the extensions of
credit are at a variable rate with maturities of one year or less.
Pennding the Effective Date, Talbot Bancshares and Shore Bancshares have agreed
to:
. use commercially reasonable efforts to preserve their business
organizations and assets and to keep available the services of their
full-time officers and employees;
. continue in effect the present method of conducting their businesses; and
. advise the other party regarding decisions or actions in matters other
than those in the ordinary course of business, or involving any capital
expenditures in excess of $25,000.
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In addition, Talbot Bancshares and Shore Bancshares have jointly agreed:
. to submit the merger agreement and related transactions to their
stockholders for approval;
. to use their best efforts to obtain all required regulatory approvals and
required third party consents;
. to deliver to the other copies of all securities documents when filed;
. to use their best efforts to prevent their agents and representatives
from engaging in any merger, acquisition or similar transaction;
. to cooperate with each other and use their best efforts to identify those
persons who may be deemed to be affiliates of Talbot Bancshares and Shore
Bancshares;
. to take all actions necessary to complete the transactions contemplated
by the merger agreement;
. to use their best efforts not to permit any of their officers, directors,
employees or other representatives to take any action that would prevent
Shore Bancshares from treating the merger as a pooling-of-interests for
financial reporting purposes;
. to file all tax returns and pay all taxes when due; and
. to agree upon the form and substance of any press release or public
disclosure related to the merger.
No Solicitation. The merger agreement provides that, except to the extent
legally required by the fiduciary obligations of their boards of directors
before the effective date of the merger, neither Shore Bancshares nor Talbot
Bancshares, nor any of their respective subsidiaries will, or will permit any
of their agents or representatives to directly or indirectly, solicit or
initiate any inquiries or make any offer or proposal with respect to:
. any merger, consolidation, or other business combination involving Shore
Bancshares, Talbot Bancshares or any of their respective subsidiaries; or
. the acquisition of all or any significant part of the assets or capital
stock of Shore Bancshares, Talbot Bancshares or any of their respective
subsidiaries.
Those Talbot Bancshares and Shore Bancshares stockholders who are party to
the support agreements have also agreed that, in their capacity as
stockholders, they will not directly or indirectly solicit, initiate or
encourage any inquiries or proposals or participate in any discussions or
negotiations with anyone concerning any merger, acquisition or similar
transaction.
Composition of the Board of Directors of Shore Bancshares Following the
Merger. On the effective date, the board of directors of Shore Bancshares, as
the surviving corporation, will be composed of 11 persons, five of whom were
designated by the Shore Bancshares board of directors and six of whom were
designated by the Talbot Bancshares board of directors. The board of directors
will be divided into three classes as follows:
. Class I serving until 2001 will consist of David L. Pyles, Daniel T.
Cannon and Richard C. Granville;
. Class II serving until 2002 will consist of David C. Bryan, Ronald N.
Fox, Neil R. LeCompte and Herbert L. Andrew, III; and
. Class III serving until 2003 will consist of Paul M. Bowman, Lloyd L.
Beatty, Jr., B. Vance Carmean, Jr. and W. Moorhead Vermilye.
We expect that Mr. Carmean will continue to serve as the Chairman of the
Board after the merger. The remaining directors of Shore Bancshares who will
not continue as directors of Shore Bancshares after the merger will resign from
the board at the effective time of the merger.
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Conditions to the Merger
Our obligation to complete the merger is subject to the satisfaction or
waiver (if permitted by law), at or before the merger, of the following
conditions, among others:
Representations, Warranties and Covenants. Each of the representations and
warranties of the other party contained in the merger agreement must be
materially true and correct, as of the date of the merger agreement, and,
except to the extent such representations and warranties speak as of an earlier
date, as of the effective date of the merger as though they were made on the
effective date of the merger. The other party must have performed in all
material respects all of its obligations required to be performed under the
merger agreement before the effective date of the merger. Talbot Bancshares and
Shore Bancshares will each provide an officers' certificate regarding these
matters.
Material Adverse Change. Any materially adverse change in the condition,
results of operations, assets, liabilities or business of the other party and
its subsidiaries cannot have occurred since December 31, 1999. A material
adverse change includes:
. a reduction of stockholders' equity to less than $22,773,000 in the case
of Shore Bancshares and $36,486,000 in the case of Talbot Bancshares,
. a decrease in the net income from January 1, 2000 and through the
effective date to less than the net income for the same period beginning
on January 1, 1999, or
. an increase in the ratio of non-performing assets to total assets to
above 0.5%.
Regulatory Approvals. We must obtain all licenses, permits, consents,
approvals, authorizations, qualifications and orders of governmental
authorities and other third parties that are necessary in connection with the
merger as contemplated by the merger agreement. These conditions may be waived,
except where failure to obtain them would result in a materially adverse effect
on Talbot Bancshares or Shore Bancshares, or would so materially and adversely
affect the economic or business benefits of the merger that Talbot Bancshares
or Shore Bancshares would not have entered into the proposed merger.
Stockholder Approval. Stockholders holding two-thirds of the issued and
outstanding voting stock of Shore Bancshares and stockholders holding at least
two-thirds of the issued and outstanding voting stock of Talbot Bancshares must
approve and adopt the merger agreement and approve the merger.
Effectiveness of Registration Statement. The registration statement on Form
S-4, of which this proxy statement/prospectus is a part, must become effective
in accordance with the provisions of the Securities Act. The SEC must not have
issued any stop order suspending the effectiveness of the registration
statement, and the SEC must not have initiated proceedings for that purpose.
No Injunctions. No action or proceeding challenging the merger can be
threatened or pending. No order issued by any governmental entity having
jurisdiction over Talbot Bancshares, Shore Bancshares, or any of their
subsidiaries that materially restricts, prevents or prohibits the consummation
of the merger can be in effect or pending.
Consents. Shore Bancshares and Talbot Bancshares must have obtained the
consent, approval or waiver of each entity whose consent or approval is
required in connection with the transactions contemplated by the merger
agreement under any contract, except where the failure to obtain this consent
would not result in a material adverse change on Shore Bancshares or Talbot
Bancshares.
Tax Opinion. Talbot Bancshares and Shore Bancshares must have received an
opinion from Talbot Bancshares' tax counsel that, among other things, the
merger will qualify for United States federal income tax purposes as a tax-free
reorganization.
Fairness Opinion. Each of Talbot Bancshares and Shore Bancshares have
received an opinion from its financial advisor that the issuance of shares of
Shore Bancshares common stock in the merger will be fair from a financial point
of view to the Talbot Bancshares stockholders or the Shore Bancshares
stockholders, as the case may be.
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Legal Opinions. Counsel for each of Talbot Bancshares and Shore Bancshares
must have delivered certain legal opinions regarding each of the other party's
authorization to execute the merger agreement and other documents.
Pooling Letter. We must have received a letter from Stegman & Company
stating that the merger will qualify for pooling-of-interests accounting if the
merger is completed according to the merger agreement. In rendering this
letter, Stegman & Company requires delivery of and will rely upon certain
representation letters delivered by Talbot Bancshares and Shore Bancshares.
At any time before the effective date of the merger, each of Talbot
Bancshares and Shore Bancshares may waive the compliance with any conditions
that may legally be waived. However, we may not waive conditions that are
required by law to complete the merger, including
. the requirement for stockholder approval,
. the requirement for regulatory approvals, and
. the requirement that the registration statement be effective on the
closing date.
Further, after approval of the merger agreement by the stockholders of Shore
Bancshares and Talbot Bancshares, we cannot waive any conditions that under
applicable law would require further approval of our stockholders without
obtaining stockholder approval. See "--Amendment; Waiver."
Termination
We may terminate the merger agreement at any time before the completion of
the merger, by mutual written consent.
Either Talbot Bancshares or Shore Bancshares may terminate the merger
agreement at any time before the completion of the merger:
. if the merger has not been completed by March 1, 2001, unless the failure
to complete the merger is the result of a breach of the merger agreement
by the party seeking to terminate the merger agreement;
. if before March 1, 2001, any court has entered an order which prohibits
completion of the merger and the transactions contemplated by the merger
agreement;
. if it receives and accepts, consistent with the merger agreement, another
acquisition proposal and pays the other party a termination fee of $1.5
million plus reasonable expenses related to the merger, unless the party
elects to exercise the stock option granted in connection with this
transaction;
. if any permanent injunction, order, decree or ruling by any governmental
entity preventing the completion of the merger has become final and non-
appealable;
. if before March 1, 2001 any action or proceeding against Talbot
Bancshares or against Shore Bancshares or any of their respective
subsidiaries is pending which seeks to prevent completion of the
transactions contemplated by the merger agreement; or
. if before March 1, 2001, any approval, consent, or waiver of any
governmental entity have been denied which are required to permit the
completion of the transactions contemplated by the merger agreement; or
. if before March 1, 2001 any approval, consent, or waiver of any
governmental entity required to permit completion of the transactions
contemplated by the merger agreement include any condition or requirement
that would have a material adverse effect on Talbot Bancshares or Shore
Bancshares, or so materially and adversely affect the economic or
business benefits of the merger that Talbot Bancshares or Shore
Bancshares would not have entered into the merger agreement if it had
known of these conditions or requirements.
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Talbot Bancshares may terminate the merger agreement at any time before the
completion of the merger:
. if there has been a material breach of any of the representations or
warranties, covenants or agreements of Shore Bancshares in the merger
agreement, which is not cured or curable within 60 days after Talbot
Bancshares gives written notice of the breach to Shore Bancshares; or
. if Talbot Bancshares does not obtain stockholder approval, unless the
failure to obtain stockholder approval is due to the failure of Talbot
Bancshares to perform or observe the agreements in the merger agreement.
Shore Bancshares may terminate the merger agreement at any time before the
completion of the merger:
. if there has been a material breach of any of the representations or
warranties, covenants or agreements of Talbot Bancshares in the merger
agreement, which is not cured or curable within 60 days after written
notice of this breach is given by Shore Bancshares to Talbot Bancshares;
or
. if Shore Bancshares does not obtain stockholder approval, unless the
failure to obtain stockholder approval is due to the failure of Shore
Bancshares to perform or observe the agreements in the merger agreement.
Termination Fee
We have each agreed to pay the other party a fee of $1.5 million plus all
reasonable expenses, including legal, accounting, valuation, printing and tax
expenses related to the merger, in cash if one of us receives and accepts an
acquisition proposal, as described in the merger agreement. Neither party is
obligated to pay this fee if the other party exercises its stock option
granted in connection with this transaction.
Amendment; Waiver
Subject to applicable legal restrictions, at any time before the completion
of the merger, the parties may:
. amend the merger agreement;
. extend the time for the performance of any of the obligations or other
acts of the other party required in the merger agreement;
. waive any inaccuracies in the representations and warranties of the other
party contained in the merger agreement; or
. waive compliance by the other party with any of the agreements or
conditions contained in the merger agreement, except for the requirements
of stockholder approval, regulatory approval and the absence of any
order, decree or injunction preventing the merger.
Once you have approved the merger agreement, we cannot modify either the
amount or the form of consideration you will receive upon the completion of
the merger or otherwise materially adversely affect you without stockholder
approval.
Expenses
We will each pay all of our respective costs and expenses, including fees
and expenses of financial consultants, accountants and legal counsel, except
that:
. we will equally share the cost of filing fees in respect of regulatory
approvals required in order to complete the merger; and
. we will equally share the costs of printing and mailing this proxy
statement/prospectus.
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STOCK OPTION AGREEMENTS
The following is a summary of certain provisions of the Talbot Bancshares
stock option agreement and the Shore Bancshares stock option agreement. This
summary is not complete and is subject to the full texts of, and qualified in
its entirety by reference to, these agreements, which are incorporated by
reference in their entirety and attached as Appendices F and G to this proxy
statement/prospectus. All Talbot Bancshares stockholders and Shore Bancshares
stockholders are urged to read the Talbot Bancshares stock option agreement and
the Shore Bancshares stock option agreement in their entirety for a more
complete understanding of their terms.
General
As an inducement for each of us to enter into the merger agreement, we
entered into the stock option agreements pursuant to which Shore Bancshares
granted Talbot Bancshares an option to purchase shares of Shore Bancshares
common stock and Talbot Bancshares granted Shore Bancshares an option to
purchase shares of Talbot Bancshares common stock. Except for the number of
shares that may be purchased and the purchase price for each share, the terms
and conditions of the Talbot Bancshares stock option agreement and the Shore
Bancshares stock option agreement are identical.
Exercise; Expiration
Talbot Bancshares granted Shore Bancshares an option to purchase up to
237,780 shares of Talbot Bancshares common stock, and Shore Bancshares granted
Talbot Bancshares an option to purchase up to 380,912 shares of Shore
Bancshares common stock. Although these numbers may be adjusted in certain
cases, they will never exceed 19.9% of the number of shares of Shore Bancshares
common stock or Talbot Bancshares common stock outstanding immediately before
exercise of the option. The exercise price of the Talbot Bancshares option is
$45.00 per share of Talbot Bancshares common stock, and the exercise price of
the Shore Bancshares option is $14.62 per share of Shore Bancshares common
stock. The exercise price and the number of shares issuable under each option
agreement may be adjusted in the event of specified changes in the capital
stock of the issuer of the option.
Each of Talbot Bancshares and Shore Bancshares can exercise its option if a
"purchase event" occurs before completion of the merger or termination of the
merger agreement according to its terms. The purchase of any shares of Talbot
Bancshares and Shore Bancshares common stock pursuant to the options must be in
compliance with applicable law.
The option agreements generally define the term "purchase event" to mean any
of the following events or transactions:
. the issuer of the option or one of its significant subsidiaries, without
the prior written consent of the holder of the option, enters into an
agreement to engage in a merger, sale or similar transaction with a third
party;
. a third party acquires beneficial ownership or the right to acquire
beneficial ownership of 15% or more of the outstanding shares of the
common stock of the issuer of the option;
. a third party has made a bona fide proposal to the issuer of the option
or its stockholders to engage in a merger, sale or similar transaction
and this proposal has been publicly announced and after the announcement
the stockholders fail to vote to approve the merger; or
. the issuer of the option willingly breaches any covenant or obligation
contained in the merger agreement after a third party has proposed a
merger, sale or similar transaction, and following the breach the holder
of the option is entitled to terminate the merger agreement.
The stock option agreements terminate upon any of the following:
. completion of the merger;
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. termination of the merger agreement in accordance with its terms provided
that this would not include a termination of the merger agreement by the
holder of the option based on a willful breach of a representation,
warranty, covenant or other agreement contained in the merger agreement;
or
. the passage of 12 months, subject to extension in order to obtain
required regulatory approvals, after termination of the merger agreement
by the holder of the option based on a willful breach by the issuer of
the option of a representation warranty, covenant or other agreement
contained in the merger agreement.
If the option becomes exercisable, it may be exercised in whole or in part
within 60 days following a notice of exercise. The times during which the
holder has the right to exercise the option and certain other rights under the
stock option agreement are subject to an extension to obtain required
regulatory approvals and comply with applicable regulatory waiting periods.
At any time within 18 months after a "purchase event," the holder may
require the issuer of the option to repurchase the option and any other shares
of common stock of the issuer owned by the holder at a price equal to (a) the
higher of the price per share at which a tender offer has been made or the
highest bid price per share during the previous 60 business days, plus (b) the
amount of documented reasonable out-of-pocket expenses incurred in connection
with the merger.
Registration Rights
In connection with the stock option agreements, each of us agreed to file
one registration statement for any shares received upon exercise of the option
to permit the sale of these shares. The party filing the registration statement
must use its best efforts to cause the registration statement to become
effective and remain effective for at least 270 days.
Purpose of the Stock Option Agreements
Arrangements such as the stock option agreements are customarily entered
into in connection with announced mergers involving publicly traded companies
to increase the likelihood that the transactions will be completed in
accordance with their terms, and to compensate the person granted the option
for the efforts undertaken and the expenses and losses incurred by the person
if the transaction is not completed. The stock option agreements may have the
effect of discouraging offers by third parties to acquire the issuer of the
option, even if those persons were prepared to offer to pay a higher current
market price for the shares to be received as part of the merger. Also,
following consultation with our independent accountants, we believe that the
exercise of either of the stock options is likely to prohibit another acquiror
from accounting for any acquisition of the issuer of the stock option using the
"pooling-of-interests" accounting method for a period of two years.
To our best knowledge no event giving rise to the right to exercise either
option has occurred as of the date of this proxy statement/prospectus.
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SUPPORT AGREEMENTS
After we entered into the merger agreement, our directors, executive
officers and affiliates entered into support agreements us. The following
description of the support agreement is qualified in its entirety by reference
to the support agreements, which are attached to this proxy
statement/prospectus as Appendices D and E and which are incorporated by
reference into this proxy statement/prospectus.
Each of our directors, executive officers and affiliates executed the
support agreements as a condition to the completion of the merger. Under the
support agreements, the parties agreed to vote an aggregate of 17.25% of the
outstanding shares of Talbot Bancshares common stock and an aggregate of 3.8%
of the outstanding shares of Shore Bancshares common stock in favor of the
merger. The parties also agreed to vote any additional shares of common stock
of Talbot Bancshares or Shore Bancshares acquired by the stockholder after the
date of the support agreement. The support agreements also restrict the power
of the stockholders to sell or transfer their shares of Talbot Bancshares
common stock or Shore Bancshares common stock, as the case may be, until the
completion of the merger or termination of the merger agreement. Those Talbot
Bancshares and Shore Bancshares stockholders who are party to the support
agreements have also agreed that, in their capacity as stockholders, they will
not directly or indirectly solicit, initiate or encourage any inquiries or
proposals or participate in any discussions or negotiations with anyone
concerning any other merger, acquisition or similar transaction.
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COMPARISON OF THE RIGHTS OF HOLDERS OF TALBOT BANCSHARES
CAPITAL STOCK AND SHORE BANCSHARES CAPITAL STOCK
Talbot Bancshares and Shore Bancshares are both incorporated in Maryland.
Upon completion of the merger, stockholders of Talbot Bancshares, whose rights
as stockholders are currently governed by Maryland General Corporation Law, and
the Talbot Bancshares charter and by-laws, will automatically become
stockholders of Shore Bancshares. As stockholders of Shore Bancshares, their
rights will be governed by the Maryland General Corporation Law and the Shore
Bancshares charter and by-laws. In addition, the Shore Bancshares charter and
by-laws will be amended as part of the merger. The following summary describes
the material provisions and differences governing the rights of holders of
Talbot Bancshares capital stock and the rights of holders of Shore Bancshares
capital stock (both before and after the amendments). This summary is not a
complete description of the differences between the rights of Talbot Bancshares
and Shore Bancshares stockholders. These differences may be determined in full
by reference to the Maryland General Corporation Law, the Talbot Bancshares
charter and by-laws and the Shore Bancshares charter and by-laws. The complete
text of the Shore Bancshares charter and by-laws as amended as part of the
merger are attached to this proxy statement/prospectus as Appendix B and
Appendix C.
The rights of both Talbot Bancshares stockholders and Shore Bancshares
stockholders will change once the merger is completed. The Maryland General
Corporation Law, the Shore Bancshares charter and by-laws contain provisions
that may have an anti-takeover effect and that may delay, defer or prevent a
change in control of Shore Bancshares or other transaction that Shore
Bancshares stockholders might consider in their best interest, including a
transaction that might result in a premium over the market price for the shares
held by Shore Bancshares stockholders. These provisions are expected to
discourage various types of coercive takeover practices and inadequate takeover
bids and to encourage persons seeking to acquire control of Shore Bancshares to
negotiate first with the Shore Bancshares board. Shore Bancshares' management
believes that the benefits of these provisions outweigh the potential
disadvantages of discouraging proposals because, among other things,
negotiation of these proposals might improve their terms.
AUTHORIZED CAPITAL STOCK
Talbot Bancshares
25,000,000 shares of common stock, par value $0.01 per share. Further, the
board of directors have authority to reclassify unissued stock into other
classes of stock, including preferred stock.
Shore Bancshares
10,000,000 shares of common stock, par value $0.01 per share. Further, the
board of directors have authority to reclassify unissued stock into other
classes of stock, including preferred stock.
After the merger, Shore Bancshares will have 35,000,000 shares of common stock,
par value $0.01 per share, authorized under the new Shore Bancshares charter.
Further, the board of directors will have authority to increase the authorized
common stock, without stockholder approval and to reclassify unissued stock
into other classes of stock including preferred stock.
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ADVANCE NOTICE PROVISION/SPECIAL MEETING OF STOCKHOLDERS
Talbot Bancshares
The Talbot Bancshares by-laws provide that nominations of persons for election
of the Talbot Bancshares board may only be made:
.by the Talbot Bancshares board of directors; or
. by a stockholder who is entitled to vote at the meeting and has complied with
the procedures described in the Talbot Bancshares by-laws.
With respect to special meetings of stockholders, only the business stated in
the notice of meeting may be brought before the meeting. Nominations of persons
for election to the Talbot Bancshares board may be made at a special meeting of
stockholders:
. pursuant to Talbot Bancshares' notice of the meeting,
. by the Talbot Bancshares board of directors, or
. provided that the Talbot Bancshares board has determined that directors may
be elected at the meeting, by a stockholder who is entitled to vote at the
meeting and has complied with the advance notice provisions described in the
Talbot Bancshares by-laws.
Under the Talbot Bancshares by-laws, in order for a stockholder to nominate a
candidate for the election as a director, the stockholder must generally give
notice to the Talbot Bancshares Secretary not more than 120 days or less than
90 days from the first anniversary of the last annual meeting.
Shore Bancshares
The Shore Bancshares by-laws provide that nominations of persons for election
of the Shore Bancshares board may only be made:
. by the Shore Bancshares board of directors; or
. by a stockholder who is entitled to vote at the meeting and has complied with
the procedures described in the Shore Bancshares by-laws.
With respect to special meetings of stockholders, only the business stated in
the notice of meeting may be brought before the meeting. Nominations of persons
for election to the Shore Bancshares board may be made at a special meeting of
stockholders:
. pursuant to Shore Bancshares' notice of the meeting,
. by the Shore Bancshares board of directors, or
. provided that the Shore Bancshares board has determined that directors may be
elected at the meeting, by a stockholder who is entitled to vote at the
meeting and has complied with the advance notice provisions described in the
Shore Bancshares by-laws.
Under the Shore Bancshares by-laws, in order for a stockholder to nominate a
candidate for the election as a director, the stockholder must generally give
notice to the Shore Bancshares Secretary not more than 180 days or less than
120 days from the first anniversary of the last annual meeting.
After the merger, the new Shore Bancshares charter will require that any
stockholder proposal presented in connection with any annual or special
meeting, including any proposal relating to nominations of directors, be
submitted only as permitted by the by-laws, and in the case of special meetings
only as required by law. The new Shore Bancshares by-laws retain the advance
notice of directors nominations above but also require advance notice of other
matters to be submitted by stockholders at annual meetings generally between 60
and 90 days of the anniversary date of the last meeting.
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SIZE OF THE BOARD OF DIRECTORS
Talbot Bancshares
The number of persons currently constituting the Talbot Bancshares board is 13.
The Talbot Bancshares by-laws provides that the number of persons constituting
the Talbot Bancshares board shall not be less than three nor more than
25 directors.
Shore Bancshares
The number of persons currently constituting the Shore Bancshares board is 11.
The Shore Bancshares by-laws provide that the number of members of the board of
directors shall be not less than three nor more than 25 directors.
After the merger, the Shore Bancshares board of directors will have 11
directors, six of whom are former directors of Talbot Bancshares and five of
whom are current directors of Shore Bancshares. Also, after the merger, a vote
of two-thirds of the entire board will be required to alter the number of
directors, however, any change in the number of directors may not affect the
tenure of any director.
CLASSIFICATION OF THE BOARD OF DIRECTORS
Talbot Bancshares
The board of directors of Talbot Bancshares are divided into three classes,
with approximately one-third of the board of directors elected by the
stockholders annually. Consequently, members of the Talbot Bancshares board
serve staggered three-year terms.
Shore Bancshares
The board of directors of Shore Bancshares are divided into three classes, with
approximately one-third of the board of directors elected by the stockholders
annually. Consequently, members of the Shore Bancshares board serve staggered
three-year terms.
After the merger, any increase or decrease in the size of the board of
directors must be apportioned among the classes to maintain the number of
directors in each class.
ELECTION OF THE BOARD OF DIRECTORS
Talbot Bancshares
Maryland law provides that a corporation's directors shall be elected by a
plurality of the votes cast at a meeting at which a quorum is present.
Neither the Talbot Bancshares charter nor the Talbot Bancshares by-laws grant
cumulative voting rights with respect to the election of directors to holders
of Talbot Bancshares common stock.
Shore Bancshares
Maryland law provides that a corporation's directors shall be elected by a
plurality of the votes cast at a meeting at which a quorum is present.
Neither the Shore Bancshares charter nor the Shore Bancshares by-laws grant
cumulative voting rights with respect to the election of directors to holders
of Shore Bancshares common stock.
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REMOVAL OF DIRECTORS
Talbot Bancshares
Under Maryland law directors may only be removed for cause, by the affirmative
vote of holders of a majority of all classes of outstanding capital stock.
Shore Bancshares
Under Maryland law directors may only be removed for cause, by the affirmative
vote of holders of a majority of all classes of outstanding capital stock. The
Shore Bancshares' by-laws also require the affirmative vote of the entire board
of directors for the removal of a director.
FILLING VACANCIES
Talbot Bancshares
Under the Talbot Bancshares by-laws, vacancies in the Talbot Bancshares board
of directors caused by the removal or resignation of a director or other cause
may be filled by the vote of a majority of the remaining directors, and the
appointee shall hold office for the unexpired term of his predecessor, or until
his successor is elected or appointed and is qualified. Vacancies resulting
from an increase in the numbers may be filled by the board of directors, by
majority vote, or be filled by the stockholders at an annual or special
meeting.
Shore Bancshares
Under the Shore Bancshares by-laws, vacancies in the Shore Bancshares board of
directors caused by the removal or resignation of a director or other cause may
be filled by the vote of a majority of the remaining directors, and the
appointee shall hold office for the unexpired term of his predecessor, or until
his successor is elected or appointed and is qualified. Vacancies resulting
from an increase in the numbers may be filled by the board of directors, by
majority vote, or be filled by the stockholders at an annual or special
meeting.
After the merger, the Shore Bancshares' by-laws will provide that a vacancy may
only be filled in accordance with the charter, which will provide that any
vacancy on the board of directors may be filled only by the affirmative vote of
a majority of the remaining directors in office, provided however, that until
September 30, 2005, the board of directors must be elected from the board of
directors of the same financial institution subsidiary in which the vacating
director served.
LIABILITY OF DIRECTORS;
INDEMNIFICATION OF DIRECTORS AND OFFICERS; INSURANCE
Talbot Bancshares
Maryland law requires a corporation, unless its charter provides otherwise,
which Talbot Bancshares' charter does not, to indemnify a director or officer
who has been successful, on the merits or otherwise, in the defense of any
proceeding to which the person was made a party by reason of his service in
that capacity. Maryland law permits a corporation to indemnify its present and
former directors and officers, among others, in connection with any proceeding
to which they may be made a party by reason of their service in those or other
capacities unless it is established that:
. the act or omission of the director or officer was material to the matter
giving rise to the proceeding and was committed in bad faith or was the
result of active and deliberate dishonesty,
. the director or officer actually received an improper personal benefit in
money, property or services, or
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. in the case of any criminal proceeding, the director or officer had
reasonable cause to believe that the act or omission was unlawful.
The indemnity may include judgments, penalties, fines, settlements and
reasonable expenses actually incurred by the director or officer in connection
with the proceeding; provided, however, that if the proceeding is one by or in
the right of the corporation, indemnification is not permitted with respect to
any proceeding in which the director or officer has been adjudged to be liable
to the corporation.
In addition, a director or officer may not be indemnified with respect to any
proceeding charging an improper personal benefit to the director or officer in
which the director or officer was adjudged to be liable on the basis that the
personal benefit was improperly received. The termination of any proceeding by
conviction or upon a plea of nolo contendere or its equivalent or an entry of
an order of probation prior to judgment creates a rebuttable presumption that
the director or officer did not meet the requisite standard of conduct required
for permitted indemnification. The termination of any proceeding by judgment,
order or settlement, however, does not create a presumption that the director
or officer did not meet the requisite standard of conduct for permitted
indemnification.
As a condition to advancing expenses to a director who is a party to a
proceeding, Maryland law requires Talbot Bancshares to obtain a written
affirmation from the director or officer of his good faith belief that he has
met the standard of conduct necessary for indemnification by Talbot Bancshares
and a written statement by or on his behalf to repay the amount paid or
reimbursed by Talbot Bancshares if it is ultimately determined that the
standard of conduct was not met.
The Talbot Bancshares charter provides that Talbot Bancshares, to the fullest
extent of Maryland law, will indemnify, and advance expenses to a director,
officer, employee or agent of Talbot Bancshares.
Shore Bancshares
Maryland law requires a corporation, unless its charter provides otherwise,
which Shore Bancshares' charter does not, to indemnify a director or officer
who has been successful, on the merits or otherwise, in the defense of any
proceeding to which the person was made a party by reason of his service in
that capacity. Maryland law permits a corporation to indemnify its present and
former directors and officers, among others, in connection with any proceeding
to which they may be made a party by reason of their service in those or other
capacities unless it is established that:
. the act or omission of the director or officer was material to the matter
giving rise to the proceeding and was committed in bad faith or was the
result of active and deliberate dishonesty,
. the director or officer actually received an improper personal benefit in
money, property or services, or
. in the case of any criminal proceeding, the director or officer had
reasonable cause to believe that the act or omission was unlawful.
The indemnity may include judgments, penalties, fines, settlements and
reasonable expenses actually incurred by the director or officer in connection
with the proceeding; provided, however, that if the proceeding is one by or in
the right of the corporation, indemnification is not permitted with respect to
any proceeding in which the director or officer has been adjudged to be liable
to the corporation.
In addition, a director or officer may not be indemnified with respect to any
proceeding charging an improper personal benefit to the director or officer in
which the director or officer was adjudged to be liable on the basis that the
personal benefit was improperly received. The termination of any proceeding by
conviction or upon a plea of nolo contendere or its equivalent or an entry of
an order of probation prior to judgment creates a rebuttable presumption that
the director or officer did not meet the requisite standard of conduct required
for permitted indemnification. The termination of any proceeding by judgment,
order or settlement, however, does not create a presumption that the director
or officer did not meet the requisite standard of conduct for permitted
indemnification.
As a condition to advancing expenses to a director who is a party to a
proceeding, Maryland law requires Shore Bancshares to obtain a written
affirmation from the director or officer of his good faith belief that he has
met the standard of conduct necessary for indemnification by Shore Bancshares
and a written statement by or on his behalf to repay the amount paid or
reimbursed by Shore Bancshares if it is ultimately determined that the standard
of conduct was not met.
The Shore Bancshares by-laws provide that each director, officer, employee and
agents of the corporation shall be indemnified by the corporation to the
fullest extent permitted by Maryland law.
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LIMITATION OF PERSONAL LIABILITY OF DIRECTORS AND OFFICERS
Talbot Bancshares
The Talbot Bancshares charter provides that Talbot Bancshares directors and
officers are not liable to Talbot Bancshares or its stockholders for money
damages, except for liability resulting from:
. actual receipt of an improper benefit or profit in money, property, or
services, in which case recovery is limited to the actual amount of the
benefit or profit actually received, or
. a judgment or other final adjudication adverse to the person that is entered
in a proceeding based on a finding in the proceeding that the person's
action, or failure to act, was result of active and deliberate dishonesty and
was material to the cause of action adjudicated in the proceeding.
Shore Bancshares
The Shore Bancshares charter provides that Shore Bancshares directors and
officers are not liable to Shore Bancshares or its stockholders for money
damages, except for liability resulting from:
. actual receipt of an improper benefit or profit in money, property, or
services, in which case recovery is limited to the actual amount of the
benefit or profit actually received, or
. a judgment or other final adjudication adverse to the person that is entered
in a proceeding based on a finding in the proceeding that the person's
action, or failure to act, was result of active and deliberate dishonesty and
was material to the cause of action adjudicated in the proceeding.
CHARTER AMENDMENTS
Talbot Bancshares
Maryland law allows amendment of a corporation's charter if its board of
directors adopts a resolution setting forth the amendment proposed, declaring
its advisability, and the stockholders thereafter approve the proposed
amendment either at a special meeting called by the board of directors for the
purpose of approval of the amendment by the stockholders or, if so directed by
the board of directors, at the next annual stockholders' meeting. At any such
meeting, the proposed amendment must be approved by two-thirds of all votes
entitled to vote on the matter.
Talbot Bancshares' charter provides that the corporation reserves the right to
amend in any respect any provision of the charter, in the manner now or
hereafter provided by law, including amendments which alter the contract rights
of any outstanding stock.
Shore Bancshares
Maryland law allows amendment of a corporation's charter if its board of
directors adopts a resolution setting forth the amendment proposed, declaring
its advisability, and the stockholders thereafter approve the proposed
amendment either at a special meeting called by the board of directors for the
purpose of approval of the amendment by the stockholders or, if so directed by
the board of directors, at the next annual stockholders' meeting. At any such
meeting, the proposed amendment must be approved by two-thirds of all votes
entitled to vote on the matter.
Shore Bancshares' charter provides that the corporation reserves the right to
amend in any respect any provision of the charter, in the manner now or
hereafter provided by law, including amendments which alter the contract rights
of any outstanding stock. However, the affirmative vote of the holders of not
less than 80% of the outstanding shares entitled to vote is required to repeal,
rescind, alter or amend the provisions relating to the board of directors
including the division of the board of directors into classes.
After the merger, the new Shore Bancshares' charter will reduce the vote needed
to amend the charter (other than where the 80% vote is required above) to a
majority of the outstanding shares entitled to vote.
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BY-LAW AMENDMENTS
Talbot Bancshares
Under Maryland law, the exclusive power to change the by-laws may be left with
the stockholders, vested in the board of directors or shared by both groups.
The Talbot Bancshares by-laws permit the board of directors and the
stockholders to amend, alter or repeal the by-laws, provided that any amendment
by the stockholders may only be made at an annual meeting or a special meeting
called for that purpose.
Shore Bancshares
Under Maryland law, the exclusive power to change the by-laws may be left with
the stockholders, vested in the board of directors or shared by both groups.
The Shore Bancshares by-laws permit the board of directors and the stockholders
to amend, alter or repeal the by-laws, provided that any amendment by the
stockholders may only be made at an annual meeting or a special meeting called
for that purpose.
After the merger, the Shore Bancshares by-laws will permit amendments to the
by-laws by the stockholders by the affirmative vote of a majority of all the
votes entitled to be cast generally in the election of directors at a meeting
called for that purpose or by the affirmative vote of two-thirds of the board
of directors.
VOTE ON MERGER, MERGER OR SALE OF SUBSTANTIALLY ALL ASSETS
Talbot Bancshares
Under Maryland law, unless the corporate charter states otherwise, the approval
by the holders of two-thirds of the shares of the corporation entitled to vote
on these matters is required for:
. sale, lease, exchange or transfer of all or substantially all of the assets
of a corporation not in the ordinary course of business conducted by it, and
. any merger, consolidation or share exchange involving the corporation.
The Talbot Bancshares charter has not taken any exception to this provision.
Maryland law also provides that the vote of the stockholders of a surviving
corporation is not required to approve a merger if (a) the plan of merger does
not reclassify or change its outstanding stock or otherwise amend the
corporation's charter and (b) the number of shares of common stock to be issued
or transferred in the merger does not increase by more than 20% of the number
of its shares of the same class outstanding immediately before the merger
becomes effective.
Shore Bancshares
Under Maryland law, unless the corporate charter states otherwise, the approval
by the holders of two-thirds of the shares of the corporation entitled to vote
on these matters is required for:
. sale, lease, exchange or transfer of all or substantially all of the assets
of a corporation not in the ordinary course of business conducted by it, and
. any merger, consolidation or share exchange involving the corporation.
The Shore Bancshares charter has not taken any exception to this provision.
Maryland law also provides that the vote of the stockholders of a surviving
corporation is not required to approve a merger if (a) the plan of merger does
not reclassify or change its outstanding stock or otherwise amend the
corporation's charter and (b) the number of shares of common stock to be issued
or transferred in the merger does not increase by more than 20% of the number
of its shares of the same class outstanding immediately before the merger
becomes effective.
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After the merger, the new Shore Bancshares charter will provide that until
September 30, 2005, without the approval of at least two-thirds of the entire
board of directors, Shore Bancshares may not enter into an agreement with
another entity for either Shore Bancshares or one of its bank subsidiaries to:
. merge or consolidate,
. transfer all or substantially all of its assets,
. engage in a share exchange, or
. sell or otherwise dispose of any stock of any subsidiary bank.
The required vote of the stockholders, however, will be reduced from two-thirds
to a majority of the outstanding stock.
STOCKHOLDER MEETINGS
Talbot Bancshares
The Talbot Bancshares by-laws provide that an annual meeting of stockholders is
to be held each year on the fourth Wednesday in April, as designated by the
Talbot Bancshares board of directors. Under the Talbot Bancshares by-laws, a
special meeting of the stockholders of Talbot Bancshares may be called at any
time by:
. a majority of the Talbot Bancshares board of directors,
. the President or any Vice President of Talbot Bancshares, or
. a majority of the votes entitled to be cast at a special meeting.
Shore Bancshares
The Shore Bancshares by-laws provide that an annual meeting of stockholders is
to be held each year in April, as designated by the Shore Bancshares board of
directors. Under the Shore Bancshares by-laws, a special meeting may only be
called at any time by:
. a majority of the Shore Bancshares board of directors,
. the chairman of the Shore Bancshares board of directors,
. the president of Shore Bancshares, or
. a majority of the votes entitled to be cast at a special meeting.
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DESCRIPTION OF SHORE BANCSHARES CAPITAL STOCK
General
Shore Bancshares' authorized capital stock currently consists of 10,000,000
shares of common stock, par value $.01 per share. Upon completion of the merger
Shore Bancshares' authorized capital stock will be increased to 35,000,000
shares of common stock, par value $.01 per share, and the board of directors
may increase or decrease the number of authorized shares without approval of
the stockholders. The board of directors may classify and reclassify any
unissued shares of capital stock by setting or changing in any one or more
respects the preferences, conversion or other rights, voting powers,
restrictions, limitations as to dividends, qualifications, or terms or
conditions of redemption of the shares of stock. The following description does
not contain all the information that might be important to you; therefore, you
should read the more detailed provisions of the Shore Bancshares charter and
by-laws, attached to this proxy statement/prospectus as Appendix B and C. For a
description of the provisions of the current and amended charter and by-laws,
some of which may have anti-takeover effects, see "Comparison of the Rights of
Holders of Talbot Bancshares Capital Stock and Shore Bancshares Capital Stock"
on page . The following summary does not give effect to provisions of
applicable statutory or common law and the Shore Bancshares charter, which is
incorporated by reference as exhibits to the registration statement on Form S-4
of which this proxy statement/prospectus is a part.
Common Stock
As of July 25, 2000, there were 1,914,137 shares of Shore Bancshares common
stock outstanding. A holder of common stock has one vote for each share held by
him on all matters submitted to a vote of stockholders and the exclusive voting
power for all purposes is vested in the holders of the common stock. Holders of
common stock do not have the right of cumulative voting in connection with the
election of directors. The common stock has no conversion rights and is not
subject to redemption. A stockholder of Shore Bancshares has no preemptive
rights to subscribe for additional shares of stock or other securities of Shore
Bancshares except as may be granted by the board of directors.
The holders of common stock of Shore Bancshares are entitled to receive, pro
rata, dividends when, as and if declared by the board of directors from funds
legally available for that purpose. The ability of Shore Bancshares to pay
dividends to its stockholders will be limited primarily by the ability of
Talbot Bank and Centreville National Bank to pay dividends to Shore Bancshares.
In the event of any liquidation, dissolution or winding up of Shore Bancshares
and Centreville National Bank, the holders of common stock are entitled to
share ratably in all the remaining assets.
All of the outstanding shares of common stock are, and the shares of common
stock offered by this proxy statement/prospectus will be, validly issued, fully
paid and nonassessable.
The Transfer Agent for the common stock is the Centreville National Bank.
Preferred Stock
Under the Shore Bancshares charter, Shore Bancshares is authorized without
further stockholder action, from time to time, to classify any unissued shares
of capital stock as preferred stock and to issue shares of preferred stock of
Shore Bancshares, in one or more series, with the designations, preferences,
powers and relative participating, optional or other special rights, and the
qualifications, limitations or restrictions, including, but not limited to,
dividend rights, dividend rate or rates, conversion rights, voting rights,
rights and terms of redemption, the redemption price or prices, and the
liquidation preferences as shall be stated in the resolution providing for the
issued of a series of the stock adopted, at any time or from time to time, by
the Shore Bancshares board.
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FUTURE STOCKHOLDER PROPOSALS
Pursuant to Rule 14a-8 promulgated under the Securities Exchange Act, Shore
Bancshares stockholders may present proposals for inclusion in the Shore
Bancshares proxy statement for consideration at the next annual meeting of its
stockholders by submitting their proposals to Shore Bancshares by November 22,
2000. Talbot Bancshares stockholders who become stockholders of Shore
Bancshares may present proposals for inclusion in the Shore Bancshares proxy
statement for its 2001 annual meeting. All proposals must comply with Rule 14a-
8 of the Securities Exchange Act.
Upon approval of the merger, Shore Bancshares' by-laws require stockholders
who intend to propose business for consideration by stockholders at an annual
meeting, other than stockholder proposals that are included in the proxy
statement, to give written notice to the Secretary of Shore Bancshares not less
than 60 days and not more than 90 days before the anniversary of the prior
years' meeting. A stockholder must submit a matter to be raised at Shore
Bancshares' 2001 meeting of Stockholders on or after January 17, 2001, but not
later than, February 16, 2001. The written notice should be sent to Shore
Bancshares' new principal office at 18 East Dover Street, Easton, Maryland
21601 (to the attention of the Secretary) and must include a brief description
of the business, the reasons for conducting the business, any material interest
the stockholder has in the business, the name and address of the stockholder as
they appear on Shore Bancshares' books and the number of shares of Shore
Bancshares common stock the stockholder beneficially owns.
SEC rules provide standards for what stockholder proposals Shore Bancshares
is required to include in a proxy statement for an annual meeting.
