AGREEMENT AND PLAN OF REORGANIZATION MILLENNIUM BANKSHARES CORPORATION

AGREEMENT AND PLAN OF REORGANIZATION

BETWEEN

MILLENNIUM BANKSHARES CORPORATION

AND

ALBEMARLE FIRST BANK

JUNE 9, 2005

TABLE OF CONTENTS

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ii

Schedule 6.12

LIST OF EXHIBITS

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AGREEMENT AND PLAN OF REORGANIZATION

      AGREEMENT AND PLAN OF REORGANIZATION , dated as of June 9, 2005 (this “Agreement”), by and between ALBEMARLE FIRST BANK , a Virginia banking corporation (“Bank”), and MILLENNIUM BANKSHARES CORPORATION (“Acquiror”).

RECITALS

      A.  Bank . Bank is a Virginia banking corporation, having its principal place of business in Charlottesville, Virginia.

      B.  Acquiror . Acquiror is a Virginia corporation, registered as a financial holding company, having its principal place of business in Reston, Virginia.

      C.  Interim Bank . Acquiror intends to form a bank under the laws of the Commonwealth of Virginia as a wholly-owned subsidiary of Acquiror to facilitate the acquisition of Bank as provided herein.

      D.  Intentions of the Parties . It is the intention of the Parties to this Agreement that the business combination contemplated hereby be treated as a “reorganization” under Section 368 of the Internal Revenue Code of 1986, as amended (the “Code”), and that this Agreement shall constitute a “plan of reorganization” for purposes of the Code.

      E.  Board Action . The respective Boards of Directors of each of Acquiror and Bank have determined that it is in the best interests of their respective organizations and their shareholders to consummate the strategic business combination transaction provided for herein.

      NOW, THEREFORE, in consideration of the premises and of the mutual covenants, representations, warranties and agreements contained herein, the Parties agree as follows:

AGREEMENT

     In consideration of the foregoing, the mutual covenants herein contained and other good and valuable consideration (the receipt, adequacy and sufficiency of which are hereby acknowledged by the Parties by their execution hereof), the Parties agree as follows.

ARTICLE I
DEFINITIONS, CONSTRUCTION

      Section 1.01. Definitions . For purposes of this Agreement, the following capitalized terms have the following meanings.

           “Acquiror” has the meaning set forth in the preamble to this Agreement.

           “Acquiror Average Price” means the average of the daily closing prices of Acquiror Common Stock on the Nasdaq SmallCap Market (as reported in The Wall Street Journal or, if not reported therein, in another mutually agreed upon authoritative source) for the twenty consecutive trading days on the Nasdaq SmallCap Market ending at the close of trading on the Determination Date (in the event that on any trading day within such twenty consecutive trading day period there are no trades of Acquiror Common Stock, then the closing price on any such day shall be deemed to be the closing price

of Acquiror Common Stock on the immediately preceding trading day on which there was any such trade).

           “Acquiror Board” means the Board of Directors of Acquiror.

           “Acquiror Common Stock” means the common stock, par value $5.00 per share, of Acquiror.

           “Acquiror Employee Plans” has the meaning set forth in Section 6.12.

           “Acquiror Meeting” has the meaning set forth in Section 6.02.

           “Acquisition Proposal” means any tender or exchange offer, proposal for a merger, consolidation or other business combination involving Bank or any of its Subsidiaries or any proposal or offer to acquire in any manner a substantial equity interest in, or a substantial portion of the assets or deposits of, Bank or any of its Subsidiaries, other than the transactions contemplated by this Agreement.

           “Agreement” means this Agreement, as amended or modified from time to time in accordance with Section 9.02.

           “Articles Amendment” has the meaning set forth in Section 6.02.

           “Bank” has the meaning set forth in the preamble to this Agreement.

           “Bank Affiliate” has the meaning set forth in Section 6.07.

           “Bank Board” means the Board of Directors of Bank.

           “Bank By-Laws” means the By-laws of Bank.

           “Bank Certificates” has the meaning set forth in Section 3.02(b).

           “Bank Charter” means the Articles of Incorporation of Bank.

           “Bank Common Stock” means the common stock, par value $4.00 per share, of Bank.

           “Banking Act” means the Virginia Banking Act.

           “Bank Meeting” has the meaning set forth in Section 6.02.

           “Bank Stock Option” has the meaning set forth in Section 3.04.

           “Bank Stock Option Plan” means the Albemarle First Bank 1999 Stock Option Plan, as amended.

           “Benefit Plans” has the meaning set forth in Section 5.03(n).

           “Bureau of Financial Institutions” means the Virginia State Corporation Commission’s Bureau of Financial Institutions.

           “Business Day” means any day on which banks are not required or authorized to close in the State of Virginia.

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           “Cash Consideration” has the meaning set forth in Section 3.01(b)(i).

           “Cash Election” has the meaning set forth in Section 3.02(a).

           “Cash Election Shares” has the meaning set forth in Section 3.01(b)(i).

           “Cash Proration Factor” has the meaning set forth in Section 3.03(b)(i).

           “Closing Date” has the meaning set forth in Section 2.03.

           “Code” has the meaning set forth in the Recitals.

           “Commission” means the Virginia State Corporation Commission.

           “Continued Employee” has the meaning set forth in Section 6.12.

           “Converted Option” has the meaning set forth in Section 3.04.

           “Corporation Act” means the Virginia Stock Corporation Act.

           “Costs” has the meaning set forth in Section 6.11(a).

           “Determination Date” means the date that is five Nasdaq SmallCap Market trading days prior to the Effective Date.

           “Disclosure Schedule” has the meaning set forth in Section 5.01.

           “Effective Date” has the meaning set forth in Section 2.03.

           “Effective Time” means the effective time of the Merger, as provided for in Section 2.03.

           “Electing Number” has the meaning set forth in Section 3.03(b).

           “Election Date” has the meaning set forth in Section 3.02(c).

           “Electing Bank Shares” has the meaning set forth in Section 3.01(b)(i).

           “Environmental Law” has the meaning set forth in Section 5.03(r).

           “ERISA” means the Employee Retirement Income Security Act of 1974, as amended.

           “ERISA Affiliate” means, with respect to any Person, any corporation, trade or business which, together with such Person, is a member of a controlled group of corporations or a group of trades or businesses under common control within the meaning of Section 414 of the Code.

           “Exchange Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder.

           “Exchange Agent” has the meaning set forth in Section 3.02(b).

           “Exchange Fund” has the meaning set forth in Section 3.07.

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           “Exchange Ratio” has the meaning set forth in Section 3.01(b)(ii)

           “Fairness Opinion” has the meaning set forth in Section 5.03(aa).

           “FDIC” means the Federal Deposit Insurance Corporation.

           “Federal Reserve” means the Board of Governors of the Federal Reserve System.

           “Financial Statements” has the meaning set forth in Section 5.03(g).

           “Form of Election” has the meaning set forth in Section 3.02(c).

           “Governmental Authority” means any court, administrative agency or commission or other federal, state or local governmental authority or instrumentality.

           “Hazardous Substance” has the meaning set forth in Section 5.03(r).

           “Indemnified Party” has the meaning set forth in Section 6.11(a).

           “Interim Bank Common Stock” has the meaning set forth in Section 3.01(c).

           “Insurance Policy” has the meaning set forth in Section 5.03(v).

           “Liens” means any charge, mortgage, pledge, security interest, restriction, claim, lien or encumbrance.

           “Loan Property” has the meaning set forth in Section 5.03(r).

           “Material Adverse Effect” the meaning set forth in Section 5.02.

           “Maximum Amount” has the meaning set forth in Section 6.11(c).

           “Maximum Cash Election Number” has the meaning set forth in Section 3.03(a).

           “Merger” has the meaning set forth in Section 2.02(a).

           “Merger Consideration” has the meaning set forth in Section 3.01(b).

           “OCC” has the meaning set forth in Section 5.04(f).

          " Party ” means Acquiror or Bank, as applicable, and “ Parties ” means Acquiror and Bank.

           “Person” means any individual, bank, corporation, partnership, association, joint-stock company, business trust or unincorporated organization.

           “Plan of Merger” has the meaning set forth in Section 2.03.

           “Previously Disclosed” by a Party shall mean information set forth in its Disclosure Schedule.

           “Proxy Statement” has the meaning set forth in Section 6.03(a).

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           “Registration Statement” has the meaning set forth in Section 6.03(a).

           “Regulatory Authority” has the meaning set forth in Section 5.03(i).

           “Rights” means, with respect to any Person, securities or obligations convertible into or exercisable or exchangeable for (or giving any person any right to subscribe for or acquire, or any options, calls or commitments relating to, or any stock appreciation right or other instrument the value of which is determined in whole or in part by reference to the market price or value of) shares of capital stock of such Person.

           “Sarbanes-Oxley Act” means the Sarbanes-Oxley Act of 2002 and the rules and regulations promulgated thereunder.

           “SEC” means the Securities and Exchange Commission.

           “SEC Documents” has the meaning set forth in Section 5.04(f).

           “Securities Act” means the Securities Act of 1933, as amended, and the rules and regulations thereunder.

           “Securities Law Documents” has the meaning set forth in Section 5.03(g).

           “Stock Consideration” has the meaning set forth in Section 3.01(b)(ii).

           “Subsidiary” has the meanings ascribed to them in Rule 1-02 of Regulation S-X of the SEC.

           “Surviving Bank” has the meaning set forth in Section 2.02(a).

           “Takeover Laws” has the meaning set forth in Section 5.03(q).

           “Tax” and “Taxes” means any federal, state, local or foreign taxes, charges, fees, levies or other assessments, however denominated, including, without limitation, all net income, gross income, gains, gross receipts, profits, alternative or add-on minimum, sales, use, ad valorem, goods and services, capital, capital stock, production, transfer, registration, franchise, windfall profits, license, withholding, payroll, social security (or similar) employment, disability, employer health, excise, estimated, severance, stamp, occupation, premium, property, environmental (including taxes under Code Section 59A), unemployment or other taxes, custom duties, fees, assessments or charges of any kind whatsoever, whether computed on a separate or consolidated, unitary or combined basis or in any other manner, together with any interest and any penalties, additions to tax or additional amounts imposed by any taxing authority, whether disputed or not, an including any obligation to indemnify or otherwise assume or succeed to the tax liability of any other Person, whether arising before, on or after the Effective Date.

           “Tax Returns” means any return, amended return or other report (including elections, declarations, disclosures, schedules, estimates and information returns) required to be filed with respect to any Tax.

           “Warrants” means the warrants to acquire, as of December 31, 2004, up to 242,095 shares of Bank Common Stock pursuant to a Warrant Agreement dated October 21, 2001, between Bank and Registrar and Transfer Company.

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ARTICLE II
MERGER, EFFECTS OF MERGER

      Section 2.01. Interim Bank . Acquiror shall organize Interim Bank under the Banking Act as a wholly-owned subsidiary of Acquiror. Acquiror shall cause Interim Bank to enter into the Plan of Merger with Bank reflecting the terms hereof as required under the Banking Act and the Corporation Act.

      Section 2.02. Merger .

