10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

Quarterly Report Pursuant to Section 13 or 15(d) of the Securities and Exchange Act of 1934

For the quarter ended: September 30, 2003 Commission File No. 841105-D

BAR HARBOR BANKSHARES

(Exact name of registrant as specified in its charter)

Maine	01-0393663
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification No.)
PO Box 400
82 Main Street, Bar Harbor, ME	04609-0400
(Address of principal executive offices)	(Zip Code)

(207) 288-3314

(Registrant’s telephone number, including area code)

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

YES: (X) NO: (  )

Indicate by check mark whether the Registrant is an accelerated filer (as defined in Exchange Act Rule12b-2).

YES: (  ) NO: (X)

Number of shares outstanding of each of the issuer’s classes of common stock as of the latest practicable date:

Class of Common Stock	Number of Shares Outstanding – November 06, 2003
$2.00 Par Value	3,116,045

1

TABLE OF CONTENTS

INDEPENDENT ACCOUNTANTS’ REVIEW REPORT
PART I. FINANCIAL INFORMATION
	Item 1. FINANCIAL STATEMENTS
		CONSOLIDATED BALANCE SHEETS
		CONSOLIDATED STATEMENTS OF INCOME
		CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
		CONSOLIDATED STATEMENTS OF CASH FLOWS
		NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
	Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
	Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
	ITEM 4. DISCLOSURE CONTROLS AND PROCEDURES
PART II. OTHER INFORMATION
	Item 1: Legal Proceedings
	Item 2: Changes in Securities and Use of Proceeds
	Item 3: Defaults Upon Senior Securities
	Item 4: Submission of Matters to a Vote of Security Holders
	Item 5: Other Information
	Item 6: Exhibits and Reports on Form 8-K
Ex 10.1 Purchase and Assumption Agreement
Ex 10.2 Supplemental Executive Retirement Plan
Ex 10.3 Change in Control Agreement - Murphy
Ex 10.4 Change in Control Agreement - Shencavitz
Ex 10.5 Change in Control Agreement - Read
Ex 31.1 Section 302 Certification of CEO
Ex 31.2 Section 302 Certification of CFO
Ex 32.1 Section 906 Certification of CEO
Ex 32.2 Section 906 Certification of CFO

TABLE OF CONTENTS

		Page
		No.
PART I	FINANCIAL INFORMATION
Item 1.	FINANCIAL STATEMENTS (unaudited)
	Independent Accountants’ Review Report	3
	Financial Statements:
	Consolidated Balance Sheets at September 30, 2003, and December 31, 2002	4
	Consolidated Statements of Income for the Three and Nine months ended September 30, 2003 and 2002	5
	Consolidated Statements of Changes in Shareholders’ Equity for the Nine months ended September 30, 2003 and 2002	6
	Consolidated Statements of Cash Flows for the Nine months ended September, 2003 and 2002	7
	Notes to Consolidated Financial Statements	8-13
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	13-34
Item 3.	Quantitative and Qualitative Disclosure About Market Risk	34-38
Item 4.	Disclosure Controls and Procedures	38
PART II	OTHER INFORMATION
Item 1.	Legal Proceedings	38-39
Item 2.	Changes in Securities and Use of Proceeds	39
Item 3.	Defaults Upon Senior Securities	39
Item 4.	Submission of Matters to a Vote of Security Holders	39
Item 5	Other Information	39
Item 6	Exhibits and Reports on Form 8-K	40-41
Signatures		42

2

INDEPENDENT ACCOUNTANTS’ REVIEW REPORT

The Board of Directors
Bar Harbor Bankshares

We have reviewed the accompanying interim consolidated financial information of Bar Harbor Bankshares and Subsidiaries as of September 30, 2003, and for the nine-month and three-month periods ended September 30, 2003 and 2002. These financial statements are the responsibility of the Company’s management.

We conducted our reviews in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit in accordance with United States generally accepted auditing standards, the objective of which is to express an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

Based on our reviews, we are not aware of any material modifications that should be made to the accompanying financial statements for them to be in conformity with United States generally accepted accounting principles.