OTHER MATTERS
The boards of directors of Talbot Bancshares and Shore Bancshares do not
know of any other business to be presented for consideration at the special
meetings. If other matters properly come before the meetings, the persons named
in the accompanying forms of proxy intend to vote on these matters based on
their best judgment.
LEGAL MATTERS
Gordon, Feinblatt, Rothman, Hoffberger & Hollander, LLC has issued a legal
opinion concerning the legality of the common stock of Shore Bancshares to be
issued to Talbot Bancshares stockholders. Certain federal income tax
consequences and other matters relating to the merger will be passed upon by
Piper Marbury Rudnick & Wolfe LLP, counsel to Talbot Bancshares. Certain
matters relating to the merger will be passed upon by Gordon, Feinblatt,
Rothman, Hoffberger & Hollander, LLC, as counsel to Shore Bancshares.
EXPERTS
The financial statements of Talbot Bancshares as of December 31, 1999 and
1998, and for each of the years in the three-year period ended December 31,
1999, have been incorporated by reference in this proxy statement/prospectus
and in the registration statement in reliance upon the report of Stegman &
Company, independent certified public accountants, incorporated by reference in
this proxy statement/prospectus, and upon the authority of said firm as experts
in accounting and auditing.
The financial statements of Shore Bancshares, Inc. as of December 31, 1999
and 1998, and for each of the three years in the period ended December 31,
1999, have been incorporated by reference in this proxy statement/prospectus
and in the registration statement in reliance upon the report of Stegman &
Company, independent certified public accountants, incorporated by reference in
this proxy statement/prospectus, and upon the authority of that firm as experts
in accounting and auditing.
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WHERE YOU CAN FIND MORE INFORMATION
Shore Bancshares has filed with the SEC a registration statement under the
Securities Act that registers the shares of Shore Bancshares common stock to be
issued to Talbot Bancshares stockholders in connection with the merger. The
registration statement, including the attached exhibits and schedules, contains
additional relevant information about Shore Bancshares and Shore Bancshares
common stock.
The rules and regulations of the SEC allow us to omit certain information
included in the registration statement from this proxy statement/prospectus.
Information relating to principal stockholders and security ownership of
management, executive compensation, various benefit plans (including stock
option plans), certain relationships and related transactions and other related
matters as to Talbot Bancshares is described in Talbot Bancshares' Annual
Report on Form 10-K for the year ended December 31, 1999 and Quarterly Reports
on Form 10-Q for the quarters ended March 31, 2000 and June 30, 2000,
incorporated in this proxy statement/prospectus by reference. Information
relating to principal stockholders and security ownership of management,
executive compensation, various benefit plans (including stock option and stock
purchase plans), certain relationships and related transactions and other
related matters as to Shore Bancshares is described in Shore Bancshares' Annual
Report on Form 10-K for the year ended December 31, 1999, and Quarterly Reports
on Form 10-Q for the quarters ended March 31, 2000 and June 30, 2000,
incorporated in this proxy statement/prospectus by reference.
In addition, Talbot Bancshares and Shore Bancshares file annual, quarterly
and special reports, proxy statements and other information with the SEC under
the Securities Exchange Act. You may read and copy this information at the
SEC's Public Reference Room, 450 Fifth Street, N.W., Room 1024, Washington,
D.C. 20549.
You may also obtain copies of this information by mail from the Public
Reference Section of the SEC, 450 Fifth Street, N.W., Room 1024, Washington,
D.C. 20549, at prescribed rates. You may obtain information on the operation of
the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC also
maintains an Internet world wide web site that contains reports, proxy
statements and other information about issuers, like Talbot Bancshares and
Shore Bancshares, who file electronically with the SEC. The address of the site
is http://www.sec.gov.
The SEC allows us to "incorporate by reference" information into this proxy
statement/prospectus. This means that we can disclose important information to
you by referring you to another document filed separately with the SEC. The
information incorporated by reference is considered to be a part of this proxy
statement/prospectus, except for any information that is superseded by
information that is included directly in this proxy statement/prospectus.
This proxy statement/prospectus incorporates by reference the documents
listed below that Talbot Bancshares and Shore Bancshares previously filed with
the SEC. They contain important information about the companies and their
financial condition.
<TABLE>
<CAPTION>
Talbot Bancshares Commission
Filings Period or Date Filed
---------------------------- --------------------
<S> <C>
Annual Report on Form 10-K Year ended December 31, 1999
Quarterly Report on Form 10-Q Quarter ended March 31, 2000
Quarterly Report on Form 10-Q Quarter ended June 30, 2000
Current Report on Form 8-K July 28, 2000
<CAPTION>
Shore Bancshares Commission
Filings Period or Date Filed
--------------------------- --------------------
<S> <C>
Annual Report on Form 10-K Year ended December 31, 1999
Quarterly Report on Form 10-Q Quarter ended March 31, 2000
Quarterly Report on Form 10-Q Quarter ended June 30, 2000
Current Report on Form 8-K July 31, 2000
</TABLE>
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This proxy statement/prospectus is accompanied by copies of Talbot
Bancshares' Annual Report on Form 10-K for the year ended December 31, 1999,
Proxy Statement dated March 24, 2000 for its Annual Meeting of Stockholders
held on April 26, 2000 and Quarterly Report on Form 10-Q for the quarter ended
June 30, 2000, each as filed with the SEC, including the financial statements,
notes to the financial statements and the financial schedules contained in the
report.
This proxy statement/prospectus is also accompanied by copies of Shore
Bancshares' Annual Report on Form 10-K for the year ended December 31, 1998,
Proxy Statement dated March 20, 2000 for its Annual Meeting of Stockholders
held on April 18, 2000 and Quarterly Report on Form 10-Q for the quarter ended
June 30, 2000, each as filed with the SEC, including the financial statements,
notes to the financial statements and the financial schedules contained in the
report.
We also incorporate by reference additional documents that either company
may file with the SEC between the date of this proxy statement/prospectus and
the date of the Talbot Bancshares or Shore Bancshares special meetings. These
documents include periodic reports, such as annual reports on Form 10-K,
quarterly reports on Form 10-Q and current reports on Form 8-K, as well as
proxy statements.
Talbot Bancshares has supplied all information contained or incorporated by
reference in this proxy statement/prospectus relating to Talbot Bancshares, as
well as all pro forma financial information, and Shore Bancshares has supplied
all information relating to Shore Bancshares.
Documents incorporated by reference are available from Talbot Bancshares and
Shore Bancshares without charge, excluding any exhibits to those documents
unless the exhibit is specifically incorporated by reference as an exhibit in
this proxy statement/prospectus. We will also furnish, upon request, copies of
any exhibits to a report but may charge a reasonable copying charge. You can
obtain copies of any of these materials by requesting them in writing or by
telephone from the appropriate company at the following addresses:
<TABLE>
<S> <C>
Talbot Bancshares, Inc. Shore Bancshares, Inc.
18 East Dover Street 109 North Commerce Street
Easton, Maryland 21601 P.O. Box 400
Phone: (410) 822-1400 Centreville, Maryland 21617
Attn.: Susan E. Leaverton Phone: (410) 758-1600
Attn.: Mary Catherine Quimby
</TABLE>
If you would like to request documents, please do so by November 6, 2000 to
receive them before the special meeting. If you request any incorporated
documents from Talbot Bancshares or Shore Bancshares, we will mail them to you
by first class mail, or another equally prompt means, within one business day
after we receive your request.
We have not authorized anyone to give any information or make any
representation about the merger or our companies that is different from, or in
addition to, that contained in this proxy statement/prospectus or in any of the
materials that have been incorporated into this proxy statement/prospectus.
Therefore, if anyone does give you information of this sort, you should not
rely on it. If you are in a jurisdiction where offers to exchange or sell, or
solicitations of offers to exchange or purchase, the securities offered by this
proxy statement/prospectus or the solicitation of proxies is unlawful, or if
you are a person to whom it is unlawful to direct these types of activities,
then the offer presented in this proxy statement/prospectus does not extend to
you. The information contained in this proxy statement/prospectus speaks only
as of the date of this proxy statement/prospectus unless the information
specifically indicates that another date applies.
73
<PAGE>
TABLE OF APPENDICES
<TABLE>
<CAPTION>
Page
----
<S> <C>
APPENDIX A--PLAN AND AGREEMENT OF MERGER................................. A-1
APPENDIX B--ARTICLES OF MERGER AND RESTATED SHORE BANCSHARES CHARTER..... B-1
APPENDIX C--NEW SHORE BANCSHARES AMENDED AND RESTATED BY-LAWS............ C-1
APPENDIX D--SUPPORT AGREEMENT OF TALBOT BANCSHARES....................... D-l
APPENDIX E--SUPPORT AGREEMENT OF SHORE BANCSHARES........................ E-1
APPENDIX F--TALBOT BANCSHARES STOCK OPTION AGREEMENT..................... F-1
APPENDIX G--SHORE BANCSHARES STOCK OPTION AGREEMENT...................... G-1
APPENDIX H--OPINION OF DANIELSON ASSOCIATES INC.......................... H-1
APPENDIX I--OPINION OF GARLAND McPHERSON & ASSOCIATES, INC............... I-1
APPENDIX J--SECTIONS 3-201 ET SEQ. OF THE MARYLAND GENERAL CORPORATION
LAW......................................................... J-1
</TABLE>
<PAGE>
APPENDIX A--PLAN AND AGREEMENT OF MERGER
PLAN AND AGREEMENT TO MERGE
PLAN AND AGREEMENT TO MERGE (this "Plan"), dated as of July 25, 2000 by and
between TALBOT BANCSHARES, INC. ("Talbot Bancshares"), a Maryland corporation,
and SHORE BANCSHARES, INC. ("Shore Bancshares"), a Maryland corporation.
WITNESSETH:
WHEREAS, Talbot Bancshares is a financial holding company and the holder of
all of the issued and outstanding capital stock of The Talbot Bank of Easton,
Maryland ("Talbot Bank"), a Maryland commercial bank; and Shore Bancshares is a
bank holding company and the holder of all of the issued and outstanding
capital stock of The Centreville National Bank of Maryland ("Centreville
Bank"), a national banking association; and
WHEREAS, Shore Bancshares and Talbot Bancshares each desires to have Talbot
Bancshares merge with Shore Bancshares in such a manner that, upon the merger
becoming effective, Shore Bancshares will be the surviving Maryland
corporation; and all of the issued and outstanding shares of the Common Stock
of Talbot Bancshares will be converted into the right to receive the Merger
Consideration (as defined in Section 9.2) from Shore Bancshares, subject to the
terms and conditions and based upon Shore Bancshares' and Talbot Bancshares'
representations, warranties, and covenants hereinafter set forth (the
"Merger").
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained and the mutual benefits to be derived herefrom, the parties
agree as follows:
1. Effective Date. Pursuant to Md. General Corporation Law (S) 3-113(a),
the effective date of this Plan and the Merger (the "Effective Date") shall
be either (a) the first day of the month following the month in which the
last of the events in Section 2, Section 7, and Section 8 occurs; or (b)
such other date as Talbot Bancshares and Shore Bancshares may agree upon.
Talbot Bancshares and Shore Bancshares will prepare and execute Articles of
Merger in substantially the form attached as Appendix II which will set
forth the Effective Date, and will file the Articles of Merger with the
Maryland State Department of Assessments and Taxation.
2. Events Preceding Effectiveness. On or before the Effective Date the
following shall have occurred:
(a) A majority of the Boards of Directors of each of Shore
Bancshares and Talbot Bancshares shall have approved and agreed to this
Plan and the Merger;
(b) A majority of the Board of Directors of each of Shore Bancshares
and of Talbot Bancshares, respectively, shall have approved and agreed
to the Stock Option Agreements (the "Stock Option Agreements") in the
forms attached as Appendix IV and Appendix V; and Shore Bancshares and
Talbot Bancshares, respectively, shall have authorized and reserved an
adequate number of shares of its Common Stock for issuance upon
exercise of the option granted by such Stock Option Agreements, and
taken all actions necessary to fulfill its obligations thereunder;
(c) the Boards of Directors of each of Shore Bancshares and Talbot
Bancshares shall call a meeting of the stockholders of each of Shore
Bancshares and Talbot Bancshares. Notice of the time and place of the
meeting shall be provided in accordance with Md. General Corporation
Law (S) 2-504, and this Plan and the Merger shall have been ratified
and confirmed by the affirmative vote of not less than two-thirds of
the issued and outstanding voting stock of Shore Bancshares at its
meeting and not less than two-thirds of the issued and outstanding
voting stock of Talbot Bancshares at its meeting, in accordance with
Md. General Corporation Law (S) 3-105(e);
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<PAGE>
(d) Shore Bancshares and Talbot Bancshares shall have procured the
required approval, consent, waiver, or other administrative action with
respect to this Plan and the transactions contemplated hereby by the
Board of Governors of the Federal Reserve System (the "Federal
Reserve") under Section 3(a)(5) of the Bank Holding Company Act of
1956, as amended;
(e) Shore Bancshares and Talbot Bancshares shall have procured the
required approval, consent, waiver, or other administrative action with
respect to this Plan and the transactions contemplated hereby by the
Maryland Commissioner of Financial Regulation under Md. Fin. Ins. Code
(S) 5-904;
(f) Talbot Bank shall have procured the required approval, consent,
waiver, or other administrative action with respect to this Plan and
the transactions contemplated hereby by the Maryland Commissioner of
Financial Regulation under Md. Fin. Ins. Code (S) 5-403; and
(g) the parties shall have procured all other regulatory approvals,
consents, waivers, or administrative actions of governmental entities
or other persons or agencies that are necessary or appropriate to the
consummation of the transactions contemplated by this Plan, and no
approval, consent, waiver, or administrative action referred to in this
Section 2(g) shall have included any condition or requirement that
would result in a materially adverse effect on Talbot Bancshares or
Shore Bancshares or Talbot Bank or Centreville Bank.
3. Representations and Warranties of Shore Bancshares. Shore Bancshares
represents and warrants to Talbot Bancshares as follows:
3.1. Organization, Standing, and Capitalization of Shore Bancshares
and the Shore Subsidiaries. (a) Shore Bancshares is a duly organized
and validly existing corporation and is in good standing under the laws
of the State of Maryland. Shore Bancshares has the corporate power and
authority to own and hold its material properties and to carry on its
business as it is now being conducted. Shore Bancshares is a bank
holding company under the Bank Holding Company Act of 1956, as amended.
Shore Bancshares has no subsidiaries or directly or indirectly
affiliated companies and is not a party to any joint venture or
partnership other than as set forth on a list previously provided to
Talbot Bancshares (collectively, excluding Delmarva Bank Data
Processing Center, Inc., the "Shore Subsidiaries").
(b) Centreville Bank is a duly organized and validly existing
national banking association and is in good standing under the laws of
the United States. The deposits of Centreville Bank are insured under
the provisions of the Federal Deposit Insurance Act, as amended (85.3%
by the bank insurance fund and 14.7% by the savings association
insurance fund). Each of the other Shore Subsidiaries is a duly
organized and validly existing corporation or other entity and is in
good standing under the laws of the jurisdiction of its incorporation
or organization as set forth on the list previously provided to Talbot
Bancshares. Centreville Bank does not exercise any fiduciary powers.
Each of the Shore Subsidiaries has the power (corporate or other) and
authority to own and hold its material properties and to carry on its
business as it is now being conducted. All outstanding shares of
capital stock or other equity interests of all of the Shore
Subsidiaries are validly issued, fully paid, and non-assessable. Except
as set forth on a list previously provided to Talbot Bancshares, each
of the Shore Subsidiaries is wholly owned by its parent. There are no
outstanding options, warrants, rights, or obligations of any kind
entitling the holder thereof to acquire shares of the capital stock or
other equity interests of any of the Shore Subsidiaries, and there are
no outstanding securities or instruments of any kind that are
convertible into shares of the capital stock or other equity interests
of any of the Shore Subsidiaries. Except as set forth on a list
previously provided to Talbot Bancshares, none of the Shore
Subsidiaries is a party to any joint venture or partnership.
(c) Copies of all organizational documents and by-laws of Shore
Bancshares and each of the Shore Subsidiaries have been previously
provided to Talbot Bancshares, and all such copies are true and correct
as of the date hereof. The minute books of Shore Bancshares and each of
the Shore Subsidiaries, which have been made available to Talbot
Bancshares for inspection, are complete in all
A-2
<PAGE>
material respects and accurately record the actions taken by the
stockholders and directors of Shore Bancshares and each of the Shore
Subsidiaries.
(d) The authorized capital stock of Shore Bancshares consists
exclusively of 10,000,000 shares of Common Stock, par value $.01 per
share, 1,914,132 of which shares are outstanding at July 25, 2000. All
outstanding shares of Shore Bancshares Common Stock are validly issued,
fully paid, and non assessable. Shore Bancshares has reserved 83,547
shares of its Common Stock for issuance under its stock option and
employee stock purchase plans. On July 25, 2000, there were outstanding
options to purchase 15,999 shares of Shore Bancshares Common Stock at
prices ranging from $17.85 to $32.00 pursuant to these stock option and
employee stock purchase plans. Except for the option to be granted to
Talbot Bancshares pursuant to the Stock Option Agreement attached as
Appendix IV and as set forth on a list previously provided to Talbot
Bancshares, there are no other outstanding options, warrants, rights,
or obligations of any kind entitling the holder thereof to acquire
shares of the Common Stock of Shore Bancshares, and there are no
outstanding securities or instruments of any kind that are convertible
into shares of the Common Stock of Shore Bancshares.
3.2. Financial Statements. Shore Bancshares has previously provided
to Talbot Bancshares copies of the Consolidated Financial Statements of
Shore Bancshares and the Shore Subsidiaries at December 31, 1995, 1996,
1997, 1998, and 1999 and for each of the years then ended, as reported
upon by Stegman & Company, and at March 31, 1999 and 2000 and for each
of the three month periods then ended, all of which are true and
complete in all material respects, have been prepared in accordance
with generally accepted accounting principles consistently followed
throughout the periods covered by such consolidated financial
statements and present fairly the financial position, results of
operations, cash flows, and changes in stockholders' equity of Shore
Bancshares and the Shore Subsidiaries at the dates of and for the
periods covered by such financial statements.
3.3. Taxes. Copies of the tax returns for federal, state, county,
municipal, or foreign taxing authorities for the taxable year ended
December 31, 1995 and all taxable years through and including December
31, 1999 for Shore Bancshares and the Shore Subsidiaries have been
previously provided to Talbot Bancshares. Shore Bancshares and the
Shore Subsidiaries have filed with appropriate federal, state, county,
municipal, or foreign taxing authorities all tax returns required to be
filed (taking any applicable extensions into consideration) and have
paid or reserved for all taxes shown to be due on such returns and all
penalties and interest payable in respect thereof. Except as disclosed
in writing to Talbot Bancshares, since January 1, 1995 neither Shore
Bancshares nor any of the Shore Subsidiaries have received from any
taxing authority any notice of deficiency or assessment of additional
taxes not paid or any notice of an intention to commence an examination
or audit of its tax returns, and no tax audits by any taxing authority
are in process. Except as disclosed in writing to Talbot Bancshares,
since January 1, 1995 neither Shore Bancshares nor any of the Shore
Subsidiaries have granted any waiver of any statute of limitations or
otherwise agreed to any extension of a period for the assessment of any
federal, state, county, municipal, or foreign income tax. The accruals
and reserves reflected in the consolidated financial statements which
Shore Bancshares has provided to Talbot Bancshares as described in
Section 3.2 are adequate to cover all taxes (including interest and
penalties, if any, thereon) that are payable or accrued as a result of
the operations of Shore Bancshares and the Shore Subsidiaries for all
periods prior to the date of such consolidated financial statements.
For purposes of this Section 3.3, any reference to the Shore
Subsidiaries shall be deemed to include any entity previously
identified on the list delivered to Talbot Bancshares pursuant to
3.1(a) and 3.1(b).
3.4. No Undisclosed Liabilities. Except as and to the extent
reflected or reserved against in the consolidated financial statements
delivered under Section 3.2, neither Shore Bancshares nor any of the
Shore Subsidiaries at the dates of such consolidated financial
statements had any material liabilities or obligations (whether
accrued, absolute, or contingent) required under generally accepted
accounting principles to be reflected thereon which would materially
and adversely affect the fair presentation of such financial
statements. Neither Shore Bancshares nor any of the Shore Subsidiaries
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<PAGE>
has incurred any liability since the date of the consolidated financial
statements delivered under Section 3.2 (including any liability for
taxes) which would materially and adversely affect the condition
(financial or otherwise), assets, liabilities, business, or operations
of Shore Bancshares and the Shore Subsidiaries, taken as a whole, other
than liabilities which have been incurred in the ordinary course of
business.
3.5. Absence of Certain Changes or Events. Except as previously
disclosed in writing to Talbot Bancshares, since December 31, 1999
there has not been:
(a) Any materially adverse change in the financial position,
results of operations, assets, liabilities, or business of Shore
Bancshares or the Shore Subsidiaries, other than changes in the
ordinary course of business;
(b) any increase in salaries or wages of directors, officers, or
employees of Shore Bancshares or the Shore Subsidiaries other than
in the ordinary course of business; or any establishment or increase
of any employment, compensation, bonus, pension, option, incentive
or deferred compensation, retirement payments, profit sharing, or
similar agreement or benefit, authorized, granted, or accrued to any
directors, officers, or employees of Shore Bancshares or the Shore
Subsidiaries other than in the ordinary course of business; or
(c) any declaration, payment, or set aside by Shore Bancshares of
any dividend or distribution in respect of its Common Stock (other
than regular quarterly cash dividends), or any purchase, issuance,
or sale by Shore Bancshares of any of its Common Stock.
3.6. Complete and Accurate Disclosure. Neither this Plan (insofar as
it relates to Shore Bancshares and the Shore Subsidiaries, the Common
Stock of Shore Bancshares, and the involvement of Shore Bancshares in
the transactions contemplated hereby) nor any financial statement,
schedule, certificate, or other statement or document previously
disclosed in writing under this Agreement delivered by Shore Bancshares
to Talbot Bancshares in connection with this Plan, when considered in
the aggregate, contains any statement which, at the time and in light
of the circumstances under which it is made, is false or misleading
with respect to any material fact or omits to state any material fact
necessary to make the statements contained herein or therein not false
or misleading.
3.7. Title to Properties; Absence of Liens and Encumbrances;
Compliance with Laws. Except as previously disclosed in writing to
Talbot Bancshares, Shore Bancshares and each of the Shore Subsidiaries
has good and marketable title to all of their respective properties and
assets, including those reflected in the consolidated financial
statements delivered pursuant to Section 3.2, except as sold or
otherwise disposed of for fair value and only in the ordinary course of
business, free and clear of all liens and encumbrances, except (i) with
respect to property as to which they are lessees, (ii) with respect to
real estate owned by Shore Bancshares or the Shore Subsidiaries, for
use, occupancy, and similar restrictions of public record that may be
observed by an inspection of the property, and such other utility and
other easements and encumbrances as do not materially adversely affect
the fair market value of such real property, and (iii) liens to secure
borrowings, liens to secure governmental deposits, and liens for
current taxes not yet due and payable. Neither Shore Bancshares nor any
of the Shore Subsidiaries owns or leases real property except as
previously disclosed in writing to Talbot Bancshares, and is not in
default under any material lease of real or personal property to which
it is a party. As of the date hereof, except as previously disclosed in
writing to Talbot Bancshares, the real properties, structures,
buildings, equipment, and the tangible personal property owned,
operated, or leased by Shore Bancshares or any of the Shore
Subsidiaries are (x) in good repair, order, and condition, except for
depletion, depreciation, and ordinary wear and tear, (y) suitable for
the uses for which they were intended, and (z) free from any known
structural defects. As of the date hereof, there are no laws,
conditions of record, or other impediments which materially interfere
with the intended uses by Shore Bancshares or any of the Shore
Subsidiaries of the real property or tangible personal property owned
or leased by it, except as previously disclosed in writing to Talbot
Bancshares. Neither Shore Bancshares nor any of the Shore Subsidiaries
have received any
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notice of any violation of any applicable law, building code, zoning
ordinance, or other similar law. Shore Bancshares and the Shore
Subsidiaries own or have the rights to use all real and personal
properties and assets that are material to the conduct of the business
as now conducted of Shore Bancshares and the Shore Subsidiaries, taken
as a whole.
3.8. Contracts. Except for the plans, contracts, and agreements of
Shore Bancshares and the Shore Subsidiaries (or of any plan under
Section 3.8(b)) set forth on the list previously provided to Talbot
Bancshares, neither Shore Bancshares nor any of the Shore Subsidiaries
(nor any plan under Section 3.8(b)) is a party to or subject to:
(a) Any employment, consultation, or compensation contract or
arrangement (other than those terminable at will) with any current
or former officer, consultant, director, agent or employee (or
beneficiary of any of them);
(b) any plan, contract, program, understanding, or agreement
providing for bonuses, pensions, severance pay, executive
compensation, options, stock purchases, or any other form of
retirement, incentive or deferred compensation, retirement payments,
death benefits, profit sharing, branch closing benefits, workers'
compensation, tuition reimbursement or scholarship program, any
plans providing benefits or payments in the event of a change in
control, change in ownership, or sale of a substantial portion
(including all or substantially all) of the assets of Shore
Bancshares or any of the Shore Subsidiaries, or any health,
accident, disability, sick leave, vacation pay, life insurance, or
other welfare benefit, or any other employee or retired employee
benefit (including, without limitation, any "employee benefit plan"
as defined in Section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA")) in which any current or
former officer, consultant, employee, director, or agent (or
beneficiary of any of them) of Shore Bancshares or any of the Shore
Subsidiaries is or was, within the last six years, entitled to
participate;
(c) any contract or agreement with any labor union;
(d) any lease of real or personal property with annual rentals in
excess of $15,000;
(e) any agreement for services in excess of $30,000 per year
(other than any employment, arbitration or compensation contract or
arrangement with any current or former officer, consultant,
director, agent or employee) or any agreement for the purchase or
disposition of any equipment or supplies except individual purchase
orders for office supplies incurred in the ordinary course of
business of $10,000 or less;
(f) any instrument evidencing or relating to indebtedness for
borrowed money except for customer accounts, deposits, certificates
of deposit, federal funds purchased, repurchase agreements and the
like which may be construed as borrowings and except for loans made
by Centreville Bank as lender in the ordinary course of its
business;
(g) any lease or other contract containing covenants not to enter
into or consummate the transactions contemplated hereby or which
provides for payments in excess of $2,000 and will be terminated or
violated by the Merger or in respect of which the Merger would cause
a default or acceleration of obligations; or
(h) any other contract or agreement not of the type covered by
any of the other specific terms of this Section 3.8 obligating Shore
Bancshares or any Shore Subsidiary to expenditures in excess of
$25,000.
Each of the instruments set forth on the list previously provided to
Talbot Bancshares is valid and in full force and effect. Neither Shore
Bancshares nor any of the Shore Subsidiaries are in default nor have
any of them received any notice that they are in default, nor to their
actual knowledge is any other party in default, under any material
agreements, instruments, or obligations to which Shore Bancshares or
any of the Shore Subsidiaries is a party or by which they are bound.
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3.9. Litigation, Etc. Except as set forth on the list previously
provided to Talbot Bancshares, (a) there is no litigation, proceeding,
or investigation pending or, to the knowledge of Shore Bancshares,
threatened against Shore Bancshares or any of the Shore Subsidiaries
which would result in any materially adverse change in the condition
(financial or otherwise), assets, liabilities, business, operations, or
future prospects of Shore Bancshares and the Shore Subsidiaries, taken
as a whole; (b) there are no outstanding orders, writs, injunctions,
judgments, decrees, directives, consent agreements, or memoranda of
understanding issued by any federal, state, or local court or
governmental authority or arbitration tribunal issued against or with
the consent of Shore Bancshares or any of the Shore Subsidiaries that
materially and adversely affect the condition (financial or otherwise),
assets, liabilities, business, operations, or future prospects or that
in any manner restrict Shore Bancshares' right to carry on its business
or that of the Shore Subsidiaries as now conducted; and (c) Shore
Bancshares is aware of no fact or condition now existing that might
give rise to any litigation, investigation, or proceeding which, if
determined adversely to Shore Bancshares or any of the Shore
Subsidiaries, would materially and adversely affect the condition
(financial or otherwise), assets, liabilities, business, operations, or
future prospects of Shore Bancshares and the Shore Subsidiaries, taken
as a whole, or would restrict in any manner Shore Bancshares' right to
carry on its business or that of the Shore Subsidiaries as now
conducted. Shore Bancshares has set forth on the list previously
provided to Talbot Bancshares all litigation in which Shore Bancshares
or any of the Shore Subsidiaries is involved as a party (other than
bankruptcy proceedings in which Shore Bancshares or any of the Shore
Subsidiaries has filed proofs of claim or routine collection and
foreclosure suits initiated in the ordinary course of business).
3.10. Environmental Matters. (a) The following terms shall have the
indicated meaning:
"Property" or "Properties" means all branch properties now or
formerly owned or operated, all other real property now owned or
operated, and any real properties owned or operated on or after
January 1, 1990 and subsequently disposed of.
"Environmental Law" means (i) any applicable federal, state, or
local statute, law, ordinance, rule, regulation, code, license,
permit, authorization, approval, consent, order, judgment, decree,
directive, requirement, or agreement with any court, governmental
authority, or other regulatory or administrative agency or
commission, domestic or foreign ("Governmental Entity") concerning
protection or preservation of the environment, human health or
natural resources, including without limitation, those relating to
the use, storage, treatment, generation, transportation, processing,
handling, labeling, production, release, or disposal of Hazardous
Substances, each as amended, or (ii) any common law that may impose
liability or obligations for injuries or damages due to the presence
of or exposure to any Hazardous Substance.
"Hazardous Substance" means any substance, whether liquid, solid,
or gas, listed, defined, designated, or classified as hazardous,
toxic, radioactive, or dangerous under any applicable Environmental
Law, whether by type or by quantity, and any other substance, waste
or material (regardless of physical form or concentration) which is
hazardous, dangerous, damaging or toxic to living things or the
environment. Hazardous Substance includes, without limitation, any
"hazardous substance" as defined in the Comprehensive Environmental
Response, Compensation and Liability Act, as amended ("CERCLA"), and
any other substance regulated or subject to any Environmental Law,
including, but not limited to the Toxic Substance Control Act, Clean
Water Act, Clean Air Act, Oil Pollution Act and Resource
Conservation and Recovery Act, or a similar state statute,
regardless of the amount of the Hazardous Substance.
(b) Except as previously disclosed in writing to Talbot Bancshares
or as would not individually or in the aggregate have a materially
adverse effect on the condition (financial or otherwise), assets,
liabilities, business, or operations of Shore Bancshares and the Shore
Subsidiaries, taken as a whole:
(i) neither Shore Bancshares nor any of the Shore Subsidiaries
has received any written notices, demand letters, or written
requests for information from any Governmental Entity or any
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third party indicating that Shore Bancshares or any Shore Subsidiary
may be in violation of, or liable under, any Environmental Law;
(ii) there are no civil, criminal, or administrative actions,
suits, demands, claims, hearings, investigations, or proceedings
pending or to the knowledge of Shore Bancshares threatened against
Shore Bancshares or any Shore Subsidiary alleging that they may be
in violation of, or liable under, any Environmental Law;
(iii) no reports have been filed with any Governmental Entity,
nor to the knowledge of Shore Bancshares are any reports required to
be filed with any Governmental Entity, concerning the release of any
Hazardous Substance or the violation of any Environmental Law on or
at any of the Properties of Shore Bancshares or any of the Shore
Subsidiaries;
(iv) except as previously disclosed in writing to Talbot
Bancshares, there are no underground storage tanks on, in, or under
any of the Properties of Shore Bancshares or any of the Shore
Subsidiaries, and no underground storage tanks have been closed or
removed from any Property of Shore Bancshares or any of the Shore
Subsidiaries while such Property was owned or operated by Shore
Bancshares or any of the Shore Subsidiaries;
(v) except as previously disclosed in writing to Talbot
Bancshares, no Hazardous Substance has been generated, used, stored,
processed, disposed of, or discharged on or into any of the
Properties of Shore Bancshares or any of the Shore Subsidiaries,
except for the lawful storage and use of such hazardous substances
as are used in the everyday business of a bank office; and
(vi) except as previously disclosed in writing to Talbot
Bancshares, no materials containing asbestos have been used or
incorporated in any building or other structure or improvement
located on any of the Properties of Shore Bancshares or any of the
Shore Subsidiaries.
(c) There are no permits or licenses or agency filings or reports
required under any Environmental Law in respect of any operation of
Shore Bancshares or any of the Shore Subsidiaries or in respect of the
Properties of Shore Bancshares or any of the Shore Subsidiaries the
absence or violation of which could, individually or in the aggregate,
have a materially adverse effect on the condition (financial or
otherwise), assets, liabilities, business, or operations of Shore
Bancshares and the Shore Subsidiaries, taken as a whole.
(d) Shore Bancshares and each of the Shore Subsidiaries are and have
been in compliance with all Environmental Laws except for such
noncompliance as would not, individually or in the aggregate, have a
materially adverse effect on the condition (financial or otherwise),
assets, liabilities, business or operations of Shore Bancshares and the
Shore Subsidiaries, taken as a whole.
(e) Shore Bancshares has previously provided to Talbot Bancshares a
copy of any current policy regarding compliance with Environmental Laws
and its policies on screening proposed collateral for potential
environmental liabilities.
(f) Copies of each environmental site assessment report possessed or
available to Shore Bancshares prepared in connection with any of the
Properties of Shore Bancshares or any of the Shore Subsidiaries have
been previously provided to Talbot Bancshares.
(g) Neither Shore Bancshares nor any of the Shore Subsidiaries is an
"owner or operator" of any property in which it or they hold or have
held a security interest, as that term is defined under CERCLA.
3.11. Labor Matters. To Shore Bancshares' knowledge, no organization
effort with respect to any of the employees of Shore Bancshares or any
of the Shore Subsidiaries is pending or threatened, and no labor
dispute, strike, work stoppage, employee action, or labor relation
problem which may materially affect Shore Bancshares or any of the
Shore Subsidiaries currently is pending or threatened. Since January 1,
1995, Shore Bancshares and each of the Shore Subsidiaries have at all
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times in all material respects complied with all applicable employee
termination notice and similar laws. Since January 1, 1995, Shore
Bancshares and each of the Shore Subsidiaries have at all times
complied in all material respects with all applicable family medical
leave and similar laws. If applicable, Shore Bancshares and each of the
Shore Subsidiaries have at all times complied in all material respects
with all applicable requirements of the Worker Adjustment and
Retraining Notification Act and all similar state laws.
3.12. Pension and Welfare Matters. With respect to the plans,
contracts, programs, understandings, or agreements identified pursuant
to Sections 3.8(a) and (b) (for purposes of this Section 3.12, the
"plans"):
(a) Shore Bancshares has clearly identified on the list
previously provided to Talbot Bancshares all of the plans which are
(i) Multiemployer Plans (as defined in (l) below), (ii) multiple
employer plans subject to Sections 4063 and 4064 of ERISA ("Multiple
Employer Plans"), (iii) plans other than Multiemployer Plans and
Multiple Employer Plans that are subject to Section 412 of the
Internal Revenue Code of 1986, as amended (the "Code"), (iv) plans
intended to qualify under Section 401(a) of the Code, and (v)
"welfare benefit plans" within the meaning of Section 3(1) of ERISA
which provide for continuing benefits or coverage for any
participant or any beneficiary of a participant after such
participant's termination of employment except coverage or benefits
required by Section 4980B of the Code if paid 100% by the
participant;
(b) true, correct and complete copies of the following documents,
with respect to each of the plans have been made available or
delivered to Talbot Bancshares: (i) all plan documents, including
trust agreements, insurance policies, loan documents, and service
agreements and amendments thereto, (ii) the most recent Forms 5500
and any financial statements attached thereto and those for the
prior three years, (iii) the last Internal Revenue Service
determination letter and the application with respect thereto, (iv)
summary plan descriptions, (v) the most recent actuarial statements
and those for the prior three years, (vi) written descriptions of
all non-written agreements relating to any such plan, as applicable,
for Shore Bancshares and each of the Shore Subsidiaries, and (vii)
all filings with a governmental agency or entity within the last
three years, including, without limitation, filings under the
voluntary compliance programs of the U.S. Department of Labor or the
Internal Revenue Service;
(c) each of the plans has been operated in all material respects
in accordance with its terms and in accordance with all previously
and currently effective laws applicable to such plans, including,
but not limited to, ERISA, the Code, the Consolidated Omnibus Budget
Reconciliation Act of 1985, the Health Insurance Portability and
Accountability Act of 1996, and state health care continuation laws;
(d) all reporting and disclosure requirements of ERISA imposed
upon each such plan have been complied with in all material
respects, and all required governmental filings, including
registration and other filings under applicable securities law, have
been made with respect to the plans;
(e) none of (i) the plans, (ii) the Shore Subsidiaries, and (iii)
Shore Bancshares, and to Shore Bancshares' knowledge, (x) no current
or former director, officer, employee, agent, or representative of
Shore Bancshares or any of the Shore Subsidiaries, and (y) no
fiduciary, "party in interest" (as defined in Section 3(14) of
ERISA) or "disqualified person" (as defined in Section 4975 of the
Code) with respect to any of the plans has engaged in any non-exempt
"prohibited transaction" in connection with any of the plans within
the meaning of Section 4975 of the Code or Title I, Part 4 of ERISA
as to which the applicable statute of limitations has not run;
(f) none of the plans has any accumulated funding deficiency (as
defined in Section 302 of ERISA and Section 412 of the Code),
whether or not waived, with respect to the latest five plan
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years, nor any liability to the Pension Benefit Guaranty Corporation
(the "PBGC") (other than normal premium payments);
(g) with respect to plans which are pension plans (as defined in
Section 3(2) of ERISA) subject to Title IV of ERISA, the assets of
each such funded plans equal or exceed the liabilities (as defined
in Section 4001(a)(16) of ERISA) under such plans when such
liabilities are valued on a termination basis using PBGC interest
and other assumptions;
(h) no contributions to any of the plans from Shore Bancshares or
any of the Shore Subsidiaries are currently past due and, if
applicable, all past service and other liabilities currently
existing but payable in the future, if any, are reflected in the
latest actuarial report in accordance with sound actuarial
principles;
(i) no audits, proceedings, investigations, filings, or other
matters (excluding any determination letter application that has
been or may be filed prior to the Effective Date) are pending before
the Internal Revenue Service (the "IRS"), the Department of Labor,
the PBGC, or other public or quasi-public body in connection with
any such plans;
(j) each plan intended to qualify under Section 401(a) of the
Code is so qualified and the trust maintained pursuant thereto is
exempt from taxation under Section 501 of the Code and nothing has
occurred with respect to the operation or administration of such
plan which would cause the loss of such qualification or exemption
or the imposition of any liability, penalty, or tax under ERISA or
the Code that could reasonably be expected to have a material
adverse effect on the condition (financial or otherwise), assets,
liabilities, business, or operations of Shore Bancshares and the
Shore Subsidiaries, taken as a whole, or on such plan;
(k) except as previously disclosed in writing to Talbot
Bancshares, through the Effective Date, there will be no changes in
the operation of the plans or in the documents constituting or
affecting the plans except for amendments and operational changes
required by applicable law which do not materially increase the cost
of such plans;
(l) no employees, former employees, or retired employees of Shore
Bancshares or any of the Shore Subsidiaries, as a result of their
employment with Shore Bancshares or any of the Shore Subsidiaries,
are participants in any "multiemployer plan" which is a "pension
plan," as such terms are defined in Sections 3(37) and 3(2) of
ERISA, respectively, ("Multiemployer Plan") and neither Shore
Bancshares nor any of the Shore Subsidiaries has any current,
contingent or potential liability with respect to any such plan;
(m) no "reportable event," as such term is defined in Section
4043(c) of ERISA, has occurred with respect to any plan since the
effective date of ERISA, other than a reportable event for which the
30 days notice requirement under regulations of the PBGC has been
waived;
(n) there are no pending or threatened claims by or disputes with
any participants or beneficiaries of the plans, except plan benefit
claims arising in the normal course of the operations of the plans
(other than terminated plans) and as to which no dispute exists;
(o) Shore Bancshares has no knowledge of any facts which could
give rise to any claims against any plan or any fiduciary of any
plan, except for plan benefit claims which arise in the normal
course of the operations of the plans (other than terminated plans)
and are not disputed;
(p) neither Shore Bancshares nor any of the Shore Subsidiaries
nor any fiduciary of any plan has given notice to any fiduciary
liability insurer of any claims or potential claims in connection
with any of the plans;
(q) except as previously disclosed in writing to Talbot
Bancshares as plans that cannot be amended or terminated, each of
the plans may effectively be terminated or amended, in any manner
and at any time, without further accrual of liability to its
participants, by its sponsoring or participating employer;
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(r) neither Shore Bancshares nor any of the Shore Subsidiaries
has provided, nor is required to provide, security to any pension
plan or to any single-employer plan pursuant to Section 401(a)(29)
of the Code or Section 307 of ERISA;
(s) there has been no announcement or legally binding commitment
by Shore Bancshares or any of the Shore Subsidiaries to create an
additional plan, or to amend a plan except for amendments required
by applicable law which do not materially increase the cost of such
plan;
(t) as to any terminated plans, all obligations for plan benefits
or other liabilities have been satisfied in full;
(u) none of the plans contains any provision which would prohibit
the transactions contemplated by this Plan or which, except as
previously disclosed in writing to Talbot Bancshares, would give
rise to any severance, termination, or other payments or
liabilities, or any forgiveness of indebtedness, vesting,
distribution, increase in benefits, or obligations to fund benefits
as a result of the transactions contemplated by this Plan; no
payment that is owed or may become due any director, officer,
employee, independent contractor or agent of Shore Bancshares or any
of the Shore Subsidiaries in connection with a plan will be non-
deductible to the payor under Section 280G of the Code, and none of
the Shore Subsidiaries, Talbot Subsidiaries (as defined in Section
4.1), Shore Bancshares and Talbot Bancshares will be required to
"gross up" or otherwise compensate any person in connection with a
plan because of the imposition of any excise tax under Section 4999
of the Code; and
(v) no plan is funded by, associated with, or related to a
"voluntary employees' beneficiary association" within the meaning of
Section 501(c)(9) of the Code.
