Registration Statement for Securities to Be Issued in Business Combination Transactions (s-4/a)

Date : 04/21/2017 @ 1:58PM
Source : Edgar (US Regulatory)
Stock : Old Line Bancshares, Inc. (MM) (OLBK)
Quote : 28.0  -0.15 (-0.53%) @ 4:00PM

Registration Statement for Securities to Be Issued in Business Combination Transactions (s-4/a)

 
As filed with the U.S. Securities and Exchange Commission on April 21, 2017
 
Registration No. 333-216836

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 

PRE-EFFECTIVE AMENDMNET NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
 

Old Line Bancshares, Inc.
(Exact name of registrant as specified in its charter)
 
 
 
 
 
 
Maryland
 
6022
 
20-0154352
(State or other jurisdiction of
incorporation or organization)
 
(Primary Standard Industrial
Classification Code Number)
 
(I.R.S. Employer
Identification Number)
 

1525 Pointer Ridge Place
Bowie, Maryland 20716
(301) 430-2500
(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)
 

James W. Cornelsen
President and Chief Executive Officer
Old Line Bancshares, Inc.
1525 Pointer Ridge Place
Bowie, Maryland 20716
(301) 430-2500
(Name, address, including zip code, and telephone number, including area code, of agent for service)
 

With copies to:
 
 
 
 
 
 
Frank C. Bonaventure, Jr., Esq.
Baker, Donelson, Bearman, Caldwell & Berkowitz, PC
100 Light Street
Baltimore, Maryland 21202
(410) 862-1141
 
Stephen J. Deadrick
Chairman of the Board
DCB Bancshares, Inc.
26500 Ridge Road
Damascus, Maryland 20872
301-253-1000
 
Andrew D. Bulgin, Esquire
Gordon Feinblatt LLC
233 East Redwood Street
Baltimore, MD 21202
(410) 576-4280
 

Approximate date of commencement of the proposed sale of the securities to the public: As soon as practicable after this Registration Statement becomes   effective and upon completion of the merger described in the enclosed proxy statement/prospectus.
 
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 pursuant to Rule 462(b) under the Securities Act of 1933, as amended, 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 pursuant to Rule 462(d) 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.     ☐
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
 
 
 
 
Large accelerated filer  
 
Accelerated filer                   
Non–accelerated filer  
(Do not check if a smaller reporting company)
 
Smaller reporting company  
Emerging growth company 
 
 
  If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act.
 
If applicable, place an X in the box to designate the appropriate rule provision relied upon in conducting this transaction:
 
Exchange Act Rule 13e-4(i) (Cross-Border Issuer Tender Offer)                       
 
Exchange Act Rule 14d-1(d) (Cross-Border Third-Party Tender Offer)             
 

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, as amended, or until the Registration Statement shall become effective on such dates as the Commission, acting pursuant to said Section 8(a), may determine.
 
 
 
The information in this proxy statement/prospectus is not complete and may be changed. We may not sell the securities offered by this proxy statement/prospectus until the registration statement filed with the Securities and Exchange Commission is effective. This proxy statement/prospectus does not constitute an offer to sell or a solicitation of an offer to buy any securities in any jurisdiction where an offer or solicitation is not permitted.
 
PRELIMINARY—SUBJECT TO COMPLETION—DATED APRIL 21, 2017
 
  OLD LINE BANCSHARES, INC.
  DCB BANCSHARES, INC.
 
Dear DCB Bancshares, Inc. Stockholder:
 
On February 1, 2017, DCB Bancshares, Inc. (“DCB Bancshares”) entered into an Agreement and Plan of Merger with Old Line Bancshares, Inc. (“Old Line Bancshares”), pursuant to which DCB Bancshares will be merged with and into Old Line Bancshares, with Old Line Bancshares surviving the merger.
 
If the merger is completed, you will have the right to receive, for each share of DCB Bancshares common stock you own, that number of shares, which we refer to as the exchange ratio, of Old Line Bancshares common stock determined by dividing $25.22 (160% of the tangible book value of each share of DCB Bancshares common stock at December 31, 2016) by the volume weighted average closing price of Old Line Bancshares common stock for the ten trading days ending two trading days before the closing of the merger (the “Average Price), provided that if the Average Price is $27.21 or more the exchange ratio will be fixed at 0.9269 and if the Average Price is $20.85 or less the exchange ratio will be fixed at 1.2096.  If, however, the volume weighted average closing price of Old Line Bancshares common stock during the ten trading days ending five trading days before the effective date of the merger (the "Closing Market Price") is less than $16.68, and the ratio of the Closing Market Price to $27.21 is more than 20% lower than any decrease in the NASDAQ Band Stock Index over such ten-day period,  DCB Bancshares may terminate the merger agreement, provided, however, that Old Line Bancshares would then have the option to increase the exchange ratio to an amount calculated as if the Average Price was $16.68 per share, in which case no termination will take place; if Old Line Bancshares exercises this cure right, the exchange ratio would be greater than if calculated in the manner described above.   The value of the per-share and aggregate merger consideration will depend on the market price of Old Line Bancshares common stock on the closing date of the merger.  Assuming this option is not exercised, however, the aggregate merger consideration will be between approxmiately 1,495,256 and 1,951,302 shares of Old Line Bancshares common stock (not including cash in lieu of fractional shares).
 
Old Line Bancshares’ common stock is listed and traded on the NASDAQ Capital Market under the symbol “OLBK.” The closing sales price of Old Line Bancshares’ common stock on the NASDAQ Capital Market on February 1, 2017, immediately prior to the public announcement of the merger, and on April 20, 2017, the latest practicable date prior to the date of this proxy statement/prospectus, was $27.22 and $27.23 , respectively.
 
Stockholders of DCB Bancshares will be asked to vote on approval of the merger agreement and the merger at an annual meeting for DCB Bancshares’ stockholders. We cannot complete the merger unless we obtain the required approval of the stockholders of DCB Bancshares. The merger agreement and the merger must be approved by the affirmative vote of holders of two-thirds of all outstanding shares of common stock of DCB Bancshares.
 
The board of directors of DCB Bancshares unanimously recommends that you vote “FOR” approval of the merger agreement and the merger.
 
You should read this proxy statement/prospectus and all annexes carefully. Before making a decision on how to vote, you should consider the “Risk Factors” discussion beginning on page 12 of this proxy statement/prospectus.
 
This proxy statement/prospectus incorporates important business and financial information about Old Line Bancshares from reports it has filed with the Securities and Exchange Commission (the “SEC”). This information is available without charge at the SEC’s Web site located at www.sec.gov or upon written request to Old Line Bancshares, Inc., ATTN: Secretary, 1525 Pointer Ridge Place, Bowie, Maryland 20716, or oral request at (301) 430-2500. In order to ensure timely delivery, you must request this information no later than five business days prior to the date of the DCB Bancshares annual meeting, or [___________ __], 2017.
 
Neither the SEC, any bank regulatory agency nor any state securities commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of this proxy statement/prospectus. Any representation to the contrary is a criminal offense. The securities offered through this proxy statement/prospectus are not savings accounts, deposits or other obligations of a bank or savings association and are not insured by the Federal Deposit Insurance Corporation or any other government agency.
 
This proxy statement/prospectus is dated [________ __], 2017 and is first being mailed to DCB Bancshares, Inc. stockholders on or about [________ __], 2017.
 
 
 
 
 
DCB BANCSHARES, INC.
26500 Ridge Road
Damascus, Maryland 20872
 
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON [_________ __], 2017 AT 3:00 P.M.
 
An annual meeting of stockholders of DCB Bancshares, Inc., a Maryland corporation, will be held on [_________ __], 2017, at 3:00 p.m. (local time), at  The Damascus Volunteer Fire Department Activities Center located at 10211 Lewis Drive, Damascus, Maryland 20872, for the purpose of considering and voting upon the following:
 
1.
A proposal to approve the Agreement and Plan of Merger, dated as of February 1, 2017, by and between Old Line Bancshares, Inc. and DCB Bancshares, Inc., as the agreement may be amended from time to time, pursuant to which DCB Bancshares, Inc. will merge with and into Old Line Bancshares, Inc., with Old Line Bancshares, Inc. as the surviving entity, and the merger contemplated by the merger agreement, as more fully described in the accompanying proxy statement/prospectus.
 
2.
A proposal to adjourn the meeting to a later date or dates, if necessary, to permit further solicitation of additional proxies in the event there are not sufficient votes at the time of the meeting to approve the merger, agreement and the merger , as more fully described in the accompanying proxy statement/prospectus.
 
3.
A proposal to elect the ten director nominees named in this proxy statement/prospectus and on the proxy card to the board of directors of DCB Bancshares, Inc. for the ensuing year and until their successors are duly elected and qualified.
 
4.
To act upon any other matter that may properly come before the annual meeting or any adjournment or postponement thereof.
 
Only stockholders of record at the close of business on [_________], 2017, will be entitled to notice of and to vote at the annual meeting or any adjournment or postponement thereof.
 
You are cordially invited to attend the annual meeting in person. Whether or not you plan to attend the annual meeting, however, we urge you to return the enclosed proxy card in order to indicate your vote as soon as possible. To complete the merger, the merger agreement and the merger must be approved by the holders of two-thirds of the issued and outstanding shares of common stock of DCB Bancshares, Inc. An abstention, a failure to vote and a broker non-vote will have the same effect as a vote against the approval of the merger agreement and the merger. Whether or not you intend to attend the annual meeting, please vote as promptly as possible by signing, dating and mailing the proxy card. If you attend the annual meeting, you may vote in person or by your executed proxy. If your shares are held in the name of a broker, bank or other fiduciary, please follow the instructions on the voting instruction card provided by such person.
 
You may revoke your proxy at any time prior to or at the meeting by written notice to DCB Bancshares, Inc., by executing a proxy bearing a later date, or by attending the meeting and voting in person. If you wish to attend the annual meeting and vote in person and your shares are held in the name of a broker, trust, bank or other nominee, you must bring with you a proxy or letter from the broker, trustee, bank or nominee to confirm your beneficial ownership of the shares.
 
The proxy statement/prospectus that accompanies this notice provides you with detailed information about the proposed merger and the other matters to be voted on at the annual meeting. It also contains information about Old Line Bancshares, Inc. and DCB Bancshares, Inc. and related matters. We urge you to read the entire proxy statement/prospectus carefully. In particular, you should read the “Risk Factors” section beginning on page 12 for a discussion of the risks you should consider in evaluating the proposed merger and how it will affect you.
 
By Order of the Board of Directors,
 
/s/ Stephen J. Deadrick                                                                         
Stephen J. Deadrick, Chairman of the Board
Damascus, Maryland
[_______], 2017
 
 
 
 
 
TABLE OF CONTENTS
 
 
Page
QUESTIONS AND ANSWERS ABOUT THE SPECIAL MEETING
1
SUMMARY
5
RISK FACTORS
12
SELECTED FINANCIAL DATA OF OLD LINE BANCSHARES
25
COMAPATIVE PER SHARE MARKET PRICE
26
CAUTION REGARDING FORWARD-LOOKING STATEMENTS
26
THE DCB BANCSHARES SPECIAL MEETING
28
OWNERSHIP OF DCB BANCSHARES COMMON STOCK
31
THE MERGER AGREEMENT AND THE MERGER
32
General
32
Background of the Merger
33
Old Line Bancshares’ Reasons for the Merger
39
DCB Bancshares’ Reasons for the Merger and Recommendation of the Board of Directors
40
Opinion of DCB Bancshares’ Financial Advisor
42
Terms of the Merger
49
Interests of Directors and Officers in the Merger
66
Accounting Treatment
68
Certain Federal Income Tax Consequences
69
Restrictions on Sales of Shares by Certain Affiliates
71
Stock Exchange Listing
71
Appraisal Rights
71
DCB BANCSHARES – INFORMATION ABOUT DIRECTORS TO BE ELECTED TO OLD LINE BANCSHARES’ BOARD OF DIRECTORS
73
COMPARISON OF STOCKHOLDER RIGHTS
74
EXPERTS
79
LEGAL MATTERS
79
ELECTION OF DCB BANCSHARES DIRECTORS (Proposal 3)
79
OTHER MATTERS
80
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
80
WHERE YOU CAN FIND MORE INFORMATION
81
 
 
ANNEX A     AGREEMENT AND PLAN OF MERGER
A-1
ANNEX B     OPINION OF RP FINANCIAL, LC 
B-1
ANNEX C     SECTIONS 3-201 THROUGH 3-213 OF THE MARYLAND GENERAL CORPORATION LAW
C-1
 
 
 
i
 
 
 
QUESTIONS AND ANSWERS ABOUT THE ANNUAL MEETING
 
The following are some questions that you, as a stockholder of DCB Bancshares, may have regarding the merger agreement, the merger and the other matters being considered at the annual meeting and the answers to those questions. We urge you to read carefully the remainder of this proxy statement/prospectus because the information in this section does not provide all the information that might be important to you with respect to the merger agreement, the merger and the other matters being considered at the annual meeting. Additional important information is also contained in the annexes to this proxy statement/prospectus.
 
Q:
Why am I receiving this proxy statement/prospectus?
 
A:
Old Line Bancshares and DCB Bancshares have agreed to the merger of DCB Bancshares with and into Old Line Bancshares, which we refer to as the “merger,” pursuant to the terms of a merger agreement that is described in this proxy statement/prospectus. A copy of the merger agreement is attached to this proxy statement/prospectus as Annex A. At DCB Bancshares’ annual meeting of stockholders, stockholders will vote on the approval of the merger agreement and the merger and a related proposal. This proxy statement/prospectus constitutes DCB Bancshares’ proxy statement as well as a prospectus covering the shares of Old Line Bancshares common stock that will be issued to stockholders of DCB Bancshares in the merger.
 
In order to complete the merger, Maryland law requires that the DCB Bancshares stockholders vote to approve the merger. In addition, DCB Bancshares stockholders will be asked to vote on a proposal to adjourn the annual meeting to a later date or dates, if necessary, to permit further solicitation of proxies in the event there are not sufficient votes at the time of the annual meeting to approve the merger agreement and the merger.
 
Finally, because the meeting is an annual meeting, DCB Bancshares stockholders will be asked to vote on the election of ten directors to the DCB Bancshares’ board of directors for the ensuing year.
 
This proxy statement/prospectus contains important information about the merger agreement, the merger and the annual meeting of the stockholders of DCB Bancshares, and you should read it carefully. The enclosed voting materials allow you to vote your shares without actually attending the annual meeting.
 
Your vote is important. We encourage you to vote as soon as possible.
 
Q:
When and where will the annual meeting be held?
 
A:
The DCB Bancshares annual meeting will be held at  The Damascus Volunteer Fire Department Activities Center located at 10211 Lewis Drive, Damascus, Maryland 20872, , on [_______ __], 2017 at 3:00 p.m .
 
Q:
How do I vote?
 
A:
If you are a stockholder of record of DCB Bancshares as of the record date, you may vote in person by attending the annual meeting or by signing and returning the enclosed proxy card in the postage-paid envelope provided.
 
If you hold shares of common stock of DCB Bancshares in the name of a bank, broker or other nominee, please follow the voting instructions provided by your bank, broker or other nominee to ensure that your shares are represented and voted at the annual meeting.
 
 
 
1
 
 
Q:
What vote is required to approve each proposal to be voted on at the annual meeting?
 
A:
 
The proposal to approve the merger agreement and the merger requires the affirmative vote of holders of two-thirds of the outstanding shares of DCB Bancshares common stock entitled to vote on the proposal. Therefore, an abstention, a failure to vote and a broker non-vote will each have the effect of a vote against this proposal.
 
The annual meeting may be adjourned, if necessary, to solicit additional proxies in the event there are not sufficient votes at the time of the meeting to approve the merger proposal. The affirmative vote of the holders of a majority of the shares of common stock cast on the matter at the annual meeting is required to adjourn such meeting.
 
The proposal to elect the ten director nominees to the board of directors of DCB Bancshares requires the affirmative vote of a majority of all shares of DCB Bancshares common stock cast on that proposal. Accordingly, an abstention, a failure to vote and a broker non-vote will have no impact on the outcome of that proposal.
 
As of the record date for the annual meeting, there were 1,613,180 shares of DCB Bancshares common stock issued and outstanding and entitled to vote, and directors, executive officers and their affiliates were entitled to vote 13.0% of such shares. Directors and certain executive officers of DCB Bancshares entitled to vote 12.9% of the shares of DCB Bancshares common stock that are issued and outstanding and entitled to vote as of the record date have agreed, in writing, to vote their shares of DCB Bancshares common stock in support of the merger agreement and the merger.
 
Q:
How does the board of directors of DCB Bancshares recommend that I vote on the proposals?
 
A:
The board of directors of DCB Bancshares unanimously recommends that you vote “FOR” the approval of the merger agreement and the merger, as described in Proposal 1, “FOR” the approval of the proposal to adjourn the annual meeting to solicit more proxies, if necessary, as described in Proposal 2, and “FOR” the election of each of the director nominees named in Proposal 3.
 
Q:
How many votes do I have?
 
A:
You are entitled to one vote for each share of DCB Bancshares common stock that you owned as of the record date.
 
Q:
 
What will happen if I fail to vote or I abstain from voting?
 
A:
 
If you fail to vote or fail to instruct your bank, broker or other nominee to vote, it will have the same effect as a vote against the proposal to approve the merger agreement and the merger. An abstention will also have the same effect as a vote against this proposal.
 
Assuming a quorum is present, an abstention, broker non-vote or the failure to vote will have no effect on the proposal to approve the adjournment of the annual meeting, if necessary, to solicit additional proxies, or on the proposal to elect the ten director nominees to the DCB Bancshares board of directors. For this purpose, a quorum will be present if holders of at least a majority of the outstanding shares of common stock as of the record date are present, in person or by proxy, at the annual meeting.
 
Q:
 
If my shares are held of record by my broker, bank or other nominee (that is, in street name), will my broker, bank or other nominee automatically vote my shares for me?
 
A:
 
Generally not. If you hold your shares in a stock brokerage account, your broker will not vote your shares of common stock unless you provide voting instructions to your broker. If your shares are held by a bank or other nominee, whether your nominee may vote your shares in the absence of instructions from you will depend on your specific arrangement with your nominee record holder, but in the absence of an arrangement granting such record holder discretionary authority to vote, your record holder nominee will not have authority to vote your shares on any matter at the annual meeting absent specific voting instructions from you. You should instruct your broker, bank or other nominee to vote your shares by following the instructions provided by the broker, bank or nominee with this proxy statement/prospectus. Please note that you may not vote shares held in street name by returning a proxy card directly to DCB Bancshares or by voting in person at the annual meeting unless you provide a “legal proxy,” which you must obtain from your bank, broker or nominee.
 
 
 
2
 
 
Q:
 
What will happen if I return my proxy card without indicating how to vote?
 
A:
 
If you sign and return your proxy card without indicating how to vote on any particular proposal, the DCB Bancshares common stock represented by your proxy will be voted in favor of that proposal.
 
Q:
 
What if I fail to submit my proxy card or to instruct my broker, bank or other nominee to vote?
 
A:
 
If you fail to properly submit your proxy card or otherwise vote as instructed on the proxy card, or fail to properly instruct your broker, bank or other nominee to vote your shares of DCB Bancshares common stock and you do not attend the annual meeting and vote your shares in person, your shares will not be voted unless your shares are held of record by a non-broker and you have granted such record holder discretionary authority to vote your shares. If your shares are not voted, this will have the same effect as a vote against the approval of the merger agreement and the merger, but will have no effect on the proposal to adjourn the meeting if necessary to solicit additional proxies or on the proposal to elect the 10 director nominees to the DCB Board of directors.
 
Q:
 
If I am a stockholder of record, can I change my vote after I have returned a proxy or voting instruction card?
 
A:
 
Yes. You can change your vote at any time before your proxy is voted at the annual meeting. You can do this in one of three ways:
 
  you can send a signed notice of revocation;
 
  you can grant a new, valid proxy bearing a later date; or
 
  if you are a holder of record or if you hold your shares in street name and receive a valid proxy from your broker, you can attend the annual meeting and vote in person, which will automatically cancel any proxy previously given, or you may revoke your proxy in person, but your attendance alone will not revoke any proxy that you have previously given.
 
If you choose either of the first two methods, you must submit your notice of revocation or your new proxy to the Secretary of DCB Bancshares no later than the beginning of the annual meeting. If your shares are held in street name by your bank, broker or other nominee, you should follow the directions you receive from your bank, broker or other nominee to change your voting instructions, or contact your broker, bank or other nominee if no such instructions are provided.
 
Q:
 
Am I entitled to appraisal rights or similar rights?
 
A:
 
Yes. Under Maryland law, DCB Bancshares stockholders may exercise their rights as objecting stockholders to demand the payment of the fair value of their shares of DCB Bancshares common stock in connection with the merger. These rights are occasionally referred to as “appraisal rights” in this proxy statement/prospectus. The provisions of Maryland law governing appraisal rights are complex, and you should study them carefully if you wish to exercise these rights. Multiple steps must be taken to properly exercise and perfect such rights. A copy of Sections 3-201 through 3-213 of the Maryland General Corporation Law (“MGCL”) is included with this proxy statement/prospectus as Annex C.
 
Q:
 
What are the material United States federal income tax consequences of the merger to stockholders?
 
A:
 
In general, for United States federal income tax purposes, DCB Bancshares stockholders are not expected to recognize a gain or loss on the exchange of their shares of DCB Bancshares common stock for shares of Old Line Bancshares common stock. DCB Bancshares stockholders will recognize a gain in connection with cash received in lieu of fractional shares of Old Line Bancshares common stock.
 
DCB Bancshares stockholders are urged to consult their tax advisors for a full understanding of the tax consequences of the merger to them because tax matters are very complicated and, in many cases, tax consequences of the merger will depend on your particular facts and circumstances. See “The Merger Agreement and the Merger – Certain Federal Income Tax Consequences.”
 
 
 
3
 
 
Q:
 
When do you expect the merger to be completed?
 
A:
 
Old Line Bancshares and DCB Bancshares are working to complete the merger as soon as is reasonably practicable, with a target date of June 30, 2017. However, the merger is subject to various federal and state regulatory approvals and other conditions, in addition to approval by the stockholders of DCB Bancshares, and it is possible that factors outside the control of both companies could result in the merger being completed at a later time, or not at all. There may be a substantial amount of time between the DCB Bancshares annual meeting and the completion of the merger.
 
Q:
 
What do I need to do now?
 
 
Carefully read and consider the information contained in this proxy statement/prospectus, including its annexes. After you have carefully read these materials, as soon as possible either (i) indicate on the attached proxy card how you want your shares to be voted, then sign, date and mail the proxy card in the enclosed postage-paid envelope, or (ii) if you hold your shares in street name, follow the voting instructions provided by your bank, broker or other nominee to direct it how to vote your shares, so that your shares may be represented and voted at the annual meeting.
 
Q:
 
What will I receive in the merger?
 
A:
 
As more fully described in this proxy statement/prospectus, you will receive shares of Old Line Bancshares common stock in exchange for each of your shares of DCB Bancshares common stock.
 
Q:
 
Do I need to do anything with my shares of DCB Bancshares common stock now?
 
A:
 
No. Please do not send in your DCB Bancshares stock certificates with your proxy card. You will be sent a letter of transmittal that includes instructions for sending in your DCB Bancshares stock certificates at a later date.
 
Q:
 
Whom should I call if I have any questions?
 
A:
 
If you have questions about the merger or the other matters to be voted on at the annual meeting or desire additional copies of this proxy statement/prospectus or additional proxy cards you should contact:
 
Robert L. Carpenter, Jr.
Co-Chief Executive Officer and Executive Vice President - Chief Financial Officer
DCB Bancshares, Inc.
26500 Ridge Road
Damascus, Maryland 20872
301-368-9112
 
 
4
 
SUMMARY
 
This summary highlights selected information from this proxy statement/prospectus, including information incorporated by reference into this proxy statement/prospectus. It does not contain all of the information that may be important to you. We urge you to carefully read the entire document so that you fully understand the merger and the related transactions. Each item in this summary refers to the page of this proxy statement/prospectus on which that subject is discussed in more detail. Unless otherwise indicated in this proxy statement/prospectus or the context otherwise requires, all references in this proxy statement/ prospectus to “Old Line Bancshares” refer to Old Line Bancshares, Inc., all references to “DCB Bancshares” refer to DCB Bancshares, Inc.
 
The Companies
 
Old Line Bancshares, Inc.
 
1525 Pointer Ridge Place
Bowie, Maryland 20716
Telephone: (301) 430-2500
 
Old Line Bancshares was incorporated under the laws of the State of Maryland on April 11, 2003 to serve as the holding company of Old Line Bank. On May 22, 2003, the stockholders of Old Line Bank approved the reorganization of Old Line Bank into a holding company structure pursuant to which Old Line Bank became a subsidiary of Old Line Bancshares. The reorganization became effective on September 15, 2003. Old Line Bancshares is registered as a bank holding company under the Bank Holding Company Act of 1956, as amended (the “Bank Holding Company Act”), and subject to regulation by the Board of Governors of the Federal Reserve Board (the “FRB”) and the Maryland Commissioner of Financial Regulation (the “Maryland Commissioner”).
 