/s/ BERRY, DUNN, McNEIL & PARKER

Portland, Maine
November 3, 2003

3

PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS

BAR HARBOR BANKSHARES AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 2003 AND DECEMBER 31, 2002
(Dollars in thousands)

				September 30			December 31
				2003			2002
				(Unaudited)			(Audited)
Assets
Cash and due from banks				$	14,567		$	11,529
Securities:
	Available for sale, at market				120,246			128,826
	Held to maturity (market value $34,418 and $32,077 at September 30, 2003 and December 31, 2002, respectively)				34,066			31,545
	Other securities				1,641			1,929
	Total securities				155,953			162,300
Loans					378,738			351,535
Allowance for loan losses					(5,265	)		(4,975	)
	Loans, net of allowance				373,473			346,560
Premises and equipment, net					11,267			11,313
Goodwill					375			375
Other assets					23,309			21,741
TOTAL ASSETS				$	578,944		$	553,818
Liabilities
Deposits
		Demand deposits		$	53,069		$	46,001
		NOW accounts			57,815			50,172
		Savings deposits			105,754			108,982
		Time deposits			118,368			116,860
		Total deposits			335,006			322,015
Securities sold under repurchase agreements					12,302			13,943
Borrowings from Federal Home Loan Bank					170,881			156,558
Other liabilities					7,358			7,466
TOTAL LIABILITIES					525,547			499,982
Shareholders’ equity
	Capital stock, par value $2.00; authorized 10,000,000 shares; issued 3,643,614 shares				7,287			7,287
	Surplus				4,002			4,002
	Retained earnings				48,086			45,994
	Accumulated other comprehensive income
			Unrealized appreciation on securities available for sale, net of taxes of $302 and $1,117 at September 30, 2003 and December 31, 2002, respectively		585			2,167
			Unrealized appreciation on derivative instruments marked to market, net of tax of $132 and $93 at September 30, 2003 and December 31, 2002, respectively		256			180
	Less: cost of 514,974 and 463,913 shares of treasury stock at September 30, 2003 and December 31, 2002, respectively				(6,819	)		(5,794	)
TOTAL SHAREHOLDERS’ EQUITY					53,397			53,836
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY				$	578,944		$	553,818

See Independent Accountants’ Review Report. The accompanying notes are an integral part of these consolidated financial statements.

4

BAR HARBOR BANKSHARES AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002
(Dollars in thousands, except per share data)
(unaudited)

			Three Months Ended				Nine Months Ended
			September 30				September 30
			2003		2002		2003		2002
Interest and dividend income:
	Interest and fees on loans		$	5,932	$	6,072	$	17,803	$	17,684
	Interest and dividends on securities and federal funds			1,581		2,077		5,165		6,275
Total interest and dividend income				7,513		8,149		22,968		23,959
Interest expense:
	Deposits			1,041		1,505		3,346		4,505
	Securities sold under repurchase agreements			37		66		130		214
	Other borrowings			1,650		1,696		4,930		4,904
Total interest expense				2,728		3,267		8,406		9,623
Net interest income				4,785		4,882		14,562		14,336
	Provision for loan losses			120		275		420		875
Net interest income after provision for loan losses				4,665		4,607		14,142		13,461
Noninterest income:
	Trust and other financial services			490		511		1,693		1,750
	Service charges on deposit accounts			419		408		1,136		1,147
	Other service charges, commissions and fees			62		37		161		109
	Credit card service charges and fees			776		837		1,276		1,306
	Other operating income			103		167		399		512
	Net securities gains			103		214		868		319
Total noninterest income				1,953		2,174		5,533		5,143
Noninterest expenses:
	Salaries and employee benefits			2,397		2,465		7,408		7,040
	Occupancy expense			227		263		830		828
	Furniture and equipment expense			421		389		1,121		1,128
	Credit card expenses			499		596		829		931
	Other operating expense			1,434		1,407		4,084		3,870
Total noninterest expenses				4,978		5,120		14,272		13,797
Income before income taxes and cumulative effect of accounting change				1,640		1,661		5,403		4,807
Income taxes				411		514		1,458		1,323
Net income before cumulative effect of accounting change				1,229		1,147		3,945		3,484
Less: cumulative effect of change in accounting for goodwill, net of tax of $128				—		—		—		(247	)
Net Income			$	1,229	$	1,147	$	3,945	$	3,237
Computation of Net Income Per Share:
Weighted average number of capital stock shares outstanding
		Basic		3,201,712		3,203,701		3,150,461		3,229,398
		Effect of dilutive employee stock options		85,704		43,755		64,058		43,755
		Diluted		3,287,416		3,247,456		3,214,519		3,273,153
NET INCOME PER SHARE:
	Basic before cumulative effect of accounting change		$	0.39	$	0.35	$	1.25	$	1.07
	Cumulative effect of change in accounting for goodwill, net of income tax benefit			—		—		—		(0.07	)
	Basic		$	0.39	$	0.35	$	1.25	$	1.00
	Diluted before cumulative effect of accounting change		$	0.37	$	0.35	$	1.23	$	1.06
	Cumulative effect of change in accounting for goodwill, net of income tax benefit			—		—		—		(0.07	)
	Diluted		$	0.37	$	0.35	$	1.23	$	0.99
Dividends per share			$	0.19	$	0.19	$	0.57	$	0.57