           (a) Merger Transaction . Subject to the terms and conditions of this Agreement, at the Effective Time, Bank shall merge with and into Interim Bank (the “Merger”), the separate corporate existence of Bank shall cease and Interim Bank shall survive and continue to exist as a Virginia banking corporation (Interim Bank, as the surviving bank in the Merger, sometimes being referred to herein as the “Surviving Bank”). Acquiror may, with Bank’s consent (which shall not be unreasonably withheld, conditioned or delayed), at any time prior to the Effective Time change the method of effecting the combination with Bank (including, without limitation, the provisions of this Article II) if and to the extent it deems such change to be necessary, appropriate or desirable , provided, however, that no such change shall (i) alter or change the amount or kind of Merger Consideration to be issued to holders of Bank Stock as provided for in this Agreement, (ii) cause the transaction to not qualify as a reorganization under Section 368 of the Code, or (iii) materially impede or delay consummation of the transactions contemplated by this Agreement. The Parties shall appropriately amend this Agreement and any related documents to reflect any such revised structure or method.

           (b) Effects of Merger . The Merger shall have the effects prescribed in the Banking Act and the Corporation Act.

           (c) Organizational Documents . The articles of incorporation and by-laws of Interim Bank immediately after the Merger shall be those of Interim Bank as in effect immediately prior to the Effective Time and until such time as the same are amended in accordance with the terms thereof and applicable law; provided, however , that the name of the Surviving Bank shall be changed to Albemarle First Bank.

           (d) Directors of Surviving Bank . Acquiror, as sole shareholder of Interim Bank (and the Surviving Bank after the Merger), shall take all action necessary to reconstitute the Board of Directors of the Surviving Bank such that the directors of the Surviving Bank immediately after the Merger shall be comprised of Persons who are the members of the Bank Board immediately prior to the Effective Time and certain other Persons designated by Acquiror, and such Persons shall serve as directors of the Surviving Bank until such time as their successors shall be duly elected and qualified.

      Section 2.03. Closing, Effective Date and Effective Time . At Acquiror’s election, the closing of the Merger shall take place on (i) the last business day of, or (ii) the first business day of the month following, or (iii) the first business day of the month which is the first month of the earliest calendar quarter following, in each case, the month during which all applicable waiting periods in connection with approvals of Governmental Authorities and the receipt of all approvals of Governmental Authorities and all conditions to the consummation of the Merger are satisfied or waived (other than those conditions that by their nature are to be satisfied at the Closing, but subject to the fulfillment or waiver of such conditions), or on such other date after such satisfaction or waiver as Acquiror and Bank may agree (the “Closing Date”). On or prior to the Closing Date, Bank shall, and Acquiror shall cause Interim Bank to, execute and file Articles of Merger containing a Plan of Merger in substantially the form of Exhibit A hereto (the “Plan of Merger”) in accordance with all appropriate legal requirements, and the Merger provided for herein shall become effective upon the issuance of a certificate of merger by the Commission

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under the Corporation Act (or on such other date as may be specified in such articles of merger) (the date of such issuance, or such later effective date, is herein called the “Effective Date”). The “Effective Time” of the Merger shall be the time of such filing or as set forth in such articles or certificate of merger. The Parties shall use their best efforts to cause to the Effective Date to occur on the Closing Date.

      Section 2.04. Plan of Merger . Subject to the terms and conditions of this Agreement, Bank shall enter into the Plan of Merger reflecting the terms hereof.

      Section 2.05. Director Appointments for Acquiror Board . Acquiror shall cause two current members of the Bank Board, identified by Acquiror in consultation with Bank, to be appointed to the Acquiror Board immediately after the Effective Time.

ARTICLE III
MERGER CONSIDERATION, EXCHANGE PROCEDURES

      Section 3.01. Merger Consideration . Subject to the provisions of this Agreement, at the Effective Time, automatically by virtue of the Merger and without any action on the part of any Person:

           (a) Acquiror Shares . All shares of Bank Common Stock that are owned by Acquiror, if any, shall be canceled and retired and shall cease to exist and no cash, Acquiror Common Stock or other consideration shall be delivered in exchange therefor.

           (b) Outstanding Bank Common Stock . Subject to Section 3.03, each share of Bank Common Stock issued and outstanding immediately prior to the Effective Time (other than any shares of Bank Common Stock owned by Acquiror) shall be converted at the Effective Time into the following (the “Merger Consideration”):

                (i)  for each such share of Bank Common Stock with respect to which an election to receive cash has been effectively made and not revoked or lost pursuant to Section 3.02 or Section 3.03 (the “Electing Bank Shares”), the right to receive $15.82 in cash (the “Cash Consideration”), and

                (ii)  for each such share of Bank Common Stock (other than Electing Bank Shares), the right to receive a number of shares of fully paid and nonassessable Acquiror Common Stock equal to the quotient of “A” divided by “B,” where “A” shall equal $15.82, and where “B” shall equal the Acquiror Average Price (the “Exchange Ratio”); provided , however , that the Exchange Ratio shall not be greater than 2.2600 and shall not be less than 1.8833. The Exchange Ratio is subject to adjustment as set forth in Section 3.06, Section 8.01(g) and Section 8.01(h) (the “Stock Consideration”).

Upon such conversion, all such shares of Bank Common Stock shall no longer be outstanding and shall automatically be canceled and retired and shall cease to exist, and each Bank Certificate shall thereafter represent the right to receive the Merger Consideration and cash for fractional shares in accordance with Section 3.11 upon the surrender of the Bank Certificates in accordance with the terms hereof.

      (c)  Outstanding Interim Bank Common Stock . Each share of common stock, par value $1.00, of Interim Bank (the “Interim Bank Common Stock”) outstanding immediately prior to the Effective Time shall remain outstanding and unchanged following the Effective Time as shares of the Surviving Bank.

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      Section 3.02. Cash Elections .

           (a) Cash Election Procedures . Each Person who, on or prior to the Election Date, is a record holder of shares of Bank Common Stock shall be entitled, with respect to all or any portion of such Person’s shares, to make an unconditional election (a “Cash Election”) on or prior to such Election Date to receive cash for such holder’s shares of Bank Common Stock, on the basis hereinafter set forth, provided, however , that, unless the nominee advises the Exchange Agent otherwise in writing, each of the beneficial owners of shares held of record by a bank, trust company, broker, dealer or other recognized nominee (including, for these purposes, shares allocated to participants’ accounts under any of Bank’s Benefit Plans), shall be treated as a separate record holder and either directly or through such nominee may submit a separate Form of Election for shares that are beneficially owned by such beneficial owner.

           (b) Exchange Agent Appointment . Prior to the Effective Time, Acquiror shall appoint, subject to the approval of Bank (which approval shall not be unreasonably withheld or delayed), an exchange agent (the “Exchange Agent”) for the purpose of exchanging certificates which immediately prior to the Effective Time evidenced shares of Bank Common Stock (the “Bank Certificates”) for the Merger Consideration.

           (c) Form of Election . Acquiror shall prepare a form of election (the “Form of Election”) which shall be subject to the approval of Bank (which approval shall not be unreasonably withheld or delayed) to be mailed by Bank to the record holders of shares of Bank Common Stock not more than 60 Business Days nor less than 20 Business Days prior to the Election Date. The Form of Election may be included on the proxy solicited from shareholders of Bank in connection with the approval of Bank’s shareholders of the Merger. The Form of Election shall be used by each record holder of shares of Bank Common Stock who wishes to elect to receive cash for any or all shares of Bank Common Stock held by such holder, subject to the proration provisions of Section 3.03. Bank shall use its reasonable efforts to make the Form of Election available to all Persons who become holders of shares of Bank Common Stock during the period between the record date for the mailing of the Form of Election and the Election Date. Any holder’s election to receive cash shall have been properly made only if the Exchange Agent shall have received at its designated office, by 5:00 p.m., New York City time, on the Business Day specified by Bank in the Form of Election (or a later Business Day specified by Bank, reasonably acceptable to Acquiror, in a subsequent press release) (the “Election Date”), which Election Date shall be two Business Days prior to the date on which Acquiror reasonably believes the Effective Time shall occur, a Form of Election properly completed and signed and accompanied by Bank Certificates representing the shares of Bank Common Stock to which such Form of Election relates, duly endorsed in blank or otherwise in form acceptable for transfer on the books of Bank (or by an appropriate guarantee of delivery of such Bank Certificates as set forth in such Form of Election from a firm which is an “eligible guarantor institution” (as defined in Rule 17Ad-15 under the Exchange Act), provided that such Bank Certificates are in fact delivered to the Exchange Agent by the time set forth in such guarantee of delivery). Any Form of Election may be revoked by the shareholder submitting it only by written notice received by the Exchange Agent prior to 5:00 p.m., New York City time, on the Election Date. If a Form of Election is revoked, the Bank Certificate or Bank Certificates (or guarantees of delivery, as appropriate) for the shares of Bank Common Stock to which such Form of Election relates shall be promptly returned by the Exchange Agent to the shareholder of Bank submitting the same.

           (d) Exchange Agent Determination . The determination of the Exchange Agent (or the mutual determination of Bank and Acquiror in the event that the Exchange Agent declines to make any such determination) shall be binding as to whether or not Cash Elections have been properly made or revoked pursuant to this Section 3.02 with respect to shares of Bank Common Stock and as to when Cash Elections and revocations were received by it. If the Exchange Agent reasonably determines in good faith that any Cash Election was not properly made with respect to shares of Bank Common Stock, such shares

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shall be treated by the Exchange Agent as shares which were not Electing Bank Shares at the Effective Time, and such shares shall be converted in the Merger into the right to receive the Stock Consideration pursuant to Section 3.01(b)(ii). The Exchange Agent (or Bank and Acquiror by mutual agreement in the event that the Exchange Agent declines to make any such determination) shall also make all computations as to the allocation and the proration contemplated by Section 3.03, and any such computation shall be conclusive and binding on the shareholders of Bank. The Exchange Agent may, with the mutual written agreement of Bank and Acquiror, make such rules as are consistent with this Section 3.02 for the implementation of the Cash Elections provided for herein and as shall be necessary or desirable to fully effect such Cash Elections.

      Section 3.03. Proration .

           (a) Proration Requirements . Notwithstanding anything in this Agreement to the contrary, the maximum number of shares of Bank Common Stock (the “Maximum Cash Election Number”) to be converted into the right to receive Cash Consideration in the Merger shall be no greater than 50 percent of the number of issued and outstanding shares of Bank Common Stock immediately prior to the Effective Time, provided, however , that Acquiror may, in its sole discretion, decrease the amount of the Maximum Cash Election Number to such number of shares of Bank Common Stock as Acquiror reasonably determines, after consultation with Bank and tax counsel to Acquiror and Bank, shall be necessary to permit the delivery of the tax opinions referred to in Section 7.02(c) and Section 7.03(c).

           (b) Procedures for Reducing Number of Electing Bank Shares . If the aggregate number of shares of Bank Common Stock in respect of which Cash Elections have been made (the “Electing Number”) exceeds the Maximum Cash Election Number, each Electing Bank Share shall be converted into the right to receive shares of Acquiror Common Stock or cash in accordance with the terms of Section 3.01(b) in the following manner:

                (i)  a proration factor (the “Cash Proration Factor”) shall be determined by dividing the Maximum Cash Election Number by the Electing Number,

                (ii)  the number of Electing Bank Shares covered by each Cash Election that shall be converted into the right to receive Cash Consideration shall be determined by multiplying the Cash Proration Factor by the total number of Electing Bank Shares covered by such Cash Election, and

                (iii)  all Electing Bank Shares, other than those shares converted into the right to receive Cash Consideration in accordance with Section 3.03(b)(ii), shall be converted into the right to receive shares of Acquiror Common Stock (on a consistent basis among shareholders of Bank who made Cash Elections, pro rata to the respective numbers of shares of Bank Common Stock as to which they made such Cash Elections) as if such shares were not Electing Bank Shares, in accordance with the terms of Section 3.01(b)(ii).