On April 1, 2011, Old Line Bancshares acquired Maryland Bankcorp, Inc., the parent company of Maryland Bank & Trust Company, N.A. On May 10, 2013, Old Line Bancshares acquired WSB Holdings, Inc. (“WSB”), the parent company of The Washington Savings Bank, F.S.B., and on December 4, 2015, Old Line Bancshares acquired Regal Bancorp, Inc., the parent company of Regal Bank & Trust (“Regal Bank”). The acquisition of Regal Bank strengthened Old Line Bank’s status as the third largest independent commercial bank based in Maryland, with assets of more than $1.5 billion at closing and 23 full service branches serving eight Maryland counties .
 
In addition, together, Old Line Bancshares and Old Line Bank own 100% of the interest in Pointer Ridge Office Investment, LLC (“Pointer Ridge”). Pointer Ridge owns the commercial office building in which Old Line Bancshares and Old Line Bank lease and operate their main headquarters as well as a branch of Old Line Bank.
 
Old Line Bank is a trust company chartered by the State of Maryland. Old Line Bank was originally chartered in 1989 as a national bank under the name “Old Line National Bank.” Old Line Bank converted to a Maryland-chartered trust company exercising the powers of a commercial bank in June 2002, and does not exercise trust powers - its regulatory structure is the same as a Maryland chartered commercial bank. Old Line Bank is regulated by the Maryland Commissioner and by the Federal Deposit Insurance Corporation (“FDIC”) and is subject to regulation, supervision and regular examination by the Maryland Commissioner and the FDIC. Old Line Bank’s deposits are insured to the maximum legal limits by the FDIC. Its current market area consists of the suburban Maryland counties of Anne Arundel, Calvert, Charles, Montgomery, Prince George’s and St. Mary’s (Washington, D.C. suburbs) and Baltimore and Carroll (Baltimore City suburbs).
 
At December 31, 2016, Old Line Bancshares had consolidated assets, deposits and stockholders’ equity of approximately $1.7 billion, $1.3 billion and $150.7 million, respectively.
 
Old Line Bancshares’ common stock is listed and traded on the NASDAQ Capital Market under the symbol “OLBK.”
 
 
 
5
 
 
DCB Bancshares, Inc.
 
26500 Ridge Road
Damascus, Maryland 20872
Telephone: 301-253-1000
 
DCB Bancshares, Inc. was incorporated under the laws of the State of Maryland on March 30, 2016 to serve as the holding company of Damascus Community Bank. On April 27, 2016, the stockholders of Damascus Community Bank approved the reorganization of Damascus Community Bank into a holding company structure pursuant to which Damascus Community Bank became a subsidiary of DCB Bancshares. The reorganization became effective on September 1, 2016. DCB Bancshares is registered with the FRB as a bank holding company under the Bank Holding Company Act and is subject to supervision and examination by the FRB.
 
Damascus Community Bank is a Maryland commercial bank chartered on April 23, 1987 that is engaged in a general commercial and retail banking business. Damascus Community Bank has one inactive subsidiary, Chesapeake Industrial Leasing Co., Inc., a Maryland corporation that was formed for the purpose of leasing commercial equipment. Damascus Community Bank is regulated by the Maryland Commissioner and by the FDIC and is subject to regulation, supervision and regular examination by the Maryland Commissioner and the FDIC. Damascus Community Bank’s deposits are insured to the maximum legal limits by the FDIC. In addition to its main banking office in Damascus, Montgomery County, Maryland, Damascus Community Bank has two full-service branches in Montgomery County, Maryland (Gaithersburg and Clarksburg), two full-service branches located in Frederick County, Maryland (Monrovia and Frederick), and one full-service branch located in Carroll County, Maryland (Mount Airy).
 
At December 31, 2016, DCB Bancshares had consolidated assets, deposits and stockholders’ equity of approximately $310.5 million, $277.8 million and $25.4 million, respectively.
 
DCB Bancshares' common stock is quoted on OTC Pink marketplace of the OTC Markets Group under the symbol “DCBB.”
 
The DCB Bancshares Annual meeting
 
Date, Time and Place of Annual meeting (see page 28)
 
DCB Bancshares will hold an annual meeting of stockholders on [___________ __], 2017 at 3:00 p.m., local time, at The Damascus Volunteer Fire Department Activities Center located at 10211 Lewis Drive, Damascus, Maryland 20872. The DCB Bancshares board of directors has set the close of business on [_________], 2017 as the record date for determining stockholders entitled to notice of, and to vote at, the annual meeting. On the record date, there were 1,613,180 shares of DCB Bancshares common stock outstanding.
 
Matters to be Considered at the Annual meeting (see page 28)
 
Stockholders of DCB Bancshares will be asked at the annual meeting to vote on (i) a proposal to approve the merger agreement and the merger, (ii) a proposal to adjourn the annual meeting to solicit additional proxies, if necessary, in the event there are not sufficient votes at the time of the meeting to approve the merger agreement and the merger, (iii) a proposal to elect the ten director nominees named in this proxy statement/prospectus to the board of directors of DCB Bancshares for the ensuing year, and (iv) any other business that properly arises during the annual meeting or any adjournment or postponement thereof.
 
Under the terms of the merger agreement, Old Line Bancshares will acquire DCB Bancshares by merging DCB Bancshares with and into Old Line Bancshares. Pursuant to a separate agreement, we anticipate that immediately after the merger, Damascus Community Bank will merge with and into Old Line Bank, with Old Line Bank being the surviving bank.
 
A copy of the merger agreement is attached to this proxy statement/prospectus as Annex A.
 
 
 
6
 
 
Consideration to be Received in the Merger (page 50)
 
If the merger is completed, each outstanding share of common stock of DCB Bancshares will be exchanged for that number of shares of Old Line Bancshares common stock determined by dividing $25.22 (160% of the tangible book value of each share of DCB Bancshares common stock at December 31, 2016) by the volume weighted average closing price of Old Line Bancshares common stock for the ten trading days ending two trading days before the closing of the merger (the “Average Price"), provided that, except as discussed in the following sentence, if the Average Price is $27.21 or more the exchange ratio will be fixed at 0.9269 and if the Average Price is $20.85 or less the exchange ratio will be fixed at 1.2096. The number of shares of Old Line Bancshares common stock that will be exchanged for each outstanding share of DCB Bancshares common stock may be increased if Old Line Bancshares exercises its option to increase the merger consideration to avoid termination of the merger agreement based on recent closing prices of Old Line Bancshares common stock prior to the merger, as further described below under “ Old Line Bancshares and DCB Bancshares can Amend or Terminate the Merger Agreement.”
 
If the exchange ratio is fixed based on the formula described above, the value of the merger consideration will be dependent upon the value of Old Line Bancshares common stock and, therefore, will fluctuate with the market price of Old Line Bancshares common stock. Accordingly, if the exchange ratio is fixed, any change in the price of Old Line Bancshares common stock prior to the merger will affect the market value of the merger consideration that stockholders of DCB Bancshares will receive as a result of the merger. For more information, see “The Merger Agreement and the Merger – Terms of the Merger – What DCB Bancshares Stockholders Will Receive in the Merger.”
 
As an example, assuming the Average Price was $27.63, which was the volume weighted average closing price of Old Line Bancshares common stock for the ten trading days ending two trading days before April 20, 2017, the most recent practical date prior to the date hereof, a DCB Bancshares stockholder who owned 100 shares of DCB common stock immediately prior to the effective time of the merger would receive in the merger 92 shares of Old Line Bancshares common stock (which would have a value of $2,505.16 based on the closing sales price for Old Line Bancshares common stock of $27.23 on April 20, 2017) and $19.06 of cash in lieu of a fractional share of Old Line Bancshares common stock.
 
Surrender of Stock Certificates (page 52)
 
No more than five business days following the effective date of the merger a letter of transmittal will be sent to DCB Bancshares stockholders containing instructions for use in surrendering their DCB Bancshares stock certificates in exchange for the merger consideration.
 
Do not send in your stock certificates until you receive the letter of transmittal and instructions from the exchange agent.
 
The DCB Bancshares Board of Directors Unanimously Recommends Stockholder Approval (see page 28)
 
The DCB Bancshares board of directors believes that the merger is in the best interests of DCB Bancshares and its stockholders, and unanimously recommends that stockholders vote “ FOR ” approval of the merger agreement and the merger.
 
Opinion of DCB Bancshares’ Financial Advisor (see page 42)
 
In connection with the merger, DCB Bancshares’ financial advisor, RP® Financial, LC. (“RP Financial”), delivered a written opinion, dated February 1, 2017, to the DCB Bancshares board of directors as to the fairness, from a financial point of view and as of the date of the opinion, to the holders of DCB Bancshares common stock of the merger consideration in the proposed merger. The full text of the opinion, which describes the procedures followed, assumptions made, matters considered, and qualifications and limitations on the review undertaken by RP Financial in preparing the opinion, is attached as Annex B to this proxy statement/prospectus. The opinion was for the information of, and was directed to, the DCB Bancshares board of directors (in its capacity as such) in connection with its consideration of the financial terms of the merger. The opinion did not address the underlying business decision of DCB Bancshares to engage in the merger or enter into the merger agreement or constitute a recommendation to the DCB Bancshares board in connection with the merger, and it does not constitute a recommendation to any holder of DCB Bancshares common stock as to how to vote in connection with the merger or any other matter.
 
 
 
7
 
 
Approval of the Merger Requires the Affirmative Vote of Stockholders Holding Two-Thirds of the Shares of DCB Bancshares Common Stock Outstanding on the Record Date of [________ __], 2017 (see page 29)
 
The approval of the merger agreement and the merger by stockholders of DCB Bancshares requires the approval of the holders of at least two-thirds of the shares of DCB Bancshares common stock that are issued and outstanding as of the record date of [_______ __], 2017. Each holder of shares of DCB Bancshares common stock outstanding on the record date will be entitled to one vote for each share held. The vote required for approval of the merger agreement and the merger is a percentage of all outstanding shares of DCB Bancshares common stock. Therefore, an abstention, a failure to vote and a broker non-vote will each have the same effect as a vote against the approval of the merger agreement and the merger.
 
DCB Bancshares’ Directors and Certain Executive Officers have Agreed to Vote in Favor of the Merger Agreement (see pages 29 and 68)
 
As of the record date for the DCB Bancshares annual meeting, there were 1,613,180 shares of DCB Bancshares common stock issued and outstanding and entitled to vote. The directors and certain executive officers of DCB Bancshares have agreed, in writing, to vote all shares of DCB Bancshares common stock for which they are the record or beneficial owner “ FOR ” the approval of the merger agreement and the merger. As of the record date, such directors and executive officers are entitled to vote 12.9% of the issued and outstanding shares of the DCB Bancshares common stock.
 
DCB Bancshares’ Directors and Management may have Interests in the Merger that Differ from Your Interests (see page 66)
 
The directors and executive officers of DCB Bancshares have interests in the merger as directors and employees that are different from your interests as a DCB Bancshares stockholder. These interests include, among others, provisions in the merger agreement regarding Old Line Bancshares and Old Line Bank board positions, payments to be made to the Co-Chief Executive Officers of DCB Bancshares pursuant to existing change in control agreements, as well as indemnification and insurance provisions included in the merger agreement.
 
DCB Bancshares’ board of directors was aware of these interests and considered them in approving and recommending the merger agreement, the merger and the related transactions.
 
Regulatory Approval Must be Obtained and Other Conditions Must be Satisfied Before the Merger can be Completed (see pages 59 and 63)
 
Old Line Bancshares’ and DCB Bancshares’ obligations to complete the merger are subject to various conditions that are usual and customary for this kind of transaction, including obtaining approval from the FRB and the Maryland Commissioner for the merger and obtaining approval of the FDIC and the Maryland Commissioner for the bank merger (which is included in any references to regulatory “approvals” in this proxy statement/prospectus). Old Line Bancshares and/or Old Line Bank filed the appropriate applications for approval with the FRB, the FDIC and the Maryland Commissioner on March 17, 2017. In addition to the required regulatory approvals, the merger will be completed only if certain conditions, including the following, are satisfied or waived by the companies:
 
DCB Bancshares’ stockholders must approve the merger agreement and the merger;
 
No more than 10% of the outstanding shares of DCB Bancshares common stock have been qualified for appraisal rights under Maryland law;
 
Each party must receive an opinion from its counsel or independent certified public accountants that:
 

the merger constitutes a tax-free reorganization under Section 368(a) of the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”); and
 
 
with respect to the opinion received by DCB Bancshares, any gain realized in the merger will be recognized only to the extent of cash or other property (other than Old Line Bancshares common stock) received in the merger, including cash received in lieu of fractional share interests; and
 
 
 
8
 
 
Each party’s representations and warranties contained in the merger agreement must be correct except to the extent that if not true and correct it would not have a material adverse effect on the party or the party’s ability to consummate the merger (with certain exceptions), and each party must have performed all of its obligations set forth in the merger agreement.
 
The merger agreement attached to this proxy statement/prospectus as Annex A describes all of the conditions that must be met before the merger may be completed.
 
Old Line Bancshares and DCB Bancshares can Amend or Terminate the Merger Agreement (see page 60)
 
DCB Bancshares and Old Line Bancshares may agree to terminate the merger agreement and not complete the merger at any time before the merger is completed. Each company also may unilaterally terminate the merger agreement in certain circumstances, including if:
 
The merger is not completed on or prior to October 31, 2017 or, because of the failure to obtain any required regulatory approval or consent by such date, the merger is not completed by November 30, 2017, if the failure to complete the merger by that date is not due to a material breach of the merger agreement by the party seeking to terminate it.
 
There has been a definitive written denial of a required regulatory approval or consent, or the permanent withdrawal of an application for approval or consent at the request of a regulatory authority.
 
The other party has materially breached any representation, warranty, covenant or other agreement in the merger agreement, and such breach either by its nature cannot be cured prior to the closing of the merger or remains uncured 30 days after receipt by such party of written notice of such breach (provided that if such breach cannot reasonably be cured within such 30-day period but may reasonably be cured within 60 days and cure is being diligently pursued, then termination can occur only after expiration of such 60-day period), if the party terminating the merger agreement is not in material breach.
 
DCB Bancshares’ stockholders vote on but fail to approve the merger agreement and the merger.
 
DCB Bancshares or any DCB Bancshares subsidiary receives (with respect to DCB Bancshares’ right to terminate) or enters into, approves or resolves to approve (with respect to Old Line Bancshares’ right to terminate) an agreement, agreement in principle, letter of intent or similar instrument with a view to being acquired, or more than 50% of its assets or liabilities being acquired, by any person other than Old Line Bancshares, or to sell 10% or more of its outstanding equity securities, in a transaction the DCB Bancshares board of directors determines is more favorable to the stockholders of DCB Bancshares, which we refer to as a superior DCB Bancshares transaction.
 
In addition, DCB Bancshares may terminate the merger agreement if:
 
Old Line Bancshares or any Old Line Bancshares subsidiary enters into a definitive term sheet, letter of intent, agreement or similar agreement to merge, as a result of which Old Line Bancshares is not the surviving entity or Old Line Bancshares’ directors as of February 1, 2017 do not comprise the majority of the surviving entity’s board of directors, with any person other than DCB Bancshares, and the DCB Bancshares board of directors determines, after considering the advice of counsel and its financial advisor, that such transaction is not in the best interests of DCB Bancshares’ stockholders.
 
The volume weighted average closing price of Old Line Bancshares common stock during the ten trading days ending five trading days before the effective date of the merger (the “Closing Market Price”) is less than $16.68, and the ratio of the Closing Market Price to $27.21 is more than 20% lower than any decrease in the NASDAQ Bank Stock Index over such period, provided, however, that Old Line Bancshares would then have the option to increase the consideration to be paid in the merger (as a practical matter, by increasing the exchange ratio) to an amount calculated as if the Average Price was $16.68 per share, in which case no termination will take place (the “Walk-Away Cure Right”).
 
 
 
9
 
 
 
Finally, Old Line Bancshares may terminate the merger agreement if DCB Bancshares’ board of directors withdraws, changes or modifies its recommendation to stockholders to approve the merger agreement and the merger, or authorizes, recommends or publicly proposes, or publicly announces an intention to authorize, recommend or propose, an agreement to enter into a superior DCB Bancshares transaction.
 
Old Line Bancshares and DCB Bancshares can agree to amend the merger agreement in any way. Either company can waive any of the requirements of the other company in the merger agreement, except that neither company can waive the requirement that the companies receive all required regulatory approvals, the requirement for approval of the DCB Bancshares stockholders or the requirement that no order, decree or injunction preventing the transactions contemplated by the merger agreement has been issued.
 
DCB Bancshares Must Pay a termination fee to Old Line Bancshares if the Merger Agreement is Terminated Under Certain Circumstances (see page 61)
 
DCB Bancshares must pay Old Line Bancshares a termination fee if the merger agreement is terminated in certain circumstances. The amount of such termination fee (the “Termination Fee”) will be equal to 3.25% of the total deal value, which is 160% of DCB Bancshares’ total stockholders’ equity less its intangible assets, if any, at December 31, 2016 (the “DCB Tangible Equity”), and will be determined by multiplying 0.052 by the DCB Tangible Equity. Based on preliminary calculations of the DCB Tangible Equity, we expect the Termination Fee would be approximately $1.3 million. DCB will be required to pay the Termination Fee to Old Line Bancshares if the merger agreement is terminated because:
 
DCB Bancshares has materially breached the merger agreement or any representation, warranty, covenant or other agreement contained therein (provided that Old Line Bancshares is not then in material breach of any representation, warranty, covenant or other agreement contained in the merger agreement);
 
The merger failed to close by October 31, 2017 or, if due solely to the need to obtain a regulatory approval or consent, November 30, 2017, or the parties failed to receive all regulatory approvals and consents required for the merger, and such failure resulted from the knowing, willful and intentional actions or inactions of DCB Bancshares or Damascus Community Bank (provided that Old Line Bancshares is not then in material breach of any representation, warranty, covenant or other agreement contained in the merger agreement);
 
DCB Bancshares or any DCB Bancshares subsidiary has (i) received a proposal for a superior DCB Bancshares transaction (with respect to termination by DCB Bancshares) or (ii) entered into, approved or resolved to approve an agreement, agreement in principle, letter of intent or similar instrument with respect to a superior DCB Bancshares transaction (with respect to termination by Old Line Bancshares); or
 
The board of directors of DCB Bancshares has withdrawn, changed or modified its recommendation to the stockholders of DCB Bancshares to approve the merger agreement and the merger in a manner adverse to Old Line Bancshares or authorizes, recommends or publicly proposes, or publicly announces an intention to authorize, recommend or propose, an agreement to enter into a superior DCB Bancshares transaction (provided that Old Line Bancshares is not then in material breach of any representation, warranty, covenant or other agreement contained in the merger agreement).
 
Old Line Bancshares Must Pay the Termination Fee to DCB Bancshares if the Merger Agreement is Terminated Under Certain Circumstances (see page 62)
 
Old Line Bancshares has agreed to pay the Termination Fee to DCB Bancshares if DCB Bancshares terminates the merger agreement because:
 
Old Line Bancshares has materially breached the merger agreement or any representation, warranty, covenant or other agreement contained therein (provided that DCB Bancshares is not then in material breach of any representation, warranty, covenant or other agreement contained in the merger agreement); or
 
 
 
10
 
 
The merger failed to close by October 31, 2017 or, if due solely to the need to obtain a regulatory approval or consent, November 30, 2017, or the parties failed to receive all regulatory approvals and consents required for the merger, and such failure resulted from the knowing, willful and intentional actions or inactions of Old Line Bancshares or Old Line Bank (provided that DCB Bancshares is not then in material breach of any material representation, warranty, covenant or other agreement contained in the merger agreement).
 
Rights of Old Line Bancshares Stockholders Differ from those of DCB Bancshares Stockholders (see page 74)
 
When the merger is completed, DCB Bancshares stockholders will become Old Line Bancshares stockholders. The rights of Old Line Bancshares stockholders differ from the rights of DCB Bancshares stockholders in certain important ways. These differences have to do with provisions in Old Line Bancshares’ articles of incorporation and bylaws that differ from the provisions in DCB Bancshares’ articles of incorporation and bylaws.
 
DCB Bancshares Stockholders have Appraisal Rights in Connection with the Merger (see page 71)
 
DCB Bancshares stockholders are entitled to exercise appraisal rights with respect to the merger and, if the merger is completed and they perfect their appraisal rights, to receive payment in cash for the fair value of their shares of DCB Bancshares common stock instead of their share of the aggregate merger consideration. In general, to preserve their appraisal rights, DCB Bancshares stockholders who wish to exercise these rights must:
 
Deliver a written objection to the merger to DCB Bancshares at or before DCB Bancshares’ annual meeting of stockholders;
 
Not vote their shares for approval of the merger agreement and the merger;
 
Within 20 days after the merger is consummated, deliver a written demand to Old Line Bancshares stating the number of shares of DCB Bancshares common stock for which they demand payment; and
 
Comply with the other procedures set forth in Sections 3-201 through 3-213 of the MGCL.
 
The text of Sections 3-201 through 3-213 of the MGCL governing appraisal rights is included with this proxy statement/prospectus as Annex C. Failure to comply with the procedures described in Annex C will result in the loss of appraisal rights under the MGCL. We urge you to carefully read the text of Sections 3-201 through 3-213 of the MGCL governing appraisal rights.
 
 
 
11
 
RISK FACTORS
 
In addition to the other information contained in this proxy statement/prospectus, including the matters addressed under the caption “Caution Regarding Forward-Looking Statements,” you should carefully consider the following risk factors in deciding whether to vote for approval of the merger agreement and the merger.
 
Risk Factors Related to the Merger in General
 
Old Line Bancshares may fail to realize all of the anticipated benefits of the merger. The success of the merger will depend, in part, on Old Line Bancshares’ ability to realize the anticipated benefits and cost savings from combining the businesses of Old Line Bancshares and DCB Bancshares. To realize these anticipated benefits and cost savings, however, Old Line Bancshares must successfully combine the businesses of Old Line Bancshares and DCB Bancshares. If Old Line Bancshares is unable to successfully combine the businesses of Old Line Bancshares and DCB Bancshares, the anticipated benefits and cost savings of the merger may not be realized fully or at all or may take longer to realize than expected.
 
Old Line Bancshares and DCB Bancshares have operated and, until the completion of the merger, will continue to operate, independently. It is possible that the integration process could result in the loss of key employees, the loss of key depositors or other bank customers and the disruption of DCB Bancshares’ ongoing business, as well as or inconsistencies in standards, controls, procedures and policies that adversely affect DCB Bancshares’ ability to maintain its relationships with its clients, customers, depositors and employees, which could have a negative impact on Old Line Bancshares’ ability to achieve the anticipated benefits of the merger. Integration efforts between the two companies may, to some extent, also divert management’s attention and resources. These integration matters could have an adverse effect on each of Old Line Bancshares and DCB Bancshares during such transition period.
 
The opinion of DCB Bancshares’ financial advisor to its board of directors does not reflect changes in circumstances since the date of such opinion. The board of directors of DCB Bancshares received an opinion from RP Financial, its financial advisor, regarding the fairness of the merger consideration from a financial point of view, but this opinion is dated as of, and speaks only as of, the date of the merger agreement. Changes in the operations and prospects of Old Line Bancshares and DCB Bancshares, general market and economic conditions and other factors that may be beyond the control of Old Line Bancshares or DCB Bancshares may significantly alter the prices of the shares of Old Line Bancshares common stock or DCB Bancshares common stock by the time the merger is completed. RP Financial’s opinion does not speak as of the time the merger will be completed or as of any date other than the date of such opinion. Because DCB Bancshares does not currently anticipate asking RP Financial to update its opinion, the opinion will not address the fairness of the merger consideration from a financial point of view at the time the merger is completed. The recommendation of DCB Bancshares’ board of directors that DCB Bancshares stockholders vote “ FOR ” the approval of the merger agreement and the merger, however, is made as of the date of this proxy statement/prospectus. For a description of the RP Financial opinion, refer to the section of this proxy statement/prospectus entitled “The Merger Agreement and the Merger – Opinion of DCB Bancshares’ Financial Advisor.”
 
Because the market price of Old Line Bancshares common stock will fluctuate, DCB Bancshares stockholders cannot be sure of the value of the merger consideration they may receive. Upon completion of the merger, the outstanding shares of DCB Bancshares common stock will be converted into the right to receive shares of Old Line Bancshares common stock. The value of the shares of Old Line Bancshares common stock received in the merger approximates $25.22 per share as of the date of the merger agreement based on then-recent trading prices. Trading prices of Old Line Bancshares common stock may, however, vary from the trading prices of Old Line Bancshares common stock on the date of the merger agreement, the trading date following the date we announced the merger, the date this proxy statement/prospectus was mailed to DCB Bancshares stockholders and the date of the annual meeting of the DCB Bancshares stockholders. Any change in the market price of shares of Old Line Bancshares common stock may affect the value of the merger consideration that DCB Bancshares stockholders will receive upon completion of the merger. Stock price changes may result from a variety of factors, including general market and economic conditions, changes in our respective businesses, operations and prospects and regulatory considerations. Many of these factors are beyond our control. You should obtain current market quotations for shares of Old Line Bancshares common stock.
 
