AGREEMENT OF MERGER AND PLAN OF REORGANIZATION BY AND AMONG HORIZON BANCORP

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EXHIBIT 2.1

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AGREEMENT OF MERGER AND PLAN OF REORGANIZATION

BY AND AMONG

HORIZON BANCORP,

an Indiana Corporation

HORIZON ACQUISITION CORP.,

an Indiana Corporation

ALLIANCE FINANCIAL CORPORATION,

a Michigan Corporation

HORIZON BANK, NATIONAL ASSOCIATION,

a National Banking Association

AND

ALLIANCE BANKING COMPANY,

a Michigan State-Chartered Commercial Bank

FEBRUARY 24, 2005

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TABLE OF CONTENTS

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ARTICLE 1. TERMS OF THE MERGERS........................................................... 2

Section 1.1 Terms of the Bank Merger.................................................... 2

Section 1.2 Effect of the Bank Merger................................................... 2

Section 1.3 Conversion of Shares: The Bank Merger....................................... 3

Section 1.4 Terms of the Holding Company Merger......................................... 3

Section 1.5 Effect of the Holding Company Merger........................................ 3

Section 1.6 Conversion and Exchange of Shares: The Holding Company Merger.............. 4

Section 1.7 Alliance Stock Options...................................................... 4

Section 1.8 Terms of the Third Merger................................................... 4

Section 1.9 Effect of the Third Merger.................................................. 4

Section 1.10 Conversion and Exchange of Shares: The Third Merger........................ 5

Section 1.11 Reservation of Right to Revise Structure................................... 5

Section 1.12 Exchange Procedures........................................................ 5

ARTICLE 2. REPRESENTATIONS AND WARRANTIES OF ALLIANCE..................................... 6

Section 2.1 Organization and Capital Stock.............................................. 7

Section 2.2 Authorization; No Defaults.................................................. 7

Section 2.3 Subsidiaries................................................................ 8

Section 2.4 Financial Information....................................................... 8

Section 2.5 Absence of Changes.......................................................... 9

Section 2.6 Agreements with Banking Authorities......................................... 9

Section 2.7 Tax Matters................................................................. 9

Section 2.8 Litigation.................................................................. 10

Section 2.9 Employment Agreements....................................................... 10

Section 2.10 Reports.................................................................... 10

Section 2.11 Investment Portfolio....................................................... 11

Section 2.12 Loan Portfolio............................................................. 11

Section 2.13 Employee Matters and ERISA................................................. 12

Section 2.14 Title to Properties; Insurance............................................. 13

Section 2.15 Environmental Matters...................................................... 14

Section 2.16 Compliance with Americans with Disabilities Act............................ 15

Section 2.17 Compliance with Law........................................................ 15

Section 2.18 Brokerage.................................................................. 15

Section 2.19 Material Contracts......................................................... 15

Section 2.20 No Undisclosed Liabilities................................................. 16

Section 2.21 Delivery of Documents...................................................... 16

Section 2.22 Interim Events............................................................. 16

Section 2.23 Books and Records.......................................................... 16

Section 2.24 Deposit Insurance.......................................................... 16

Section 2.25 No Regulatory Filings...................................................... 16

Section 2.26 Statements True and Correct................................................ 16

ARTICLE 3. REPRESENTATIONS AND WARRANTIES OF HORIZON...................................... 17

Section 3.1 Organization................................................................ 17

Section 3.2 Authorization............................................................... 17

Section 3.3 Financial Information....................................................... 18

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Section 3.4 Reports..................................................................... 18

Section 3.5 Agreements with Banking Authorities......................................... 18

Section 3.6 Compliance with Law......................................................... 18

ARTICLE 4. AGREEMENTS OF ALLIANCE......................................................... 19

Section 4.1 Conduct of Business......................................................... 19

Section 4.2 Breaches.................................................................... 22

Section 4.3 Submission to Shareholders.................................................. 22

Section 4.4 Consummation of Agreement; Regulatory Approvals............................. 22

Section 4.5 Environmental Reports....................................................... 22

Section 4.6 Access to Information....................................................... 23

Section 4.7 Press Release............................................................... 23

Section 4.8 Acquisition Proposals....................................................... 24

Section 4.9 Title Insurance and Surveys................................................. 24

Section 4.10 Conforming Accounting and Reserve Policies; Restructuring Expenses......... 25

Section 4.11 Consolidated Shareholders' Equity.......................................... 26

Section 4.12 Attendance of Standing Committee Meetings.................................. 27

Section 4.13 Cooperation on Conversion of Systems....................................... 27

Section 4.14 Disposition of Alliance Bank 401(k) Plan................................... 27

Section 4.15 Section 125 Plan........................................................... 28

Section 4.16 Other Welfare Benefit Plans................................................ 28

ARTICLE 5. AGREEMENTS OF HORIZON.......................................................... 28

Section 5.1 Regulatory Approvals........................................................ 28

Section 5.2 Breaches.................................................................... 28

Section 5.3 Consummation of Agreement................................................... 28

Section 5.4 Director and Officer Indemnification........................................ 29

Section 5.5 Employee Benefits........................................................... 29

Section 5.6 Severance................................................................... 29

Section 5.7 Employee Transition Plan.................................................... 30

Section 5.8 Southwest Michigan Advisory Board........................................... 30

Section 5.9 Merger and Termination of Benefit Plans..................................... 30

Section 5.10 Further Matters............................................................ 31

ARTICLE 6. CONDITIONS PRECEDENT TO MERGERS................................................ 31

Section 6.1 Conditions of Horizon's Obligations......................................... 31

Section 6.2 Conditions of Alliance's Obligation......................................... 33

ARTICLE 7. TERMINATION OR ABANDONMENT..................................................... 34

Section 7.1 Mutual Agreement............................................................ 34

Section 7.2 Breach of Representations or Agreements..................................... 34

Section 7.3 Environmental Reports....................................................... 34

Section 7.4 Failure of Conditions....................................................... 34

Section 7.5 Approval Denied............................................................. 34

Section 7.6 Shareholder Approval Denial................................................. 34

Section 7.7 Lapse of Time............................................................... 34

Section 7.8 Failure to Recommend........................................................ 34

Section 7.9 Acceptance of Superior Proposal............................................. 35

Section 7.10 Effect of Termination and Abandonment...................................... 35

Section 7.11 Liquidated Damages......................................................... 35

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ARTICLE 8. THE CLOSING OF THE BANK MERGER AND HOLDING COMPANY MERGER...................... 36

Section 8.1 The Closing................................................................. 36

Section 8.2 The Closing Date............................................................ 36

Section 8.3 Actions at Closing.......................................................... 36

ARTICLE 9. GENERAL PROVISIONS............................................................. 38

Section 9.1 Confidential Information.................................................... 38

Section 9.2 Return of Documents......................................................... 38

Section 9.3 Notices..................................................................... 38

Section 9.4 Nonsurvival of Representations and Agreements............................... 39

Section 9.5 Entire Agreement............................................................ 39

Section 9.6 Headings and Captions....................................................... 39

Section 9.7 Waiver, Amendment or Modification........................................... 39

Section 9.8 Rules of Construction....................................................... 40

Section 9.9 Counterparts................................................................ 40

Section 9.10 Successors and Assigns..................................................... 40

Section 9.11 Governing Law; Assignment.................................................. 40

Section 9.12 No Third Party Beneficiaries............................................... 40

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APPENDICES

Appendix A Holding Company Merger Agreement

EXHIBITS

Exhibit 1.7 Agreement to Convert Options

Exhibit 4.3 Agreement of Directors of Alliance Concerning

Agreement of Merger

Exhibit 5.6 Termination and Release Agreement

Exhibit 6.1(i) Alliance Legal Opinion

Exhibit 6.2(g) Horizon Legal Opinion

SCHEDULES

Schedule 2.1(d) Lost Stock Affidavits

Schedule 2.6 Agreements with Banking Authorities

Schedule 2.7(a) Tax Matters

Schedule 2.8 Litigation

Schedule 2.9 Employee Matters

Schedule 2.12(b) Problem Loans

Schedule 2.12(c) Loan Losses

Schedule 2.12(d) Loan Participations

Schedule 2.13(b) Employment Laws

Schedule 2.13(c) Employee Benefit Plans

Schedule 2.14 Title to Properties; Insurance

Schedule 2.19 Material Contracts

Schedule 2.20 Undisclosed Liabilities

Schedule 2.22 Interim Events

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AGREEMENT OF MERGER

AND

PLAN OF REORGANIZATION

THIS AGREEMENT OF MERGER AND PLAN OF REORGANIZATION (this "AGREEMENT"), is

made February 24, 2005 by and among HORIZON BANCORP, an Indiana corporation

("HORIZON"), HORIZON ACQUISITION CORP., an Indiana corporation ("HORIZON

ACQUISITION CORP."), ALLIANCE FINANCIAL CORPORATION, a Michigan corporation

("ALLIANCE"), HORIZON BANK, NATIONAL ASSOCIATION, a national banking association

("HORIZON BANK"), and ALLIANCE BANKING COMPANY, a Michigan state-chartered

commercial bank ("ALLIANCE BANK").