3.13. Related Party Transactions. Except as disclosed on a list
previously provided to Talbot Bancshares, neither Shore Bancshares nor
any of the Shore Subsidiaries has any contract, extension of credit,
business arrangement, or other relationship of any kind with any of the
following persons: (a) any executive officer or director of Shore
Bancshares or any of the Shore Subsidiaries; (b) any stockholder owning
five percent or more of the outstanding Common Stock of Shore
Bancshares; or (c) any "affiliate" (as defined in the Securities and
Exchange Commission (the "SEC") Rule 405) of the foregoing persons or
any business in which any of the foregoing persons is an officer,
director, employee, or five percent or greater equity owner.
3.14. No Conflict with Other Documents. Except as disclosed on a
list previously provided to Talbot Bancshares, neither the execution
and delivery of this Plan nor the carrying out of the transactions
contemplated hereunder will result in any violation, termination, or
default or acceleration of, or be in conflict with, any terms of any
contract or other instrument to which Shore Bancshares or any of the
Shore Subsidiaries is a party, or of any judgment, decree, or order
applicable to Shore Bancshares or any of the Shore Subsidiaries, or
result in the creation of any lien, charge, or encumbrance upon any of
their properties or assets, except for any of the foregoing which would
not have a material adverse effect upon the condition (financial or
otherwise), assets, liabilities, business, or operations of Shore
Bancshares and the Shore Subsidiaries, taken as a whole.
3.15. Compliance with Laws; Governmental Authorizations. (a) Except
where noncompliance would not have a material and adverse effect upon
the condition (financial or otherwise), assets, liabilities, business,
or operations of Shore Bancshares and the Shore Subsidiaries, taken as
a whole, (i) Shore Bancshares and each of the Shore Subsidiaries are in
compliance with all statutes, laws, ordinances, rules, regulations,
judgments, orders, decrees, directives, consent agreements, memoranda
of understanding, permits, concessions, grants franchises, licenses,
and other governmental authorizations or approvals applicable to Shore
Bancshares, the Shore Subsidiaries, or any of their properties; and
(ii) all permits, concessions, grants, franchises, licenses, and other
governmental authorizations and approvals necessary for the conduct of
the business of Shore Bancshares and the Shore Subsidiaries as now
conducted have been duly obtained and are in full
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force and effect, and there are no proceedings pending or, to Shore
Bancshares' knowledge, threatened which may result in the revocation,
cancellation, suspension, or materially adverse modification of any
thereof. Except as disclosed on a list previously provided to Talbot
Bancshares, neither Shore Bancshares nor any of the Shore Subsidiaries
engages in any business or owns any assets that may not be engaged in
or owned by a registered bank holding company, a national banking
association, or their subsidiaries or affiliates.
(b) Since January 1, 1995, Shore Bancshares has filed all reports
that it was required to file with the SEC under the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), all of which complied in
all material respects with all applicable requirements of the Exchange
Act and the rules and regulations adopted thereunder. As of their
respective dates, each such report, statement, form, or other document,
including without limitation, any financial statements or schedules
included therein, did not contain any untrue statement of a material
fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading, provided, that information
as of a later date shall be deemed to modify information as of an
earlier date.
3.16. Authority; Enforceability. The execution, delivery, and
performance of this Plan by Shore Bancshares have been duly and validly
authorized by its Board of Directors, subject only to requisite
approval by the stockholders of Shore Bancshares and appropriate
governmental regulatory authorities. This Plan is a valid and binding
agreement of Shore Bancshares, enforceable against it in accordance
with its terms, subject as to enforcement to bankruptcy, insolvency,
fraudulent transfer, reorganization, moratorium, and similar laws of
general applicability relating to or affecting creditors' rights and to
general equity principles.
3.17. Insurance. All insurance policies held by Shore Bancshares and
the Shore Subsidiaries relating to their operations (except for title
insurance policies), including without limitation all financial
institutions bonds, are set forth on a list previously provided to
Talbot Bancshares. All such policies are in full force and effect.
Neither Shore Bancshares nor any of the Shore Subsidiaries has received
any notice of cancellation with respect to any such policies and has no
reason to expect that it will receive a notice of cancellation from any
of its present insurance carriers; provided, however, that Shore
Bancshares makes no representation as to the effect of this Plan or the
Merger on its present financial institutions bond or bonds.
3.18. Financial Institutions Bond. Since April 1, 1994, Shore
Bancshares and the Shore Subsidiaries have continuously maintained in
full force and effect one or more financial institutions bonds insuring
Shore Bancshares and the Shore Subsidiaries against acts of dishonesty
by each of their employees. No claim has been made under any such bond
since such date, and Shore Bancshares is not aware of any fact or
condition now existing which forms the basis of a claim under any such
bond. Shore Bancshares and the Shore Subsidiaries have no reason to
expect that their present financial institutions bond or bonds will not
be renewed by their carrier on substantially the same terms as those
now in effect; provided, however, that Shore Bancshares makes no
representation as to the effect of this Plan or the Merger on its
present financial institutions bond or bonds.
3.19. Brokers; Financial Advisor. All negotiations relating to this
Plan and the transactions contemplated hereunder have been carried on
by Shore Bancshares directly or through its counsel or financial
advisor, and there has been no intervention of any person as the result
of any action of Shore Bancshares (and, so far as known to Shore
Bancshares, no intervention of any other person) in such manner as to
give rise to any valid claim against any of the parties hereto for a
brokerage commission, finder's fee, or other like payment (other than
to its financial advisor, Garland McPherson & Associates, Inc.
("GM&A")). A copy of the agreement with GM&A which has been engaged by
Shore Bancshares as its financial advisor and to deliver an opinion as
to the fairness of the transactions contemplated by this Plan to Shore
Bancshares has been previously delivered to Talbot Bancshares.
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3.20. Beneficial Ownership of Talbot Bancshares Common Stock. As of
the date hereof, Shore Bancshares does not beneficially own any shares
of Talbot Bancshares Common Stock or have any option, warrant, or right
of any kind to acquire the beneficial ownership of any Talbot
Bancshares Common Stock.
3.21. Year 2000. Shore Bancshares has carried out a review to
evaluate the extent to which the business or operations of Shore
Bancshares or any of the Shore Subsidiaries will be affected by the
Year 2000 Problem (as defined below). As a result of such review, Shore
Bancshares has no reason to believe, and does not believe, that the
Year 2000 Problem will have a material adverse effect on the condition
(financial or otherwise), assets, liabilities, business, or operations
of Shore Bancshares and the Shore Subsidiaries, taken as a whole. Shore
Bancshares reasonably believes that the suppliers, vendors, customers
or other material third parties used or served by Shore Bancshares and
the Shore Subsidiaries are addressing or will address the Year 2000
Problem in a timely manner. Shore Bancshares is in compliance with all
applicable requirements of any Governmental Entity relating to the Year
2000 Problem and has not received any correspondence from or provided
any written information to any Governmental Entity relating to the Year
2000 Problem. "Year 2000 Problem" means the risk that computer hardware
or software applications will not record, store, process, calculate and
present calendar dates falling on and after January 1, 2000, and
calculate information dependent upon or relating to such dates, in the
same manner and with the same functionality, data integrity and
performance as such products record, store, process, calculate and
present calendar dates falling on or before December 31, 1999, and
calculate information dependent on or relating to such dates.
3.22 Reports. Shore Bancshares and each of the Shore Subsidiaries
have timely filed all reports, registrations and statements, together
with any amendments required to be made with respect thereto, that they
were required to file since January 1, 1995 with (i) the Federal
Reserve, (ii) the Federal Deposit Insurance Corporation ("FDIC") and/or
Office of the Comptroller of the Currency ("OCC"), (iii) any state
banking commissions or any other state regulatory authority (each a
"State Regulator") and (iv) and any self-regulatory organization
("SRO") (collectively, the "Regulatory Agencies"), and have paid all
fees and assessments due and payable in connection therewith. Except
for normal examinations conducted by a Regulatory Agency in the regular
course of the business of Shore Bancshares and the Shore Subsidiaries,
and no Regulatory Agency has initiated any proceeding or investigation
into the business or operations of Shore Bancshares or the Shore
Subsidiaries since January 1, 1995. There is no unresolved material
violation, criticism, or exception by any Regulatory Agency with
respect to any report or statement relating to any examinations of
Shore Bancshares or the Shore Subsidiaries.
3.23 Agreements with Regulatory Agencies. Neither Shore Bancshares
nor the Shore Subsidiaries is subject to any cease-and-desist or other
order issued by, or is a party to any written agreement, consent
agreement or memorandum of understanding with, or is a party to any
commitment letter or similar undertaking to, or is subject to any order
or directive by, or is a recipient of any extraordinary supervisory
letter from, or has adopted any board resolutions at the request of
(each "Company Regulatory Agreement"), any Regulatory Agency or other
Governmental Entity that restricts the conduct of its business or that
in any manner relates to its capital adequacy, its credit policies, its
management or its business, nor has Shore Bancshares or the Shore
Subsidiaries been advised in writing by any Regulatory Agency or other
Governmental Entity that it is considering issuing or requesting any
Company Regulatory Agreement.
3.24 State Takeover Laws and Control Share Acquisition Act. The
Board of Directors of Shore Bancshares has approved this Plan, the
Shore Bancshares Option Agreement and the transactions contemplated
hereby prior to the date of this Plan such that the provisions of
Sections 3-602 and 3-702 of the MGCL will not apply to this Plan, or
the Shore Bancshares Option Agreement or any of the transactions
contemplated hereby or thereby.
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4. Representations and Warranties of Talbot Bancshares. Talbot
Bancshares represents and warrants to Shore Bancshares as follows:
4.1. Organization, Standing, and Capitalization of Talbot Bancshares
and the Talbot Subsidiaries. (a) Talbot Bancshares is a duly organized
and validly existing corporation and is in good standing under the laws
of the State of Maryland. Talbot Bancshares has the corporate power and
authority to own and hold its material properties and to carry on its
business as it is now being conducted. Talbot Bancshares is a financial
holding company under the Bank Holding Company Act of 1956, as amended.
Talbot Bancshares has no subsidiaries or directly or indirectly
affiliated companies and is not a party to any joint venture or
partnership other than as set forth on a list previously provided to
Shore Bancshares (collectively, the "Talbot Subsidiaries").
(b) Talbot Bank is a duly organized and validly existing Maryland
commercial bank and is in good standing under the laws of the State of
Maryland. The deposits of Talbot Bank are insured under the provisions
of the Federal Deposit Insurance Act, as amended (100% by the bank
insurance fund). Each of the other Talbot Subsidiaries is a duly
organized and validly existing corporation or other entity and is in
good standing under the laws of the jurisdiction of its incorporation
or organization as set forth on the list previously provided to Shore
Bancshares. Talbot Bank does not exercise any fiduciary powers. Each of
the Talbot Subsidiaries has the power (corporate or other) and
authority to own and hold its material properties and to carry on its
business as it is now being conducted. All outstanding shares of
capital stock or other equity interests of all of the Talbot
Subsidiaries are validly issued, fully paid, and non-assessable. Except
as set forth on a list previously provided to Shore Bancshares, each of
the Talbot Subsidiaries is wholly owned by its parent. There are no
outstanding options, warrants, rights, or obligations of any kind
entitling the holder thereof to acquire shares of the capital stock or
other equity interests of any of the Talbot Subsidiaries, and there are
no outstanding securities or instruments of any kind that are
convertible into shares of the capital stock or other equity interests
of any of the Talbot Subsidiaries. Except as set forth on a list
previously provided to Shore Bancshares, none of the Talbot
Subsidiaries is a party to any joint venture or partnership.
(c) Copies of all organizational documents and by-laws of Talbot
Bancshares and each of the Talbot Subsidiaries have been previously
provided to Shore Bancshares, and all such copies are true and correct
as of the date hereof. The minute books of Talbot Bancshares and each
of the Talbot Subsidiaries, which have been made available to Shore
Bancshares for inspection, are complete in all material respects and
accurately record the actions taken by the stockholders and directors
of Talbot Bancshares and each of the Talbot Subsidiaries.
(d) The authorized capital stock of Talbot Bancshares consists
exclusively of 25,000,000 shares of Common Stock, par value $.01 per
share, 1,194,876 of which shares are outstanding at July 25, 2000. All
outstanding shares of Talbot Bancshares Common Stock are validly
issued, fully paid, and non assessable. Talbot Bancshares has reserved
125,000 shares of its Common Stock for issuance under its stock option
plans. On July 25, 2000, there were outstanding options to purchase
37,344 shares of Talbot Bancshares Common Stock at prices ranging from
$19.50 to $25.00 pursuant to these stock option plans. Except for the
option to be granted to Shore Bancshares pursuant to the Stock Option
Agreement attached as Appendix V and as set forth on a list previously
provided to Shore Bancshares, there are no other outstanding options,
warrants, rights, or obligations of any kind entitling the holder
thereof to acquire shares of the Common Stock of Talbot Bancshares, and
there are no outstanding securities or instruments of any kind that are
convertible into shares of the Common Stock of Talbot Bancshares.
4.2. Financial Statements. Talbot Bancshares has previously provided
to Shore Bancshares copies of the Consolidated Financial Statements of
Talbot Bancshares and the Talbot Subsidiaries at December 31, 1995,
1996, 1997, 1998, and 1999 and for each of the years then ended, as
reported upon by Stegman & Company, and at March 31, 1999 and 2000 and
for each of the three month
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periods then ended, all of which are true and complete in all material
respects, have been prepared in accordance with generally accepted
accounting principles consistently followed throughout the periods
covered by such consolidated financial statements and present fairly
the financial position, results of operations, cash flows, and changes
in stockholders' equity of Talbot Bancshares and the Talbot
Subsidiaries at the dates of and for the periods covered by such
financial statements.
4.3. Taxes. Copies of the tax returns for federal, state, county,
municipal, or foreign taxing authorities for the taxable year ended
December 31, 1995 and all taxable years through and including December
31, 1999 for Talbot Bancshares and the Talbot Subsidiaries have been
previously provided to Shore Bancshares. Talbot Bancshares and the
Talbot Subsidiaries have filed with appropriate federal, state, county,
municipal, or foreign taxing authorities all tax returns required to be
filed (taking any applicable extensions into consideration) and have
paid or reserved for all taxes shown to be due on such returns and all
penalties and interest payable in respect thereof. Except as disclosed
in writing to Shore Bancshares, since January 1, 1995 neither Talbot
Bancshares nor any of the Talbot Subsidiaries have received from any
taxing authority any notice of deficiency or assessment of additional
taxes not paid or any notice of an intention to commence an examination
or audit of its tax returns, and no tax audits by any taxing authority
are in process. Except as disclosed in writing to Shore Bancshares,
since January 1, 1995 neither Talbot Bancshares nor any of the Talbot
Subsidiaries have granted any waiver of any statute of limitations or
otherwise agreed to any extension of a period for the assessment of any
federal, state, county, municipal, or foreign income tax. The accruals
and reserves reflected in the consolidated financial statements which
Talbot Bancshares has provided to Shore Bancshares as described in
Section 4.2 are adequate to cover all taxes (including interest and
penalties, if any, thereon) that are payable or accrued as a result of
the operations of Talbot Bancshares and the Talbot Subsidiaries for all
periods prior to the date of such consolidated financial statements.
For purposes of this Section 4.3, any reference to the Talbot
Subsidiaries shall be deemed to include any entity previously
identified on the list delivered to Shore Bancshares pursuant to 4.1(a)
and 4.1(b).
4.4. No Undisclosed Liabilities. Except as and to the extent
reflected or reserved against in the consolidated financial statements
delivered under Section 4.2, neither Talbot Bancshares nor any of the
Talbot Subsidiaries at the dates of such consolidated financial
statements had any material liabilities or obligations (whether
accrued, absolute, or contingent) required under generally accepted
accounting principles to be reflected thereon which would materially
and adversely affect the fair presentation of such financial
statements. Neither Talbot Bancshares nor any of the Talbot
Subsidiaries has incurred any liability since the date of the
consolidated financial statements delivered under Section 4.2
(including any liability for taxes) which would materially and
adversely affect the condition (financial or otherwise), assets,
liabilities, business, or operations of Talbot Bancshares and the
Talbot Subsidiaries, taken as a whole, other than liabilities which
have been incurred in the ordinary course of business.
4.5. Absence of Certain Changes or Events. Except as previously
disclosed in writing to Shore Bancshares, since December 31, 1999 there
has not been:
(a) Any materially adverse change in the financial position,
results of operations, assets, liabilities, or business of Talbot
Bancshares or the Talbot Subsidiaries, other than changes in the
ordinary course of business;
(b) any increase in salaries or wages of directors, officers, or
employees of Talbot Bancshares or the Talbot Subsidiaries other than
in the ordinary course of business; or any establishment or increase
of any employment, compensation, bonus, pension, option, incentive
or deferred compensation, retirement payments, profit sharing, or
similar agreement or benefit, authorized, granted, or accrued to any
directors, officers, or employees of Talbot Bancshares or the Talbot
Subsidiaries other than in the ordinary course of business; or
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(c) any declaration, payment, or set aside by Talbot Bancshares
of any dividend or distribution in respect of its Common Stock
(other than regular quarterly cash dividends), or any purchase,
issuance, or sale by Talbot Bancshares of any of its Common Stock.
4.6. Complete and Accurate Disclosure. Neither this Plan (insofar as
it relates to Talbot Bancshares and the Talbot Subsidiaries, the Common
Stock of Talbot Bancshares, and the involvement of Talbot Bancshares in
the transactions contemplated hereby) nor any financial statement,
schedule, certificate, or other statement or document previously
disclosed in writing under this Agreement delivered by Talbot
Bancshares to Shore Bancshares in connection with this Plan, when
considered in the aggregate, contains any statement which, at the time
and in light of the circumstances under which it is made, is false or
misleading with respect to any material fact or omits to state any
material fact necessary to make the statements contained herein or
therein not false or misleading.
4.7. Title to Properties; Absence of Liens and Encumbrances;
Compliance with Laws. Except as previously disclosed in writing to
Shore Bancshares, Talbot Bancshares and each of the Talbot Subsidiaries
has good and marketable title to all of their respective properties and
assets, including those reflected in the consolidated financial
statements delivered pursuant to Section 4.2, except as sold or
otherwise disposed of for fair value and only in the ordinary course of
business, free and clear of all liens and encumbrances, except (i) with
respect to property as to which they are lessees, (ii) with respect to
real estate owned by Talbot Bancshares or the Talbot Subsidiaries, for
use, occupancy, and similar restrictions of public record that may be
observed by an inspection of the property, and such other utility and
other easements and encumbrances as do not materially adversely affect
the fair market value of such real property, and (iii) liens to secure
borrowings, liens to secure governmental deposits, and liens for
current taxes not yet due and payable. Neither Talbot Bancshares nor
any of the Talbot Subsidiaries owns or leases real property except as
previously disclosed in writing to Shore Bancshares, and is not in
default under any material lease of real or personal property to which
it is a party. As of the date hereof, except as previously disclosed in
writing to Shore Bancshares, the real properties, structures,
buildings, equipment, and the tangible personal property owned,
operated, or leased by Talbot Bancshares or any of the Talbot
Subsidiaries are (x) in good repair, order, and condition, except for
depletion, depreciation, and ordinary wear and tear, (y) suitable for
the uses for which they were intended, and (z) free from any known
structural defects. As of the date hereof, there are no laws,
conditions of record, or other impediments which materially interfere
with the intended uses by Talbot Bancshares or any of the Talbot
Subsidiaries of the real property or tangible personal property owned
or leased by it, except as previously disclosed in writing to Shore
Bancshares. Neither Talbot Bancshares nor any of the Talbot
Subsidiaries have received any notice of any violation of any
applicable law, building code, zoning ordinance, or other similar law.
Talbot Bancshares and the Talbot Subsidiaries own or have the rights to
use all real and personal properties and assets that are material to
the conduct of the business as now conducted of Talbot Bancshares and
the Talbot Subsidiaries, taken as a whole.
4.8. Contracts. Except for the plans, contracts, and agreements of
Talbot Bancshares and the Talbot Subsidiaries (or of any plan under
Section 4.8(b)) set forth on the list previously provided to Shore
Bancshares, neither Talbot Bancshares nor any of the Talbot
Subsidiaries (nor any plan under Section 4.8(b)) is a party to or
subject to:
(a) Any employment, consultation, or compensation contract or
arrangement (other than those terminable at will) with any officer,
consultant, director, or employee;
(b) any plan, contract, program, understanding, or agreement
providing for bonuses, pensions, severance pay, executive
compensation, options, stock purchases, or any other form of
retirement, incentive or deferred compensation, retirement payments,
death benefits, profit sharing, branch closing benefits, workers'
compensation, tuition reimbursement or scholarship program, any
plans providing benefits or payments in the event of a change in
control, change in
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<PAGE>
ownership, or sale of a substantial portion (including all or
substantially all) of the assets of Talbot Bancshares or any of the
Talbot Subsidiaries, or any health, accident, disability, sick
leave, vacation pay, life insurance, or other welfare benefit, or
any other employee or retired employee benefit (including, without
limitation, any "employee benefit plan" as defined in Section 3(3)
of ERISA) in which any current or former employee, director, or
agent (or beneficiary of any of them) of Talbot Bancshares or any of
the Talbot Subsidiaries is or was, within the last six years,
entitled to participate;
(c) any contract or agreement with any labor union;
(d) any lease of real or personal property with annual rentals in
excess of $15,000;
(e) any agreement for services in excess of $30,000 per year or
for the purchase or disposition of any equipment or supplies except
individual purchase orders for office supplies incurred in the
ordinary course of business of $10,000 or less;
(f) any instrument evidencing or relating to indebtedness for
borrowed money except for customer accounts, deposits, certificates
of deposit, federal funds purchased, repurchase agreements and the
like which may be construed as borrowings and except for loans made
by Talbot Bank as lender in the ordinary course of its business;
(g) any lease or other contract containing covenants not to enter
into or consummate the transactions contemplated hereby or which
provides for payments in excess of $2,000 and will be terminated or
violated by the Merger or in respect of which the Merger would cause
a default or acceleration of obligations; or
(h) any other contract or agreement not of the type covered by
any of the other specific terms of this Section 4.8 obligating
Talbot Bancshares or any Talbot Subsidiary to expenditures in excess
of $25,000.
Each of the instruments set forth on the list previously provided to
Shore Bancshares is valid and in full force and effect. Neither Talbot
Bancshares nor any of the Talbot Subsidiaries are in default nor have
any of them received any notice that they are in default, nor to their
actual knowledge is any other party in default, under any material
agreements, instruments, or obligations to which Talbot Bancshares or
any of the Talbot Subsidiaries is a party or by which they are bound.
4.9. Litigation, Etc. Except as set forth on the list previously
provided to Shore Bancshares, (a) there is no litigation, proceeding,
or investigation pending or, to the knowledge of Talbot Bancshares,
threatened against Talbot Bancshares or any of the Talbot Subsidiaries
which would result in any materially adverse change in the condition
(financial or otherwise), assets, liabilities, business, operations, or
future prospects of Talbot Bancshares and the Talbot Subsidiaries,
taken as a whole; (b) there are no outstanding orders, writs,
injunctions, judgments, decrees, directives, consent agreements, or
memoranda of understanding issued by any federal, state, or local court
or governmental authority or arbitration tribunal issued against or
with the consent of Talbot Bancshares or any of the Talbot Subsidiaries
that materially and adversely affect the condition (financial or
otherwise), assets, liabilities, business, operations, or future
prospects or that in any manner restrict Talbot Bancshares' right to
carry on its business or that of the Talbot Subsidiaries as now
conducted; and (c) Talbot Bancshares is aware of no fact or condition
now existing that might give rise to any litigation, investigation, or
proceeding which, if determined adversely to Talbot Bancshares or any
of the Talbot Subsidiaries, would materially and adversely affect the
condition (financial or otherwise), assets, liabilities, business,
operations, or future prospects of Talbot Bancshares and the Talbot
Subsidiaries, taken as a whole, or would restrict in any manner Talbot
Bancshares' right to carry on its business or that of the Talbot
Subsidiaries as now conducted. Talbot Bancshares has set forth on the
list previously provided to Shore Bancshares all litigation in which
Talbot Bancshares or any of the Talbot Subsidiaries is involved as a
party (other than bankruptcy proceedings in which Talbot Bancshares or
any of the Talbot Subsidiaries has filed proofs of claim or routine
collection and foreclosure suits initiated in the ordinary course of
business).
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<PAGE>
4.10. Environmental Matters. (a) Except as previously disclosed in
writing to Shore Bancshares or as would not individually or in the
aggregate have a materially adverse effect on the condition (financial
or otherwise), assets, liabilities, business, or operations of Talbot
Bancshares and the Talbot Subsidiaries, taken as a whole:
(i) neither Talbot Bancshares nor any of the Talbot Subsidiaries
has received any written notices, demand letters, or written
requests for information from any Governmental Entity or any third
party indicating that Talbot Bancshares or any Talbot Subsidiary may
be in violation of, or liable under, any Environmental Law;
(ii) there are no civil, criminal, or administrative actions,
suits, demands, claims, hearings, investigations, or proceedings
pending or to the knowledge of Talbot Bancshares threatened against
Talbot Bancshares or any Talbot Subsidiary alleging that they may be
in violation of, or liable under, any Environmental Law;
(iii) no reports have been filed with any Governmental Entity,
nor to the knowledge of Talbot Bancshares are any reports required
to be filed with any Governmental Entity, concerning the release of
any Hazardous Substance or the violation of any Environmental Law on
or at any of the Properties of Talbot Bancshares or any of the
Talbot Subsidiaries;
(iv) except as previously disclosed in writing to Shore
Bancshares, there are no underground storage tanks on, in, or under
any of the Properties of Talbot Bancshares or any of the Talbot
Subsidiaries, and no underground storage tanks have been closed or
removed from any Property of Talbot Bancshares or any of the Talbot
Subsidiaries while such Property was owned or operated by Talbot
Bancshares or any of the Talbot Subsidiaries;
(v) except as previously disclosed in writing to Shore
Bancshares, no Hazardous Substance has been generated, used, stored,
processed, disposed of, or discharged on or into any of the
Properties of Talbot Bancshares or any of the Talbot Subsidiaries,
except for the lawful storage and use of such hazardous substances
as are used in the everyday business of a bank office; and
(vi) except as previously disclosed in writing to Shore
Bancshares, no materials containing asbestos have been used or
incorporated in any building or other structure or improvement
located on any of the Properties of Talbot Bancshares or any of the
Talbot Subsidiaries.
(b) There are no permits or licenses or agency filings or reports
required under any Environmental Law in respect of any operation of
Talbot Bancshares or any of the Talbot Subsidiaries or in respect of
the Properties of Talbot Bancshares or any of the Talbot Subsidiaries
the absence or violation of which could, individually or in the
aggregate, have a materially adverse effect on the condition (financial
or otherwise), assets, liabilities, business, or operations of Talbot
Bancshares and the Talbot Subsidiaries, taken as a whole.
(c) Talbot Bancshares and each of the Talbot Subsidiaries are and
have been in compliance with all Environmental Laws except for such
noncompliance as would not, individually or in the aggregate, have a
materially adverse effect on the condition (financial or otherwise),
assets, liabilities, business or operations of Talbot Bancshares and
the Talbot Subsidiaries, taken as a whole.
(d) Talbot Bancshares has previously provided to Shore Bancshares a
copy of any current policy regarding compliance with Environmental Laws
and its policies on screening proposed collateral for potential
environmental liabilities.
(e) Copies of each environmental site assessment report possessed or
available to Talbot Bancshares prepared in connection with any of the
Properties of Talbot Bancshares or any of the Talbot Subsidiaries have
been previously provided to Shore Bancshares.
(f) Neither Talbot Bancshares nor any of the Talbot Subsidiaries is
an "owner or operator" of any property in which it or they hold or have
held a security interest, as that term is defined under CERCLA.
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4.11. Labor Matters. To Talbot Bancshares' knowledge, no
organization effort with respect to any of the employees of Talbot
Bancshares or any of the Talbot Subsidiaries is pending or threatened,
and no labor dispute, strike, work stoppage, employee action, or labor
relation problem which may materially affect Talbot Bancshares or any
of the Talbot Subsidiaries currently is pending or threatened. Since
January 1, 1995, Talbot Bancshares and each of the Talbot Subsidiaries
have at all times in all material respects complied with all applicable
employee termination notice and similar laws. Since January 1, 1995,
Talbot Bancshares and each of the Talbot Subsidiaries have at all times
complied in all material respects with all applicable family medical
leave and similar laws. If applicable, Talbot Bancshares and each of
the Talbot Subsidiaries have at all times complied in all material
respects with all applicable requirements of the Worker Adjustment and
Retraining Notification Act and all similar state laws.
4.12. Pension and Welfare Matters. With respect to the plans,
contracts, programs, understandings, or agreements identified pursuant
to Sections 4.8(a) and (b) (for purposes of this Section 4.12, the
"plans"):
(a) Talbot Bancshares has clearly identified on the list
previously provided to Shore Bancshares all of the plans which are
(i) Multiemployer Plans, (ii) Multiple Employer Plans, (iii) plans
other than Multiemployer Plans and Multiple Employer Plans that are
subject to Section 412 of the Code, (iv) plans intended to qualify
under Section 401(a) of the Code, and (v) "welfare benefit plans"
within the meaning of Section 3(1) of ERISA which provide for
continuing benefits or coverage for any participant or any
beneficiary of a participant after such participant's termination of
employment except coverage or benefits required by Section 4980B of
the Code if paid 100% by the participant;
(b) true, correct and complete copies of the following documents,
with respect to each of the plans have been made available or
delivered to Shore Bancshares: (i) all plan documents, including
trust agreements, insurance policies, loan documents, and service
agreements and amendments thereto, (ii) the most recent Forms 5500
and any financial statements attached thereto and those for the
prior three years, (iii) the last Internal Revenue Service
determination letter and the application with respect thereto, (iv)
summary plan descriptions, (v) the most recent actuarial statements
and those for the prior three years, (vi) written descriptions of
all non-written agreements relating to any such plan, as applicable,
for Talbot Bancshares and each of the Talbot Subsidiaries, and (vii)
all filings with a governmental agency or entity within the last
three years, including, without limitation, filings under the
voluntary or other compliance programs of the U.S. Department of
Labor or the Internal Revenue Service;
(c) each of the plans has been operated in all material respects
in accordance with its terms and in accordance with all applicable
laws including, but not limited to, ERISA, the Code, the
Consolidated Omnibus Budget Reconciliation Act of 1985, the Health
Insurance Portability and Accountability Act of 1996, and state
health care continuation laws;
(d) all reporting and disclosure requirements of ERISA imposed
upon each such plan have been complied with in all material
respects, and all required governmental filings, including
registration and other filings under applicable securities law, have
been made with respect to the plans;
(e) none of (i) the plans, (ii) the Talbot Subsidiaries, and
(iii) Talbot Bancshares, and to Talbot Bancshares' knowledge, (x) no
current or former director, officer, employee, agent, or
representative of Talbot Bancshares or any of the Talbot
Subsidiaries, and (y) no fiduciary, "party in interest" (as defined
in Section 3(14) of ERISA) or "disqualified person" (as defined in
Section 4975 of the Code) with respect to any of the plans has
engaged in any non-exempt "prohibited transaction" in connection
with any of the plans within the meaning of Section 4975 of the Code
or Title I, Part 4 of ERISA;
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<PAGE>
(f) none of the plans has any accumulated funding deficiency (as
defined in Section 302 of ERISA and Section 412 of the Code),
whether or not waived, with respect to the latest five plan years,
nor any liability to the PBGC (other than normal premium payments);
(g) with respect to plans which are pension plans (as defined in
Section 3(2) of ERISA) subject to Title IV of ERISA, the assets of
each such funded plans equal or exceed the liabilities (as defined
in Section 4001(a)(16) of ERISA) under such plans when such
liabilities are valued on a termination basis using PBGC interest
and other assumptions;
(h) no contributions to any of the plans from Talbot Bancshares
or any of the Talbot Subsidiaries are currently past due and, if
applicable, all past service and other liabilities currently
existing but payable in the future, if any, are reflected in the
latest actuarial report in accordance with sound actuarial
principles;
(i) no audits, proceedings, investigations, filings, or other
matters (excluding any determination letter application that has
been or may be filed prior to the Effective Date) are pending before
the IRS, the Department of Labor, the PBGC, or other public or
quasi-public body in connection with any such plans;
(j) each plan intended to qualify under Section 401(a) of the
Code is so qualified and the trust maintained pursuant thereto is
exempt from taxation under Section 501 of the Code and nothing has
occurred with respect to the operation or administration of such
plan which would cause the loss of such qualification or exemption
or the imposition of any liability, penalty, or tax under ERISA or
the Code that could reasonably be expected to have a material
adverse effect on the condition (financial or otherwise), assets,
liabilities, business, or operations of Talbot Bancshares and the
Talbot Subsidiaries, taken as a whole, or on such plan;
(k) except as previously disclosed in writing to Shore
Bancshares, through the Effective Date, there will be no changes in
the operation of the plans or in the documents constituting or
affecting the plans except for amendments and operational changes
required by applicable law which do not materially increase the cost
of such plans;
(l) no employees, former employees, or retired employees of
Talbot Bancshares or any of the Talbot Subsidiaries, as a result of
their employment with Talbot Bancshares or any of the Talbot
Subsidiaries, are participants in any Multiemployer Plan and neither
Talbot Bancshares nor any of the Talbot Subsidiaries has any
current, contingent or potential liability with respect to any such
plan;
(m) no "reportable event," as such term is defined in Section
4043(c) of ERISA, has occurred with respect to any plan since the
effective date of ERISA, other than a reportable event for which the
30 days notice requirement under regulations of the PBGC has been
waived;
(n) there are no pending or threatened claims by or disputes with
any participants or beneficiaries of the plans, except plan benefit
claims arising in the normal course of the operations of the plans
(other than terminated plans) and as to which no dispute exists;
(o) Talbot Bancshares has no knowledge of any facts which could
give rise to any claims against any plan or any fiduciary of any
plan, except for plan benefit claims which arise in the normal
course of the operations of the plans (other than terminated plans)
and are not disputed;
(p) neither Talbot Bancshares nor any of the Talbot Subsidiaries
nor any fiduciary of any plan has given notice to any fiduciary
liability insurer of any claims or potential claims in connection
with any of the plans;
(q) except as previously disclosed in writing to Shore Bancshares
as plans that cannot be amended or terminated, each of the plans may
effectively be terminated or amended, in any manner and at any time,
without further accrual of liability to its participants, by its
sponsoring or participating employer;
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(r) neither Talbot Bancshares nor any of the Talbot Subsidiaries
has provided, nor is required to provide, security to any pension
plan or to any single-employer plan pursuant to Section 401(a)(29)
of the Code or Section 307 of ERISA;
(s) there has been no announcement or legally binding commitment
by Talbot Bancshares or any of the Talbot Subsidiaries to create an
additional plan, or to amend a plan except for amendments required
by applicable law which do not materially increase the cost of such
plan;
(t) as to any terminated plans, all obligations for plan benefits
or other liabilities have been satisfied in full;
(u) none of the plans contains any provision which would prohibit
the transactions contemplated by this Plan or which, except as
previously disclosed in writing to Shore Bancshares, would give rise
to any severance, termination, or other payments or liabilities, or
any forgiveness of indebtedness, vesting, distribution, increase in
benefits, or obligations to fund benefits as a result of the
transactions contemplated by this Plan; no payment that is owed or
may become due any director, officer, employee, or agent of Talbot
Bancshares or any of the Talbot Subsidiaries in connection with a
plan will be non-deductible to the payor under Section 280G of the
Code, and none of the Talbot Subsidiaries, Shore Subsidiaries,
Talbot Bancshares or Shore Bancshares will be required to "gross up"
or otherwise compensate any person in connection with a plan because
of the imposition of any excise tax under Section 4999 of the Code;
and
(v) no plan is funded by, associated with, or related to a
"voluntary employees' beneficiary association" within the meaning of
Section 501(c)(9) of the Code.
4.13. Related Party Transactions. Except as disclosed on a list
previously provided to Shore Bancshares, neither Talbot Bancshares nor
any of the Talbot Subsidiaries has any contract, extension of credit,
business arrangement, or other relationship of any kind with any of the
following persons: (a) any executive officer or director of Talbot
Bancshares or any of the Talbot Subsidiaries; (b) any stockholder
owning five percent or more of the outstanding Common Stock of Talbot
Bancshares; or (c) any "affiliate" (as defined in the SEC Rule 405) of
the foregoing persons or any business in which any of the foregoing
persons is an officer, director, employee, or five percent or greater
equity owner.
4.14. No Conflict with Other Documents. Except as disclosed on a
list previously provided to Shore Bancshares, neither the execution and
delivery of this Plan nor the carrying out of the transactions
contemplated hereunder will result in any violation, termination, or
default or acceleration of, or be in conflict with, any terms of any
contract or other instrument to which Talbot Bancshares or any of the
Talbot Subsidiaries is a party, or of any judgment, decree, or order
applicable to Talbot Bancshares or any of the Talbot Subsidiaries, or
result in the creation of any lien, charge, or encumbrance upon any of
their properties or assets, except for any of the foregoing which would
not have a material adverse effect upon the condition (financial or
otherwise), assets, liabilities, business, or operations of Talbot
Bancshares and the Talbot Subsidiaries, taken as a whole.
4.15. Compliance with Laws; Governmental Authorizations. (a) Except
where noncompliance would not have a material and adverse effect upon
the condition (financial or otherwise), assets, liabilities, business,
or operations of Talbot Bancshares and the Talbot Subsidiaries, taken
as a whole, (i) Talbot Bancshares and each of the Talbot Subsidiaries
are in compliance with all statutes, laws, ordinances, rules,
regulations, judgments, orders, decrees, directives, consent
agreements, memoranda of understanding, permits, concessions, grants
franchises, licenses, and other governmental authorizations or
approvals applicable to Talbot Bancshares, the Talbot Subsidiaries, or
any of their properties; and (ii) all permits, concessions, grants,
franchises, licenses, and other governmental authorizations and
approvals necessary for the conduct of the business of Talbot
Bancshares and the Talbot Subsidiaries as now conducted have been duly
obtained
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and are in full force and effect, and there are no proceedings pending
or, to Talbot Bancshares' knowledge, threatened which may result in the
revocation, cancellation, suspension, or materially adverse
modification of any thereof. Except as disclosed on a list previously
provided to Shore Bancshares, neither Talbot Bancshares nor any of the
Talbot Subsidiaries engages in any business or owns any assets that may
not be engaged in or owned by a registered bank holding company, a
commercial bank, or their subsidiaries or affiliates.
(b) Since January 1, 1995 Talbot Bancshares has filed all reports
that it was required to file with the SEC under the Exchange Act, all
of which complied in all material respects with all applicable
requirements of the Exchange Act and the rules and regulations adopted
thereunder. As of their respective dates, each such report, statement,
form, or other document, including without limitation, any financial
statements or schedules included therein, did not contain any untrue
statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading,
provided, that information as of a later date shall be deemed to modify
information as of an earlier date.
4.16. Authority; Enforceability. The execution, delivery, and
performance of this Plan by Talbot Bancshares have been duly and
validly authorized by its Board of Directors, subject only to requisite
approval by the stockholders of Talbot Bancshares and appropriate
governmental regulatory authorities. This Plan is a valid and binding
agreement of Talbot Bancshares, enforceable against it in accordance
with its terms, subject as to enforcement to bankruptcy, insolvency,
fraudulent transfer, reorganization, moratorium, and similar laws of
general applicability relating to or affecting creditors' rights and to
general equity principles.
4.17. Insurance. All insurance policies held by Talbot Bancshares
and the Talbot Subsidiaries relating to their operations (except for
title insurance policies), including without limitation all financial
institutions bonds, are set forth on a list previously provided to
Shore Bancshares. All such policies are in full force and effect.
Neither Talbot Bancshares nor any of the Talbot Subsidiaries has
received any notice of cancellation with respect to any such policies
and has no reason to expect that it will receive a notice of
cancellation from any of its present insurance carriers; provided,
however, that Talbot Bancshares makes no representation as to the
effect of this Plan or the Merger on its present financial institutions
bond or bonds.
4.18. Financial Institutions Bond. Since April 1, 1994, Talbot
Bancshares and the Talbot Subsidiaries have continuously maintained in
full force and effect one or more financial institutions bonds insuring
Talbot Bancshares and the Talbot Subsidiaries against acts of
dishonesty by each of their employees. No claim has been made under any
such bond since such date, and Talbot Bancshares is not aware of any
fact or condition now existing which forms the basis of a claim under
any such bond. Talbot Bancshares and the Talbot Subsidiaries have no
reason to expect that their present financial institutions bond or
bonds will not be renewed by their carrier on substantially the same
terms as those now in effect; provided, however, that Talbot Bancshares
makes no representation as to the effect of this Plan or the Merger on
its present financial institutions bond or bonds.
4.19. Brokers; Financial Advisor. All negotiations relating to this
Plan and the transactions contemplated hereunder have been carried on
by Talbot Bancshares directly or through its counsel or financial
advisor, and there has been no intervention of any person as the result
of any action of Talbot Bancshares (and, so far as known to Talbot
Bancshares, no intervention of any other person) in such manner as to
give rise to any valid claim against any of the parties hereto for a
brokerage commission, finder's fee, or other like payment (other than
to its financial advisor, Danielson Associates Inc. ("Danielson")). A
copy of the agreement with Danielson which has been engaged by Talbot
Bancshares as its financial advisor and to deliver an opinion as to the
fairness of the transactions contemplated by this Plan to Talbot
Bancshares has been previously delivered to Shore Bancshares.
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4.20. Beneficial Ownership of Shore Bancshares Common Stock. As of
the date hereof, Talbot Bancshares does not beneficially own any shares
of Shore Bancshares Common Stock or have any option, warrant, or right
of any kind to acquire the beneficial ownership of any Shore Bancshares
Common Stock.