      Section 3.04. Bank Stock Options . Bank and Acquiror shall take all action reasonably necessary so that, immediately prior to the Effective Time, each stock option (the “Bank Stock Options”) heretofore granted under the Bank Stock Option Plan and outstanding immediately prior to the Effective Time shall be converted into an option to purchase a number of shares of Acquiror Common Stock (a “Converted Option”) equal to the product of the number of shares of Bank Common Stock subject to such Bank Stock Option multiplied by the Exchange Ratio (provided that any fractional share resulting from such multiplication shall be rounded down to the nearest whole share). The terms and conditions of the Converted Option shall otherwise remain the same as the terms and conditions of the Bank Stock Option, except that the exercise price per share of each Converted Option shall equal the exercise price per share of such Bank Stock Option divided by the Exchange Ratio (provided that such exercise price shall be

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rounded up to the nearest whole cent). Acquiror shall take all corporate action necessary to reserve for issuance a sufficient number of shares of Acquiror Common Stock for delivery upon exercise of the Converted Options. Acquiror shall use its reasonable best efforts to cause the registration of the shares of Acquiror Common Stock subject to the Converted Options to become effective as part of the Form S-4 or a registration statement on Form S-8, and, thereafter, Acquiror shall file one or more registration statements on appropriate forms with respect to shares of Acquiror Common Stock subject to the Converted Options and shall use its reasonable best efforts to maintain the effectiveness of such registration statement or registration statements for so long as the Converted Options remain outstanding. As soon as practicable after the Effective Time, Acquiror shall deliver or cause to be delivered to each holder of Converted Options an appropriate notice setting forth such holder’s rights pursuant to the Bank Stock Option Plan and agreements evidencing the grants of such Converted Options, after giving effect to the transactions hereunder. The adjustment provided in this Section 3.04 with respect to any Bank Stock Options (whether or not “incentive stock options” (as defined in Section 422 of the Code)) shall be and is intended to be effected in a manner which is consistent with Section 424(a) of the Code and, to the extent it is not so consistent, the provisions of such Section 424(a) of the Code shall override anything to the contrary contained herein.

      Section 3.05. Bank Warrants . At the Effective Time, each unexercised Warrant, if any, shall be converted into a warrant (each, a “Replacement Warrant”) to acquire a number of shares of Acquiror Common Stock equal to the product of the number of shares of Bank Common Stock subject to such Warrant multiplied by the Exchange Ratio (provided that any fractional share resulting from such multiplication shall be rounded down to the nearest whole share). The terms and conditions of the Replacement Warrant shall otherwise remain the same as the terms and conditions of the Warrant, except that the exercise price per share of each Warrant shall equal the exercise price per share of such Warrant divided by the Exchange Ratio (provided that such exercise price shall be rounded up to the nearest whole cent), provided, however , that this Section 3.05 shall not be deemed to modify or otherwise replace the obligations of Bank under Section 6.14.

      Section 3.06. Certain Adjustments . If, between the date of this Agreement and the Effective Time, the outstanding Acquiror Common Stock or Bank Common Stock shall have been changed into a different number of shares or different class by reason of any reclassification, recapitalization, stock split, split-up, combination or exchange of shares or a stock dividend or dividend payable in any other securities shall be declared with a record date within such period, or any similar event shall have occurred, the Merger Consideration shall be appropriately adjusted to provide to the holders of Bank Common Stock the same economic effect as contemplated by this Agreement prior to such event. In the event that the sum of (i) the number of shares of Bank Common Stock presented for exchange pursuant to Section 3.02 and Section 3.08 or otherwise issued and outstanding at the Effective Time, and (ii) the number of shares of Bank Common Stock issuable upon the exercise of options or warrants (whether pursuant to Bank Stock Options or otherwise) as of the Effective Time, shall be greater than the sum of (x) the number of shares of Bank Common Stock represented in Section 5.03(b) as being outstanding as of the date hereof, and (y) the number of shares of Bank Common Stock issuable upon the exercise of Bank Stock Options and Warrants represented in Section 5.03(b) as being outstanding as of the date hereof, then the per share Merger Consideration shall be appropriately and proportionately decreased to take into account such additional issued and outstanding, and issuable, shares of Bank Common Stock.

      Section 3.07. Exchange Fund . Acquiror shall deposit with the Exchange Agent, in trust for the benefit of holders of shares of Bank Common Stock, at or prior to the Effective Time, (i) certificates representing the Acquiror Common Stock issuable pursuant to Section 3.01 in exchange for outstanding shares of Bank Common Stock, and (ii) cash sufficient to pay the cash portion of the Merger Consideration. Acquiror shall make available to the Exchange Agent from time to time as needed, additional cash sufficient to pay cash in lieu of fractional shares pursuant to Section 3.11 and any

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dividends and other distributions pursuant to Section 3.09. Any cash and certificates of Acquiror Common Stock deposited with the Exchange Agent shall hereinafter be referred to as the “Exchange Fund.”

      Section 3.08. Exchange Procedures . Within five Business Days after the Effective Time, Acquiror shall cause the Exchange Agent to mail to each holder of a Bank Certificate who has not surrendered the Bank Certificate representing all of the shares of Bank Common Stock owned by such holder pursuant to Section 3.02 (i) a letter of transmittal which shall specify that delivery shall be effected, and risk of loss and title to the Bank Certificates shall pass, only upon delivery of the Bank Certificates to the Exchange Agent, and which letter shall be in customary form and have such other provisions as Acquiror may reasonably specify, and (ii) instructions for effecting the surrender of such Bank Certificates in exchange for the applicable Merger Consideration. Upon surrender of a Bank Certificate to the Exchange Agent together with such letter of transmittal, duly executed and completed in accordance with the instructions thereto, and such other documents as may reasonably be required by the Exchange Agent, the holder of such Bank Certificate shall be entitled to receive in exchange therefor (A) one or more shares of Acquiror Common Stock (which shall, in the sole discretion of Acquiror, be in uncertificated book-entry form unless a physical certificate is requested or otherwise required) representing, in the aggregate, the whole number of shares that such holder has the right to receive pursuant to Section 3.01 and Section 3.03 (after taking into account all shares of Bank Common Stock then held by such holder), and (B) a check for the cash portion of the Merger Consideration (subject to the proration provisions of Section 3.03) and for the cash that such holder has the right to receive pursuant to the provisions of this Article III, including cash in lieu of any fractional shares of Acquiror Common Stock pursuant to Section 3.11 and dividends and other distributions pursuant to Section 3.09. No interest shall be paid or shall accrue on any cash payable for the cash portion of the Merger Consideration or pursuant to Section 3.09 or Section 3.11. In the event of a transfer of ownership of Bank Common Stock which shall not have been registered in the transfer records of Bank, one or more shares of Acquiror Common Stock evidencing, in the aggregate, the proper number of shares of Acquiror Common Stock and a check for the cash portion of the Merger Consideration, the cash in lieu of any fractional shares of Acquiror Common Stock pursuant to Section 3.11 and any dividends or other distributions to which such holder is entitled pursuant to Section 3.09, may be issued with respect to such Bank Common Stock to such a transferee if the Bank Certificate representing such shares of Bank Common Stock shall be presented to the Exchange Agent, accompanied by all documents required to evidence and effect such transfer and to evidence that any applicable stock transfer taxes have been paid. Persons who have made an effective Cash Election as provided in Section 3.02 and Section 3.03 and surrendered Bank Certificates as provided therein shall be treated as if they have properly surrendered Bank Certificates together with the letter of transmittal pursuant to this Section 3.08.

      Section 3.09. Distributions with Respect to Unexchanged Shares . No dividends or other distributions declared or made with respect to shares of Acquiror Common Stock with a record date after the Effective Time shall be paid to the holder of any unsurrendered Bank Certificate with respect to the shares of Acquiror Common Stock that such holder would be entitled to receive upon surrender of such Bank Certificate until such holder shall surrender such Bank Certificate in accordance with Section 3.08. Subject to the effect of applicable laws, following surrender of any such Bank Certificate, there shall be paid to such holder of shares of Acquiror Common Stock issuable in exchange therefor, without interest, (a) promptly after the time of such surrender, the amount of dividends or other distributions with a record date after the Effective Time but prior to such surrender and a payment date prior to such surrender payable with respect to such shares of Acquiror Common Stock, and (b) at the appropriate payment date, the amount of dividends or other distributions with a record date after the Effective Time but prior to such surrender and a payment date subsequent to such surrender payable with respect to such shares of Acquiror Common Stock.

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      Section 3.10. No Further Ownership Rights in Bank Common Stock . All shares of Acquiror Common Stock issued and cash paid upon conversion of shares of Bank Common Stock in accordance with the terms of Article II and this Article III (including any cash paid pursuant to Section 3.09 or Section 3.11) shall be deemed to have been issued or paid in full satisfaction of all rights pertaining to the shares of Bank Common Stock. Until surrendered as contemplated by this Article III, each Bank Certificate shall be deemed at any time after the Effective Time to represent only the right to receive upon such surrender the Merger Consideration.

      Section 3.11. No Fractional Shares of Acquiror Common Stock . No certificates or scrip or shares of Acquiror Common Stock representing fractional shares of Acquiror Common Stock or book-entry credit of the same shall be issued upon the surrender for exchange of Bank Certificates and such fractional share interests shall not entitle the owner thereof to vote or to have any rights of a shareholder of Acquiror or a holder of shares of Acquiror Common Stock. Notwithstanding any other provision of this Agreement, each holder of shares of Bank Common Stock exchanged pursuant to the Merger who would otherwise have been entitled to receive a fraction of a share of Acquiror Common Stock (after taking into account all Bank Certificates delivered by such holder) shall receive, in lieu thereof, cash (without interest) in an amount equal to the product of (i) such fractional part of a share of Acquiror Common Stock multiplied by (ii) the closing price for a share of Acquiror Common Stock on the Nasdaq SmallCap Market on the date of the Effective Time or, if such date is not a Business Day, the Business Day immediately following the date on which the Effective Time occurs. As promptly as practicable after the determination of the amount of cash, if any, to be paid to holders of fractional interests, the Exchange Agent shall so notify Acquiror, and Acquiror shall deposit, or cause to be deposited, such amount with the Exchange Agent and shall cause the Exchange Agent to forward payments to such holders of fractional interests subject to and in accordance with the terms hereof.

      Section 3.12. Termination of Exchange Fund . Any portion of the Exchange Fund which remains undistributed to the holders of Bank Certificates for six months after the Effective Time shall be delivered to Acquiror or otherwise on the instruction of Acquiror and any holders of the Bank Certificates who have not theretofore complied with this Article III shall thereafter look only to Acquiror for the Merger Consideration with respect to the shares of Bank Common Stock formerly represented thereby to which such holders are entitled pursuant to Section 3.01 and Section 3.08, any cash in lieu of fractional shares of Acquiror Common Stock to which such holders are entitled pursuant to Section 3.11 and any dividends or distributions with respect to shares of Acquiror Common Stock to which such holders are entitled pursuant to Section 3.09. Any such portion of the Exchange Fund remaining unclaimed by holders of shares of Bank Common Stock five years after the Effective Time (or such earlier date immediately prior to such time as such amounts would otherwise escheat to or become property of any Governmental Authority) shall, to the extent permitted by law, become the property of Acquiror free and clear of any claims or interest of any Person previously entitled thereto.