See Independent Accountants’ Review Report. The accompanying notes are an integral part of these consolidated financial statements

5

BAR HARBOR BANKSHARES AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002
(Dollars in thousands, except per share data)
(unaudited)

								Accumulated
								Other						Total
	Capital				Retained			Comprehensive			Treasury			Shareholders’
	Stock		Surplus		Earnings			Income			Stock			Equity
Balance December 31, 2001	$	7,287	$	4,002	$	43,875		$	1,707		$	(4,333	)	$	52,538
Net income		—		—		3,237			—			—			3,237
Net unrealized appreciation on securities available for sale, net of tax of $279		—		—		—			542			—			542
Net unrealized appreciation on derivative instruments marked to market, net of tax of $90		—		—		—			176			—			176
Total comprehensive income		—		—		3,237			718			—			3,955
Cash dividends declared ($0.57 per share)		—		—		(1,839	)		—			—			(1,839	)
Purchase of treasury stock (64,565 shares)		—		—		—			—			(1,222	)		(1,222	)
Stock options exercised (4,637 shares)		—		—		(1	)		—			91			90
Balance September 30, 2002	$	7,287	$	4,002	$	45,272		$	2,425		$	(5,464	)	$	53,522
Balance December 31, 2002	$	7,287	$	4,002	$	45,994		$	2,347		$	(5,794	)	$	53,836
Net income		—		—		3,945			—			—			3,945
Net unrealized depreciation on securities available for sale, net of realized gains, net of tax benefit of $815		—		—		—			(1,582	)		—			(1,582	)
Net unrealized appreciation on derivative instruments marked to market, net of tax of $39		—		—		—			76			—			76
Total comprehensive income		—		—		3,945			(1,506	)		—			2,439
Cash dividends declared ($0.57 per share)		—		—		(1,795	)		—			—			(1,795	)
Purchase of treasury stock (60,835 shares)		—		—		—			—			(1,238	)		(1,238	)
Stock option exercises (9,774 shares)		—		—		(58	)		—			213			155
Balance September 30, 2003	$	7,287	$	4,002	$	48,086		$	841		$	(6,819	)	$	53,397

See Independent Accountants’ Review Report. The accompanying notes are an integral part of these consolidated financial statements

6

BAR HARBOR BANKSHARES AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002
(Dollars in thousands)
(unaudited)