4.21. Year 2000. Talbot Bancshares has carried out a review to
evaluate the extent to which the business or operations of Talbot
Bancshares or any of the Talbot Subsidiaries will be affected by the
Year 2000 Problem. As a result of such review, Talbot Bancshares has no
reason to believe, and does not believe, that the Year 2000 Problem
will have a material adverse effect on the condition (financial or
otherwise), assets, liabilities, business, or operations of Talbot
Bancshares and the Talbot Subsidiaries, taken as a whole. Talbot
Bancshares reasonably believes that the suppliers, vendors, customers
or other material third parties used or served by Talbot Bancshares and
the Talbot Subsidiaries are addressing or will address the Year 2000
Problem in a timely manner. Talbot Bancshares is in compliance with all
applicable requirements of any Governmental Entity relating to the Year
2000 Problem and has not received any correspondence from or provided
any written information to any Governmental Entity relating to the Year
2000 Problem.
4.22. Reports. Talbot Bancshares and the Talbot Subsidiaries have
timely filed all reports, registrations and statements, together with
any amendments required to be made with respect thereto, that they were
required to file since January 1, 1995 with (i) the Federal Reserve,
(ii) the FDIC and/or OCC, (iii) any State Regulator, and (iv) and any
SRO, and have paid all fees and assessments due and payable in
connection therewith. Except for normal examinations conducted by a
Regulatory Agency in the regular course of the business of Talbot
Bancshares and the Talbot Subsidiaries, and no Regulatory Agency has
initiated any proceeding or investigation into the business or
operations of Talbot Bancshares or the Talbot Subsidiaries since
January 1, 1995. There is no unresolved material violation, criticism,
or exception by any Regulatory Agency with respect to any report or
statement relating to any examinations of Talbot Bancshares or the
Talbot Subsidiaries.
4.23. Agreements with Regulatory Agencies. Neither Talbot Bancshares
nor the Talbot Subsidiaries is subject to any cease-and-desist or other
order issued by, or is a party to any Company Regulatory Agreement with
any Regulatory Agency or other Governmental Entity that restricts the
conduct of its business or that in any manner relates to its capital
adequacy, its credit policies, its management or its business, nor has
Talbot Bancshares or the Talbot Subsidiaries been advised in writing by
any Regulatory Agency or other Governmental Entity that it is
considering issuing or requesting any Company Regulatory Agreement.
4.24. State Takeover Laws and Control Share Acquisition Act. The
Board of Directors of Talbot Bancshares has approved this Plan, the
Talbot Bancshares Option Agreement and the transactions contemplated
hereby prior to the date of this Plan such that the provisions of
Sections 3-602 and 3-702 of the MGCL will not apply to this Plan, or
the Talbot Bancshares Option Agreement or any of the transactions
contemplated hereby or thereby.
5. Covenants of Shore Bancshares. Except as otherwise consented to in
writing by Talbot Bancshares after the date of this Plan, Shore Bancshares
covenants to and agrees with Talbot Bancshares as follows:
5.1. Information. (a) Shore Bancshares shall, upon reasonable
notice, give to Talbot Bancshares and to its officers, accountants,
counsel, financial advisors, and other representatives, reasonable
access during Shore Bancshares' and the Shore Subsidiaries' normal
business hours throughout the period prior to the Effective Date to all
of their properties, books, contracts, commitments, reports of
examination (consistent with applicable law), depositor and stockholder
lists, and records. Shore Bancshares and the Shore Subsidiaries will,
at their own expense, furnish Talbot Bancshares during such period with
all such information concerning their affairs as Talbot Bancshares may
reasonably request, including information for use in determining if the
conditions of Section 7.1 through Section 7.9 have been satisfied,
necessary to prepare the regulatory filings or applications to
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<PAGE>
be filed with governmental regulatory authorities to obtain the
approvals referred to in Section 2, and for use in any other necessary
filings to be made with appropriate governmental regulatory
authorities.
(b) Shore Bancshares acknowledges that information received by it
concerning Talbot Bancshares and the Talbot Subsidiaries and their
operations is subject to the Confidentiality Agreement dated February
15, 2000 between Talbot Bancshares and Shore Bancshares (the
"Confidentiality Agreement"). Without limiting the foregoing, Shore
Bancshares will not, and will cause its representatives not to, use any
information obtained pursuant to Section 6.1 for any purpose unrelated
to the consummation of the transactions contemplated by this Plan.
Subject to the requirements of law, Shore Bancshares will keep
confidential, and will cause its representatives to keep confidential,
all information and documents obtained pursuant to Section 6.1 unless
such information (i) was already known to Shore Bancshares, (ii)
becomes available to Shore Bancshares from other sources not known by
Shore Bancshares to be bound by a confidentiality obligation, (iii) is
disclosed with prior written approval of Talbot Bancshares and the
Talbot Subsidiaries, or (iv) is or becomes readily ascertainable from
published information or trade sources. In the event that this Plan is
terminated or the transactions contemplated by this Plan shall
otherwise fail to be consummated, Shore Bancshares shall promptly cause
all copies of documents or extracts thereof containing information and
data as to Talbot Bancshares and the Talbot Subsidiaries to be
returned. In the event that this Plan has been terminated or the
transactions contemplated hereby shall have failed to be consummated
and Shore Bancshares or any of its agents or representatives are
requested or required (by oral questions, interrogatories, requests for
information, or documents in legal proceedings, subpoena, civil
investigative demand, or other similar process) to disclose any of the
materials delivered or obtained pursuant to the Plan (the "Talbot
Documentation"), Shore Bancshares shall provide Talbot Bancshares with
prompt written notice of any such request or requirement so that Talbot
Bancshares may seek a protective order or other appropriate remedy. If,
in the absence of a protective order or other remedy, Shore Bancshares
or any of its agents or representatives are compelled to disclose any
of such Talbot Documentation to any tribunal or else stand liable for
contempt or suffer other censure or penalty, Shore Bancshares or its
agents or representatives may, without liability hereunder, disclose to
such tribunal only that portion of the Talbot Documentation which Shore
Bancshares' counsel advises Shore Bancshares is legally required to be
disclosed, provided, that Shore Bancshares shall exercise its best
efforts to preserve the confidentiality of the Talbot Documentation,
including, without limitation, by cooperating with Talbot Bancshares to
obtain an appropriate protective order or other reliable assurance that
confidential treatment will be accorded the Talbot Documentation by
such tribunal.
5.2. Events Preceding Effectiveness. Shore Bancshares and the Shore
Subsidiaries will use commercially reasonable efforts to assure that
each of the events specified in Section 2 which require action on its
part shall occur on or before the Effective Date.
5.3. Meeting of Stockholders of Shore Bancshares. Shore Bancshares
will duly call and convene a meeting of its stockholders to act upon
the transactions contemplated hereby as soon as practicable. Except to
the extent legally required for the discharge by the board of directors
of its fiduciary duties, Shore Bancshares will recommend approval of
this Plan and the Merger to its stockholders, and will use commercially
reasonable efforts to obtain a favorable vote thereon. The calling and
holding of such meeting and all notices, transactions, documents, and
information related thereto will be in material compliance with all
applicable laws. Shore Bancshares shall take all such steps as may be
required to cause the transactions contemplated by this Plan and any
other dispositions of Shore Bancshares equity securities (including
derivative securities) or acquisitions of Shore Bancshares equity
securities (including derivative securities) in connection with this
Plan by each individual who (i) is a director or officer of Shore
Bancshares or (ii) at the Effective Time, will become a director or
officer of Shore Bancshares, to be exempt under Rule 16b-3 promulgated
under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), such steps to be taken in
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accordance with the No-Action Letter dated January 12, 1999, issued by
the SEC to Skadden, Arps, Slate, Meagher & Flom LLP.
5.4. Conduct of Business. After the date of this Plan and pending
the Effective Date, (a) Shore Bancshares and the Shore Subsidiaries
will conduct their business only in the ordinary course; (b) Shore
Bancshares and the Shore Subsidiaries shall not effect any change or
amendment in their respective charters or by-laws; (c) except with
respect to Shore Bancshares stock options outstanding on the date of
this Plan which are or may become subject to exercise, Shore Bancshares
and the Shore Subsidiaries shall not change their authorized, issued,
or outstanding capital stock; (d) Shore Bancshares shall not declare
cash dividends in respect of its Common Stock (except regular quarterly
cash dividends not in excess of $0.20 per share); (e) except as
previously disclosed in writing to Talbot Bancshares, Shore Bancshares
and the Shore Subsidiaries shall not increase employee compensation or
benefit levels (except for annual increases not in excess of amounts
established by its regular past practices), shall not establish or make
any increase in any employment, compensation, bonus, pension, option,
incentive or deferred compensation, retirement, death, profit sharing,
or similar agreements or benefits of any of its past, present, or
future officers or employees, other than additional premiums to obtain
an extension of directors' and officers' liability coverage for six
years (which Talbot Bancshares is authorized to obtain), and except as
provided in this Plan, shall not modify the existing employment
agreements with any officers or employees; (f) Shore Bancshares and the
Shore Subsidiaries shall not make any change in any of their accounting
policies or practices unless required by generally accepted accounting
principles; and (g) Shore Bancshares and the Shore Subsidiaries shall
not incur any liability for borrowed money except in the ordinary
course of their banking business (i.e., may only incur variable rate
loans with terms not greater than one year) or place upon or permit any
lien or encumbrance upon any of their properties or assets except liens
of the type permitted in the exceptions to Section 3.7. Pending the
Effective Date, Shore Bancshares and the Shore Subsidiaries shall (x)
use commercially reasonable efforts to preserve their business
organization and assets and to keep available the services of their
full-time officers and employees, (y) continue in effect the present
method of conducting their business, and (z) advise Talbot Bancshares
regarding decisions or actions in matters (i) other than those in the
ordinary course of business, or (ii) except as previously disclosed in
writing to Talbot Bancshares, involving any capital expenditures in
excess of $25,000.
5.5. Reservation of Shares. Shore Bancshares shall have reserved a
sufficient number of shares of its Common Stock for issuance upon
exercise of the option granted pursuant to the Stock Option Agreement
attached as Appendix IV, which is to be executed by Talbot Bancshares
and Shore Bancshares, and shall have taken all other actions necessary
to fulfill its obligations thereunder.
5.6. Regulatory Matters; Document Preparation. (a) Shore Bancshares
and the Shore Subsidiaries, with the assistance of Talbot Bancshares,
the Talbot Subsidiaries, and their representatives, will promptly
prepare and file with the appropriate governmental regulatory
authorities an application requesting the regulatory approvals referred
to in Sections 2(d), 2(e), 2(f), and 2(g) and will use commercially
reasonable efforts to secure favorable action on such applications,
including without limitation commercially reasonable efforts to pursue
an appeal of a denial of a regulatory approval. Shore Bancshares shall
furnish Talbot Bancshares with copies of all such filings and shall
promptly notify Talbot Bancshares of all communications, oral or
written, with the governmental regulatory authorities concerning such
applications.
(b) Shore Bancshares shall furnish Talbot Bancshares with such
information concerning Shore Bancshares and the Shore Subsidiaries as
is necessary in order to cause the Proxy Statement/Prospectus (as
defined in Section 6.6(b)), insofar as it relates to such corporations,
to comply with Section 6.6(b). Shore Bancshares agrees promptly to
advise Talbot Bancshares if, at any time prior to the Shore Bancshares
or Talbot Bancshares stockholders' meetings, any information provided
by Shore Bancshares in the Proxy Statement/Prospectus becomes incorrect
or incomplete in any material respect and to provide Talbot Bancshares
with the information needed to correct such
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<PAGE>
inaccuracy or omission. Shore Bancshares shall furnish Talbot
Bancshares with such supplemental information as may be necessary in
order to cause the Proxy Statement/Prospectus, insofar as it relates to
Shore Bancshares and the Shore Subsidiaries, to comply with Section
6.6(b) after the mailing thereof to Shore Bancshares and Talbot
Bancshares stockholders. The information provided and the
representations made by Shore Bancshares to Talbot Bancshares in
connection with the Proxy Statement/Prospectus, both at the time such
information and representations are provided and made and at the
Effective Date, will be true and accurate in all material respects and
will not contain any false or misleading statement with respect to any
material fact or omit to state any material fact required to be stated
therein or necessary in order (i) to make the statements made therein
not false or misleading, or (ii) to correct any statement contained in
an earlier communication with respect to such information or
representations which has become false or misleading. Talbot Bancshares
may rely upon all information provided to it by Shore Bancshares and
its representatives in the preparation of the Proxy
Statement/Prospectus and shall not be liable for any untrue statement
of a material fact or any omission to state a material fact in the
Proxy Statement/Prospectus, if such statement is made in reliance upon
any information provided to it by Shore Bancshares or by any of its
officers or authorized representatives.
(c) Shore Bancshares shall promptly furnish Talbot Bancshares with
such information regarding the Shore Bancshares stockholders as Talbot
Bancshares requires to enable it to determine what filings are required
under applicable state securities laws. Shore Bancshares authorizes
Talbot Bancshares to utilize in such filings the information concerning
Shore Bancshares and the Shore Subsidiaries provided to Talbot
Bancshares in connection with, or contained in, the Proxy
Statement/Prospectus.
5.7. Consents. Shore Bancshares and the Shore Subsidiaries will use
commercially reasonable efforts to obtain any consents, approvals, or
waivers from third parties required in connection with the transactions
contemplated hereunder.
5.8. Current Information; Advice of Changes. (a) During the period
from the date of this Plan to the Effective Date, Shore Bancshares will
cause one or more of its designated representatives to confer on a
monthly or more frequent basis with representatives of Talbot
Bancshares regarding its business, operations, properties, assets, and
condition (financial or otherwise) and matters relating to the
completion of the transactions contemplated herein. As soon as
reasonably available, but in no event more than 45 days after the end
of each calendar quarter (other than the last calendar quarter of each
calendar year) ending after the date of this Plan, Shore Bancshares
will deliver to Talbot Bancshares its quarterly reports on Form 10-Q,
as filed with the SEC under the Exchange Act. As soon as reasonably
available, but in no event more than 90 days after the calendar year,
Shore Bancshares will deliver to Talbot Bancshares its Annual Report on
Form 10-K as filed with the SEC under the Exchange Act.
(b) Between the date of this Plan and the Effective Date, Shore
Bancshares shall promptly advise Talbot Bancshares in writing of any
fact which, if existing or known at the date hereof, would have been
required to be set forth or disclosed in or pursuant to this Plan or of
any fact which, if existing or known as of the date hereof, would have
made any of the representations contained herein untrue in any material
respect.
5.9. No Solicitation of Other Offers. Shore Bancshares agrees that
neither it nor any of the Shore Subsidiaries nor any of their
respective officers, directors, and employees shall, and Shore
Bancshares shall direct and use its best efforts to cause its and the
Shore Subsidiaries' agents and representatives (including, without
limitation, any investment banker, attorney, or accountant retained by
it or any of the Shore Subsidiaries) not to, directly or indirectly,
take any action to solicit or initiate any inquiries or the making of
any offer or proposal (including without limitation any proposal to
stockholders of Shore Bancshares) with respect to a merger,
consolidation, business combination, liquidation, reorganization, sale
or other disposition of any significant portion of assets
A-25
<PAGE>
(except problem assets shown on a list previously provided to Talbot
Bancshares), sale of shares of capital stock, or similar transactions
involving Shore Bancshares or any of the Shore Subsidiaries (any such
inquiry, offer, or proposal, a "Shore Acquisition Proposal"), or,
except in the opinion of outside counsel to Shore Bancshares as may be
legally required to comply with the duties the Board of Directors of
Shore Bancshares under applicable law and upon termination of this Plan
under Section 13(f), engage in any negotiations concerning, or provide
any confidential information or data to, or have any discussions with,
any person relating to a Shore Acquisition Proposal. As of the time
hereof, Shore Bancshares is not engaged in any negotiations or
discussions relating to a Shore Acquisition Proposal. Shore Bancshares
shall promptly notify Talbot Bancshares orally and in writing of, and
keep it fully and currently informed on, any Shore Acquisition Proposal
or any inquiries with respect thereto, such written notification to
include the identity of the Person making such inquiry or Shore
Acquisition Proposal and such other information with respect thereto as
is reasonably necessary to apprise Talbot Bancshares of the material
terms of such Shore Acquisition Proposal. Shore Bancshares shall give
Talbot Bancshares contemporaneous written notice upon engaging in
discussions or negotiations with, or providing any information
regarding Shore Bancshares or any of the Shore Subsidiaries to, any
such person regarding a Shore Acquisition Proposal.
5.10. Affiliate and Support Agreements. Within 10 days of the date
of this Plan, Shore Bancshares shall deliver or cause to be delivered
to Talbot Bancshares memoranda substantially in the form attached as
Appendix VI (the "Shore Bancshares Affiliates' Memoranda") and
agreements substantially in the form attached as Appendix VIII (the
"Shore Bancshares Support Agreements") from each of its executive
officers and directors (and shall use commercially reasonable efforts
to obtain and deliver such memoranda from each stockholder of Shore
Bancshares who may be restricted under the accounting rules applicable
to a pooling-of-interests. Under the terms of the Shore Bancshares
Affiliates' Memoranda, each such officer, director or stockholder shall
acknowledge and agree to abide by all limitations imposed by the
accounting rules for the Merger to be accounted for as a pooling-of-
interests. Under the terms of the Shore Bancshares Support Agreements,
each such officer or director shall agree to support and vote the
shares of Common Stock of Shore Bancshares owned or controlled by him
or her to ratify and confirm this Plan and the Merger.
5.11. Pooling-of-Interests. Shore Bancshares shall use its best
efforts not to permit any of the directors, officers, employees,
stockholders, agents, consultants, or other representatives of Shore
Bancshares or any of the Shore Subsidiaries to take any action that
would preclude Shore Bancshares from treating the Merger as a pooling-
of-interests for financial reporting purposes.
5.12. Taxes. Shore Bancshares shall have filed with appropriate
federal, state, county, municipal, or foreign taxing authorities all
tax returns required to be filed (taking any applicable extensions into
consideration) on or before the Effective Date and shall have paid (or
shall have made adequate provision or set up an adequate actual reserve
on the financial statements referred to in Section 3.2 for the payment
of) all taxes imposed by any taxing authority with respect to any such
returns, together with any interest, additions, or penalties related to
any such taxes.
5.13. Public Announcements. Between the date of this Plan and the
Effective Date, Shore Bancshares and the Shore Subsidiaries will
consult with Talbot Bancshares before issuing any press release or
otherwise making any public statements with respect to this Plan and
the transactions contemplated hereby and shall not issue any such press
release or make any such public statement prior to such consultation,
except as counsel may advise is required by law.
6. Covenants of Talbot Bancshares. Bancshares Except as otherwise
consented to in writing by Shore Bancshares after the date of this Plan,
Talbot Bancshares covenants to and agrees with Shore Bancshares as follows:
6.1. Information. (a) Talbot Bancshares shall, upon reasonable
notice, give to Shore Bancshares and to its officers, accountants,
counsel, financial advisors, and other representatives, reasonable
access during Talbot Bancshares' and the Talbot Subsidiaries' normal
business hours
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throughout the period prior to the Effective Date to all of their
properties, books, contracts, commitments, reports of examination
(consistent with applicable law), depositor and stockholder lists, and
records. Talbot Bancshares and the Talbot Subsidiaries will, at their
own expense, furnish Shore Bancshares during such period with all such
information concerning their affairs as Shore Bancshares may reasonably
request, including information for use in determining if the conditions
of Section 8.1 through Section 8.9 have been satisfied, necessary to
prepare the regulatory filings or applications to be filed with
governmental regulatory authorities to obtain the approvals referred to
in Section 2, and for use in any other necessary filings to be made
with appropriate governmental regulatory authorities.
(b) Talbot Bancshares acknowledges that information received by it
concerning Shore Bancshares and the Shore Subsidiaries and their
operations is subject to the Confidentiality Agreement. Without
limiting the foregoing, Talbot Bancshares will not, and will cause its
representatives not to, use any information obtained pursuant to
Section 5.1 for any purpose unrelated to the consummation of the
transactions contemplated by this Plan. Subject to the requirements of
law, Talbot Bancshares will keep confidential, and will cause its
representatives to keep confidential, all information and documents
obtained pursuant to Section 5.1 unless such information (i) was
already known to Talbot Bancshares, (ii) becomes available to Talbot
Bancshares from other sources not known by Talbot Bancshares to be
bound by a confidentiality obligation, (iii) is disclosed with prior
written approval of Shore Bancshares and the Shore Subsidiaries, or
(iv) is or becomes readily ascertainable from published information or
trade sources. In the event that this Plan is terminated or the
transactions contemplated by this Plan shall otherwise fail to be
consummated, Talbot Bancshares shall promptly cause all copies of
documents or extracts thereof containing information and data as to
Shore Bancshares and the Shore Subsidiaries to be returned. In the
event that this Plan has been terminated or the transactions
contemplated hereby shall have failed to be consummated and Talbot
Bancshares or any of its agents or representatives are requested or
required (by oral questions, interrogatories, requests for information,
or documents in legal proceedings, subpoena, civil investigative
demand, or other similar process) to disclose any of the materials
delivered or obtained pursuant to the Plan (the "Shore Documentation"),
Talbot Bancshares shall provide Shore Bancshares with prompt written
notice of any such request or requirement so that Shore Bancshares may
seek a protective order or other appropriate remedy. If, in the absence
of a protective order or other remedy, Talbot Bancshares or any of its
agents or representatives are compelled to disclose any of such Gary
Documentation to any tribunal or else stand liable for contempt or
suffer other censure or penalty, Talbot Bancshares or its agents or
representatives may, without liability hereunder, disclose to such
tribunal only that portion of the Gary Documentation which Talbot
Bancshares' counsel advises Talbot Bancshares is legally required to be
disclosed, provided, that Talbot Bancshares shall exercise its best
efforts to preserve the confidentiality of the Gary Documentation,
including, without limitation, by cooperating with Shore Bancshares to
obtain an appropriate protective order or other reliable assurance that
confidential treatment will be accorded the Gary Documentation by such
tribunal.
6.2. Events Preceding Effectiveness. Talbot Bancshares and the
Talbot Subsidiaries will use commercially reasonable efforts to assure
that each of the events specified in Section 2 which require action on
its part shall occur on or before the Effective Date.
6.3. Meeting of Stockholders of Talbot Bancshares. Talbot Bancshares
will duly call and convene a meeting of its stockholders to act upon
the transactions contemplated hereby as soon as practicable. Except to
the extent legally required for the discharge by the board of directors
of its fiduciary duties, Talbot Bancshares will recommend approval of
this Plan and the Merger to its stockholders, and will use commercially
reasonable efforts to obtain a favorable vote thereon. The calling and
holding of such meeting and all notices, transactions, documents, and
information related thereto will be in material compliance with all
applicable laws. Talbot Bancshares shall take all such steps as may be
required to cause the transactions contemplated by this Plan and any
other
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dispositions of Talbot Bancshares equity securities (including
derivative securities) or acquisitions of Shore Bancshares equity
securities (including derivative securities) in connection with this
Plan by each individual who (i) is a director or officer of Talbot
Bancshares or (ii) at the Effective Time, will become a director or
officer of Shore Bancshares, to be exempt under Rule 16b-3 promulgated
under the Exchange Act, such steps to be taken in accordance with the
No-Action Letter dated January 12, 1999, issued by the SEC to Skadden,
Arps, Slate, Meagher & Flom LLP.
6.4. Conduct of Business. After the date of this Plan and pending
the Effective Date, (a) Talbot Bancshares and the Talbot Subsidiaries
will conduct their business only in the ordinary course; (b) Talbot
Bancshares and the Talbot Subsidiaries shall not effect any change or
amendment in their respective charters or by-laws; (c) except with
respect to Talbot Bancshares stock options outstanding on the date of
this Plan which are or may become subject to exercise, Talbot
Bancshares and the Talbot Subsidiaries shall not change their
authorized, issued, or outstanding capital stock; (d) Talbot Bancshares
shall not declare cash dividends in respect of its Common Stock (except
regular quarterly cash dividends not in excess of $0.50 per share to be
paid to holders of record as of the same date as dividends declared by
Shore Bancshares); (e) except as previously disclosed in writing to
Shore Bancshares, Talbot Bancshares and the Talbot Subsidiaries shall
not increase employee compensation or benefit levels (except for annual
increases not in excess of amounts established by its regular past
practices), shall not establish or make any increase in any employment,
compensation, bonus, pension, option, incentive or deferred
compensation, retirement, death, profit sharing, or similar agreements
or benefits of any of its past, present, or future officers or
employees, other than additional premiums to obtain an extension of
directors' and officers' liability coverage for six years (which Shore
Bancshares is authorized to obtain), and except as provided in this
Plan, shall not modify the existing employment agreements with any
officers or employees; (f) Talbot Bancshares and the Talbot
Subsidiaries shall not make any change in any of their accounting
policies or practices unless required by generally accepted accounting
principles; and (g) Talbot Bancshares and the Talbot Subsidiaries shall
not incur any liability for borrowed money except in the ordinary
course of their banking business (i.e., may only incur variable rate
loans with terms not greater than one year) or place upon or permit any
lien or encumbrance upon any of their properties or assets except liens
of the type permitted in the exceptions to Section 3.7. Pending the
Effective Date, Talbot Bancshares and the Talbot Subsidiaries shall (x)
use commercially reasonable efforts to preserve their business
organization and assets and to keep available the services of their
full-time officers and employees, (y) continue in effect the present
method of conducting their business, and (z) advise Shore Bancshares
regarding decisions or actions in matters (i) other than those in the
ordinary course of business, or (ii) except as previously disclosed in
writing to Shore Bancshares, involving any capital expenditures in
excess of $25,000.
6.5. Reservation of Shares. Talbot Bancshares shall have reserved a
sufficient number of shares of its Common Stock for issuance upon
exercise of the option granted pursuant to the Stock Option Agreement
attached as Appendix V, which is to be executed by Shore Bancshares and
Talbot Bancshares, and shall have taken all other actions necessary to
fulfill its obligations thereunder.
6.6. Regulatory Matters; Document Preparation. (a) Talbot Bancshares
and the Talbot Subsidiaries will provide the information necessary and,
where necessary, cooperate with Shore Bancshares' efforts to obtain all
necessary regulatory approvals of the transactions contemplated by this
Plan.
(b) Talbot Bancshares, with the assistance of Shore Bancshares and
its representatives, will promptly file a Registration Statement with
the SEC which shall include a joint proxy statement for Talbot
Bancshares and Shore Bancshares and a prospectus of Shore Bancshares
which shall satisfy all applicable requirements of applicable state and
federal laws, including the Securities Act, the Exchange Act, and
applicable state securities laws and the rules and regulations
thereunder (such joint proxy statement and prospectus, together with
any and all amendments or supplements thereto, the "Proxy
Statement/Prospectus", and the various documents to be filed under the
Securities Act
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with the SEC to register the Shore Bancshares Common Stock into which
shares of Talbot Bancshares Common Stock will be converted, including
the Proxy Statement/Prospectus, the "Registration Statement"). Talbot
Bancshares will use commercially reasonable efforts to secure the
effectiveness of the Registration Statement. Talbot Bancshares shall
promptly take all such actions as may be necessary or appropriate in
order to comply in all material respects with all applicable securities
laws of any state having jurisdiction over the transactions
contemplated by this Plan and the Merger. Talbot Bancshares shall
furnish Shore Bancshares with copies of all such filings and shall
promptly notify Shore Bancshares of all communications, oral or
written, with the SEC concerning the Registration Statement and the
Proxy Statement/Prospectus.
(c) Talbot Bancshares shall furnish such information concerning
Talbot Bancshares and the Talbot Subsidiaries as is necessary in order
to cause the Proxy Statement/Prospectus, insofar as it relates to such
corporations, to comply with Section 6.6(b). Talbot Bancshares agrees
promptly to advise Shore Bancshares if, at any time prior to the Shore
Bancshares stockholders' meeting, any information provided by Talbot
Bancshares in the Proxy Statement/Prospectus becomes incorrect or
incomplete in any material respect and to provide Shore Bancshares with
the information needed to correct such inaccuracy or omission. Talbot
Bancshares shall furnish Shore Bancshares with such supplemental
information as may be necessary in order to cause the Proxy
Statement/Prospectus, insofar as it relates to Talbot Bancshares and
the Talbot Subsidiaries, to comply with Section 6.6(b) after the
mailing thereof to Shore Bancshares stockholders. The information
provided and the representations made by Talbot Bancshares to Shore
Bancshares in connection with the Proxy Statement/Prospectus, both at
the time such information and representations are provided and made and
at the Effective Date, will be true and accurate in all material
respects and will not contain any false or misleading statement with
respect to any material fact or omit to state any material fact
required to be stated therein or necessary in order (i) to make the
statements made therein not false or misleading, or (ii) to correct any
statement contained in an earlier communication with respect to such
information or representations which has become false or misleading.
Shore Bancshares may rely upon all information provided to it by Talbot
Bancshares and its representatives in the preparation of the Proxy
Statement/Prospectus and shall not be liable for any untrue statement
of a material fact or any omission to state a material fact in the
Proxy Statement/Prospectus, if such statement is made in reliance upon
any information provided to it by Talbot Bancshares or by any of its
officers or authorized representatives.
6.7. Consents. Talbot Bancshares and the Talbot Subsidiaries will
use commercially reasonable efforts to obtain any consents, approvals,
or waivers from third parties required in connection with the
transactions contemplated hereunder.
6.8. Current Information; Advice of Changes. (a) During the period
from the date of this Plan to the Effective Date, Talbot Bancshares
will cause one or more of its designated representatives to confer on a
monthly or more frequent basis with representatives of Shore Bancshares
regarding its business, operations, properties, assets, and condition
(financial or otherwise) and matters relating to the completion of the
transactions contemplated herein. As soon as reasonably available, but
in no event more than 45 days after the end of each calendar quarter
(other than the last calendar quarter of each calendar year) ending
after the date of this Plan, Talbot Bancshares will deliver to Shore
Bancshares its quarterly reports on Form 10-Q, as filed with the SEC
under the Exchange Act. As soon as reasonably available, but in no
event more than 90 days after the calendar year, Talbot Bancshares will
deliver to Shore Bancshares its Annual Report on Form 10-K as filed
with the SEC under the Exchange Act.
(b) Between the date of this Plan and the Effective Date, Talbot
Bancshares shall promptly advise Shore Bancshares in writing of any
fact which, if existing or known at the date hereof, would have been
required to be set forth or disclosed in or pursuant to this Plan or of
any fact which, if existing or known as of the date hereof, would have
made any of the representations contained herein untrue in any material
respect.
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6.9. No Solicitation of Other Offers. Talbot Bancshares agrees that
neither it nor any of the Talbot Subsidiaries nor any of their
respective officers, directors, and employees shall, and Talbot
Bancshares shall direct and use its best efforts to cause its and the
Talbot Subsidiaries' agents and representatives (including, without
limitation, any investment banker, attorney, or accountant retained by
it or any of the Talbot Subsidiaries) not to, directly or indirectly,
take any action to solicit or initiate any inquiries or the making of
any offer or proposal (including without limitation any proposal to
stockholders of Talbot Bancshares) with respect to a merger,
consolidation, business combination, liquidation, reorganization, sale
or other disposition of any significant portion of assets (except
problem assets shown on the list previously provided to Shore
Bancshares, sale of shares of capital stock, or similar transactions
involving Talbot Bancshares or any of the Talbot Subsidiaries (any such
inquiry, offer, or proposal, a "Talbot Acquisition Proposal"), or,
except in the opinion of outside counsel to Talbot Bancshares as may be
legally required to comply with the duties the Board of Directors of
Talbot Bancshares under applicable law and upon termination of this
Plan under Section 13(f), engage in any negotiations concerning, or
provide any confidential information or data to, or have any
discussions with, any person relating to a Talbot Acquisition Proposal.
As of the time hereof, Talbot Bancshares is not engaged in any
negotiations or discussions relating to a Talbot Acquisition Proposal.
Talbot Bancshares shall promptly notify Shore Bancshares orally and in
writing of, and keep it fully and currently informed on, any Talbot
Acquisition Proposal or any inquiries with respect thereto, such
written notification to include the identity of the Person making such
inquiry or Talbot Acquisition Proposal and such other information with
respect thereto as is reasonably necessary to apprise Shore Bancshares
of the material terms of such Talbot Acquisition Proposal. Talbot
Bancshares shall give Shore Bancshares contemporaneous written notice
upon engaging in discussions or negotiations with, or providing any
information regarding Talbot Bancshares or any of the Talbot
Subsidiaries to, any such person regarding a Talbot Acquisition
Proposal.
6.10. Affiliate and Support Agreements. Within 10 days of the date
of this Plan, Talbot Bancshares shall deliver or cause to be delivered
to Shore Bancshares memoranda substantially in the form attached as
Appendix VII (the "Talbot Bancshares Affiliates' Memoranda") and
agreements substantially in the form attached as Appendix IX (the
"Talbot Bancshares Support Agreements") from each of its executive
officers and directors (and shall use commercially reasonable efforts
to obtain and deliver such memoranda from each stockholder of Talbot
Bancshares who (a) may be deemed to be an "affiliate" of Talbot
Bancshares, as that term is defined for purposes of the SEC Rules 145
and 405, or (b) may be restricted under the accounting rules applicable
to a pooling-of-interests). Under the terms of the Talbot Bancshares
Affiliates' Memoranda, each such officer, director or stockholder shall
acknowledge and agree (i) to abide by all limitations imposed by the
Securities Act and by all rules, regulations, and releases promulgated
thereunder by the SEC with respect to the sale or other disposition of
the shares of the Common Stock of Shore Bancshares to be received by
such person pursuant to the Merger, and (ii) to abide by all
limitations imposed by the accounting rules for the Merger to be
accounted for as a pooling-of-interests. Under the terms of the Talbot
Bancshares Support Agreements, each such officer or director shall
agree to support and vote the shares of Common Stock of Talbot
Bancshares owned or controlled by him or her to ratify and confirm this
Plan and the Merger.
6.11. Pooling-of-Interests. Talbot Bancshares shall use its best
efforts not to permit any of the directors, officers, employees,
stockholders, agents, consultants, or other representatives of Talbot
Bancshares or any of the Talbot Subsidiaries to take any action that
would preclude Shore Bancshares from treating the Merger as a pooling-
of-interests for financial reporting purposes.
6.12. Taxes. Talbot Bancshares shall have filed with appropriate
federal, state, county, municipal, or foreign taxing authorities all
tax returns required to be filed (taking any applicable extensions into
consideration) on or before the Effective Date and shall have paid (or
shall have made adequate provision or set up an adequate actual reserve
on the financial statements referred to in Section 4.2 for the payment
of) all taxes imposed by any taxing authority with respect to any such
returns, together with any interest, additions, or penalties related to
any such taxes.
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6.13. Public Announcements. Between the date of this Plan and the
Effective Date, Talbot Bancshares and the Talbot Subsidiaries will
consult with Shore Bancshares before issuing any press release or
otherwise making any public statements with respect to this Plan and
the transactions contemplated hereby and shall not issue any such press
release or make any such public statement prior to such consultation,
except as counsel may advise is required by law.
7. Conditions Precedent to Shore Bancshares' Obligations. Unless waived
in writing by Shore Bancshares in its sole discretion, all obligations of
Shore Bancshares hereunder shall be subject to the fulfillment prior to or
at the Effective Date of the following conditions:
7.1. Representations, Warranties, and Covenants. The representations
and warranties of Talbot Bancshares herein contained shall be true in
all material respects as of the date hereof, shall be deemed made again
at and as of the Effective Date except as contemplated herein, and
shall be true in all material respects as so made again; Talbot
Bancshares and the Talbot Subsidiaries shall have performed in all
material respects all obligations and agreements, and complied in all
material respects with all covenants and conditions required by this
Plan to be performed or complied with by them on or prior to the
Effective Date; and Shore Bancshares shall have received from Talbot
Bancshares an officers' certificate to their knowledge, information,
and belief in such detail as Shore Bancshares may reasonably request,
dated the Effective Date and signed by its Chief Executive Officer and
its Secretary, to the foregoing effect.
7.2. No Adverse Changes. There shall not have been any materially
adverse change in the condition (financial or otherwise), results of
operations, assets, liabilities, or business of Talbot Bancshares and
the Talbot Subsidiaries, taken as a whole, from December 31, 1999 to
the Effective Date, other than any such change attributable to or
resulting from (A) any change in banking or similar laws, rules or
regulations of general applicability or interpretations thereof by
courts or governmental authorities, (B) any change in GAAP or
regulatory accounting principles applicable to banks or their holding
companies generally, (C) any change in general economic or business
conditions affecting banks, thrifts or holding companies generally,
provided that such change does not affect Talbot Bancshares to a
materially greater extent than banks, thrifts or holding companies
generally, and provided further that such change does not have a
materially adverse effect on (i) the results of operations or financial
condition of Talbot Bancshares, (ii) any action or omission of Talbot
Bancshares or the Talbot Subsidiaries taken in contemplation of the
Merger with the prior written consent of Shore Bancshares, or (iii) the
ability of Talbot Bancshares and the Talbot Subsidiaries to consummate
the transactions contemplated by this Plan. For purposes of this
Section 7.2, a "materially adverse change" shall also include, without
limitation, (a) a reduction of the stockholders' equity of Talbot
Bancshares to less than $36,486,000 (plus such additions to
stockholders' equity as a result of the issuance of any Common Stock
after the date of this Plan), (b) a decrease in the net income of
Talbot Bancshares from January 1, 2000 through the Effective Date to
less than the net income for the same period but beginning on January
1, 1999, or (c) an increase in Talbot Bancshares' ratio of non-
performing assets to total assets to above 0.5%, and a "materially
adverse change" shall not include expenses of the transactions under
this Plan.
7.3. Events Preceding the Effective Date. Each of the events set
forth in Section 2 shall have occurred and any other required
regulatory approvals shall have been obtained and no more than 10% of
the outstanding shares of Talbot Bancshares shall have voted against
the Plan and delivered a written demand for appraisal of such shares
before the vote on the proposal to adopt the Plan.
7.4. Other Evidence. Talbot Bancshares shall have delivered to Shore
Bancshares such further certificates and documents evidencing due
action in accordance with this Plan, including certified copies of all
applicable proceedings of stockholders and directors of Talbot
Bancshares and Talbot Bank pertaining to the transactions under this
Plan, as Shore Bancshares shall reasonably request.
7.5. No Adverse Proceedings, Events, or Regulatory Requirements. No
action or proceeding against Shore Bancshares or any of the Shore
Subsidiaries or against Talbot Bancshares or
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<PAGE>
any of the Talbot Subsidiaries shall be pending which seeks to prevent
consummation of the transactions contemplated by this Plan; and no
order of any court shall have been entered which prohibits consummation
of the Merger and the transactions contemplated by this Plan. No
approval, consent, waiver, or administrative action shall have included
any condition or requirement that would (i) result in a materially
adverse effect on Shore Bancshares or Talbot Bancshares, or (ii) so
materially and adversely affect the economic or business benefits of
the Merger that Shore Bancshares, in the sole judgment of Shore
Bancshares, would not have entered into this Plan had such conditions
or requirements been known at the date hereof.
7.6. Consents, Etc. All requisite consents, approvals, waivers,
undertakings, memoranda, agreements, exercises, and terminations by
third parties which Talbot Bancshares and the Talbot Subsidiaries have
covenanted to use commercially reasonable efforts to obtain under
Sections 6.7, 6.10, and 6.11 shall have been obtained by Talbot
Bancshares or waived by Shore Bancshares except where the failure to
obtain such consent would not, individually or in the aggregate, result
in a materially adverse change.
7.7 Fairness Opinion. Shore Bancshares shall have received a written
opinion from GM&A (or such other recognized investment firm as Shore
Bancshares may select), dated contemporaneously with the date of the
Proxy Statement/Prospectus, to the effect that the exchange ratio is
fair to the stockholders of Shore Bancshares from a financial point of
view.
7.8. Opinion of Counsel. Shore Bancshares shall have received
opinions of tax counsel and counsel to Talbot Bancshares, dated the
Effective Date, in forms and substance reasonably satisfactory to Shore
Bancshares, covering the matters set forth in Appendix X and Appendix
XII, respectively. In rendering such tax opinion, tax counsel shall
require delivery of and rely upon certain representation letters
delivered by Shore Bancshares, Talbot Bancshares, and certain
stockholders of Talbot Bancshares, which letters shall be in form and
substance satisfactory to tax counsel.
7.9. Pooling-of-Interests Accounting. Shore Bancshares shall have
received a letter from Stegman & Company stating the accounting
treatment of the transaction if consummated in accordance with this
Plan; provided, that such condition shall be void and of no further
force and effect if Shore Bancshares has not received such letter
because of any action or inaction of Shore Bancshares. In rendering
such letter, Stegman & Company shall require delivery of and rely upon
certain representation letters delivered by Shore Bancshares and Talbot
Bancshares, which letters shall be in form and substance satisfactory
to Stegman & Company.
8. Conditions Precedent to Talbot Bancshares' Obligations. Unless waived
in writing by Talbot Bancshares in its sole discretion, all obligations of
Talbot Bancshares hereunder shall be subject to the fulfillment prior to or
at the Effective Date of the following conditions:
8.1. Representations, Warranties, and Covenants. The representations
and warranties of Shore Bancshares herein contained shall be true in
all material respects as of the date hereof, shall be deemed made again
at and as of the Effective Date except as contemplated herein, and
shall be true in all material respects as so made again; Shore
Bancshares and the Shore Subsidiaries shall have performed in all
material respects all obligations and agreements, and complied in all
material respects with all covenants and conditions required by this
Plan to be performed or complied with by them on or prior to the
Effective Date; and Talbot Bancshares shall have received from Shore
Bancshares an officers' certificate to their knowledge, information,
and belief in such detail as Talbot Bancshares may reasonably request,
dated the Effective Date and signed by its Chief Executive Officer and
its Secretary, to the foregoing effect.
8.2. No Adverse Changes. There shall not have been any materially
adverse change in the condition (financial or otherwise), results of
operations, assets, liabilities, or business of Shore Bancshares and
the Shore Subsidiaries, taken as a whole, from December 31, 1999 to the
Effective Date, other than any such change attributable to or resulting
from (A) any change in banking or
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similar laws, rules or regulations of general applicability or
interpretations thereof by courts or governmental authorities, (B) any
change in GAAP or regulatory accounting principles applicable to banks
or their holding companies generally, (C) any change in general
economic or business conditions affecting banks, thrifts or holding
companies generally, provided that such change does not affect Shore
Bancshares to a materially greater extent than banks, thrifts or
holding companies generally, and provided further that such change does
not have a materially adverse effect on the results of operations or
financial condition of Shore Bancshares or (D) any action or omission
of Shore Bancshares or the Shore Subsidiaries taken in contemplation of
the Merger with the prior written consent to Talbot Bancshares, or (ii)
the ability of Shore Bancshares and the Shore Subsidiaries to
consummate the transactions contemplated by this Plan. For purposes of
this Section 8.2, a "materially adverse change" shall also include,
without limitation, (a) a reduction of the stockholders' equity of
Shore Bancshares to less than $22,773,000 (plus such additions to
stockholders' equity as a result of the issuance of any Common Stock
after the date of this Plan), (b) a decrease in the net income of Shore
Bancshares from January 1, 2000 through the Effective Date to less than
the net income for the same period but beginning on January 1, 1999, or
(c) an increase in Shore Bancshares' ratio of non-performing assets to
total assets to above 0.5%, and a "materially adverse change" shall not
include expenses of the transactions under this Plan.