WITNESSETH:

WHEREAS, Horizon is a corporation duly organized and existing under the

laws of the State of Indiana and a registered bank holding company under the

Bank Holding Company Act of 1956, as amended, holding one hundred percent (100%)

of the issued and outstanding shares of common stock of each of Horizon

Acquisition Corp. and Horizon Bank, both with their principal places of business

in Michigan City, Indiana; and

WHEREAS, Alliance is a corporation duly organized and existing under the

laws of the State of Michigan and a registered bank holding company under the

Bank Holding Company Act of 1956, as amended, holding one hundred percent (100%)

of the issued and outstanding shares of common stock of Alliance Bank, with its

principal place of business in New Buffalo, Michigan; and

WHEREAS, Horizon Bank is a national banking association duly organized and

existing under the laws of the United States of America with its principal

banking office located in Michigan City, Indiana; and

WHEREAS, Alliance Bank is a banking institution duly organized and

existing under the laws of the State of Michigan with its principal banking

office in New Buffalo, Michigan; and

WHEREAS, Horizon Acquisition Corp. is a newly formed Indiana corporation

(and wholly-owned subsidiary of Horizon) formed for the sole purpose of merging

with and into Alliance; and

WHEREAS, it is the desire of Alliance, Horizon, Horizon Acquisition Corp.,

Horizon Bank, and Alliance Bank to effect a transaction whereby Horizon

Acquisition Corp. will be merged with and into Alliance and concurrently

therewith Alliance Bank will be merged with and into Horizon Bank. After these

mergers, Alliance will be merged with and into Horizon; and

WHEREAS, the Boards of Directors of Alliance, Horizon, Horizon Acquisition

Corp., Horizon Bank and Alliance Bank, respectively, have approved this

Agreement and authorized its execution.

NOW, THEREFORE, in consideration of the premises and the mutual terms and

provisions set forth in this Agreement, the parties agree as follows:

AGREEMENT OF MERGER AND PLAN OF REORGANIZATION PAGE 1

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ARTICLE 1. TERMS OF THE MERGERS

Section 1.1 TERMS OF THE BANK MERGER. Subject to the terms and provisions

of this Agreement, the National Bank Act, the Bank Merger Act and the Michigan

Banking Code of 1999, as amended, (the "MICHIGAN BANKING CODE"), Alliance Bank

shall be merged, simultaneously with the Holding Company Merger (as defined

below), with and into Horizon Bank. Horizon Bank shall be the "CONTINUING BANK"

and shall continue its corporate existence under the laws of the United States

of America, pursuant to the provisions of the National Bank Act and particularly

Section 215a of Title 12 of the United States Code, as amended, and as provided

under Sections 487.13701 and 487.13702 of the Michigan Banking Code (hereinafter

such merger shall be referred to as the "BANK MERGER").

Section 1.2 EFFECT OF THE BANK MERGER.

(a) GENERAL DESCRIPTION. Upon the effectiveness of the Bank Merger,

the separate existence of Alliance Bank shall cease and the Continuing

Bank shall possess all of the rights, privileges, immunities, powers and

franchises and shall be subject to all of the duties and liabilities of

Alliance Bank existing immediately prior to the effectiveness of the Bank

Merger, and the Continuing Bank shall continue to be a bank organized and

existing under the laws of the United States of America and shall continue

to be a wholly-owned subsidiary of Horizon.

(b) NAME AND OFFICES. The name of the Continuing Bank shall continue

to be "Horizon Bank, National Association." Its principal banking office

shall continue to be located at 515 Franklin Street, Michigan City,

Indiana 46360. All branches of Alliance Bank shall become legally

established branches of the Continuing Bank.

(c) BOARD OF DIRECTORS. The Board of the Directors of the Continuing

Bank shall consist of the same individuals that served as the Board of

Directors of Horizon Bank immediately prior to the effective date of the

Bank Merger, until such time as their successors have been elected and

have been qualified.

(d) OFFICERS. The Officers of the Continuing Bank shall consist of

the same individuals that served as the Officers of Horizon Bank

immediately prior to the effective date of the Bank Merger, until such

time as their successors have been elected and have been qualified.

(e) ARTICLES OF ASSOCIATION AND BYLAWS. The Articles of Association

and Bylaws of Horizon Bank in effect immediately prior to the

effectiveness of the Bank Merger shall be and remain the Articles of

Association and Bylaws of the Continuing Bank without change, until the

same shall be amended or replaced as therein provided.

(f) ASSETS, LIABILITIES, AND OBLIGATIONS. All assets and all rights,

franchises and interests of Horizon Bank and Alliance Bank, respectively,

in and to every type of property, all debts due on whatever account and

all choses in action shall be taken and be deemed transferred to and vest

in the Continuing Bank by virtue of the Bank Merger without any order or

other action on the part of any court or otherwise, and the Continuing

Bank shall be responsible for all liabilities and obligations of Horizon

Bank and Alliance Bank, respectively, by virtue of the Bank Merger, all

with the effect provided in 12 U.S.C. Section 215a and Section 487.13703

of the Michigan Banking Code.

AGREEMENT OF MERGER AND PLAN OF REORGANIZATION PAGE 2

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Section 1.3 CONVERSION OF SHARES: THE BANK MERGER. All of the 36,091

outstanding shares of common stock of Alliance Bank, par value $10.00 per share,

shall be cancelled for no additional consideration in connection with the Bank

Merger. Horizon shall continue to own all the issued and outstanding common

stock of the Continuing Bank, with the effect that the Bank Merger will not

change the shares of issued and outstanding stock of Horizon Bank.

Section 1.4 TERMS OF THE HOLDING COMPANY MERGER. Subject to the terms and

conditions of this Agreement, the Merger Agreement attached hereto as Appendix A

(the "HOLDING COMPANY MERGER AGREEMENT"), the Michigan Business Corporation Act

of 1972, as amended ("MBCA"), and the Indiana Business Corporation Law ("IBCL")

Horizon Acquisition Corp. shall merge, simultaneously with the Bank Merger, with

and into, Alliance, which shall be the "CONTINUING COMPANY" and shall continue

its corporate existence under the laws of the State of Michigan pursuant to the

provisions of and with the effect provided in the MBCA and the IBCL (hereinafter

such merger is referred to as the "HOLDING COMPANY MERGER"). The Bank Merger and

the Holding Company Merger shall hereafter collectively be referred to as the

"MERGERS".

Section 1.5 EFFECT OF THE HOLDING COMPANY MERGER.

(a) GENERAL DESCRIPTION. Upon the effectiveness of the Holding

Company Merger, the separate existence of Horizon Acquisition Corp. shall

cease and the Continuing Company shall possess all of the rights,

privileges, immunities, powers and franchises and shall be subject to all

of the duties and liabilities of Alliance and Horizon Acquisition Corp.

existing immediately prior to the effectiveness of the Holding Company

Merger, and the Continuing Company shall continue to be a corporation

organized and existing under the laws of the State of Michigan.

(b) NAME AND OFFICES. The name of the Continuing Company shall

continue to be "Alliance Financial Corporation," but its principal office

shall continue to be located at 500 West Buffalo Street, New Buffalo,

Michigan 49117.

(c) BOARD OF DIRECTORS. The Board of the Directors of the Continuing

Company shall consist of the Board of Directors of Horizon Acquisition

Corp. immediately prior to the effective date of the Holding Company

Merger, until such time as their successors have been elected and have

been qualified.

(d) OFFICERS. The Officers of the Continuing Company shall consist

of the Officers of Horizon Acquisition Corp. immediately prior to the

effective date of the Holding Company Merger, until such time as their

successors have been elected and have been qualified.