				2003			2002
Cash flows from operating activities:
		Net income		$	3,945		$	3,237
		Adjustments to reconcile net income to net cash provided by operating activities:
			Depreciation		827			835
			Provision for loan losses		420			875
			Gain on sale of other real estate owned		—			(11	)
			Realized gain on sale of securities AFS		(868	)		(319	)
			Net amortization (accretion) of bond premium (discounts)		175			(89	)
			Goodwill impairment loss		—			375
			Net change in other assets		(807	)		(234	)
			Net change in other liabilities		(108	)		986
		Net cash provided by operating activities			3,584			5,655
Cash flows from investing activities:
		Purchases of securities held to maturity			(2,857	)		(4,526	)
		Proceeds from maturities, calls and principal pay downs of securities held to maturity			685			141
		Purchases of securities available for sale			(94,664	)		(65,841	)
		Proceeds from maturities, calls and principal pay downs of securities available for sale			65,346			21,715
		Proceeds from sale of securities available for sale			35,845			22,174
		Net decrease in other securities			288			1,632
		Net loans made to customers			(27,203	)		(40,788	)
		Capital expenditures			(781	)		(316	)
		Net cash used in investing activities			(23,341	)		(65,809	)
Cash flows from financing activities:
		Net increase in deposits			12,991			39,070
		Net change in securities sold under repurchase agreements			(1,641	)		(2,647	)
		Proceeds from Federal Home Loan Bank advances			19,000			51,240
		Repayment of Federal Home Loan Bank advances			(17,477	)		(25,433	)
		Net change in short term borrowed funds			12,800			(3,000	)
		Purchase of treasury stock			(1,238	)		(1,222	)
		Proceeds from employee stock option exercises			155			90
		Payments of dividends			(1,795	)		(1,839	)
		Net cash provided by financing activities			22,795			56,259
Net increase/(decrease) in cash and cash equivalents					3,038			(3,895	)
Cash and cash equivalents at beginning of period					11,529			17,355
Cash and cash equivalents at end of period				$	14,567		$	13,460
Supplemental disclosures of cash flow information
	Cash paid during the year for:
		Interest		$	8,406		$	9,623
		Income taxes, net of refunds		$	1,458		$	1,324
	Non-cash transactions:
		Transfer from loans to other real estate owned		$	(46	)	$	100
		Acquired other real estate owned		$	335			—

See Independent Accountants’ Review Report. The accompanying notes are an integral part of these consolidated financial statements.

7

BAR HARBOR BANKSHARES AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1: Basis of Presentation.

The accompanying consolidated financial statements are unaudited. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. The income reported for the nine months ended September 30, 2003 is not necessarily indicative of the results that may be expected for the year ending December 31, 2003.

Certain financial information, which is normally included in financial statements in accordance with United States generally accepted accounting principles, but not required for interim reporting purposes, has been omitted. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company’s annual report on Form 10-K for the year ended December 31, 2002.

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses and the valuation of real estate acquired in connection with foreclosures or in satisfaction of loans. In connection with the determination of the allowance for loan losses and the carrying value of real estate owned, management obtains independent appraisals for significant properties.

Diluted net income per share reflects the effect of stock options outstanding during the period.

Certain prior period balances have been reclassified to conform with the current financial presentation.

Note 2: Impact of Recently Issued Accounting Standards

Statement of Financial Accounting Standards (“SFAS”) No. 149 – This statement is effective for contracts entered into or modified after September 30, 2003, except as stated below, and for hedging relationships designated after September 30, 2003. The guidance should be applied prospectively.

The provisions of SFAS No. 149 that relate to Statement 133 Implementation Issues that have been effective for fiscal quarters that began prior to June 15, 2003, should continue to be applied in accordance with their respective effective dates. In addition, certain provisions relating to forward purchases or sales of when-issued securities or other securities that do not yet exist, should be applied to existing contracts as well as new contracts entered into after June 30, 2003. SFAS No. 149 does not affect the Company’s consolidated financial condition and results of operations.

SFAS No. 150 - In May 2003, FASB issued Statement No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity.” This Statement establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. It requires that an issuer classify a financial instrument that is within its scope as a liability (or an asset in some circumstances). The requirements of this Statement apply to issuers’ classification and measurement of freestanding financial instruments, including those that comprise more than one option or forward contract.

