STOCK PURCHASE AGREEMENT BY AND AMONG ARGENTUM CAPITAL MANAGEMENT, LLC, AND ASSIGNS; MAINSTREET BANKSHARES, INC.; AND SMITH RIVER COMMUNITY BANK, NATIONAL ASSOCIATION

EXHIBIT 99.2

STOCK PURCHASE AGREEMENT

BY AND AMONG

ARGENTUM CAPITAL MANAGEMENT, LLC, AND ASSIGNS;

MAINSTREET BANKSHARES, INC.; AND

SMITH RIVER COMMUNITY BANK, NATIONAL ASSOCIATION

STOCK PURCHASE AGREEMENT

This STOCK PURCHASE AGREEMENT ("Agreement") is made and entered into as of January 13, 2005 by and among MainStreet BankShares, Inc., a Virginia bank holding company (the "Seller"); Smith River Community Bank, National Association, a national banking association (the "Bank"), and Argentum Capital Management, LLC, a North Carolina limited liability company, and its assigns (the "Purchaser").

WHEREAS, the Seller owns 600,000 shares of the issued and outstanding common stock, par value $5.00 per share, of the Bank (collectively, the "Existing Shares"), which represents all of the issued and outstanding shares of the capital stock of the Bank as of the date hereof;

WHEREAS, the Bank desires to issue, and the Purchaser desires to acquire, up to 300,000 additional shares of common stock of the Bank, par value $5.00, per share (the "Issued Shares"; collectively with the Existing Shares, the "Shares");

WHEREAS, the Purchaser desires to acquire the Bank through the purchase of all of the Shares and the Seller desires to transfer the Existing Shares for the consideration set forth below and upon the terms and subject to the conditions of this Agreement; and

WHEREAS, the respective Boards of Directors of Purchaser, Bank and Seller have approved this Agreement and the transactions contemplated herein substantially on the terms and subject to the conditions set forth in this Agreement.

NOW, THEREFORE, in consideration of the parties' respective representations, warranties and covenants hereinafter set forth and other good and valuable consideration, the receipt of which is hereby acknowledged, and intending to be legally bound, the parties agree as follows:

1.  

3. DEFINITIONS

   "Administrative Services Agreement" shall have the meaning given to such term in Section 5.14.

   "Agreement" shall have the meaning set forth in the preamble of this Agreement.

   "Affiliate" or "affiliate" shall mean, with respect to any person, any person that, directly or indirectly, controls or is controlled by or is under common control with such person.

   "Affiliated Group" shall have the meaning given such term in Section 4.15(d).

   "Bank" shall have the meaning set forth in the preamble of this Agreement.

   "Benefit Arrangement" shall mean, other than base-salary and base wages, any form of current or deferred compensation, bonus, stock option, stock appreciation right, severance pay, salary continuation, retirement or incentive plan or arrangement for the benefit of any director, officer or employee of the Bank, whether active or retired.

   "BHCA" shall mean the Bank Holding Company Act of 1956, as amended.

   "Business Day" shall mean any day, other than a Saturday, Sunday or legal holiday, on which national banks are open for substantially all their banking business in Virginia.

   "Claim" shall have the meaning given such term in Section 8.04(a).

   "Classified Credits" shall mean loans, leases or other extensions of credit that have been classified by any bank regulatory authority or by the Bank as "Specially Mentioned," "Renegotiated," "Substandard," "Doubtful," "Loss" or any comparable classification.

   "Closing" shall have the meaning given such term in Section 2.02.

   "Closing Date" shall have the meaning given such term in Section 2.02.

   "Closing Date Employees" shall have the meaning given such term in Section 5.08(a).

   "Code" shall mean the Internal Revenue Code of 1986, as amended.

   "Controlled Group Liability" shall have the meaning given such term in Section 4.20(c).

   "Disclosure Schedule" shall have the meaning given such term in Section 4.01.

   "Employee Plan" shall mean any "employee benefit plan" as defined in Section 3(3) of ERISA which is subject to any provisions of ERISA and covers any employee of the Bank, whether active or retired.

   "Environmental Laws" shall mean and include any and all laws, statutes, ordinances, decrees, rules, regulations, orders, or determinations of any Governmental Entity, including common law and decisional law, that (i) regulate air, water, soil and solid waste management, including the generation, discharge, emission, manufacture, use, recycling, treatment, control, release, containment, storage, handling, transportation, disposition or management of any Hazardous Substances; (ii) regulate or prescribe requirements for air, water or soil quality; (iii) are intended to protect public health or the environment; or (iv) establish responsibility or liability for the investigation, removal, remediation, reporting, or cleanup of, or damage caused by, any Hazardous Substances, including, without limitation, the Clean Air Act, as amended, the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended ("CERCLA"), the Federal Water Pollution Control Act Amendments, the Occupational Safety and Health Act of 1970, as amended, the Resource Conservation and Recovery Act of 1976, as amended ("RCRA"), the Hazardous Materials Transportation Act of 1975, as amended, the Safe Drinking Water Act, as amended, and the Toxic Substances Control Act, as amended, and any similar or implementing law.

   "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended.

   "ERISA Affiliate" shall mean, with respect to any other person, any person that is a member of a controlled group of corporations within the meaning of Section 414(b) of the Code, a group of corporations or entities under common control under Section 414(c) of the Code, an affiliated service group under Section 414(m) of the Code, or is otherwise aggregated under Section 414(o) of the Code with such person.