(e) ARTICLES OF INCORPORATION AND BYLAWS. The Articles of

Incorporation and Bylaws of Alliance in effect immediately prior to the

effectiveness of the Holding Company Merger shall be and remain the

Articles of Incorporation and Bylaws of the Continuing Company without

change, until the same shall be amended or replaced as therein provided.

(f) ASSETS, LIABILITIES, AND OBLIGATIONS. All assets and all rights,

franchises and interests of Horizon Acquisition Corp. and Alliance,

respectively, in and to every type of property, all debts due on whatever

account and all choses in action shall be taken and be deemed transferred

to and vest in the Continuing Company by virtue of the

AGREEMENT OF MERGER AND PLAN OF REORGANIZATION PAGE 3

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Holding Company Merger without any order or other action on the part of

any court or otherwise, and the Continuing Company shall be responsible

for all liabilities and obligations of Horizon Acquisition Corp. and

Alliance, respectively, by virtue of the Holding Company Merger, all with

the effect provided in IC 23-1-40-6 of the IBCL and Section 450.1735 of

the MBCA.

Section 1.6 CONVERSION AND EXCHANGE OF SHARES: THE HOLDING COMPANY MERGER.

At the Effective Time (as defined in Section 8.2 hereof) of the Holding Company

Merger, all of the issued and outstanding shares of common stock, $1.00 par

value, of Alliance (the "ALLIANCE COMMON STOCK") by virtue of the Holding

Company Merger and without any action on the part of the holders thereof, shall

be converted into the right to receive $11,502,258 in the aggregate in cash

which will equal $38.00 per share if there are 302,691 shares of common stock

issued and outstanding at that time (the "MERGER CONSIDERATION").

Section 1.7 ALLIANCE STOCK OPTIONS. All 15,960 outstanding options to

purchase Alliance Common Stock ("ALLIANCE STOCK OPTIONS"), without any act on

the part of any holder thereof, shall be converted into the right to receive

from Horizon, at the Effective Time, an amount in cash equal to $38.00 minus the

per share exercise price for each share of Alliance Common Stock subject to an

Alliance Stock Option; provided, however, that there shall be withheld from such

cash payment any taxes required to be withheld by applicable law. Each holder of

an Alliance Stock Option shall agree to the treatment of their options in the

manner contemplated by this Section within thirty (30) days after the date of

this Agreement by executing and delivering to Alliance an agreement in the same

form as Exhibit 1.7 attached hereto. Each Alliance Stock Option shall be

cancelled and cease to exist by virtue of such payment. Execution by every

holder of Alliance Stock Options shall not be a condition precedent to

consummation of the transactions contemplated herein, but shall only be a

condition to the holder of such options receiving the payment noted in this

Section 1.7.

Section 1.8 TERMS OF THE THIRD MERGER. Subject to the terms and conditions

of this Agreement, the MBCA and the IBCL and as soon as reasonably practicable

after the Effective Time of the Mergers, the Continuing Company shall merge,

with and into Horizon, which shall be the "SURVIVING COMPANY" and shall continue

its corporate existence under the laws of the State of Indiana pursuant to the

provisions of and with the effect provided in the MBCA and the IBCL (hereinafter

such merger is referred to as the "THIRD MERGER").

Section 1.9 EFFECT OF THE THIRD MERGER.

(a) GENERAL DESCRIPTION. Upon the effectiveness of the Third Merger,

the separate existence of the Continuing Company shall cease and Horizon

shall possess all of the rights, privileges, immunities, powers and

franchises and shall be subject to all of the duties and liabilities of

the Continuing Company and Horizon existing immediately prior to the

effectiveness of the Third Merger, and Horizon shall continue to be a

corporation organized and existing under the laws of the State of Indiana.

(b) NAME AND OFFICES. The name of the Surviving Company shall

continue to be "Horizon Bancorp." Its principal office shall continue to

be located at 515 Franklin Street, Michigan City, Indiana 46360.

(c) BOARD OF DIRECTORS. The Board of the Directors of the Surviving

Company shall consist of the same individuals that served as the Board of

Directors of

AGREEMENT OF MERGER AND PLAN OF REORGANIZATION PAGE 4

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Horizon immediately prior to the effective date of the Third Merger, until

such time as their successors have been elected and have been qualified.

(d) OFFICERS. The Officers of the Surviving Company shall consist of

the same individuals that served as the Officers of Horizon immediately

prior to the effective date of the Third Merger, until such time as their

successors have been elected and have been qualified.

(e) ARTICLES OF INCORPORATION AND BYLAWS. The Articles of

Incorporation and Bylaws of Horizon in effect immediately prior to the

effectiveness of the Third Merger shall be and remain the Articles of

Incorporation and Bylaws of the Surviving Company without change, until

the same shall be amended or replaced as therein provided.

(f) ASSETS, LIABILITIES, AND OBLIGATIONS. All assets and all rights,

franchises and interests of Horizon and the Continuing Company,

respectively, in and to every type of property, all debts due on whatever

account and all choses in action shall be taken and be deemed transferred

to and vest in the Surviving Company by virtue of the Third Merger without

any order or other action on the part of any court or otherwise, and the

Surviving Company shall be responsible for all liabilities and obligations

of Horizon and the Continuing Company, respectively, by virtue of the

Third Merger, all with the effect provided in IC 23-1-40-6 of the IBCL and

Section 450.1735 of the MBCA.

Section 1.10 CONVERSION AND EXCHANGE OF SHARES: THE THIRD MERGER. At the

closing of the Third Merger, each common share of the Continuing Company issued

and outstanding immediately prior to the closing, by virtue of the Third Merger

and without any action on the part of the holders thereof, shall be cancelled

for no additional consideration and all certificates shall be surrendered to the

Surviving Company.

Section 1.11 RESERVATION OF RIGHT TO REVISE STRUCTURE. At Horizon's

election, any of the mergers may alternatively be structured so that (a)

Alliance and/or Alliance Bank is merged with and into any other direct or

indirect wholly-owned subsidiary of Horizon or (b) any direct or indirect

wholly-owned subsidiary of Horizon is merged with and into Alliance or Alliance

Bank; provided, however, that no such change shall (i) alter or change the

amount or kind of the Merger Consideration payable in the Holding Company Merger

or the treatment of the holders of Alliance Common Stock, or (ii) materially

impede or delay consummation of the transactions contemplated by this Agreement.

In the event of such an election, the parties agree to execute an appropriate

amendment to this Agreement in order to reflect such election.

Section 1.12 EXCHANGE PROCEDURES.

(a) Horizon Trust and Investment Management, N.A. ("HORIZON TRUST")

shall act as the Exchange Agent in the Holding Company Merger (the

"EXCHANGE AGENT"). At the Effective Time, Horizon shall deposit the Merger

Consideration in a separate account at Horizon Trust (the "EXCHANGE FUND")

which shall be used for the sole purpose of making disbursements to the

Alliance shareholders in connection with the Holding Company Merger.

(b) Not less than ten (10) days prior to the anticipated Effective

Time, the Exchange Agent shall mail to each record holder of any

certificate representing Alliance Common Stock (a "CERTIFICATE") whose

shares will be converted into the right to receive the Merger

Consideration a letter of transmittal (which shall specify that delivery

shall be

AGREEMENT OF MERGER AND PLAN OF REORGANIZATION PAGE 5

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effected, and risk of loss and title to the Certificates shall pass, only

upon proper delivery of the Certificates to the Exchange Agent and shall

be in such form and have such other provisions as Horizon may reasonably

specify) (each such letter, the "MERGER LETTER OF TRANSMITTAL") and

instructions for use in effecting the surrender of the Certificates in

exchange for the Merger Consideration.

(c) As soon as reasonably practical, but not more than five (5)

business days after surrender to the Exchange Agent of a Certificate (but

not prior to the Effective Time), together with a Merger Letter of

Transmittal duly executed and any other documents reasonably required by

the Exchange Agent, the Exchange Agent shall transmit to the holder of

such Certificate the Merger Consideration. No interest on the Merger

Consideration issuable upon the surrender of the Certificates shall be

paid or accrued for the benefit of holders of Certificates. If the Merger

Consideration is to be issued to a person other than a person in whose

name a surrendered Certificate is registered, it shall be a condition of

issuance that the surrendered Certificate shall be properly endorsed or

otherwise in proper form for transfer and that the person requesting such

issuance shall pay to the Exchange Agent any required transfer or other

taxes or establish to the satisfaction of the Exchange Agent that such tax

has been paid or is not applicable.