8.3. Events Preceding the Effective Date. Each of the events set
forth in Section 2 shall have occurred and any other required
regulatory approvals shall have been obtained and no more than 10% of
the outstanding shares of Shore Bancshares shall have been voted
against the Plan.
8.4. Other Evidence. Shore Bancshares shall have delivered to Talbot
Bancshares such further certificates and documents evidencing due
action in accordance with this Plan, including certified copies of all
applicable proceedings of stockholders and directors of Shore
Bancshares and Centreville Bank pertaining to the transactions under
this Plan, as Talbot Bancshares shall reasonably request.
8.5. No Adverse Proceedings, Events, or Regulatory Requirements. No
action or proceeding against Talbot Bancshares or any of the Talbot
Subsidiaries or against Shore Bancshares or any of the Shore
Subsidiaries shall be pending which seeks to prevent consummation of
the transactions contemplated by this Plan; and no order of any court
shall have been entered which prohibits consummation of the Merger and
the transactions contemplated by this Plan. No approval, consent,
waiver, or administrative action shall have included any condition or
requirement that would (i) result in a materially adverse effect on
Talbot Bancshares or Shore Bancshares, or (ii) so materially and
adversely affect the economic or business benefits of the Merger that
Talbot Bancshares, in the sole judgment of Talbot Bancshares, would not
have entered into this Plan had such conditions or requirements been
known at the date hereof.
8.6. Consents, Etc. All requisite consents, approvals, waivers,
undertakings, memoranda, agreements, exercises, and terminations by
third parties which Shore Bancshares and the Shore Subsidiaries have
covenanted to use commercially reasonable efforts to obtain under
Sections 5.7, 5.10, and 5.11 shall have been obtained by Shore
Bancshares or waived by Talbot Bancshares except where the failure to
obtain such consent would not, individually or in the aggregate, result
in a materially adverse change.
8.7 Fairness Opinion. Talbot Bancshares shall have received a
written opinion from Danielson (or such other recognized investment
firm as Talbot Bancshares may select), dated contemporaneously with the
date of the Proxy Statement/Prospectus, to the effect that the
consideration to be received in the Merger is fair to the stockholders
of Talbot Bancshares from a financial point of view.
8.8. Opinion of Counsel. Talbot Bancshares shall have received
opinions of tax counsel and counsel to Shore Bancshares, dated the
Effective Date, in forms and substance reasonably satisfactory to
Talbot Bancshares, covering the matters set forth in Appendix X and
Appendix XI, respectively.
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In rendering such tax opinion, tax counsel shall require delivery of
and rely upon certain representation letters delivered by Shore
Bancshares, Talbot Bancshares, and certain stockholders of Talbot
Bancshares, which letters shall be in form and substance satisfactory
to tax counsel.
8.9. Pooling-of-Interests Accounting. Talbot Bancshares shall have
received a letter from Stegman & Company stating the accounting
treatment of the transaction if consummated in accordance with this
Plan; provided, that such condition shall be void and of no further
force and effect if Talbot Bancshares has not received such letter
because of any action or inaction of Talbot Bancshares. In rendering
such letter, Stegman & Company shall require delivery of and rely upon
certain representation letters delivered by Talbot Bancshares and Shore
Bancshares, which letters shall be in form and substance satisfactory
to Stegman & Company.
9. Terms of the Merger.
9.1. Structure of the Merger. At the Effective Date, subject to the
terms and conditions of this Plan, Talbot Bancshares will merge with
and into Shore Bancshares, the separate corporate existence of Talbot
Bancshares shall cease, and Shore Bancshares shall continue as the
successor corporation (the "Successor Bancshares"). From and after the
Effective Date, the Merger shall have the effects set forth in Md.
General Corporation law (S) 3-114.
9.2. Conversion of Stock. (a) On the Effective Date, each share of
the Talbot Bancshares Common Stock outstanding immediately prior to the
Effective Date (other than shares ("Dissenters' Shares") with respect
to which dissenter's rights shall have been perfected in accordance
with Md. General Corporation Law (S)(S) 3-201 et seq.), shall, without
any action on the part of the holder thereof, be canceled and converted
into 2.85 shares of Successor Bancshares Common Stock (rounded to the
nearest 0.01 share) (the "Merger Consideration"). There will be no
issued and outstanding shares of preferred stock of Shore Bancshares on
the Effective Date of the Merger.
(b) No certificates for fractional shares of Successor Bancshares
Common Stock shall be issued; in lieu thereof, each holder otherwise
entitled to a fractional interest shall receive an amount in cash based
on the market value of Successor Bancshares Common Stock at the
Effective Date (determined in good faith by the Board of Directors of
Successor Bancshares ). Each such holder shall have no other rights
with respect to such fractional interest.
(c) Dissenters' Shares shall be paid for in accordance with Md.
General Corporation Law (S)(S) 3-201 et seq. and thereupon shall be
cancelled, retired and cease to exist.
(d) Notwithstanding any provision of this Plan to the contrary, any
Dissenters' Shares, which as of the Effective Date the holder thereof
has not withdrawn or lost any right to such appraisal shall not be
exchanged, or represent a right to receive shares of Successor
Bancshares Common Stock, but the holder shall only be entitled to such
rights as are granted by Md. General Corporation Law (S)(S) 3-201 et
seq. If a stockholder of Talbot Bancshares who demands appraisal of his
or her shares under Md. General Corporation Law (S)(S) 3-201 et seq.
shall effectively withdraw or lose (through failure to perfect or
otherwise) the right to appraisal, then, as of the Effective Date or
the occurrence of such event, whichever last occurs, that stockholder's
shares of the Talbot Bancshares Common Stock shall be exchanged and
represent only the right to receive shares of Successor Bancshares
Common Stock as provided in Section 9.2(a) pursuant to the procedures
in Section 9.3. Notwithstanding any provision of this Plan to the
contrary, Shore Bancshares shall have the right to terminate this Plan
and be released from all obligations hereunder if, immediately prior to
the proposed Effective Date, Talbot Bancshares stockholders have
demanded appraisal rights (which demands theretofore have not been
withdrawn) in such numbers so as to jeopardize the accounting treatment
specified in Section 7.9 and Section 8.9 and Stegman & Company fails or
refuses to deliver a letter to Shore Bancshares or Talbot Bancshares to
the effect that the Merger qualifies for pooling-of-interests
accounting treatment, as provided in Section 7.9 and Section 8.9.
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9.3. Exchange Procedure. (a) After the Effective Date, certificates
representing such shares of Common Stock of Talbot Bancshares shall
represent the right to receive certificates representing shares of
Common Stock of Successor Bancshares determined in accordance with
Section 9.2; such Talbot Bancshares certificates at any time after the
Effective Date may be exchanged by the holders thereof for new
certificates for the appropriate number of shares of Common Stock of
Successor Bancshares by forwarding such Talbot Bancshares Common Stock
certificates and the letter of transmittal provided by Successor
Bancshares to the transfer agent for Successor Bancshares Common Stock,
and the payment of cash in lieu of fractions, dividends, and other
distributions on said stock may be withheld until the Talbot Bancshares
certificates are surrendered for exchange to the transfer agent for
Successor Bancshares Common Stock; when such new certificates are
issued, the holders thereof shall be entitled to be paid the amount
(without any interest thereon) of all such withheld cash in lieu of
fractions, dividends, or other distributions which have theretofore
become payable with respect to such shares of Common Stock of Successor
Bancshares.
(b) As soon as possible after the Effective Date, the transfer agent
for Successor Bancshares Common Stock shall send or cause to be sent a
notice and transmittal form to each record holder of a certificate
theretofore evidencing shares of the Talbot Bancshares Common Stock.
(c) All shares of Successor Bancshares Common Stock into which
shares of Talbot Bancshares shall have been converted shall be deemed
to have been issued in full satisfaction of all rights pertaining to
such shares of Talbot Bancshares Common Stock.
9.4. Stock Options. (a) At the Effective Date, all options granted
by Talbot Bancshares which are outstanding under all stock option plans
previously adopted by Talbot Bancshares to purchase shares of Talbot
Bancshares Common Stock, which are outstanding and unexercised
immediately prior thereto (each, an "Outstanding Option"), shall be
converted as to each whole share subject to such Outstanding Option
into an option (each, an "Exchange Option") to purchase a number of
shares of Successor Bancshares Common Stock equal to the number of
shares of Talbot Bancshares Common Stock which could have been
purchased under the Outstanding Option adjusted for the Merger
Consideration, with the total for each holder's Exchange Options with
the same option price and expiration date rounded down to the next
whole share. Promptly after the Effective Time Successor Bancshares
shall file a registration statement on Form S-8 or another appropriate
form to register the shares of Successor Bancshares Common Stock to be
issued in exchange for the Exchange Options under the Securities Act.
(b) The per share exercise price of each Exchange Option shall be
equal to the price per share set forth in the Outstanding Option
adjusted for the Merger Consideration, rounded up to the nearest whole
cent.
(c) The Exchange Option shall otherwise have the same duration and
other terms as the Outstanding Option.
(d) The adjustments provided herein with respect to any options
which are "incentive stock options" (as defined in Section 422 of the
Code) shall be effected in a manner consistent with Section 424(a) of
the Code.
9.5. Charter of the Shore Bancshares. The Charter of Successor
Bancshares in the form attached as Exhibit A to the Articles of Merger
set forth in Appendix II shall be the Charter of the Successor
Bancshares until thereafter amended as provided by law.
9.6. By-Laws of the Successor Bancshares. The By-Laws of Successor
Bancshares as amended and restated in the form set forth in Appendix
III shall be the By-Laws of the Successor Bancshares until thereafter
amended as provided by law.
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<PAGE>
10. Boards of Directors and Employment Matters. Upon the Effective Date
or as otherwise indicated:
(a) At Effective Date, the Board of Directors of Successor
Bancshares will be as shown on Appendix XIV.
(b) The members the Boards of Directors having board titles and the
persons serving as executive officers of Successor Bancshares at the
Effective Date are listed on Appendix XIV.
(c) The directors, officers, and employees of Centreville Bank and
Talbot Bank will not change as of the Effective Date.
(d) The President and Chief Executive Officer of Successor
Bancshares named in Appendix XIV shall be offered an employment
agreement by Successor Bancshares and Talbot Bank in the form of
Appendix XIII with terms commencing on the Effective Date. The
Executive Vice President of Successor Bancshares named in Appendix XIV
shall be offered an employment agreement by Successor Bancshares and
Centreville Bank in the form of Appendix XIII with terms commencing on
the Effective Date. The President and Chief Executive Officer of Shore
Bancshares and Centreville Bank prior to the Effective Date will
execute an agreement in the form of Appendix XV pursuant to which he
agrees that his current employment agreement will terminate at the
Effective Date and that the change in control provisions therein will
not be activated by the Merger and the transactions contemplated by
this Plan.
(e) It is the intention of Shore Bancshares and Talbot Bancshares
that the employee benefit plans and policies of Shore Bancshares and
Talbot Bancshares will become the employee benefit plans and policies
of Successor Bancshares (unless required to continue the qualification
of the plans); it is the intention of Shore Bancshares and Talbot
Bancshares that that the employee benefit plans and policies of
Centreville Bank and Talbot Bank will not change at the Effective Date
(unless required to continue the qualification of the plans); however,
Successor Bancshares will review the employee benefit plans and
policies of Shore Bancshares, Talbot Bancshares, Centreville Bank, and
Talbot Bank and in its sole discretion, may amend, freeze, or terminate
such employee benefit plans and policies, merge them together, or
continue to maintain them.
11. Indemnification; Directors' and Officers' Insurance. (a) From and
after the Effective Date, Successor Bancshares will indemnify and hold
harmless each present and former director and officer of Talbot Bancshares
or the Talbot Subsidiaries (the "Indemnified Parties"), against any and all
costs or expenses (including reasonable attorneys' fees), judgments, fines,
penalties, settlements, losses, claims, damages or liabilities incurred in
connection with any and all claims, actions, suits, proceedings or
investigations, whether civil, criminal, administrative or investigative,
arising out of or pertaining to matters arising out of or in connection
with such party's position as, or actions taken as, a director or officer
of Talbot Bancshares or the Talbot Subsidiaries (collectively, "Claims"),
at or prior to the Effective Date, whether asserted or claimed prior to, at
or after the Effective Date, to the fullest extent permitted by applicable
law (and also advance expenses incurred to the fullest extent permitted by
Maryland law and Successor Bancshares' Charter and By-Laws); provided,
however, that Successor Bancshares' obligation to provide such
indemnification shall not apply to any litigation, proceeding or
investigation required to be disclosed pursuant to Section 4.9 that has not
been previously disclosed in writing by Talbot Bancshares, nor to Claims
asserted or claimed more than six years after the Effective Date. Successor
Bancshares shall not have any obligation hereunder to any Indemnified Party
when and if a court of competent jurisdiction shall ultimately determine,
and such determination shall have become final and non-appealable, that the
indemnification of such Indemnified Party in the manner contemplated hereby
is prohibited by applicable law or if such obligation is not covered
(without considering retention) by the liability insurance policies
contemplated in Section 11(c).
(b) Any Indemnified Party wishing to claim indemnification under Section
11(a), upon learning of any such claim, action, suit, proceeding or
investigation, shall within 30 days thereof notify Successor
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<PAGE>
Bancshares thereof, but the failure to so notify shall not relieve
Successor Bancshares of any liability it may have to such Indemnified Party
if such failure does not materially prejudice Successor Bancshares. In the
event of any such claim, action, suit, proceeding or investigation (whether
arising before or after the Effective Date) (i) Successor Bancshares shall
have the right to assume the defense thereof and Successor Bancshares shall
not be liable to such Indemnified Parties for any legal expenses of other
counsel or any other expenses subsequently incurred by such Indemnified
Parties in connection with the defense thereof, except that if Successor
Bancshares elects not to assume such defense, or counsel for the
Indemnified Parties advises that there are issues which raise conflicts of
interest between Successor Bancshares and the Indemnified Parties, the
Indemnified Parties may retain counsel satisfactory to them, and Successor
Bancshares shall pay the reasonable fees and expenses of such counsel for
the Indemnified Parties promptly as statements therefor are received, (ii)
the Indemnified Parties will cooperate in the defense of any such matter,
and (iii) Successor Bancshares shall not be liable for any settlement
effected without its prior written consent which shall not be unreasonably
withheld.
(c) For a period of six years after the Effective Date, Successor
Bancshares shall cause to be maintained in effect an extension of the
current policies of directors' and officers' liability insurance maintained
by Shore Bancshares and Centreville Bank as contemplated by Section 5.4(e)
and Talbot Bancshares and Talbot Bank as contemplated by Section 6.4(e)
(provided that Successor Bancshares may substitute therefor policies of at
least the same coverage and amounts containing terms and conditions which
are no less advantageous in any material respect to the Indemnified
Parties) with respect to matters arising before the Effective Date.
12. Amendment of this Plan. This Plan may be amended at any time prior
to the Effective Date in response to comments of governmental regulatory
authorities, or otherwise; provided, that any such amendment is in writing
and is approved by the Board of Directors of each of the parties hereto.
13. Abandonment of this Plan; Effect Thereof. Anything herein to the
contrary notwithstanding, and notwithstanding any stockholder vote or
approval, this Plan may be terminated and abandoned:
(a) by mutual consent of the Boards of Directors of Shore Bancshares
and Talbot Bancshares;
(b) by Talbot Bancshares or Shore Bancshares, if its Board of
Directors so determines, in the event of the failure of the stockholders
of Talbot Bancshares or the stockholders of Shore Bancshares to approve
this Plan at the meetings called to consider such approval, unless in
each case the failure of such occurrence shall be due to the failure of
the party seeking to terminate this Plan to perform or observe its
agreement set forth herein to be performed or observed by such party at
or before the Effective Date;
(c) by Talbot Bancshares or Shore Bancshares, if its Board of
Directors so determines, in the event of a material breach by the other
party hereto of any representation, warranty, covenant, or agreement
contained herein which is not cured or not curable within 60 days after
written notice of such breach is given to the party committing such
breach by the other party;
(d) by Talbot Bancshares or Shore Bancshares by written notice to the
other party hereto if prior to March 1, 2001 (i) any approval, consent,
or waiver of any Governmental Entity required to permit consummation of
the transactions contemplated hereby shall have been denied, (ii) any
approval, consent, or waiver of any Governmental Entity required to
permit consummation of the transactions contemplated hereby shall
include any condition or requirement that would (A) result in a
materially adverse effect on Talbot Bancshares or Shore Bancshares, or
(B) so materially and adversely affect the economic or business benefits
of the Merger that Talbot Bancshares, in the sole judgment of Talbot
Bancshares, or Shore Bancshares, in the sole judgment of Shore
Bancshares, would not have entered into this Plan had such conditions or
requirements been known at the date hereof, (iii) any action or
proceeding against Talbot Bancshares or any of the Talbot Subsidiaries
or against Shore Bancshares or any of the Shore Subsidiaries shall be
pending which seeks to prevent consummation of the transactions
contemplated by this Plan;
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<PAGE>
(e) by Talbot Bancshares or Shore Bancshares, by action of the Board
of Directors of either party and the delivery of written notice by
either party to the other, in the event that (i) the Merger is not
consummated by March 1, 2001, unless the failure to so consummate by
such time is due to the breach of any material representation,
warranty, agreement, or covenant contained in this Plan by the party
seeking to terminate, or (ii) if prior to March 1, 2001, any court
shall have entered an order which prohibits consummation of the Merger
and the transactions contemplated by this Plan; or
(f) by action of the Board of Directors of Shore Bancshares in their
sole discretion if they determine to negotiate a Shore Acquisition
Proposal under Section 5.9 or by action of the Board of Directors of
Talbot Bancshares in their sole discretion if they determine to
negotiate a Talbot Acquisition Proposal under Section 6.9. If this Plan
is terminated by the Board of Directors of Shore Bancshares in order to
accept a Shore Acquisition Proposal under Section 5.9, Shore Bancshares
shall be obligated to pay Talbot Bancshares, within five business days
of such termination, a fee (the "Termination Fee") in cash in an amount
equal to $1.5 million, plus all reasonable expenses, including, without
limitation, legal, accounting, valuation, printing, and tax expenses,
incurred by Talbot Bancshares in connection with the due diligence
investigation of Shore Bancshares, the negotiation and preparation of
this Plan, and the transactions contemplated herein. Notwithstanding,
if the Plan is terminated under Section 5.9, Shore Bancshares shall not
be obligated to pay such Termination Fee if Talbot Bancshares exercises
the Stock Option Agreement granted by Shore Bancshares. If this Plan is
terminated by the Board of Directors of Talbot Bancshares in order to
accept a Talbot Acquisition Proposal under Section 6.9, Talbot
Bancshares shall be obligated to pay Shore Bancshares, within five
business days of such termination, a fee (the "Termination Fee") in
cash in an amount equal to $1.5 million, plus all reasonable expenses,
including, without limitation, legal, accounting, valuation, printing,
and tax expenses, incurred by Shore Bancshares in connection with the
due diligence investigation of Talbot Bancshares, the negotiation and
preparation of this Plan, and the transactions contemplated herein.
Notwithstanding, if the Plan is terminated under Section 6.9, Talbot
Bancshares shall not be obligated to pay such Termination Fee if Shore
Bancshares exercises the Stock Option Agreement granted by Talbot
Bancshares.
Except as provided in Section 17, in the event of the termination of this
Plan by either Talbot Bancshares or Shore Bancshares, as provided above,
this Plan shall thereafter become void, and, except as provided in Section
13(f), there shall be no liability on the part of any party hereto or their
respective officers or directors, except that any such termination shall be
without prejudice to the rights of any party hereto arising out of the
willful breach of any other party of any covenant or willful
misrepresentation contained in this Plan.
14. Expenses. Whether or not the transactions hereunder are consummated,
each party to the Plan shall pay its own expenses relating hereto,
including fees and disbursements of its counsel, accountants, and financial
advisor, one half of filing fees in respect of regulatory applications or
registration statements required in order to consummate the Merger, and one
half of the costs of printing and mailing the Proxy Statement/Prospectus.
The foregoing shall not be construed as a limitation of damages in the
event of breach.
15. Notices. All notices, requests, demands, and other communications
under or connected with this Plan shall be in writing, and (a) if to Shore
Bancshares, shall be addressed to Shore Bancshares, Inc., 109 North
Commerce Street, P.O. Box 400, Centreville, Maryland 21617, attention of
Daniel T. Cannon, President and Chief Executive Officer, with a copy to its
counsel, Gordon, Feinblatt, Rothman, Hoffberger & Hollander, LLC, The
Garrett Building, 233 East Redwood Street, Baltimore, Maryland 21202,
attention of Michael A. Refolo, Esquire; or (b) if to Talbot Bancshares,
shall be addressed to Talbot Bancshares, Inc., 18 East Dover Street,
Easton, Maryland 21601, attention of W. Moorhead Vermilye, President and
Chief Executive Officer, with a copy to its counsel, Piper Marbury Rudnick
& Wolfe LLP, 6225 Smith Avenue, Baltimore, Maryland 21209-3600, attention
of James J. Winn, Jr., Esquire. Any such notices, requests, demands, and
other communications shall be mailed, postage prepaid, first class mail, or
delivered personally and shall be sufficient and effective when delivered
to or received at the address as
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<PAGE>
specified. Each of the parties may change the address at which it is to
receive communications by like written notice to the other.
16. Entire Agreement; Effect. Subject to Sections 5.1(b) and 6.1(b),
this Plan (including the financial statements, lists, schedules, and
documents delivered pursuant hereto, which are made a part hereof) is
intended by the parties to and does constitute the entire agreement of the
parties with respect to the transaction contemplated hereunder. This Plan
supersedes any and all prior understandings, including prior letters of
intent, and it may not be changed, waived, discharged, or terminated
orally, but only in writing by a party against which enforcement of the
change, waiver, discharge, or termination is sought.
17. Representations, Warranties, and Agreements. Except as set forth in
this Section 17, all representations, warranties, and agreements of Talbot
Bancshares and Shore Bancshares made in this Plan, or in any instrument
delivered by Talbot Bancshares or Shore Bancshares pursuant to this Plan,
shall expire at the Effective Date. In the event of the consummation of the
transactions contemplated hereby, the agreements contained in or referred
to in Sections 9, 10, and 11 shall survive the Effective Date. In the event
of the termination of this Plan in accordance with its terms, the
agreements contained in or referred to in Sections 5.1(b), 5.5, 5.9,
6.1(b), 6.5, 6.9 13(f), and 14 or in the Stock Option Agreements and the
Support Agreements (which agreements shall only terminate in accordance
with their respective terms) shall survive such termination. Except to the
extent that representations, warranties, and agreements of Talbot
Bancshares and Shore Bancshares made in this Plan, or in any instrument
delivered by Talbot Bancshares or Shore Bancshares pursuant to this Plan,
shall expire at the Effective Date, nothing contained herein shall be
construed to limit the liability of a party to another party for damages
caused by a breach of this Plan.
18. Governing Law. This Plan shall be governed by, and shall be
interpreted in accordance with, the laws of the State of Maryland or, to
the extent applicable, the federal laws of the United States.
19. General. The section headings contained in this Plan are for
reference purposes only and shall not affect in any way the meaning or
interpretations of this Plan. This Plan may be executed simultaneously in
two or more counterparts, each of which shall be deemed an original, but
all of which together shall constitute one and the same instrument. This
Plan shall inure to the benefit of and be binding upon the parties hereto
and their respective successors but shall not be assigned to and shall not
create any rights in favor of any other party. Any purported assignment in
violation of this Section 19 shall be void.
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<PAGE>
IN WITNESS WHEREOF, Talbot Bancshares and Shore Bancshares have caused this
Plan to be duly executed by their respective presidents, and witnessed by their
respective secretaries, thereunto duly authorized as of the date first above
written.
<TABLE>
<S> <C>
Witness Talbot Bancshares, Inc.
/s/ Susan E. Leaverton /s/ W. Moorhead Vermilye
____________________________________________ By: ________________________________________
Secretary W. Moorhead Vermilye
President and Chief Executive Officer
Witness Shore Bancshares, Inc.
/s/ Mary Catherine Quimby /s/ Daniel T. Cannon
____________________________________________ By: ________________________________________
Secretary Daniel T. Cannon
President and Chief Executive Officer
</TABLE>
A-40
<PAGE>
APPENDIX B--ARTICLES OF MERGER AND RESTATED SHORE BANCSHARES CHARTER
FORM OF ARTICLES OF MERGER
BETWEEN
TALBOT BANCSHARES, INC.
(a Maryland Corporation)
AND
SHORE BANCSHARES, INC.
(a Maryland Corporation)
TALBOT BANCSHARES, INC., a corporation duly organized and existing under the
laws of the State of Maryland ("Talbot Bancshares"), and SHORE BANCSHARES,
INC., a corporation duly organized and existing under the laws of the State of
Maryland ("Shore Bancshares"), do hereby certify that:
FIRST: Talbot Bancshares and Shore Bancshares agree to merge.
SECOND: The name and place of incorporation of each party to these
Articles of Merger are Talbot Bancshares, Inc., a Maryland corporation, and
Shore Bancshares, Inc., a Maryland corporation. Shore Bancshares shall
survive the merger and shall continue under the name "Shore Bancshares,
Inc." as a corporation of the State of Maryland.
THIRD: Talbot Bancshares has its principal office in the State of
Maryland in Talbot County and owns an interest in land in the State of
Maryland in County. Shore Bancshares has its principal office in
the State of Maryland in Queen Anne's County and owns an interest in land
in the State of Maryland in County. Pursuant to these Articles of
Merger Shore Bancshares will change its principal office in the State of
Maryland to Talbot County.
FOURTH: The terms and conditions of the transaction set forth in these
Articles of Merger were advised, authorized, and approved by Talbot
Bancshares or Shore Bancshares, respectively, in the manner and by the vote
required by its Charter and the laws of the State of Maryland. The manner
of approval was as follows:
(a) The Board of Directors of Talbot Bancshares at a meeting held on
, 2000 adopted resolutions which declared that the proposed
merger was advisable on substantially the terms and conditions set
forth or referred to in the resolutions and directed that the proposed
merger be submitted for consideration at a special meeting of
stockholders of Talbot Bancshares. Notice which stated that a purpose
of the special meeting was to act on the proposed merger was given by
Talbot Bancshares as required by law. The proposed merger was approved
by the stockholders of Talbot Bancshares at a special meeting of
stockholders held , 2000 by the affirmative vote of a majority of
all the votes entitled to be cast on the matter.
(b) The Board of Directors of Shore Bancshares at a meeting held on
, 2000 adopted resolutions which declared that the proposed
merger was advisable on substantially the terms and conditions set
forth or referred to in the resolutions and directed that the proposed
merger be submitted for consideration at a special meeting of
stockholders of Shore Bancshares. Notice which stated that a purpose of
the special meeting was to act on the proposed merger was given by
Shore Bancshares as required by law. The proposed merger was approved
by the stockholders of Shore Bancshares at a special meeting of
stockholders held , 2000 by the affirmative vote of a majority of
all the votes entitled to be cast on the matter.
FIFTH: The Charter of Shore Bancshares is to be amended and restated as
part of the merger to read as set forth in Exhibit A hereto.
B-1
<PAGE>
SIXTH: The total number of shares of capital stock of all classes which
Talbot Bancshares or Shore Bancshares, respectively, has authority to
issue, the number of shares of each class which Talbot Bancshares or Shore
Bancshares, respectively, has authority to issue, and the par value of the
shares of each class which Talbot Bancshares or Shore Bancshares,
respectively, has authority to issue are as follows:
(a) The total number of shares of stock of all classes which Talbot
Bancshares has authority to issue is 25,000,000 shares, all of which
shares are now classified as Common Stock (par value $.01 per share).
The aggregate par value of all the shares of stock of all classes of
Talbot Bancshares is $250,000.00.
(b) The total number of shares of stock of all classes which Shore
Bancshares has authority to issue is 10,000,000 shares, all of which
shares are now classified as Common Stock (par value $.01 per share).
The aggregate par value of all the shares of stock of all classes of
Shore Bancshares is $100,000.00.
SEVENTH: The merger changes the authorized stock of Shore Bancshares as
follows:
(a) As of immediately before the merger the total number of shares
of stock of all classes which Shore Bancshares has authority to issue
is 10,000,000 shares, of which no shares are classified as Preferred
Stock and 10,000,000 shares are classified as Common Stock (par value
$.01 per share).
(b) As changed by the merger the total number of shares of stock of
all classes which Shore Bancshares has authority to issue is 35,000,000
shares, of which no shares are classified as Preferred Stock and
35,000,000 shares are classified as Common Stock (par value $.01 per
share).
(c) The aggregate par value of all shares of stock of all classes of
Shore Bancshares is $100,000 before the merger and $350,000 as changed
by the merger.
EIGHTH: The manner and basis of converting or exchanging issued stock of
the merging corporations into different stock of a corporation or other
consideration and the treatment of any issued stock of the merging
corporations not to be converted or exchanged are as follows:
(a) Each issued and outstanding share of Common Stock of Shore
Bancshares on the effective date of the merger shall continue, without
change, to be issued and outstanding share of Common Stock of Shore
Bancshares. There will be no issued and outstanding shares of Preferred
Stock of Shore Bancshares on the effective date of the merger.
(b) Each issued and outstanding share of Common Stock of Talbot
Bancshares on the effective date of the merger, shall upon
effectiveness and without further act, be automatically converted into,
and become 2.85 shares of Common Stock of Shore Bancshares. Cash will
be paid in lieu of fractional shares at the rate of $ per share.
There will be no issued and outstanding shares of Preferred Stock of
Talbot Bancshares on the effective date of the merger.
(c) After the effective date of the merger, certificates
representing shares of Common Stock of Talbot Bancshares shall
represent the right to receive certificates representing shares of
Common Stock of Shore Bancshares; such Talbot Bancshares certificates
at any time after the effective date of the merger may be exchanged by
the holders thereof for new certificates for the appropriate number of
shares of Common Stock of Shore Bancshares by forwarding such Talbot
Bancshares Common Stock certificates and the letter of transmittal
provided by Shore Bancshares to the transfer agent for Shore Bancshares
Common Stock, and the payment of cash in lieu of fractions, dividends,
and other distributions on said stock may be withheld until the Talbot
Bancshares certificates are surrendered for exchange to the transfer
agent for Shore Bancshares Common Stock; and when such new certificates
are issued, the holders thereof shall be entitled to be paid the amount
(without any interest thereon) of all such withheld cash in lieu of
fractions, dividends, or other distributions which have therefore
become payable with respect to such shares of Common Stock of Shore
Bancshares.
B-2
<PAGE>
NINTH: Other provisions necessary to effect the merger are as follows:
(a) In addition to any other purposes and powers set forth herein,
after the effective time of the merger Shore Bancshares shall have the
all of purposes and powers of both Talbot Bancshares and Shore
Bancshares prior to the effective time of the merger.
(b) The persons named as directors in Exhibit A hereto shall become
the directors of Shore Bancshares at the effective time of the merger
(c) The By-Laws of Shore Bancshares is to be amended and restated as
a part of the merger to read as set forth in Appendix III to the Plan
and Agreement to Merge dated as of July 25, 2000 between Talbot
Bancshares and Shore Bancshares.
TENTH: The merger shall become effective at .m. ET on
, 2000.
IN WITNESS WHEREOF, TALBOT BANCSHARES, INC. and SHORE BANCSHARES, INC. have
caused this Articles of Merger to be signed in their respective names and on
their respective behalves by their respective presidents and witnessed by their
respective secretaries on , 2000.
<TABLE>
<S> <C>
WITNESS: Talbot Bancshares, Inc.
(a Maryland corporation)
_____________________________________
Secretary By: _________________________________
W. Moorhead Vermilye
President and Chief Executive
Officer
WITNESS: Shore Bancshares, Inc.
(a Maryland corporation)
_____________________________________
Secretary By: _________________________________
Daniel T. Cannon
President and Chief Executive
Officer
</TABLE>
THE UNDERSIGNED, President and Chief Executive Officer of TALBOT BANCSHARES,
INC., a Maryland corporation, who executed on behalf of the Corporation the
foregoing Articles of Merger of which this certificate is made a part, hereby
acknowledges in the name and on behalf of said Corporation the foregoing
Articles of Merger to be the corporate act of said Corporation and hereby
certifies that to the best of his knowledge, information and belief the matters
and facts set forth therein with respect to the authorization and approval
thereof are true in all material respects under the penalties of perjury.
_____________________________________
W. Moorhead Vermilye
President and Chief Executive
Officer
B-3
<PAGE>
THE UNDERSIGNED, President and Chief Executive Officer of SHORE BANCSHARES,
INC., a Maryland corporation, who executed on behalf of the Corporation the
foregoing Articles of Merger of which this certificate is made a part, hereby
acknowledges in the name and on behalf of said Corporation the foregoing
Articles of Merger to be the corporate act of said Corporation and hereby
certifies that to the best of his knowledge, information and belief the matters
and facts set forth therein with respect to the authorization and approval
thereof are true in all material respects under the penalties of perjury.
_____________________________________
Daniel T. Cannon
President and Chief Executive
Officer
B-4
<PAGE>
Exhibit A
SHORE BANCSHARES, INC.
AMENDED AND RESTATED ARTICLES OF INCORPORATION
FIRST: SHORE BANCSHARES, INC., a Maryland corporation (hereinafter called
the "Corporation"), having its principal office in Centreville, Maryland,
hereby certifies to the State Department of Assessments and Taxation of
Maryland that:
SECOND: The name of the Corporation is:
SHORE BANCSHARES, INC.
THIRD: The purposes for which the Corporation is formed are to engage in
lawful act or activities permitted by a corporation organized under the laws of
the State of Maryland.
FOURTH: The present address of the principal office of the Corporation in
this State is 18 East Dover Street, Easton, Maryland 21601.
FIFTH: The name and address of the resident agent of the Corporation in this
State are W. Moorhead Vermilye, c/o 18 East Dover Street, Easton, Maryland
21601. Said resident agent is a citizen of the State of Maryland who resides
there.
SIXTH: (a) The total number of shares of stock of all classes which the
Corporation has authority to issue is 35,000,000 shares of capital stock (par
value $.01 per share), amounting in aggregate par value to $350,000.00. All of
such shares are initially classified as "Common Stock". The Board of Directors
may classify and reclassify any unissued shares of capital stock by setting or
changing in any one or more respects the preferences, conversion or other
rights, voting powers, restrictions, limitations as to dividends,
qualifications or terms or conditions of redemption of such shares of capital
stock. A majority of the entire Board of Directors, without action by the
stockholders, may amend the Charter to increase or decrease the aggregate
number of shares of stock or the number of shares of stock of any class that
the Corporation has authority to issue.
(b) The following is a description of the preferences, conversion and other
rights, voting powers, restrictions, limitations as to dividends,
qualifications and terms and conditions of redemption of the Common Stock of
the Corporation:
(1) Each share of Common Stock shall have one vote, and, except as
otherwise provided in respect of any class of stock hereafter classified or
reclassified, the exclusive voting power for all purposes shall be vested
in the holders of the Common Stock. Shares of Common Stock shall not have
cumulative voting rights.
(2) Subject to the provisions of law and any preferences of any class of
stock hereafter classified or reclassified, dividends, including dividends
payable in shares of another class of the Corporation's stock, may be paid
ratably on the Common Stock at such time and in such amounts as the Board
of Directors may deem advisable.
(3) In the event of any liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, the holders of the Common
Stock shall be entitled, together with the holders of any other class of
stock hereafter classified or reclassified not having a preference on
distributions in the liquidation, dissolution or winding up of the
Corporation, to share ratably in the net assets of the Corporation
remaining, after payment or provision for payment of the debts and other
liabilities of the Corporation and the amount to which the holders of any
class of stock hereafter classified or reclassified having a preference on
distributions in the liquidation, dissolution or winding up of the
Corporation shall be entitled.
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(c) Subject to the foregoing, the power of the Board of Directors to
classify and reclassify any of the shares of capital stock shall include,
without limitation, subject to the provisions of the Charter, authority to
classify or reclassify any unissued shares of such stock into a class or
classes of preferred stock, preference stock, special stock or other stock, and
to divide and classify shares of any class into one or more series of such
class, by determining, fixing, or altering one or more of the following:
(1) The distinctive designation of such class or series and the number
of shares to constitute such class or series; provided that, unless
otherwise prohibited by the terms of such or any other class or series, the
number of shares of any class or series may be decreased by the Board of
Directors in connection with any classification or reclassification of
unissued shares and the number of shares of such class or series may be
increased by the Board of Directors in connection with any such
classification or reclassification, and any shares of any class or series
which have been redeemed, purchased, otherwise acquired or converted into
shares of Common Stock or any other class or series shall become part of
the authorized capital stock and be subject to classification and
reclassification as provided in this sub-paragraph.
(2) Whether or not and, if so, the rates, amounts and times at which,
and the conditions under which, dividends shall be payable on shares of
such class or series, whether any such dividends shall rank senior or
junior to or on a parity with the dividends payable on any other class or
series of stock, and the status of any such dividends as cumulative,
cumulative to a limited extent or non-cumulative and as participating or
non-participating.
(3) Whether or not shares of such class or series shall have voting
rights, in addition to any voting rights provided by law and, if so, the
terms of such voting rights.
(4) Whether or not shares of such class or series shall have conversion
or exchange privileges and, if so, the terms and conditions thereof,
including provision for adjustment of the conversion or exchange rate in
such events or at such times as the Board of Directors shall determine.
(5) Whether or not shares of such class or series shall be subject to
redemption and, if so, the terms and conditions of such redemption,
including the date or dates upon or after which they shall be redeemable
and the amount per share payable in case of redemption, which amount may
vary under different conditions and at different redemption dates; and
whether or not there shall be any sinking fund or purchase account in
respect thereof, and if so, the terms thereof.
(6) The rights of the holders of shares of such class or series upon the
liquidation, dissolution or winding up of the affairs of, or upon any
distribution of the assets of, the Corporation, which rights may vary
depending upon whether such liquidation, dissolution or winding up is
voluntary or involuntary and, if voluntary, may vary at different dates,
and whether such rights shall rank senior or junior to or on a parity with
such rights of any other class or series of stock.
(7) Whether or not there shall be any limitations applicable, while
shares of such class or series are outstanding, upon the payment of
dividends or making of distributions on, or the acquisition of, or the use
of moneys for purchase or redemption of, any stock of the Corporation, or
upon any other action of the Corporation, including action under this sub-
paragraph, and, if so, the terms and conditions thereof.
(8) Any other preferences, rights, restrictions, including restrictions
on transferability, and qualifications of shares of such class or series,
not inconsistent with law and the Charter of the Corporation.
(d) For the purposes hereof and of any articles supplementary to the Charter
providing for the classification or reclassification of any shares of capital
stock or of any other Charter document of the Corporation (unless otherwise
provided in any such articles or document), any class or series of stock of the
Corporation shall be deemed to rank:
(1) prior to another class or series either as to dividends or upon
liquidation, if the holders of such class or series shall be entitled to
the receipt of dividends or of amounts distributable on liquidation,
dissolution or winding up, as the case may be, in preference or priority to
holders of such other class or series;
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(2) on a parity with another class or series either as to dividends or
upon liquidation, whether or not the dividend rates, dividend payment dates
or redemption or liquidation price per share thereof be different from
those of such others, if the holders of such class or series of stock shall
be entitled to receipt of dividends or amounts distributable upon
liquidation, dissolution or winding up, as the case may be, in proportion
to their respective dividend rates or redemption or liquidation prices,
without preference or priority over the holders of such other class or
series; and
(3) junior to another class or series either as to dividends or upon
liquidation, if the rights of the holders of such class or series shall be
subject or subordinate to the rights of the holders of such other class or
series in respect of the receipt of dividends or the amounts distributable
upon liquidation, dissolution or winding up, as the case may be.
SEVENTH: The number of Directors of the Corporation shall be not less than
three (3) nor more than twenty-five (25). The number of Directors may be
increased or decreased in accordance with the Bylaws of the Corporation. The
Directors shall be divided into three classes with respect to the time for
which they shall hold office. Directors of Class I shall hold office for one
year or until the first annual meeting of stockholders following their
election; Directors of Class II shall hold office for two years or until the
second annual meeting of stockholders following their election; and Directors
of Class III shall hold office for three years or until the third annual
meeting of stockholders following their election; and in each case until their
successors are elected and qualify. At each future annual meeting of
stockholders, the successors to the Class of Directors whose term shall expire
at that time shall be elected to hold office for a term of three years, so that
the term of office of one Class of Directors shall expire in each year. The
provisions of this Article Seventh may not be amended or modified unless such
amendment or modification is authorized by the Board of Directors and approved
by holders of 80% of the stock of the Corporation entitled to vote on the
matter. As of the date hereof, the Directors of the Corporation are:
(1) Class I: David L. Pyles, Daniel T. Cannon and Richard C. Granville;
(2) Class II: David C. Bryan, Ronald N. Fox, Neil R. LeCompte and
Herbert L. Andrew, III; and
(3) Class III: Paul M. Bowman, Lloyd L. Beatty, Jr., B. Vance Carmean,
Jr. and W. Moorhead Vermilye.
EIGHTH: (a) The following provisions are hereby adopted for the purpose of
defining, limiting, and regulating the powers of the Corporation and of the
directors and the stockholders:
(1) The Board of Directors is hereby empowered to authorize the issuance
from time to time of shares of its stock of any class, whether now or
hereafter authorized, or securities convertible into shares of its stock of
any class or classes, whether now or hereafter authorized, for such
consideration as may be deemed advisable by the Board of Directors and
without any action by the stockholders.