   "Expenses" shall mean all reasonable out-of-pocket expenses (including all fees and expenses of counsel, accountants, investment bankers, experts and consultants to a party and its affiliates) incurred by such party or on its behalf in connection with the consummation of the transactions contemplated by this Agreement.

   "FDIC" shall mean the Federal Deposit Insurance Corporation.

   "Federal Reserve Board" shall mean the Board of Governors of the Federal Reserve System.

   "Filings" shall have the meaning given such term in Section 4.07.

   "Financial Statements" shall have the meaning given such term in Section 4.08.

   "Governmental Entity" shall mean any court, federal, state, local or foreign government or any administrative agency or commission or other governmental authority or instrumentality.

   "Hazardous Substances" shall mean (i) any petroleum or petroleum products, flammable explosives, radioactive materials, asbestos in any form that is or could become friable, urea formaldehyde foam insulation and transformers or other equipment that contain dielectric fluid containing levels of polychlorinated biphenyls (PCBs); (ii) any chemicals or other materials or substances which are defined, governed or regulated as or included in the definition of "hazardous substances," "hazardous wastes," "hazardous materials," "extremely hazardous wastes," "restricted hazardous wastes," "toxic substances," "toxic pollutants" or words of similar import, under any Environmental Law; and (iii) any other chemical or other material or substance, exposure to which is prohibited, limited or regulated by any Governmental Entity under any Environmental Laws.

   "Indemnity Agreement" shall mean an agreement between Seller and Bank whereby Seller agrees to acquire from Bank certain loans after the Closing Date, upon the occurrence of certain events, subject to mutually agreed terms and conditions.

   "Indemnified Party" shall have the meaning given such term in Section 8.04.

   "Indemnifying Party" shall have the meaning given such term in Section 8.04.

   "Intellectual Property" shall mean all (i) patents, patent applications, patent disclosures and inventions, (ii) trademarks, service marks, trade dress, trade names, logos and corporate names and registrations and applications for registration thereof together with all of the goodwill associated therewith, (iii) copyrights (registered or unregistered) and copyrightable works and registrations and applications for registration thereof, (iv) mask works and registrations and applications for registration thereof, (v) computer software, data, databases and documentation thereof, (vi) trade secrets and other confidential information (including, without limitation, ideas, formulas, compositions, inventions (whether patentable or unpatentable and whether or not reduced to practice), know-how, manufacturing and production processes and techniques, research and development information, drawings, specifications, designs, plans, proposals, technical data, copyrightable works, financial and marketing plans), (vii) other intellectual property rights, and (viii) copies and tangible embodiments thereof (in whatever form or medium).

   "Knowledge" shall mean, with respect to any representation or warranty of Seller contained in this Agreement, the actual knowledge, without duty of inquiry, of the following individuals of Seller: Chief Executive Officer and Chief Financial Officer; and with respect to any representation and warranty of Purchaser contained in this Agreement, the actual knowledge, without duty of inquiry, of the following individuals of Purchaser: Hunter H. Bost and Edwyn A. Tiryakian.

   "Lien" shall mean with respect to any property or asset, any mortgage, lien, pledge, charge, security interest, encumbrance or other adverse claim of any kind in respect of such property or asset. For purposes of this Agreement, a Person shall be deemed to own subject to a Lien any property or asset that it has acquired or holds subject to the interest of a vendor or lessor under any conditional sale agreement, capital lease or other title retention agreement relating to such property or asset.

   "Loss" or "Losses" shall have the meaning given such term in Section 8.01.

   "Material Adverse Effect" shall mean with respect to any Person, a material adverse effect on the financial condition, business, assets or results of operations of such Person and its Subsidiaries, taken as a whole, except in the case of the Seller and the Bank, as the case may be, any such effect resulting from or arising in connection with (i) this Agreement or its consummation and actions taken with respect thereto or the transactions contemplated hereby or the announcement hereof, (ii) changes in circumstances or conditions affecting financial institutions in general, and not specifically relating to the Bank, (iii) changes in general economic, regulatory or political conditions or in financial markets in the United States or (iv) changes in generally accepted accounting principles.

   "Multiemployer Plans" shall have the meaning given such term in Section 4.20(b).

   "New Investment" shall have the meaning given such term in Section 2.01.

   "OCC" shall mean the Office of the Comptroller of the Currency.

   "OREO" shall have the meaning given such term in Section 4.17(b).

   "Permitted Liens" shall mean: (i) liens for current Taxes not yet due or being contested in good faith and for which appropriate reserves have been established on the books and records of the taxpayer; (ii) liens imposed by law and incurred in the ordinary course of business for obligations not yet due to carriers, warehousemen, laborers, materialmen and the like; (iii) liens in respect of pledges or deposits under workers' compensation laws or similar legislation; (iv) minor defects in title which do not, individually or in the aggregate, interfere with the use, transferability or value of the property subject thereto; and (v) liens reflected on the face of the instrument evidencing title to such assets.

   "Person" or "person" shall mean an individual, corporation, partnership, limited liability company, joint venture, trust or unincorporated organization, Governmental Entity or any other legal entity whatsoever.

   "Purchase Price" shall have the meaning given such term in Section 2.01.

   "Purchaser" shall have the meaning set forth in the preamble of this Agreement.

   "Real Property" shall have the meaning given such term in Section 4.14.