The market price of Old Line Bancshares common stock after the merger may be affected by factors different from those affecting the shares of Old Line Bancshares or DCB Bancshares currently. The businesses of Old Line Bancshares and DCB Bancshares differ and, accordingly, the results of operations of the combined company and the market price of the combined company’s shares of common stock may be affected by factors different from those currently affecting the independent results of operations and market prices of common stock of each of Old Line Bancshares and DCB Bancshares.
 
 
 
12
 
 
 
Old Line Bancshares and DCB Bancshares will be subject to business uncertainties and contractual restrictions while the merger is pending. Uncertainty about the effect of the merger on employees, customers, suppliers and vendors may have an adverse effect on the business, financial condition and results of operations of Old Line Bancshares and DCB Bancshares. These uncertainties may impair Old Line Bancshares’ and DCB Bancshares’ ability to attract, retain and motivate key personnel, depositors and borrowers pending the consummation of the merger, as such personnel, depositors and borrowers may experience uncertainty about their future roles following the consummation of the merger. Additionally, these uncertainties could cause customers (including depositors and borrowers), suppliers, vendors and others who deal with Old Line Bancshares or DCB Bancshares to seek to change existing business relationships with Old Line Bancshares or DCB Bancshares or fail to extend an existing relationship. In addition, competitors may target each party’s existing customers by highlighting potential uncertainties and integration difficulties that may result from the merger.
 
Further, the pursuit of the merger and the preparation for the integration in connection therewith may place a burden on each of Old Line Bancshares’ and DCB Bancshares’ management and internal resources. Any significant diversion of management attention away from ongoing business concerns and any difficulties encountered in the transition and integration process could have a material adverse effect on each company’s business, financial condition and results of operations.
 
In addition, the merger agreement restricts DCB Bancshares from taking certain actions without Old Line Bancshares’ consent while the merger is pending. These restrictions may, among other matters, prevent DCB Bancshares from pursuing otherwise attractive business opportunities, selling assets, incurring indebtedness, engaging in significant capital expenditures in excess of certain limits set forth in the merger agreement, entering into other transactions or making other changes to DCB Bancshares’ business prior to consummation of the merger or termination of the merger agreement. These restrictions could have a material adverse effect on DCB Bancshares’ business, financial condition and results of operations. Please see “The Merger Agreement and the Merger – Terms of the Merger – Conduct of Business Pending the Merger” for a description of these restrictions.
 
If the merger is not completed, Old Line Bancshares and DCB Bancshares will have incurred substantial expenses without realizing the expected benefits. Old Line Bancshares and DCB Bancshares have incurred substantial expenses in connection with the execution of the merger agreement and the merger. The completion of the merger depends on the satisfaction of specified conditions, including regulatory approvals and the requisite approval of the stockholders of DCB Bancshares. There is no guarantee that these conditions will be met. If the merger is not completed, these expenses could have a material adverse impact on the financial condition of Old Line Bancshares and/or DCB Bancshares because they would not have realized the expected benefits for which these expenses were incurred.
 
Regulatory approvals may not be received, may take longer than expected or impose conditions that are not presently anticipated. Before the merger may be completed, various approvals must be obtained from the FRB, the FDIC and the Maryland Commissioner. These regulatory approvals may not be received at all, may not be received in a timely fashion, and may contain conditions on the completion of the merger or require changes to the terms of the merger that are not anticipated or that have a material adverse effect. Although Old Line Bancshares and DCB Bancshares do not currently expect that any such conditions or changes would be imposed, there can be no assurance that they will not be, and such conditions or changes could have the effect of delaying completion of the merger or imposing additional costs on or limiting the revenues of Old Line Bancshares following the merger, any of which might have a material adverse effect on Old Line Bancshares following the merger. If the consummation of the merger is delayed, including by a delay in receipt of necessary governmental approvals, the business, financial condition and results of operations of each of Old Line Bancshares or DCB Bancshares may also be materially adversely affected. Further, Old Line Bancshares is not obligated to complete the merger if the regulatory approvals received in connection with the completion of the merger include any conditions or requirements that, in the reasonable opinion of its board of directors, would (i) so materially and adversely impact the economic or business benefits to Old Line Bancshares following the merger as to render consummation of the merger inadvisable, or (ii) materially impair the value of DCB Bancshares to Old Line Bancshares, although Old Line Bancshares could choose to waive this condition.
 
Failure to complete the merger could negatively impact the stock prices and future businesses and financial results of Old Line Bancshares and DCB Bancshares. If the merger is not completed, the ongoing businesses of Old Line Bancshares and DCB Bancshares may be adversely affected and Old Line Bancshares and DCB Bancshares will be subject to several risks, including the following:
 
DCB Bancshares may be required, under certain circumstances, to pay Old Line Bancshares the Termination Fee under the merger agreement;
 
 
 
13
 
 
 
Old Line Bancshares may be required, under certain circumstances, to pay DCB Bancshares the Termination Fee under the merger agreement;
 
Old Line Bancshares and DCB Bancshares will be required to pay certain costs relating to the merger, whether or not the merger is completed, such as legal, accounting, financial advisor and printing fees;
 
Under the merger agreement, DCB Bancshares is subject to certain restrictions on the conduct of its business prior to completing the merger, which may adversely affect its ability to execute certain of its business strategies; and
 
Matters relating to the merger may require substantial commitments of time and resources by Old Line Bancshares and DCB Bancshares management that could otherwise have been devoted to other opportunities that may have been beneficial to Old Line Bancshares or DCB Bancshares as independent companies, as the case may be.
 
In addition, if the merger is not completed, Old Line Bancshares and/or DCB Bancshares may experience negative reactions from the financial markets and from their respective stockholders, customers and employees. Old Line Bancshares and/or DCB Bancshares also could be subject to litigation related to any failure to complete the merger or to enforcement proceedings commenced against Old Line Bancshares or DCB Bancshares to perform their respective obligations under the merger agreement. If the merger is not completed, Old Line Bancshares and DCB Bancshares cannot assure their stockholders that the risks described above will not materialize and will not materially affect the business, financial results and stock prices of Old Line Bancshares and/or DCB Bancshares.
 
Old Line Bancshares and DCB Bancshares may choose not to proceed with the merger if it is not completed by October 31, 2017 or, if due to the lack of a required regulatory approval, November 30, 2017. Either Old Line Bancshares or DCB Bancshares may terminate the merger agreement if the merger has not been completed by October 31, 2017 or, if due to the lack of a required regulatory approval, November 30, 2017. See “The Merger Agreement and the Merger – Terms of the Merger – Termination.” There can be no assurance that all conditions to the merger will have been satisfied by the required date(s). See “The Merger Agreement and the Merger – Terms of the Merger – Conditions to the Merger.”
 
Risk Factors Relating to Old Line Bancshares’ Business and Its Common Stock
 
This section discusses risks relating to Old Line Bancshares’ business and includes risks it will continue to face after the merger. References to “Old Line Bancshares” include its subsidiary Old Line Bank as the context requires.
 
System failure or cybersecurity breaches of Old Line Bancshares’ network security could subject it to increased operating costs as well as litigation and other potential losses. Old Line Bancshares relies heavily on communications and information systems to conduct its business. The computer systems and network infrastructure it uses could be vulnerable to unforeseen hardware and cybersecurity issues. Old Line Bancshares’ operations are dependent upon its ability to protect its computer equipment against damage from fire, power loss, telecommunications failure or a similar catastrophic event. Any damage or failure that causes an interruption in Old Line Bancshares’ operations could have an adverse effect on its financial condition and results of operations. In addition, Old Line Bancshares’ operations are dependent upon its ability to protect the computer systems and network infrastructure it uses, including its Internet banking activities, against damage from physical break-ins, cybersecurity breaches and other disruptive problems caused by Internet problems, other users or unrelated third parties. Such computer break-ins and other disruptions would jeopardize the security of information stored in and transmitted through Old Line Bancshares’ computer systems and network infrastructure, which may result in significant liability to Old Line Bancshares, subject it to additional regulatory scrutiny, damage its reputation, result in a loss of customers, and inhibit current and potential customers from using its Internet banking services, any or all of which could have a material adverse effect on Old Line Bancshares’ results of operations and financial condition. Old Line Bancshares periodically reviews its security protocols and, as necessary, adds additional security measures to its computer systems and network infrastructure to mitigate the possibility of cybersecurity breaches, including firewalls and penetration testing. These precautions may not, however, be effective in preventing such breaches, damage or failures. Old Line Bancshares continues to monitor developments in this area and consider whether additional protective measures are necessary or appropriate, and has obtained insurance protection intended to cover losses due to network security breaches; there is no guarantee, however, that such insurance would cover all costs associated with any breach, damage or failure of Old Line Bancshares’ computer systems and network infrastructure.
 
 
 
14
 
 
Old Line Bancshares relies on certain external vendors . Old Line Bancshares’ business is dependent on the use of outside service providers that support its day-to-day operations including data processing and electronic communications. Old Line Bancshares’ operations are exposed to the risk that a service provider may not perform in accordance with established performance standards required in their agreements with Old Line Bancshares for any number of reasons including equipment or network failure, a change in their senior management, their financial condition, their product line or mix and how they support existing customers, or a simple change in their strategic focus. While Old Line Bancshares has comprehensive policies and procedures in place to mitigate risk at all phases of service provider management from selection to performance monitoring and renewals, the failure of a service provider to perform in accordance with contractual agreements could be disruptive to its business, which could have a material adverse effect on its financial condition and results of its operations.
 
A worsening of economic conditions could adversely affect Old Line Bancshares’ results of operations and financial condition. Changes in prevailing economic conditions, including declining real estate values, changes in interest rates that may cause a decrease in interest rate spreads, adverse employment conditions, the monetary and fiscal policies of the federal government and other significant external events may adversely affect Old Line Bancshares’ financial results. Old Line Bancshares continues to operate in a challenging and uncertain economic environment. Economic growth continues to be slow and uneven. A return to recessionary conditions or prolonged stagnant or deteriorating economic conditions could significantly affect the markets in which Old Line Bancshares does business, the demand for its products and services, the value of its loans and investments, and its ongoing operations, costs and profitability. In any case, Old Line Bancshares expects that the business environment in the State of Maryland and the entire United States will continue to present challenges for the foreseeable future. Further continuing economic uncertainty, including regarding concerns about U.S. debt levels and related governmental actions, potential tariffs on imports into the United States and cuts in government spending, may negatively impact economic conditions going forward. In addition, an increase in unemployment levels may result in higher than expected loan delinquencies, increases in Old Line Bancshares’ nonperforming and criticized classified assets and a decline in demand for its products and services. These events may cause Old Line Bancshares to incur losses and may adversely affect its financial condition and results of operations.
 
Although the adverse economic climate during the past several years has not severely impacted Old Line Bancshares due to its strict underwriting standards, any adverse changes in the economy going forward, including decreases in current real estate values, increased unemployment or the economy moving back into a recession, could have a negative effect on the ability its borrowers to make timely repayments of their loans, which would have an adverse impact on Old Line Bancshares’ earnings.
 
Furthermore, the FRB, in an attempt to help the overall economy, has among other things kept interest rates low through its targeted federal funds rate and the purchase of U.S. Treasury and mortgage-backed securities. If the FRB continues to increase the federal funds rate in the near term, as is expected, overall interest rates will likely rise, which may negatively impact the housing markets and the U.S. economic growth. In addition, deflationary pressures, while possibly lowering Old Line Bancshares’ operating costs, could have a negative impact on its borrowers, especially its business borrowers, and the values of collateral securing its loans, which could negatively affect its financial performance.
 
A worsening of credit markets and economic conditions could adversely affect Old Line Bancshares’ liquidity. Old Line Bank must maintain sufficient liquidity to ensure cash flow is available to satisfy current and future financial obligations including demand for loans and deposit withdrawals, funding of operating costs and other corporate purposes. Old Line Bancshares obtains funding through deposits and various short term and long term wholesale borrowings, including federal funds purchased, unsecured borrowings, brokered certificates of deposits and borrowings from the Federal Home Loan Bank of Atlanta and others. Economic uncertainty and disruptions in the financial system may adversely affect Old Line Bancshares’ liquidity. Dramatic declines in the housing market and falling real estate prices coupled with increased foreclosures and unemployment, resulted in significant asset value write downs by financial institutions during and after the last U.S. recession, including government sponsored entities and investment banks. These investment write downs caused financial institutions to seek additional capital. Should Old Line Bancshares experience a substantial deterioration in its financial condition or should disruptions in the financial markets restrict its funding, it would negatively impact Old Line Bancshares’ liquidity. To mitigate this risk, Old Line Bancshares closely monitors its liquidity, maintains a line of credit with the Federal Home Loan Bank and has received approval to borrow from the Federal Reserve Bank of Richmond.
 
 
 
15
 
 
Old Line Bancshares’ concentrations of loans in various categories may also increase the risk of credit losses. Old Line Bancshares currently invests more than 25% of its capital in various loan types and industry segments, including commercial real estate loans and loans to the hospitality industry (hotels/motels). While declines in the local commercial real estate market following the last recession have not caused the collateral securing Old Line Bancshares’ loans to exceed acceptable loan to value ratios, a deterioration in the commercial real estate market could cause deterioration in the collateral securing these loans and/or a decline in its customers’ earning capacity. This could negatively impact Old Line Bancshares. Although Old Line Bancshares has made a large portion of its hospitality loans to long-term, well-established operators in strategic locations, a decline in the occupancy rate in these facilities could negatively impact their earnings. This could adversely impact the operators’ ability to repay their loans, which would adversely impact Old Line Bancshares’ net income.
 
Old Line Bancshares’ need to comply with extensive and complex governmental regulation could have an adverse effect on its business and growth strategy, and it may be adversely affected by changes in laws and regulations. The banking industry is subject to extensive regulation by state and federal banking authorities. Many of these regulations are intended to protect depositors, the public or the FDIC insurance funds, not stockholders. Regulatory requirements affect Old Line Bancshares’ lending practices, capital structure, investment practices, dividend policy, ability to attract and retain personnel and many other aspects of its business. These requirements may constrain Old Line Bancshares’ rate of growth and changes in regulations could adversely affect it. The cost of compliance with regulatory requirements could adversely affect Old Line Bancshares’ ability to operate profitably. Further, if Old Line Bancshares is not in compliance with such requirements, it could be subject to fines or other regulatory action that could restrict its ability to operate or otherwise have a material adverse effect on its business and financial condition. Although Old Line Bancshares believes it is in material compliance with all applicable regulations, it is possible there are violations of which it is unaware that could be discovered by its regulators in the course of an examination or otherwise, which could trigger such fines or other adverse consequences.
 
In addition, because regulation of financial institutions changes regularly and is the subject of constant legislative debate, Old Line Bancshares cannot forecast how federal or state regulation of financial institutions may change in the future and impact its operations. In light of the performance of and government intervention in the financial sector, there may be significant changes to the banking and financial institutions’ regulatory agencies in the future. Changes in regulation and oversight, including in the form of changes to statutes, regulations or regulatory policies or changes in interpretation or implementation of statutes, regulations or policies, could affect the services and products Old Line Bancshares offers, increase its operating expenses, increase compliance challenges and otherwise adversely impact its financial performance and condition. In addition, the burden imposed by these federal and state regulations may place banks in general, and Old Line Bank specifically, at a competitive disadvantage compared to less regulated competitors.
 
Non-Compliance with the USA PATRIOT Act, the Bank Secrecy Act or other laws and regulations could result in fines or sanctions. Financial institutions are required under the USA PATRIOT and Bank Secrecy Acts to develop programs to prevent financial institutions from being used for money-laundering and terrorist activities. Financial institutions are also obligated to file suspicious activity reports with the U.S. Treasury Department’s Office of Financial Crimes Enforcement Network if such activities are detected. These rules also require financial institutions to establish procedures for identifying and verifying the identity of customers seeking to open new financial accounts. Failure or the inability to comply with these regulations could result in fines or penalties, curtailment of expansion opportunities, intervention or sanctions by regulators and costly litigation or expensive additional controls and systems. During the last few years, several banking institutions have received large fines for non-compliance with these laws and regulations. In addition, the U.S. Government has previously imposed laws and regulations relating to residential and consumer lending activities that create significant new compliance burdens and financial risks. While Old Line Bancshares has developed policies and procedures designed to assist in compliance with these laws and regulations, no assurance can be given that these policies and procedures will be effective in preventing violations of these laws and regulations.
 
 
 
16
 
 
Requirements to hold more capital could have a material adverse impact on us. The impact of the revised capital rules on our financial condition and operations is uncertain but could be materially adverse. In July 2013, the Federal Reserve Board adopted a final rule for the Basel III capital framework. These rules substantially amended the regulatory risk-based capital rules applicable to us and increased the minimum levels of capital we are required to hold, as discussed in “Item 1. Business – Supervision and Regulation – Capital Adequacy Guidelines.” The rules apply to Old Line Bancshares as well as to the Bank. These rules include a capital conservation buffer that phases in over a period of years that began in 2016 and will become fully effective in 2019. Failure to satisfy the additional capital requirements of the capital conservation buffer will result in limits on paying dividends, engaging in share repurchases and paying discretionary bonuses. The rules establish a maximum percentage of eligible retained income that may be utilized for such actions if the capital requirements of the buffer are not fully satisfied. Beginning January 1, 2017, our capital requirements with the applicable capital conservation buffer are (i) a common equity Tier 1 risk-based capital ratio of 5.75%, (ii) a Tier 1 risk-based capital (common Tier 1 capital plus Additional Tier 1 capital) ratio of 7.25% and (iii) a total risk-based capital ratio of 9.25%. The capital conservation buffer does not apply to our leverage ratio requirement, which will remain at 4.0%. Once the capital conservation buffer is fully phased in, the resulting requirements will be a common equity Tier 1 risk-based capital ratio of 7%, a Tier 1 risk-based capital ratio of 8.5%, and a total risk-based capital ratio of 10.5%. These increased capital requirements may have a material adverse impact on our liquidity and results of operations, or the failure to satisfy such requirements may result in our inability to pay dividends on or repurchase shares of our common stock, which could also negatively impact the market price for our stock, and may negatively impact our ability to retain personnel if our ability to pay retention bonuses is compromised.
 
Old Line Bancshares’ internal controls and procedures may fail or be circumvented . Old Line Bancshares’ management regularly reviews and updates its internal controls, disclosure controls and procedures and corporate governance policies and procedures. Any system of controls, however well-designed and operated, is based in part on certain assumptions and can provide only reasonable assurances that the objectives of the system are met. Any (i) failure or circumvention of Old Line Bancshares’ controls and procedures, (ii) failure by Old Line Bancshares to adequately address any internal control deficiencies, or (iii) failure by Old Line Bancshares to comply with regulations related to controls and procedures could have a material effect on Old Line Bancshares’ business, consolidated financial condition and results of operations.
 
 
Old Line Bancshares’ business may be adversely affected by increasing prevalence of fraud and other financial crimes. As a financial institution, Old Line Bancshares is subject to risk of loss due to fraud and other financial crimes. Nationally, reported incidents of fraud and other financial crimes have increased. Old Line Bancshares believes it has controls in place to detect and prevent such losses, but in some cases multi-party collusion or other sophisticated methods of hiding fraud may not be readily detected or detectable, and could result in losses that affect its financial condition and results of Old Line Bancshares’ operations.
 
Financial crime is not limited to the financial services industry. Old Line Bancshares’ customers could experience fraud in their businesses, which could materially impact their ability to repay their loans, and deposit customers in all financial institutions are constantly and unwittingly solicited by others in fraud schemes that vary from easily detectable and obvious attempts to high-level and very complex international schemes that could drain an account of millions of dollars and require detailed financial forensics to unravel. While Old Line Bancshares has controls in place, contractual agreements with its customers partitioning liability, and insurance to help mitigate the risk, none of these are guarantees that it will not experience a loss, potentially a loss that could have a material adverse effect on its financial condition, reputation and results of its operations.
 
The level of Old Line Bancshares’ commercial real estate loan portfolio may subject it to additional regulatory scrutiny . The FDIC, the FRB and the Office of the Comptroller of the Currency have promulgated joint guidance on sound risk management practices for financial institutions with concentrations in commercial real estate lending. Under this guidance, a financial institution that, like Old Line Bancshares, is actively involved in commercial real estate lending should perform a risk assessment to identify concentrations. A financial institution may have a concentration in commercial real estate lending if, among other factors (i) total reported loans for construction, land development and other land represent 100% or more of total capital, or (ii) total reported loans secured by multi-family and non-farm non-residential properties, loans for construction, land development and other land, and loans otherwise sensitive to the general commercial real estate market, including loans to commercial real estate related entities, represent 300% or more of total capital. The particular focus of the guidance is on exposure to commercial real estate loans that are dependent on the cash flow from the real estate held as collateral and that are likely to be at greater risk to conditions in the commercial real estate market (as opposed to real estate collateral held as a secondary source of repayment or as an abundance of caution). The purpose of the guidance is to guide banks in developing risk management practices and capital levels commensurate with the level and nature of real estate concentrations. The guidance states that management should employ heightened risk management practices including board and management oversight and strategic planning, development of underwriting standards, risk assessment and monitoring through market analysis and stress testing. Old Line Bancshares has concluded that it has a concentration in commercial real estate lending under the foregoing standards because its balance in commercial real estate loans at December 31, 2016 represents more than 300% of total capital. While Old Line Bancshares believes that it has implemented policies and procedures with respect to its commercial real estate loan portfolio consistent with this guidance, bank regulators could require it to implement additional policies and procedures consistent with their interpretation of the guidance that may result in additional costs to Old Line Bancshares.
 
 
17
 
 
 
Old Line Bancshares depends on the accuracy and completeness of information about its clients and counterparties and its financial condition could be adversely affected if it relies on misleading information. In deciding whether to extend credit or to enter into other transactions with clients and counterparties, Old Line Bancshares may rely on information furnished to it by or on behalf of clients and counterparties, including financial statements and other financial information, which it does not independently verify as a matter of course. Old Line Bancshares also may rely on representations of clients and counterparties as to the accuracy and completeness of that information and, with respect to financial statements, on reports of independent auditors. For example, in deciding whether to extend credit to customers, Old Line Bancshares may assume that a customer’s audited financial statements conform with accounting principles generally accepted in the United States (“GAAP”) and present fairly, in all material respects, the financial condition, results of operations and cash flows of the customer. Old Line Bancshares’ financial condition and results of operations could be negatively impacted to the extent it relies on financial statements that do not comply with GAAP or are materially misleading.
 
Old Line Bancshares may be adversely affected by the soundness of other financial institutions . Financial services institutions are interrelated as a result of trading, clearing, counterparty or other relationships. Old Line Bancshares has exposure to many different industries and counterparties and routinely executes transactions with counterparties in the financial services industry, including commercial banks, brokers and dealers, investment banks and other institutional clients. Many of these transactions expose Old Line Bancshares to credit risk in the event of a default by a counterparty or client. In addition, Old Line Bancshares’ credit risk may be exacerbated when the collateral held by Old Line Bank cannot be realized upon or is liquidated at prices not sufficient to recover the full amount of the credit or derivative exposure due to Old Line Bank. Any such losses could have a material adverse effect on Old Line Bancshares’ financial condition and results of operations.
 
Regulations pursuant to the Dodd-Frank Act may adversely impact Old Line Bancshares’ results of operations, liquidity or financial condition. The Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) represents a comprehensive overhaul of the U.S. financial services industry. The Dodd-Frank Act required the Consumer Financial Protection Bureau (the “CFPB”) and other federal agencies to issue many new and significant rules and regulations to implement its various provisions. There are a number of regulations under the Dodd-Frank Act that have not yet been fully adopted and implemented and Old Line Bancshares will not know the full impact of the Dodd-Frank Act on its business until such regulations are fully implemented. As a result, Old Line Bancshares cannot predict the full extent to which the Dodd-Frank Act will impact its business, operations or financial condition. However, compliance with these laws and regulations may require Old Line Bancshares to make changes to its business and operations and will likely result in additional costs and a diversion of management’s time from other business activities, any of which may adversely impact its results of operations, liquidity or financial condition.
 
Because Old Line Bancshares serves a limited market area in Maryland, an economic downturn in its market area could more adversely affect Old Line Bancshares than it affects its larger competitors that are more geographically diverse. Old Line Bancshares’ current market area consists of the suburban Maryland counties of Anne Arundel, Baltimore, Calvert, Carroll, Charles, Montgomery, Prince George’s and St. Mary’s. If the merger is consummated this market area will expand into Frederick County, Maryland, and Old Line Bancshares may expand in contiguous northern and western Counties, such as Howard County, Maryland. Broad geographic diversification, however, is not currently part of Old Line Bancshares’ community bank focus. Overall, during and following the most recent recession, the business environment has negatively impacted many businesses and households in the United States and worldwide. Although the economic decline has not impacted the suburban Maryland and Washington D.C. suburbs as adversely as other areas of the United States, it has caused an increase in unemployment and business failures and a decline in property values. As a result, if Old Line Bancshares’ market area should suffer another economic downturn, it may more severely affect its business and financial condition than it affects larger bank competitors. In particular, due to the proximity of its market area to Washington, D.C., decreases in spending by the Federal government or threatened cuts to Federal government employment could impact Old Line Bancshares to a greater degree than banking companies that serve a larger or a different geographical area. Old Line Bancshares’ larger competitors, for example, serve more geographically diverse market areas, parts of which may not be affected by the same economic conditions that may exist in Old Line Bancshares’ market area. Further, unexpected changes in the national and local economy may adversely affect Old Line Bancshares’ ability to attract deposits and to make loans. Such risks are beyond Old Line Bancshares’ control and may have a material adverse effect on its financial condition and results of operations and, in turn, the value of its common stock.
 