      Section 3.13. Investment of Exchange Fund . The Exchange Agent shall invest any cash included in the Exchange Fund as directed by Acquiror on a daily basis. Any interest and other income resulting from such investments shall promptly be paid to Acquiror.

      Section 3.14. Lost Certificates . If any Bank Certificate shall have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the Person claiming such Bank Certificate to be lost, stolen or destroyed and, if required by Acquiror, the posting by such Person of a bond in such reasonable amount as Acquiror may direct as indemnity against any claim that may be made against it with respect to such Bank Certificate, the Exchange Agent shall deliver in exchange for such lost, stolen or destroyed Bank Certificate the applicable Merger Consideration with respect to the shares of Bank Common Stock formerly represented thereby, any cash in lieu of fractional shares of Acquiror Common

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Stock, and unpaid dividends and distributions on shares of Acquiror Common Stock deliverable in respect thereof, pursuant to this Agreement.

      Section 3.15. Withholding Rights . Each of the Surviving Bank and Acquiror shall be entitled to deduct and withhold from the consideration otherwise payable pursuant to this Agreement to any holder of shares of Bank Common Stock such amounts as it is required to deduct and withhold with respect to the making of such payment under the Code and the rules and regulations promulgated thereunder, or any provision of state, local or foreign tax law. To the extent that amounts are so withheld by the Surviving Bank or Acquiror, as the case may be, such withheld amounts shall be treated for all purposes of this Agreement as having been paid to the holder of the shares of Bank Common Stock in respect of which such deduction and withholding was made by the Surviving Bank or Acquiror, as the case may be, and such amounts shall be delivered by the Surviving Bank or Acquiror, as the case may be, to the applicable Taxing authority.

      Section 3.16. Further Assurances . At and after the Effective Time, the officers and directors of the Surviving Bank shall be authorized to execute and deliver, in the name and on behalf of Bank or Interim Bank, any deeds, bills of sale, assignments or assurances and to take and do, in the name and on behalf of Bank or Interim Bank, any other actions and things to vest, perfect or confirm of record or otherwise in the Surviving Bank any and all right, title and interest in, to and under any of the rights, properties or assets acquired or to be acquired by the Surviving Bank as a result of, or in connection with, the Merger.

      Section 3.17. Stock Transfer Books . The stock transfer books of Bank shall be closed immediately upon the Effective Time and there shall be no further registration of transfers of shares of Bank Common Stock thereafter on the records of Bank. On or after the Effective Time, any Bank Certificates presented to the Exchange Agent or Acquiror for any reason shall be converted into the Merger Consideration with respect to the shares of Bank Common Stock formerly represented thereby, any cash in lieu of fractional shares of Bank Common Stock to which the holders thereof are entitled pursuant to Section 3.11 and any dividends or other distributions to which the holders thereof are entitled pursuant to Section 3.09.

ARTICLE IV
ACTIONS PENDING MERGER

      Section 4.01. Forbearance of Bank . From the date hereof until the Effective Time, except as expressly contemplated by this Agreement, without the prior written consent of Acquiror, Bank shall not, and shall cause each of its Subsidiaries not to:

           (a) Ordinary Course . Conduct the business of Bank and its Subsidiaries other than in the ordinary and usual course or fail to use reasonable best efforts to preserve intact their business organizations and assets and maintain their rights, franchises and existing relations with customers, suppliers, employees and business associates, take any action that would adversely affect or delay the ability of Bank, Acquiror or any of their Subsidiaries to perform any of their obligations on a timely basis under this Agreement, or take any action that is reasonably likely to have a Material Adverse Effect on the Bank or its Subsidiaries, taken as a whole.

           (b) Capital Stock . Other than pursuant to Rights Previously Disclosed, (i) issue, sell or otherwise permit to become outstanding, or authorize the creation of, any additional shares of Bank Common Stock or any Rights, (ii) enter into any agreement with respect to the foregoing, or (iii) permit any additional shares of Bank Common Stock to become subject to new grants of employee or director stock options, other Rights or similar stock-based employee rights.

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           (c) Dividends and Distributions . (i) Make, declare, pay or set aside for payment any dividend on any shares of Bank Common Stock, or (ii) directly or indirectly adjust, split, combine, redeem, reclassify, purchase or otherwise acquire, any shares of its capital stock.

           (d) Compensation, Employment Agreements . Enter into or amend or renew any employment, consulting, severance or similar agreements or arrangements with any director, officer or employee of Bank or its Subsidiaries, or grant any salary or wage increase or increase any employee benefit (including incentive or bonus payments), except (i) for normal individual increases in compensation to employees in the ordinary course of business consistent with past practice, (ii) for other changes that are required by applicable law, (iii) to satisfy Previously Disclosed contractual obligations existing as of the date hereof or (iv) for grants of awards to newly hired employees consistent with past practice.

           (e) Benefit Plans . Enter into, establish, adopt or amend (except as may be required by applicable law) any pension, retirement, stock option, stock purchase, savings, profit sharing, deferred compensation, consulting, bonus, group insurance or other employee benefit, incentive or welfare contract, plan or arrangement, or any trust agreement (or similar arrangement) related thereto, in respect of any director, officer or employee of Bank or its Subsidiaries, or take any action to accelerate the vesting or exercisability of stock options, restricted stock or other compensation or benefits payable thereunder.

           (f) Dispositions . Other than pledges of assets in connection with Federal Home Loan Bank borrowings in the ordinary course of business, sell, transfer, mortgage, encumber or otherwise dispose of or discontinue any of its assets, deposits, business or properties except in the ordinary course of business and in a transaction that is not material to it and its Subsidiaries taken as a whole.

           (g) Acquisitions . Acquire (other than by way of foreclosures or acquisitions of control in a bona fide fiduciary capacity or in satisfaction of debts previously contracted in good faith, in each case in the ordinary and usual course of business consistent with past practice) all or any portion of, the assets, business, deposits or properties of any other entity except in the ordinary course of business consistent with past practice and in a transaction that is not material to the Bank and its Subsidiaries, taken as a whole.

           (h) Capital Expenditures . Make any capital expenditures in excess of $25,000 individually and $50,000 in the aggregate.

           (i) Governing Documents . Amend the Bank Charter, Bank By-Laws or the certificate of incorporation or by-laws (or similar governing documents) of any of Bank’s Subsidiaries.

           (j) Accounting Methods . Implement or adopt any change in its accounting principles, practices or methods, other than as may be required by generally accepted accounting principles.

           (k) Contracts . Except in the ordinary course of business consistent with past practice, enter into or terminate any material contract, agreement or arrangement or amend or modify in any material respect any of its existing material contracts, agreements or arrangements.

           (l) Claims . Except in the ordinary course of business consistent with past practice, settle any claim, action or proceeding, except for any claim, action or proceeding involving solely money damages in an amount, individually or in the aggregate for all such settlements, that is not material to Bank and its Subsidiaries, taken as a whole.

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           (m) Adverse Actions . (i) Take any action while knowing that such action would, or is reasonably likely to, prevent or impede the Merger from qualifying as a reorganization within the meaning of Section 368 of the Code, or (ii) knowingly take any action that is intended or is reasonably likely to result in (1) any of its representations and warranties set forth in this Agreement being or becoming untrue in any material respect at any time at or prior to the Effective Time, (2) any of the conditions to the Merger set forth in Article VII not being satisfied, or (3) a material violation of any provision of this Agreement except, in each case, as may be required by applicable law or regulation.

           (n) Risk Management . Except as required by applicable law or regulation, (i) implement or adopt any material change in its interest rate and other risk management policies, procedures or practices, (ii) fail to follow its existing policies or practices with respect to managing its exposure to interest rate and other risk, or (iii) fail to use commercially reasonable means recommended by Acquiror, to avoid any material increase in its aggregate exposure to interest rate risk.

           (o) Indebtedness . Incur any indebtedness for borrowed money other than in the ordinary course of business consistent with past practice.

           (p) Loans . Make or commit to make any new loan or letter of credit or any new or additional discretionary advance under any existing line of credit not in accordance with Bank’s loan policy and authority in existence as of the date of this Agreement; provided, however, Bank shall not make or commit to make any new loan or letter of credit or any new or additional discretionary advance under (i) any existing line of credit in principal amounts in excess of $500,000, or (ii) that would increase the aggregate credit outstanding to any one borrower (or group of affiliated borrowers) to more than $500,000 (excluding for this purpose any accrued interest or overdrafts), without the prior written consent of Acquiror, acting through its Chairman and Chief Executive Officer or such other designee as Acquiror may give notice of to Bank (except for, in the case of clause (ii), advances of $25,000 or less that are fully collateralized and in accordance with the applicable loan agreement).

           (q) Foreclosures . Foreclose upon or otherwise take title to or possession or control of any real property without first obtaining a phase one environmental report thereon which indicates that the property is free of pollutants, contaminants or hazardous or toxic waste materials, provided, however, that Bank shall not be required to obtain such a report with respect to single family, non-agricultural residential property of one acre or less to be foreclosed upon unless it has reason to believe that such property might contain any such waste materials or otherwise might be contaminated.

           (r) Commitments . Agree or commit to do any of the foregoing.

      Section 4.02. Forbearance of Acquiror . From the date hereof until the Effective Time, except as expressly contemplated by this Agreement, without the prior written consent of the Bank, Acquiror shall not, and shall cause each of its Subsidiaries not to:

           (a) Ordinary Course . Take any action that would adversely affect or delay the ability of Bank or Acquiror to perform any of their obligations on a timely basis under this Agreement, or take any action that is reasonably likely to have a Material Adverse Effect on Acquiror or its Subsidiaries, taken as a whole.

           (b) Adverse Actions . (i) Take any action while knowing that such action would, or is reasonably likely to, prevent or impede the Merger from qualifying as a reorganization within the meaning of Section 368 of the Code, or (ii) knowingly take any action that is intended or is reasonably likely to result in (1) any of its representations and warranties set forth in this Agreement being or becoming untrue in any material respect at any time at or prior to the Effective Time, (2) any of the

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conditions to the Merger set forth in Article VII not being satisfied, or (3) a material violation of any provision of this Agreement except, in each case, as may be required by applicable law or regulation.

ARTICLE V
REPRESENTATIONS AND WARRANTIES

      Section 5.01. Disclosure Schedules . On or prior to the date hereof, Acquiror has delivered to Bank a schedule and Bank has delivered to Acquiror a schedule (respectively, its “Disclosure Schedule”) setting forth, among other things, items the disclosure of which is necessary or appropriate either in response to an express disclosure requirement contained in a provision hereof or as an exception to one or more representations or warranties contained in Section 5.03 or Section 5.04, provided , that (a) no such item is required to be set forth in a Disclosure Schedule as an exception to a representation or warranty if its absence would not be reasonably likely to result in the related representation or warranty being deemed untrue or incorrect under the standard established by Section 5.02, and (b) the mere inclusion of an item in a Disclosure Schedule as an exception to a representation or warranty shall not be deemed an admission by a Party that such item represents a material exception or fact, event or circumstance or that such item is reasonably likely to result in a Material Adverse Effect. Notwithstanding the foregoing, where a specific representation or warranty contained in Section 5.03 requires a list, itemization, summary or description of a certain item or items, such list, itemization, summary or description shall be provided without regard to the standard set forth in Section 5.02.