   "Representatives" shall have the meaning set forth in Section 5.03(a).

   "Requisite Regulatory Approvals" shall have the meaning set forth in Section 6.01(a).

   "SEC" shall mean the Securities Exchange Commission.

   "Seller" shall have the meaning set forth in the preamble of this Agreement.

   "Seller Plans" shall have the meaning set forth in Section 4.20(b).

   "Shares" shall have the meaning set forth in the preamble of this Agreement.

   "Subsidiary" or "subsidiary" shall mean, with respect to any corporation (the "parent"), any other corporation, association or other business entity of which more than 50% of the shares of the voting stock or other equity interest are owned or controlled, directly or indirectly, by the parent or by one or more Subsidiaries of the parent, or by the parent and one or more of its Subsidiaries; provided, however, that notwithstanding the foregoing MainStreet Title, LLC shall be deemed a subsidiary of Bank for purposes hereof.

   "Tax Return" means any return, declaration, report, claim for refund, or information return or statement relating to Taxes, including any schedule or attachment thereto, and including any amendment thereof.

   "Tax" or "Taxes" shall mean all federal, state, local, foreign and other taxes, including without limitation net income, gross income, gross receipts, sales, use, ad valorem, transfer, franchise, profits, license, lease, service, service use, withholding, payroll, employment, estimated, excise, severance, stamp, occupation, premium, property, windfall profits, customs, duties, or other taxes, together with any interest and any penalties, additions to tax, or additional amounts with respect thereto, and any liability for Taxes of another person (i) as a transferee, (ii) as a member of an affiliated or combined group, (iii) by contract, or (iv) otherwise.

    

    

5. PURCHASE AND SALE OF BANK STOCK

   1.  

   2. Purchase and Sale of Bank Stock .

   3. Subject to the conditions expressly set forth herein, on the Closing Date (as hereinafter defined), Seller shall sell, convey, assign, transfer and deliver to Purchaser or its assignees as directed by Purchaser in writing, and Purchaser shall purchase, accept and acquire from Seller, the Existing Shares, for an aggregate purchase price of Six Million Five Hundred Thousand Dollars ($6,500,000.00) (the "Purchase Price").

      Not less than ten days prior to the Closing Date, the Purchaser shall notify the Bank of the number of Issued Shares that it desires to Purchase at the Closing and the price at which it desires to purchase them. At Closing, the Purchaser shall acquire from the Bank newly Issued Shares at the price designated by the Purchaser ("New Investment"), which price shall not be less than $5.00 per share.

      Purchaser shall pay the Purchase Price to Seller, and the New Investment to the Bank, respectively, by wire transfer at the Closing (as hereinafter defined).

       

   4. Closing.
   5. 
      
      

      The closing of the transactions contemplated by this Agreement (the "Closing") shall take place at LeClair Ryan Flippin Densmore, 10 South Jefferson Street, Suite 1800, Roanoke, Virginia 24011, or such other place as the parties may mutually agree upon, as soon as practicable following satisfaction of all closing conditions set forth herein or at such other date and time as the parties shall mutually agree (the "Closing Date").

       

   6. Actions and Deliveries by Seller at Closing .

   7. At the Closing, Seller shall deliver to Purchaser the following agreements, documents and instruments, in form and substance reasonably satisfactory to Purchaser and its counsel:

      1.  

      2. a certificate of the Secretary or an Assistant Secretary of Seller certifying copies of resolutions duly adopted by the Board of Directors of Seller, authorizing the execution, delivery and performance of this Agreement, and the transactions contemplated hereby and attesting that such resolutions are in full force and effect without amendment or modification at Closing;

      3.  

      4. a certificate or certificates representing the Existing Shares, registered in the name of Seller, duly endorsed by Seller for transfer or accompanied by an assignment of the Shares duly executed by Seller or endorsed in blank, together with the stock transfer records, blank certificates and corporate minute book; certified resolutions authorizing the issuance of the Issued Shares, together with a certificate or certificates issued in the name of the Purchaser;

      5.  

      6. a legal opinion in a form reasonably acceptable to Purchaser;

      7.  

      8. an officer's certificate of Seller pursuant to Section 6.02(a);

      9.  

      10. consents or approvals in writing of each Person whose consent or approval shall be required in order to permit the succession by Purchaser pursuant hereto to any obligation, right or interest of Bank under any loan or credit agreement, note, mortgage, indenture, lease, zoning variance, trust agreement or other contract, agreement, license, or instrument;

      11.  

      12. evidence of action taken by Seller and the Bank with respect to employees and employee benefit plan matters pursuant to Section 5.08 in form and substance reasonably satisfactory to Purchaser;

      13.  

      14. most recent FDIC certified quarterly statement;

      15.  

      16. certified Articles of Association, and a certificate of good standing, or other similar document, from the Office of the Comptroller of the Currency;

      17.  

      18. Estoppel certificates from each landlord from whom the Bank leases property; and

      19.  

      20. Indemnity Agreement on the form as mutually agreed to by the parties.

       

   8. Actions and Deliveries by Purchaser at Closing .

   9. At the Closing, Purchaser shall deliver to Seller the following agreements, documents and instruments, in form and substance reasonably satisfactory to Seller and its counsel:

      1.  

      2. the Purchase Price and New Investment by wire transfer as required by Section 2.01;

      3.  