 
 
18
 
 
Old Line Bancshares originates and retains in its portfolio residential mortgage loans. A downturn in the local real estate market and economy could adversely affect its earnings. Old Line Bancshares’ loan portfolio includes residential mortgage loans that it originates. Although the local real estate market and economy in Old Line Bancshares’ market areas have performed better than many other markets during the past few years, a downturn could cause higher unemployment and more delinquencies, and could adversely affect the value of properties securing its loans. In addition, the real estate market may take longer to recover or not recover to previous levels. These risks increase the probability of an adverse impact on Old Line Bancshares’ financial results as fewer borrowers would be eligible to borrow and property values could be below necessary levels required for adequate coverage on the requested loan.
 
Old Line Bancshares depends on the services of key personnel. The loss of any of these personnel could disrupt its operations and its business could suffer. Old Line Bancshares’ success depends substantially on the skills and abilities of its executive management team, including James W. Cornelsen, its President and Chief Executive Officer, Joseph E. Burnett, its Executive Vice President and Chief Lending Officer, John Miller, its Executive Vice President and Chief Credit Officer, Mark A. Semanie, its Executive Vice President and Chief Operating Officer, and Elise M. Hubbard, its Senior Vice President and Chief Financial Officer. Although Old Line Bank has entered into employment agreements with Messrs. Cornelsen, Burnett, Miller and Semanie, the existence of such agreements does not assure that Old Line Bancshares and Old Line Bank will retain their services. Further, neither Old Line Bancshares nor Old Line Bank has entered into an employment agreement with Ms. Hubbard, and therefore she can terminate her employment at any time and for any reason. These executives provide valuable services to Old Line Bancshares and Old Line Bank and would be difficult to replace.
 
Also, Old Line Bancshares’ growth and success and its anticipated future growth and success, in a large part, is due and will continue to be due to the relationships maintained by its banking executives with its customers. The loss of services of one or more of these executives or of other key employees could have a material adverse effect on Old Line Bancshares’ operations and its business could suffer. The experienced commercial lenders that Old Line Bank has hired are not a party to any employment agreement with Old Line Bancshares or Old Line Bank and they could terminate their employment at any time and for any reason.
 
Old Line Bancshares’ growth and expansion strategy may not be successful. Old Line Bancshares’ ability to grow depends upon its ability to attract new deposits, identify loan and investment opportunities and maintain adequate capital levels. Old Line Bancshares may also grow through acquisitions of existing financial institutions or branches thereof, as it is doing through the proposed merger with DCB Bancshares. There are no guarantees that Old Line Bancshares’ expansion strategies will be successful. Also, in order to effectively manage its anticipated and/or actual loan growth Old Line Bancshares has made and may continue to make additional investments in equipment and personnel, which could increase its non-interest expense. If Old Line Bancshares grows too quickly and is not able to control costs and maintain asset quality, such growth could materially and adversely affect its financial performance.
 
If Old Line Bancshares’ allowance for loan losses is not sufficient to cover actual loan losses, its earnings will decrease. Old Line Bancshares maintains an allowance for loan losses that it believes is adequate for absorbing any potential losses in its loan portfolio. Old Line Bancshares’ management, through a periodic review and consideration of the loan portfolio, determines the amount of the allowance for loan losses. Although Old Line Bancshares believes that its allowance for loan losses is adequate to absorb probable losses in its loan portfolio, even under normal economic conditions it cannot predict such losses with certainty. The unprecedented volatility experienced in the financial and capital markets during the last several years makes this determination even more difficult as processes Old Line Bancshares uses to estimate the allowance for loan losses may no longer be dependable because they rely on complex judgments, including forecasts of economic conditions that may not be accurate. As a result, Old Line Bancshares cannot be sure that its allowance is or will be adequate in the future. If management’s assumptions and judgments prove to be incorrect and the allowance for loan losses is inadequate to absorb future losses, Old Line Bancshares’ earnings will suffer.
 
As of December 31, 2016, commercial and industrial and commercial real estate mortgage loans comprise approximately 80.22% of Old Line Bancshares’ loan portfolio. These types of loans are generally viewed as having more risk of default than residential real estate or consumer loans and typically have larger balances than residential real estate loans and consumer loans. A deterioration of one or a few of these loans could cause a significant increase in Old Line Bancshares’ non-performing loans. Such an increase could result in a net loss of earnings from these loans, an increase in the provision for loan losses and an increase in loan charge-offs, all of which could have a material adverse effect on Old Line Bancshares’ financial condition and results of operations.
 
 
 
19
 
 
Old Line Bancshares’ profitability depends on interest rates and changes in monetary policy may impact it. Old Line Bancshares’ results of operations depend to a large extent on its “net interest income,” which is the difference between the interest expense incurred in connection with its interest bearing liabilities, such as interest on deposit accounts, and the interest income received from its interest earning assets, such as loans and investment securities. Interest rates, because they are influenced by, among other things, expectations about future events, including the level of economic activity, federal monetary and fiscal policy, and geopolitical stability, are not predictable or controllable. Additionally, competitive factors heavily influence the interest rates Old Line Bancshares can earn on its loan and investment portfolios and the interest rates Old Line Bank pays on its deposits. Community banks are often at a competitive disadvantage in managing their cost of funds compared to the large regional, super regional or national banks that have access to the national and international capital markets. These factors influence Old Line Bancshares’ ability to maintain a stable net interest margin.
 
Old Line Bancshares seeks to maintain a neutral position in terms of the volume of assets and liabilities that mature or reprice during any period so that it may reasonably predict its net interest margin. Interest rate fluctuations, loan prepayments, loan production and deposit flows, however, are constantly changing and influence Old Line Bancshares’ ability to maintain this neutral position. Generally speaking, Old Line Bancshares’ earnings are more sensitive to fluctuations in interest rates the greater the variance in the volume of assets and liabilities that mature and reprice in any period. The extent and duration of the sensitivity will depend on the cumulative variance over time, the velocity and direction of interest rates, and whether Old Line Bancshares is more asset than liability sensitive. Accordingly, Old Line Bancshares may not be successful in maintaining this neutral position and, as a result, its net interest margin may suffer.
 
Old Line Bancshares faces substantial competition that could adversely affect its growth and operating results. Old Line Bancshares operates in a competitive market for financial services and faces intense competition from other financial institutions both in making loans and in attracting deposits. Many of these financial institutions have been in business for many years, are significantly larger and have established customer bases and greater financial resources and lending limits than Old Line Bancshares does, and are able to offer certain services that Old Line Bancshares is not able to offer. There are also a number of smaller community-based banks that pursue operating strategies similar to Old Line Bancshares’. Competitive pressures will also likely continue to build as the financial services industry continues to consolidate and as additional non-bank investment and financial services options for consumers become available and consumers become increasingly comfortable using such alternatives. If Old Line Bancshares cannot attract deposits and make loans at a sufficient level, its operating results will suffer, as will its opportunities for growth.
 
Consumers may decide not to use banks to complete their financial transactions. Technology and other changes are allowing consumers to complete financial transactions through alternative methods that historically have involved banks. For example, consumers can now maintain funds that they have historically held as bank deposits in brokerage accounts, mutual funds or general-purpose reloadable prepaid cards. Consumers can also complete transactions such as paying bills and transferring funds directly without the assistance of banks. The process of eliminating banks as intermediaries, which may increase as consumers become more comfortable with these new technologies and offerings, could result in the loss of fee income, as well as the loss of customer deposits and the related income generated from those deposits. The loss of these revenue streams and the lower cost of deposits as a source of funds could have a material adverse effect on Old Line Bancshares’ financial condition and results of operations.
 
Old Line Bancshares continually encounters technological change. The financial services industry is continually undergoing rapid technological change with frequent introductions of new technology driven by new or modified products and services. The effective use of technology increases efficiency and enables financial institutions to better serve customers and to reduce costs. Old Line Bancshares’ future success depends, in part, upon its ability to address the needs of its customers by using technology to provide products and services that will satisfy customer demands, as well as to create additional efficiencies in its operations. Many of Old Line Bancshares’ competitors have substantially greater resources to invest in technological improvements. Old Line Bancshares may not be able to effectively implement new technology-driven products and services or be successful in marketing these products and services to its customers. Failure to successfully keep pace with technological change affecting the financial services industry could have a material adverse effect on Old Line Bancshares’ business and, in turn, its financial condition and results of operations.
 
 
 
20
 
 
The market value of Old Line Bancshares’ investments could negatively impact stockholders’ equity. Old Line Bancshares has designated all of its investment securities portfolio (or 11.6% of total assets) at December 31, 2016 as available for sale. Old Line Bancshares “marks to market” temporary unrealized gains and losses in the estimated value of the available for sale portfolio and reflects this adjustment as a separate item in stockholders’ equity, net of taxes. As of December 31, 2016, Old Line Bancshares had temporary unrealized losses in its available for sale portfolio of $5.0 million (net of taxes). As a result of the last economic recession and the continued economic slowdown, several municipalities continue to report budget deficits. These budget deficits could cause temporary and other than temporary impairment charges in Old Line Bancshares’ investment securities portfolio and cause it to report lower net income and a decline in stockholders’ equity.
 
Old Line Bancshares may issue shares of common stock in the future in connection with acquisitions or otherwise, and any such issuances could be at varying prices and dilute your ownership of Old Line Bancshares. Old Line Bancshares may use its common stock to acquire other companies or to make investments in banks and other complementary businesses in the future. Old Line Bancshares may also issue common stock, or securities convertible into common stock, through public or private offerings, in order to raise additional capital in connection with future acquisitions, to satisfy regulatory capital requirements or for general corporate purposes. It should be noted that Old Line Bancshares has an effective shelf registration statement on Form S-3 on file with the SEC pursuant to which Old Line Bancshares may, from time to time, sell up to an aggregate of $100 million of its common stock, preferred stock, warrants, units and debt securities. The existence of such shelf registration statement allows Old Line Bancshares to sell securities quickly from time to time as market conditions warrant. The merger agreement does not prohibit Old Line Bancshares from selling securities, including shares of its common stock, through the shelf registration statement or otherwise or provide for any adjustment to the merger consideration if Old Line Bancshares were to do so. Further, if Old Line Bancshares were to sell shares of common stock, it could do so at a price or prices that are less than the price of Old Line Bancshares common stock that will be used to calculate the exchange ratio in the merger, which would provide the purchasers of those shares with more value than the value of the shares of Old Line Bancshares common stock that you will receive in the merger. Finally, any such common stock issuances, or issuance of other securities under which shares of common stock may be issued, could be dilutive to other stockholders of Old Line Bancshares, including current stockholders of DCB Bancshares who receive shares of Old Line Bancshares common stock in the merger.
 
 
Old Line Bancshares’ future acquisitions, if any, may cause it to become more susceptible to adverse economic events. While Old Line Bancshares currently has no agreements to acquire additional financial institutions, other than DCB Bancshares, it may do so in the future if an attractive acquisition opportunity arises that is consistent with its business plan. Any future business acquisitions could be material to Old Line Bancshares, and the degree of success achieved in acquiring and integrating these businesses into Old Line Bancshares could have a material effect on the value of its common stock. In addition, any acquisition could require Old Line Bancshares to use substantial cash or other liquid assets or to incur debt. In those events, Old Line Bancshares could become more susceptible to future economic downturns and competitive pressures.
 
Old Line Bank faces limits on its ability to lend. The amount of Old Line Bank’s capital limits the amount that it can loan to a single borrower. Generally, under current law, Old Line Bank may lend up to 15% of its unimpaired capital and surplus to any one borrower. As of December 31, 2016, Old Line Bank was able to lend approximately $25.6 million to any one borrower. This amount is significantly less than that of many of its larger competitors and may discourage potential borrowers who have credit needs in excess of Old Line Bank’s legal lending limit from doing business with Old Line Bank. Old Line Bank generally tries to accommodate larger loans by selling participations in those loans to other financial institutions, but this strategy is not always available. Old Line Bank may not be able to attract or maintain customers seeking larger loans and may not be able to sell participations in such loans on terms it considers favorable.
 
Additional capital may not be available when needed or required by regulatory authorities. Federal and state regulatory authorities require Old Line Bancshares to maintain adequate levels of capital to support its operations. In addition, Old Line Bancshares may elect to raise additional capital to support its business or to finance future acquisitions, if any, or it may otherwise elect or its regulators may require that it raise additional capital. Old Line Bancshares’ ability to raise additional capital, if needed, will depend on conditions in the capital markets, economic conditions and a number of other factors, many of which are outside its control. Conditions in the capital markets may be such that traditional sources of capital may not be available to Old Line Bancshares on reasonable terms if it needed to raise additional capital. Accordingly, Old Line Bancshares may not be able to raise additional capital if needed or on terms that are favorable or otherwise not dilutive to its existing stockholders. If Old Line Bancshares cannot raise additional capital when needed, or on desirable terms, this may have a material adverse effect on its financial condition, results of operations and prospects.
 
Old Line Bancshares may not have adequately assessed the fair value of acquired assets and liabilities. Current accounting guidance requires that Old Line Bancshares record assets and liabilities at their estimated fair values on the purchase date. The determination of fair value requires that Old Line Bancshares consider a number of factors including the remaining life of the acquired loans and deposits, estimated prepayments or withdrawals, estimated loss ratios, estimated value of the underlying collateral, and the net present value of expected cash flows. Actual deviations from these predicted cash flows, maturities or repayments or the underlying value of the collateral may mean that Old Line Bancshares’ present value determination is inaccurate. This may cause fluctuations in interest income, non-interest income, provision expense, interest expense and non-interest expense and negatively impact Old Line Bancshares’ results of operations.
 
 
 
21
 
 
The market price of Old Line Bancshares’ common stock can be volatile.   Stock price volatility may make it more difficult for an investor to resell our common stock when desired and at attractive prices. The market price of Old Line Bancshares’ common stock can fluctuate significantly in response to a variety of factors including, among other things:
 
actual or anticipated variations in Old Line Bancshares’ operating results;
 
changes in expectations as to Old Line Bancshares’ future financial performance, including financial estimates or recommendations by securities analysts or others in the industry;
 
changes in the regulatory or legal environment in which Old Line Bancshares operates;
 
news reports or other publicity relating to Old Line Bancshares or our competitors or relating to trends in its industry;
 
perceptions in the marketplace regarding Old Line Bancshares and/or its competitors;
 
future sales of Old Line Bancshares’ common stock;
 
the announcement of a significant acquisition or business combination, strategic partnership, joint venture or capital commitment by or involving Old Line Bancshares or its competitors; and
 
geopolitical conditions such as acts or threats of terrorism or military conflicts.
 
General market fluctuations, industry factors and general economic and political conditions and events in the U.S. or globally, such as economic slowdowns or recessions, interest rate changes or credit loss trends, could also cause Old Line Bancshares’ stock price to decrease regardless of operating results.
 
Shares of Old Line Bancshares common stock are equity interests and therefore subordinate to its existing and future indebtedness and preferred stock we may issue in the future. Shares of Old Line Bancshares’ common stock are equity interests in Old Line Bancshares and do not constitute indebtedness. As such, shares of Old Line Bancshares’ common stock rank junior to all indebtedness and other non-equity claims on it with respect to assets available to satisfy claims, including upon its liquidation. Holders of Old Line Bancshares’ common stock are also subject to the prior dividend and liquidation rights of any holders of its preferred stock that it may issue in the future.
 
In addition, Old Line Bancshares’ right to participate in any distribution of assets of any of its subsidiaries, including Old Line Bank, upon the subsidiary’s liquidation or otherwise, and thus your ability as a holder of Old Line Bancshares’ common stock to benefit indirectly from such distribution, will be subject to the prior claims of creditors of that subsidiary, except to the extent that any of Old Line Bancshares’ claims as a creditor of such subsidiary may be recognized. As a result, shares of Old Line Bancshares’ common stock are effectively subordinated to all existing and future liabilities and obligations of its subsidiaries.
 
Old Line Bancshares’ ability to declare and pay dividends is limited by law, and it may be unable to pay future dividends. Old Line Bancshares are a separate and distinct legal entity from Old Line Bank, and it receives substantially all of its revenue from dividends from Old Line Bank. These dividends are the principal source of funds to pay dividends on Old Line Bancshares’ common stock and interest and principal on debt . Various federal and/or state laws and regulations limit the amount of dividends that Old Line Bank may pay to Old Line Bancshares . In the event Old Line Bank is unable to pay dividends to Old Line Bancshares , Old Line Bancshares may not be able to service debt, pay obligations or pay dividends on its common stock. The inability to receive dividends from Old Line Bank could have a material adverse effect on Old Line Bancshares’ business, financial condition and results of operations.
 
Old Line Bancshares may need to raise additional capital in the future. If Old Line Bancshares is are unable to obtain such capital on favorable terms or at all, it may not be able to execute on its business plans and its business, financial condition and results of operations may be adversely affected. Old Line Bancshares may need to raise additional capital in the future to fund its growth and acquisition activities. Any sale of additional equity or debt securities may result in dilution to Old Line Bancshares’ stockholders. Public or private financing may not be available in amounts or on terms acceptable to Old Line Bancshares, if at all. If Old Line Bancshares is unable to obtain additional financing, it may be required to delay, reduce the scope of, or eliminate its growth and acquisition activities, which could adversely affect its business, financial condition and operating results.
 
 
 
22
 
 
Anti-takeover provisions could adversely affect our stockholders . Maryland law and provisions contained in Old Line Bancshares’ articles of incorporation and bylaws could make it difficult for a third party to acquire it, even if doing so might be beneficial to Old Line Bancshares’ stockholders. For example, Old Line Bancshares’ articles of incorporation authorizes its board of directors to determine the designation, preferences, limitations and relative rights of unissued preferred stock, without any vote or action by Old Line Bancshares’ stockholders. As a result, Old Line Bancshares’ board of directors could authorize and issue shares of preferred stock with voting or conversion rights that could adversely affect the voting or other rights of holders of its common stock or with other terms that could impede the completion of a merger, tender offer or other takeover attempt. In addition, certain provisions of Maryland law, including a provision that restricts certain business combinations between a Maryland corporation and certain interested stockholders, may delay, discourage or prevent an attempted acquisition or change in control of Old Line Bancshares that some or all of its stockholders might consider to be desirable. As a result, efforts by Old Line Bancshares’ stockholders to change its direction or management may be unsuccessful.
 
The ability of a third party to acquire Old Line Bancshares is also limited under applicable banking regulations. With certain limited exceptions, federal regulations prohibit a person, a company or a group of persons deemed to be “acting in concert” from, directly or indirectly, acquiring more than 10% (5% if the acquirer is a bank holding company) of any class of Old Line Bancshares’ voting stock or obtaining the ability to control in any manner the election of a majority of its directors or otherwise direct its management or policies without prior notice or application to and the approval of the FRB. Companies investing in banks and bank holding companies receive additional review and may be required to become bank holding companies, subject to regulatory supervision. Accordingly, prospective investors must be aware of and comply with these requirements, if applicable, in connection with any purchase of shares of Old Line Bancshares’ common stock. These provisions effectively inhibit certain mergers or other business combinations, which, in turn, could adversely affect the market price of Old Line Bancshares’ common stock.
 
Risk Factors as they Relate to DCB Bancshares’ Stockholders in Connection with the Merger
 
DCB Bancshares’ directors and executive officers have financial interests in the merger that are different from, or in addition to, the interests of DCB Bancshares stockholders . In considering the information contained in this proxy statement/prospectus, you should be aware that directors and certain executive officers of DCB Bancshares have financial interests in the merger that are different from, or in addition to, the interests of DCB Bancshares stockholders. The directors and certain executive officers if DCB Bancshares who collectively hold approximately 12.9% of the outstanding shares of DCB Bancshares common stock have agreed to vote in favor of the merger proposal. These voting agreements may have the effect of discouraging persons from making a proposal to acquire DCB Bancshares. Further, certain executive officers of DCB Bancshares may be entitled to payments in connection with the merger under existing arrangements. Finally, Old Line Bancshares and Old Line Bank have also agreed to elect Stephen J. Deadrick, DCB Bancshares’ Chairman of the Board, and James R. Clifford, Sr., a current director of DCB Bancshares, to the boards of directors of Old Line Bancshares and Old Line Bank, who will be compensated for their service on the board of directors of Old Line Bank. These and certain other additional interests of DCB Bancshares’ directors and executive officers are described in detail in “The Merger Agreement and the Merger – Interests of Directors and Officers in the Merger.” These circumstances may cause some of DCB Bancshares directors and executive officers to view the proposed transaction differently than you view it.
 
 
The provisions of the merger agreement limiting DCB Bancshares’ ability to pursue alternative transactions to the merger and requiring DCB Bancshares to pay the Termination Fee if it does may discourage others from trying to acquire DCB Bancshares. The merger agreement prohibits DCB Bancshares and its directors, officers, employees and other representatives, subject to narrow exceptions, from initiating, encouraging, soliciting or entering into discussions with any third party regarding alternative acquisition proposals. The prohibition limits DCB Bancshares’ ability to pursue offers from other possible acquirers that may be superior from a financial point of view. If DCB Bancshares receives an unsolicited proposal from a third party that is superior from a financial point of view to that made by Old Line Bancshares and the merger agreement is terminated, DCB Bancshares would be required to pay the Termination Fee to Old Line Bancshares. This fee makes it less likely that a third party will make an alternative acquisition proposal.
 
 
 
23
 
 
If the merger fails to qualify as a “reorganization” within the meaning of Section 368(a) of the Internal Revenue Code, DCB Bancshares stockholders may be required to recognize additional gain or recognize loss on the exchange of their shares of DCB Bancshares common stock in the merger for U.S. federal income tax purposes. The merger is intended to qualify as a “reorganization” within the meaning of Section 368(a) of the Internal Revenue Code, and it is a condition to the respective obligations of DCB Bancshares and Old Line Bancshares to complete the merger that each of DCB Bancshares and Old Line Bancshares receives a legal opinion to that effect. Neither of these opinions will be binding on the Internal Revenue Service. DCB Bancshares and Old Line Bancshares have not sought and will not seek any ruling from the Internal Revenue Service regarding any matters relating to the merger, and as a result, there can be no assurance that the Internal Revenue Service will not assert, or that a court would not sustain, a contrary position. If the merger fails to qualify as a “reorganization” within the meaning of Section 368(a) of the Internal Revenue Code, DCB Bancshares stockholders may be required to recognize gain or loss on the exchange of their shares of DCB Bancshares common stock in the merger for U.S. federal income tax purposes. In addition, DCB Bancshares will be treated as having sold all of its assets to Old Line Bancshares in a taxable transaction, and will recognize taxable gain to the extent the sum of the total consideration paid by Old Line Bancshares to the DCB Bancshares stockholders, plus the liabilities of DCB Bancshares, exceeds the tax basis of DCB Bancshares in its assets, including its tax basis in its bank and other subsidiaries. Old Line Bancshares would succeed to and become liable for any such DCB Bancshares corporate tax as a consequence of the merger. For further information, see “The Merger Agreement and the Merger – Certain Federal Income Tax Consequences.”
 
After the merger is completed, DCB Bancshares stockholders will become Old Line Bancshares stockholders and will have different rights that may be less advantageous than their current rights. Upon completion of the merger, DCB Bancshares stockholders will receive Old Line Bancshares common stock for their shares of DCB Bancshares common stock and become Old Line Bancshares stockholders. Differences in DCB Bancshares’ articles of incorporation and bylaws and Old Line Bancshares’ articles of incorporation and bylaws will result in changes to the rights of DCB Bancshares stockholders when they become Old Line Bancshares stockholders. For more information, see “Comparison of Stockholder Rights.” A stockholder of DCB Bancshares may conclude that his, her or its current rights under DCB Bancshares’ articles of incorporation and bylaws are more advantageous than the rights they may have as an Old Line Bancshares stockholder under Old Line Bancshares’ articles of incorporation and bylaws.
 
DCB Bancshares’ stockholders will have less influence as stockholders of Old Line Bancshares than as stockholders of DCB Bancshares. DCB Bancshares stockholders currently have the right to vote in the election of the board of directors of DCB Bancshares and on other matters affecting DCB Bancshares. The stockholders of DCB Bancshares as a group will own approximately [__]% to [__]% of the combined organization (Old Line Bancshares and DCB Bancshares), assuming Old Line Bancshares does not exercise its option to increase the merger consideration to avoid termination of the merger agreement based on recent trading prices of Old Line Bancshares common stock prior to the merger. When the merger occurs, each former DCB Bancshares stockholder will become a stockholder of Old Line Bancshares with a percentage ownership of the combined organization much smaller than such stockholder’s percentage ownership of DCB Bancshares. Because of this, stockholders of DCB Bancshares will have less influence on the management and policies of Old Line Bancshares than they now have on the management and policies of DCB Bancshares.
 