8

SFAS 150 is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003, except for mandatorily redeemable financial instruments of nonpublic entities. It is to be implemented by reporting the cumulative effect of a change in an accounting principle for financial instruments created before the issuance date of the Statement and still existing at the beginning of the interim period of adoption. This Statement is not expected to have a material effect on the Company’s consolidated financial statements.

Financial Accounting Standards Board (FASB) Interpretation Number 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others"(FIN 45), an interpretation of FASB Statements No. 5, 57, and 107 and rescission of FASB Interpretation No. 34, was issued in November 2002.

The initial recognition and initial measurement provisions of this Interpretation are applicable on a prospective basis to guarantees issued or modified after December 31, 2002, irrespective of the guarantor’s fiscal year-end. The disclosure requirements in this Interpretation are effective for financial statements of interim or annual periods ending after December 15, 2002.

Financial and standby letters of credit are included in the scope of FIN 45, while commercial letters of credit are not. A guarantor of financial and standby letters of credit is required to recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee.

This Interpretation contains disclosures to be made by a guarantor in its interim and annual financial statements about its obligations under certain guarantees that it has issued. This interpretation does not have a material effect on the Company’s consolidated financial statements.

Note 3: Line of Business Reporting

The Company manages and operates two major lines of business: Community Banking and Financial Services. Community Banking, through the wholly owned subsidiary Bar Harbor Banking and Trust Company (the “Bank”), includes lending and deposit-gathering activities and related services to businesses and consumers. Financial Services, through the wholly owned subsidiary BTI Financial Group (“BTI”) and its three operating subsidiaries, includes Dirigo Investments, Inc., a NASD registered broker-dealer; Block Capital Management, an SEC registered investment advisor; and Bar Harbor Trust Services, a Maine chartered trust company. The business lines are identified by the entities through which the product or service is delivered.

The reported lines of business results reflect the underlying core operating performance within the business units. “Other” is comprised of inter-company eliminations and parent company only items.

9

Selected segment information is included in the following tables.

THREE MONTHS ENDED SEPTEMBER 30, 2003
(Dollars in thousands)
(Unaudited)

	Community		Financial						Consolidated
	Banking		Services			Other			Totals
Net interest income	$	4,780	$	5		$	—		$	4,785
Provision for loan losses		120		—			—			120
Net interest income after provision		4,660		5			—			4,665
Noninterest income		1,537		525			(109	)		1,953
Noninterest expense		4,003		831			144			4,978
Income (loss) before income taxes		2,194		(301	)		(253	)		1,640
Income taxes (benefit)		600		(103	)		(86	)		411
Net income (loss)	$	1,594	$	(198	)	$	(167	)	$	1,229

THREE MONTHS ENDED SEPTEMBER 30, 2002
(Dollars in thousands)
(Unaudited)

	Community		Financial						Consolidated
	Banking		Services			Other			Totals
Net interest income(expense)	$	4,883	$	(1	)	$	—		$	4,882
Provision for loan losses		275		—			—			275
Net interest income(expense) after provision		4,608		(1	)		—			4,607
Noninterest income		1,704		531			(61	)		2,174
Noninterest expense		4,072		879			169			5,120
Income (loss) before income taxes		2,240		(349	)		(230	)		1,661
Income taxes (benefit)		667		(74	)		(79	)		514
Net income (loss)	$	1,573	$	(275	)	$	(151	)	$	1,147

10

NINE MONTHS ENDED SEPTEMBER 30, 2003
(Dollars in thousands)
(Unaudited)

	Community		Financial						Consolidated
	Banking		Services			Other			Totals
Net interest income	$	14,546	$	16		$	—		$	14,562
Provision for loan losses		420		—			—			420
Net interest income after provision		14,126		16			—			14,142
Noninterest income		3,983		1,797			(247	)		5,533
Noninterest expense		11,313		2,441			518			14,272
Income (loss) before income taxes		6,796		(628	)		(765	)		5,403
Income taxes (benefit)		1,932		(214	)		(260	)		1,458
Net income (loss)	$	4,864	$	(414	)	$	(505	)	$	3,945

NINE MONTHS ENDED SEPTEMBER 30, 2002
(Dollars in thousands)
(Unaudited)