      4. a certificate of the Secretary or an Assistant Secretary of the Purchaser certifying (i) a copy of resolutions duly adopted by the Board of Directors of the Purchaser authorizing the execution, delivery and performance of this Agreement, the obtainment of all Requisite Regulatory Approvals, and the transactions contemplated hereby and that such resolutions are in full force and effect without amendment or modification at Closing;

      5.  

      6. an officer's certificate pursuant to Section 6.03(a);

      7.  

      8. a legal opinion in a form reasonably acceptable to Seller;

      9.  

      10. a copy of all Requisite Regulatory Approvals, if any; and

      11.  

      12. Indemnity Agreement in the form as mutually agreed to by the parties.

    

    

7. REPRESENTATIONS AND WARRANTIES OF PURCHASER

   Purchaser represents and warrants to the Seller as follows:

   1.  

   2. Organization; Corporate Power; Etc .

   3. Purchaser is a limited liability company duly organized, validly existing and in good standing under the laws of the State of North Carolina and has all requisite corporate power and authority to own, operate and lease its properties and to carry on its business substantially as currently conducted. Purchaser has all requisite corporate power and authority to enter into this Agreement and, subject to the obtaining of all Requisite Regulatory Approvals, to consummate the transactions contemplated hereby.

       

   4. Authorization of Agreement; No Conflicts .

   5. 1.  

      2. The execution and delivery of this Agreement, and the consummation of the transactions contemplated hereby have been duly authorized by all necessary corporate action on the part of Purchaser. This Agreement has been duly executed and delivered by Purchaser and constitutes a valid and binding obligation of Purchaser, enforceable in accordance with its terms, except as the enforceability thereof may be limited by bankruptcy, insolvency, moratorium or other similar laws affecting the rights of creditors generally and by general equitable principles.

      3.  

      4. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby do not and will not conflict with, or result in any violation of or default under, any provision of the Articles of Organization or Operating Agreement of Purchaser or, except for the necessity of obtaining the Requisite Regulatory Approvals, any mortgage, indenture, lease, agreement or other instrument or any permit, concession, grant, franchise, license, judgment, order, decree, statute, law, ordinance, rule or regulation applicable to Purchaser or its properties. No consent, approval, order or authorization of, or registration, declaration or filing with, any Governmental Entity is required in connection with the execution and delivery of this Agreement by Purchaser or the consummation by it of the transactions contemplated hereby, except for filings required in order to obtain the Requisite Regulatory Approvals.

       

   6. Licenses and Permits .

   7. To Purchaser's knowledge, Purchaser has all licenses, certificates, franchises, rights and permits that are necessary from Governmental Entities for the conduct of its business, and such licenses are in full force and effect. To Purchaser's knowledge, the properties, assets, operations and business of Purchaser are and have been maintained and conducted, in all material respects, in compliance with all applicable licenses, zoning variances, certificates, franchises, rights and permits.

       

   8. Litigation .

   9. Purchaser is not a party to any litigation, action, suit or other legal, administrative or arbitration proceeding or investigation of a legal nature or group of related such proceedings or investigations in any court or before any governmental or regulatory body pending or, to the best knowledge of Purchaser, threatened, which, if determined adversely to Purchaser, would prohibit the execution and delivery of this Agreement or prevent the consummation of the transactions contemplated hereby in accordance with the terms hereof.

       

   10. Financing.

   11. Purchaser has contingent financial arrangements such that at the Closing, Purchaser is highly confident that it will have funds sufficient to enable it to carry out its obligations under this Agreement but Purchaser's obligations under this Agreement are not contingent on the successful completion of such financial arrangements in any event.

        

   12. Brokerage Fees .

   Except as set forth on Exhibit 3.06, Purchaser is not a party to, nor obligated under, any agreement with any broker, finder or other intermediary who might be entitled to any fee or commission upon consummation of the transactions contemplated hereby.

    

    

9. REPRESENTATIONS AND WARRANTIES OF SELLER

   Except as set forth in the Disclosure Schedule (defined below), Seller represents and warrants to Purchaser as follows:

   1.  

   2. Disclosure Schedule.

   3. Prior to the execution and delivery hereof, Seller has delivered to Purchaser, a schedule (the "Disclosure Schedule") setting forth, among other things, items the disclosure of which are necessary or appropriate either in response to an express disclosure requirement contained in a provision hereof or as an exception to one or more of Seller's representations or warranties contained in Article IV or to one or more of Seller's covenants contained in Article V. While an item may be included under one or more Sections of this Agreement such inclusion shall be for convenience of reference only and all such disclosures in the Disclosure Schedule shall apply generally.

       

   4. Organization; Corporate Power; Etc .

   5. 1.  

      2. Seller is a Virginia corporation and a bank holding company registered under the BHCA. Seller is a corporation duly organized, validly existing and in good standing under the laws of the Commonwealth of Virginia and has all requisite corporate power and authority to own, operate and lease its properties and to carry on its business substantially as currently conducted. Seller has all requisite corporate power and authority to enter into this Agreement and to consummate the transactions contemplated hereby.

      3.  

      4. The Bank is a bank duly organized, validly existing and in good standing under the laws applicable to national banks and the regulations of the OCC, and has all requisite corporate power and authority to own, operate and lease its properties and to carry on its business substantially as currently conducted. The deposit accounts of the Bank are insured by the FDIC through the Bank Insurance Fund to the extent required by law and all premiums and assessments required to be paid in connection therewith have been paid by the Bank. Neither the scope of business of the Bank nor the location of any of its properties requires that the Bank be licensed to conduct business in any jurisdiction other than those jurisdictions in which it is licensed or qualified to do business as a foreign banking corporation. The Bank does not conduct trust activities and does not possess trust powers.