Old Line Bancshares and DCB Bancshares may waive one or more of the conditions to the merger without re-soliciting DCB Bancshares’ stockholder approval. Each of the conditions to the obligations of Old Line Bancshares and DCB Bancshares to complete the merger may be waived, in whole or in part, to the extent permitted by applicable law, by agreement of Old Line Bancshares and DCB Bancshares, if the condition is a condition to both parties’ obligation to complete the merger, or by the party for which such condition is a condition of its obligation to complete the merger. The boards of directors of Old Line Bancshares and DCB Bancshares may evaluate the materiality of any such waiver to determine whether amendment of this proxy statement/prospectus and re-solicitation of proxies is necessary. Old Line Bancshares and DCB Bancshares, however, generally do not expect any such waiver to be significant enough to require re-solicitation of DCB Bancshares’ stockholders. In the event that any such waiver is not determined to be significant enough to require re-solicitation of DCB Bancshares’ stockholders, the companies will have the discretion to complete the merger without seeking further stockholder approval.
 
 
 
24
 
 
 
SELECTED FINANCIAL DATA OF OLD LINE BANCSHARES
 
The following table summarizes Old Line Bancshares’ selected financial information and other financial data. The selected balance sheet and statement of income data are derived from Old Line Bancshares’ audited financial statements. You should read this information together Old Line Bancshares’ financial statements and the related notes and its “Management’s Discussion and Analysis of Financial Condition and Results of Operations” discussion in its Annual Report on Form 10-K for the year ended December 31, 2016, incorporated by reference into this proxy statement/prospectus. See “ Incorporation of Certain Documents By Reference” and “Where You Can Find More Information .” Results for past periods are not necessarily indicative of results that may be expected for any future period.
 
 
December 31,
 
 2016  
 
 
 2015  
 
 
 2014  
 
 
 2013  
 
 
 2012  
 
 
 
  (Dollars in thousands except per share data)                          
 
Earnings and dividends:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest income
  $ 60,465  
  $ 51,453  
  $ 45,603  
  $ 44,263  
  $ 38,222  
Interest expense
    7,525  
    4,864  
    3,900  
    4,202  
    5,058  
Net interest income
    52,940  
    46,589  
    41,703  
    40,061  
    33,164  
Provision for loan losses
    1,585  
    1,311  
    2,827  
    1,504  
    1,525  
Non-interest income
    8,256  
    6,845  
    5,957  
    8,870  
    3,708  
Non-interest expense
    39,643  
    36,276  
    35,046  
    36,077  
    25,162  
Income taxes
    6,813  
    5,382  
    2,694  
    3,602  
    2,720  
Net income
    13,155  
    10,464  
    7,093  
    7,747  
    7,465  
Less: Net loss attributable to the non-controlling interest
     
    (4 )
    (37 )
    (92 )
    (65 )
Net income available to common stockholders
    13,155  
    10,468  
    7,130  
    7,839  
    7,530  
Per common share data:
       
       
       
       
       
Basic earnings
  $ 1.21  
  $ 0.98  
  $ 0.66  
  $ 0.87  
  $ 1.10  
Diluted earnings
    1.20  
    0.97  
    0.65  
    0.86  
    1.09  
Dividends paid
    0.24  
    0.21  
    0.18  
    0.16  
    0.16  
Common stockholders book value, period end
    13.81  
    13.31  
    12.51  
    11.71  
    10.94  
Common stockholders tangible book value, period end
    12.59  
    12.00  
    11.38  
    10.50  
    10.30  
Average common shares outstanding
       
       
       
       
       
Basic
    10,837,939  
    10,647,986  
    10,786,017  
    9,044,844  
    6,828,512  
Diluted
    10,997,485  
    10,784,323  
    10,935,182  
    9,149,200  
    6,893,645  
Common shares outstanding, period end
    10,910,915  
    10,802,560  
    10,810,930  
    10,777,113  
    6,845,432  
Balance Sheet Data:
       
       
       
       
       
Total assets
  $ 1,709,020  
  $ 1,510,089  
  $ 1,227,519  
  $ 1,167,223  
  $ 861,856  
Total loans, less allowance for loan losses
    1,369,594  
    1,155,147  
    931,121  
    849,263  
    595,145  
Total investment securities
    199,505  
    194,706  
    161,680  
    172,170  
    171,541  
Total deposits
    1,325,881  
    1,235,880  
    1,015,739  
    974,359  
    735,458  
Stockholders’ equity
    150,667  
    143,989  
    135,264  
    126,249  
    74,862  
Performance Ratios:
       
       
       
       
       
Return on average assets
    0.83 %
    0.79 %
    0.60 %
    0.74 %
    0.90 %
Return on average stockholders’ equity
    8.83 %
    7.54 %
    5.45 %
    7.80 %
    11.17 %
Total ending equity to total ending assets
    8.82 %
    9.54 %
    11.02 %
    10.82 %
    8.69 %
Net interest margin(1)
    3.79 %
    4.08 %
    4.15 %
    4.53 %
    4.65 %
Dividend payout ratio for period
    19.79 %
    21.47 %
    27.23 %
    19.02 %
    14.51 %
Asset Quality Ratios:
       
       
       
       
       
Allowance to period-end loans
    0.45 %
    0.43 %
    0.46 %
    0.58 %
    0.66 %
Non-performing assets to total assets
    0.59 %
    0.56 %
    0.65 %
    1.27 %
    1.12 %
Non-performing loans to allowance for loan losses
    103.04 %
    120.04 %
    121.61 %
    178.91 %
    149.04 %
Capital Ratios:
       
       
       
       
       
Tier 1 risk-based capital
    9.5 %
    10.7 %
    12.3 %
    12.0 %
    10.8 %
Total risk-based capital
    12.3 %
    11.1 %
    12.7 %
    12.5 %
    11.4 %
Leverage capital ratio
    8.6 %
    9.1 %
    9.9 %
    9.3 %
    7.9 %
Common Equity Tier 1
    9.2 %
    10.7 %
    n/a  
    n/a  
    n/a  
 
(1)
See “Management’s Discussion and Analysis of Financial Condition and Results of Operating—Reconciliation of Non-GAAP Measures” in Old Line Bancshares’ Annual Report on Form 10-K for the year ended December 31, 2016. See “Incorporation of Certain Documents by Reference.”
 
 
 
25
 
 
COMPARATIVE PER-SHARE MARKET PRICE
 
The following table sets forth the market value per share of Old Line Bancshares common stock, the market value per share of DCB Bancshares common stock and the equivalent market value per share of DCB Bancshares common stock on January 31, 2017 (the last trading day preceding public announcement of the merger, which was announced after market close on February 1, 2017, on which shares of each of Old Line Bancshares common stock and DCB Bancshares common stock were traded on the NASDAQ Capital Market and the OTC Markets, respectively) and April 20, 2017 (the latest practicable trading day before the date of this proxy statement/prospectus on which shares of each of Old Line Bancshares common stock and DCB Bancshares common stock were traded on the NASDAQ Capital Market and the OTC Markets, respectively). The equivalent market value per share of DCB Bancshares common stock indicated in the table is derived from assumed exchange ratios based on the volume weighted average closing price of Old Line Bancshares common stock for the ten trading days ending two trading days before the applicable date ($27.26 on January 31, 2017 and $27.63 on April 20, 2017) multiplied by the closing sales price of Old Line Bancshares common stock on such date. For more information, see the section entitled “The Merger Agreement and The Merger – Terms of the Merger – What DCB Bancshares Stockholders Will Receive in the Merger.”
 
 
The historical market values per share of Old Line Bancshares common stock and DCB Bancshares common stock and the historical market value of Old Line Bancshares common stock used to determine the equivalent market value per share of DCB Bancshares common stock are the per share closing sales prices January 31, 2017 and March 17, 2017, respectively, as reported on the OTC Markets with respect to DCB Bancshares common stock and on the NASDAQ Capital Market with respect to Old Line Bancshares common stock.
 
 
 
Old Line Bancshares Historical
 
 
DCB Bancshares Historical
 
 
Equivalent Market Value Per Share of DCB Bancshares
 
January 31, 2017
  $ 26.81  
  $ 12.50  
  $ 24.85  
April 20, 2017
  $ 27.23
  $ 25.10
  $ 25.24
 
CAUTION REGARDING FORWARD-LOOKING STATEMENTS
 
This proxy statement/prospectus, including the information incorporated by reference into this proxy statement/prospectus, contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Such forward-looking statements include statements regarding the financial condition, results of operations, earnings outlook, businesses and prospects of Old Line Bancshares and DCB Bancshares, and the potential combined company, as well as statements applicable to the period following the completion of the merger and includes those items listed below:
 
(1) The anticipated effects and benefits of the merger, including (a) the expected consummation of the merger including the timing thereof, and (b) the expected financial effects and benefits of the merger, including that Old Line Bancshares’ expectation that the merger will be immediately accretive to its tangible book value and earnings, excluding merger expenses.
 
(2) With respect to Old Line Bancshares, statements regarding (a) its growth strategy, including potential future acquisitions, (b) additional investment in equipment and personnel, and potential increases in non-interest expenses, and (c) the statement with respect to the adequacy of its allowance for loan losses. Forward-looking statements are also included in documents incorporated by reference into this proxy statement/prospectus, and are or will be identified in such documents.
 
(3) With respect to DCB Bancshares, statements regarding the explanation of the reasoning of DCB Bancshares’ board of directors for recommending the merger and the other potential benefits of the merger as discussed in “The Merger Agreement and the Merger – DCB Bancshares’ Reasons for the Merger and Recommendation of the Board of Directors.”
 
You can identify forward-looking statements because they are not historical facts and often include the use of forward-looking terminology such as “believes,” “expects,” “intends,” “may,” “will,” “should,” “anticipates,” “plans” or similar terminology. Such statements are subject to risks and uncertainties that could cause actual results to differ materially from future results expressed or implied by such forward-looking statements. Actual results could differ materially from those currently anticipated due to a number of factors, including, but not limited to:
 
 
 
26
 
 
 
the businesses of DCB Bancshares may not be integrated into Old Line Bancshares successfully or such integration may be more difficult, time-consuming or costly than expected;
 
expected revenue synergies and cost savings from the merger may not be fully realized, or realized within the expected timeframe;
 
disruption in DCB Bancshares’ business as a result of the announcement and pendency of the merger;
 
revenues following the merger may be lower than expected;
 
customer and employee relationships and business operations of DCB Bancshares may be disrupted by the merger;
 
the ability to obtain required approval of DCB Bancshares’ stockholders;
 
the ability to complete the merger in the expected timeframe may be more difficult, time-consuming or costly than expected, or the merger may not be completed at all;
 
changes in loan default and charge-off rates;
 
changes in demand for loan products or other financial services;
 
reductions in deposit levels necessitating increased borrowings to fund loans and investments;
 
general economic conditions, either nationally or in Old Line Bancshares’ market area, that are worse than expected;
 
sustained elevation in the unemployment rate in Old Line Bank’s and Damascus Community Bank’s target markets;
 
inflation and changes in interest rates and monetary policy that could adversely affect Old Line Bancshares and/or DCB Bancshares;
 
changes in laws or government regulations or policies affecting financial institutions, including changes in regulatory fees and capital requirements;
 
the ability to retain key Damascus Community Bank personnel;
 
the ability of Old Line Bancshares and Old Line Bank to enter new markets successfully and capitalize on growth opportunities, and to otherwise implement its growth strategy;
 
the risk of loan losses and that the allowance for loan losses may be insufficient;
 
changes in competitive, governmental, regulatory, technological and other factors that may affect Old Line Bancshares or DCB Bancshares specifically or the banking industry generally;
 
that the market value of investments could negatively impact stockholders’ equity;
 
changes in consumer spending, borrowing and savings habits;
 
changes in accounting policies and practices, as may be adopted by the bank regulatory agencies, the Financial Accounting Standards Board, the SEC and the Public Company Accounting Oversight Board;
 
the other risks discussed in this proxy statement/prospectus, in particular in the “Risk Factors” section of this proxy statement/prospectus;
 
those risks identified in connection with the forward-looking statements made in the documents incorporated by reference into this proxy statement/prospectus; and
 
other risk factors detailed from time to time in filings made by Old Line Bancshares with the SEC.
 
Forward-looking statements speak only as of the date they are made. You should not place undue reliance on any forward-looking statements. Old Line Bancshares undertakes no obligation to update or clarify these forward-looking statements to reflect factual assumptions, circumstances or events that have changed after such a forward-looking statement was made.
 
 
 
27
 
 
 
THE DCB BANCSHARES ANNUAL MEETING
 
Date, Time and Place
 
DCB Bancshares will hold its annual meeting of stockholders at The Damascus Volunteer Fire Department Activities Center located at 10211 Lewis Drive, Damascus, Maryland 20872, at 3:00 p.m. on [__________ __], 2017.
 
 
Purpose of the Annual meeting
 
At the annual meeting, DCB Bancshares’ stockholders will be asked to consider and vote upon proposals to:
 
Approve the Agreement and Plan of Merger, dated as of February 1, 2017, by and between Old Line Bancshares and DCB Bancshares, as the agreement may be amended from time to time, and the merger of DCB Bancshares with and into Old Line Bancshares pursuant to the merger agreement;
 
Adjourn the annual meeting if more time is needed to solicit additional proxies;
 
Elect the ten director nominees named in this proxy statement/prospectus and on the proxy card to the board of directors of DCB Bancshares for the ensuing year; and
 
Transact any other business that may properly be brought before the annual meeting.
 
Recommendation of the Board of Directors of DCB Bancshares
 
The DCB Bancshares board of directors has unanimously approved the merger agreement and the merger, has unanimously declared them to be advisable and in the best interests of DCB Bancshares’ stockholders, and unanimously recommends that DCB Bancshares’ stockholders vote “ FOR ” the approval of the merger agreement and the merger.
 
The DCB Bancshares board of directors also unanimously recommends that DCB Bancshares’ stockholders vote “ FOR ” the approval of the adjournment of the annual meeting if necessary to solicit additional proxies.
 
The DCB Bancshares board of directors also unanimously recommends that DCB Bancshares’ stockholders vote “FOR” the election of each of the director nominees named in this proxy statement/prospectus/ and on the proxy card to the board of directors of DCB Bancshares.
 
Record Date; Stockholders Entitled to Vote
 
Stockholders of record at the close of business on [_________ __], 2017, which the DCB Bancshares board of directors has set as the record date, are entitled to notice of and to vote at the annual meeting. As of the close of business on that date, there were 1,613,180 shares of common stock, $0.01 par value per share, outstanding and entitled to vote, each of which is entitled to one vote.
 
Quorum
 
The presence, in person or by proxy, of stockholders entitled to cast a majority of all the votes entitled to be cast at the annual meeting (or [_________] shares of DCB Bancshares common stock) will be necessary to constitute a quorum for the transaction of business at the annual meeting. Abstentions are counted for purposes of determining the presence or absence of a quorum for the transaction of business at the annual meeting.
 
Under Maryland law, broker non-votes are also counted for purposes of determining the presence or absence of a quorum for the transaction of business at the annual meeting. If your shares are held in the name of a bank, brokerage firm or other similar holder of record (referred to as “in street name”), you will receive instructions from the holder of record that you must follow for you to specify how your shares will be voted. In general, under the rules of the various national and regional securities exchanges, holders of record have the authority to vote shares for which their customers do not provide voting instructions on certain routine, uncontested items, but not on non-routine proposals. In the case of non-routine items for which specific voting instructions have not been provided, the institution holding street name shares cannot vote those shares. These are considered to be “broker non-votes.”
 
 
 
28
 
 
Vote Required
 
The proposal at the DCB Bancshares annual meeting to approve the merger agreement and the merger requires the affirmative vote of holders of two-thirds of all outstanding shares of DCB Bancshares common stock entitled to vote on the proposal.
 
The approval of the proposal to adjourn the annual meeting to solicit additional proxies, if necessary, requires the affirmative vote of the majority of shares present in person or represented by proxy at the annual meeting and entitled to vote on the matter.
 
Directors and executive officers of DCB Bancshares who beneficially own approximately 12.9% of DCB Bancshares common stock as of the record date have agreed in writing to vote for approval of the merger agreement and the merger.
 
The election of the ten director nominees to the board of directors of DCB Bancshares requires the affirmative vote of the majority of shares cast on that proposal.
 
Abstentions and Failure to Vote
 
Because approval of the merger agreement and the merger requires the affirmative vote of the holders of at least two-thirds of all outstanding shares of DCB Bancshares common stock entitled to vote at the annual meeting, an abstention, a failure to vote and a broker non-vote will have the same effect as votes against this matter. In other words, if you are a DCB Bancshares stockholder and fail to vote, fail to instruct your broker or nominee to vote, or vote to abstain, it will have the effect of a vote against the proposal to approve the merger agreement and the merger. Accordingly, the DCB Bancshares board of directors urges you to submit your proxy to vote as instructed below.
 
As noted above, approval of the proposal to adjourn the annual meeting to solicit additional proxies, if necessary, and the election of the ten director nominees to the DCB Bancshares board of directors each requires the affirmative vote of at least a majority of all votes cast on the matter at the annual meeting. Abstentions, the failure to vote and broker non-votes are not included in calculating votes cast with respect to these proposal and, therefore, will have no effect on their outcome.
 
Voting of Proxies
 
The enclosed proxy with respect to the DCB Bancshares annual meeting is solicited by the board of directors of DCB Bancshares. The board of directors has selected Stephen J. Deadrick and George C. Cramer, or either of them, to act as proxies with full power of substitution.
 
Whether or not you plan to attend the annual meeting, you may submit a proxy to vote your shares. To do so, mark your vote on the proxy card, sign your name exactly as it appears on your proxy card, date your proxy card and return it in the envelope provided.
 
All proxies will be voted as directed by the stockholder on the proxy form. A proxy, if executed and not revoked, will be voted in the following manner (unless it contains instructions to the contrary, in which event it will be voted in accordance with such instructions):
 
“FOR” the approval of the merger agreement and the merger;
 
“FOR” approval of the proposal to adjourn the annual meeting to solicit additional proxies, if necessary; and
 
“FOR” the election of each of the 10 director nominees named in this proxy statement/prospectus and on the proxy card to the board of directors of DCB Bancshares .
 
No other matters are intended to be brought before the annual meeting by DCB Bancshares, and DCB Bancshares is not aware of any other matters to be brought before the annual meeting by others. If, however, any matters not described in this proxy statement/prospectus are properly presented at the annual meeting, the persons named in the proxy card will vote your shares as directed by the DCB Bancshares board of directors. If the annual meeting is postponed or adjourned, your DCB Bancshares common stock may be voted by the persons named in the proxy card on the new annual meeting date, provided that the new meeting occurs within 90 days of the record date for the annual meeting, unless you have not revoked your proxy.
 
 
 
29
 
 
Your vote is important. Accordingly, please sign and return the enclosed proxy card as soon as possible whether or not you intend to attend the DCB Bancshares annual meeting.
 
Shares Held in Street Name
 
If you hold your shares in a stock brokerage account or if your shares are held by a bank or other nominee (that is, in street name), you must provide the record holder of your shares with instructions on how to vote your shares if you wish them to be counted, unless your shares are held of record by a bank or other nominee and you have an arrangement with the nominee granting such nominee discretionary authority to vote your shares. Please follow the voting instructions provided by your bank, broker or other nominee. Please note that you may not vote shares held in street name by returning a proxy card directly to DCB Bancshares or by voting in person at the meeting unless you provide a “legal proxy,” which you must obtain from your bank, broker or other nominee. Further, brokers who hold shares of DCB Bancshares common stock on behalf of their customers may not give a proxy to DCB Bancshares to vote those shares without specific instructions from their customers.
 
If you are a DCB Bancshares stockholder and you do not instruct your broker on how to vote your shares, your broker may not vote your shares at the annual meeting.
 
Your vote is important. Accordingly, please sign and return your broker’s instructions whether or not you plan to attend the DCB Bancshares annual meeting in person.
 
Revocability of Proxies
 
You may revoke your proxy at any time before the vote is taken at the meeting. Unless so revoked, the shares represented by properly executed proxies will be voted at the annual meeting and all adjournments thereof. To revoke your proxy, you must send written notice to Terry Hollinger, Secretary of DCB Bancshares, at 26500 Ridge Road, Damascus, Maryland 20872, file a later-dated proxy before your common stock has been voted at the annual meeting or attend the annual meeting and vote in person. Attendance at the annual meeting will not in itself constitute revocation of your proxy.
 
Solicitation of Proxies
 
Your proxy is being solicited by the board of directors of DCB Bancshares. DCB Bancshares will pay the costs of soliciting proxies. These costs may include reasonable out-of-pocket expenses in forwarding proxy materials to beneficial owners. DCB Bancshares will reimburse banks, brokers and other custodians, nominees and fiduciaries for their reasonable expenses in sending proxy materials to beneficial owners of the common stock of DCB Bancshares and obtaining their proxies.
 
Directors, officers and employees of DCB Bancshares may solicit proxies personally, by telephone, facsimile or electronic mail. DCB Bancshares will not specifically compensate these persons for soliciting such proxies, but may reimburse them for reasonable out-of-pocket expenses, if any.
 
 
 
30
 
OWNERSHIP OF DCB BANCSHARES COMMON STOCK
 
The following table sets forth information as of December 31, 2016 relating to the beneficial ownership of DCB Bancshares’ common stock by: (i) each person or group known by DCB Bancshares to beneficially own more than 5.0% of its outstanding shares of common stock; (ii) each of DCB Bancshares’ directors and “named executive officers”; and (iii) all directors and executive officers of DCB Bancshares as a group. Generally, a person “beneficially owns” shares as of a given date if he or she has or shares with others the right to vote those shares or to invest (or dispose of) those shares, or if he or she has the right to acquire such voting or investment rights, within 60 days of such date (such as by exercising stock options or similar rights). The percentages were calculated based on 1,613,180 issued and outstanding shares of DCB Bancshares common stock as of December 31, 2016, plus, for each named person, any shares that such person may acquire within 60 days of such date.
 
As used in this table, the term “named executive officer” includes (i) each person who served as DCB Bancshares’ principal executive officer (the “PEO”) during 2016, (ii) DCB Bancshares’ two most highly compensated executive officers other than the PEO who were serving as such as of December 31, 2016 and whose total compensation (excluding above-market and preferential earnings on nonqualified deferred compensation) exceeded $100,000 during 2016, and (iii) up to two additional individuals for whom disclosure would have been provided pursuant to the foregoing item (ii) had they been serving as executive officers of DCB Bancshares as of December 31, 2016. For this purpose, the term “executive officer” includes any executive officer of Damascus Community Bank who performs a policy-making function for DCB Bancshares.
 
DCB Bancshares has determined that, for purposes of this proxy statement/prospectus, its named executive officers include: William L. Kincaid, Jr., who served as the PEO until October 4, 2016; Robert L. Carpenter, Jr., who serves as Co-Chief Executive Officer and Executive Vice President - Chief Financial Officer; William F. Lindlaw, who serves as Co-Chief Executive Officer and Executive Vice President - Chief Lending Officer; Rodney E. Reed, who serves as Senior Vice President and Chief Credit Officer; and Christopher A. Sharer, who serves as Senior Vice President and Chief Information Officer.
 
 
 
Common Stock Beneficially Owned
 
 
 
 
 
Percent of Outstanding Common Stock
 
Directors, Director Nominees and Named Executive Officers
 
 
 
 
 
 
 
 
 
Donald W. Burdette
    60,670  
    (1 )
    3.8 %
Robert L. Carpenter, Jr.
    -  
       
    *  
James R. Clifford, Sr.
    15,750  
    (2 )
    1.0 %
George C. Cramer
    57,000  
    (3 )
    3.5 %
Stephen J. Deadrick
    26,300  
    (4 )
    1.6 %
William L. Kincaid, Jr.
    2,700  
       
    *  
William F. Lindlaw
    -  
       
    *  
Bernard L. Moxley, Jr.
    5,760  
    (5 )
    *  
Rodney E. Reed
    250  
       
    *  
Christopher A. Sharer
    -
 
       
    *  
Gary L. Smith, Sr.
    15,493  
       
    1.0 %
Theresa J. Tomasini
    500  
    (6 )
    *  
John E. Tregoning
    24,870  
    (7 )
    1.5 %
William F. Willard, Jr.
    2,340  
    (8 )
    *  
 
       
       
       
Directors and Executive Officers as a group (14 persons)
    211,633  
       
    13.1 %
 
       
       
       
Notes:
* Less than 1.0%.
(1) Includes 30,380 shares held jointly with his spouse.
(2) Includes 4,000 shares held jointly with his spouse.
(3) Includes 54,800 shares held jointly with his spouse.
(4) Includes 26,200 shares held jointly with his spouse.
(5) Includes 1,000 shares held jointly with his spouse.
(6) Includes 500 shares held jointly with her spouse.
(7) 
Includes 21,320 shares held by the Robert M. Tregoning Bypass Trust for which Mr. Tregoning is trustee, and 550 shares held jointly with his spouse.
(8) Includes 2,290 shares held jointly with his spouse.
 
 
 
31
 
THE MERGER AGREEMENT AND THE MERGER
 
The following information describes the material terms and provisions of the merger agreement and the merger. This discussion is subject, and qualified in its entirety by reference, to the merger agreement, which is incorporated herein by reference.
 