(2) No holder of any stock or any other securities of the Corporation,
whether now or hereafter authorized, shall have any preemptive right to
subscribe for or purchase any stock or any other securities of the
Corporation other than such, if any, as the Board of Directors, in its sole
discretion, may determine and at such price or prices and upon such other
terms as the Board of Directors, in its sole discretion, may fix; and any
stock or other securities which the Board of Directors may determine to
offer for subscription may, as the Board of Directors in its sole
discretion shall determine, be offered to the holders of any class, series
or type of stock or other securities at the time outstanding to the
exclusion of the holders of any or all other classes, series or types of
stock or other securities at the time outstanding.
(3) The Board of Directors of the Corporation shall, consistent with
applicable law, have power in its sole discretion to determine from time to
time in accordance with sound accounting practice or other reasonable
valuation methods what constitutes annual or other net profits, earnings,
surplus or net assets in excess of capital; to fix and vary from time to
time the amount to be reserved as working capital, or determine that
retained earnings or surplus shall remain in the hands of the Corporation;
to set apart out of any funds of the Corporation such reserve or reserves
in such amount or amounts and for such proper
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purpose or purposes as it shall determine and to abolish any such reserve
or any part thereof; to redeem or purchase its stock or to distribute and
pay distributions or dividends in stock, cash or other securities or
property, out of surplus or any other funds or amounts legally available
therefor, at such times and to the stockholders of record on such dates as
it may, from time to time, determine; to determine the amount, purpose,
time of creation, increase or decrease, alteration or cancellation of any
reserves or charges and the propriety thereof (whether or not any
obligation or liability for which such reserves or charges shall have been
created shall have been paid or discharged); and to determine the fair
value and any matters relating to the acquisition, holding and disposition
of any assets by the Corporation.
(4) Notwithstanding any provision of law requiring the authorization of
any action by a greater proportion than a majority of the total number of
shares of all classes of capital stock or of the total number of shares of
any class of capital stock, such action shall be valid and effective if
authorized by the affirmative vote of the holders of a majority of the
total number of shares of all classes outstanding and entitled to vote
thereon, except as otherwise provided in the Charter.
(5) The Corporation shall indemnify (A) its directors and officers,
whether serving the Corporation or at its request any other entity, to the
full extent required or permitted by the General Laws of the State of
Maryland now or hereafter in force, including the advance of expenses under
the procedures and to the full extent permitted by law and (B) other
employees and agents to such extent as shall be authorized by the Board of
Directors or the Corporation's By-Laws and be permitted by law. The
foregoing rights of indemnification shall not be exclusive of any other
rights to which those seeking indemnification may be entitled. The Board of
Directors may take such action as is necessary to carry out these
indemnification provisions and is expressly empowered to adopt, approve and
amend from time to time such by-laws, resolutions or contracts implementing
such provisions or such further indemnification arrangements as may be
permitted by law. No amendment of the Charter of the Corporation or repeal
of any of its provisions shall limit or eliminate the right to
indemnification provided hereunder with respect to acts or omissions
occurring prior to such amendment or repeal.
(6) To the fullest extent permitted by Maryland statutory or decisional
law, as amended or interpreted, no director or officer of the Corporation
shall be personally liable to the Corporation or its stockholders for money
damages. No amendment of the Charter of the Corporation or repeal of any of
its provisions shall limit or eliminate the limitation on liability
provided to directors and officers hereunder with respect to any act or
omission occurring prior to such amendment or repeal.
(7) For any stockholder proposal to be presented in connection with an
annual or special meeting of stockholders of the Corporation, including any
proposal relating to the nomination of a director to be elected to the
Board of Directors of the Corporation, the stockholders must have given
timely written notice thereof in writing to the Secretary of the
Corporation in the manner and containing the information required by the
By-Laws. Stockholder proposals to be presented in connection with a special
meeting of stockholders, including any proposal relating to the nomination
of a director to be elected to the Board of Directors of the Corporation,
will be presented by the Corporation only to the extent required by Section
2-502 of the Maryland General Corporation Law and the By-Laws.
(8) Notwithstanding any other provision in the charter or by-laws, each
vacancy on the board of directors resulting from (a) an increase in the
size of the board of directors or (b) the death, resignation or removal of
a director may be filled only by the affirmative vote of a majority of the
remaining directors in office, even if the remaining directors do not
constitute a quorum, provided however, that until September 30, 2005 such
directors shall be elected from the directors of the same financial
institution subsidiary in which the vacating director served. Any director
elected to fill a vacancy shall hold office for the remainder of the full
term of the class of directors in which the vacancy occurred and until a
successor is elected and qualifies.
(9) The Directors of the Corporation shall consider all factors they
deem relevant in evaluating any proposed offer for the Corporation or any
of its stock, any proposed merger or consolidation of the
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Corporation or subsidiary of the Corporation with or into another entity,
any proposal to purchase or otherwise acquire all or substantially all the
assets of the Corporation or any subsidiary of the Corporation, and any
other business combination (as such term is defined in the Maryland General
Corporation Law). The Directors shall evaluate whether the proposal is in
the best interests of the Corporation and its subsidiaries by considering
the best interests of the stockholders and other factors the Directors
determine to be relevant, including the social, legal and economic effects
on employees, customers, depositors, and communities served by the
Corporation and any subsidiary of the Corporation. The Directors shall
evaluate the consideration being offered to the stockholders in relation to
the then current market value of the Corporation and its subsidiaries, the
then current market value of the stock of the Corporation or any subsidiary
in a freely negotiated transaction, and the Directors' judgment as to the
future value of the stock of the Corporation as an independent entity.
(10) Until September 30, 2005, without the approval of at lease two-
thirds of the entire Board of Directors of the Corporation, the Corporation
may not (i) merge or consolidate with, transfer all or substantially all of
its assets to, or engage in a share exchange with another entity, (ii) may
not cause any subsidiary bank of the Corporation to merge or consolidate
with, to transfer of all or substantially all of its assets to, or engage
in
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APPENDIX C--NEW SHORE BANCSHARES AMENDED AND RESTATED BY-LAWS
SHORE BANCSHARES, INC.
AMENDED AND RESTATED BY-LAWS
ARTICLE I
STOCKHOLDERS
SECTION 1. Annual Meeting. The annual meeting of the stockholders of the
Corporation shall be held on a day duly designated by the Board of Directors in
the month of April in each year, for the purpose of electing directors to
succeed those whose terms shall have expired as of the date of such annual
meeting, and for the transaction of such other corporate business as may come
before the meeting.
SECTION 2. Special Meetings. Special meetings of the stockholders may be
called at any time for any purpose or purposes by the Chairman, the President,
or by a majority of the Board of Directors. Subject to the procedures set forth
in Article II, Section 4 and this Section, special meetings of the stockholders
shall be called by the Secretary upon the request in writing of holders of a
majority of all the shares outstanding and entitled to vote on the business to
be transacted at such meeting. Such request shall state the purpose or purposes
of the meeting and the matters proposed to be acted upon at it. The Secretary
shall provide an estimate of the cost of preparing and mailing and, upon
payment of such cost, the notice of the meeting shall be mailed by the
Corporation. Business transacted at all special meetings of stockholders shall
be confined to the purpose or purposes stated in the notice of the meeting. The
Board of Directors shall have the sole power to fix the date and time of the
special meeting. Nominations of persons for election to the Board of Directors
and the proposal of business to be considered by the stockholders may be made
at a special meeting of stockholders (a) only pursuant to the Corporation's
notice of meeting and, (b) in the case of nominations of persons for election
to the Board of Directors, (i) by or at the direction of the Board of Directors
or (ii) by any stockholder of the Corporation (A) who was a stockholder of
record at the time of giving notice provided for in Article II, Section 4, (B)
who is entitled to vote at the meeting and (C) who complied with the notice
procedures set forth in Article II, Section 4.
SECTION 3. Place of Holding Meetings. All meetings of stockholders shall be
held at the principal office of the Corporation or elsewhere in the United
States as designated by the Board of Directors.
SECTION 4. Notice of Meetings; Waiver of Notice. Written notice of each
meeting of the stockholders shall be mailed, postage pre-paid by the Secretary,
to each stockholder entitled to vote thereat at the stockholder's post office
address, as it appears upon the books of the Corporation, at least ten (10)
days but not more than ninety (90) days before, the meeting. Each such notice
shall state the place, day, and hour at which the meeting is to be held and, in
the case of any special meeting, shall state briefly the purpose or purposes
thereof. Notwithstanding the foregoing provisions, each person who is entitled
to notice waives notice if he or she before or after the meeting signs a waiver
of the notice which is filed with the records of stockholders' meetings, or is
present at the meeting in person or by proxy.
SECTION 5. Quorum. The presence in person or by proxy of the holders of
record of a majority of the shares of the capital stock of the Corporation
issued and outstanding and entitled to vote thereat shall constitute a quorum
at all meetings of the stockholders, except as otherwise provided by law, by
the Charter or by these By-laws. Whether or not a quorum shall be in attendance
at the time for which the meeting shall have been called, the meeting may be
adjourned from time to time by a majority vote of the stockholders present or
represented to a date not more than 120 days after the original date, without
any notice other than by announcement at the meeting. At any adjourned meeting
at which a quorum shall attend, any business may be deferred and transacted
which might have been transacted if the meeting had been held as originally
called.
SECTION 6. Organization. Meetings of stockholders shall be presided over by
the Chairman of the Board of Directors or, if the Chairman is not present, the
President of the Corporation, or if the President is not
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present, by a Vice President, or, if none of said officers is present, by a
chairman to be elected at the meeting. The Secretary of the Corporation, or if
the Secretary is not present, any Assistant Secretary shall act as Secretary of
such meetings; in the absence of the Secretary and any Assistant Secretary, the
presiding officer may appoint a person to act as Secretary of the meeting.
SECTION 7. Voting. Unless the Charter provides otherwise, at all meetings of
stockholders, every stockholder entitled to vote thereat shall have one (l)
vote for each share of stock standing in the stockholder's name on the books of
the Corporation on the date for the determination of stockholders entitled to
vote at such meeting. Such vote may be either in person or by proxy appointed
by an instrument in writing subscribed by such stockholder or the stockholder's
duly authorized attorney, bearing a date not more than eleven (11) months prior
to said meeting, unless said instrument provides for a longer period. Such
proxy shall be dated, but need not be sealed, witnessed or acknowledged. All
elections shall be had and all questions shall be decided by a majority of the
votes cast at a duly constituted meeting, except as otherwise provided by law,
in the Charter or by these By-laws. Notwithstanding, a plurality of all the
votes cast at a meeting at which a quorum is present is sufficient to elect a
director.
SECTION 8. Advance Notice Provisions for Business to be Transacted at Annual
Meeting. No business may be transacted at an annual meeting of stockholders,
other than business that is either (a) specified in the notice of meeting (or
any supplement thereto) given by or at the direction of the Board of Directors
(or any duly authorized committee thereof), (b) otherwise properly brought
before the annual meeting by or at the direction of the Board of Directors (or
any duly authorized committee thereof) or (c) otherwise properly brought before
the annual meeting by any stockholder of the Corporation (i) who is stockholder
of record on the date of the giving of the notice provided for in this Section
and on the record date for the determination of stockholders entitled to vote
at such annual meeting and (ii) who complies with the notice procedures set
forth in this Section. A stockholder's notice must be delivered to or mailed
and received by the Secretary at the principal executive offices of the
Corporation not less than 60 days nor more than 90 days prior to the first
anniversary of the preceding year's annual meeting; provided, however, that in
the event that the date of the annual meeting is advanced by more than 30 days
or delayed by more than 60 days from the anniversary date of the preceding
year's annual meeting, notice by the stockholder must be so delivered not
earlier than the 90th day prior to such annual meeting and not later than the
close of business on the later of the 60th day prior to such annual meeting or
the tenth day following the day on which public announcement of the date of
such meeting is first made. A stockholder's notice to the Secretary must be in
writing and set forth as to each matter such stockholder proposes to bring
before the annual meeting (i) a brief description of the business desired to be
brought before the annual meeting and the reasons for conducting such business
at the annual meeting, (ii) the name and address of such stockholder as they
appear on the Corporation's books and of the beneficial owner, if any, on whose
behalf the proposal is made, (iii) the class or series and number of shares of
capital stock of the Corporation which are owned beneficially or of record by
such stockholder and such beneficial owner, (iv) a description of all
arrangements or understandings between such stockholder and any other person or
persons (including their names) in connection with the proposal of such
business by such stockholder and any material interest of such stockholder in
such business and (v) a representation that such stockholder intends to appear
in person or by proxy at the annual meeting to bring such business before the
meeting. No business shall be conducted at the annual meeting of stockholders
except business brought before the annual meeting in accordance with the
procedures set forth in Article II, Section 4 or in this Section, provided,
however, that once business has been properly brought before the annual meeting
in accordance with such procedures, nothing in Article II, Section 4 nor in
this Section shall be deemed to preclude discussion by any stockholder of any
such business. If the chairman of an annual meeting determines that business
was not properly brought before the annual meeting in accordance with the
foregoing procedures, the chairman of the meeting shall declare to the meeting
that the business was not properly brought before the meeting and such business
shall not be transacted. No adjournment or postponement of a meeting of
stockholders shall commence a new period for the giving of notice of a
stockholder proposal hereunder.
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ARTICLE II
BOARD OF DIRECTORS
SECTION 1. General Powers. The property and business of the Corporation
shall be managed by the Board of Directors of the Corporation.
SECTION 2. Number of Directors. The Corporation shall have at least one
director. The Corporation shall have the number of directors provided in the
Charter until changed as herein provided. Two-thirds of the entire Board of
Directors may alter the number of directors set by the Charter to not exceeding
25 nor less than the minimum number then permitted herein, but the action may
not affect the tenure of office of any director.
SECTION 3. Election and Term of Office. The Board of Directors shall be
divided into classes as described in the Charter. Each Director shall hold
office until the expiration of the term for which the Director is elected,
except as otherwise stated in these Bylaws, and thereafter until his or her
successor has been elected and qualifies. If the number of directors is
changed, any increase or decrease shall be apportioned among the classes so as
to maintain the number of directors in each class as nearly equal as possible,
and any additional director of any class shall, subject to Article II, Section
5, hold office for a term that shall coincide with the remaining term of that
class, but in no case shall a decrease in the number of directors shorten the
term of any incumbent director. Election of Directors need not be by written
ballot, unless required by these Bylaws.
SECTION 4. Nomination of Directors. Nomination for election of members of
the Board of Directors may be made by the Board of Directors or by any
stockholder of any outstanding class of capital stock of the Corporation
entitled to vote for the election of Directors and who complies with the notice
provisions in this Section. Notice by a stockholder of intention to make any
nominations shall be made in writing and shall be delivered or mailed to the
Secretary at the principal executive offices of the Corporation (a) in the case
of an annual meeting, not less than 120 days nor more than 180 days prior to
the date of the meeting of stockholders called for the election of Directors
which, for purposes of this provision, shall be deemed to be on the same date
as the annual meeting of stockholders for the preceding year; provided,
however, that in the event that the date of the annual meeting is advanced by
more than 30 days or delayed by more than 60 days from the anniversary date of
the preceding year's annual meeting, notice by the stockholder must be so
delivered not earlier than the 180th day prior to such annual meeting and not
later than the close of business on the later of the 120th day prior to such
annual meeting or the tenth day following the day on which public announcement
of the date of such annual meeting is first made; and (b) in the case of a
special meeting of stockholders called for the purpose of electing directors,
not later than the close of business on the tenth day following the day on
which notice of the date of the special meeting was mailed or public
announcement of the date of the special meeting was made, whichever first
occurs. Such notification shall contain the following information (a) the name
and address of each proposed nominee; (b) the principal occupation of each
proposed nominee; (c) the number of shares of capital stock of the Corporation
owned by each proposed nominee; (d) the name and residence address of the
notifying stockholder; (e) the number of shares of capital stock of the
Corporation owned by the notifying stockholder; (f) the consent in writing of
the proposed nominee as to the proposed nominee's name being placed in
nomination for Director; (g) a description of all arrangements or
understandings between such notifying stockholder and each proposed nominee and
any other person or persons (including their names) pursuant to which the
nomination(s) are to be made by such notifying stockholder, (h) a
representation that such notifying stockholder intends to appear in person or
by proxy at the meeting to nominate the persons named in its notice; and (i)
all information relating to such proposed nominee that would be required to be
disclosed by Regulation 14A under the Securities Exchange Act of 1934, as
amended, and Rule 14a-11 promulgated thereunder, assuming such provisions would
be applicable to the solicitation of proxies for such proposed nominee.
Nominations not made in accordance herewith shall be disregarded and, upon the
chairman's instructions, the teller shall disregard all votes cast for each
such nominee.
SECTION 5. Vacancies; Removal of Director. A vacancy on the Board of
Directors may be filled only in accordance with the provisions of the Charter.
Any director or the entire Board of Directors may be removed only in accordance
with the provisions of Maryland law.
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SECTION 6. Place of Meeting. The Board of Directors may hold their meetings
and have one or more offices, and keep the books of the Corporation, either
within or outside the State of Maryland, at such place or places as they may
from time to time determine by resolution or by written consent of all the
directors. The Board of Directors may hold their meetings by conference
telephone or other similar electronic communications equipment in accordance
with the provisions of Maryland General Corporation Law.
SECTION 7. Regular Meetings. Regular meetings of the Board of Directors may
be held without notice at such time and place as shall from time to time be
determined by resolution of the Board, provided that notice of every resolution
of the Board fixing or changing the time or place for the holding of regular
meetings of the Board shall be mailed to each director at least three (3) days
before the first meeting held in pursuance thereof. The annual meeting of the
Board of Directors shall be held immediately following the annual stockholders'
meeting at which a Board of Directors is elected. Any business may be
transacted at any regular meeting of the Board.
SECTION 8. Special Meetings. Special meetings of the Board of Directors
shall be held whenever called by direction of the Chairman, or the President,
and must be called by the Chairman, the President or the Secretary upon written
request of a majority of the Board of Directors, by mailing the same at least
two (2) days prior to the meeting, or by personal delivery, facsimile
transmission, telegraphing or telephoning the same on the day before the
meeting, to each director; but such notice may be waived by any director. A
special meeting of the Board of Directors shall be held on such date and at any
place as may be designated from time to time by the Board of Directors. Unless
otherwise indicated in the notice thereof, any and all business may be
transacted at any special meeting. At any meeting at which every director shall
be present, even though without notice, any business may be transacted and any
director may in writing waive notice of the time, place and objects of any
special meeting.
SECTION 9. Quorum. A majority of the whole number of directors shall
constitute a quorum for the transaction of business at all meetings of the
Board of Directors, but, if at any meeting less than a quorum shall be present,
a majority of those present may adjourn the meeting from time to time, and the
act of a majority of the directors present at any meeting at which there is a
quorum shall be the act of the Board of Directors, except as may be otherwise
specifically provided by law or by the Corporation's Charter or by these By-
laws.
SECTION 10. Compensation of Directors. Directors may receive a fixed sum and
expenses for attendance at regular and special meetings and committee meetings,
or any combination of the foregoing as may be determined from time to time by
the Board of Directors, and nothing contained herein shall be construed to
preclude any Director from serving the Corporation in any other capacity and
receiving compensation therefore.
SECTION 11. Advisory Directors. The Board of Directors may by resolution
appoint advisory directors to the Board of Directors, who may also serve as
directors emeriti, and shall have such authority and receive such compensation
and reimbursement as the Board of Directors shall provide. Advisory directors
or directors emeriti shall not have the authority to participate by vote in the
transaction of business.
SECTION 12. Committees. The Board of Directors may appoint from among its
members an Executive Committee, an Audit Committee, a Compensation Committee, a
Nominating Committee, and other committees composed of one or more directors
and delegate to these committees any of the powers of the Board of Directors,
except the power to authorize dividends on stock, elect directors, issue stock
other than as provided in the next sentence, recommend to the stockholders any
action which requires stockholder approval, amend these By-Laws, or approve any
merger or share exchange which does not require stockholder approval. If the
Board of Directors has given general authorization for the issuance of stock
providing for or establishing a method or procedure for determining the maximum
number of shares to be issued, a committee of the Board of Directors, in
accordance with that general authorization or any stock option or other plan or
program adopted by the Board of Directors, may authorize or fix the terms of
stock subject to classification or reclassification and the terms on which any
stock may be issued, including all terms and conditions required or permitted
to be
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established or authorized by the Board of Directors. Until September 30, 2005
the Audit Committee, the Compensation Committee, and the Nominating Committee
shall be composed of an even number of directors of half of whom are also
directors of The Centreville National Bank of Maryland and half of whom are
also directors of The Talbot Bank.
SECTION 13. Committee Procedure. Each committee may fix rules of procedure
for its business. A majority of the members of a committee shall constitute a
quorum for the transaction of business and the act of a majority of those
present at a meeting at which a quorum is present shall be the act of the
committee. The members of a committee present at any meeting, whether or not
they constitute a quorum, may appoint a director to act in the place of an
absent member. Any action required or permitted to be taken at a meeting of a
committee may be taken without a meeting, if an unanimous written consent which
sets forth the action is signed by each member of the committee and filed with
the minutes of the committee.
SECTION 14. Emergency. In the event of a state of disaster of sufficient
severity to prevent the conduct and management of the affairs and business of
the Corporation by its directors and officers as contemplated by the Charter
and these By-Laws, any two or more available members of the then incumbent
Executive Committee shall constitute a quorum of that Committee for the full
conduct and management of the affairs and business of the Corporation in
accordance with the provisions of Article II, Section 13. In the event of the
unavailability, at such time, of a minimum of two members of the then incumbent
Executive Committee, the available directors shall elect an Executive Committee
consisting of any two members of the Board of Directors, whether or not they be
officers of the Corporation, which two members of the Board of Directors,
whether or not they be officers of the Corporation, which two members shall
constitute the Executive Committee for the full conduct and management of the
affairs of the Corporation in accordance with the foregoing provisions of this
Section. This Section shall be subject to implementation by resolution of the
Board of Directors passed from time to time for that purpose, and any
provisions of these By-Laws (other than this Section) and any resolutions which
are contrary to the provisions of this Section or to the provisions of any such
implementary resolutions shall be suspended until it shall be determined by any
interim Executive Committee acting under this Section that it shall be to the
advantage of the Corporation to resume the conduct and management of its
affairs and business under all the other provisions of these By-Laws.
ARTICLE III
OFFICERS
SECTION 1. Election, Tenure, and Compensation. The officers of the
Corporation shall be a President, one or more Vice-Presidents (if so elected by
the Board of Directors), a Secretary, and a Treasurer, and such other officers
as the Board of Directors from time to time may consider necessary for the
proper conduct of the business of the Corporation. It may also have, and until
September 30, 2005 shall have, a Chairman of the Board. The Board of Directors
shall designate who shall serve as chief executive officer, who shall have
general supervision of the business and affairs of the Corporation, and may
designate a chief operating officer, who shall have supervision of the
operations of the Corporation. In the absence of any designation the Chairman
of the Board, if there be one, shall serve as chief executive officer and the
President shall serve as chief operating officer. In the absence of the
Chairman of the Board, or if there be none, the President shall be the chief
executive officer. The officers shall be elected annually by the Board of
Directors at its first meeting following the annual meeting of the
stockholders. The Chairman shall be a director and the other officers may, but
need not be, directors. Any two or more of the above officers, except those of
President and Vice President, may be held by the same person, but no officer
shall execute, acknowledge or verify any instrument in more than one capacity
if such instrument is required by law or by these By-laws to be executed,
acknowledged or verified by any two or more officers. The compensation or
salary paid all officers of the Corporation shall be fixed by resolutions
adopted by the Board of Directors.
Except where otherwise expressly provided in a contract duly authorized by
the Board of Directors, all officers and agents of the Corporation shall be
subject to removal at any time by the affirmative vote of a
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majority of the whole Board of Directors, and all officers, agents, and
employees, other than officers appointed by the Board of Directors, shall hold
office at the discretion of the Board of Directors or of the officers
appointing them.
SECTION 2. Powers and Duties of the Chairman. The Chairman, if one be
elected, shall preside at all meetings of the stockholders and of the Board of
Directors. Until September 30, 2005 the Chairman of the Board shall be a
director that is also a non-employee director of The Centreville National Bank
of Maryland. The Chairman shall be ex-officio a member of all the standing
committees. The Chairman shall do and perform such other duties as may, from
time to time, be assigned to the Chairman by the Board of Directors.
SECTION 3. Powers and Duties of the President. The President shall be the
chief executive officer of the Corporation and shall have general charge and
control of all its business affairs and properties. The President may sign and
execute all authorized bonds, contracts or other obligations in the name of the
Corporation. The President shall have the general powers and duties of
supervision and management usually vested in the office of President of a
corporation. The President shall do and perform such other duties as may, from
time to time, be assigned to the President by the Board of Directors. Until
September 30, 2005, the President shall be the President of The Talbot Bank
unless the entire Board of Directors by two-thirds vote determines otherwise.
SECTION 4. Powers and Duties of the Vice President. The Board of Directors
may elect one or more Vice Presidents. Any Vice President (unless otherwise
provided by resolution of the Board of Directors) may sign and execute all
authorized bonds, contracts, or other obligations in the name of the
Corporation. Each Vice President shall have such other powers and shall perform
such other duties as may be assigned to the Vice President by the Board of
Directors or by the Chairman or the President. In case of the absence or
disability of the President, the duties of that office shall be performed by
any Vice President, and the taking of any action by such Vice President in
place of the President shall be conclusive evidence of the absence or
disability of the President. Until September 30, 2005, the Corporation shall
also have an Executive Vice President, who shall also serve as the Chief
Operating Officer, who shall be the President of The Centreville National Bank
of Maryland unless the entire Board of Directors by two-thirds vote determines
otherwise.
SECTION 5. Secretary. The Secretary shall give, or cause to be given, notice
of all meetings of stockholders and directors and all other notices required by
law or by these By-laws, and in case of the Secretary's absence or refusal or
neglect to do so, any such notice may be given by any person thereunto directed
by the Chairman or the President, or by the directors or stockholders upon
whose written requisition the meeting is called as provided in these By-laws.
The Secretary shall record all the proceedings of the meetings of the
stockholders and of the directors in books provided for that purpose, and shall
perform such other duties as may be assigned to him by the directors, the
Chairman, or the President. The Secretary shall have custody of the seal of the
Corporation and shall affix the same to all instruments requiring it, when
authorized by the Board of Directors, the Chairman, or the President, and
attest the same. In general, the Secretary shall perform all the duties
generally incident to the office of Secretary, subject to the control of the
Board of Directors, the Chairman, and the President.
SECTION 6. Treasurer. The Treasurer shall have custody of all the funds and
securities of the Corporation, and shall keep full and accurate account of
receipts and disbursements in books belonging to the Corporation. The Treasurer
shall deposit all moneys and other valuables in the name and to the credit of
the Corporation in such depository or depositories as may be designated by the
Board of Directors.
The Treasurer shall disburse the funds of the Corporation as may be ordered
by the Board of Directors, taking proper vouchers for such disbursements. The
Treasurer shall render to the Chairman, the President and the Board of
Directors, whenever any of them so requests, an account of all transactions as
Treasurer and of the financial condition of the Corporation.
The Treasurer shall give the Corporation a bond, if required by the Board of
Directors, in a sum, and with one or more sureties, satisfactory to the Board
of Directors, for the faithful performance of the duties of the
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office and for the restoration to the Corporation in case of the Treasurer's
death, resignation, retirement or removal from office of all books, papers,
vouchers, moneys, and other properties of whatever kind in the Treasurer's
possession or under the Treasurer's control belonging to the Corporation.
The Treasurer shall perform all the duties generally incident to the office
of the Treasurer, subject to the control of the Board of Directors, the
Chairman, and the President.
SECTION 7. Assistant Secretary. The Board of Directors may appoint an
Assistant Secretary or more than one Assistant Secretary. Each Assistant
Secretary shall (except as otherwise provided by resolution of the Board of
Directors) have power to perform all duties of the Secretary in the absence or
disability of the Secretary and shall have such other powers and shall perform
such other duties as may be assigned by the Board of Directors, the Chairman,
or the President. In case of the absence or disability of the Secretary, the
duties of the office shall be performed by any Assistant Secretary, and the
taking of any action by any such Assistant Secretary in place of the Secretary
shall be conclusive evidence of the absence or disability of the Secretary.
SECTION 8. Assistant Treasurer. The Board of Directors may appoint an
Assistant Treasurer or more than one Assistant Treasurer. Each Assistant
Treasurer shall (except as otherwise provided by resolution of the Board of
Directors) have power to perform all duties of the Treasurer in the absence or
disability of the Treasurer and shall have such other powers and shall perform
such other duties as may be assigned by the Board of Directors, the Chairman or
the President. In case of the absence or disability of the Treasurer, the
duties of the office shall be performed by any Assistant Treasurer, and the
taking of any action by any such Assistant Treasurer in place of the Treasurer
shall be conclusive evidence of the absence or disability of the Treasurer.
ARTICLE IV
CAPITAL STOCK
SECTION 1. Issue of Certificates of Stock. The certificates for shares of
the stock of the Corporation shall be of such form not inconsistent with the
Charter, or its amendments, as shall be approved by the Board of Directors. All
certificates shall be signed by the Chairman, the President or by any Vice-
President and counter-signed by the Secretary, an Assistant Secretary,
Treasurer or Assistant Treasurer, and sealed with the seal of the Corporation.
All certificates for each class of stock shall be consecutively numbered. The
name of the person owning the shares issued and the address of the holder,
shall be entered in the Corporation's books. All certificates surrendered to
the Corporation for transfer shall be canceled and no new certificates
representing the same number of shares shall be issued until the former
certificate or certificates for the same number of shares shall have been so
surrendered, and canceled, unless a certificate of stock be lost or destroyed,
in which event another may be issued in its stead upon proof of such loss or
destruction and the giving of a satisfactory bond of indemnity not exceeding an
amount double the value of the stock. Both such proof and such bond shall be in
a form approved by the general counsel of the Corporation and by the Transfer
Agent of the Corporation and by the Registrar of the stock.
SECTION 2. Transfer of Shares. Shares of the capital stock of the
Corporation shall be transferred on the books of the Corporation only by the
holder thereof in person or by the holder's attorney upon surrender and
cancellation of certificates for a like number of shares as hereinbefore
provided.
SECTION 3. Registered Stockholders. The Corporation shall be entitled to
treat the holder of record of any share or shares of stock as the holder in
fact thereof and accordingly shall not be bound to recognize any equitable or
other claim to or interest in such share in the name of any other person,
whether or not it shall have express or other notice thereof, save as expressly
provided by the Laws of Maryland.
SECTION 4. Closing Transfer Books. The Board of Directors may fix the
period, not exceeding twenty (20) days, during which time the books of the
Corporation shall be closed against transfers of stock, or,
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in lieu thereof, the directors may fix a date not less than ten (10) days nor
more than sixty (60) days preceding the date of any meeting of stockholders or
any dividend payment date or any date for the allotment of rights, as a record
date for the determination of the stockholders entitled to notice of and to
vote at such meeting or to receive such dividends or rights as the case may be;
and only stockholders of record on such date shall be entitled to notice of and
to vote at such meeting or to receive such dividends or rights as the case may
be.
SECTION 5. Lost Stock Certificates. The Board of Directors may determine the
conditions for issuing a new stock certificate in place of one which is alleged
to have been lost, stolen, or destroyed, or the Board of Directors may delegate
such power to any officer or officers of the Corporation. In their discretion,
the Board of Directors or such officer or officers may require the owner of the
certificate to give bond, with sufficient surety, to indemnify the Corporation
against any loss or claim arising as a result of the issuance of a new
certificate. In their discretion, the Board of Directors or such officer or
officers may refuse to issue such new certificate save upon the order of some
court having jurisdiction in the premises.
SECTION 6. Exemption from Control Share Acquisition Statute. The provisions
of Sections 3-701 to 3-709 of the Maryland General Corporation Law shall not
apply to any share of the capital stock of the Corporation. Such shares of
capital stock are exempted from such Sections to the fullest extent permitted
by Maryland law.
ARTICLE V
BANK ACCOUNTS AND LOANS
SECTION 1. Bank Accounts. Such officers or agents of the Corporation as from
time to time shall be designated by the Board of Directors shall have authority
to deposit any funds of the Corporation in such banks or trust companies as
shall from time to time be designated by the Board of Directors and such
officers or agents as from time to time authorized by the Board of Directors
may withdraw any or all of the funds of the Corporation so deposited in any
bank or trust or trust company, upon checks, drafts or other instruments or
orders for the payment of money, drawn against the account or in the name or
behalf of this Corporation, and made or signed by such officers or agents; and
each bank or trust company with which funds of the Corporation are so deposited
is authorized to accept, honor, cash and pay, without limit as to amount, all
checks, drafts or other instruments or orders for the payment of money, when
drawn, made or signed by officers or agents so designated by the Board of
Directors until written notice of the revocation of the authority of such
officers or agents by the Board of Directors shall have been received by such
bank or trust company. There shall from time to time be certified to the banks
or trust companies in which funds of the Corporation are deposited, the
signature of the officers or agents of the Corporation so authorized to draw
against the same. In the event that the Board of Directors shall fail to
designate the persons by whom checks, drafts and other instruments or orders
for the payment of money shall be signed, as hereinabove provided in this
Section, all of such checks, drafts and other instruments or orders for the
payment of money shall be signed by the Chairman, the President or a Vice
President and counter-signed by the Secretary or Treasurer or an Assistant
Secretary or an Assistant Treasurer of the Corporation.
SECTION 2. Loans. Such officers or agents of the Corporation as from time to
time shall be designated by the Board of Directors shall have authority to
effect loans, advances or other forms of credit at any time or times for the
Corporation from such banks, trust companies, institutions, corporations, firms
or persons as the Board of Directors shall from time to time designate, and as
security for the repayment of such loans, advances, or other forms of credit to
assign, transfer, endorse, and deliver, either originally or in addition or
substitution, any or all stock, bonds, rights, and interests of any kind in or
to stocks or bonds, certificates of such rights or interests, deposits,
accounts, documents covering merchandise, bills and accounts receivable and
other commercial paper and evidences or debt at any time held by the
Corporation; and for such loans, advances, or other forms of credit to make,
execute and deliver one or more notes, acceptances or written obligations of
the Corporation on such terms, and with such provisions as to the security or
sale or disposition thereof as such
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officers or agents shall deem proper; and also to sell to, or discount or
rediscount with, such banks, trust companies, institutions, corporations, firms
or persons any and all commercial paper, bills receivable, acceptances and
other instruments and evidences of debt at any time held by the Corporation,
and to that end to endorse, transfer and deliver the same. There shall from
time to time be certified to each bank, trust company, institution,
corporation, firm or person so designated the signature of the officers or
agents so authorized; and each bank, trust company, institution, corporation,
firm or person is authorized to rely upon such certification until written
notice of the revocation by the Board of Directors of the authority of such
officers or agents shall be delivered to such bank, trust company, institution,
corporation, firm or person.
ARTICLE VI
MISCELLANEOUS PROVISIONS
SECTION 1. Fiscal Year. The fiscal year of the Corporation shall begin on
the first day of January of each year.
SECTION 2. Notices. Whenever, under the provisions of these By-laws, notice
is required to be given to any director, officer or stockholder, unless
otherwise provided in these By-laws, such notice shall be deemed given if in
writing, and personally delivered, or sent by telefax, or telegram, or by mail,
by depositing the same in a post office or letter box, in a postpaid sealed
wrapper, addressed to each stockholder, officer or director, as the case may
be, at such address as appears on the books of the Corporation, or in default
of any other address, to such director, officer or stockholder, at the general
post office in the Town of Centreville, Maryland, and such notice shall be
deemed to be given at the time the same is so personally delivered, telefaxed,
telegraphed or so mailed. Any stockholder, director or officer may waive any
notice required to be given under these By-laws.
SECTION 3. Voting Upon Stocks. Unless otherwise ordered by the Board of
Directors, the President and the Vice President, or any of them, shall have
full power and authority on behalf of the Corporation to attend and to vote and
to grant proxies to be used at any meetings of stockholders of any corporation
in which the Corporation may hold stock. The Board of Directors, however, may
by resolution appoint some other person to vote such shares, in which case such
person shall be entitled to vote such shares upon the production of a certified
copy of such resolution. Until September 30, 2005, any such person voting stock
of a banking institution registered in the name of the Corporation in the
election or removal of directors of such institution must cast votes in favor
of the election or against removal of directors of such institution, unless
otherwise directed by the affirmative vote of not less than two-thirds of the
entire Board of Directors.
ARTICLE VII
AMENDMENT OF BY-LAWS
In accordance with the Charter, these By-Laws may be repealed, altered,
amended or rescinded and new by-laws may be adopted (a) by the stockholders of
the Corporation (considered for this purpose as one class) by the affirmative
vote of not less than a majority of all the votes entitled to be cast by the
outstanding shares of capital stock of the Corporation generally in the
election of directors which are cast on the matter at any meeting of the
stockholders called for that purpose (provided that notice of such proposal is
included in the notice of such meeting) or (b) by the Board of Directors by the
affirmative vote of not less than two-thirds of the Board of Directors at a
meeting held in accordance with the provisions of these By-Laws.
ARTICLE VIII
INDEMNIFICATION
SECTION 1. Definitions. As used in this Article VIII, any word or words that
are defined in Section 2-418 of the Corporations and Associations Article of
the Annotated Code of Maryland (the "Indemnification Section"), as amended from
time to time, shall have the same meaning as provided in the Indemnification
Section.
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SECTION 2. Indemnification of Directors and Officers. The Corporation shall
indemnify and advance expenses to a director or officer of the Corporation in
connection with a proceeding to the fullest extent permitted by and in
accordance with the Indemnification Section. Notwithstanding the foregoing, the
Corporation shall be required to indemnify a director or officer in connection
with a proceeding commenced by such director or officer against the Corporation
or its directors or officers only if the proceeding was authorized by the Board
of Directors.
SECTION 3. Indemnification of Other Agents and Employees. With respect to an
employee or agent, other than a director or officer of the Corporation, the
Corporation may, as determined by and in the discretion of the Board of
Directors of the Corporation, indemnify and advance expenses to such employees
or agents in connection with a proceeding to the extent permitted by and in
accordance with the Indemnification Section.
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APPENDIX D--SUPPORT AGREEMENT OF TALBOT BANCSHARES
FORM OF TALBOT BANCSHARES SUPPORT AGREEMENT
THIS SUPPORT AGREEMENT (this "Agreement") dated as of July 25, 2000, between
SHORE BANCSHARES, INC., a Maryland corporation ("Shore Bancshares"), and each
of the individuals listed on Schedule A attached hereto (collectively, the
"Talbot Bancshares Stockholders").
W I T N E S S E T H:
WHEREAS, the Talbot Bancshares Stockholders (i) collectively possess the
sole or joint right to vote, or direct the voting of, an aggregate of 212,534
shares of common stock, par value $0.01 per share (the "Shares"), of Talbot
Bancshares, Inc., a Maryland corporation ("Talbot Bancshares"), which
constitute approximately 17.25% of the outstanding capital stock of Talbot
Bancshares, and (ii) individually possess the right to vote, or to direct the
voting of, the number of Shares set forth opposite such Talbot Bancshares
Stockholder's name on Schedule A hereto; and
WHEREAS, the Talbot Bancshares Stockholders (i) collectively possess the
sole or joint power to dispose of, or to direct the disposition of, an
aggregate of 212,534 Shares, which constitute approximately 17.25% of the
outstanding capital stock of Talbot Bancshares, and (ii) individually possess
the power to dispose of, or direct the disposition of, the number of Shares set
forth opposite such Talbot Bancshares Stockholder's name on Schedule A hereto;
and
WHEREAS, Shore Bancshares has entered into a Plan and Agreement to Merge
with Talbot Bancshares, dated as of July 25, 2000 (the "Plan"), pursuant to
which Talbot Bancshares would merge with and into Shore Bancshares (the
"Merger"), with shares of the Common Stock of Shore Bancshares to be issued to
the stockholders of Talbot Bancshares; and
WHEREAS, pursuant to Section 6.10 of the Plan, Talbot Bancshares has
covenanted to obtain agreements from each of its executive officers and
directors in which the executive officers and directors of Talbot Bancshares
(in their capacity as Talbot Bancshares Stockholders) and would agree to
support the Merger; and the Talbot Bancshares Stockholders have in accordance
with such covenant agreed to support the Merger.
NOW, THEREFORE, to induce Shore Bancshares to enter into the Plan and in
consideration of the mutual covenants and agreements set forth herein and in
the Plan and the mutual benefits to be derived herefrom and therefrom, the
parties agree as follows:
1. Representations of the Talbot Bancshares Stockholders. Each of the
Talbot Bancshares Stockholders, severally, and not jointly, represents
that:
(a)(1) such Talbot Bancshares Stockholder possesses the sole or
joint right to vote, or direct the voting of, all of the Shares set
forth on Schedule A opposite the Talbot Bancshares Stockholder's name,
(2) such number of Shares constitutes all of the Shares with respect to
which the Talbot Bancshares Stockholder possesses the sole or joint
right to vote, or direct the voting of, as the case may be, and (3)
except as to Shares held only under a power of attorney or as guardian
or custodian, such Talbot Bancshares Stockholder has good and
merchantable title to all of the Shares indicated on said list opposite
the Talbot Bancshares Stockholder's name, free of all restrictions and
encumbrances of every kind and character, except as indicated on
Schedule A.
(b)(1) such Talbot Bancshares Stockholder possesses the sole or
joint power to dispose of, or direct the disposition of, the Shares set
forth on Schedule A opposite the Talbot Bancshares Stockholder's name,
(2) such number of Shares constitutes all of the Shares with respect to
which the Talbot Bancshares Stockholder possesses or will possess the
sole or joint power to dispose of or
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direct the disposition of, and (3) except as to Shares held only under
a power of attorney, such Talbot Bancshares Stockholder has good and
merchantable title to all of the Shares indicated on said list opposite
the Talbot Bancshares Stockholder's name free of all restrictions and
encumbrances of any kind or character except as indicated on Schedule
A.
(c) such Talbot Bancshares Stockholder does not own, of record or
beneficially, any Shares that are not reflected on Schedule A. For the
purposes of this Agreement, beneficial ownership has the meaning set
forth in Rule 13d-3 of the Securities Exchange Act of 1934, as amended.