(d) Horizon reserves the right in all cases involving more than five

hundred (500) shares of Alliance Common Stock to require that a surety

bond on terms and in an amount reasonably satisfactory to Horizon be

provided to Horizon at the expense of the Alliance shareholder in the

event that such shareholder claims loss of a Certificate and requests that

Horizon waive the requirement for surrender of such Certificate.

(e) Any portion of the Exchange Fund that remains unclaimed by the

shareholders of Alliance for six (6) months after the Effective Time shall

be returned to Horizon. Any shareholders of Alliance who have not

theretofore complied with this Section shall thereafter look only to

Horizon for payment of the Merger Consideration deliverable in respect of

each share of Alliance Common Stock such shareholder holds as determined

pursuant to this Agreement, in each case, without any interest thereon.

(f) Notwithstanding the foregoing, neither the Exchange Agent nor

any party hereto shall be liable to any former holder of Alliance Common

Stock for any amount properly delivered to a public official pursuant to

applicable abandoned property, escheat or similar laws.

ARTICLE 2. REPRESENTATIONS AND WARRANTIES OF ALLIANCE

On or prior to the date hereof, Alliance has delivered to Horizon 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 representations or warranties contained in this Article

2 or to one or more of its covenants contained in Article 4; provided, that the

mere inclusion of an item in the Disclosure Schedule as a exception to a

representation or warranty shall not be deemed an admission by Alliance that

such item represents a material exception or fact, event or circumstance or that

such items is reasonably likely to have or result in a Material Adverse Effect

on Alliance. Alliance's representations, warranties and covenants contained in

AGREEMENT OF MERGER AND PLAN OF REORGANIZATION PAGE 6

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this Agreement shall not be deemed to be untrue, incorrect or to have been

breached as a result of effects on Alliance arising solely from actions taken in

compliance with a written request from Horizon.

Subject to the foregoing, Alliance hereby makes the following

representations and warranties to Horizon:

Section 2.1 ORGANIZATION AND CAPITAL STOCK.

(a) Alliance is a corporation duly incorporated and in good standing

under the laws of the State of Michigan, is a registered bank holding

company under the Bank Holding Company Act of 1956, as amended, and has

the corporate power and authority to own all of its property and assets,

to incur all of its liabilities and to carry on its business as now being

conducted.

(b) Alliance has authorized capital stock of 2,000,000 shares of

common stock, $1.00 par value per share ("ALLIANCE COMMON STOCK"), 302,691

shares of which are issued and outstanding and 15,960 of which are subject

to options which are currently outstanding (the "ALLIANCE STOCK OPTIONS").

All of the issued and outstanding shares of Alliance Common Stock are duly

and validly issued and outstanding, fully paid and non-assessable. None of

the outstanding shares of Alliance Common Stock has been issued in

violation of any preemptive rights of the current or past shareholders of

Alliance or in violation of any applicable federal or state securities

laws or regulations. All of the Alliance Stock Options have been duly and

validly issued.

(c) Except as set forth in Section 2.1(b) there are no shares of

capital stock or other equity securities of Alliance outstanding and no

outstanding options, warrants, rights to subscribe for, calls, or

commitments of any character whatsoever relating to, or securities or

rights convertible into or exchangeable for, shares of the capital stock

of Alliance or contracts, commitments, understandings or arrangements by

which Alliance is or may be obligated to issue additional shares of its

capital stock or options, warrants or rights to purchase or acquire any

additional shares of its capital stock.

(d) Except as disclosed in Section 2.1(d) of the Disclosure

Schedule, each certificate representing shares of Alliance Common Stock

issued by Alliance in replacement of any certificate theretofore issued by

it which was claimed by the record holder thereof to have been lost,

stolen or destroyed was issued by Alliance only upon receipt of an

affidavit of lost stock certificate which contains an indemnity agreement

in favor of Alliance.

Section 2.2 AUTHORIZATION; NO DEFAULTS.

(a) The Boards of Directors of Alliance and Alliance Bank has each,

by all appropriate action, approved this Agreement and the Mergers and has

authorized the execution of this Agreement on its behalf by its duly

authorized officers and the performance, respectively, by Alliance and

Alliance Bank of its obligations hereunder.

(b) Nothing in the Articles of Incorporation or Bylaws of Alliance,

as amended, in the Charter or Bylaws of Alliance Bank, or in any

agreement, instrument, decree, proceeding, law or regulation (except as

specifically referred to in or contemplated by this Agreement) by or to

which Alliance or Alliance Bank is bound or subject, would prohibit either

Alliance or Alliance Bank from entering into and

AGREEMENT OF MERGER AND PLAN OF REORGANIZATION PAGE 7

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consummating, or would be violated or breached by Alliance's or Alliance

Bank's consummation of, this Agreement and the transactions contemplated

herein and the Mergers on the terms and conditions herein contained.

(c) This Agreement has been duly and validly executed and delivered

by Alliance and Alliance Bank and constitutes a legal, valid and binding

obligation of Alliance and Alliance Bank, enforceable against Alliance and

Alliance Bank in accordance with its terms, and, except for the approval

by Alliance, as the sole shareholder of Alliance Bank, and Alliance's

shareholders, no other corporate acts or proceedings are required to be

taken by Alliance or Alliance Bank to authorize the execution, delivery

and performance of this Agreement.

(d) Alliance or Alliance Bank is not, and will not be by reason of

the consummation of the transactions contemplated herein, in default under

or in violation of any provision of, nor will the consummation of the

transactions contemplated herein afford any party a right to accelerate

any indebtedness under, Alliance's Articles of Incorporation or Bylaws or

Alliance Bank's Articles of Incorporation or Bylaws, any promissory note,

indenture or other evidence of indebtedness or security therefor, or any

lease, contract, or other commitment or agreement to which Alliance or

Alliance Bank is a party or by which Alliance or Alliance Bank or their

property is bound.

(e) Except for the requisite approvals of and filings with the FDIC,

the Board of Governors of the Federal Reserve System and its delegates

(the "FRB"), the Office of the Comptroller of the Currency (the "OCC"),

the Michigan Office of Financial and Insurance Services ("MOFIS"), the

Indiana Secretary of State, and the Michigan Department of Commerce, no

notice to, filing with, authorization by, or consent or approval of, any

federal or state regulatory authority is necessary for the execution and

delivery of this Agreement or the consummation of the Mergers by Alliance

and Alliance Bank.

Section 2.3 SUBSIDIARIES. Alliance Bank is duly organized and validly

existing under the laws of the State of Michigan and has the corporate power to

own its properties and assets, to incur its liabilities and to carry on its

business as now being conducted. Alliance owns of record and beneficially free

and clear of all liens and encumbrances all of the 36,091 outstanding shares of

the capital stock of Alliance Bank. Alliance has no other direct or indirect

subsidiaries. There are no options, warrants or rights outstanding to acquire

any capital stock of Alliance Bank, and no person or entity has any other right

to purchase or acquire any unissued shares of stock of Alliance Bank, nor does

Alliance Bank have any obligation of any nature with respect to its unissued

shares of stock. Except for the ownership of readily marketable securities,

Federal Home Loan Bank or Federal Reserve Bank stock, neither Alliance nor

Alliance Bank is a party to any partnership or joint venture or owns an equity

interest in any other business or enterprise.

Section 2.4 FINANCIAL INFORMATION. The audited consolidated balance sheets

of Alliance and Alliance Bank as of December 31, 2002 and 2003, and the related

audited consolidated statements of income, changes in equity capital, and cash

flows, for the three years ended December 31, 2003, together with the notes

thereto; and the quarterly Reports of Condition and Income of Alliance Bank as

filed with the Federal Deposit Insurance Corporation (the "FDIC") for the

quarter ended September 30, 2004, (the "ALLIANCE BANK REPORTS"); all of which

have been previously furnished by Alliance to Horizon (collectively the

"ALLIANCE FINANCIAL

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STATEMENTS"), together with all subsequent financial statements filed with the

FDIC prior to the Effective Date, shall have been prepared in accordance with

generally accepted accounting principles ("GAAP") applied on a consistent basis

(except as disclosed therein and except for regulatory reporting differences

required with respect to Alliance Bank's Reports) and fairly present the

consolidated financial position and the consolidated results of operations,

changes in shareholders' equity and cash flows of Alliance and Alliance Bank in

all material respects as of the dates and for the periods indicated (subject, in

the case of interim financial statements, to normal recurring year-end

adjustments, none of which are material). Alliance and Alliance Bank each does

not have any material liability, fixed or contingent, except to the extent set

forth in the Alliance Financial Statements or incurred in the ordinary course of

business since the date of the most recent Alliance Financial Statement.