The merger agreement, attached as Annex A hereto, and the summary of its terms in this proxy statement/prospectus have been included only to provide you with information about the terms and conditions of the merger agreement. The representations, warranties and covenants contained in the merger agreement were made solely for the purposes of such agreement and as of specific dates, and were qualified and subject to certain limitations and exceptions agreed to by Old Line Bancshares and DCB Bancshares in connection with negotiating the terms of the merger agreement. In particular, in your review of the representations and warranties contained in the merger agreement and described herein, it is important to bear in mind that the representations and warranties were made solely for the benefit of the parties to the merger agreement and were negotiated for the purpose of allocating contractual risk among the parties to the merger agreement rather than to establish matters as facts. The representations and warranties may also be subject to a contractual standard of materiality or material adverse effect different from those generally applicable to stockholders and reports and documents filed with the SEC, and, in some cases, they may be qualified by disclosures made by one party to the other, which are not necessarily reflected in the merger agreement or other public disclosures made by Old Line Bancshares or DCB Bancshares. The representations and warranties contained in the merger agreement do not survive the effective time of the merger. Moreover, information concerning the subject matter of the representations, warranties and covenants, which do not purport to be accurate as of the date of this document, may have changed since the date of the merger agreement, and subsequent developments or new information may not be fully reflected in public disclosures of Old Line Bancshares.
 
For the foregoing reasons, the representations, warranties and covenants or any descriptions of those provisions should not be read alone or relied upon as characterizations of the actual state of facts or condition of Old Line Bancshares or DCB Bancshares or any of their respective subsidiaries or affiliates. Instead, such provisions or descriptions should be read only in conjunction with the other information provided elsewhere in this document or incorporated by reference into this document. Please see the sections of this proxy statement/prospectus entitled “Incorporation of Certain Documents by Reference” and “Where You Can Find More Information.” Old Line Bancshares will provide additional disclosures in its public reports to the extent it becomes aware of the existence of any material facts that are required to be disclosed under federal securities laws and that might otherwise contradict the terms and information contained in the merger agreement and will update such disclosure as required by federal securities laws.
 
General
 
The merger agreement provides that:
 
DCB Bancshares will merge with and into Old Line Bancshares with Old Line Bancshares as the surviving corporation;
 
If you are a stockholder of DCB Bancshares, you will receive, for each share of DCB Bancshares common stock that you own, that number of shares of Old Line Bancshares common stock determined by dividing $25.22 (160% of the tangible book value of each share of DCB Bancshares common stock at December 31, 2016) by the Average Price, provided that if the Average Price is $27.21 or more the exchange ratio will be fixed at 0.9269 and if the average price is $20.85 or less the exchange ratio will be fixed at 1.2096, and provided further that cash will be paid in lieu of fractional shares of Old Line Bancshares common stock;
 
Immediately after the merger, pursuant to an Agreement and Plan of Merger, dated as of February 1, 2017, by and between Old Line Bank and Damascus Community Bank, Damascus Community Bank will be merged with and into Old Line Bank, with Old Line Bank as the surviving bank, which we refer to as the bank merger; and
 
Stephen J. Deadrick and another current director of DCB Bancshares will be elected as members of the Old Line Bancshares and Old Line Bank boards of directors.
 
Assuming the requisite approval of DCB Bancshares’ stockholders and the satisfaction of other conditions to closing, we currently expect the merger to close in the second quarter of 2017. The merger will result in an institution with pro forma assets of more than $2.0 billion and 27 full-service banking offices serving nine counties. Old Line Bancshares expects the merger to be immediately accretive to its tangible book value and earnings, excluding merger expenses.
 
 
 
32
 
 
Background of the Merger
 
Old Line Bancshares regularly considers strategic acquisitions to the extent such opportunities arise and the institutions in question have businesses and cultures complimentary to Old Line Bancshares and Old Line Bank. On April 22, 2010, Old Line Bancshares appointed a special committee of its board of directors (later reconstituted as a joint committee of Old Line Bancshares and Old Line Bank) to review potential strategic opportunities in general (the “Strategic Opportunities Committee”), which at that time included consideration of the acquisition of Maryland Bankcorp or Maryland Bank and Trust Company, N.A. Since its formation, the Strategic Opportunities Committee has considered potential acquisitions on an ongoing basis.
 
From time to time over the past several years, the board of directors of Damascus Community Bank and, after the Reorganization (as defined below), of DCB Bancshares, has considered various strategic alternatives as part of their continuing efforts to enhance the community banking franchise and to maximize stockholder value. These strategic alternatives included continuing as an independent institution, opening branch offices, establishing related lines of business, and entering into a strategic transaction, such as a merger, with one or more depository institutions. In fact, the board of directors of Damascus Community Bank approved and authorized the reorganization and share exchange transaction with DCB Bancshares (the “Reorganization”) in large part to position Damascus Community Bank for various growth opportunities that might be easier or more effective to achieve as a bank holding company. The Reorganization was effective on September 1, 2016. As used in this section, the term “DCB Bancshares” means both DCB Bancshares and, for periods ending prior to September 1, 2016, Damascus Community Bank.
 
During the second half of 2015, Damascus Community Bank’s board and management team devoted considerable effort toward developing both short-term and long-term goals consistent with a newly defined strategic vision. These efforts culminated in the adoption of a new Strategic Plan (the “DCB Plan”) by the board on December 22, 2015. The DCB Plan called for a combination of organic and inorganic growth to reach an asset size whereby the board felt that Damascus Community Bank could create the necessary operational efficiencies of scale that would allow it to sustain continued growth and enhance stockholder value.
 
As the management team commenced implementation of the DCB Plan in early 2016, it did so knowing that organic growth alone was unlikely to achieve either the board’s profitability growth objective or its asset growth objective. Consequently, and in support of the concept of inorganic growth, Stephen J. Deadrick, Chairman of the Board of DCB Bancshares, and William L. Kincaid, Sr., who at the time was serving as President and Chief Executive Officer (the “CEO”) and a director of DCB Bancshares, held a series of exploratory discussions with similarly-sized potential strategic partners. The board of directors of DCB Bancshares determined that none of those discussions presented the kinds of opportunities that would achieve the objectives outlined in the DCB Plan.
 
In mid-2016, in anticipation of the Reorganization, the board of directors of DCB Bancshares began to explore the feasibility of a capital raise that would provide Damascus Community Bank with the capital necessary to not only grow but also meet the increased regulatory capital standards imposed under the “Basel III” regulatory capital reforms and changes required by the Dodd-Frank Act. Simultaneously, the board began to explore in more detail the feasibility of inorganic growth strategies.
 
As part of its exploration efforts, the board invited David Danielson of Ambassador Financial Group (“Ambassador”) to make a presentation on the current state of community banking, both locally and nationally, including industry banking updates, trends in bank stock pricing, M&A trends and benefits associated with various enterprise strategies at the regular board meeting held on May 25, 2016. Mr. Danielson, together with Jay Shah, also of Ambassador, made a follow-up presentation on Ambassador’s analysis of potential merger and acquisition opportunities at the regular DCB Bancshares board meeting held on July 27, 2016. Mr. Danielson then made a presentation regarding a possible subordinated debt offering at the regular DCB Bancshares board meeting held on August 24, 2016. Ambassador gave these presentations free of charge to market its services and not pursuant to any engagement by DCB Bancshares or its board.
 
On September 1, 2016, Mr. Danielson met by conference call with Mr. Deadrick, Robert L. Carpenter, Jr., then serving as the Executive Vice President - Chief Financial Officer of DCB Bancshares and Damascus Community Bank, and William F. Lindlaw, then serving as the Executive Vice President - Chief Lending Officer of DCB Bancshares and Damascus Community Bank, to discuss strategic options and issues regarding a potential capital raise.
 
On September 26, 2016, Mr. Deadrick received a message from the chief executive officer of a similarly-sized commercial bank (the “First Contact”) in which it was suggested that the two meet to discuss potential synergies. Mr. Deadrick returned this message on October 7, 2016 and scheduled a meeting for October 11, 2016.
 
 
 
33
 
 
On October 4, 2016, Mr. Kincaid resigned as the CEO. DCB Bancshares’ board of directors met of October 5, 2016 to discuss the leadership void created by Mr. Kincaid’s departure. During that meeting, Messrs. Carpenter and Lindlaw were appointed as interim co-CEOs, and an Executive Search Committee was formed to facilitate the recruitment of a permanent CEO. Based on the concern that the CEO vacancy would likely make a subordinated debt offering both more difficult and more expensive to complete, the DCB Bancshares board decided to suspend its exploration of a subordinated debt offering until a permanent CEO was hired. In addition, the board discussed and prepared for the possibility that the CEO vacancy might result in unsolicited inquiries from potential acquirers.
 
Between October 6 and October 8, 2016, in anticipation of his upcoming meeting with the First Contact, Mr. Deadrick held discussions with Mr. Danielson regarding the feasibility of a merger with the First Contact and how such a transaction might be structured in light of the objectives outlined in the DCB Plan. The idea of a merger between DCB Bancshares and the First Contact was discussed at the October 11, 2016 meeting. Following that meeting, Mr. Deadrick consulted with Messrs. Carpenter, Lindlaw and Danielson regarding the potential opportunity. Based on those discussions and after considering several factors relevant to the objectives outlined in the DCB Plan, Mr. Deadrick concluded that a merger with the First Contact was not advisable. Mr. Deadrick informally discussed his conclusion with the other DCB Bancshares board members, who concurred. Around October 15, 2016, Mr. Deadrick notified the First Contact that DCB Bancshares was not interested in further discussing the matter.
 
During a phone conversation on October 8, 2016, Mr. Danielson mentioned to Mr. Deadrick that DCB Bancshares should also have an exit strategy in the event that an acceptable permanent CEO could not be hired. Their discussion led Mr. Danielson to ask Mr. Deadrick whether he would meet with James W. Cornelsen, President and Chief Executive Officer of both Old Line Bancshares and Old Line Bank. Mr. Deadrick advised Mr. Danielson that he would be receptive to meeting with Mr. Cornelsen regarding a potential strategic partnership. On October 11, 2016, Mr. Danielson sent an e-mail to Messrs. Deadrick and Cornelsen, introducing them to each other and suggesting they meet.
 
In the meantime, on October 13, 2016, Mr. Danielson met with Mr. Deadrick, some other DCB Bancshares directors and Mr. Carpenter by conference call to discuss the possibility of a small subordinated debt raise in light of the CEO vacancy. The parties determined to continue exploring this possibility but that they should wait until after Mr. Deadrick’s meeting with Mr. Cornelsen before spending additional time or effort. Ultimately, DCB Bancshares did not move forward believing that a small raise would not provide the capital needed to fund potential growth in the market and that the potential rate for a larger offering would likely be unfavorable.
 
Messrs. Deadrick and Cornelsen met on October 20, 2016. During that meeting, Mr. Cornelsen expressed his interest in a strategic partnership between Old Line Bancshares and DCB Bancshares. At the conclusion of this meeting, Mr. Cornelsen extended an invitation to Mr. Deadrick and two other DCB Bancshares directors selected by Mr. Deadrick to visit him at Old Line Bancshares’ headquarters in the near future.
 
After this meeting, Mr. Deadrick contacted Mr. Danielson and recapped his discussions with Mr. Cornelsen. Mr. Danielson asked Mr. Deadrick to discuss the possibility of a transaction with Old Line Bancshares with the other DCB Bancshares directors and determine whether the DCB Bancshares board would be receptive to engaging in more formal discussions with Old Line Bancshares.
 
On October 24, 2016, Mr. Cornelsen called Mr. Deadrick to inquire on the status of a visit to Old Line Bancshares. Mr. Deadrick indicated that he had not yet discussed their meeting with the DCB Bancshares board but would do so soon.
 
During the October 26, 2016 DCB Bancshares regular board meeting, Mr. Deadrick advised the board of his meeting with Mr. Cornelsen and the board authorized Mr. Deadrick to continue discussions with Mr. Cornelsen. At this meeting, it was agreed that Mr. Deadrick and fellow directors James R. Clifford, Sr. and George C. Cramer would meet with Mr. Cornelsen at Old Line Bancshares, and a meeting was scheduled for October 31, 2016.
 
On October 31, 2016, Mr. Deadrick contacted Andrew Bulgin of Gordon Feinblatt LLC (“Gordon Feinblatt”), who serves as outside counsel to DCB Bancshares, to inform him of the discussions held with Old Line Bancshares and to engage Gordon Feinblatt for advice and representation regarding a potential business combination with Old Line Bancshares. Mr. Bulgin advised Mr. Deadrick that DCB Bancshares and Old Line Bancshares should enter into a confidentiality agreement before sharing any detailed business information with each other. On that same date, Mr. Deadrick sent a draft confidentiality agreement prepared by Baker, Donelson, Bearman, Caldwell & Berkowitz, PC (“Baker, Donelson”), outside counsel to Old Line Bancshares, to Mr. Bulgin for review.
 
 
 
34
 
 
Between October 31, 2016 and November 3, 2016, Mr. Bulgin and Frank C. Bonaventure, Jr. of Baker, Donelson negotiated the confidentiality agreement on behalf of their respective clients.
 
On November 2, 2016, Mr. Deadrick informed Messrs. Carpenter and Lindlaw of the discussions with Old Line Bancshares. On the same day, Mr. Deadrick met with the chairman of the board of another local commercial bank (the “Third Contact”). During this meeting, the chairman of the Third Contact expressed interest in a possible acquisition of DCB Bancshares. On December 12, 2016, after considering the potential synergies of a transaction, the potential benefit of a transaction to DCB Bancshares’ stockholders and the fact that the potential benefits of a transaction with Old Line Bancshares were more closely aligned with the objectives in the DCB Plan, Mr. Deadrick informed the chairman of the Third Contact that DCB Bancshares was not interested in exploring a transaction at that time.
 
On November 3, 2016, Old Line Bancshares and DCB Bancshares entered into a confidentiality agreement pursuant to which, among other things, they agreed to conduct initial due diligence on each other to explore the feasibility of a merger transaction.
 
On November 4, 2016, Mr. Deadrick received an email message from the chairman and CEO of another local community bank (the “Fourth Contact”), who expressed an interest in meeting Mr. Deadrick to discuss the possibility of a strategic partnership. After considering whether a transaction with the Fourth Contact would be consistent with the objectives outlined in the DCB Plan, and in light of the ongoing discussions with Old Line Bancshares, the potential benefits that Mr. Deadrick believed were possible from a merger transaction with Old Line Bancshares and the fact that DCB Bancshares and Old Line Bancshares had recently entered into a confidentiality agreement and would spend considerable time and effort conducting initial due diligence, Mr. Deadrick declined the Fourth Contact’s invitation.
 
On November 4, 2016, Mr. Cornelsen informed Mr. Deadrick that Old Line Bancshares intended to engage Ambassador to provide investment banking advice with respect to the potential merger with DCB Bancshares. Later that day, Mr. Danielson verbally discussed Old Line Bancshares’ initial due diligence information request with Mr. Carpenter.
 
On November 7, 2016, Mr. Danielson provided Messrs. Deadrick and Carpenter with a formal initial due diligence request list. Between November 7, 2016 and November 11, 2016, Messrs. Carpenter and Lindlaw provided the requested initial due diligence information to Mr. Danielson.
 
On November 9, 2016, the Risk Committee of the DCB Bancshares board of directors held a special meeting at which Mr. Danielson discussed his views on the benefits to DCB Bancshares of a merger transaction with Old Line Bancshares as compared to other potential local merger partners.
 
On November 14, 2016, Mr. Cornelsen, Mark A. Semanie, Executive Vice President and Chief Operating Officer of Old Line Bancshares and Old Line Bank, and Joseph E. Burnett, Executive Vice President and Chief Lending Officer of Old Line Bancshares and Old Line Bank, met with Messrs. Deadrick, Carpenter and Lindlaw at Ambassador’s office. Mr. Danielson was also present at this meeting, where the discussion focused on questions arising from Old Line Bancshares’ review of the initial due diligence materials provided by DCB Bancshares.
 
On November 21, 2016 and December 15, 2016, Mr. Danielson presented reports about a potential DCB Bancshares/Old Line Bancshares merger to the Old Line Bancshares Strategic Opportunities Committee. At both meetings, the Strategic Opportunities Committee determined to continue moving forward with an acquisition of DCB Bancshares.
 
On November 21, 2016, Mr. Cornelsen, on behalf of Old Line Bancshares, sent DCB Bancshares a preliminary written indication of interest to Mr. Deadrick with respect to a proposed merger of DCB Bancshares and Damascus Community Bank with Old Line Bancshares and Old Line Bank, respectively. In its letter, Old Line Bancshares proposed a transaction with an aggregate deal value (i.e. consideration) of 160% of DCB Bancshares tangible equity as of December 31, 2016, payable in shares of Old Line Bancshares common stock. Old Line Bancshares also proposed a termination fee equal to 3.25% of the deal’s transaction value and to invite one member of DCB Bancshares’ board of directors to join Old Line Bancshares’ and Old Line Bank’s board of directors, and indicated it was open to discussions about a second board seat.
 
 
 
35
 
 
At a special meeting of the DCB Bancshares board of directors on November 29, 2016, also attended by Messrs. Carpenter and Bulgin, the letter of interest from Old Line Bancshares was presented and discussed in detail. The DCB Bancshares board concluded that the terms described in the letter of interest seemed to present a very good opportunity for DCB Bancshares to achieve many of the objectives outlined in the DCB Plan at a very attractive price for stockholders, but that DCB Bancshares needed to seek advice from a qualified investment banking firm regarding the current merger market and the terms and conditions contained in Old Line Bancshares’ letter of interest, including the price being offered. The DCB Bancshares board then authorized Mr. Deadrick to conduct further negotiations with Old Line Bancshares, while at the same time identifying and arranging for the interview of investment banking firms to represent DCB Bancshares.
 
Between November 23, 2016 and November 30, 2016, Mr. Deadrick received a call from representatives of another community bank (the “Fifth Contact”), who expressed interest in discussing a possible strategic partnership. Mr. Deadrick indicated that he would follow up with the Fifth Contact if interested in having further discussions, as at that time Mr. Deadrick believed that Old Line Bancshares’ letter of interest was compelling and needed to be vetted. There was no further discussion with the Fifth Contact.
 
On December 1, 2016, the Risk Committee of the DCB Bancshares board of directors held a special meeting at which it conducted comprehensive interviews of three potential investment banking firms. Messrs. Carpenter and Bulgin were also in attendance. On December 2, 2016, formal proposals were received from all three potential firms. On December 5, 2016, after reviewing and discussing in detail the submitted proposals, the Risk Committee chose and approved the engagement of RP Financial.
 
On December 6, 2016, DCB Bancshares formally engaged RP Financial as its financial advisor with respect to the merger.
 
On December 8, 2016, Mr. Danielson provided a full due diligence request list from Old Line Bancshares to Messrs. Deadrick, Carpenter and Bulgin, as well as James P. Hennessey of RP Financial. Additional information was requested throughout December 2016 and January 2017.
 
Between December 6, 2016 and December 15, 2016, with the advice and assistance of RP Financial and Gordon Feinblatt, DCB Bancshares negotiated certain revisions to Old Line Bancshares’ letter of interest.
 
On December 15, 2016, in response to comments from Mr. Deadrick and RP Financial based on the review by the DCB Bancshares board of directors, Old Line Bancshares sent DCB Bancshares a revised indication of interest that included downside protection for DCB Bancshares in the form of a price collar. In this letter, among other things, Old Line Bancshares clarified that the exchange ratio for determining the number of shares of Old Line Bancshares common stock to be paid to the holders of DCB common stock would be determined based on DCB’s tangible equity as of December 31, 2016, and the most recent ten-day (trading days) weighted average closing price of Old Line Bancshares common stock immediately prior to signing a definitive agreement. The indication of interest included added downside price protection in the event that Old Line Bancshares’ stock price were to decline between the merger announcement date and the merger closing date.
 
On December 15, 2016 and December 16, 2016, DCB Bancshares and their representatives proposed further revisions to the letter of interest, which were accepted by Old Line Bancshares.
 
At a special meeting of the DCB Bancshares board held on December 16, 2016, which was also attended by Messrs. Carpenter, Lindlaw, Bulgin and Hennessey, the revised letter of interest was presented and discussed in detail. Mr. Hennessey presented his initial analysis of Old Line Bancshares’ offer, which presentation included a discussion of the price offered to DCB Bancshares’ stockholders as compared to recent transactions and the synergies that could reasonably be expected from a merger with Old Line Bancshares. Mr. Bulgin then discussed the revisions that had been made to the original letter of interest. The DCB Bancshares board, after a thorough discussion, authorized Mr. Deadrick to execute the letter of interest once some final revisions were made, including a clarification of the description of the downside price protection mechanism and the provision of a minimum severance benefit for displaced employees of Damascus Community Bank.
 
 
 
36
 
 
On December 16, 2016, in response to comments from Mr. Deadrick and RP Financial, Old Line Bancshares submitted a second revised indication of interest in which it indicated that the exchange ratio would be based on the ten-day weighed average price of Old Line Bancshares’ common stock immediately prior to the closing of the merger instead of the signing of a definitive agreement, and included a collar that provided the denominator in the exchange ratio calculation would be no less than $20.85 and no more than the ten-day weighted average closing price of the Old Line Bancshares common stock immediately prior to signing a definitive agreement. After confirming that it addressed the minimum severance benefit discussed above, Mr. Deadrick executed this third indication of interest on behalf of DCB Bancshares and returned it to Old Line Bancshares on December 16, 2016.
 
On December 28 and 29, 2016, Old Line Bancshares and their representatives conducted on-site due diligence of Damascus Community Bank’s loan portfolio. Messrs. Carpenter and Lindlaw met with Mr. Burnett and M. John Miller, Executive Vice President and Chief Credit Officer of Old Line Bank, at the conclusion of this on-site loan due diligence, during which representatives of the parties discussed DCB Bancshares’ operations, loan portfolio and financial condition.
 
On January 4, 2017, Mr. Deadrick met with Mr. Cornelsen to discuss due diligence progress. At that time, Mr. Cornelsen expressed Old Line Bancshares’ interest in electing Mr. Deadrick to the boards of Old Line Bancshares and Old Line Bank following the completion of the merger so that DCB Bancshares’ stockholders would have continued representation of the post-merger bank.
 
 On January 8, 2017, Old Line Bancshares circulated an initial draft of the merger agreement to DCB Bancshares for review.  During the remainder of January 2017, Old Line Bancshares and DCB Bancshares and their respective advisers regotiated the terms of the merger agreement and the ancillary documents appearing as exhibits to the merger agreement.  During this time, DCB Bancshares and Old Line Bancshares also continued their due diligence investigations of each other.
 
On January 9, 2016, Mr. Deadrick confirmed that the DCB Bancshares board of directors desired to have one additional director represent DCB Bancshares’ stockholders on the board of the post-merger bank, and he provided Mr. Cornelsen with a list of three DCB Bancshares directors who were interested in being considered for election to the boards of Old Line Bancshares and Old Line Bank following the completion of the merger.
 
Also on January 9, 2016, Mr. Carpenter and Bethany S. Lord, Vice President of Human Resources for Damascus Community Bank, met with Mr. Semanie and David L. Seyler, Senior Vice President – Cash Management Services of Old Line Bank, to discuss how the merger announcement should be communicated to the public once the merger agreement was signed.
 
On January 11, 2017, Messrs. Deadrick, Carpenter, Lindlaw, Bulgin and Hennessey conducted on-site due diligence of Old Line Bancshares and Old Line Bank. This review included a comprehensive review of financial, corporate, legal, operations and other information as well as discussions with various members of Old Line Bank’s management team. Off-site due diligence of Old Line Bancshares and Old Line Bank by Messrs. Carpenter and Lindlaw, Gordon Feinblatt and RP Financial continued through January 29, 2017.
 
On January 13, 2017, the Risk Committee of the DCB Bancshares board held a special meeting to discuss the results of due diligence performed to date. Messrs. Carpenter, Lindlaw, Bulgin and Hennessey were also in attendance. The consensus of the due diligence participants was that Old Line Bank was a well-managed, strong bank whose branch footprint, product and service lines and culture aligned well with Damascus Community Bank and the objectives outlined in the DCB Plan. The Risk Committee also reviewed in detail the initial draft of the merger agreement. The Risk Committee directed Mr. Bulgin to negotiate certain changes to this draft.
 
On January 18, 2017, Mr. Deadrick met with Mr. Cornelsen and Craig E. Clark, chairman of the board of directors of Old Line Bancshares and Old Line Bank, to discuss due diligence issues as well as progress on finalizing the merger agreement.
 
At a special meeting of the DCB Bancshares board on January 19, 2017, also attended by Messrs. Carpenter, Lindlaw, Hennessey, and Bulgin, the draft of the merger agreement was reviewed in detail. At the outset, Mr. Bulgin explained the duties of care and loyalty with which each director must comply when reviewing the terms of the merger and deciding whether to declare it advisable. During the course of this review, the directors of DCB Bancshares engaged in a thorough discussion of the material terms of the merger agreement and their implications to DCB Bancshares and its stockholders, and asked several questions of Mr. Bulgin regarding the legal aspects of the transaction. Mr. Bulgin was directed to negotiate several revisions to address the board’s questions and comments. Following this legal review, Mr. Hennessey made a presentation that included an overview of the proposed merger transaction from a financial point of view, a detailed analysis of the price calculations and possible exchange ratios, and a detailed analysis of how the terms of the proposed merger, including the pricing terms, compared to other recent transactions among banking institutions. Directors asked many detailed questions of Mr. Hennessey concerning his analysis and a robust discussion followed.
 