       

   6. Authorization of Agreement; No Conflicts .

   7. 1.  

      2. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly authorized by all necessary corporate action on the part of each of Seller and the Bank. This Agreement has been duly executed and delivered by Seller and the Bank and constitutes a valid and binding obligation of Seller and the Bank, enforceable in accordance with its terms, except as the enforceability thereof may be limited by bankruptcy, insolvency, moratorium or other similar laws affecting the rights of creditors generally and by general equitable principles.

      3.  

      4. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby do not and will not conflict with, or result in any violation of or default under, any provision of the Articles of Incorporation, bylaws or other constituent documents of the Seller or the Bank or (except for the necessity of obtaining the Requisite Regulatory Approvals) any mortgage, indenture, lease, agreement or other instrument or any permit, concession, grant, franchise, license, judgment, order, decree, statute, law, ordinance, rule or regulation applicable to the Seller or the Bank or their respective properties material to the business or operations of Bank. No consent, approval, order or authorization of, or registration, declaration or filing with, any Governmental Entity is required on the part of the Seller or the Bank in connection with the execution and delivery of this Agreement by Seller and the Bank or the consummation by it of the transactions contemplated hereby, except for (i) filings required to obtain any Requisite Regulatory Approvals; and (ii) filings required under the rules and regulations of the SEC.

       

   8. Licenses and Permits .

   9. The Bank has all licenses, certificates, franchises, rights and permits that are necessary from Governmental Entities for the conduct of its business, and such licenses are in full force and effect. The properties, assets, operations and business of the Bank are and have been maintained and conducted in compliance with all applicable licenses, zoning variances, certificates, franchises, rights and permits.

       

   10. Subsidiaries .

   11. Except as disclosed in the Disclosure Schedule, the Bank does not own, directly or indirectly, any Subsidiary (except as pledgee pursuant to loans or stock or other interest held as the result of or in lieu of foreclosure pursuant to pledge or other security arrangement), or any equity position or other voting interest in any Person.

        

   12. Capital Structure .

   13. The authorized capital stock of the Bank consists solely of 10,000,000 shares of common stock, par value $5.00 per share, of which 600,000 are issued and outstanding as of the date of this Agreement. Seller owns all of the issued and outstanding Existing Shares free and clear of all Liens. All Shares are validly issued, fully paid and nonassessable, and do not possess any preemptive rights. There are no options, warrants, calls, rights, commitments, securities or agreements of any character to which the Seller or the Bank is a party or by which either is bound obligating the Seller or the Bank to issue, deliver or sell, or cause to be issued, delivered or sold, additional shares of capital stock of the Bank, or by which it is bound obligating the Seller or the Bank to grant, extend or enter into any such option, warrant, call, right, commitment or agreement. There are no obligations, contingent or otherwise, of the Seller or the Bank to repurchase, redeem or otherwise acquire any Shares of the Bank or of the Bank to repurchase, redeem or otherwise acquire any shares of capital stock of any Person or to provide funds or make any investment (in the form of a loan, capital contribution or otherwise) in the Bank or any other Person (other than pursuant to commercial loan arrangements and similar obligations arising in the ordinary course of business of the Bank).

        

   14. Filings .

   15. Except for Tax Returns as provided in Section 4.15, the Bank has filed all material reports, registrations and statements, together with any amendments required to be made with respect thereto, that were required to be filed by the Bank with any Governmental Entity (collectively, the "Filings"). To the Knowledge of Seller, as of their respective filing dates, each of such Filings complied with all of the statutes, rules and regulations enforced or promulgated by the Governmental Entity with which it was filed.

        

   16. Financial Statements .

   17. Attached to the Disclosure Schedule are copies of reports of condition and income filed by the Bank as of and for September 30, 2004 (the "Financial Statements"). The Financial Statements have been prepared in accordance with applicable regulatory accounting principles consistently followed throughout the periods covered by such statements, and present fairly in all material respects the financial position of the Bank as of the date indicated and the results of its operations and changes in financial position at such date and for the period covered by such Financial Statements.

        

   18. Compliance with Applicable Laws .

   19. To the Knowledge of Seller, the Bank has complied with all applicable, material laws, regulations and ordinances. Except for examinations conducted by a Governmental Entity in the regular course of the Bank's business, no Governmental Entity has initiated any proceeding against the Bank or, to the Knowledge of the Seller, formal investigation into the business or operations of the Bank.

        

   20. Litigation .

   21. Except as listed in the Disclosure Schedule, there are no suits, actions or proceedings pending or, to Seller's Knowledge, threatened against or affecting, as of the date of this Agreement, the Bank or any director, officer, employee or agent of the Bank in his or her capacity as such, and there are no judgments, decrees, injunctions, rules or orders of any Governmental Entity or arbitrator outstanding against the Bank as to which there is a reasonable likelihood of a determination materially adverse to the Bank.

        

   22. Agreements with Banking Authorities .

   23. Neither the Seller nor the Bank is a party to any written agreement, memorandum of understanding, order or directive with any Governmental Entity which restricts any conduct of the Bank's business or which relates to the Bank's capital adequacy, credit policies, operations or management or otherwise.