Section 2.5 ABSENCE OF CHANGES. Since September 30, 2004, there has not

been any Material Adverse Change with respect to Alliance or Alliance Bank. For

purposes of this Agreement, "MATERIAL ADVERSE CHANGE" means, with respect to

Alliance or Alliance Bank, any change that (a) is both material and adverse to

the financial position, results of operations, business or future prospects of

Alliance or Alliance Bank, other than (i) the effects of any change attributable

to or resulting from changes in economic conditions, laws, regulations or

accounting guidelines (GAAP or otherwise) applicable to depository institutions

generally, or in general, levels of interest rates, (ii) payments associated

with the Holding Company Merger or the Bank Merger, (iii) charges required under

Section 4.10 hereof, or (iv) actions or omissions of either Alliance or Alliance

Bank taken with the prior informed written consent of Horizon in contemplation

of the transactions contemplated by this Agreement; or (b) would materially

impair the ability of either Alliance or Alliance Bank to perform its

obligations under this Agreement or otherwise materially threaten or materially

impede the consummation of the Holding Company Merger or the Bank Merger and the

other transactions contemplated by this Agreement.

Section 2.6 AGREEMENTS WITH BANKING AUTHORITIES. Except as otherwise

disclosed in Section 2.6 of the Disclosure Schedule, neither Alliance nor

Alliance Bank is subject (or has been subject during the last five (5) years) to

any order (other than orders applicable to banks generally) or is a party (or

has been a party during the last five (5) years) to any agreement or memorandum

of understanding with any federal or state agency charged with the supervision

or regulation of banks or bank holding companies, including without limitation

the MOFIS, the FDIC and the FRB.

Section 2.7 TAX MATTERS.

(a) Alliance and Alliance Bank have each filed with the appropriate

governmental agencies all federal, state and local income, franchise,

excise, sales, use, real and personal property and other tax returns and

reports required to be filed by it and has paid all taxes required to be

paid by it on or before their due date. Except as set forth in Section

2.7(a) of the Disclosure Schedule, neither Alliance nor Alliance Bank is

(i) delinquent in the payment of any taxes shown on such returns or

reports or on any assessments received by it for such taxes; (ii) aware of

any pending or threatened examination for income taxes for any year by the

Internal Revenue Service (the "IRS") or any state tax agency; (iii)

subject to any agreement extending the period for assessment, payment or

collection of any federal or state tax; or (iv) a party to any action or

proceeding with, nor has any claim been asserted against it by, any court,

AGREEMENT OF MERGER AND PLAN OF REORGANIZATION PAGE 9

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administrative agency or commission or other federal, state or local

governmental authority or instrumentality ("GOVERNMENTAL AUTHORITY") for

assessment or collection of taxes.

(b) None of the tax returns of Alliance or Alliance Bank has been

audited by the IRS or any state tax agency for any period since December

31, 2001. Neither Alliance nor Alliance Bank is the subject of any

threatened action or proceeding by any Governmental Authority for

assessment or collection of taxes.

(c) The reserve for taxes in the unaudited financial statements of

Alliance for the quarter ended September 30, 2004, is, in the opinion of

management, adequate to cover all of the tax liabilities of Alliance and

Alliance Bank (including, without limitation, income taxes and franchise

fees) as of such date in accordance with GAAP.

(d) Alliance has not filed any consolidated federal income tax

return with an "affiliated group" (within the meaning of Section 1505 of

the Internal Revenue Code of 1986, as amended) (the "CODE") where Alliance

was not the common parent of the group. Neither Alliance nor Alliance Bank

is, or has been, a party to any tax allocation agreement or arrangement

pursuant to which it has any contingent or outstanding liability to anyone

other than Alliance or Alliance Bank.

(e) Alliance has disclosed in all of 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.

(f) Alliance has never elected under Section 1362 of the Code (or

under any analogous or similar provision of state or local law in any

jurisdiction where Alliance files its tax returns) to be treated as an "S"

Corporation for state or federal tax purposes.

Section 2.8 LITIGATION. Except as set forth in Section 2.8 of the

Disclosure Schedule and except for foreclosure and other collection proceedings

commenced in the ordinary course of business by Alliance Bank with respect to

loans in default with respect to which no counter claims have been asserted

against Alliance Bank, there is no litigation, claim or other proceeding pending

or threatened before any judicial, administrative or regulatory agency or

tribunal against or involving Alliance or Alliance Bank, or to which any of the

properties of Alliance or Alliance Bank is subject.

Section 2.9 EMPLOYMENT AGREEMENTS. Except as set forth in Section 2.9 of

the Disclosure Schedule, neither Alliance nor Alliance Bank is a party to or

bound by any written contract for the employment, retention, engagement, or

severance of any officer, employee, agent, consultant or other person or entity

which, by its terms, is not terminable by Alliance or Alliance Bank on thirty

(30) days' written notice or less without the payment of any amount by reason of

such termination. Section 2.9 of the Disclosure Schedule also contains a list of

all current employees of Alliance and Alliance Bank with their annual

compensation, employment start date, current employment status, employee benefit

plan elections and such other information as Horizon may reasonably require.

Section 2.10 REPORTS. Since January 1, 2003, Alliance and Alliance Bank

have filed all reports, notices and other statements, together with any

amendments required to be made with respect thereto, if any, that they were

required to file with (i) the FRB, (ii) the FDIC, (iii) the MOFIS, and (iv) any

other governmental authority with jurisdiction over Alliance or Alliance

AGREEMENT OF MERGER AND PLAN OF REORGANIZATION PAGE 10

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Bank. As of their respective dates, each of such reports and documents,

including the financial statements, exhibits and schedules thereto, complied in

all material respects with the relevant statutes, rules and regulations enforced

or promulgated by the regulatory authority with which they were filed.

Section 2.11 INVESTMENT PORTFOLIO. All United States Treasury securities,

obligations of other United States Government agencies and corporations,

obligations of States of the United States and their political subdivisions, and

other investment securities classified as "held to maturity" held by Alliance

and Alliance Bank, as reflected in the latest balance sheet in the Alliance

Financial Statements, are carried in the aggregate at no more than cost adjusted

for amortization of premiums and accretion of discounts. All United States

Treasury securities, obligations of other United States Government agencies and

corporations, obligations of States of the United States and their political

subdivisions, and other investment securities classified as "available for sale"

held by Alliance and Alliance Bank, as reflected in the latest balance sheet in

the Alliance Financial Statements, are carried in the aggregate at market value.

Provisions for losses have been made on all such securities which have had a

decline in value deemed "other than temporary" as defined in SEC Staff

Accounting Bulletin No. 59. None of the investments reflected in the Alliance

Financial Statements as of and for the quarter ended September 30, 2004, and

none of the investments made by Alliance or Alliance Bank since September 30,

2004, are subject to any restriction, whether contractual or statutory, which

materially impairs the ability of Alliance or Alliance Bank to dispose freely of

such investment at any time.

Section 2.12 LOAN PORTFOLIO.

(a) All loans shown in the Alliance Financial Statements at

September 30, 2004, or which were entered into after September 30, 2004,

but before the Closing Date, were and will be made in all material

respects for good, valuable and adequate consideration in the ordinary

course of the business of Alliance Bank, in accordance in all material

respects with sound banking practices, and are not subject to any material

defenses, set offs or counterclaims, including without limitation any such

as are afforded by usury or truth in lending laws, except as may be

provided by bankruptcy, insolvency or similar laws or by general

principles of equity. The notes or other evidences of indebtedness

evidencing such loans and all forms of pledges, mortgages and other

collateral documents and security agreements are, and will be,

enforceable, valid, true and genuine and what they purport to be. Alliance

and Alliance Bank have complied, and will prior to the Closing Date

comply, with all laws and regulations relating to such loans, Alliance and

Alliance Bank have not sold, purchased or entered into any loan

participation arrangement except where such participation is on a pro rata

basis according to the respective contributions of the participants to

such loan amount. Alliance has no knowledge that any condition of property

in which Alliance Bank has an interest as collateral to secure a loan

violates the Environmental Laws (defined in Section 2.15(a)) or obligates

Alliance Bank or the owner or operator of such property to remedy,

stabilize, neutralize or otherwise alter the environmental condition of

such property.