 
 
37
 
 
On January 20, 2017, Old Line Bancshares formally engaged Ambassador as its financial advisor with respect to the merger.
 
On January 23, 2017, Mr. Deadrick contacted Mr. Cornelsen to discuss the status of the merger agreement negotiations and the anticipated signing date.
 
During the regular meeting of the DCB Bancshares board of directors held on January 25, 2017, also attended by Messrs. Carpenter, Lindlaw, Bulgin and Hennessey, the board was updated on continuing progress of negotiations, the anticipated timing of a public announcement, and when and how the merger should be communicated to employees, stockholders and customers. Mr. Hennessey then presented RP Financial’s preliminary fairness opinion, along with the supporting analysis and methodology. At that time, Mr. Hennessey stated that RP Financial believed that the merger would be fair to DCB Bancshares’ stockholders from a financial point of view.
 
The Risk Committee of DCB Bancshares held a special meeting on January 30, 2017 to review the current draft of the merger agreement, which included a detailed review of the representations and warranties to be made by DCB Bancshares to Old Line Bancshares, along with all supporting disclosure schedules. Several minor revisions to the merger agreement were agreed upon, along with a few final questions for Mr. Bulgin.
 
On February 1, 2017, the DCB Bancshares board of directors held a special meeting to consider the final terms of the merger agreement. Also in attendance were Messrs. Carpenter, Lindlaw, Bulgin and Hennessey. Mr. Hennessey presented RP Financial’s final fairness opinion, which had been provided to all board members on January 31, 2017. His presentation included the supporting analysis and methodology overview. Mr. Hennessey also answered several questions posed by directors and concluded by stating RP Financial’s opinion that the transaction would be fair from a financial point of view to DCB Bancshares’ stockholders. Mr. Bulgin then reviewed each term of the merger agreement with the board and pointed out those provisions that had been changed since the last review. Mr. Bulgin again reviewed with the directors their fiduciary obligations when considering the merger and deciding whether to declare it advisable. Following this discussion and, after considering the opinion of RP Financial, the board of directors of DCB Bancshares unanimously declared the merger and the merger agreement to be advisable and in the best interests of DCB Bancshares’ stockholders.
 
Also on February 1, 2017, Old Line Bancshares’ board of directors held a special meeting at which it considered the definitive merger agreement and ancillary documents, and at which representatives of Ambassador and Mr. Bonaventure, were also present. Mr. Bonaventure presented the board with an overview of the material terms of the merger agreement, copies of which were provided to each director before the meeting. Also at this meeting, Mr. Danielson of Ambassador reviewed the financial aspects of the proposed merger. At the conclusion of these presentations and discussion and deliberation, and after considering all of the factors that it deemed relevant, the Old Line Bancshares board of directors unanimously approved the merger agreement and the transactions contemplated by the merger agreement, up to and including the merger, approved the form of the related support agreement, declared the merger advisable, and authorized Old Line Bancshares’ President and Chief Executive Officer to execute and deliver the definitive merger agreements and the support agreements.
 
The parties executed the merger agreement on February 1, 2017.
 
Following the close of trading markets on February 1, 2017, DCB Bancshares and Old Line Bancshares issued a joint press release announcing the approval, adoption and execution of the merger agreement.
 
 
 
38
 
 
Old Line Bancshares’ Reasons for the Merger
 
In evaluating acquisition opportunities, Old Line Bancshares looks for financial institutions with business philosophies that are similar to those of Old Line Bancshares and that operate in markets that geographically complement its operations. In evaluating acquisition opportunities, Old Line Bancshares also considers its long-range strategies, including financial, customer and employee strategies. Old Line Bancshares, from time to time, reviews its strategic plan to analyze its geographic scope, financial performance and growth opportunities. Since its acquisition of Maryland Bankcorp in 2011, WSB in 2013 and Regal Bancorp in 2015, Old Line Bancshares has considered a number of opportunities to expand its presence in its primary market areas; however management and the Strategic Opportunities Committee concluded that the acquisition of DCB Bancshares was the best current opportunity to further this business objective. In connection with its approval of the merger with DCB Bancshares, Old Line Bancshares’ board of directors reviewed the terms of the proposed acquisition and definitive agreements and their potential impact to Old Line Bancshares’ constituencies. In reaching its decision to approve the merger agreement and the merger, Old Line Bancshares’ board of directors considered a number of factors, including the following:
 
The acquisition of DCB Bancshares and Damascus Community Bank represents an attractive opportunity for Old Line Bank to enter and establish branches in upper Montgomery County and Frederick County, Maryland, which complements its current market area, while remaining a community bank;
 
The results of due diligence of DCB Bancshares and its business operations, including asset quality;
 
The understanding of the business operations, management, financial condition, asset quality, product offerings and prospects of DCB Bancshares based on, among other things, input from management and Old Line Bancshares’ financial advisor;
 
The view that the combined company will have the potential for a stronger competitive position in a marketplace where relatively greater size and scale may become increasingly more important factors for financial performance and success;
 
The expectation that the merger would be immediately accretive to book value and earnings (excluding merger expenses) in light of the potential cost savings and revenue enhancements;
 
DCB Bancshares’ customer service-oriented emphasis with local decision-making ability and a clear focus on the community and local customers, which are consistent with Old Line Bancshares’ business approach;
 
The financial condition, operating results and future prospects of Old Line Bancshares and DCB Bancshares;
 
A review of comparable transactions, including a comparison of the price being paid in the merger with the prices paid in other comparable financial institution mergers from an earnings, deposit premium and tangible book value perspective;
 
Management’s view, based on, among other things, such comparable transactions reviewed, that the consideration paid by Old Line Bancshares is fair to Old Line Bancshares and its stockholders from a financial point of view; and
 
The belief that DCB Bancshares has a compatible business culture and shared approach to customer service and increasing stockholder value.
 
All business combinations, including the merger, also include certain risks and disadvantages. The material potential risks and disadvantages to Old Line Bancshares and its stockholders that Old Line Bancshares’ board of directors and management identified and the board of directors considered include the following material matters, the order of which does not necessarily reflect their relative significance:
 
Execution risk;
 
The risk that DCB Bancshares’ loans and other items were not discounted properly or appropriately valued;
 
 
 
39
 
 
 
The risk that DCB Bancshares’ deposit customers will choose to move their business to a different bank;
 
The risk that projected earnings, tangible book value increases and/or cost savings will not materialize or will be less than expected;
 
That Old Line Bancshares might have to pass on other acquisitions in the near term if proceeding with the merger with DCB Bancshares; and
 
The risk that DCB Bancshares terminates the merger by reason of a superior DCB Bancshares transaction.
 
The discussion and factors considered by Old Line Bancshares’ board of directors is not intended to be exhaustive, but includes all material factors considered. Old Line Bancshares’ board of directors considered these factors as a whole, and considered them to be favorable to, and supportive of, its determination. Old Line Bancshares’ board of directors did not consider it practical, nor did it attempt, to quantify, rank or otherwise assign relative weights to the specific factors that it considered in reaching its decision. In considering the factors described above, individual members of Old Line Bancshares’ board of directors may have given different weights or priority to different factors. Old Line Bancshares’ board of directors realized there can be no assurance about future results, including results expected or considered in the factors listed above. The board of directors concluded, however, that the potential positive factors outweighed the potential risks of completing the merger.
 
After deliberating with respect to the proposed merger with DCB Bancshares, considering, among other things, the factors discussed above, the Old Line Bancshares board of directors approved the merger agreement and the merger with DCB Bancshares and declared the merger advisable.
 
There can be no certainty that the above benefits of the merger anticipated by the Old Line Bancshares board of directors will occur. Actual results may vary materially from those anticipated. For more information on the factors that could affect actual results, see “Caution Regarding Forward-Looking Statements” and “Risk Factors.”
 
  DCB Bancshares’ Reasons for the Merger and Recommendation of the Board of Directors
 
The DCB Bancshares board of directors concluded that the merger offers DCB Bancshares’ stockholders an attractive opportunity to achieve the board’s strategic business objectives, including increasing stockholder value, growing the size of the business and enhancing liquidity for stockholders. In addition, the board believes that both the customers and communities served by Damascus Community Bank will enjoy significant benefits from the merger that they might not otherwise enjoy if Damascus Community Bank were to remain independent or merge with another bank.
 
In deciding to approve the Merger, the DCB Bancshares board of directors consulted with management, as well as its legal counsel and financial adviser, and considered numerous factors, including the following:
 
Information with respect to the businesses, earnings, operations, financial condition, prospects, capital levels and asset quality of Damascus Community Bank and Old Line Bank, both individually and as a combined company;
 
The perceived risks and uncertainties attendant to Damascus Community Bank’s operation as an independent banking organization, including the risks and uncertainties related to the low interest rate environment, competition in Damascus Community Bank’s market area, and the increased regulatory costs and increased capital requirements that will likely result from new and pending laws and regulations;
 
The current and prospective merger market and the board’s belief, based on, among other information, RP Financial’s presentation, that future merger opportunities for DCB Bancshares might not be as favorable as the opportunity presented by Old Line Bancshares’ offer;
 
The market values of DCB Bancshares’ common stock and Old Line Bancshares’ common stock prior to the execution of the merger agreement and the immediate value of the merger to DCB Bancshares’ stockholders given the merger consideration’s significant premium over the then-current trading price of the shares of DCB Bancshares’ common stock;
 
 
 
40
 
 
 
The uncertainties surrounding the CEO vacancy and the risks that such vacancy presents to Damascus Community Bank’s growth and success, and, in turn, future stockholder value;
 
The potential long-term value to be realized by DCB Bancshares’ stockholders as a result of the merger as compared to stockholder value projected for DCB Bancshares as an independent entity, and the prospects for future appreciation of Old Line Bancshares’ common stock as a result of its strategic initiatives;
 
Old Line Bancshares’ strategies to remain independent and to seek profitable future expansion, which it expected to lead to continued growth in overall stockholder value;
 
The enhanced liquidity for stockholders of DCB Bancshares as a result of receiving shares of Old Line Bancshares’ common stock given the current trading market for Old Line Bancshares’ common stock;
 
The culture and business model of Old Line Bank, which the DCB Bancshares board of directors believes are complimentary to Damascus Community Bank’s culture and business model, and the perceived competence, experience and community banking philosophy of Old Line Bank’s management team, both of which the board believed should increase the likelihood that Damascus Community Bank will be successfully integrated with Old Line Bank;
 
Old Line Bank’s commitment to retain as many employees of Damascus Community Bank as practical, and its agreement to provide severance benefits to terminated employees that is consistent with Damascus Community Bank’s employee severance policy; and
 
Old Line Bank’s successful acquisition track record and the belief that the merger will be approved by the parties’ banking regulators without undue burden and in a timely manner.
 
The DCB Bancshares board of directors also considered potential risks associated with the merger when makings its decision to approve the merger agreement, including:
 
The risk that the terms of the merger agreement, including the provisions generally prohibiting DCB Bancshares from soliciting, engaging in discussions or providing information with respect to alternative transactions, and those relating to the payment of a termination fee under specified circumstances, which were required by Old Line Bancshares as a condition to its willingness to enter into the transaction, could have the effect of discouraging other parties that might be interested in a transaction with DCB Bancshares from proposing such a transaction;
 
The risk of an all-stock transaction in the event that Old Line Bancshares’ stock price declines significantly after the merger is completed;
 
The challenges of combining the businesses of the two companies, which could affect the post-merger success of the combined company, and the ability to achieve anticipated cost savings and other potential benefits of the merger;
 
The risk that the merger would not be completed, leaving DCB Bancshares’ reputation severely damaged;
 
The risk that DCB Bancshares’ stockholders and the community react negatively to the loss of the local community bank; and
 
The risk that DCB Bancshares’ stockholders, the community, and customers react negatively to the job eliminations that will be required to achieve the anticipated cost savings from the merger.
 
In the judgment of the DCB Bancshares’ board of directors, the potential benefits of the merger outweigh these potential risks.
 
 
 
41
 
 
The above discussion of the information and factors considered by DCB Bancshares’ board of directors is not intended to be exhaustive, but it does include a description of all material factors considered by the board. In view of the wide variety of factors considered by the board of directors in connection with its evaluation of the merger, the board did not consider it practical to, nor did it attempt to, quantify, rank or otherwise assign relative weights to the specific factors that it considered. In considering these factors, individual directors may have given differing weights to different factors. DCB Bancshares’ board of directors made a collective determination with respect to the Merger, based on the conclusion reached by its members and the factors that each of them considered appropriate, that the merger is in the best interests of the stockholders of DCB Bancshares.
 
Opinion of DCB Bancshares’ Financial Advisor
 
DCB Bancshares retained RP Financial on December 6, 2016, to render an opinion regarding the fairness from a financial point of view with respect to the merger consideration to be received by DCB Bancshares’ stockholders in the merger. In engaging RP Financial for its fairness opinion, the DCB Bancshares board of directors did not give any special instructions to RP Financial, nor did it impose any limitations upon the scope of the investigation that RP Financial wished to conduct to enable it to give its opinion. RP Financial has delivered to DCB Bancshares its written opinion, dated February 1, 2017, to the effect that, based upon and subject to the matters set forth therein and other matters it considered relevant, as of that date, the merger consideration to be received in connection with the merger with Old Line Bancshares was fair to the DCB Bancshares stockholders from a financial point of view. The opinion of RP Financial is directed to the board of directors of DCB Bancshares in its consideration of the merger agreement, and does not constitute a recommendation to any stockholder of DCB Bancshares as to any action that such stockholder should take in connection with the merger agreement or otherwise. RP Financial’s opinion is directed only to the fairness of the merger consideration to the current stockholders of DCB Bancshares from a financial point of view as of the date of the merger agreement. A copy of the RP Financial opinion is set forth as Annex B to this proxy statement/prospectus, and DCB Bancshares stockholders should read it in its entirety. RP Financial has consented to the inclusion and description of its written opinion in this proxy statement/prospectus.
 
DCB Bancshares selected RP Financial to act as its financial advisor because of RP Financial’s expertise in the valuation of businesses and their securities for a variety of purposes, including its expertise in connection with mergers and acquisitions of financial institutions, and entered into an engagement letter with RP Financial on December 6, 2016. Pursuant to that engagement letter, RP Financial is entitled to receive professional fees for its services in connection with the merger and reimbursement of certain out-of-pocket expenses. RP Financial estimates that it will receive $100,000 as compensation for its professional services, of which $80,000 has been paid to date and $20,000 is contingent on, and payable upon, the closing of the merger. Of this amount, $50,000 relates to RP Financial’s fairness opinion and was paid at the time the merger agreement was executed.
 
 
In addition, DCB Bancshares has agreed to indemnify and hold harmless RP Financial, any affiliates of RP Financial, and the respective directors, officers, agents and employees of RP Financial or their successors and assigns who act for or on behalf of RP Financial in connection with the services called for under DCB Bancshares’ engagement letter with RP Financial, from and against any and all losses, claims, damages and liabilities (including, but not limited to, all losses and expenses in connection with claims under the federal securities laws), actually incurred by RP Financial and attributable to: (i) any untrue statement of a material fact contained in the financial statements or other information furnished or otherwise provided by an authorized officer of DCB Bancshares to RP Financial; (ii) the omission of a material fact from the financial statements or other information furnished or otherwise made available by an authorized officer of DCB Bancshares to RP Financial; or (iii) any action or omission to act by DCB Bancshares, or DCB Bancshares’ respective officers, directors, employees or agents, which action or omission is willful. Notwithstanding the foregoing, DCB Bancshares will be under no obligation to indemnify RP Financial hereunder if a court determines that RP Financial was negligent or acted in bad faith or willfully with respect to any actions or omissions of RP Financial related to a matter for which indemnification is sought.
 
In addition, if RP Financial is entitled to indemnification from DCB Bancshares and in connection therewith incurs legal expenses in defending any legal action challenging the opinion of RP Financial where RP Financial is not negligent or otherwise at fault or is found by a court of law to be not negligent or otherwise at fault, DCB Bancshares will indemnify RP Financial for all reasonable expenses.
 
In rendering its opinion, RP Financial reviewed the following material and/or conducted the following analyses with respect to the merger agreement and DCB Bancshares:
 
the merger agreement, as reviewed by the DCB Bancshares board of directors on February 1, 2017, and certain exhibits;
 
 
42
 
 
 
the following financial information for DCB Bancshares: (a) audited consolidated financial statements, included in the annual reports for the fiscal years ended December 31, 2012 through December 31, 2015; (b) unaudited consolidated financial data, including stockholder reports and financial statements through December 31, 2016; (c) unaudited consolidated financial data through December 31, 2016; (d) quarterly financial reports submitted to the FDIC by Damascus Community Bank through September 30, 2016; (e) internal financial and other reports provided to DCB Bancshares’ and Damascus Community Bank’s board of directors from the beginning of fiscal 2015 through December 31, 2016 with regard to balance sheet and off-balance sheet composition, profitability and balance sheet trends, certain risk factors and DCB Bancshares’ and Damascus Community Bank’s operations; (f) historical publicly-available financial information as published by SNL Financial, Inc.; and (g) internally prepared budget information;
 
the financial terms of certain other recently completed and pending acquisitions of banks headquartered in the Mid-Atlantic region of the United States with comparable financial characteristics as DCB Bancshares;
 
the financial terms of certain other recently completed and pending acquisitions of banks headquartered in the states of Maryland, Virginia and Delaware as well as the District of Columbia with comparable financial characteristics as DCB Bancshares;
 
the estimated pro forma financial benefits of the merger to DCB Bancshares stockholders; and
 
in person interviews with senior executive officers of DCB Bancshares.
 
In addition, RP Financial reviewed or considered the following materials or information for Old Line Bancshares and as further described below certain peers of Old Line Bancshares:
 
the annual audited financial statements for the fiscal years ended 2011 to 2015, as presented in Old Line Bancshares’ Annual Report on Form 10-K filings;
 
the quarterly financial reports submitted to the FDIC by Old Line Bank from March 31, 2015 through December 31, 2016;
 
internally prepared budget information for Old Line Bancshares for 2017;
 
stock price history for Old Line Bancshares during past 12 months;
 
Old Line Bancshares financial information versus a peer group of comparable publicly-traded institutions; and
 
in person interviews with senior executives of Old Line Bancshares.
 
In rendering its opinion, RP Financial relied, without independent verification, on the accuracy and completeness of the information concerning DCB Bancshares and Old Line Bancshares furnished by the respective institutions to RP Financial for review for purposes of its opinion, as well as publicly-available information regarding other financial institutions and competitive, economic and demographic data. RP Financial further relied on the assurances of management of DCB Bancshares and Old Line Bancshares as included in the merger agreement. RP Financial has not been asked to and has not undertaken an independent verification of any of such information and RP Financial does not assume any such responsibility or liability for the accuracy or completeness thereof. DCB Bancshares did not restrict RP Financial as to the material it was permitted to review. RP Financial did not perform or obtain any independent appraisals or evaluations of the assets and liabilities, the collateral securing the assets or the liabilities (contingent or otherwise) of DCB Bancshares or Old Line Bancshares or the collectability of any such assets, nor has RP Financial been furnished with any such evaluations or appraisals. RP Financial did not make an independent evaluation of the adequacy of the allowance for loan losses of DCB Bancshares or Old Line Bancshares nor did RP Financial review any individual credit files relating to DCB Bancshares or Old Line Bancshares.
 
 
 
43
 
 
RP Financial, with DCB Bancshares’ consent, has relied upon the advice DCB Bancshares has received from its legal, accounting and tax advisors as to all legal, accounting and tax matters relating to the merger agreement and other transactions contemplated by the merger agreement. In rendering its opinion, RP Financial assumed that, in the course of obtaining the necessary regulatory and governmental approvals for the proposed merger, no restriction will be imposed on Old Line Bancshares that would have a material adverse effect on the ability of the merger to be consummated as set forth in the merger agreement. RP Financial also assumed that there has been no material change in DCB Bancshares’ or Old Line Bancshares’ assets, financial condition, results of operations, business or prospects since the date of the most recent financial statement made available to us. RP Financial assumed, in all respects material to its analyses, that all of the representations and warranties contained in the merger agreement and all related agreements are true and correct, that each party to such agreements will perform all of the covenants required to be performed by such party under such agreements and that the conditions precedent in the merger agreement are not waived.
 
RP Financial’s opinion was based solely upon the information available to it and the economic, market and other circumstances as they existed as of February 1, 2017. Events occurring after February 1, 2017, could materially affect the assumptions used in preparing the opinion. In connection with rendering its opinion dated February 1, 2017, RP Financial performed a variety of financial analyses that are summarized below. Although the evaluation of the fairness, from a financial point of view, of the merger consideration was to some extent subjective based on the experience and judgment of RP Financial and not merely the result of mathematical analyses of financial data, RP Financial relied, in part, on the financial analyses summarized below in its determinations. The preparation of a fairness opinion is a complex process and RP Financial believes its analyses must be considered as a whole. Selecting portions of such analyses and factors considered by RP Financial without considering all such analyses and other factors could create an incomplete view of the process underlying RP Financial’s opinion. In its analyses, RP Financial took into account its assessment of general business, market, monetary, financial and economic conditions, industry performance and other matters, many of which are beyond the control of DCB Bancshares and Old Line Bancshares, as well as RP Financial’s experience in securities valuation, its knowledge of financial institutions, its knowledge of the current operating and merger and acquisition environments for financial institutions, and its experience in similar transactions. With respect to the comparable transactions and control premium analyses described below, no public company utilized as a comparison is identical to DCB Bancshares and such analyses necessarily involve complex considerations and judgments concerning the differences in financial and operating characteristics of the companies and other factors that could affect the acquisition values of the companies concerned. The analyses were prepared solely for purposes of RP Financial providing its opinion as to the fairness of the merger consideration, and they do not purport to be appraisals or necessarily reflect the prices at which businesses or securities actually may be sold. Any estimates contained in RP Financial’s analyses are not necessarily indicative of future results of values, which may be significantly more or less favorable than such estimates.
 
Comparable Transactions Analysis.
 
RP Financial compared the merger on the basis of the multiples or ratios of reported earnings, tangible book value and tangible book premium to core deposits reported in a selected comparable group of completed and pending bank mergers and acquisitions. The Comparable Transactions groups consisted of a sale of control transactions where the acquired company had the following characteristics: (1) based in the states of Maryland, Virginia and Delaware as well as the District of Columbia announced during the period from January 1, 2015, to January 27, 2017, involving targets with total assets between $150 million and $500 million at the announcement date (the “Local Region Transactions”); and (2) all Mid-Atlantic transactions announced during the period from January 1, 2015, to January 27, 2017, involving targets with total assets between $100 million and $1 billion at the announcement date (the “Mid-Atlantic Transactions”). The transactions comprising the Local Region Transactions Group and the Mid-Atlantic Transactions are set forth below.
 
 
 
44
 
 
Local Region Transactions Group
 
Acquirer
Target
ACNB Corp.
New Windsor Bancorp Inc.
Bay Banks of Virginia Inc.
Virginia BanCorp Inc.
Dollar Bank FSB
Bank @LANTEC
First Citizens BancShares Inc.
Cordia Bancorp Inc.
Revere Bank
Monument Bank
Blue Ridge Bankshares Inc.
River Bancorp Inc.
Summit Financial Group Inc.
Highland County Bankshares Inc.
Hampton Roads Bankshares Inc.
Xenith Bankshares Inc.
Bay Bancorp Inc.
Hopkins Bancorp Inc.
Grayson Bankshares Inc.
Cardinal Bankshares Corp.
Southern BancShares (NC)
Heritage Bankshares Inc.
Revere Bank
BlueRidge Bank
Hamilton Bancorp Inc.
Fraternity Community Bancorp
Park Sterling Corporation
First Capital Bancorp Inc.
Old Line Bancshares Inc.
Regal Bancorp Inc.
Delmarva Bancshares Inc.
Easton Bancorp Inc.
Howard Bancorp Inc.
Patapsco Bancorp Inc.
 
Mid-Atlantic Transactions Group
 
Acquirer
Target
ACNB Corp.
New Windsor Bancorp Inc.
Standard Financial Corp
Allegheny Valley Bancorp Inc.
Prudential Bancorp Inc.
Polonia Bncp, Inc.
DNB Financial Corp.
East River Bk
Norwood Financial Corp.
Delaware Bancshares Inc.
Lakeland Bancorp
Harmony Bank
Bay Bancorp Inc.
Hopkins Bancorp Inc.
Revere Bank
BlueRidge Bank
Hamilton Bancorp Inc.
Fraternity Community Bancorp
NexTier Inc.
Eureka Financial Corp
Northfield Bancorp Inc.
Hopewell Valley Cmnty Bank
Lakeland Bancorp
Pascack Bancorp Inc.
ESSA Bancorp Inc.
Eagle National Bancorp Inc.
Preferred Bank
United International Bk
Citizens Financial Services
First National Bk of Frederick
Howard Bancorp Inc.
Patapsco Bancorp Inc.
WSFS Financial Corp.
Alliance Bancorp of Penn
Cathay General Bancorp
Asia Bancshares Inc.
 