        

   24. Insurance .

   25. The Bank, through the Seller, has, and has continuously maintained since its incorporation, in full force and effect policies of insurance with respect to its assets and business against such casualties and contingencies, including directors' and officers' indemnification, and in such amounts, types and forms as are reasonable and customarily appropriate for its businesses, operations, properties and assets. The Bank is not in default under any such policy of insurance or bond such that it can be canceled and all material claims thereunder have been filed in timely fashion. Neither Seller nor the Bank has received any written notice of termination, nor has cancellation been made with respect to any such policy. Purchaser understands that on and after the Closing Date, it will be Purchaser's responsibility to insure that the Bank has all necessary or desired insurance and that Bank will no longer be insured under, by, or through Seller.

        

   26. Assets Other Than Real Property .

   27. Except as disclosed in the Disclosure Schedule and Permitted Liens, the Bank has good and valid title to all its personal properties reflected in the Financial Statements, except such personal property which has been disposed of in the ordinary course of business, and such personal properties are owned by the Bank, free and clear of all Liens. Except as disclosed in the Disclosure Schedule, there is no personal property leased by Bank. Any leases so disclosed are to Knowledge of Seller in good standing and not in default. To the Knowledge of Seller, substantially all of the Bank's personal property in regular use has been well maintained and is in good and serviceable condition, reasonable wear and tear excepted. The Bank does not own any single item of tangible personalty with a value of more than $10,000 except for its proof machine, vault lockers, modular branch facility in Stuart, Virginia and internet banking software. The Disclosure Schedule identifies property of Bank that Seller intends to retain and sets forth the amounts which Seller shall pay to Bank for such retained property.

        

   28. Real Property .

   29. The Disclosure Schedule contains an accurate list and general description of all real property leased by the Bank (the "Real Property"). The Bank owns no real estate and has no OREO. Other than as set forth in the Disclosure Schedule, the Bank has good and valid leasehold interests in the leaseholds. To Seller's Knowledge, the Bank enjoys peaceful and undisturbed possession under all leases to which it is the lessee and all of such leases are valid and in full force and effect absent, to the Knowledge of Seller any existing defaults.

        

   30. Taxes.

   31. 1.  

       2. (i) Except as set forth in the Disclosure Schedule, the Bank has timely filed (or has had filed on its behalf) all Tax Returns required to be filed and each such Tax Return is accurate and complete in all material respects, and all Taxes shown as due and owing on such Tax Returns have been paid; (ii) all Taxes of the Bank attributable to all periods ending before the Closing Date, to the extent not due and owing, whether or not disputed, will be fully and adequately reserved for in accordance with generally accepted accounting principles; (iii) the Bank is not delinquent in the payment of any Tax; and (iv) Seller has no Knowledge of any deficiencies for any Taxes that have been proposed, asserted or assessed against the Bank that have not been resolved or settled and no requests for waivers of the time to assess any such Tax are pending or have been agreed to.

       3.  

       4. There are no Tax audits of any Tax Returns of the Bank that are in progress. The income Tax Returns of the Bank have not been audited by either the Internal Revenue Service or any state or local taxing authorities, for any of the last five (5) years. The Bank is not currently a party to any action or proceeding by any Governmental Entity for the assessment or the collection of Taxes.

       5.  

       6. The Bank has not filed any consolidated federal income Tax Return with an "affiliated group" (within the meaning of Section 1504 of the Code) where Seller was not the common parent of the group. The Bank is not a party to any tax allocation agreement or arrangement pursuant to which it has any contingent or outstanding liability to anyone other than Seller.

       7.  

       8. Each member of the "affiliated group" (within the meaning of Section 1504 of the Code) of which Seller is the common parent (the "Affiliated Group") has filed all federal income Tax Returns that it was required to file for each taxable period during which the Bank was a member of such Affiliated Group. To the Knowledge of Seller, all such Tax Returns were correct and complete in all material respects. All federal income Taxes owed by any member of the Affiliated Group (whether or not shown on any Tax Return) have been paid for each taxable period during which the Bank was a member of the Affiliated Group.

       9.  

       10. Except to the extent not having a Material Adverse Effect on the Bank, the Bank has withheld amounts from its employees, shareholders, holders of deposit accounts, and others in compliance with the Tax withholding provisions of applicable federal, state and local laws, filed all Tax Returns and reports for all years for which any such Tax Return or report would be due with respect to employee income Tax withholding, social security, and unemployment Taxes, and all payments or deposits with respect to such Taxes, other than those not yet due, have been timely made.

        

   32. Certain Contracts .

   33. The Disclosure Schedule sets forth as of the date hereof all contracts to which the Bank is a party which are executory material contracts (as defined in Item 601(b)(10) of Regulation S-K promulgated by the SEC) to be performed after the date of this Agreement, all contracts to which the Bank is a party which are executory material contracts which relate to the Bank or the provision of services under the Services Agreement, and any other written, or to the Knowledge of Seller, oral, (i) consulting agreement or employment agreement or other agreement providing any term of employment, compensation guarantee, or severance or supplemental retirement benefit, (ii) union, guild or collective bargaining agreement, (iii) agreement or plan, including any stock option plan, stock appreciation rights plan, restricted stock plan or stock purchase plan, the cost of any of the benefits of which will be incurred by Bank, and any of the benefits of which will be increased, or the vesting of the benefits of which will be accelerated, by the occurrence of any of the transactions contemplated by this Agreement or the value of any of the benefits of which will be calculated on the basis of the transactions contemplated by this Agreement, (iv) contract other than the Administrative Services Agreement containing covenants which limit the ability of the Bank to compete in any line of business or with any person or which involve any restriction of the geographical area in which, or method by which, the Bank may carry on its business (other than as may be required by law or applicable regulatory authorities), and (v) any contract, agreement or other instrument or undertaking which is not terminable by the Bank without additional payment or penalty within ninety (90) days and obligates the Bank for payments or other consideration with a value in excess of $10,000. The Bank has performed in all material respects and, except to the extent not having a Material Adverse Effect on the Bank, is not in default under or in breach of, any material term or provision of any agreement listed on the Disclosure Schedule.