      Section 5.02. Standard . No representation or warranty of Bank contained in Section 5.03 (other than the representations and warranties in Section 5.03(b), Section 5.03(g)(iv) and Section 5.03(aa) which shall be true and correct in all respects) or Acquiror contained in Section 5.04 shall be deemed untrue or incorrect, and Bank and Acquiror, as the case may be, shall not be deemed to have breached a representation or warranty, as a consequence of the existence of any fact, event or circumstance unless such fact, circumstance or event, individually or taken together with all other facts, events or circumstances inconsistent with any representation or warranty contained in Section 5.03, in the case of Bank, or Section 5.04, in the case of Acquiror, has had or is reasonably likely to have a Material Adverse Effect on the Party making such representation or warranty. “Material Adverse Effect” means, with respect to Acquiror or Bank, as the case may be, any effect that (i) is, or is reasonably expected to be, material and adverse to the financial position, results of operations or business of Acquiror and its Subsidiaries taken as a whole or Bank and its Subsidiaries taken as a whole, as the case may be, or (ii) would materially impair the ability of either Acquiror or Bank, as the case may be, to perform its obligations under this Agreement or otherwise materially threaten or materially impede the consummation of the Merger and the other transactions contemplated by this Agreement, provided, however, that Material Adverse Effect shall not be deemed to include the impact of (a) changes in banking and similar laws of general applicability or interpretations thereof by courts or Governmental Authorities, (b) changes in generally accepted accounting principles or regulatory accounting requirements applicable to banks and their holding companies generally, and (c) any restructuring charges taken in connection with the Merger in accordance with generally accepted accounting principles (except to the extent that any of the changes described in clauses (a) and (b) have a disproportionately adverse effect upon Acquiror or Bank, as the case may be, as compared to comparable U.S. banking or financial services organizations).

      Section 5.03. Representations and Warranties of Bank . Subject to Section 5.01 and Section 5.02, and except as Previously Disclosed in a section of its Disclosure Schedule corresponding to the relevant section below, Bank hereby represents and warrants to Acquiror:

           (a) Organization, Standing and Authority . Bank is a state bank duly organized, validly existing and in good standing under the laws of the Commonwealth of Virginia and is a Federal Reserve member bank, as defined in 12 C.F.R. §208.2(g). Bank is duly qualified to do business and is in

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good standing in the states of the United States and any foreign jurisdictions where its ownership or leasing of property or assets or the conduct of its business requires it to be so qualified. True, complete and correct copies of the Bank Charter and Bank By-laws, as amended and as in effect on the date of this Agreement, are included in the Bank’s Disclosure Schedule.

           (b) Bank Stock . As of the date hereof and as of the Effective Time, the authorized capital stock of Bank consists (and will consist) solely of 3,000,000 shares of Bank Common Stock, of which 1,603,182 shares are issued and outstanding as of the date hereof. The outstanding shares of Bank Common Stock have been duly authorized and are validly issued and outstanding, fully paid and nonassessable, and subject to no preemptive rights (and were not issued in violation of any preemptive rights). There are no shares of Bank Common Stock authorized and reserved for issuance, Bank does not have any Rights issued or outstanding with respect to Bank Common Stock, and Bank does not have any commitment to authorize, issue or sell any Bank Common Stock or Rights, except pursuant to this Agreement, the Bank Stock Option Plan and the Warrants. The number of shares of Bank Common Stock which are issuable and reserved for issuance upon exercise of Bank Stock Options and the Warrants as of the date hereof are Previously Disclosed in Bank’s Disclosure Schedule. Bank owns no Bank Common Stock as treasury stock or otherwise. Each certificate representing Bank Common Stock issued by Bank in replacement of any certificate theretofore issued by Bank which was claimed by the record holder thereof to have been lost, stolen or destroyed was issued by Bank only upon receipt of an affidavit of lost stock certificate and indemnity agreement of such shareholder indemnifying Bank against any claim that may be made against it on account of the alleged loss, theft or destruction of any such certificate or the issuance of such replacement certificate.

           (c) Subsidiaries .

                (i)  (A) Bank has Previously Disclosed a list of all of its Subsidiaries together with the jurisdiction of organization of each such Subsidiary, (B) Bank owns, directly or indirectly, all the issued and outstanding equity securities of each of its Subsidiaries, (C) no equity securities of any of its Subsidiaries are or may become required to be issued (other than to it or its wholly owned Subsidiaries) by reason of any Right or otherwise, (D) there are no contracts, commitments, understandings or arrangements by which any of such Subsidiaries is or may be bound to sell or otherwise transfer any equity securities of any such Subsidiaries (other than to it or its wholly-owned Subsidiaries), (E) there are no contracts, commitments, understandings, or arrangements relating to its rights to vote or to dispose of such securities, and (F) all the equity securities of each Subsidiary held by Bank or its Subsidiaries are fully paid and nonassessable and are owned by Bank or its Subsidiaries free and clear of any Liens. There are no options, warrants or rights outstanding to acquire any capital stock or membership interests of any of Bank’s Subsidiaries and no person or entity has any other right to purchase or acquire any unissued shares of stock or membership interests of any of Bank’s Subsidiaries, nor does any such Subsidiary have any obligation of any nature with respect to its unissued shares of stock or membership interests. Neither Bank nor any of Bank’s Subsidiaries is a party to any partnership or joint venture or owns an equity interest in any other business or enterprise.

                (ii)  Bank does not own beneficially, directly or indirectly, any equity securities or similar interests of any Person, or any interest in a partnership or joint venture of any kind, other than its Subsidiaries.

                (iii)  Each of Bank’s Subsidiaries has been duly organized and is validly existing in good standing under the laws of the jurisdiction of its organization, and is duly qualified to do business and in good standing in the jurisdictions where its ownership or leasing of property or the conduct of its business requires it to be so qualified.

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           (d) Corporate Power . Bank and each of its Subsidiaries has the corporate power and authority to carry on its business as it is now being conducted and to own all its properties and assets, and Bank has the corporate power and authority to execute, deliver and perform its obligations under this Agreement and to consummate the transactions contemplated hereby.

           (e) Corporate Authority . Subject in the case of this Agreement to receipt of the requisite approval of the agreement of merger set forth in this Agreement by the holders of majority of the outstanding shares of Bank Common Stock entitled to vote thereon (which are the only shareholder votes required thereon), this Agreement and the transactions contemplated hereby have been authorized by all necessary corporate action of Bank and the Bank Board on or prior to the date hereof. This Agreement is a valid and legally binding obligation of Bank, enforceable in accordance with its terms (except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer and similar laws of general applicability relating to or affecting creditors’ rights or by general equity principles). Holders of Bank Common Stock do not have dissenters’ or appraisal rights under the Banking Act in connection with the transactions contemplated by this Agreement.

           (f) Regulatory Approvals, No Defaults .

                (i)  Except as Previously Disclosed, no consents or approvals of, or filings or registrations with, any Governmental Authority or with any third party are required to be made or obtained by Bank or any of its Subsidiaries in connection with the execution, delivery or performance by Bank of this Agreement or to consummate the Merger, except for (A) filings of applications or notices with the Federal Reserve and Bureau of Financial Institutions, and (B) the filing of articles of merger with the Commission pursuant to the Corporation Act and the Banking Act, and the issuance of related certificates of merger. Bank is not aware of any reason why the approvals set forth in Section 7.01(b) will not be received without the imposition of a condition, restriction or requirement of the type described in Section 7.03(e).

                (ii)  Except as Previously Disclosed, subject to receipt of the regulatory approvals referred to in Section 5.03(f)(i), and the expiration of related waiting periods, and required filings under federal and state securities laws, the execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby do not and will not (A) constitute a breach or violation of, or a default under, or give rise to any Lien, any acceleration of remedies or any right of termination under, any law, rule or regulation or any judgment, decree, order, governmental permit or license, or agreement, indenture or instrument of Bank or of any of its Subsidiaries or to which Bank or any of its Subsidiaries or properties is subject or bound, (B) constitute a breach or violation of, or a default under, the Bank Certificate or the Bank By-Laws, or (C) require any consent or approval under any such law, rule, regulation, judgment, decree, order, governmental permit or license, agreement, indenture or instrument.

           (g) Financial Statements and Securities Law Documents .

                (i)  Bank’s Annual Reports on Form 10-KSB for the fiscal years ended December 31, 2004, 2003 and 2002, and all other reports, registration statements, definitive proxy statements or information statements filed or to be filed by it or any of its Subsidiaries subsequent to December 31, 2002 under the Securities Act, or under Section 13(a), 13(c), 14 or 15(d) of the Exchange Act, in the form filed or to be filed (collectively, the Bank’s “Securities Law Documents”) with the Federal Reserve, as of the date filed, (A) except as Previously Disclosed, complied or will comply in all material respects as to form with the applicable requirements under the Securities Act or the Exchange Act, as the case may be, and (B) did not and will not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in

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the light of the circumstances under which they were made, not misleading, and each of the balance sheets contained in or incorporated by reference into any such Securities Law Document (including the related notes and schedules thereto) fairly presents, or will fairly present, the financial position of Bank and its Subsidiaries as of its date, and each of the statements of income and changes in stockholders’ equity and cash flows or equivalent statements in such Securities Law Documents (including any related notes and schedules thereto) (collectively, the “Financial Statements”) fairly presents, or will fairly present, the results of operations, changes in stockholders’ equity and changes in cash flows, as the case may be, of Bank and its Subsidiaries for the periods to which they relate, in each case in accordance with generally accepted accounting principles consistently applied during the periods involved, except in each case as may be noted therein, subject to normal year-end audit adjustments in the case of unaudited statements. Copies of the Securities Law Documents have been made available to Acquiror.

                (ii)  Bank’s Consolidated Reports of Condition and Income for the years ending December 31, 2004, 2003 and 2002 and the quarter ending March 31, 2005, as filed with the Federal Reserve, fairly present the financial position, the results of operations, changes in stockholders’ equity and changes in cash flows, as the case may be, of Bank and its Subsidiaries for the periods to which they relate, in each case in accordance with FFIEC instructions applicable to such Reports.

                (iii)  Since December 31, 2004, Bank and its Subsidiaries have not incurred any liability other than in the ordinary course of business consistent with past practice.

                (iv)  Since December 31, 2004, (A) Bank and its Subsidiaries have conducted their respective businesses in the ordinary and usual course consistent with past practice (excluding the incurrence of expenses related to this Agreement and the transactions contemplated hereby), and (B) no event has occurred or circumstance arisen that, individually or taken together with all other facts, circumstances and events (described in this Section 5.03 or otherwise), is reasonably likely to have a Material Adverse Effect with respect to Bank.

                (v)  Bank and its Subsidiaries do not have any liability, whether known or unknown, whether asserted or unasserted, whether absolute or contingent, whether accrued or unaccrued, whether liquidated or unliquidated, and whether due or to become due, including any liability for Taxes (and there is no past or present fact, situation, circumstance, condition or other basis for any present or future action, suit or proceeding, hearing, charge, complaint, claim or demand against Bank or its Subsidiaries giving rise to any such liability), except (i) for liabilities set forth in the Financial Statements, and (ii) normal fluctuation in the amount of the liabilities referred to in clause (i) above occurring in the ordinary course of business of Bank and its Subsidiaries since the date of the March 31, 2005 balance sheet included in the Financial Statements.

           (h) Litigation and Related Matters . No litigation, claim or other proceeding before any court or governmental agency is pending against Bank or any of its Subsidiaries and, to Bank’s knowledge, no such litigation, claim or other proceeding has been threatened. No injunction, order, judgment, decree or regulatory restriction is imposed upon Bank or any of its Subsidiaries or the assets of Bank or any of its Subsidiaries. Since January 1, 2000, Bank and its Subsidiaries have continuously maintained fidelity bonds insuring them against acts of dishonesty in such amounts as are customary, usual and prudent for organizations of their size and business. There are no facts that would form the basis of a claim or claims under such bonds. Neither Bank nor any of its Subsidiaries has reason to believe that its respective fidelity coverage would not be renewed by the carrier on substantially the same terms as the existing coverage, except for possible premium increases unrelated to Bank’s and its Subsidiaries’ past claim experience.