(d) such Talbot Bancshares Stockholder has full right, power, and
authority to enter into, deliver and perform this Agreement; this
Agreement has been duly executed and delivered by such Talbot
Bancshares Stockholder; and this Agreement constitutes the legal,
valid, and binding obligation of the Talbot Bancshares Stockholder, and
is enforceable in accordance with its terms.
2. Covenants of the Talbot Bancshares Stockholders. Each of the Talbot
Bancshares Stockholders, severally and not jointly, covenants as follows:
(a) Restrictions on Transfer. With respect to Shares listed on
Schedule A, during the term of this Agreement, such Talbot Bancshares
Stockholder shall not voluntarily pledge, hypothecate, grant a security
interest in, sell, transfer, or otherwise dispose of or encumber any of
such Shares and will not enter into any agreement, arrangement, or
understanding (other than a proxy for the purpose of voting his or her
Shares in accordance with Subparagraph 2(c) hereof) which would, during
that term (i) restrict, (ii) establish a right of first refusal to, or
(iii) otherwise relate to the transfer or voting of such Shares;
provided, however, this restriction shall not apply to a transfer of
any of the Shares by the Talbot Bancshares Stockholder to his or her
spouse, children, or grandchildren, subject to the conditions that any
transferee, recipient, or custodian of any such transferee or recipient
must execute an agreement substantially in the form of this Agreement
in a form satisfactory to Shore Bancshares, and Schedule A hereto may
be revised by Shore Bancshares to reflect such transfer.
(b) Other Restrictions. During the term of this Agreement, such
Talbot Bancshares Stockholder, as a Talbot Bancshares Stockholder,
shall not, directly or indirectly, solicit, initiate, or encourage
inquiries or proposals from, or participate in any discussions or
negotiations with, or provide any information to, any individual,
corporation, partnership, or other person, entity, or group (other than
Shore Bancshares, any of its subsidiaries, and their respective
officers, employees, representatives, and agents) concerning any sale
of assets, sale of shares of capital stock, merger, consolidation,
share exchange, or similar transactions involving Talbot Bancshares.
Such Talbot Bancshares Stockholder shall promptly advise Shore
Bancshares of, and communicate to Shore Bancshares the terms of, any
such inquiry or proposal addressed either to such Talbot Bancshares
Stockholder or to Talbot Bancshares that such Talbot Bancshares
Stockholder receives or of which such Talbot Bancshares Stockholder has
knowledge.
(c) Merger. With respect to the Shares listed on Schedule A pursuant
to Subparagraph 1(a) hereof, each of the Talbot Bancshares Stockholders
shall vote such Shares to ratify and confirm the Plan and the Merger
and the transactions contemplated thereby. Each of the Talbot
Bancshares Stockholders, as a Talbot Bancshares Stockholder, further
agrees to use all commercially reasonable efforts to cause the Merger
to be effected.
(d) Additional Shares. The provisions of subparagraphs (a) and (c)
above shall apply to all Shares currently owned and hereafter acquired,
of record or beneficially, by each of the Talbot Bancshares
Stockholders.
3. Termination. This Agreement shall terminate upon the termination of
the Plan.
4. Governing Law. This Agreement shall in all respects be governed by
and construed under the laws of Maryland, all rights and remedies being
governed by such laws.
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5. Benefit of Agreement. This Agreement shall be binding upon and inure
to the benefit of, and shall be enforceable by, the parties hereto and
their respective personal representatives, successors, and assigns, except
that neither party may transfer or assign any of its respective rights or
obligations hereunder without the prior written consent of the other party
or, if by Shore Bancshares, in accordance with the Plan.
6. Counterparts. For convenience of the parties hereto, this Agreement
may be executed in several counterparts, each of which shall be deemed an
original, all of which together shall constitute one and the same
instrument.
IN WITNESS WHEREOF, Shore Bancshares and the Talbot Bancshares Stockholders
have caused this Agreement to be duly executed as of the day and year first
above written.
Shore Bancshares, Inc.
By: _________________________________
Daniel T. Cannon
President
Talbot Bancshares Stockholders:
_____________________________________
_____________________________________
_____________________________________
_____________________________________
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SCHEDULE A
<TABLE>
<CAPTION>
Number of Shares
Number of Shares as to which
as to which Holder has Sole
Number of Shares Number of Shares Holder has or Shared Power
as to which as to which Direct or to Dispose or
Holder has Sole Holder has Joint Indirect Control Direct
Name Power to Vote Power to Vote of Power to Vote Disposition Encumbrance
---- ---------------- ---------------- ---------------- ---------------- -----------
<S> <C> <C> <C> <C> <C>
</TABLE>
--------
* Pending confirmation on .
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APPENDIX E--SUPPORT AGREEMENT OF SHORE BANCSHARES
FORM OF SHORE BANCSHARES SUPPORT AGREEMENT
THIS SUPPORT AGREEMENT (this "Agreement") dated as of July 25, 2000, between
TALBOT BANCSHARES, INC., a Maryland corporation ("Talbot Bancshares"), and each
of the individuals listed on Schedule A attached hereto (collectively, the
"Shore Bancshares Stockholders").
W I T N E S S E T H:
WHEREAS, the Shore Bancshares Stockholders (i) collectively possess the sole
or joint right to vote, or direct the voting of, an aggregate of 71,332 shares
of common stock, par value $0.01 per share (the "Shares"), of Shore Bancshares,
Inc., a Maryland corporation ("Shore Bancshares"), which constitute
approximately 3.7% of the outstanding capital stock of Shore Bancshares, and
(ii) individually possess the right to vote, or to direct the voting of, the
number of Shares set forth opposite such Shore Bancshares Stockholder's name on
Schedule A hereto; and
WHEREAS, the Shore Bancshares Stockholders (i) collectively possess the sole
or joint power to dispose of, or to direct the disposition of, an aggregate of
71,332 Shares, which constitute approximately 3.7% of the outstanding capital
stock of Shore Bancshares, and (ii) individually possess the power to dispose
of, or direct the disposition of, the number of Shares set forth opposite such
Shore Bancshares Stockholder's name on Schedule A hereto; and
WHEREAS, Talbot Bancshares has entered into a Plan and Agreement to Merge
with Shore Bancshares, dated as of July 25, 2000 (the "Plan"), pursuant to
which Talbot Bancshares would merge with and into Shore Bancshares (the
"Merger"), with shares of the Common Stock of Shore Bancshares to be issued to
the stockholders of Talbot Bancshares; and
WHEREAS, pursuant to Section 5.10 of the Plan, Shore Bancshares has
covenanted to obtain agreements from each of its executive officers and
directors in which the executive officers and directors of Shore Bancshares (in
their capacity as Shore Bancshares Stockholders) and would agree to support the
Merger; and the Shore Bancshares Stockholders have in accordance with such
covenant agreed to support the Merger.
NOW, THEREFORE, to induce Talbot Bancshares to enter into the Plan and in
consideration of the mutual covenants and agreements set forth herein and in
the Plan and the mutual benefits to be derived herefrom and therefrom, the
parties agree as follows:
1. Representations of the Shore Bancshares Stockholders. Each of the
Shore Bancshares Stockholders, severally, and not jointly, represents that:
(a)(1) such Shore Bancshares Stockholder possesses the sole or joint
right to vote, or direct the voting of, all of the Shares set forth on
Schedule A opposite the Shore Bancshares Stockholder's name, (2) such
number of Shares constitutes all of the Shares with respect to which
the Shore Bancshares Stockholder possesses the sole or joint right to
vote, or direct the voting of, as the case may be, and (3) except as to
Shares held only under a power of attorney or as guardian or custodian,
such Shore Bancshares Stockholder has good and merchantable title to
all of the Shares indicated on said list opposite the Shore Bancshares
Stockholder's name, free of all restrictions and encumbrances of every
kind and character, except as indicated on Schedule A.
(b)(1) such Shore Bancshares Stockholder possesses the sole or joint
power to dispose of, or direct the disposition of, the Shares set forth
on Schedule A opposite the Shore Bancshares Stockholder's name, (2)
such number of Shares constitutes all of the Shares with respect to
which the Shore Bancshares Stockholder possesses or will possess the
sole or joint power to dispose of or direct
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the disposition of, and (3) except as to Shares held only under a power
of attorney, such Shore Bancshares Stockholder has good and
merchantable title to all of the Shares indicated on said list opposite
the Shore Bancshares Stockholder's name free of all restrictions and
encumbrances of any kind or character except as indicated on Schedule
A.
(c) such Shore Bancshares Stockholder does not own, of record or
beneficially, any Shares that are not reflected on Schedule A. For the
purposes of this Agreement, beneficial ownership has the meaning set
forth in Rule 13d-3 of the Securities Exchange Act of 1934, as amended.
(d) such Shore Bancshares Stockholder has full right, power, and
authority to enter into, deliver and perform this Agreement; this
Agreement has been duly executed and delivered by such Shore Bancshares
Stockholder; and this Agreement constitutes the legal, valid, and
binding obligation of the Shore Bancshares Stockholder, and is
enforceable in accordance with its terms.
2. Covenants of the Shore Bancshares Stockholders. Each of the Shore
Bancshares Stockholders, severally and not jointly, covenants as follows:
(a) Restrictions on Transfer. With respect to Shares listed on
Schedule A, during the term of this Agreement, such Shore Bancshares
Stockholder shall not voluntarily pledge, hypothecate, grant a security
interest in, sell, transfer, or otherwise dispose of or encumber any of
such Shares and will not enter into any agreement, arrangement, or
understanding (other than a proxy for the purpose of voting his or her
Shares in accordance with Subparagraph 2(c) hereof) which would, during
that term (i) restrict, (ii) establish a right of first refusal to, or
(iii) otherwise relate to the transfer or voting of such Shares;
provided, however, this restriction shall not apply to a transfer of
any of the Shares by the Shore Bancshares Stockholder to his or her
spouse, children, or grandchildren, subject to the conditions that any
transferee, recipient, or custodian of any such transferee or recipient
must execute an agreement substantially in the form of this Agreement
in a form satisfactory to Talbot Bancshares, and Schedule A hereto may
be revised by Talbot Bancshares to reflect such transfer.
(b) Other Restrictions. During the term of this Agreement, such
Shore Bancshares Stockholder, as a Shore Bancshares Stockholder, shall
not, directly or indirectly, solicit, initiate, or encourage inquiries
or proposals from, or participate in any discussions or negotiations
with, or provide any information to, any individual, corporation,
partnership, or other person, entity, or group (other than Talbot
Bancshares, any of its subsidiaries, and their respective officers,
employees, representatives, and agents) concerning any sale of assets,
sale of shares of capital stock, merger, consolidation, share exchange,
or similar transactions involving Shore Bancshares. Such Shore
Bancshares Stockholder shall promptly advise Talbot Bancshares of, and
communicate to Talbot Bancshares the terms of, any such inquiry or
proposal addressed either to such Shore Bancshares Stockholder or to
Shore Bancshares that such Shore Bancshares Stockholder receives or of
which such Shore Bancshares Stockholder has knowledge.
(c) Merger. With respect to the Shares listed on Schedule A pursuant
to Subparagraph 1(a) hereof, each of the Shore Bancshares Stockholders
shall vote such Shares to ratify and confirm the Plan and the Merger
and the transactions contemplated thereby. Each of the Shore Bancshares
Stockholders, as a Shore Bancshares Stockholder, further agrees to use
all commercially reasonable efforts to cause the Merger to be effected.
(d) Additional Shares. The provisions of subparagraphs (a) and (c)
above shall apply to all Shares currently owned and hereafter acquired,
of record or beneficially, by each of the Shore Bancshares
Stockholders.
3. Termination. This Agreement shall terminate upon the termination of
the Plan.
4. Governing Law. This Agreement shall in all respects be governed by
and construed under the laws of Maryland, all rights and remedies being
governed by such laws.
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5. Benefit of Agreement. This Agreement shall be binding upon and inure
to the benefit of, and shall be enforceable by, the parties hereto and
their respective personal representatives, successors, and assigns, except
that neither party may transfer or assign any of its respective rights or
obligations hereunder without the prior written consent of the other party
or, if by Talbot Bancshares, in accordance with the Plan.
6. Counterparts. For convenience of the parties hereto, this Agreement
may be executed in several counterparts, each of which shall be deemed an
original, all of which together shall constitute one and the same
instrument.
IN WITNESS WHEREOF, Talbot Bancshares and the Shore Bancshares Stockholders
have caused this Agreement to be duly executed as of the day and year first
above written.
Talbot Bancshares, Inc.
By: _________________________________
W. Moorhead Vermilye
President and Chief Executive
Officer
Shore Bancshares Stockholders:
_____________________________________
_____________________________________
_____________________________________
_____________________________________
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SCHEDULE A
<TABLE>
<CAPTION>
Number of Shares
Number of Shares as to Which
as to Which Holder has Sole
Number of Shares Number of Shares Holder has or Shared Power
as to Which as to Which Direct or to Dispose or
Holder has Sole Holder has Joint Indirect Control Direct
Name Power to Vote Power to Vote of Power to Vote Disposition Encumbrance
---- ---------------- ---------------- ---------------- ---------------- -----------
<S> <C> <C> <C> <C> <C>
</TABLE>
--------
* Pending confirmation on .
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APPENDIX F--TALBOT BANCSHARES STOCK OPTION AGREEMENT
TALBOT BANCSHARES STOCK OPTION AGREEMENT
This STOCK OPTION AGREEMENT (this "Option Agreement") dated as of July 26,
2000, between TALBOT BANCSHARES, INC. ("Talbot Bancshares"), a Maryland
corporation, and SHORE BANCSHARES, INC. ("Shore Bancshares"), a Maryland
corporation, recites and provides:
A. The Board of Directors of Talbot Bancshares and Shore Bancshares have
approved a Plan and Agreement to Merge dated July 25, 2000 (the "Plan")
providing for the merger (the "Merger") of Talbot Bancshares and Shore
Bancshares.
B. As a condition to and as consideration for Shore Bancshares' entry into
the Plan and to induce such entry, Talbot Bancshares has agreed to grant to
Shore Bancshares the option set forth herein to purchase authorized but
unissued shares of Talbot Bancshares Common Stock.
NOW, THEREFORE, the parties agree as follows:
1. Definitions. Capitalized terms defined in the Plan and used herein
shall have the same meanings as in the Plan.
2. Grant of Option. Subject to the terms and conditions set forth
herein, Talbot Bancshares hereby grants to Shore Bancshares an option (the
"Option") to purchase up to 237,780 shares of Talbot Bancshares Common
Stock at an exercise price of $45.00 per share payable in cash as provided
in Section 4; provided, however, that in the event Talbot Bancshares issues
or agrees to issue any shares of Talbot Bancshares Common Stock (other than
as permitted under the Plan) at a price less than $45.00 per share (as
adjusted pursuant to Section 6), the exercise price shall be such lesser
price.
3. Exercise of Option. (a) Unless Shore Bancshares shall have breached
in any material respect any covenant or representation contained in the
Plan and such breach has not been cured, Shore Bancshares may exercise the
Option, in whole or part, at any time or from time to time if a Purchase
Event (as defined below) shall have occurred and be continuing; provided,
that to the extent the Option shall not have been exercised, it shall
terminate and be of no further force and effect upon the earliest to occur
of (i) the Effective Date of the Merger, or (ii) the termination of the
Plan in accordance with the provisions thereof prior to the occurrence of a
Purchase Event (other than as a result of a willful breach by Talbot
Bancshares of any Specified Covenant or as a result of failure of Talbot
Bancshares' stockholders to approve the Plan by the vote required under
applicable law or under Talbot Bancshares' Charter), or (iii) 12 months
after termination of the Plan due to a willful breach by Talbot Bancshares
of any Specified Covenant or failure of Talbot Bancshares' stockholders to
approve the Plan by the vote required under applicable law or under Talbot
Bancshares' Charter; provided, however, that any purchase of shares upon
exercise of the Option shall be subject to compliance with applicable law,
including, without limitation, the Bank Holding Company Act of 1956, as
amended. Any exercise of the Option shall be subject to compliance with
applicable provisions of law.
(b) As used herein, a "Purchase Event" shall mean any of the following
events or transactions occurring after the date hereof:
(i) Talbot Bancshares or The Talbot Bank of Easton, Maryland
("Talbot Bank"), without having received Shore Bancshares' prior
written consent, shall have entered into an agreement with any person
(x) to merge or consolidate, or enter into any similar transaction,
except as contemplated in the Plan, (y) to purchase, lease, or
otherwise acquire all or substantially all of the assets of Talbot
Bancshares or Talbot Bank, or (z) to purchase or otherwise acquire
(including by way of merger, consolidation, share exchange, or any
similar transaction) securities representing 15% or more of the voting
power of Talbot Bancshares or Talbot Bank;
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(ii) any person (other than Talbot Bancshares or Talbot Bank in a
fiduciary capacity, or Shore Bancshares or Centreville Bank in a
fiduciary capacity) shall have acquired beneficial ownership or the
right to acquire beneficial ownership of 15% or more of the outstanding
shares of Talbot Bancshares Common Stock after the date hereof (the
term "beneficial ownership" for purposes of this Option Agreement
having the meaning assigned thereto in Section 13(d) of the Securities
Exchange Act of 1934 (the "Exchange Act") and the regulations
promulgated thereunder);
(iii) any person shall have made a bona fide proposal to Talbot
Bancshares by public announcement or written communication that is or
becomes the subject of public disclosure to acquire Talbot Bancshares
or Talbot Bank by merger, consolidation, purchase of all or
substantially all of its assets, or any other similar transaction, and
following such bona fide proposal the stockholders of Talbot Bancshares
vote not to adopt the Plan; or
(iv) Talbot Bancshares shall have willfully breached any Specified
Covenant following a bona fide proposal to Talbot Bancshares or Talbot
Bank to acquire Talbot Bancshares or Talbot Bank by merger,
consolidation, purchase of all or substantially all of its assets, or
any other similar transaction, which breach would entitle Shore
Bancshares to terminate the Plan (without regard to the cure periods
provided for therein) and such breach shall not have been cured prior
to the Notice Date (as defined below).
If more than one of the transactions giving rise to a Purchase Event under
this Section 3(b) is undertaken or effected, then all such transactions
shall give rise only to one Purchase Event, which Purchase Event shall be
deemed continuing for all purposes hereunder until all such transactions
are abandoned. As used in this Option Agreement, "person" shall have the
meanings specified in Sections 3(a)(9) and 13(d)(3) of the Exchange Act.
(c) In the event Shore Bancshares wishes to exercise the Option, it
shall send to Talbot Bancshares a written notice (the date of which being
herein referred to as the "Notice Date") specifying (i) the total number of
shares it will purchase pursuant to such exercise, and (ii) a place and
date not earlier than three business days nor later than 60 business days
after the Notice Date for the closing of such purchase ("Closing Date");
provided, that if prior notification to or approval of any federal or state
regulatory agency is required in connection with such purchase, Shore
Bancshares shall promptly file the required notice or application for
approval and shall expeditiously process the same and the period of time
that otherwise would run pursuant to this sentence shall run instead from
the date on which any required notification period has expired or been
terminated or such approval has been obtained and any requisite waiting
period shall have passed.
(d) As used herein, "Specified Covenant" means any covenant made by
Talbot Bancshares and contained in Section 5 of the Plan.
4. Payment and Delivery of Certificates. (a) At the closing referred to
in Section 3, Shore Bancshares shall pay to Talbot Bancshares the aggregate
purchase price for the shares of Talbot Bancshares Common Stock purchased
pursuant to the exercise of the Option in immediately available funds by a
wire transfer to a bank account designated by Talbot Bancshares.
(b) At such closing, simultaneously with the delivery of funds as
provided in subsection (a), Talbot Bancshares shall deliver to Shore
Bancshares a certificate or certificates representing the number of shares
of Talbot Bancshares Common Stock purchased by Shore Bancshares, and Shore
Bancshares shall deliver to Talbot Bancshares a letter agreeing that Shore
Bancshares will not offer to sell or otherwise dispose of such shares in
violation of applicable law or the provisions of this Option Agreement.
(c) Certificates for Talbot Bancshares Common Stock delivered at a
closing hereunder shall be endorsed with a restrictive legend which shall
read substantially as follows:
"The transfer of the shares represented by this certificate is subject
to certain provisions of a Stock Option Agreement between the
registered holder hereof and TALBOT BANCSHARES, INC. ("TALBOT
BANCSHARES") and to resale restrictions arising under the Securities
Act of 1933, as
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<PAGE>
amended, a copy of which agreement is on file at the principal office
of Talbot Bancshares. A copy of such agreement will be provided to the
holder hereof without charge upon receipt by Talbot Bancshares of a
written request."
It is understood and agreed that the above legend shall be removed by
delivery of substitute certificate(s) without such legend if Shore
Bancshares shall have delivered to Talbot Bancshares a copy of a letter
from the staff of the Securities and Exchange Commission, or an opinion of
counsel, in form and substance satisfactory to Talbot Bancshares, to the
effect that such legend is not required for purposes of the Securities Act
of 1933, as amended (the "Securities Act").
5. Representations. Talbot Bancshares represents, warrants, and
covenants to Shore Bancshares as follows:
(a) Talbot Bancshares shall at all times maintain sufficient
authorized but unissued shares of Talbot Bancshares Common Stock so
that the Option may be exercised without authorization of additional
shares of Talbot Bancshares Common Stock.
(b) The shares to be issued upon due exercise, in whole or in part,
of the Option, when paid for as provided herein, will be duly
authorized, validly issued, fully paid, and nonassessable.
6. Adjustment Upon Changes in Capitalization. In the event of any change
in Talbot Bancshares Common Stock by reason of stock dividends, split-ups,
consolidation, recapitalizations, combinations, exchanges of shares, or the
like, the type and number of shares subject to the Option, and the purchase
price per share, as the case may be, shall be adjusted appropriately. In
the event that any additional shares of Talbot Bancshares Common Stock are
issued or otherwise become outstanding after the date of this Option
Agreement (other than pursuant to this Option Agreement), the number of
shares of Talbot Bancshares Common Stock subject to the Option shall be
adjusted so that, after such issuance, it equals 19.9% of the number of
shares of Talbot Bancshares Common Stock then issued and outstanding
without giving effect to any shares subject or issued pursuant to the
Option. Nothing contained in this Section 6 shall be deemed to authorize
Talbot Bancshares to breach any provision of the Plan.
7. Registration Rights. If requested by Shore Bancshares, Talbot
Bancshares shall as expeditiously as possible file a registration statement
on a form of general use under the Securities Act if necessary in order to
permit the sale or other disposition of the shares of Talbot Bancshares
Common Stock that have been acquired upon exercise of the Option in
accordance with the intended method of sale or other disposition requested
by Shore Bancshares. Shore Bancshares shall provide all information
reasonably requested by Talbot Bancshares for inclusion in any registration
statement to be filed hereunder. Talbot Bancshares will use its best
efforts to cause such registration statement first to become effective and
then to remain effective for such period not in excess of 270 days from the
day such registration statement first becomes effective as may be
reasonably necessary to effect such sales or other dispositions. Only one
registration may be effected under this Section 7 at Talbot Bancshares'
expense, and which shall not include underwriting commissions and the fees
and disbursements of Shore Bancshares' counsel attributable to the
registration of such Talbot Bancshares Common Stock. The filing of any
registration statement hereunder may be delayed for such period of time as
may reasonably be required to facilitate any public distribution by Talbot
Bancshares of Talbot Bancshares Common Stock. If requested by Shore
Bancshares, in connection with any such registration, Talbot Bancshares
will become a party to any underwriting agreement relating to the sale of
such shares, but only to the extent of obligating itself in respect of
representations, warranties, indemnities, and other agreements customarily
included in such underwriting agreements. Upon receiving any request from
Shore Bancshares or assignee thereof under this Section 7, Talbot
Bancshares agrees to send a copy thereof to Shore Bancshares and to any
assignee thereof known to Talbot Bancshares, in each case by promptly
mailing the same, postage prepaid, to the address of record of the persons
entitled to receive such copies.
8. Repurchase of Option at the Election of Shore Bancshares. (a) At the
request of Shore Bancshares at any time commencing (i) upon the first
occurrence of a Repurchase Event (as defined
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<PAGE>
below) and ending 18 months immediately thereafter Talbot Bancshares (or
any successor entity thereof) shall repurchase from Shore Bancshares (I)
the Option and (II) all shares of Talbot Bancshares Common Stock purchased
by Shore Bancshares pursuant hereto with respect to which Shore Bancshares
then has beneficial ownership. The date on which Shore Bancshares exercises
its rights under this Section 8 is referred to as the "Section 8 Request
Date." Such repurchase shall be at an aggregate price (the "Section 8
Repurchase Consideration") equal to:
(A) the aggregate Purchase Price paid by Shore Bancshares for any
shares of Talbot Bancshares Common Stock acquired pursuant to the
Option with respect to which Shore Bancshares then has beneficial
ownership; plus
(B) the excess, if any, of (x) the Applicable Price (as defined
below) as of the Section 8 Request Date for a share of Talbot
Bancshares Common Stock over (y) the Purchase Price (subject to
adjustment pursuant to Section 6), multiplied by the number of shares
of Talbot Bancshares Common Stock with respect to which the Option has
not been exercised; plus
(C) the excess, if any, of the Applicable Price as of the Section 8
Request Date over the Purchase Price paid (or, in the case of shares of
Shore Bancshares Common Stock with respect to which the Option has been
exercised but the Effective Date has not occurred, payable (subject to
adjustment pursuant to Section 6)) by Shore Bancshares for each share
of Talbot Bancshares Common Stock with respect to which the Option has
been exercised and with respect to which Shore Bancshares then has
beneficial ownership, multiplied by the number of such shares; plus
(D) the amount of the documented reasonable out-of-pocket expenses
incurred by Shore Bancshares in connection with the Plan and this
Option Agreement and the transactions contemplated thereby and hereby,
including reasonable accounting, investment banking and legal fees.
(b) If Shore Bancshares exercises its rights under this Section 8,
Talbot Bancshares shall, within 10 business days after the Section 8
Request Date, pay the Section 8 Repurchase Consideration to Shore
Bancshares in immediately available funds, and Shore Bancshares shall
surrender to Talbot Bancshares the Option and the certificates evidencing
the shares of Talbot Bancshares Common Stock purchased hereunder with
respect to which Shore Bancshares then has beneficial ownership and Shore
Bancshares shall warrant that it has sole record and beneficial ownership
of such shares and that the same are then free and clear of all liens,
claims, charges and encumbrances of any kind whatsoever. Notwithstanding
the foregoing, to the extent that prior notification to or approval of the
Board of Governors of the Federal Reserve System (the "Federal Reserve") or
other regulatory authority is required in connection with the payment of
all or any portion of the Section 8 Repurchase Consideration, Talbot
Bancshares shall deliver from time to time that portion of the Section 8
Repurchase Consideration that it is not then so prohibited from paying and
shall promptly provide the required notice or application for approval and
shall expeditiously process the same (and Shore Bancshares shall cooperate
with Talbot Bancshares in the filing of any such notice or application and
the obtaining of any such approval), and the period of time that otherwise
would run pursuant to the preceding sentence for the payment of the portion
of the Section 8 Repurchase Consideration requiring such notification or
approval shall run instead from the date on which, as the case may be, (i)
any required notification period has expired or been terminated or (ii)
such approval has been obtained and, in either event, any requisite waiting
period shall have passed. If the Federal Reserve or any other regulatory
authority disapproves of any part of Talbot Bancshares proposed repurchase
pursuant to this Section 8, Talbot Bancshares shall promptly give notice of
such fact to Shore Bancshares and redeliver to Shore Bancshares the shares
issued upon exercise of the Option it is then prohibited from repurchasing,
and Shore Bancshares shall have the right to exercise the Option as to the
number of shares issued upon exercise of the Option for which the Option
was exercisable at the Section 8 Request Date less the number of shares as
to which payment has been made pursuant to Section 8(a)(B); provided that
if the Option shall have terminated prior to the date of such notice or
shall be scheduled to terminate at any time before the expiration of a
period ending on the thirtieth business day after such date, Shore
Bancshares shall nonetheless have the right so to exercise the Option or
exercise its rights under
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<PAGE>
Section 3 until the expiration of such period of 30 business days.
Notwithstanding anything herein to the contrary, Talbot Bancshares shall
not be obligated to repurchase the Option or any shares of Talbot
Bancshares Common Stock pursuant to this Section 8 on more than one
occasion.
(c) For purposes of this Option Agreement, the "Applicable Price," as of
any date, means the highest of (i) the highest price per share at which a
Tender Offer has been made for shares of Talbot Bancshares Common Stock
after the date hereof and on or prior to such date, (ii) the price per
share to be paid by any third party for shares of Talbot Bancshares Common
Stock or the consideration per share to be received by holders of Talbot
Bancshares Common Stock, in each case pursuant to an agreement for a merger
or other business combination transaction with Talbot Bancshares entered
into on or prior to such date or (iii) the highest bid price per share of
Talbot Bancshares Common Stock as quoted on the National Association of
Securities Dealers Automated Quotations System or, if the shares of Talbot
Bancshares Common Stock are not quoted thereon, the principal trading
market on which such shares are traded as reported by a recognized source
during the 60 business days preceding such date. If the consideration to be
offered, paid or received pursuant to either of the foregoing clauses (i)
or (ii) shall be other than in cash, the value of such consideration shall
be determined in good faith by an independent nationally recognized
investment banking firm selected by Shore Bancshares and reasonably
acceptable to Talbot Bancshares, which determination shall be conclusive
for all purposes of this Option Agreement.
(d) As used herein, a "Repurchase Event" means the occurrence of any of
the Purchase Events specified in Section 3(b).
9. Severability. If any term, provision, covenant, or restriction
contained in this Option Agreement is held by a court or a federal or state
regulatory agency of competent jurisdiction to be invalid, void, or
unenforceable, the remainder of the terms, provisions, and covenants, and
restrictions contained in this Option Agreement shall remain in full force
and effect, and shall in no way be affected, impaired, or invalidated. If
for any reason such court or regulatory agency determines that the Option
will not permit the holder to acquire the full number of shares of Talbot
Bancshares Common Stock provided in Section 2 (as adjusted pursuant to
Section 6), it is the express intention of Talbot Bancshares to allow the
holder to acquire such lesser number of shares as may be permissible,
without any amendment or modification hereof.
10. Miscellaneous.
(a) Expenses. Except as otherwise provided herein, each of the
parties hereto shall bear and pay all costs and expenses incurred by it
or on its behalf in connection with the transactions contemplated
hereunder, including fees and expenses of its own financial
consultants, investment bankers, accountants, and counsel.
(b) Entire Agreement. Except as otherwise expressly provided herein,
this Option Agreement contains the entire agreement between the parties
with respect to the transactions contemplated hereunder and supersedes
all prior arrangements or understandings with respect thereto, written
or oral. The terms and conditions of this Option Agreement shall inure
to the benefit of and be binding upon the parties hereto and their
respective successors and assigns. Nothing in this Option Agreement,
expressed or implied, is intended to confer upon any party, other than
the parties hereto, and their respective successors and assigns, any
rights, remedies, obligations or liabilities under or by reason of this
Option Agreement, except as expressly provided herein.
(c) Assignment. Neither of the parties hereto may assign any of its
rights or obligations under this Option Agreement or the Option created
hereunder to any other person, without the express written consent of
the other party, except that in the event a Purchase Event shall have
occurred and be continuing Shore Bancshares may assign in whole or in
part its rights and obligations hereunder; provided, however, that to
the extent required by applicable regulatory authorities, Shore
Bancshares may not assign its rights under the Option except in (i) a
widely dispersed public distribution, (ii) a private placement in which
no one party acquires the right to purchase in excess of 2% of the
voting
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shares of Talbot Bancshares, (iii) an assignment to a single party
(e.g., a broker or investment banker) for the purpose of conducting a
widely dispersed public distribution on Shore Bancshares' behalf, or
(iv) any other manner approved by applicable regulatory authorities.
(d) Notices. All notices or other communications which are required
or permitted hereunder shall be in writing and sufficient if delivered
in the manner and to the address provided for in or pursuant to Section
15 of the Plan.
(e) Counterparts. This Option Agreement may be executed in any
number of counterparts, and each such counterpart shall be deemed to be
an original instrument, but all such counterparts together shall
constitute but one agreement.
(f) Specific Performance. The parties agree that damages would be an
inadequate remedy for a breach of the provisions of this Option
Agreement by either party hereto and that this Option Agreement may be
enforced by either party hereto through injunctive or other equitable
relief.
(g) Governing Law. This Option Agreement shall be governed by and
construed in accordance with the laws of the State of Maryland
applicable to agreements made and entirely to be performed within such
state and such federal laws as may be applicable.
IN WITNESS WHEREOF, each of the parties hereto has executed this Option
Agreement as of the day and year first written above.
Talbot Bancshares, Inc.
/s/ W. Moorhead Vermilye
By: _________________________________
W. Moorhead Vermilye
President and Chief Executive
Officer
Shore Bancshares, Inc.
/s/ Daniel T. Cannon
By___________________________________
Daniel T. Cannon
President and Chief Executive
Officer
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APPENDIX G--SHORE BANCSHARES STOCK OPTION AGREEMENT
SHORE BANCSHARES
STOCK OPTION AGREEMENT
This STOCK OPTION AGREEMENT (this "Option Agreement") dated as of July 26,
2000, between SHORE BANCSHARES, INC. ("Shore Bancshares"), a Maryland
corporation, and TALBOT BANCSHARES, INC. ("Talbot Bancshares"), a Maryland
corporation, recites and provides:
A. The Board of Directors of Shore Bancshares and Talbot Bancshares have
approved a Plan and Agreement to Merge dated July 25, 2000 (the "Plan")
providing for the merger (the "Merger") of Shore Bancshares and Talbot
Bancshares.
B. As a condition to and as consideration for Talbot Bancshares' entry into
the Plan and to induce such entry, Shore Bancshares has agreed to grant to
Talbot Bancshares the option set forth herein to purchase authorized but
unissued shares of Shore Bancshares Common Stock.
NOW, THEREFORE, the parties agree as follows:
1. Definitions. Capitalized terms defined in the Plan and used herein
shall have the same meanings as in the Plan.
2. Grant of Option. Subject to the terms and conditions set forth
herein, Shore Bancshares hereby grants to Talbot Bancshares an option (the
"Option") to purchase up to 380,912 shares of Shore Bancshares Common Stock
at an exercise price of $14.62 per share payable in cash as provided in
Section 4; provided, however, that in the event Shore Bancshares issues or
agrees to issue any shares of Shore Bancshares Common Stock (other than as
permitted under the Plan) at a price less than $14.62 per share (as
adjusted pursuant to Section 6), the exercise price shall be such lesser
price.
3. Exercise of Option. (a) Unless Talbot Bancshares shall have breached
in any material respect any covenant or representation contained in the
Plan and such breach has not been cured, Talbot Bancshares may exercise the
Option, in whole or part, at any time or from time to time if a Purchase
Event (as defined below) shall have occurred and be continuing; provided,
that to the extent the Option shall not have been exercised, it shall
terminate and be of no further force and effect upon the earliest to occur
of (i) the Effective Date of the Merger, or (ii) the termination of the
Plan in accordance with the provisions thereof prior to the occurrence of a
Purchase Event (other than as a result of a willful breach by Shore
Bancshares of any Specified Covenant or as a result of failure of Shore
Bancshares' stockholders to approve the Plan by the vote required under
applicable law or under Shore Bancshares' Charter), or (iii) 12 months
after termination of the Plan due to a willful breach by Shore Bancshares
of any Specified Covenant or failure of Shore Bancshares' stockholders to
approve the Plan by the vote required under applicable law or under Shore
Bancshares' Charter; provided, however, that any purchase of shares upon
exercise of the Option shall be subject to compliance with applicable law,
including, without limitation, the Bank Holding Company Act of 1956, as
amended. Any exercise of the Option shall be subject to compliance with
applicable provisions of law.
(b) As used herein, a "Purchase Event" shall mean any of the following
events or transactions occurring after the date hereof:
(i) Shore Bancshares or The Centreville National Bank of Maryland
("Centreville Bank"), without having received Talbot Bancshares' prior
written consent, shall have entered into an agreement with any person
(x) to merge or consolidate, or enter into any similar transaction,
except as contemplated in the Plan, (y) to purchase, lease, or
otherwise acquire all or substantially all of the assets of Shore
Bancshares or Centreville Bank, or (z) to purchase or otherwise acquire
(including by way of merger, consolidation, share exchange, or any
similar transaction) securities representing 15% or more of the voting
power of Shore Bancshares or Centreville Bank;
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(ii) any person (other than Shore Bancshares or Centreville Bank in
a fiduciary capacity, or Talbot Bancshares or Talbot Bank in a
fiduciary capacity) shall have acquired beneficial ownership or the
right to acquire beneficial ownership of 15% or more of the outstanding
shares of Shore Bancshares Common Stock after the date hereof (the term
"beneficial ownership" for purposes of this Option Agreement having the
meaning assigned thereto in Section 13(d) of the Securities Exchange
Act of 1934 (the "Exchange Act") and the regulations promulgated
thereunder);
(iii) any person shall have made a bona fide proposal to Shore
Bancshares by public announcement or written communication that is or
becomes the subject of public disclosure to acquire Shore Bancshares or
Centreville Bank by merger, consolidation, purchase of all or
substantially all of its assets, or any other similar transaction, and
following such bona fide proposal the stockholders of Shore Bancshares
vote not to adopt the Plan; or
(iv) Shore Bancshares shall have willfully breached any Specified
Covenant following a bona fide proposal to Shore Bancshares or
Centreville Bank to acquire Shore Bancshares or Centreville Bank by
merger, consolidation, purchase of all or substantially all of its
assets, or any other similar transaction, which breach would entitle
Talbot Bancshares to terminate the Plan (without regard to the cure
periods provided for therein) and such breach shall not have been cured
prior to the Notice Date (as defined below).
If more than one of the transactions giving rise to a Purchase Event under
this Section 3(b) is undertaken or effected, then all such transactions
shall give rise only to one Purchase Event, which Purchase Event shall be
deemed continuing for all purposes hereunder until all such transactions
are abandoned. As used in this Option Agreement, "person" shall have the
meanings specified in Sections 3(a)(9) and 13(d)(3) of the Exchange Act.
(c) In the event Talbot Bancshares wishes to exercise the Option, it
shall send to Shore Bancshares a written notice (the date of which being
herein referred to as the "Notice Date") specifying (i) the total number of
shares it will purchase pursuant to such exercise, and (ii) a place and
date not earlier than three business days nor later than 60 business days
after the Notice Date for the closing of such purchase ("Closing Date");
provided, that if prior notification to or approval of any federal or state
regulatory agency is required in connection with such purchase, Talbot
Bancshares shall promptly file the required notice or application for
approval and shall expeditiously process the same and the period of time
that otherwise would run pursuant to this sentence shall run instead from
the date on which any required notification period has expired or been
terminated or such approval has been obtained and any requisite waiting
period shall have passed.
(d) As used herein, "Specified Covenant" means any covenant made by
Shore Bancshares and contained in Section 5 of the Plan.
4. Payment and Delivery of Certificates. (a) At the closing referred to
in Section 3, Talbot Bancshares shall pay to Shore Bancshares the aggregate
purchase price for the shares of Shore Bancshares Common Stock purchased
pursuant to the exercise of the Option in immediately available funds by a
wire transfer to a bank account designated by Shore Bancshares.
(b) At such closing, simultaneously with the delivery of funds as
provided in subsection (a), Shore Bancshares shall deliver to Talbot
Bancshares a certificate or certificates representing the number of shares
of Shore Bancshares Common Stock purchased by Talbot Bancshares, and Talbot
Bancshares shall deliver to Shore Bancshares a letter agreeing that Talbot
Bancshares will not offer to sell or otherwise dispose of such shares in
violation of applicable law or the provisions of this Option Agreement.
(c) Certificates for Shore Bancshares Common Stock delivered at a
closing hereunder shall be endorsed with a restrictive legend which shall
read substantially as follows:
"THE TRANSFER OF THE SHARES REPRESENTED BY THIS CERTIFICATE IS SUBJECT
TO CERTAIN PROVISIONS OF A STOCK OPTION AGREEMENT BETWEEN THE
REGISTERED
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HOLDER HEREOF AND SHORE BANCSHARES, INC. ("SHORE BANCSHARES") AND TO
RESALE RESTRICTIONS ARISING UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, A COPY OF WHICH AGREEMENT IS ON FILE AT THE PRINCIPAL OFFICE
OF SHORE BANCSHARES. A COPY OF SUCH AGREEMENT WILL BE PROVIDED TO THE
HOLDER HEREOF WITHOUT CHARGE UPON RECEIPT BY SHORE BANCSHARES OF A
WRITTEN REQUEST."
It is understood and agreed that the above legend shall be removed by
delivery of substitute certificate(s) without such legend if Talbot
Bancshares shall have delivered to Shore Bancshares a copy of a letter from
the staff of the Securities and Exchange Commission, or an opinion of
counsel, in form and substance satisfactory to Shore Bancshares, to the
effect that such legend is not required for purposes of the Securities Act
of 1933, as amended (the "Securities Act").
5. Representations. Shore Bancshares represents, warrants, and covenants
to Talbot Bancshares as follows:
(a) Shore Bancshares shall at all times maintain sufficient
authorized but unissued shares of Shore Bancshares Common Stock so that
the Option may be exercised without authorization of additional shares
of Shore Bancshares Common Stock.
(b) The shares to be issued upon due exercise, in whole or in part,
of the Option, when paid for as provided herein, will be duly
authorized, validly issued, fully paid, and nonassessable.
6. Adjustment Upon Changes in Capitalization. In the event of any change
in Shore Bancshares Common Stock by reason of stock dividends, split-ups,
consolidation, recapitalizations, combinations, exchanges of shares, or the
like, the type and number of shares subject to the Option, and the purchase
price per share, as the case may be, shall be adjusted appropriately. In
the event that any additional shares of Shore Bancshares Common Stock are
issued or otherwise become outstanding after the date of this Option
Agreement (other than pursuant to this Option Agreement), the number of
shares of Shore Bancshares Common Stock subject to the Option shall be
adjusted so that, after such issuance, it equals 19.9% of the number of
shares of Shore Bancshares Common Stock then issued and outstanding without
giving effect to any shares subject or issued pursuant to the Option.
Nothing contained in this Section 6 shall be deemed to authorize Shore
Bancshares to breach any provision of the Plan.