(b) Except as set forth in Section 2.12(b) of the Disclosure

Schedule, as of September 30, 2004, Alliance Bank had no loan in excess of

$10,000 that has been classified by regulatory examiners or management of

Alliance Bank as "Substandard," "Doubtful" or "Loss" or in excess of

$10,000 that has been identified by accountants or auditors (internal or

external) as having a significant risk of uncollectability. As of the

AGREEMENT OF MERGER AND PLAN OF REORGANIZATION PAGE 11

<PAGE>

date hereof, the most recent loan watch list of Alliance Bank and a list

of all loans in excess of $10,000 that Alliance Bank has determined to be

ninety (90) days or more past due with respect to principal or interest

payments or has placed on nonaccrual status are set forth in Section

2.12(b) of the Disclosure Schedule.

(c) Except as set forth in Section 2.12(c) of the Disclosure

Schedule, the reserves, the allowance for possible loan and lease losses

and the carrying value for real estate owned which are shown on the

Alliance Financial Statements are, in the opinion of management of

Alliance, adequate in all respects under the requirements of GAAP applied

on a consistent basis to provide for possible losses on items for which

reserves were made, on loans and leases outstanding and real estate owned

as of the respective dates.

(d) Set forth in Section 2.12(d) of the Disclosure Schedule is a

true, accurate and complete list of all loans in which Alliance Bank has

any participation interest or which have been made with or through another

financial institution on a recourse basis against Alliance Bank.

SECTION 2.13 EMPLOYEE MATTERS AND ERISA.

(a) Neither Alliance nor Alliance Bank has entered into any

collective bargaining agreement with any labor organization with respect

to any group of employees of Alliance or Alliance Bank, and there is no

present effort nor existing proposal to attempt to unionize any group of

employees of Alliance or Alliance Bank.

(b) Except as set forth in Section 2.13(b) of the Disclosure

Schedule, (i) Alliance and Alliance Bank are and have been in compliance

with all applicable laws respecting employment and employment practices,

terms and conditions of employment and wages and hours, including, without

limitation, any such laws respecting employment discrimination and

occupational safety and health requirements, and neither Alliance nor

Alliance Bank is engaged in any unfair labor practice; (ii) there is no

unfair labor practice complaint against Alliance or Alliance Bank pending

or threatened before the National Labor Relations Board; (iii) there is no

labor dispute, strike, slowdown or stoppage actually pending or threatened

against or directly affecting Alliance or Alliance Bank; and (iv) neither

Alliance nor Alliance Bank has experienced any material work stoppage or

other material labor difficulty during the past five (5) years.

(c) Except as may be disclosed in Section 2.13(c) of the Disclosure

Schedule, neither Alliance nor Alliance Bank maintains, contributes to or

participates in or has any liability under any employee benefit plans, as

defined in Section 3(3) of the Employee Retirement Income Security Act of

1974, as amended ("ERISA"), including (without limitation) any

multiemployer plan (as defined in Section 3(37) of ERISA), or any

nonqualified employee benefit plans or deferred compensation, bonus, stock

or incentive plans, or other employee benefit or fringe benefit programs

for the benefit of former or current employees or directors (or their

beneficiaries or dependents) of Alliance or Alliance Bank (the "EMPLOYEE

PLANS"). No present or former employee of Alliance or Alliance Bank has

been charged with breaching nor has breached a fiduciary duty under any of

the Employee Plans. Except as may be disclosed in Section 2.13(c) of the

Disclosure Schedule, neither Alliance nor Alliance Bank participates in,

nor has it in the past five (5) years participated in, nor has it any

present or future obligation or liability

AGREEMENT OF MERGER AND PLAN OF REORGANIZATION PAGE 12

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under, any multiemployer plan. Except as may be disclosed in Section

2.13(c) of the Disclosure Schedule, neither Alliance nor Alliance Bank

maintains, contributes to, or participates in, any plan that provides

health, major medical, disability or life insurance benefits to former

employees or directors of Alliance or Alliance Bank. Alliance has provided

to Horizon a true, accurate and complete copy of each written plan or

program disclosed in the Disclosure Schedule. Alliance has also provided

to Horizon, with respect to each such plan or program to the extent

available to Alliance, all (i) amendments or supplements thereto, (ii)

summary plan descriptions, (iii) descriptions of all current participants

in such plans and programs and all participants with benefit entitlements

under such plans and programs, (iv) contracts relating to plan documents,

(v) actuarial valuations for any defined benefit plan, (vi) valuations for

any plan as of the most recent date, (vii) determination letters from the

IRS, (viii) the most recent annual report filed with the IRS, and (ix)

trust agreements.

(d) All liabilities of the Employee Plans have been funded on the

basis of consistent methods in accordance with sound actuarial assumptions

and practices, and no Employee Plan, at the end of any plan year, or at

September 30, 2004, had or has had an accumulated funding deficiency

(within the meaning of Section 302 of ERISA or Section 412 of the Code).

No actuarial assumptions have been changed since the last written report

of actuaries on such Employee Plans. All insurance premiums (including

premiums to the Pension Benefit Guaranty Corporation) have been paid in

full, subject only to normal retrospective adjustments in the ordinary

course. Except as may be noted on the Alliance Financial Statements,

Alliance and Alliance Bank have no contingent or actual liabilities under

Title IV of ERISA as of September 30, 2004. No accumulated funding

deficiency (within the meaning of Section 302 of ERISA or Section 412 of

the Code has been incurred with respect to any of the Employee Plans,

whether or not waived, nor does Alliance or any of its affiliates have any

liability or potential liability as a result of the underfunding of, or

termination of, or withdrawal from, any plan by Alliance or by any person

which may be aggregated with Alliance for purposes of Section 412 of the

Code. No reportable event (as defined in Section 4043 of ERISA) has

occurred with respect to any of the Employee Plans as to which a notice

would be required to be filed with the Pension Benefit Guaranty

Corporation. No claim is pending or threatened with respect to any

Employee Plan (other than a routine claim for benefits for which plan

administrative review procedures have not been exhausted) for which

Alliance or Alliance Bank would be liable after September 30, 2004, except

as is reflected on the Alliance Financial Statements. As of September 30,

2004, Alliance and Alliance Bank had no liability for excise taxes under

Sections 4971, 4975, 4976, 4977, 4979 or 4980B of the Code or for a fine

under Section 502 of ERISA with respect to any Employee Plan. All Employee

Plans have been operated, administered and maintained in accordance with

the terms thereof and in compliance with the requirements of all

applicable laws, including, without limitation, ERISA.

Section 2.14 TITLE TO PROPERTIES; INSURANCE. Section 2.14 to the

Disclosure Schedule sets forth a list of all real property owned or leased by

Alliance or Alliance Bank and a reasonable description of the size, use and

location thereof. Except as described in Section 2.14 of the Disclosure

Schedule, Alliance and Alliance Bank 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 Alliance Financial

AGREEMENT OF MERGER AND PLAN OF REORGANIZATION PAGE 13

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Statements and easements, rights-of-way, and other restrictions which do not

interfere with the current use of such properties, and, in the case of Other

Real Estate Owned, as such real estate is internally classified on the books of

Alliance or Alliance Bank, rights of redemption under applicable law) to all

real properties reflected on the Alliance Financial Statements as being owned by

Alliance or Alliance Bank. All real properties are currently being used in

compliance with all zoning laws, and there are no encroachments or other

violations of law with respect to any such property. All leasehold interests

used by Alliance and Alliance Bank in their operations, if any, are held

pursuant to lease agreements that are valid and enforceable in accordance with

their terms, and no party to any such lease agreement is currently in default

thereunder. No leasehold interest is subject to any superior mortgage or other

lien. 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 threatened with respect to such

properties. Alliance and Alliance Bank have valid title or other ownership

rights under licenses to all intangible personal or intellectual property used

by Alliance or Alliance Bank in their respective businesses free and clear of

any claim, defense or right of any other person or entity, subject only to

rights of the licensor pursuant to applicable license agreements, which rights

do not materially adversely interfere with the use or enjoyment of such

property. All insurable real and personal properties owned or held by Alliance

and Alliance Bank are insured in such amounts, and against fire and other risks

insured against by extended coverage and public liability insurance, as, in the

opinion of management of Alliance, is customary with companies of the same size

and in the same business. Section 2.14 of the Disclosure Schedule also contains

a list of all prior insurance companies and insurance coverages provided by

those companies for Alliance or Alliance Bank during the last five (5) years and

a listing of all claims made under any such policy involving $40,000 or more for

any single claim.