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           (i) Regulatory Matters .

                (i)  Except as Previously Disclosed, neither Bank nor any of its Subsidiaries or any of their properties is a party to or is subject to any cease-and-desist order, decree, agreement, memorandum of understanding or similar arrangement with, or a commitment letter or similar submission to, or extraordinary supervisory letter from, any federal or state governmental agency or authority charged with the supervision or regulation of financial institutions or issuers of securities or engaged in the insurance of deposits (including, without limitation, the Bureau of Financial Institutions, the Federal Reserve and the FDIC) or the supervision or regulation of it or any of its Subsidiaries (collectively, the “Regulatory Authorities”).

                (ii)  Except as Previously Disclosed, neither Bank nor any of its Subsidiaries has been advised by any Regulatory Authority that such Regulatory Authority is contemplating issuing or requesting (or is considering the appropriateness of issuing or requesting) any such order, decree, agreement, memorandum of understanding, commitment letter, supervisory letter or similar submission.

                (iii)  With the exception of routine investigation of consumer complaints, neither Bank nor any of its Subsidiaries has been advised by any Regulatory Authority that it is or may be in violation of the Equal Credit Opportunity Act or the Fair Housing Act or any similar federal or state statute. Bank received a Community Reinvestment Act rating of “Outstanding” or “Satisfactory” in its most recent CRA examination.

           (j) Compliance with Laws . Bank and each of its Subsidiaries:

                (i)  is in compliance with all applicable federal, state, local and foreign statutes, laws, regulations, ordinances, rules, judgments, orders or decrees applicable thereto or to the employees conducting such businesses, including, without limitation, the Equal Credit Opportunity Act, the Fair Housing Act, the Community Reinvestment Act, the Home Mortgage Disclosure Act and all other applicable fair lending laws and other laws relating to discriminatory business practices.

                (ii)  has all permits, licenses, authorizations, orders and approvals of, and has made all filings, applications and registrations with, all Governmental Authorities that are required in order to permit them to own or lease their properties and to conduct their businesses as presently conducted, all such permits, licenses, certificates of authority, orders and approvals are in full force and effect and, to Bank’s knowledge, no suspension or cancellation of any of them is threatened, and (iii) has received, since December 31, 1999, no notification or communication from any Governmental Authority (A) asserting that Bank or any of its Subsidiaries is not in compliance with any of the statutes, regulations or ordinances which such Governmental Authority enforces, or (B) threatening to revoke any license, franchise, permit or governmental authorization (nor, to Bank’s knowledge, do any grounds for any of the foregoing exist).

           (k) Material Contracts . Neither Bank nor any of its Subsidiaries is a party to, or is bound by, any material contract (as defined in Item 601(b)(10) of Regulation S-K of the SEC) or any other material contract or similar arrangement whether or not made in the ordinary course of business (other than loans or loan commitments and funding transactions in the ordinary course of business of Bank’s Subsidiaries) that is not listed in Bank’s Disclosure Schedule. Bank’s Disclosure Schedule also lists (i) each agreement restricting the nature or geographic scope of any line of business or activity of Bank or its Subsidiaries, and (ii) each agreement, indenture or other instrument relating to the borrowing of money by Bank or any of its Subsidiaries or the guarantee by Bank or any of its Subsidiaries of any such obligation, other than instruments relating to transactions entered into in the ordinary course of

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business. Copies of each of the contracts and agreements listed in Bank’s Disclosure Schedule are included in Bank’s Disclosure Schedule.

           (l) No Defaults . Bank and its Subsidiaries are neither in default under nor in violation of any provision of their charter or articles of organization, bylaws, or any promissory note, indenture or any evidence of indebtedness or security therefore, contract, agreement, commitment, arrangement, lease, insurance policy or other instrument to which it is a party, by which its respective assets, business, or operations may be bound or affected, or under which it or its respective assets, business, or operations receives benefits, and there has not occurred any event that, with the lapse of time or the giving of notice or both, would constitute such a default.

           (m) Interim Events . Since December 31, 2004, neither Bank nor its Subsidiaries has paid or declared any dividend or made any other distribution to shareholders or taken any action which if taken after the date hereof would require the prior written consent of Acquiror pursuant to Section 4.01.

           (n) Employee Benefit Plans .

                (i)  Bank’s Disclosure Schedule contains a complete and accurate list of the names, positions and total compensation (including long-term or other incentive compensation and bonuses, reimbursed living expenses and out-of-ordinary-course travel expenses, and specifying the existence and value of all car allowances and auto leases paid by the Bank or any of its Subsidiaries) of all employees, directors, officers, consultants and independent contractors engaged in the business or otherwise by Bank or any of its Subsidiaries, as of the date set forth in Bank’s Disclosure Schedule, and indicates which of such individuals were, as of the date set forth in Bank’s Disclosure Schedule, on disability leave, authorized leave of absence, military service, or any other type of leave of absence, authorized or otherwise.

                (ii)  Bank’s Disclosure Schedule contains a true and complete list of all Benefit Plans maintained, or contributed to, by Bank, any Subsidiary or any ERISA Affiliate or to which Bank, any Subsidiary or ERISA Affiliate has contributed or is or was at any time obligated to make payments or contributions. The Benefit Plans that are currently in effect are specified as such in Bank’s Disclosure Schedule. “Benefit Plan” means each employee benefit plan (as defined in Section 3(3) of ERISA) and all other benefit or compensation plans, contracts and policies, whether written or unwritten, including equity incentive plans, supplemental retirement, severance, medical, disability, cafeteria benefit, dependent care benefit, life insurance, disability insurance, bonus, pension, 401(k), profit-sharing, or deferred compensation plans, programs, or arrangements, and employment or consulting contracts, established or maintained for the benefit of or affecting, or for which Bank, any Subsidiary or any ERISA Affiliate may have any liability for employees or former employees of, consultants or former consultants of, or others performing (or those who have performed) services for Bank, any Subsidiary or any ERISA Affiliate. Except as set forth in Bank’s Disclosure Schedule, true and complete copies of the Benefit Plans and all amendments thereto, all related trust contracts, insurance contracts, summaries, participant communications, summary plan descriptions, contracts concerning the administration or management of the Benefit Plans, and Forms 5500 for each of the three (3) most recent plan years, as applicable, have been delivered to Acquiror.

                (iii)  None of Bank, any Subsidiary and any ERISA Affiliate has ever sponsored, maintained, contributed to or had any obligation to contribute to (1) a plan subject to Code Section 412 or Title IV of ERISA (and no Lien in favor of any such plan has ever arisen under ERISA Section 302(f) or Code Section 412(n)), (2) a “multiemployer plan” (as defined in ERISA Section 3(37)), (3) except as set forth in Bank’s Disclosure Schedule, a plan funded by, associated with, or related to a “voluntary employee’s beneficiary association” within the meaning of Code Section 501(c)(9), (4) except

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as set forth in Bank’s Disclosure Schedule, a plan that is “multiple employer welfare arrangement” as defined in ERISA Section 3(40) or any other arrangement established or maintained to provide, or that at any time provided, welfare benefits to the employees of two or more employers, or (5) a plan that is a “defined benefit plan” as defined in ERISA Section 3(35).

                (iv)  Each Benefit Plan has been administered in accordance with its terms, and each of Bank, its Subsidiaries and each ERISA Affiliate has met its obligations with respect to such Benefit Plans and has made all required contributions thereto within the time period prescribed by applicable laws. Bank, its Subsidiaries, all ERISA Affiliates and all Benefits Plans are in compliance with applicable laws (excluding the amendments described on the Bank’s Disclosure Schedule that may be adopted under applicable law or agency guidance with a retroactive effective date), including the Code and ERISA. Bank, its Subsidiaries and all ERISA Affiliates have performed all obligations required to be performed by them with respect to each Benefit Plan under applicable laws, including the Code and ERISA. No act or omission has occurred and no condition exists with respect to any Benefit Plan that would subject Bank, any of its Subsidiaries, any ERISA Affiliate, or any fiduciary of any Benefit Plan to any fine, penalty, Tax or liability of any kind imposed under ERISA or the Code or increase the cost of any Benefit Plan.

                (v)  With respect to each Benefit Plan which is intended to be qualified under Code Section 401(a), (1) such Benefit Plan has received a favorable determination or approval letter from the Internal Revenue Service to the effect that such Benefit Plan is qualified under Code Section 401(a) and any trust related to such Benefit Plan is and has at all times been exempt from federal income Taxes under Code Section 501(a), (2) each determination or approval letter covers all tax-qualification requirements that are required to be stated in the Benefit Plan as of the Effective Time (other than with respect to the tax-qualification requirements of (a) the Economic Growth and Tax Relief Reconciliation Act (“EGTRRA”), in which case, such Benefit Plan has been amended by the adoption of a “good faith EGTRRA amendment” as that phrase is defined in IRS Notice 2001-42 for amendments required to be effective in 2002 and if the Effective Time is later than December 31, 2005, such Benefit Plan will be amended to comply with the automatic rollover provisions of EGTRRA effective as of March 28, 2005, (b) the Job Creation and Worker Assistance Act of 2002, in which case such Benefit Plan has been amended in good faith to comply with applicable tax-qualification requirements thereof, (c) the final regulations under Code Section 401(a)(9) with respect to required minimum distributions, for which such Benefit Plan has been timely amended, and (d) any law, regulation or other official guidance enacted or issued, and effective, after the date of this Agreement where required timing of adoption is not required by the Effective Time), and has not been revoked nor has revocation been threatened, and (3) no act or omission has occurred that would adversely affect such Benefit Plan’s qualified status under Code Section 401(a). True and complete copies of such determination or approval letter(s) have been delivered to Acquiror.

                (vi)  Other than routine claims for benefits, there are no pending claims, litigation or other proceedings of any kind that have been asserted or instituted against a Benefit Plan (or that may involve a Benefit Plan), the assets of the trust or fund under any Benefit Plan, the sponsor or administrator of any Benefit Plan, or any fiduciary of any Benefit Plan with respect to the operation of such Benefit Plan. None of Bank or any of its Subsidiaries has received any notice of any such claim, litigation or other proceeding, and, to the Bank’s knowledge, there are no facts that could form the basis for any such claim, litigation or proceeding.

                (vii)  None of Bank or any of its Subsidiaries has received any notice of any pending claims, litigation or other proceedings by the Pension Benefit Guaranty Corporation, the U.S. Department of Labor, the Internal Revenue Service or any other Governmental Authority with respect to any Benefit Plan, nor are there any such ongoing claims, litigation or other proceedings of any kind.

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There has been no “prohibited transaction” as such term is defined in Section 406 of ERISA or Code Section 4975 nor, with respect to a plan subject to Code Section 412 or Title IV of ERISA, any “reportable event” as defined herein. The term “reportable event” means: (a) any “reportable event” within the meaning of Section 4043(c) of ERISA for which the 30-day notice under Section 4043(a) of ERISA has not been waived by the Pension Benefit Guaranty Corporation (including any failure to meet the minimum funding standard of, or timely make any required installment under, Section 412 of the Code or Section 302 of ERISA, regardless of the issuance of any waivers in accordance with Section 412(d) of the Code), (b) any such “reportable event” subject to advance notice to the Pension Benefit Guaranty Corporation under Section 4043(b)(3) of ERISA, (c) any application for a funding waiver or an extension of any amortization period pursuant to Section 412 of the Code, and (d) a cessation of operations described in Section 4062(e) of ERISA.