7. Registration Rights. If requested by Talbot Bancshares, Shore
Bancshares shall as expeditiously as possible file a registration statement
on a form of general use under the Securities Act if necessary in order to
permit the sale or other disposition of the shares of Shore Bancshares
Common Stock that have been acquired upon exercise of the Option in
accordance with the intended method of sale or other disposition requested
by Talbot Bancshares. Talbot Bancshares shall provide all information
reasonably requested by Shore Bancshares for inclusion in any registration
statement to be filed hereunder. Shore Bancshares will use its best efforts
to cause such registration statement first to become effective and then to
remain effective for such period not in excess of 270 days from the day
such registration statement first becomes effective as may be reasonably
necessary to effect such sales or other dispositions. Only one registration
may be effected under this Section 7 at Shore Bancshares' expense, and
which shall not include underwriting commissions and the fees and
disbursements of Talbot Bancshares' counsel attributable to the
registration of such Shore Bancshares Common Stock. The filing of any
registration statement hereunder may be delayed for such period of time as
may reasonably be required to facilitate any public distribution by Shore
Bancshares of Shore Bancshares Common Stock. If requested by Talbot
Bancshares, in connection with any such registration, Shore Bancshares will
become a party to any underwriting agreement relating to the sale of such
shares, but only to the extent of obligating itself in respect of
representations, warranties, indemnities, and other agreements customarily
included in such underwriting agreements. Upon receiving any request from
Talbot Bancshares or assignee thereof under this Section 7, Shore
Bancshares agrees to send a copy thereof to Talbot Bancshares and to any
assignee thereof known to Shore Bancshares, in each case by promptly
mailing the same, postage prepaid, to the address of record of the persons
entitled to receive such copies.
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8. Repurchase of Option at the Election of Talbot Bancshares. (a) At the
request of Talbot Bancshares at any time commencing (i) upon the first
occurrence of a Repurchase Event (as defined below) and ending 18 months
immediately thereafter Shore Bancshares (or any successor entity thereof)
shall repurchase from Talbot Bancshares (I) the Option and (II) all shares
of Shore Bancshares Common Stock purchased by Talbot Bancshares pursuant
hereto with respect to which Talbot Bancshares then has beneficial
ownership. The date on which Talbot Bancshares exercises its rights under
this Section 8 is referred to as the "Section 8 Request Date." Such
repurchase shall be at an aggregate price (the "Section 8 Repurchase
Consideration") equal to:
(A) the aggregate Purchase Price paid by Talbot Bancshares for any
shares of Shore Bancshares Common Stock acquired pursuant to the Option
with respect to which Talbot Bancshares then has beneficial ownership;
plus
(B) the excess, if any, of (x) the Applicable Price (as defined
below) as of the Section 8 Request Date for a share of Shore Bancshares
Common Stock over (y) the Purchase Price (subject to adjustment
pursuant to Section 6), multiplied by the number of shares of Shore
Bancshares Common Stock with respect to which the Option has not been
exercised; plus
(C) the excess, if any, of the Applicable Price as of the Section 8
Request Date over the Purchase Price paid (or, in the case of shares of
Shore Bancshares Common Stock with respect to which the Option has been
exercised but the Effective Date has not occurred, payable (subject to
adjustment pursuant to Section 6)) by Talbot Bancshares for each share
of Shore Bancshares Common Stock with respect to which the Option has
been exercised and with respect to which Talbot Bancshares then has
beneficial ownership, multiplied by the number of such shares; plus
(D) the amount of the documented reasonable out-of-pocket expenses
incurred by Talbot Bancshares in connection with the Plan and this
Option Agreement and the transactions contemplated thereby and hereby,
including reasonable accounting, investment banking and legal fees.
(b) If Talbot Bancshares exercises its rights under this Section 8,
Shore Bancshares shall, within 10 business days after the Section 8 Request
Date, pay the Section 8 Repurchase Consideration to Talbot Bancshares in
immediately available funds, and Talbot Bancshares shall surrender to Shore
Bancshares the Option and the certificates evidencing the shares of Shore
Bancshares Common Stock purchased hereunder with respect to which Talbot
Bancshares then has beneficial ownership and Talbot Bancshares shall
warrant that it has sole record and beneficial ownership of such shares and
that the same are then free and clear of all liens, claims, charges and
encumbrances of any kind whatsoever. Notwithstanding the foregoing, to the
extent that prior notification to or approval of the Board of Governors of
the Federal Reserve System (the "Federal Reserve") or other regulatory
authority is required in connection with the payment of all or any portion
of the Section 8 Repurchase Consideration, Shore Bancshares shall deliver
from time to time that portion of the Section 8 Repurchase Consideration
that it is not then so prohibited from paying and shall promptly provide
the required notice or application for approval and shall expeditiously
process the same (and Talbot Bancshares shall cooperate with Shore
Bancshares in the filing of any such notice or application and the
obtaining of any such approval), and the period of time that otherwise
would run pursuant to the preceding sentence for the payment of the portion
of the Section 8 Repurchase Consideration requiring such notification or
approval shall run instead from the date on which, as the case may be, (i)
any required notification period has expired or been terminated or (ii)
such approval has been obtained and, in either event, any requisite waiting
period shall have passed. If the Federal Reserve or any other regulatory
authority disapproves of any part of Shore Bancshares proposed repurchase
pursuant to this Section 8, Shore Bancshares shall promptly give notice of
such fact to Talbot Bancshares and redeliver to Talbot Bancshares the
shares issued upon exercise of the Option, it is then prohibited from
repurchasing, and Talbot Bancshares shall have the right to exercise the
Option as to the number of shares issued upon exercise of the Option for
which the Option was exercisable at the Section 8 Request Date less the
number of shares as to which payment has been made pursuant to Section
8(a)(B); provided that if the Option shall have terminated prior to the
date of such notice or shall be scheduled to
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terminate at any time before the expiration of a period ending on the
thirtieth business day after such date, Talbot Bancshares shall nonetheless
have the right so to exercise the Option or exercise its rights under
Section 3 until the expiration of such period of 30 business days.
Notwithstanding anything herein to the contrary, Shore Bancshares shall not
be obligated to repurchase the Option or any shares of Shore Bancshares
Common Stock pursuant to this Section 8 on more than one occasion.
(c) For purposes of this Option Agreement, the "Applicable Price," as of
any date, means the highest of (i) the highest price per share at which a
Tender Offer has been made for shares of Shore Bancshares Common Stock
after the date hereof and on or prior to such date, (ii) the price per
share to be paid by any third party for shares of Shore Bancshares Common
Stock or the consideration per share to be received by holders of Shore
Bancshares Common Stock, in each case pursuant to an agreement for a merger
or other business combination transaction with Shore Bancshares entered
into on or prior to such date or (iii) the highest bid price per share of
Shore Bancshares Common Stock as quoted on the National Association of
Securities Dealers Automated Quotations System or, if the shares of Shore
Bancshares Common Stock are not quoted thereon, the principal trading
market on which such shares are traded as reported by a recognized source
during the 60 business days preceding such date. If the consideration to be
offered, paid or received pursuant to either of the foregoing clauses (i)
or (ii) shall be other than in cash, the value of such consideration shall
be determined in good faith by an independent nationally recognized
investment banking firm selected by Talbot Bancshares and reasonably
acceptable to Shore Bancshares, which determination shall be conclusive for
all purposes of this Option Agreement.
(d) As used herein, a "Repurchase Event" means the occurrence of any of
the Purchase Events specified in Section 3(b).
9. Severability. If any term, provision, covenant, or restriction
contained in this Option Agreement is held by a court or a federal or state
regulatory agency of competent jurisdiction to be invalid, void, or
unenforceable, the remainder of the terms, provisions, and covenants, and
restrictions contained in this Option Agreement shall remain in full force
and effect, and shall in no way be affected, impaired, or invalidated. If
for any reason such court or regulatory agency determines that the Option
will not permit the holder to acquire the full number of shares of Shore
Bancshares Common Stock provided in Section 2 (as adjusted pursuant to
Section 6), it is the express intention of Shore Bancshares to allow the
holder to acquire such lesser number of shares as may be permissible,
without any amendment or modification hereof.
10. Miscellaneous.
(a) Expenses. Except as otherwise provided herein, each of the
parties hereto shall bear and pay all costs and expenses incurred by it
or on its behalf in connection with the transactions contemplated
hereunder, including fees and expenses of its own financial
consultants, investment bankers, accountants, and counsel.
(b) Entire Agreement. Except as otherwise expressly provided herein,
this Option Agreement contains the entire agreement between the parties
with respect to the transactions contemplated hereunder and supersedes
all prior arrangements or understandings with respect thereto, written
or oral. The terms and conditions of this Option Agreement shall inure
to the benefit of and be binding upon the parties hereto and their
respective successors and assigns. Nothing in this Option Agreement,
expressed or implied, is intended to confer upon any party, other than
the parties hereto, and their respective successors and assigns, any
rights, remedies, obligations or liabilities under or by reason of this
Option Agreement, except as expressly provided herein.
(c) Assignment. Neither of the parties hereto may assign any of its
rights or obligations under this Option Agreement or the Option created
hereunder to any other person, without the express written consent of
the other party, except that in the event a Purchase Event shall have
occurred and be continuing Talbot Bancshares may assign in whole or in
part its rights and obligations hereunder; provided, however, that to
the extent required by applicable regulatory authorities, Talbot
Bancshares
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may not assign its rights under the Option except in (i) a widely
dispersed public distribution, (ii) a private placement in which no one
party acquires the right to purchase in excess of 2% of the voting
shares of Shore Bancshares, (iii) an assignment to a single party
(e.g., a broker or investment banker) for the purpose of conducting a
widely dispersed public distribution on Talbot Bancshares' behalf, or
(iv) any other manner approved by applicable regulatory authorities.
(d) Notices. All notices or other communications which are required
or permitted hereunder shall be in writing and sufficient if delivered
in the manner and to the address provided for in or pursuant to Section
15 of the Plan.
(e) Counterparts. This Option Agreement may be executed in any
number of counterparts, and each such counterpart shall be deemed to be
an original instrument, but all such counterparts together shall
constitute but one agreement.
(f) Specific Performance. The parties agree that damages would be an
inadequate remedy for a breach of the provisions of this Option
Agreement by either party hereto and that this Option Agreement may be
enforced by either party hereto through injunctive or other equitable
relief.
(g) Governing Law. This Option Agreement shall be governed by and
construed in accordance with the laws of the State of Maryland
applicable to agreements made and entirely to be performed within such
state and such federal laws as may be applicable.
IN WITNESS WHEREOF, each of the parties hereto has executed this Option
Agreement as of the day and year first written above.
Shore Bancshares, Inc.
/s/ Daniel T. Cannon
By: _________________________________
Daniel T. Cannon
President and Chief Executive
Officer
Talbot Bancshares, Inc.
/s/ W. Moorhead Vermilye
By: _________________________________
W. Moorhead Vermilye
President and Chief Executive
Officer
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APPENDIX H--OPINION OF DANIELSON ASSOCIATES INC.
July 25, 2000
Board of Directors
Talbot Bancshares, Inc.
18 East Dover Street
Easton, Maryland 21601
Dear Members of the Board:
Set forth herein is Danielson Associates Inc.'s ("Danielson Associates")
independent opinion as to "fairness" of a merger of equals between Talbot
Bancshares, Inc. ("Talbot") of Easton, Maryland and Shore Bancshares, Inc.
("Shore") of Centreville, Maryland to Talbot and its shareholders from a
financial point of view. The merger will be accomplished through an exchange of
stock and "fairness" from a financial perspective is determined by the likely
impact of this merger on the value of Talbot's common stock and whether the
basis for the exchange ratio was "fair" to Talbot.
In preparing the opinion, the markets served by Talbot and Shore have been
analyzed; their business and future prospects have been reviewed; their
financial performance has been compared with each other and banks in the
region; and the determination of share distribution in other equal mergers has
been analyzed. In addition, any unique characteristics have been considered.
The opinion is based on data supplied by Talbot and Shore and relies on some
public information, all of which is believed to be reliable, but the accuracy
or the completeness of such information cannot be guaranteed. The opinion
assumes that there are no significant loan problems beyond what was stated in
recent reports to regulatory agencies.
In determining the "fair" exchange rate for Talbot in its merger with Shore,
the primary consideration was the balancing of the earnings and capital
contribution, but other item comparisons were considered as well as the likely
impact on Talbot's common stock. The exchange ratios used in other equal
mergers were reviewed as to consistency with the exchange ratio used in the
merger.
Based on the above, Danielson Associates is of the opinion that on the date
hereof that the merger of equals, including the distribution of shares and the
impact on shareholder value, between Talbot and Shore is "fair" from a
financial point of view to Talbot and its shareholders.
Respectfully submitted,
Arnold G. Danielson
Chairman
Danielson Associates Inc.
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APPENDIX I--OPINION OF GARLAND McPHERSON & ASSOCIATES, INC.
, 2000
The Board of Directors
Shore Bancshares, Inc.
109 North Commerce Street
Centreville, MD 21617
Members of the Board:
You have requested that we update our opinion as to the fairness, from a
financial point of view, to the shareholders of Shore Bancshares, Inc.
("Shore") of the Plan and Agreement to Merge (the "Agreement") dated July 25,
2000 pursuant to which Talbot Bancshares, Inc. ("Talbot") will combine with and
into Shore by means of a merger. Under the terms of the Agreement, each
outstanding share of Talbot common stock will be converted into 2.85 shares of
Shore common stock.
Garland McPherson & Associates, Inc., as part of its investment banking and
bank consulting business, is routinely engaged in the valuation of financial
institution securities for a variety of purposes, including mergers and
acquisitions, and the determination of adequate consideration in such
transactions.
For purposes of this opinion and the original opinion that was rendered on
July 25, 2000, we reviewed and analyzed information pertaining to the financial
and operating condition of Shore and Talbot. This review included, but was not
limited to: (i) the Agreement and exhibits thereto; (ii) financial and other
information which was publicly available or provided to us by Shore and Talbot,
which was prepared by Shore, Talbot and others; (iii) certain financial
information relating to the banking industry in general; (iv) the respective
history of dividends paid by the two institutions; (v) our evaluation of future
prospects for the merged institution; and (vi) such other financial reviews,
analyses, and investigations as we deemed appropriate.
In rendering our opinion, we conducted discussions with members of senior
management of Shore and Talbot concerning their respective businesses and
prospects and have relied on the accuracy and completeness of information and
representations delivered to us by Shore and Talbot and their officers,
directors, counsel, and other agents. We have not independently verified the
information reviewed by us (either publicly available or provided to us by
Shore and Talbot) and, in rendering our opinion, have relied upon such
information as being complete and accurate in all material respects.
We have assumed that the allowances for loan losses indicated on the balance
sheets of Shore and Talbot as of June 30, 2000 are adequate to cover such
losses. We have not reviewed the loan files of Shore or Talbot, nor did we make
an independent valuation or appraisal of the assets and liabilities of Shore
and Talbot.
We assumed that in the course of obtaining the necessary regulatory
approvals for the Merger, no restrictions would be imposed on Talbot that would
have a material adverse effect on the contemplated benefits of the Merger to
Shore. We further assumed that no change would occur in applicable law or
regulation that would cause a material adverse change in the prospects or
operations of the resulting organization after the Merger. We express no
opinion as to the tax consequences of the merger to Shore and its shareholders.
Our conclusion is based on the market, economic and other conditions
prevailing as of the date hereof and the current conditions and prospects of
Shore and Talbot. Events occurring subsequent to this date could materially
affect the assumptions and conclusions contained in our opinion. We express no
opinion as to what the value of combined organization's common stock will be at
the time the Merger is consummated. Our opinion pertains only to the financial
consideration of the Merger and does not constitute a recommendation to the
Board of Shore or a recommendation as to how Shore shareholders should vote
with regard to the Merger.
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Based upon and subject to the foregoing, it is our opinion as of the date
hereof, that the exchange ratio is fair, from a financial point of view, to the
shareholders of Shore Bancshares, Inc.
Sincerely,
Garland McPherson & Associates, Inc.
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APPENDIX J--SECTIONS 3-201 ET SEQ. OF THE MARYLAND
GENERAL CORPORATION LAW
(S) 3-201. "Successor" defined.
(a) Corporation amending charter. In this subtitle, except as provided in
subsection (b) of this section, "successor" includes a corporation which
amends its charter in a way which alters the contract rights, as expressly set
forth in the charter, of any outstanding stock, unless the right to do so is
reserved by the charter of the corporation.
(b) Corporation whose stock is acquired. When used with reference to a
share exchange, "successor" means the corporation the stock of which was
acquired in the share exchange.
(S) 3-202. Right to fair value of stock.
(a) General rule. Except as provided in subsection (c) of this section, a
stockholder of a Maryland corporation has the right to demand and receive
payment of the fair value of the stockholder's stock from the successor if:
(1) The corporation consolidates or merges with another corporation;
(2) The stockholder's stock is to be acquired in a share exchange;
(3) The corporation transfers its assets in a manner requiring action
under (S) 3-105 (d) of this title;
(4) The corporation amends its charter in a way which alters the
contract rights, as expressly set forth in the charter, of any outstanding
stock and substantially adversely affects the stockholder's rights, unless
the right to do so is reserved by the charter of the corporation; or
(5) The transaction is governed by (S) 3-602 of this title or exempted
by (S) 3-603 (b) of this title.
(b) Basis of fair value.
(1) Fair value is determined as of the close of business:
(i) With respect to a merger under (S) 3-106 of this title of a 90
percent or more owned subsidiary with or into its parent corporation, on
the day notice is given or waived under (S) 3-106; or
(ii) With respect to any other transaction, on the day the
stockholders voted on the transaction objected to.
(2) Except as provided in paragraph (3) of this subsection, fair value
may not include any appreciation or depreciation which directly or
indirectly results from the transaction objected to or from its proposal.
(3) In any transaction governed by (S) 3-602 of this title or exempted
by (S) 3-603 (b) of this title, fair value shall be value determined in
accordance with the requirements of (S) 3-603 (b) of this title.
(c) When right to fair value does not apply. Unless the transaction is
governed by (S) 3-602 of this title or is exempted by (S) 3-603 (b) of this
title, a stockholder may not demand the fair value of the stockholder's stock
and is bound by the terms of the transaction if:
(1) The stock is listed on a national securities exchange or is
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc., or is
designated for trading on the NASDAQ Small Cap Market:
(i) With respect to a merger under (S) 3-106 of this title of a 90
percent or more owned subsidiary into its parent, on the date notice is
given or waived under (S) 3-106; or
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(ii) With respect to any other transaction, on the record date for
determining stockholders entitled to vote on the transaction objected
to;
(2) The stock is that of the successor in a merger, unless:
(i) The merger alters the contract rights of the stock as expressly
set forth in the charter, and the charter does not reserve the right to
do so; or
(ii) The stock is to be changed or converted in whole or in part in
the merger into something other than either stock in the successor or
cash, scrip, or other rights or interests arising out of provisions for
the treatment of fractional shares of stock in the successor;
(3) The stock is not entitled to be voted on the transaction or the
stockholder did not own the shares of stock on the record date for
determining stockholders entitled to vote on the transaction;
(4) The charter provides that the holders of the stock are not entitled
to exercise the rights of an objecting stockholder under this subtitle; or
(5) The stock is that of an open-end investment company registered with
the Securities and Exchange Commission under the Investment Company Act of
1940 and the value placed on the stock in the transaction is its net asset
value.
(S) 3-203. Procedure by stockholder.
(a) Specific duties. A stockholder of a corporation who desires to receive
payment of the fair value of the stockholder's stock under this subtitle:
(1) Shall file with the corporation a written objection to the proposed
transaction:
(i) With respect to a merger under (S) 3-106 of this title of a 90
percent or more owned subsidiary with or into its parent corporation,
within 30 days after notice is given or waived under (S) 3-106; or
(ii) With respect to any other transaction, at or before the
stockholders' meeting at which the transaction will be considered or,
in the case of action taken under (S) 2-505(b) of this article, within
10 days after the corporation gives the notice required by (S) 2-505(b)
of this Article;
(2) May not vote in favor of the transaction; and
(3) Within 20 days after the Department accepts the articles for record,
shall make a written demand on the successor for payment for the
stockholder's stock, stating the number and class of shares for which the
stockholder demands payment.
(b) Failure to comply with section. A stockholder who fails to comply with
this section is bound by the terms of the consolidation, merger, share
exchange, transfer of assets, or charter amendment.
(S) 3-204. Effect of demand on dividend and other rights.
A stockholder who demands payment for his stock under this subtitle:
(1) Has no right to receive any dividends or distributions payable to
holders of record of that stock on a record date after the close of
business on the day as at which fair value is to be determined under (S) 3-
202 of this subtitle; and
(2) Ceases to have any rights of a stockholder with respect to that
stock, except the right to receive payment of its fair value.
(S) 3-205. Withdrawal of demand.
A demand for payment may be withdrawn only with the consent of the
successor.
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(S) 3-206. Restoration of dividend and other rights.
(a) When rights restored. The rights of a stockholder who demands payment
are restored in full, if:
(1) The demand for payment is withdrawn;
(2) A petition for an appraisal is not filed within the time required by
this subtitle;
(3) A court determines that the stockholder is not entitled to relief;
or
(4) The transaction objected to is abandoned or rescinded.
(b) Effect of restoration. The restoration of a stockholder's rights
entitles him to receive the dividends, distributions, and other rights he would
have received if he had not demanded payment for his stock. However, the
restoration does not prejudice any corporate proceedings taken before the
restoration.
(S) 3-207. Notice and offer to stockholders.
(a) Duty of successor.
(1) The successor promptly shall notify each objecting stockholder in
writing of the date the articles are accepted for record by the Department.
(2) The successor also may send a written offer to pay the objecting
stockholder what it considers to be the fair value of his stock. Each offer
shall be accompanied by the following information relating to the
corporation which issued the stock:
(i) A balance sheet as of a date not more than six months before the
date of the offer;
(ii) A profit and loss statement for the 12 months ending on the
date of the balance sheet; and
(iii) Any other information the successor considers pertinent.
(b) Manner of sending notice. The successor shall deliver the notice and
offer to each objecting stockholder personally or mail them to him by certified
mail, return receipt requested, bearing a postmark from the United States
Postal Service, at the address he gives the successor in writing, or, if none,
at his address as it appears on the records of the corporation which issued the
stock.
(S) 3-208. Petition for appraisal; consolidation of proceedings; joinder of
objectors.
(a) Petition for appraisal. Within 50 days after the Department accepts the
articles for record, the successor or an objecting stockholder who has not
received payment for his stock may petition a court of equity in the county
where the principal office of the successor is located or, if it does not have
a principal office in this State, where the resident agent of the successor is
located, for an appraisal to determine the fair value of the stock.
(b) Consolidation of suits; joinder of objectors.
(1) If more than one appraisal proceeding is instituted, the court shall
direct the consolidation of all the proceedings on terms and conditions it
considers proper.
(2) Two or more objecting stockholders may join or be joined in an
appraisal proceeding.
(S) 3-209. Notation on stock certificate.
(a) Submission of certificate. At any time after a petition for appraisal is
filed, the court may require the objecting stockholders parties to the
proceeding to submit their stock certificates to the clerk of the court for
notation on them that the appraisal proceeding is pending. If a stockholder
fails to comply with the order, the court may dismiss the proceeding as to him
or grant other appropriate relief.
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<PAGE>
(b) Transfer of stock bearing notation. If any stock represented by a
certificate which bears a notation is subsequently transferred, the new
certificate issued for the stock shall bear a similar notation and the name of
the original objecting stockholder. The transferee of this stock does not
acquire rights of any character with respect to the stock other than the rights
of the original objecting stockholder.
(S) 3-210. Appraisal of fair value.
(a) Court to appoint appraisers. If the court finds that the objecting
stockholder is entitled to an appraisal of his stock, it shall appoint three
disinterested appraisers to determine the fair value of the stock on terms and
conditions the court considers proper. Each appraiser shall take an oath to
discharge his duties honestly and faithfully.
(b) Report of appraisers--Filing. Within 60 days after their appointment,
unless the court sets a longer time, the appraisers shall determine the fair
value of the stock as of the appropriate date and file a report stating the
conclusion of the majority as to the fair value of the stock.
(c) Same--Contents. The report shall state the reasons for the conclusion
and shall include a transcript of all testimony and exhibits offered.
(d) Same--Service; objection.
(1) On the same day that the report is filed, the appraisers shall mail
a copy of it to each party to the proceedings.
(2) Within 15 days after the report is filed, any party may object to it
and request a hearing.
(S) 3-211. Action by court on appraisers' report.
(a) Order of court. The court shall consider the report and, on motion of
any party to the proceeding, enter an order which:
(1) Confirms, modifies, or rejects it; and
(2) If appropriate, sets the time for payment to the stockholder.
(b) Procedure after order.
(1) If the appraisers' report is confirmed or modified by the order,
judgment shall be entered against the successor and in favor of each
objecting stockholder party to the proceeding for the appraised fair value
of his stock.
(2) If the appraisers' report is rejected, the court may:
(i) Determine the fair value of the stock and enter judgment for the
stockholder; or
(ii) Remit the proceedings to the same or other appraisers on terms
and conditions it considers proper.
(c) Judgment includes interest.
(1) Except as provided in paragraph (2) of this subsection, a judgment
for the stockholder shall award the value of the stock and interest from
the date as at which fair value is to be determined under (S) 3-202 of this
subtitle.
(2) The court may not allow interest if it finds that the failure of the
stockholder to accept an offer for the stock made under (S) 3-207 of this
subtitle was arbitrary and vexatious or not in good faith. In making this
finding, the court shall consider:
(i) The price which the successor offered for the stock;
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(ii) The financial statements and other information furnished to the
stockholder; and
(iii) Any other circumstances it considers relevant.
(d) Costs of proceedings.
(1) The costs of the proceedings, including reasonable compensation and
expenses of the appraisers, shall be set by the court and assessed against
the successor. However, the court may direct the costs to be apportioned
and assessed against any objecting stockholder if the court finds that the
failure of the stockholder to accept an offer for the stock made under (S)
3-207 of this subtitle was arbitrary and vexatious or not in good faith. In
making this finding, the court shall consider:
(i) The price which the successor offered for the stock;
(ii) The financial statements and other information furnished to the
stockholder; and
(iii) Any other circumstances it considers relevant.
(2) Costs may not include attorney's fees or expenses. The reasonable
fees and expenses of experts may be included only if:
(i) The successor did not make an offer for the stock under (S) 3-
207 of this subtitle; or
(ii) The value of the stock determined in the proceeding materially
exceeds the amount offered by the successor.
(e) Effect of judgment. The judgment is final and conclusive on all parties
and has the same force and effect as other decrees in equity. The judgment
constitutes a lien on the assets of the successor with priority over any
mortgage or other lien attaching on or after the effective date of the
consolidation, merger, transfer, or charter amendment.
(S) 3-212. Surrender of stock.
The successor is not required to pay for the stock of an objecting
stockholder or to pay a judgment rendered against it in a proceeding for an
appraisal unless, simultaneously with payment:
(1) The certificates representing the stock are surrendered to it,
indorsed in blank, and in proper form for transfer; or
(2) Satisfactory evidence of the loss or destruction of the certificates
and sufficient indemnity bond are furnished.
(S) 3-213. Rights of successor with respect to stock.
(a) General rule. A successor which acquires the stock of an objecting
stockholder is entitled to any dividends or distributions payable to holders of
record of that stock on a record date after the close of business on the day as
at which fair value is to be determined under (S) 3-202 of this subtitle.
(b) Successor in transfer of assets. After acquiring the stock of an
objecting stockholder, a successor in a transfer of assets may exercise all the
rights of an owner of the stock.
(c) Successor in consolidation, merger, or share exchange. Unless the
articles provide otherwise, stock in the successor of a consolidation, merger,
or share exchange otherwise deliverable in exchange for the stock of an
objecting stockholder has the status of authorized but unissued stock of the
successor. However, a proceeding for reduction of the capital of the successor
is not necessary to retire the stock or to reduce the capital of the successor
represented by the stock.
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PART II
INFORMATION NOT REQUIRED IN PROXY STATEMENT/PROSPECTUS
Item 20. Indemnification of Directors and Officers.
As permitted by the Maryland General Corporation Law ("MGCL"), Article VIII,
Section 2 of the Company's By-Laws provides for indemnification of directors
and officers of the Company, as follows:
The Corporation shall indemnify and advance expenses to a director or
officer of the Corporation in connection with a proceeding to the fullest
extent permitted by and in accordance with the Indemnification Section.
Notwithstanding the foregoing, the Corporation shall be required to
indemnify a director or officer in connection with a proceeding commenced
by such director or officer against the Corporation or its directors or
officers only if the proceeding was authorized by the board of directors.
The MGCL permits a corporation to indemnify its directors and officers,
among others, against judgments, penalties, fines, settlements and reasonable
expenses actually incurred by them in connection with any proceeding to which
they may be made a party by reason of their service in those or other
capacities, unless it is established that (a) the act or omission of the
director or officer was material to the matter giving rise to the proceeding
and (i) was committed in bad faith or (ii) was the result of active and
deliberate dishonesty, (b) the director or officer actually received an
improper personal benefit in money, property or services, or (c) in the case of
any criminal proceeding, the director or officer had reasonable cause to
believe that the act or omission was unlawful.
As permitted by the MGCL, Article Eighth of the Company's Charter provides
for limitation of liability of directors and officers of the Company, as
follows:
EIGHTH: No Director or officer of the Corporation shall be liable to the
Corporation or to its stockholders for money damages except (i) to the
extent that it is proved that such Director or officer actually received an
improper benefit or profit in money, property or services, for the amount
of the benefit or profit in money, property or services actually received,
or (ii) to the extent that a judgment or other final adjudication adverse
to such Director or officer is entered in a proceeding based on a finding
in the proceeding that such Director's or officer's action, or failure to
act, was the result of active and deliberate dishonesty and was material to
the cause of action adjudicated in the proceeding. No amendment of these
Articles of Incorporation or repeal of any of its provisions shall limit or
eliminate the benefits provided to directors and officers under this
provision with respect to any act or omission which occurred prior to such
amendment.
The MGCL permits the charter of a Maryland corporation to include a
provision limiting the liability of its directors and officers to the
corporation and its stockholders for money damages, except to the extent that
(i) the person actually received an improper benefit or profit in money,
property or services or (ii) a judgment or other final adjudication is entered
in a proceeding based on a finding that the person's action, or failure to act,
was the result of active and deliberate dishonesty and was material to the
cause of action adjudicated in the proceeding.
As permitted under Section 2-418(k) of the MGCL, the Company has purchased
and maintains insurance on behalf of its directors and officers against any
liability asserted against such directors and officers in their capacities as
such, whether or not the registrant would have the power to indemnify such
persons under the provisions of Maryland law governing indemnification.
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Item 21. Exhibits and Financial Statements.
<TABLE>
<C> <S>
2.1 Plan and Agreement to Merge, dated July 25, 2000, between Shore
Bancshares, Inc. and Talbot Bancshares, Inc. (Incorporated by reference
to Exhibit 2.1 on Form 8-K filed by Shore Bancshares on July 31, 2000)
3.1 Articles of Amendment and Restatement of Shore Bancshares, Inc.
previously filed with the Commission as an Exhibit to, and incorporated
herein by reference from, the Quarterly Report on Form 10-Q for quarter
year ended June 30, 1998 (File No. 000-22345).
3.2 By-Laws of Shore Bancshares, amended and restated as of April 20, 1999,
and as amended on July 25, 2000.
5.1 Opinion of Gordon, Feinblatt, Rothman, Hoffberger & Hollander, LLC re:
legality
8.1 Opinion of Piper Marbury Rudnick & Wolfe LLP re: tax matters
10.1 1998 Employee Stock Purchase Plan, previously filed with the Commission
on September 25, 1998, as an Exhibit to, and incorporated herein by
reference from, Shore Bancshares' registration statement on Form S-8
(Reg. No. 333-64317).
10.2 1998 Stock Option Plan, previously filed with the Commission on September
25, 1998, as an Exhibit to, and incorporated herein by reference from,
Shore Bancshares' registration statement on Form S-8 (Reg. No. 333-
64319).
10.3 Form of Employment Agreement with W. Moorhead Vermilye (Incorporated by
reference to Appendix XIII of Exhibit 2.1 on Form 8-K filed by Shore
Bancshares on July 31, 2000).
10.4 Form of Employment Agreement with Daniel T. Cannon (Incorporated by
reference to Appendix XIII of Exhibit 2.1 on Form 8-K filed by Shore
Bancshares on July 31, 2000).
10.5 Shore Bancshares Stock Option Agreement with Talbot Bancshares, dated
July 26, 2000. (included as Appendix G to the proxy
statement/prospectus).
10.6 Talbot Bancshares Stock Option Agreement with Shore Bancshares, dated
July 26, 2000. (included as Appendix F to the proxy
statement/prospectus).
10.7 Shore Bancshares Support Agreement with Talbot Bancshares (included as
Appendix E to the proxy statement/prospectus).
10.8 Talbot Bancshares Support Agreement with Shore Bancshares (included as
Appendix D to the proxy statement/prospectus).
13.1 Annual Report for Shore Bancshares for the year ended December 31, 1999
(Incorporated by reference to Exhibit 13 of the Form 10-K filed by Shore
Bancshares on March 30, 2000)
13.2 Form 10-Q for Shore Bancshares for the quarter ended June 30, 2000
(Incorporated by reference to the Form 10-Q filed by Shore Bancshares on
August 11, 2000)
13.3 Annual Report for Talbot Bancshares for the year ended December 31, 1999
(Incorporated by reference to Exhibit 13 to the Form 10-K filed by Talbot
Bancshares on March 30, 2000)
13.4 Form 10-Q for Talbot Bancshares, Inc. for the quarter ended June 30, 2000
(Incorporated by reference to the Form 10-Q filed by Talbot Bancshares on
August 14, 2000)
21.1 List of Subsidiaries of Shore Bancshares, previously filed with the
Commission as an Exhibit to, and incorporated herein by reference from,
Shore Bancshares' Form 10, filed with the Commission on April 3, 1997,
and Form 10/A, filed with the Commission on May 30, 1997 (Reg. No. 0-
22523).
</TABLE>
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<TABLE>
<C> <S>
23.1 Consent of Stegman & Company
23.2 Consent of Stegman & Company
23.3 Consent of Gordon, Feinblatt, Rothman, Hoffberger & Hollander, LLC
(included in Exhibit 5.1 hereto)
23.4 Consent of Piper Marbury Rudnick & Wolfe LLP (included in Exhibit 8.1
hereto)
23.5 Consent of Garland McPherson & Associates, Inc.
23.6 Consent of Danielson Associates Inc.
24.1 Powers of Attorney (included in signature page)
99.1 Form of proxy card for Shore Bancshares stockholders
99.2 Form of proxy card for Talbot Bancshares stockholders
99.3 Opinion of Garland McPherson & Associates, Inc. dated July 25, 2000.
99.4 Opinion of Garland McPherson & Associates, Inc. (included as Appendix I
to the proxy statement/prospectus).
99.5 Opinion of Danielson Associates Inc. (included as Appendix H to the proxy
statement/prospectus).
</TABLE>
Item 22. Undertakings.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers and sales are being made,
a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20 percent change
in the maximum aggregate offering price set forth in the "Calculation
of Registration Fee" table in the effective registration statement; and
(iii) To include 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.
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 Section 15(d) of the
Securities Exchange Act of 1934 that is incorporated by reference in the
registration statement 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.
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<PAGE>
The undersigned registrant hereby undertakes as follows: that prior to any
public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other items of the applicable form.
The registrant undertakes that every prospectus: (1) that is filed pursuant
to paragraph (1) immediately preceding, or (ii) that purports to meet the
requirements of Section 10(a)(3) of the Securities Act of 1933 and is used in
connection with an offering of securities subject to Rule 415, will be filed as
a part of an amendment to the registration statement and will not be used until
such amendment is effective, and that, for purposes 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.
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.
The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11 or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first-class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through
the date of responding to the request.
The undersigned registrant hereby undertakes to supply by means of a post-
effective amendment all information concerning a transaction, and the company
being acquired involved therein, that was not the subject of and included in
the registration statement when it became effective.
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused the registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized in the city of Centreville, State of
Maryland, on September 25, 2000.
Shore Bancshares, Inc.
/s/ B. Vance Carmean, Jr.
By: _________________________________
B. Vance Carmean, Jr.
Chairman of the Board
Each person whose signature appears below constitutes and appoints Daniel T.
Cannon his true and lawful attorney-in-fact and agent, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any or all amendments to this Registration
Statement on Form S-4 and to file the same, with all exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorney-in-fact and agent full power and
authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully for all intents and
purposes as he or she might or could do in person, hereby ratifying and
confirming all that said attorney-in-fact and agent, or his substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated as of September 25, 2000.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ B. Vance Carmean, Jr. Chairman of the Board September 25, 2000
______________________________________
B. Vance Carmean, Jr.
/s/ Daniel T. Cannon President and Director September 25, 2000
______________________________________ (Principal Executive
Daniel T. Cannon Officer)
/s/ Carol I. Brownawell Treasurer (Principal September 25, 2000
______________________________________ Financial and Accounting
Carol I. Brownawell Officer)
/s/ J. Robert Barton Director September 25, 2000
______________________________________
J. Robert Barton
/s/ Paul M. Bowman Director September 25, 2000
______________________________________
Paul M. Bowman
/s/ David C. Bryan Director September 25, 2000
______________________________________
David C. Bryan
/s/ Mark M. Freestate Director September 25, 2000
______________________________________
Mark M. Freestate
/s/ Thomas K. Helfenbein Director September 25, 2000
______________________________________
Thomas K. Helfenbein
</TABLE>
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<PAGE>
<TABLE>
<S> <C> <C>
/s/ Neil R. LeCompte Director September 25, 2000
______________________________________
Neil R. LeCompte
______________________________________ Director September 25, 2000
Susanne K. Nuttle
/s/ Jerry F. Pierson Director September 25, 2000
______________________________________
Jerry F. Pierson
/s/ Wm. Maurice Sanger Director September 25, 2000
______________________________________
Wm. Maurice Sanger
</TABLE>
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<PAGE>
EXHIBIT INDEX
<TABLE>
<C> <S>
2.1 Plan and Agreement to Merge, dated July 25, 2000, between Shore
Bancshares, Inc. and Talbot Bancshares, Inc. (Incorporated by reference
to Exhibit 2.1 on Form 8-K filed by Shore Bancshares on July 31, 2000)
3.1 Articles of Amendment and Restatement of Shore Bancshares, Inc.
previously filed with the Commission as an Exhibit to, and incorporated
herein by reference from, the Quarterly Report on Form 10-Q for quarter
year ended June 30, 1998 (File No. 000-22345).
3.2 By-Laws of Shore Bancshares, amended and restated as of April 20, 1999,
and as amended on July 25, 2000.
5.1 Opinion of Gordon, Feinblatt, Rothman, Hoffberger & Hollander, LLC re:
legality
8.1 Opinion of Piper Marbury Rudnick & Wolfe LLP re: tax matters
10.1 1998 Employee Stock Purchase Plan, previously filed with the Commission
on September 25, 1998, as an Exhibit to, and incorporated herein by
reference from, Shore Bancshares' registration statement on Form S-8
(Reg. No. 333-64317).
10.2 1998 Stock Option Plan, previously filed with the Commission on September
25, 1998, as an Exhibit to, and incorporated herein by reference from,
Shore Bancshares' registration statement on Form S-8 (Reg. No. 333-
64319).
10.3 Form of Employment Agreement with W. Moorhead Vermilye (Incorporated by
reference to Appendix XIII of Exhibit 2.1 on Form 8-K filed by Shore
Bancshares on July 31, 2000).
10.4 Form of Employment Agreement with Daniel T. Cannon (Incorporated by
reference to Appendix XIII of Exhibit 2.1 on Form 8-K filed by Shore
Bancshares on July 31, 2000).
10.5 Shore Bancshares Stock Option Agreement with Talbot Bancshares, dated
July 26, 2000. (included as Appendix G to the proxy
statement/prospectus).
10.6 Talbot Bancshares Stock Option Agreement with Shore Bancshares, dated
July 26, 2000. (included as Appendix F to the proxy
statement/prospectus).
10.7 Shore Bancshares Support Agreement with Talbot Bancshares (included as
Appendix E to the proxy statement/prospectus).
10.8 Talbot Bancshares Support Agreement with Shore Bancshares (included as
Appendix D to the proxy statement/prospectus).
13.1 Annual Report for Shore Bancshares for the year ended December 31, 1999
(Incorporated by reference to Exhibit 13 of the Form 10-K filed by Shore
Bancshares on March 30, 2000)
13.2 Form 10-Q for Shore Bancshares for the quarter ended June 30, 2000
(Incorporated by reference to the Form 10-Q filed by Shore Bancshares on
August 11, 2000)
13.3 Annual Report for Talbot Bancshares for the year ended December 31, 1999
(Incorporated by reference to Exhibit 13 to the Form 10-K filed by Talbot
Bancshares on March 30, 2000)
13.4 Form 10-Q for Talbot Bancshares, Inc. for the quarter ended June 30, 2000
(Incorporated by reference to the Form 10-Q filed by Talbot Bancshares on
August 14, 2000)
21.1 List of Subsidiaries of Shore Bancshares, previously filed with the
Commission as an Exhibit to, and incorporated herein by reference from,
Shore Bancshares' Form 10, filed with the Commission on April 3, 1997,
and Form 10/A, filed with the Commission on May 30, 1997 (Reg. No. 0-
22523).
23.1 Consent of Stegman & Company
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23.2 Consent of Stegman & Company
23.3 Consent of Gordon, Feinblatt, Rothman, Hoffberger & Hollander, LLC
(included in Exhibit 5.1 hereto)
23.4 Consent of Piper Marbury Rudnick & Wolfe LLP (included in Exhibit 8.1
hereto)
23.5 Consent of Garland McPherson & Associates, Inc.
23.6 Consent of Danielson Associates Inc.
24.1 Powers of Attorney (included in signature page)
99.1 Form of proxy card for Shore Bancshares stockholders
99.2 Form of proxy card for Talbot Bancshares stockholders
99.3 Opinion of Garland McPherson & Associates, Inc. dated July 25, 2000.
99.4 Opinion of Garland McPherson & Associates, Inc. (included as Appendix I
to the proxy statement/prospectus).
99.5 Opinion of Danielson Associates Inc. (included as Appendix H to the proxy
statement/prospectus).
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