Section 2.15 ENVIRONMENTAL MATTERS.

(a) As used in this Agreement, "ENVIRONMENTAL LAWS" means all local,

state and federal environmental, health and safety laws and regulations in

all jurisdictions in which the parties hereto have done business or owned

property, including, without limitation, the Federal Resource Conservation

and Recovery Act, the Federal Comprehensive Environmental Response,

Compensation and Liability Act, the Federal Clean Water Act, the Federal

Clean Air Act, and the Federal Occupational Safety and Health Act.

(b) To the knowledge of management of Alliance and Alliance Bank,

neither the conduct nor operation of Alliance or Alliance Bank nor any

condition of any property owned by Alliance or Alliance Bank within the

past ten (10) years and used in its business operations or the condition

of any property owned by Alliance or Alliance Bank within the past ten

(10) years but not used in its business operations, violates or violated

Environmental Laws or contained or contains any underground storage tank,

and no condition or event has occurred with respect to it or any such

property that, with notice or the passage of time, or both, would

constitute a violation of Environmental Laws or obligate Alliance or

Alliance Bank to remedy, stabilize, neutralize or otherwise alter the

environmental condition of any such property. Neither Alliance nor

Alliance Bank has received any notice from any person or entity that

Alliance or Alliance Bank or the operation of any facilities or any

property owned by Alliance or Alliance Bank is or was in violation of any

Environmental Laws or that Alliance or Alliance Bank is responsible

AGREEMENT OF MERGER AND PLAN OF REORGANIZATION PAGE 14

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for the cleanup of any pollutants, contaminants, or hazardous or toxic

wastes, substances or materials at, on or beneath any such property.

Section 2.16 COMPLIANCE WITH AMERICANS WITH DISABILITIES ACT. Alliance and

Alliance Bank are in compliance with all applicable provisions of the Americans

with Disabilities Act (the "ADA") and no action under the ADA against Alliance

or Alliance Bank or any of their properties has been initiated or has been

threatened or contemplated.

Section 2.17 COMPLIANCE WITH LAW. Alliance and Alliance Bank have all

licenses, franchises, permits and other governmental authorizations that are

legally required to enable them to conduct their respective businesses as

presently conducted and are in compliance with all applicable laws and

regulations.

Section 2.18 BROKERAGE. Except for a fee payable to Austin Associates, LLC

in connection with it acting as financial advisor and issuing a fairness opinion

to Alliance, there are no existing claims or agreements for brokerage

commissions, finders' fees, investment banking fees, or similar compensation in

connection with the Mergers payable by Alliance or Alliance Bank.

Section 2.19 MATERIAL CONTRACTS. Except as set forth in Section 2.19 of

the Disclosure Schedule, neither Alliance nor Alliance Bank is a party to or

bound by any oral or written:

(a) agreement, security agreement, pledge agreement, contract or

indenture under which it has borrowed or will borrow money or pursuant to

which it has granted any lien on any of its assets (not including federal

funds and money deposited, including without limitation, checking and

savings accounts and certificates of deposit);

(b) guaranty of any obligation for the borrowing of money or

otherwise, excluding endorsements made for collection and guarantees made

in the ordinary course of business and letters of credit issued in the

ordinary course of business;

(c) agreement with any present or former officer, director or

shareholder (except for deposit or loan agreements entered into in the

ordinary course of business);

(d) any lease or license of personal property (whether tangible or

intangible, including intellectual property and software), whether as

licensor or licensee involving payments or receipts in excess of $10,000;

(e) contract or commitment for the purchase of materials, supplies

or other real or personal property in an amount in excess of $10,000 or

for the performance of services involving an amount in excess of $10,000;

(f) joint venture or partnership agreement or arrangement; or

(g) contract, agreement or other commitment not made in the ordinary

course of business and involving payments or receipts in excess of

$10,000.

All of the contracts listed in Section 2.19 of the Disclosure Schedule (1) are

currently in full force and effect, (2) represent due and valid obligations of

the parties thereto, and (3) are enforceable against each of the parties thereto

in accordance with their terms. Neither Alliance nor Alliance Bank is in default

with respect to any such contract, and neither Alliance nor Alliance Bank is

aware of any default by any other party to any such contract.

AGREEMENT OF MERGER AND PLAN OF REORGANIZATION PAGE 15

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Section 2.20 NO UNDISCLOSED LIABILITIES. Alliance and Alliance Bank do not

have any liability, whether asserted or unasserted, whether absolute or

contingent, whether accrued or unaccrued, whether liquidated or unliquidated,

and whether due or to become due (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

Alliance or Alliance Bank giving rise to any such liability) required in

accordance with GAAP to be reflected in an audited consolidated balance sheet of

Alliance or the notes thereto, except (i) for liabilities set forth or reserved

against in the Alliance Financial Statements, (ii) for normal fluctuations in

the amount of the liabilities referred to in clause (i) above or other

liabilities occurring in the ordinary course of business of Alliance and

Alliance Bank since the date of the most recent balance sheet included in the

Alliance Financial Statements, which such fluctuations in the aggregate are not

material to Alliance and Alliance Bank taken as a whole, (iii) liabilities

relating to the possible sale of Alliance or other transactions contemplated by

this Agreement, and (iv) as may be disclosed in Section 2.20 of the Disclosure

Schedule.

Section 2.21 DELIVERY OF DOCUMENTS. Final and complete copies of each

document, plan or contract listed and described in the Disclosure Schedule have

been provided to Horizon. Neither Alliance nor Alliance Bank nor any other party

thereof is in default under any such contract 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.

Section 2.22 INTERIM EVENTS. Except as provided in Section 2.22 of the

Disclosure Schedule, since September 30, 2004, neither Alliance nor Alliance

Bank has paid or declared any dividend or made any other distribution to

shareholders or taken any action which if taken after the date of this Agreement

would require the prior written consent of Horizon pursuant to Section 4.1

hereof.

Section 2.23 BOOKS AND RECORDS. The books and records of Alliance and

Alliance Bank have been fully, properly and accurately maintained in all

material respects, there are no material inaccuracies or discrepancies of any

kind contained or reflected therein, and they fairly present the financial

position of Alliance and Alliance Bank.

Section 2.24 DEPOSIT INSURANCE. The deposits of Alliance Bank are insured

by the FDIC up to applicable limits and in accordance with the Federal Deposit

Insurance Corporation Act, as amended, and Alliance Bank has paid or properly

reserved or accrued for all current premiums and assessments with respect to

such deposit insurance, if any.

Section 2.25 NO REGULATORY FILINGS. There are no filings, notices or

submissions required to be made by Alliance or Alliance Bank with any regulatory

authority in connection with obtaining approval for either of the Mergers.

Section 2.26 STATEMENTS TRUE AND CORRECT. None of the information supplied

or to be supplied by Alliance or Alliance Bank for inclusion in any documents to

be filed with the FRB, OCC, SEC, MOFIS, or any other regulatory authority in

connection with the Mergers will, at the respective times such documents are

filed, be false or misleading with respect to any material fact or omit to state

any material fact necessary in order to make the statements therein not

misleading.

AGREEMENT OF MERGER AND PLAN OF REORGANIZATION PAGE 16

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ARTICLE 3. REPRESENTATIONS AND WARRANTIES OF HORIZON

Horizon hereby makes the following representations and warranties to

Alliance:

Section 3.1 ORGANIZATION. Each of Horizon and Horizon Acquisition Corp. is

a corporation duly incorporated and validly existing under the laws of the State

of Indiana, and Horizon is a registered bank holding company under the Bank

Holding Company Act of 1956, as amended, and each has the corporate power and

authority to own all of its property and assets, to incur all of its

liabilities, and to carry on its business as it is now being conducted. Horizon

Bank is a national bank duly incorporated and validly existing under the laws of

the United States, and has the corporate power and authority to own all of its

property and assets, to incur all of its liabilities, and to carry on its

business as it is now being conducted.

Section 3.2 AUTHORIZATION.