                (viii)  With respect to each Benefit Plan that is subject to Code Section 412 or Title IV of ERISA, as of the last day of the most recent plan year ended prior to the date hereof, the actuarially determined present value of all “benefit liabilities”, within the meaning of Section 4001(a)(16) of ERISA (as determined on the basis of the actuarial assumptions contained in the Benefit Plan’s most recent actuarial valuation), did not exceed the then current value of the assets of such Benefit Plan, and there has been no material change in the financial condition of such Benefit Plan since the last day of the most recent plan year.

                (ix)  No Benefit Plan provides benefits after termination of employment with Bank or any of its Subsidiaries to any Person, including retiree health and life coverage and deferred compensation, but excluding continuation of health coverage required to be continued under Code Section 4980B.

                (x)  No Benefit Plan contains any provision which would prohibit the transactions contemplated by this Agreement, and the consummation of the transactions contemplated by this Agreement will not result in the payment, vesting, or acceleration of any benefit under any Benefit Plan, or create or trigger any obligation or liability of Bank, Surviving Bank or Acquiror to any Person that is not expressly set forth in Bank’s Disclosure Schedule, or result in any breach or violation of, or a default under, any of the Benefit Plans. Without limiting the foregoing, except as set forth in the Bank’s Disclosure Schedule, as a result of the consummation of the transactions contemplated by this Agreement, none of Acquiror, Bank, Surviving Bank or any of their Subsidiaries will be obligated to make a payment to an individual that would be a “parachute payment” to a disqualified individual as those terms are defined in Section 280G of the Code, without regard to whether such payment is reasonable compensation for personal services performed or to be performed in the future.

                (xi)  No Benefit Plan prohibits Bank or any of its Subsidiaries from amending or terminating a Benefit Plan without any liability, other than ordinary administrative expenses typically incurred in such action or payment of contributions for benefits incurred with respect to periods prior to the date of amendment or termination.

           (o) Sarbanes-Oxley Act . Bank is in compliance with the provisions of the Sarbanes-Oxley Act currently applicable to it, and the certifications provided and to be provided pursuant to Sections 302 and 906 thereof are accurate.

           (p) Labor Matters . Neither Bank nor any of its Subsidiaries is a party to or is bound by any collective bargaining agreement, contract or other agreement or understanding with a labor union or labor organization, nor is Bank or any of its Subsidiaries the subject of a proceeding asserting that it or any such Subsidiary has committed an unfair labor practice (within the meaning of the National Labor Relations Act) or seeking to compel Bank or any such Subsidiary to bargain with any labor

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organization as to wages or conditions of employment, nor is there any strike or other labor dispute involving it or any of its Subsidiaries pending or, to Bank’s knowledge, threatened, nor is Bank aware of any activity involving its or any of its Subsidiaries’ employees seeking to certify a collective bargaining unit or engaging in other organizational activity.

           (q) Takeover Laws . No actions need be taken by Bank in order to exempt this Agreement and the transactions contemplated hereby from, and this Agreement and the transactions contemplated hereby are exempt from, the requirements of any “moratorium”, “control share”, “fair price”, “affiliate transaction”, “business combination” or other antitakeover laws and regulations of the state of Virginia (collectively, “Takeover Laws”).

           (r) Environmental Matters . (i) Bank and each of its Subsidiaries has complied at all times with applicable Environmental Laws, (ii) no real property (including buildings or other structures) currently or formerly owned or operated by Bank or any of its Subsidiaries, or any property in which Bank or any of its Subsidiaries has held a security interest, lien or a fiduciary or management role (the “Loan Property”), has been contaminated with, or has had any release of, any Hazardous Substance, (iii) neither Bank nor any of its Subsidiaries could be deemed the owner or operator of any Loan Property under any Environmental Law which such Loan Property has been contaminated with, or has had any release of, any Hazardous Substance, (iv) neither Bank nor any of its Subsidiaries is subject to liability for any Hazardous Substance disposal or contamination on any third party property, (v) neither Bank nor any of its Subsidiaries has received any notice, demand letter, claim or request for information alleging any violation of, or liability under, any Environmental Law, (vi) neither Bank nor any of its Subsidiaries is subject to any order, decree, injunction or other agreement with any Governmental Authority or any third party relating to any Environmental Law, (vii) there are no circumstances or conditions (including the presence of asbestos, underground storage tanks, lead products, polychlorinated biphenyls, prior manufacturing operations, dry-cleaning, or automotive services) involving Bank or any of its Subsidiaries, any currently or formerly owned or operated property, or any Loan Property, that could reasonably be expected to result in any claims, liability or investigations against Bank or any of its Subsidiaries or result in any restrictions on the ownership, use, or transfer of any property pursuant to any Environmental Law, and (viii) Bank’s Disclosure Schedule includes copies of all environmental reports, studies, sampling data, correspondence, filings and other environmental information in its possession or reasonably available to it relating to Bank, any Subsidiary of Bank, any currently or formerly owned or operated property or any Loan Property. “Environmental Law” means any federal, state or local law, regulation, order, decree, permit, authorization, opinion, common law or agency requirement relating to: (A) the protection or restoration of the environment, health, safety, or natural resources, (B) the handling, use, presence, disposal, release or threatened release of any Hazardous Substance, or (C) noise, odor, wetlands, indoor air, pollution, contamination or any injury or threat of injury to persons or property in connection with any Hazardous Substance. “Hazardous Substance” means any substance in any concentration that is: (A) listed, classified or regulated pursuant to any Environmental Law, (B) any petroleum product or by-product, asbestos-containing material, lead-containing paint or plumbing, polychlorinated biphenyls, radioactive materials or radon, or (C) any other substance which is or may be the subject of regulatory action by any Governmental Authority in connection with any Environmental Law.

           (s) Tax Matters .

                (i)  Each of Bank and its Subsidiaries has timely filed all Tax Returns that it was required to file. All such Tax Returns were true, correct, complete and accurate in all respects and were prepared in compliance with all applicable laws and regulations. All Taxes owed by Bank or any of its Subsidiaries (whether or not shown or required to be shown on any Tax Return) have been paid. Neither Bank nor any of its Subsidiaries currently is the beneficiary of any extension of time within which

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to file any Tax Return. Neither Bank nor any of its Subsidiaries has an obligation to file Tax Returns in a jurisdiction where Bank or any of its Subsidiaries has not filed or has ceased filing Tax Returns. No claim has ever been made by an authority in a jurisdiction where Bank or any of its Subsidiaries does not file Tax Returns that Bank or any of its Subsidiaries is or may be subject to taxation by that jurisdiction. There are no Liens on any of the assets of Bank and any of its Subsidiaries that arose in connection with any failure (or alleged failure) to pay any Tax.

                (ii)  Each of Bank and its Subsidiaries has complied with all applicable laws relating to payment and withholding of Taxes and has withheld and paid all Taxes required to have been withheld and paid in connection with any amounts paid or owing to any employee, independent contractor, creditor, shareholder or other third-party, and all Forms W-2 and 1099 required with respect thereto have been properly completed and timely filed. Except as set forth in Bank’s Disclosure Schedule, neither Bank nor any of its Subsidiaries has in effect a “nonqualified deferred compensation plan” as that term is defined in Section 409A of the Code that fails to meet the requirements of paragraphs (2), (3) and (4) of Section 409A of the Code or which is not operated in accordance with such requirements. No Tax is required to be withheld pursuant to Section 1445 of the Code as a result of the transaction contemplated by this Agreement.

                (iii)  No director or officer or employee responsible for Tax matters of Bank or any Subsidiary expects any authority to assess any additional Taxes for any period for which Tax Returns have been filed. There is no audit, examination, deficiency or refund proceeding pending with respect to any Taxes for which Bank or any of its Subsidiaries is or might otherwise be liable and no authority has given written notice of the commencement of any audit examination or refund proceeding with respect to any Taxes. There is no dispute or claim concerning any Tax liability of Bank and any of its Subsidiaries either (A) claimed or raised by any authority, or (B) as to which any of the directors or officers or employees responsible for Tax matters of Bank or its Subsidiaries has knowledge, and no basis exists therefor. Bank’s Disclosure Schedule lists all federal, state local and foreign income Tax Returns filed with respect to Bank and any of its Subsidiaries for taxable periods ended on or after December 31, 2002, indicates those Tax Returns that have been audited, and indicates those Tax Returns that are currently the subject of audit. Bank has delivered to Acquiror correct and complete copies of all income Tax Returns, examination reports, and statements of deficiencies assessed against or agreed to by Bank and any of its Subsidiaries for each of the taxable periods ended on or after December 31, 2002.

                (iv)  Neither Bank nor any of its Subsidiaries has waived any statute of limitations in respect of Taxes or agreed to any extension of time with respect to a Tax Assessment or deficiency.

                (v)  The unpaid Taxes of Bank and its Subsidiaries (A) did not, as of the most recent fiscal month end included in the Financial Statements, exceed the reserve for Tax Liability (rather than any reserve for deferred Taxes established to reflect timing differences between book and Tax income) set forth on the face of the most recent balance sheet included in the Financial Statements (rather than any notes thereto), and (B) do not exceed that reserved as adjusted for the passage of time through the Effective Date in accordance with the past practice and custom of Bank and its Subsidiaries in filing their Tax Returns.

                (vi)  Except as set forth in Bank’s Disclosure Schedule, neither Bank nor any of its Subsidiaries has made any payments, is obligated to make any payments, or is a party to any agreement that under certain circumstances could obligate it to make any payments that are not deductible under Section 280G of the Code. Each of Bank and its Subsidiaries has disclosed on its federal income Tax Returns all positions taken therein that could give rise to a substantial understatement of federal income Tax within the meaning of Section 6662 of the Code. Neither Bank nor any of its Subsidiaries is

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a party to any Tax allocation or sharing agreement. Neither Bank nor any of its Subsidiaries (A) has been a member of an affiliated group filing a consolidated federal income Tax Return (other than a group the common parent of which was Bank), or (B) has any Liability for the Taxes of any Person (other than Bank or any of its Subsidiaries) under Treasury regulation § 1.1502-6 (or any similar provision of state, local, or foreign law), as a transferee or successor, by contract or otherwise.

                (vii)  Bank’s Disclosure Schedule sets forth the following information with respect to Bank and each of its Subsidiaries as of the most practicable date (as set forth therein): (A) the basis of Bank and each of its Subsidiaries in its assets, (B) the amount of any net operating loss, net capital loss, unused investment or other credit, unused foreign tax or excess charitable contribution and the year or years in which incurred, (C) the amount of any deferred gain or loss allocable arising out of any “intercompany transactions” as that term is defined in Treasury regulation § 1.1502-13 and (D) the amount of any “excess loss account” as that term is defined in Treasury regulation § 1.1502-19.

                (viii)  None of Bank and its Subsidiaries will be required to include any item of income in, or exclude any item of deduction from, taxable income for any taxable period (or any portion thereof) ending after the Closing Date as a result of (A) a change in method of accounting for a taxable period (or portion thereof) ending on or prior to the Effective Date, (B) any “closing agreement,” as that term is described in Section 7121 of the Code (or any corresponding provision of state, local or foreign income Tax law), (C) any installment sale or open transaction made on or prior to the Effective Date, or (D) or as a result of any prepaid amount received on or prior to the Effective Date. There are no private letter rulings or requests for rulings relating to Bank or any of its Subsidiaries that could affect the Bank’s or any of its Subsidiaries’ liability for Taxes for any period.