 
 
 
45
 
 
The average and median selected financial data and acquisition pricing multiples or ratios at announcement for the Regional Transaction Group and the Mid-Atlantic Transaction Group relative to the DCB Bancshares pricing multiples or ratios based on the merger consideration are shown below:
 
 
 
Comparable Transactions (1)
 
 
 
Regional Trans. Group
 
 
  Mid-Atlantic Trans. Group  
 
 
 
 
 
 
Average
 
 
Median
 
 
Average
 
 
Median
 
 
DCB Bancshares (2)
 
Financial Data and Ratios
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Assets ($000)
  $ 302,006  
  $ 239,659  
  $ 297,434  
  $ 291,411  
  $ 310,955  
Tangible Equity/Assets (%)
    10.11 %
    8.95 %
    10.88 %
    9.93 %
    8.18 %
Return on Average Assets (%)
    0.42  
    0.52  
    0.45  
    0.51  
    0.28  
Return on Average Equity (%)
    4.68  
    5.16  
    4.58  
    4.56  
    3.46  
Non-Performing Assets/Assets (%)
    1.36  
    1.51  
    1.38  
    1.36  
    0.92  
 
       
       
       
       
       
Deal Value and Pricing Ratios (3)
       
       
       
       
       
Deal Value ($ Millions)
  $ 35.30  
  $ 26.90  
  $ 40.20  
  $ 32.30  
  $ 40.70  
Price/Tangible Book (%)
    123.53 %
    121.05 %
    126.77 %
    124.46 %
    160.00 %
Price/Earnings (x)
    20.46 x
    19.00 x
    24.65 x
    21.43 x
    46.3 x
Tang. Book Premium/Deposits(%)
    2.97 %
    2.98 %
    5.22 %
    3.41 %
    6.04 %
(1) Pricing ratios at announcement.
(2) Reflects financial data as of or for the trailing 12 months ended December 31, 2016.Earnings ratios and multiples reflect core earnings which equals reported earnings net of a one-time recovery of $800,000 on a non-performing loan and $136,000 of expense related to the former CEO’s severance, all on a tax effected basis at an assumed 38% marginal tax rate.
(3) Deal value and multiples for DCB Bancshares based on the Starting Price as defined in the merger agreement.
 
The average and median pricing multiples (Price/Tangible Book Value multiple, Price/Earnings multiple and Core Deposit Premium multiple) of the Local Region Transactions and Mid-Atlantic Transactions group were applied to DCB Bancshares’ actual financial measures (tangible book value, core earnings and core deposits) to derive a valuation range before adjustments. A downward adjustment was then made to account for DCB Bancshares’ lower return on assets and return on equity as well as differences in the earnings composition including DCB Bancshares’ reliance on income from secondary market loan sales and indirect auto lending. The resulting valuation range was $18.00 to $21.00 per share, which is below the merger consideration of $25.22 per share as of February 1, 2017, while the value of the merger consideration at the lower collar (assumes the Closing Market Price for Old Line Bancshares is $16.68 per share) is $20.18, which falls within the estimated range of value indicated by the Comparable Transactions Approach.
 
Control Premium Analysis
 
The Control Premium Analysis applies a multiple to the pre-announcement fair market value or trading value of an acquisition target’s common stock at various points in time (one-week and one -month prior to announcement) to derive a sale of control value for a share of the acquisition target’s stock. It is a two-step process.
 
First the fair market value of a minority share of DCB Bancshares common stock is estimated based on a Peer Group of comparable publicly-traded companies. Then a multiple is applied to the fair market value and the trading value of DCB Bancshares’ stock based on control premium multiples paid in comparable transactions. The resulting valuation range is then compared to the offer price.
 
 
 
46
 
 
The fair market value of DCB Bancshares’ stock was based on the trading multiples of a group of comparable publicly-traded institutions (the “Peer Group”). The Peer Group consisted of publicly-traded (listed on the NASDAQ Stock Market, LLC or the New York Stock Exchange) group of commercial banks, commercial bank holding companies, thrifts or savings and loan holding companies headquartered in the Mid-Atlantic region of the U.S., with total assets of less than $700 million and return on average assets measures of less than 0.75%. There were a total of 17 institutions included in the Peer Group as follows:
 
Ticker
 
Headquarters
Symbol
Peer Group Company
Location
BKJ
Bancorp of New Jersey, Inc.
New Jersey
BOTJ
Bank of the James Financial Group, Inc.
Virginia
BYBK
Bay Bancorp, Inc.
Maryland
CARV
Carver Bancorp, Inc.
New York
DNBF
DNB Financial Corporation
Pennsylvania
EMCF
Emclaire Financial Corp
Pennsylvania
FSBC
FSB Bancorp, Inc.
New York
GLBZ
Glen Burnie Bancorp
Maryland
HBK
Hamilton Bancorp, Inc.
Maryland
HMTA
HomeTown Bankshares Corporation
Virginia
MSBF
MSB Financial Corp.
New Jersey
OPOF
Old Point Financial Corporation
Virginia
PBHC
Pathfinder Bancorp, Inc.
New York
PBIP
Prudential Bancorp, Inc.
Pennsylvania
SSFN
Stewardship Financial Corporation
New Jersey
SBBX
Sussex Bancorp
New Jersey
WVFC
WVS Financial Corp.
Pennsylvania
 
RP Financial compared the financial condition and recent performance of DCB Bancshares to the median financial conditions and recent performance measures of the Peer Group, as displayed in the table on the following below.
 
 
 
Regional Trans. Group
 
 
 
Average
 
 
Median
 
 
DCB Bancshares(2)
 
Financial Data and Ratios
 
 
 
 
 
 
 
 
 
Assets ($000)
  $ 609,515  
  $ 606,336  
  $ 310,955  
Tangible Equity/Assets (%)
    10.02 %
    9.11 %
    8.19  
Return on Average Assets (%)
    0.41  
    0.48  
    0.28  
Return on Average Equity (%)
    4.45  
    4.32  
    3.46  
Non-Performing Assets/Assets (%)
    1.53  
    1.22  
    0.92  
 
       
       
       
Market Capitalization and Pricing Ratios (3)
       
       
       
Market Capitalization ($ Millions)
  $ 71.60  
  $ 58.70  
  $ 20.20  
Price/Tangible Book (%)
    121.30 %
    116.94 %
    79.18 %
Price/Earnings (x)
    19.07 x
    19.89 x
    22.94 x
(1) Pricing ratios at announcement.
(2) Reflects financial data as of or for the trailing 12 months ended December 31, 2016.Earnings ratios and multiples reflect core earnings which equals reported earnings net of a one-time recovery of $800,000 on a non-performing loan and $136,000 of expense related to the former CEO’s severance, all on a tax effected basis at an assumed 38% marginal tax rate.
(3) Market capitalization and pricing ratios for DCB Bancshares are based on the DCB Bancshares’ closing price of $12.50 per share in the over-the-counter market as of January 27, 2017.
 
 
 
47
 
 
Relative to the Peer Group, RP Financial made downward valuation adjustments for DCB Bancshares’ smaller asset size lower earnings and earnings composition that includes material contributions from secondary market loan sales and indirect auto lending. Upward valuation adjustments relative to the Peer Group were applied for DCB Bancshares’ more leveraged equity position, lower ratio of non-performing assets, and operations in the Baltimore-Washington metropolitan area. RP Financial concluded with a public equivalent value for DCB Bancshares equal to $15.00 per share.
 
Then, a Control Premium Analysis, which involved applying a control premium to the fair market value of DCB Bancshares stock RP Financial derived as well as to the actual trading value of DCB Bancshares stock as of January 27, 2017 (DCB Bancshares’ stock traded on a limited basis on the Pink marketplace of the OTC Markets Group) to arrive at a range of sale of control values under this approach. The control premium applied was the median of the 1-week and one-month premiums paid over the trading value of the stock (i.e., acquisition price at announcement divided by price of target one-week and one-month prior to announcement date involving selling institutions with total assets between $100 million and $1 billion that announced a transaction over the 12-month period ending January 27, 2017).RP Financial applied a range of control premiums from 35% to 50% to the range of trading values.
 
Applying this premium to the fair market value of DCB Bancshares’ stock that RP Financial derived and to the actual closing price of DCB Bancshares’ stock as of February 1, 2017 resulted in a sale of control valuation range of $17.00 to $22.50 per share, which was below the merger consideration of $25.22 per share as of February 1, 2017, while the value of the merger consideration at the lower collar (assumes the Closing Market Price for Old Line Bancshares is $16.68 per share) is $20.18 and falls within the estimated range of value indicated by the Control Premium Approach.
 
Discounted Cash Flow Analysis
 
RP Financial evaluated the value per share of the current offer to the implied value of DCB Bancshares’ current business plan. In this regard, RP Financial measured the present value per share of future dividends and the terminal value to DCB Bancshares’ current stockholders utilizing DCB Bancshares’ preliminary 2017 budget data which covered the five year period from January 1, 2017, to December 31, 2021. The discounted cash flow analysis reflected the preliminary 2017 budget assumptions as follows:
 
Beginning balance sheet as of December 31, 2016, was utilized for modeling purposes;
 
Asset growth in the range of 6% to 9% annually and loan growth in the range of 10% annually;
 
The projected return on average assets was projected to equal 0.50% in 2017 increasing gradually to equal 0.79% by 2021;
 
Regulatory capital required to capitalize the growth targeted within the 2017 five year budget was bolstered by an assumed issuance of subordinated debt in the amount of $7 million in May 2017, the proceeds of which were downstreamed as tier 1 capital to Damascus Community Bank; and
 
Dividends to stockholders was assumed to remain stable at $0.08 per share annually, which is equal to DCB Bancshares’ current dividend policy.
 
The discounted cash flow analysis reflected the following valuation assumptions:
 
Fifth year terminal value multipliers for earnings per share were in a range of 21 to 25 times earnings per share while the fifth year terminal value multipliers for tangible book value per share were in a range of 1.15 times to 1.45 times tangible book value per share; and
 
The cash flows were then discounted to present value using two discount rates, a low of 13.0% and a high of 15.0%.
 
The present per share value generated by the discounted cash flow under these assumptions ranged from $18.00 per share to $23.50 per share. The indicated range of value pursuant to the discounted cash flow approach was below the merger consideration of $25.22 per share as of February 1, 2017, while the value of the merger consideration at the lower collar (assumes the Closing Market Price for Old Line Bancshares is $16.68 per share) is $20.18 and falls within the estimated range of value indicated by the Discounted Cash Flow Approach.
 
 
 
48
 
 
 
Pro Forma Impact Analysis
 
Since the merger consideration consists solely of Old Line Bancshares’ common stock, RP Financial considered the estimated pro forma impact of the merger on Old Line Bancshares’ financial condition, operating results and stock pricing ratios. Specifically, RP Financial considered that the merger is anticipated to be immediately accretive to Old Line Bancshares’ tangible book value per share and will be accretive to Old Line Bancshares’ pro forma earnings per share within the first year of completing the merger, assuming incorporation of certain anticipated merger synergies and core earnings estimates for DCB Bancshares, and will increase Old Line Bancshares’ market capitalization and shares outstanding. Furthermore, RP Financial considered the increased asset size, competitive profile and geographic footprint of Old Line Bancshares on a pro forma basis. RP Financial considered the pro forma impact of the merger on Old Line Bancshares’ per share data and pricing ratios based on Old Line Bancshares’ pre-announcement trading price. RP Financial also considered other benefits of the merger to DCB Bancshares’ stockholders, including the potential for increased liquidity of the stock for DCB Bancshares’ stockholders given Old Line Bancshares’ larger size, greater market capitalization and greater number of shares outstanding, and listing on the NASDAQ Capital Market, whereas the trading market for DCB Bancshares’ common stock has been historically been limited as DCB Bancshares trades on the Pink marketplace of the OTC Markets Group. Moreover, RP Financial considered the enhanced ability to pursue growth within the expanded market area and expanded management team. In comparing the pro forma impact of the merger, RP Financial also took into consideration that following the merger, DCB Bancshares’ stockholders will own approximately 12% to 15% of the common stock in Old Line Bancshares, with the ownership level dependent upon the closing market prices of Old Line Bancshares common stock prior to the effective date of the merger, and that two directors of DCB Bancshares will serve on the Old Line Bancshares’ board of directors following the closing of the merger.
 
In addition to the above analyses, RP Financial considered and evaluated the operating history of DCB Bancshares, the historical trading activity and trading price of the DCB Bancshares common stock, the national, regional and local risks that could negatively impact future operations on a stand-alone basis. RP Financial’s opinion and presentation to the DCB Bancshares board of directors was one of many factors taken into consideration by the DCB Bancshares board of directors in making its determination to approve the merger agreement. Although the foregoing summary describes the material components of the analyses presented by RP Financial to the DCB Bancshares board of directors in anticipation of issuing the February 1. 2017, opinion, it does not purport to be a complete description of all the analyses performed by RP Financial and is qualified by reference to the written opinion of RP Financial set forth as Annex B, which common stockholders of DCB Bancshares are urged to read in its entirety.
 
RP Financial Background and Experience
 
RP Financial, as part of its financial institution valuation and financial advisory practice, is regularly engaged in the valuation of federally-insured depository institution securities in connection with mergers and acquisitions, initial and secondary stock offerings, and business valuations for financial institutions for other purposes. As specialists in the valuation of securities and providing financial advisory services to insured financial institutions, RP Financial has experience in, and knowledge of, the markets for the securities of such institutions nationwide.
 
Terms of the Merger
 
Effects of the Merger
 
Upon completion of the merger, DCB Bancshares will be merged with and into Old Line Bancshares and the separate legal existence of DCB Bancshares will cease. All property, rights, powers, duties, obligations and liabilities of DCB Bancshares will automatically be deemed transferred to Old Line Bancshares, as the surviving corporation in the merger. Old Line Bancshares will continue to be governed by its articles of incorporation and bylaws as in effect immediately prior to the merger.
 
The merger agreement provides that, pursuant to an Agreement and Plan of Merger by and between Old Line Bank and Damascus Community Bank, dated as of February 1, 2017, immediately after the merger Damascus Community Bank will be merged with and into Old Line Bank, with Old Line Bank as the surviving bank in the bank merger. Old Line Bank will continue to be governed by its articles of incorporation and bylaws in effect immediately prior to the bank merger.
 
 
 
49
 
 
Consideration to be Paid in the Merger
 
Pursuant to the terms of the merger agreement, Old Line Bancshares will acquire DCB Bancshares for consideration of shares of its common stock worth 160% of DCB Bancshares total stockholders’ equity less intangible assets, if any, at December 31, 2016 (the “DCB Tangible Equity”). At December 31, 2016, the DCB Tangible Equity was $25.4 million. Accordingly, the value of the shares of Old Line Bancshares common stock to be issued in the merger is approximately $40.7 million, and absent the exercise of the Walk Away Cure Right, as defined and discussed below under “– Termination,” Old Line Bancshares will issue between approximately 1,495,256 and 1,951,302 shares of its common stock in the merger (based on the Average Price of its common stock), which we refer to as the aggregate merger consideration.
 
Changes in the Average Price below $20.85 or above $27.21 will not, however, absent the exercise of the Walk Away Cure Right, impact the number of shares of Old Line Bancshares common stock that will be issued in exchange for a share of DCB Bancshares common stock in the merger (i.e. the per-share consideration), since at such point the exchange ratio will be fixed. Therefore, to the extent the Average Price falls below $20.85, the value of the aggregate merger consideration will be below $40.7 million, and to the extent the Average Price increases above $27.21, the value of the aggregate merger consideration will be above $40.7 million.
 
What DCB Bancshares Stockholders Will Receive in the Merger
 
Pursuant to the merger agreement, except with respect to shares of DCB Bancshares common stock held by stockholders who perfect their appraisal rights as discussed in “– Appraisal Rights,” upon completion of the merger, each share of DCB Bancshares common stock that you hold at the effective time of the merger will be automatically converted into the right to receive that number of shares of Old Line Bancshares common stock (which we sometimes refer to as the per-share consideration) equal to the “exchange ratio,” with the exchange ratio being the number determined by dividing the Per Share Value by the Average Price, where:
 
The Per Share Value means the amount determined by multiplying DCB Bancshares’ total stockholders’ equity, less intangible assets, if any, at December 31, 2016 (the “DCB Tangible Equity”) by 1.60 and dividing such product by the number of shares of DCB Bancshares common stock issued and outstanding immediately prior to the effective time of the merger (the Per Share Value is $25.22 based on DCB Tangible Equity); and
 
The Average Price is the volume weighted average closing price of Old Line Bancshares common stock for the ten trading days ending two trading days before the closing of the merger;
provided that if the Average Price is $27.21 or more or $20.85 or less, $27.21 or $20.85, respectively, will be used as the Average Price, resulting in an exchange ratio of 0.9269 or 1.2096, respectively, subject to changes as a result of Old Line Bancshares increasing the merger consideration as a result of exercising the Walk Away Cure Right, discussed below under “   DCB Bancshares Price Termination Right .”
 
Examples of the potential effects of fluctuations in the Average Price on the merger consideration are illustrated in the following table, based upon a range of hypothetical Average Prices. The Average Prices set forth in the following table have been included for illustrative purposes only. The Average Price may be less than $16.68 or more than $29.93. We cannot assure you as to what the Average Price will be or what the value of the Old Line Bancshares common stock to be issued in the merger will be at the effective time of the merger, and the Average Price at the effective time could be different than at the time of the DCB Bancshares annual meeting.
 
 
 
50
 
 
 
 
 
 
DCB
 
 
 
 
 
 
Tang. Equity
Per Share Consideration
 
Type of
 
Consideration
 
Per Share
/DCB
Aggregate
Exchange
Average
Offered Per
Exchange
as of
Tang. Book
Consideration
Ratio
Price
DCB Share
Ratio
12/31/16
Per Share
(in thous.)
 
 
 
 
 
 
 
Fixed Exch. Ratio
29.93
27.74
0.9269
15.76
176%
44,746
28.57
26.48
0.9269
15.76
168%
42,712
Floating Exchange Ratio
27.21
25.22
0.9269
15.76
160%
40,678
25.85
25.22
0.9756
15.76
160%
40,678
24.49
25.22
1.0298
15.76
160%
40,678
23.13
25.22
1.0904
15.76
160%
40,678
21.77
25.22
1.1585
15.76
160%
40,678
20.85
25.22
1.2096
15.76
160%
40,678
Fixed Exch. Ratio
20.41
24.69
1.2096
15.76
157%
39,839
19.05
23.04
1.2096
15.76
146%
37,169
16.68
20.18
1.2096
15.76
128%
32,542
 
Old Line Bancshares will not issue fractional shares of Old Line Bancshares common stock to DCB Bancshares stockholders. If you are otherwise entitled to receive a fractional share of Old Line Bancshares common stock under the exchange provisions described above, you will instead receive cash for a fractional share of Old Line Bancshares common stock you would otherwise be entitled to in an amount that is equal to the product of (i) the fraction of a share that would otherwise be due to you and (ii) the Average Price.
 
To illustrate the calculation of the per-share merger consideration, for example, assuming the Average Price was $27.63, which was the volume weighted average closing price of Old Line Bancshares common stock for the ten trading days ending two trading days before April 20, 2017, the most recent practical date prior to the date hereof, a DCB Bancshares stockholder who owned 100 shares of DCB Bancshares common stock immediately prior to the effective time of the merger would receive in the merger 92 shares of Old Line Bancshares common stock (which would have a value of $2,505.16 based on the closing sales price for Old Line Bancshares common stock of $27.23 on April 20, 2017) and $19.06 of cash in lieu of a fractional share of Old Line Bancshares common stock.
 
 
DCB Bancshares Price Termination Right
 
DCB Bancshares has the option, but is not required, to terminate the merger agreement if the volume weighted average closing price of Old Line Bancshares common stock during the ten trading days ending five business days before the effective date of the merger (the “Closing Market Price”) is less than $16.68, and the ratio of the Closing Market Price to $27.21 is more than 20% lower than any decrease in the NASDAQ Bank Stock Index over such period, but, prior to such termination being effective, Old Line Bancshares would then have the option to increase the aggregate merger consideration (as a practical matter, by increasing the exchange ratio) to an amount calculated as if the Average Price was $16.68 per share, in which case no termination will take place (the “Walk-Away Cure Right”). DCB Bancshares cannot predict whether or not it would exercise its right to terminate the merger agreement if these conditions were met.
 
The merger agreement does not provide for a resolicitation of DCB Bancshares’ stockholders in the event that the conditions are met and DCB Bancshares chooses to complete the merger. DCB Bancshares’ board of directors has made no decision as to whether it would exercise its right to terminate the merger under these circumstances. In considering whether to exercise its right to terminate the merger agreement, DCB Bancshares’ board of directors would take into account all of the relevant facts and circumstances that exist at the time and would consult with its financial advisor and legal counsel
 
 
 
51
 
 
 
The fairness opinion received by DCB Bancshares from RP Financial is dated as of February 1, 2017, and is based on conditions in effect on that date. Accordingly, the fairness opinion does not address the possibilities presented if the termination provision relating to the Closing Market Price is triggered, including the possibility that DCB Bancshares’ board of directors might elect to continue with the merger even if DCB Bancshares has the ability to terminate the merger agreement under that provision. See “– Opinion of DCB Bancshares’ Financial Advisor.”
 
Approval of the merger agreement and the merger by DCB Bancshares’ stockholders will confer on DCB Bancshares’ board of directors the power to complete the merger even if the price-related termination provision is triggered, without any further action by or re-solicitation of the votes of DCB Bancshares’ stockholders.
 
Exchange Procedures
 
If you are a record holder of DCB Bancshares common stock, a letter of transmittal for use in surrendering your certificates representing your shares of DCB Bancshares common stock will be mailed to you no more than five business days following the effective date of the merger. The letter of transmittal will include instructions for submitting your DCB Bancshares stock certificate(s) in exchange for the Old Line Bancshares common stock you are entitled to as a result of the merger. You must carefully follow the instructions on the letter of transmittal and return a properly executed letter of transmittal and your DCB Bancshares stock certificate(s) to the exchange agent in order to receive the per-share merger consideration for your shares. The DCB Bancshares stock certificate(s) must be in a form that is acceptable for transfer (as explained in the letter of transmittal).
 
Neither Old Line Bancshares nor its exchange agent will be under any obligation to notify any person of any defects in a letter of transmittal.
 
Old Line Bancshares’ exchange agent will mail to each former stockholder of DCB Bancshares certificates representing shares of Old Line Bancshares common stock and checks representing cash in lieu of fractional share interests as soon as practicable after its receipt of a properly completed and signed letter of transmittal and all accompanying DCB Bancshares stock certificates representing shares of DCB Bancshares common stock held by such former stockholder. No interest will be paid on any cash payment.
 
Certificates representing shares of Old Line Bancshares common stock will be dated the effective date of the merger and will entitle the holders to dividends, distributions and all other rights and privileges of an Old Line Bancshares stockholder from the effective date. Until the certificates representing DCB Bancshares common stock are surrendered for exchange, holders of such certificates will not receive the merger consideration or dividends or distributions on the Old Line Bancshares common stock into which such shares have been converted. When the certificates are surrendered to the exchange agent, any unpaid dividends or other distributions will be paid without interest. Old Line Bancshares has the right to withhold dividends or any other distributions on its shares until the applicable DCB Bancshares stock certificates are surrendered for exchange.
 
Until surrendered, each DCB Bancshares stock certificate, following the effective date of the merger, is evidence solely of the right to receive the proportionate amount of the aggregate per-share merger consideration. In no event will either Old Line Bancshares or DCB Bancshares be liable to any former DCB Bancshares stockholder for any amount paid in good faith to a public official or agency pursuant to any applicable abandoned property, escheat or similar law.
 
Under the merger agreement, any shares of DCB Bancshares common stock outstanding immediately prior to the effective time of the merger that are evidenced by one or more certificates representing shares of common stock of Damascus Community Bank, par value $3.00 per share (“Bank Certificates”), that have not been surrendered pursuant to Section 4(b) of the Plan of Reorganization and Share Exchange dated as of April 27, 2016, by and between DCB Bancshares and Damascus Community Bank, will be treated as outstanding shares of DCB Bancshares common stock, and the Bank Certificates will be treated as certificates evidencing shares DCB Bancshares common stock, except that the holders thereof will be entitled to receive the per-share consideration in exchange therefor only upon the surrender of the Bank Certificates in accordance with the terms of the merger agreement discussed above. Shares of DCB Bancshares common stock evidenced by Bank Certificates will in all other respects be subject to the same terms and conditions set forth in the merger agreement that apply to shares of DCB Bancshares common stock evidenced by stock certificates issued by DCB Bancshares.
 
 
 
52
 
 
Old Line Bancshares will not issue any fractions of a share of common stock. Rather, Old Line Bancshares will pay cash for any fractional share interest any DCB Bancshares stockholder would otherwise be entitled to receive in the merger. For each fractional share that would otherwise be issued, Old Line Bancshares will pay by check an amount equal to the amount of such fractional share multiplied by the Average Price.
 
Old Line Bancshares Common Stock
 
Each share of Old Line Bancshares common stock outstanding immediately prior to completion of the merger will remain outstanding after and be unchanged by the merger.
 
Effective Date
 
The merger will take effect when all conditions, including obtaining stockholder and regulatory approval, have been fulfilled or waived, or as soon as practicable thereafter as Old Line Bancshares and DCB Bancshares may mutually select. By law, however, regulatory and stockholder approval cannot be waived. We presently expect to close the merger on or about June 30, 2017. See “– Conditions to the Merger” and “– Regulatory Approvals.”