(a) The Boards of Directors of Horizon, Horizon Acquisition Corp.,

and Horizon Bank have each, by all appropriate action, approved this

Agreement and the Mergers and has authorized the execution of this

Agreement on its behalf by its respective duly authorized officers and the

performance, respectively, by Horizon, Horizon Acquisition Corp., and

Horizon Bank of its respective obligations hereunder.

(b) Nothing in the Articles of Incorporation or Bylaws of Horizon or

Horizon Acquisition Corp., as amended, or in the Articles of Association

or Bylaws of Horizon Bank, or in any agreement, instrument, decree,

proceeding, law or regulation (except as specifically referred to in or

contemplated by this Agreement) by or to which Horizon, Horizon

Acquisition Corp., or Horizon Bank is bound or subject would prohibit any

of them from entering into and consummating, or would be violated or

breached by any of their consummation of this Agreement and the

transactions contemplated herein on the terms and conditions herein

contained.

(c) This Agreement has been duly and validly executed and delivered

by Horizon, Horizon Acquisition Corp., and Horizon Bank and constitutes a

legal, valid and binding obligation of each of them, enforceable against

each of them in accordance with its terms, and no other corporate acts or

proceedings are required to be taken by Horizon, Horizon Acquisition

Corp., or Horizon Bank to authorize the execution, delivery and

performance of this Agreement.

(d) Neither Horizon, Horizon Acquisition Corp., nor Horizon Bank is,

and will not be by reason of the consummation of the transactions

contemplated herein be, in default under or in violation of any provision

of, nor will the consummation of the transactions contemplated herein

afford any party a right to accelerate any indebtedness under, Horizon's

or Horizon Acquisition Corp's Articles of Incorporation or Bylaws or

Horizon Bank's Articles of Association or Bylaws, any promissory note,

indenture, or other evidence of indebtedness or security therefore, or any

lease, contract, or other commitment or agreement to which Horizon,

Horizon Acquisition Corp., or Horizon Bank is a party or by which any of

them or their property is bound.

(e) Except for the requisite approvals of and filings with the FDIC,

the FRB, the OCC, the MOFIS, the Indiana Secretary of State and the

Michigan Department of Commerce, no notice to, filing with, authorization

by, or consent or approval of, any federal or state regulatory authority

is necessary for the execution and delivery of this

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Agreement or the consummation of the Mergers by Horizon, Horizon

Acquisition Corp., and Horizon Bank.

Section 3.3 FINANCIAL INFORMATION. The audited consolidated balance sheets

of Horizon and its subsidiaries as of December 31, 2002 and 2003 and related

consolidated statements of income, changes in shareholders' equity and cash

flows for the three years ended December 31, 2003, together with the notes

thereto, included in Horizon's most recent 10-K, as filed with the SEC, and the

unaudited consolidated balance sheet of Horizon and its subsidiaries as of

September 30, 2004, and the related unaudited consolidated statement of income,

changes in shareholders' equity and cash flows for the period then ended

included in Horizon's Quarterly Report on Form 10-Q as filed with the SEC

(collectively, the "HORIZON FINANCIAL STATEMENTS"), all of which have been

previously furnished by Horizon to Alliance, together with all subsequent

financial statements and reports filed with the SEC prior to the Effective Date,

shall have been prepared in accordance with generally accepted accounting

principles applied on a consistent basis (except as disclosed therein) and

fairly present the consolidated financial position and the consolidated results

of operations, changes in shareholders' equity and cash flows of Horizon and its

consolidated subsidiaries as of the dates and for the periods indicated

(subject, in the case of interim financial statements, to normal recurring

year-end adjustments, none of which will be material). Horizon and its

subsidiaries each does not have any material liability, fixed or contingent,

except as set forth in the Horizon Financial Statements or incurred in the

ordinary course of business since the date of the most recent Horizon Financial

Statement.

Section 3.4 REPORTS. Since January 1, 2003 Horizon and Horizon Bank has

filed all reports, notices and other statements, together with any amendments

required to be made with respect thereto, that it was required to file with (i)

the SEC, (ii) the FRB, (iii) the OCC, or (iv) any applicable state securities or

banking authorities, and (v) any other governmental authority with jurisdiction

over Horizon or Horizon Bank. As of their respective dates, each of such reports

and documents, as amended, including the financial statements, exhibits and

schedules thereto, complied in all material respects 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.

Section 3.5 AGREEMENTS WITH BANKING AUTHORITIES. Neither Horizon, Horizon

Acquisition Corp., nor Horizon Bank is subject to any order (other than orders

applicable to banks generally) or is a party to any agreement or memorandum of

understanding with any federal or state agency charged with the supervision or

regulation of banks or bank holding companies, including, without limitation,

the FDIC, the OCC, and the FRB.

Section 3.6 COMPLIANCE WITH LAW. Each of Horizon, Horizon Acquisition

Corp., and Horizon Bank has all licenses, franchises, permits and other

governmental authorizations that are legally required to enable them to conduct

their respective businesses as presently conducted and are in compliance in all

material respects with all applicable laws and regulations.

Section 3.7 FINANCING FOR THE TRANSACTION. Horizon is in the process of

acquiring a portion of the funds to allow it to perform its obligations under

this Agreement. Horizon is not aware of any fact or circumstance that will

likely prevent it from being able to acquire such funds. Assuming the

acquisition of such funds, Horizon currently believes it will be, immediately

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following the Mergers, in material compliance with all applicable capital

regulations of federal banking agencies having jurisdiction over Horizon and

Horizon Bank.

ARTICLE 4. AGREEMENTS OF ALLIANCE

Section 4.1 CONDUCT OF BUSINESS.

(a) Alliance and Alliance Bank shall continue to carry on its

business and the discharge or incurrence of its obligations and

liabilities only in the ordinary course of business as heretofore

conducted and, by way of amplification and not limitation with respect to

such obligation, Alliance and Alliance Bank will not, without the prior

written consent of Horizon, which consent will not be unreasonably

withheld:

(I) DIVIDENDS. Declare or pay any dividend or make any other

distribution to shareholders, whether in cash, stock or other

property; or

(II) ISSUANCES OF STOCK. Issue any common or other capital

stock or any options, warrants or other rights to subscribe for or

purchase common or any other capital stock or any securities

convertible into or exchangeable for any capital stock or permit any

additional shares of Alliance Common Stock or capital stock of

Alliance Bank to become subject to grants of employee or director

stock options, restricted stock grants, or similar stock-based

employee or director rights; or

(III) REDEMPTIONS OF STOCK. Directly or indirectly redeem,

purchase or otherwise acquire (except for shares acquired in

satisfaction of a debt previously contracted) any of their own

common or any other capital stock or form a new subsidiary; or

(IV) REORGANIZATIONS. Effect a split, reverse split,

reclassification, or other similar change in or of any common or

other capital stock or otherwise reorganize or recapitalize; or

(V) AMENDMENTS TO ORGANIZATIONAL DOCUMENTS. Change their

Articles of Incorporation or Bylaws; or

(VI) WAGES AND BENEFIT PLANS. Except in the ordinary course of

business consistent with past practices and except as contemplated

by this Agreement (including severance payments anticipated to be

paid by Horizon as described in Section 5.6 hereof), pay or agree to

pay, conditionally or otherwise, any additional compensation

(including bonuses) or severance benefit or otherwise make any

changes with respect to the fees or compensation payable or to

become payable to management consultants, directors, officers or

salaried employees or, except as required by law and except as

contemplated by this Agreement, adopt or make any change in any

Employee Plan or other arrangement (including any agreement for

indemnification) or payment made to, for or with any of such

consultants, directors, officers or employees; or

(VII) INDEBTEDNESS. Except in the ordinary course of business

(including creation of deposit liabilities, enter into repurchase

agreements, purchases or sales of federal funds, and sales of

certificates of deposit), borrow or agree to borrow

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any material amount of funds or directly or indirectly guarantee or

agree to guarantee any material obligations of others except

pursuant to outstanding letters of credit; or

(VIII) INVESTMENTS. Purchase or otherwise acquire any

investment security for their own account that exceeds $500,000

individually or $1,000,000 in the aggregate or purchase or otherwise

acquire any security other than U.S. treasury or other governmental

obligations or asset-backed securities issued or guaranteed by

United States governmental or other governmental agencies, in either

case having an average remaining life of three (3) years or less, or

sell any investment security owned by them other than sales made in

the ordinary course of business as previously conducted during the

past three (3) years and in accordance with applicable law and

regulations or engage in any activity that would be inconsistent

with the classification of investment securities as eithe