                (ix)  In the past five fiscal years, neither Bank nor any of its Subsidiaries has distributed stock of another Person, or has had its stock distributed by another Person, in a transaction that was purported or intended to be governed in whole or in part by Sections 355 or 361 of the Code.

                (x)  Neither Bank nor any of its Subsidiaries has any reason to believe that any conditions exist that might prevent or impede the Merger from qualifying as a reorganization within the meaning of Section 368 of the Code.

                (xi)  Neither Bank nor any of its Subsidiaries has been subject to any disallowance of a deduction under Section 162(m) of the Code nor will such a disallowance occur with respect to any period prior to the Effective Date.

           (t) Risk Management Instruments . All interest rate swaps, caps, floors, option agreements, futures and forward contracts and other similar risk management arrangements, whether entered into for Bank’s own account, or for the account of one or more of Bank’s Subsidiaries or their customers (all of which are listed on Bank’s Disclosure Schedule), if any, were entered into (i) in accordance with prudent business practices and all applicable laws, rules, regulations and regulatory policies, and (ii) with counterparties believed to be financially responsible at the time, and each of them constitutes the valid and legally binding obligation of Bank or one of its Subsidiaries, enforceable in accordance with its terms (except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer and similar laws of general applicability relating to or affecting creditors’ rights or by general equity principles), and are in full force and effect. Neither Bank nor its Subsidiaries, nor to Bank’s knowledge, any other party thereto, is in breach of any of its obligations under any such agreement or arrangement.

           (u) Books and Records . The books and records of Bank and its Subsidiaries have been fully, properly and accurately maintained in all material respects, and there are no material

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inaccuracies or discrepancies of any kind contained or reflected therein, and they fairly present the financial position of Bank and its Subsidiaries. The minute books of Bank accurately reflect all corporate actions held or taken by its shareholders and the Bank Board (including committees of the Bank Board) since January 1, 2000.

           (v) Insurance . Bank’s Disclosure Schedule lists all of the insurance policies, binders, or bonds maintained by Bank or its Subsidiaries (“Insurance Policies”), the amount and type of insurance, the name of the insurer and the amount of the annual premium. Bank and its Subsidiaries are insured with reputable insurers against such risks and in such amounts as the management of Bank reasonably has determined to be prudent in accordance with industry practices. All the Insurance Policies are in full force and effect, Bank and its Subsidiaries are not in material default thereunder, and all claims thereunder have been filed in due and timely fashion.

           (w) Employment Agreements . Bank’s Disclosure Schedule lists each agreement, arrangement, commitment or contract (whether written or oral) for the employment, election, retention or engagement, or with respect to the severance, of any present or former officer, employee, agent, consultant or other person or entity to which Bank or any of its Subsidiaries is a party to or bound by and which, by its terms, is not terminable by Bank or such Subsidiary on thirty (30) days written notice or less without the payment of any amount by reason of such termination. Copies of each written (and summaries of each oral) agreement, arrangement, commitment or contract listed in the Disclosure Schedule are included in Bank’s Disclosure Schedule.

           (x) Reports . Since January 1, 2000, Bank and each of its Subsidiaries has filed all reports and statements, together with any amendments required to be made with respect thereto, if any, that it was required to file with (i) the Federal Reserve, (ii) the FDIC, and (iii) any other Regulatory Authority with jurisdiction over Bank or any of its Subsidiaries, and have paid all fees and assessments due and payable in connection therewith. As of their respective dates, each of such reports and documents, as amended, including any financial statements, exhibits and schedules thereto, complied with the relevant statutes, rules and regulations enforced or promulgated by the Regulatory Authority with which they were filed, and did not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading.

           (y) Properties . (i) Bank and its Subsidiaries have marketable title, insurable at standard rates, free and clear of all liens, charges and encumbrances (except Taxes which are a lien but not yet payable and liens, charges or encumbrances reflected in the Financial Statements and easements, rights-of-way, and other restrictions and imperfections not material in nature, and further excepting in the case of Other Real Estate Owned (as such real estate is internally classified on the books of Bank or its Subsidiaries) rights of redemption under applicable law) to all of their owned real properties, (ii) all leasehold interests for real property and personal property used by Bank and its Subsidiaries in their businesses are held pursuant to lease agreements which are valid and enforceable in accordance with their terms, (iii) all such properties comply with all applicable private agreements, zoning requirements and other governmental laws and regulations relating thereto and there are no condemnation proceedings pending or, to the knowledge of Bank, threatened with respect to such properties, (iv) Bank and its Subsidiaries have valid title or other ownership rights under licenses to all intangible personal or intellectual property necessary to conduct the business and operations of Bank and its Subsidiaries as presently conducted, free and clear of any claim, defense or right of any other person or entity, subject only to rights of the licensors pursuant to applicable license agreements, which rights do not adversely interfere with the use of such property, (v) all insurable properties owned or held by Bank and its Subsidiaries are adequately insured by financially sound and reputable insurers in such amounts and against fire and other risks insured against by extended coverage and public liability insurance, as is

27

customary with bank holding companies of similar size, and there are presently no claims pending under such policies of insurance and no notices have been given by Bank or any of its Subsidiaries under such policies, and (vi) all tangible properties used in the businesses of Bank and its Subsidiaries are in good condition, reasonable wear and tear excepted, and are useable in the ordinary course of business consistent with past practices.

           (z) Trust Administration . The Bank does not have trust power and it has not administered any accounts for which it acts as a fiduciary or agent, including but not limited to accounts for which it serves as a trustee, agent, custodian, personal representative, guardian, conservator or investment advisor.

           (aa) Financial Advisors . No action has been taken by Bank that would give rise to any valid claim against any Party for a brokerage commission, finder’s fee or other like payment with respect to the transactions contemplated by this Agreement, excluding a Previously Disclosed fee to be paid to Anderson & Strudwick, Inc. Bank has received a written opinion (the “Fairness Opinion”) from Anderson & Strudwick, Inc. addressed to Bank, dated the date hereof, to the effect that the terms of the Merger, including the Exchange Ratio, are fair, from a financial point of view, to the shareholders of Bank.

      Section 5.04. Representations and Warranties of Acquiror . Subject to Section 5.01 and Section 5.02, and except as Previously Disclosed in a section of its Disclosure Schedule corresponding to the relevant section below, Acquiror hereby represents and warrants to Bank:

           (a) Organization, Standing and Authority . Acquiror is duly organized, validly existing and in good standing under the laws of the Commonwealth of Virginia. Acquiror is duly qualified to do business and is in good standing in the states of the United States and foreign jurisdictions where its ownership or leasing of property or assets or the conduct of its business requires it to be so qualified. Acquiror has in effect all federal, state, local, and foreign governmental authorizations necessary for it to own or lease its properties and assets and to carry on its business as it is now conducted. Acquiror is duly registered as a bank holding company under the Bank Holding Company Act of 1956. Millennium Bank, N.A., a wholly-owned subsidiary of Acquiror, is a national banking association, duly organized, validly existing and in good standing under the laws of the United States, is in compliance in all material respects with all rules and regulations promulgated by any relevant Regulatory Authority, it has all requisite corporate power and authority to carry on its business as now being conducted and to own and operate its assets, properties and business, is an “insured bank” as defined in the Federal Deposit Insurance Act and applicable regulations thereunder and its deposits are insured to the fullest extent allowed by law by the Bank Insurance Fund of the Federal Deposit Insurance Corporation. True, complete and correct copies of the Articles of Incorporation and By-laws of Acquiror, as amended and as in effect on the date of this Agreement, are available in Acquiror’s SEC Documents.

           (b) Acquiror Stock . As of the date hereof, the authorized capital stock of Acquiror consists solely of 10,000,000 shares of Acquiror Common Stock, of which 8,780,369 shares were outstanding as of March 31, 2005. All of the issued and outstanding shares of Acquiror Common Stock are duly and validly issued and outstanding and are fully paid and non-assessable and free of preemptive rights. The shares of Acquiror Common Stock that are to be issued to the shareholders of Bank pursuant to the Merger have been duly authorized and, when so issued in accordance with the terms hereof, shall be validly issued and outstanding, fully paid and non-assessable, with no personal liability attaching to the ownership thereof.

           (c) Corporate Power . Acquiror and each of its Subsidiaries has the corporate power and authority to carry on its business as it is now being conducted and to own all its properties and

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assets, and Acquiror has the corporate power and authority to execute, deliver and perform its obligations under this Agreement and to consummate the transactions contemplated hereby.

           (d) Corporate Authority . Subject to the approvals by the shareholders described in Section 6.02, this Agreement and the transactions contemplated hereby have been authorized by all necessary corporate action of Acquiror and its board of directors. This Agreement is a valid and legally binding agreement of Acquiror enforceable in accordance with its terms (except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer and similar laws of general applicability relating to or affecting creditors’ rights or by general equity principles).

           (e) Regulatory Approvals, No Defaults .

                (i)  No consents or approvals of, or filings or registrations with, any court, administrative agency or commission or other governmental authority or instrumentality or with any third party are required to be made or obtained by Acquiror or any of its Subsidiaries in connection with the execution, delivery or performance by Acquiror of this Agreement or to consummate the Merger except for (A) filings of applications or notices with the Federal Reserve and the Bureau of Financial Institutions, and (B) the filing of articles of merger with the Commission pursuant to the Corporation Act and the Banking Act and the issuance of related certificates of merger, (C) approval of the listing on the Nasdaq SmallCap Market of the Acquiror Common Stock to be issued in the Merger, (D) the filing and declaration of effectiveness of the Registration Statement, (E) such filings as are required to be made or approvals as are required to be obtained under the securities or “Blue Sky” laws of various states in connection with the issuance of Acquiror Common Stock in the Merger, and (F) receipt of any other consents or approvals that would be obtained by Acquiror prior to the Effective Time.

                (ii)  Subject to receipt of the regulatory approvals referred to in Section 5.04(e)(i) and expiration of the related waiting periods, and required filings under federal and state securities laws, the execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby do not and will not (A) constitute a breach or violation of, or a default under, or give rise to any Lien, any acceleration of remedies or any right of termination under, any law, rule or regulation or any judgment, decree, order, governmental permit or license, or agreement, indenture or instrument of Acquiror or of any of its Subsidiaries or to which Acquiror or any of its Subsidiaries or properties is subject or bound, (B) constitute a breach or violation of, or a default under, the articles of incorporation or by-laws (or similar governing documents) of Acquiror or any of its Subsidiaries, or (C) require any consent or approval under any such law, rule, regulation, judgment, decree, order, governmental permit or license, agreement, indenture or instrument.

           (f) Financial Statements and SEC Documents .

                (i)  Acquiror’s Annual Reports on Form 10-KSB for the fiscal years ended December 31, 2004, 2003 and 2002, and all other reports, registration statements, definitive proxy statements or information statements filed or to be filed by it or any of its Subsidiaries subsequent to December 31, 2002 under the Securities Act, or under Section 13(a), 13(c), 14 or 15(d) of the Exchange Act, in the form filed or to be filed (collectively, the “SEC Documents”) with the SEC, as of the date filed, (A) complied or will comply in all material respects as to form with the applicable requirements under the Securities Act or the Exchange Act, as the case may be, and (B) did not and will not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the stateme