        

   34. Loans and Investments .

   35. 1.  

       2. Except as disclosed in the Disclosure Schedule, or where the failure to be true does not have a Material Adverse Effect on the Bank, as of the date hereof, no loans or investments held by the Bank are (i) more than sixty (60) days past due with respect to any scheduled payment of principal or interest; (ii) Classified Credits; (iii) on a non-accrual status in accordance with the Bank's loan review procedures; or (iv) to the Knowledge of the Seller, are in default for any reason (other than a monetary default of less than 60 days).

       3.  

       4. Except as otherwise disclosed in the Disclosure Schedule, each loan reflected as an asset on the Financial Statements (except for any such loan where the failure to be true does not have Material Adverse Effect on the Bank) is evidenced by appropriate and sufficient documentation and constitutes, to the Knowledge of Seller, the legal, valid and binding obligation of the obligor named therein, enforceable in accordance with its terms except to the extent that the enforceability thereof may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws or equitable principles or doctrines. Set forth in the Disclosure Schedule is a complete list of the Bank's Other Real Estate Owned ("OREO").

       5.  

       6. All guarantees of indebtedness owed to the Bank, including, but not limited to, those of the Federal Housing Administration, the Small Business Administration, and other state and federal agencies, are, to the Knowledge of Seller, legal, valid and enforceable, except to the extent enforceability thereof may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws or equitable principles or doctrines and except as does not have a Material Adverse Effect on the Bank.

       7.  

       8. The Bank has and maintains materially complete loan files on all loans held by the Bank. There are no books, records or files relating to the Bank's loans and to which the Bank is entitled that are not on the premises of the Bank, except to the extent in the custody of Seller pursuant to the Administrative Services Agreement.

       9.  

       10. Seller's management believes that the allowances for loan losses set forth in the Bank's most recent Financial Statements are adequate as of the date thereof, to absorb reasonably anticipated losses in the loan and lease portfolios of the Bank in view of the size and character of such portfolios, current economic conditions, and other pertinent factors.

        

   36. Undisclosed Liabilities .

   37. Except (a) as set forth in the Disclosure Schedule, (b) for those liabilities of the Bank that are specifically itemized and reflected or reserved against as such on the Financial Statements, and (c) for liabilities incurred in the ordinary course of business consistent with past practice, to Seller's Knowledge, the Bank has incurred no material liability of any nature whatsoever (whether absolute, accrued, contingent or otherwise and whether due or to become due).

        

   38. Labor Matters .

   39. Neither Seller nor Bank has received any notice of any controversies with, or organizational efforts or other pending actions by, representatives of its employees. To the Knowledge of Seller, the Bank has complied with all material laws relating to the employment of its employees, including any provisions thereof relating to wages, hours, collective bargaining and the payment of worker's compensation insurance and social security and similar taxes, and, except as set forth in the Disclosure Schedule, no person has asserted that the Bank is liable for any arrearages of wages, worker's compensation insurance premiums or any taxes or penalties for failure to comply with any of the foregoing.

        

   40. Employee Benefit Plans .

   41. 1.  

       2. The Disclosure Schedule lists all Employee Plans and Benefit Arrangements providing benefits to any employees or former employees of the Bank that are sponsored or maintained by the Bank or Seller (with the plans sponsored or maintained by the Bank identified as such) to which Seller or the Bank contributes or is obligated to contribute on behalf of employees or former employees of the Bank, including without limitation any employee welfare benefit plan within the meaning of Section 3(1) of ERISA, any employee pension plan within the meaning of Section 3(2) of ERISA or any collective bargaining, bonus, incentive, deferred compensation, stock purchase, stock option, severance, change of control or fringe benefit plan. Employees of the Bank shall not be eligible for continued participation in any of the Employee Plans and Benefit Arrangements maintained or sponsored by Seller for any period of employment on or after the Closing Date.

       3.  

       4. No Employee Plans of Seller or its ERISA Affiliates (the "Seller Plans") are "multiemployer plans" within the meaning of Section 4001(a)(3) of ERISA ("Multiemployer Plans"). The Bank has not at any time during the last six years contributed to or been obligated to contribute to any Multiemployer Plan, and the Bank has not incurred any withdrawal liability under Part I of Subtitle E of Title IV of ERISA that has not been satisfied in full.

       5.  

       6. There does not now exist, nor, to the best Knowledge of Seller, do any circumstances exist that could result in, any Controlled Group Liability that would be a material liability of the Bank following the Closing. "Controlled Group Liability" means (i) any and all liabilities (A) under Title IV of ERISA, (B) under Section 302 of ERISA, (C) under Section 412 and 4971 of the Code, or (D) as a result of a failure to comply with the continuation coverage requirements of Section 601 et. seq. of ERISA and Section 4980B of the Code; (ii) with respect to any Seller Plan any other material liability under Title I of ERISA or Chapter 43 or 68 of the Code, and (iii) except as set forth in the Disclosure Schedule, material unfunded liabilities under any non-qualified deferred compensation plan for the benefit of any employee or former employee of the Bank.

       7.  

       8. There is no contract, agreement, plan or arrangement covering any employee or former employee of the Bank that, individually or in the aggregate, could give rise to the payment by the Bank of any amount that would not be deductible pursuant to the terms of Section 162(m) or Section 280G of the Code. Except as required by the continuation of coverage requirements of Section 601 et. seq. of ERISA and Section 4980B of the Code, the Bank has no liability to provide post-retirement health or life benefits to any employee or former employee of the Bank.

        

   42. Environmental Matters .

   43. 1.  

       2. To the Knowledge of Seller, the Real Property and all operations and facilities at the Real Property are in material compliance with all Environmental Laws.

       3.  

       4. Neither Seller nor the Bank has received in writing any governmental complaint, notice of violation or alleged violation, or investigation or notice of potential liability or of potential responsibility regarding matters arising under or relating to Environmental Laws.

       5.  

       6. There are no governmental or administrative actions or judicial proceedings pending under any Environmental Laws to which Seller or the Bank is named as a party, nor are there any consent decrees or other decrees, consent orders, administrative orders or other orders, under any Environmental Law which names the Bank or the Seller as a party.

        

   44. Intellectual Property Rights .

   45. Neither Seller nor the Bank has received any written notice that the Bank's Intellectual Property infringes on the rights of a third party. The Bank has all rights, title and interest in and to the name "Smith River Community Bank" as presently used by Bank and has not assigned nor licensed it in any manner. On and after the Closing Date the Seller will have no rights, title or interest in and to the name "Smith River Community Bank", in the domain name smithriverbank.com or in the logo used by Bank as depicted in the Disclosure Schedule, none of which has been licensed for use to any third party.

        

   46. Examinations .

   47. The Bank has not been examined by the Federal Reserve Board or FDIC. The last examination of the Bank by the OCC was performed as of the dates described in the Disclosure Schedule, and true, correct and complete copies of the report of examination related thereto is maintained in the Bank's examination files. If the Bank or Seller were notified of any deficiencies as a result of said examination, the Bank has taken action to correct each such deficiency, which action the Bank to its Knowledge believes is to the satisfaction of the appropriate agency, and the Bank has not received notice of any kind that such action is inadequate, and if any changes in operating methods or organization were required by reason of such examinations, or other examinations, such changes have been made.

        

   48. Approvals .

   49. As of the date of this Agreement, neither Seller nor the Bank knows of any reason why all Requisite Regulatory Approvals should not be obtained.

        

   50. Absence of Certain Developments .

   51. Since September 30, 2004, and prior to the date hereof there has been (i) no material adverse change in the financial condition or results of operations of the Bank; (ii) no declarations, setting aside, or payment of any special dividend or other distribution with respect to any class of capital stock of the Bank; (iii) no material loss, destruction, or damage to any material property of the Bank, which loss, destruction, or damage is not adequately covered by insurance; and (iv) no material acquisition or disposition of any asset or contract nor any other transaction by the Bank other than for fair value in the ordinary course of business. Since such date and prior to the date hereof, Bank has conducted its business in all material respects in the ordinary course.

       Other Documents. Prior to the execution of this Agreement Purchaser has been given access to: (i) any regulatory approvals relating to all acquisitions or the engagement by the Bank in new business activities; (ii) the Bank's Articles of Association and bylaws and any amendments thereto as well as the complete corporate minute book of the Bank which include all written minutes of the meetings or actions taken in lieu thereof of the Bank's shareholders, Board of Directors and committees; (iii) any pending application, including any documents or materials used as exhibits or supporting documentation thereto, which has been filed with any federal or state regulatory agency with respect to the establishment of a new branch office or the acquisition or establishment of an additional regulated activity or subsidiary; and (iv) all information relevant to Bank's federal and state taxes for the years 2001, 2002, and 2003 (if available), but not to the consolidated Tax returns of Seller for such years.

        

   52. Brokerage Fees .

   Except as disclosed in the Disclosure Schedule, Seller is not a party to, or obligated under, any agreement with any broker, finder or other intermediary who might be entitled to any fee or commission upon consummation of the transactions contemplated hereby.

    

11. ADDITIONAL AGREEMENTS

    1.  

    2. Best Efforts; Further Assurances.

    3. During the period from the date of execution of this Agreement through Closing, both parties agree to use its respective best efforts, or cooperate with others, to expeditiously bring about the satisfaction of the conditions specified in Article VI hereof at the earliest practical time.

        

    4. Conduct of the Bank's Business Pending Closing .

    5. During the period from the date of execution of this Agreement through Closing, Seller agrees to cause the Bank to carry on its business in the ordinary course in substantially the manner in which heretofore conducted and in accordance with safe and sound banking practices, subject to changes in law applicable to national banks and directives from regulators. Seller shall cause the Bank not to do any of the following without the written consent of Purchaser, which consent shall not be unreasonably withheld or delayed:

       1.  

       2. issue, deliver or sell, authorize the issuance, delivery or sale of or purchase any shares of the Bank's capital stock or any cla