	Community		Financial						Consolidated
	Banking		Services			Other			Totals
Net interest income	$	14,317	$	19		$	—		$	14,336
Provision for loan losses		875		—			—			875
Net interest income after provision		13,442		19			—			13,461
Noninterest income		3,508		1,810			(175	)		5,143
Noninterest expense		10,630		2,771			396			13,797
Income (loss) before income taxes		6,320		(942	)		(571	)		4,807
Income taxes (benefit)		1,816		(298	)		(195	)		1,323
Net income (loss) before cumulative effect of accounting change		4,504		(644	)		(376	)		3,484
Cumulative effect of change in accounting for goodwill, net of tax benefit		—		(247	)		—			(247	)
Net income (loss)	$	4,504	$	(891	)	$	(376	)	$	3,237

Note 4: Goodwill

During the first half of 2002, the Company completed implementation of SFAS No. 142, “Goodwill and Other Intangible Assets,” which requires most goodwill to be tested for impairment at least annually, rather than amortized over a period of time. The Company estimated the value of goodwill utilizing several standard valuation techniques, including discounted cash flow analysis, as well as an estimation of the impact of current business conditions on the long-term value of the goodwill carried on the balance sheet. Management and the Board of Directors determined the impact of the overall deterioration of the stock and bond markets on investor activities within its target market area had negatively impacted the value of the Company’s goodwill balance related to the acquisition of Dirigo Investments, Inc., its broker-dealer subsidiary of BTI. This resulted in an estimation of impairment of $247 thousand, net of tax, recorded during the quarter ended March 31, 2002. As of June 30, 2003 and 2002, in accordance with SFAS No. 142, the Company completed its annual review of the goodwill and determined there has been no additional impairment.

11

Note 5: Derivative Financial Instruments

At September 30, 2003 the Company had three interest rate swap agreements, each with notional principal amounts of $10 million. The interest rate swap agreements are used to hedge prime-based home equity loans to fixed rates of 6.425%, 6.040% and 6.250%, and mature in April 2004, September 2007 and January 2009, respectively. The swap agreements are designated as cash flow hedges since they convert a portion of the loan portfolio from a variable rate, based upon the prime rate, to a fixed rate. The hedge relationships are estimated to be 100% effective; therefore, there is no impact on the statement of income based on changes in fair value. The interest rate swap agreements are recorded in other assets at their total fair value of $388 thousand, with the change in fair value recorded as other comprehensive income in the statement of changes in shareholders’ equity. At September 30, 2002, the Company held one interest rate swap agreement with a notional amount of $10 million.

Note 6: Stock Options

The Bar Harbor Bankshares and Subsidiaries Incentive Stock Option Plan (“ISO”) for officers and employees was established October 3, 2000, providing for the issuance of up to 450 thousand shares of common stock. The purchase price of the stock covered by each option shall be its fair market value, which must be equal to at least 100% of the fair market value on the date such option is granted.

The Company accounts for these options in accordance with the Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees.” As the exercise price of each option equals the market price of the Company’s stock on the date of grant, no compensation cost has been recognized for the plan. Had compensation costs for the plan been determined based on the fair value of the options at the grant dates consistent with the method described in SFAS No. 123, “Accounting for Stock-Based Compensation,” the Company’s net income and earnings per share for the three and nine month periods would have been reduced to the pro forma amounts indicated below (in thousands except for per-share data):

THREE MONTHS ENDED SEPTEMBER 30, 2003			Earnings Per Share
	Net Income		Basic		Diluted
As reported	$	1,229	$	0.39	$	0.37
Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effect		25		0.01		0.01
Pro forma	$	1,204	$	0.38	$	0.36

THREE MONTHS ENDED SEPTEMBER 30, 2002			Earnings Per Share
	Net Income		Basic		Diluted
As reported	$	1,147	$	0.35	$	0.35
Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effect		24		0.01		0.01
Pro forma	$	1,123	$	0.34	$	0.34

The fair value of each option is estimated on the date of grant using the Black-Scholes options-pricing model with the following weighted-average assumptions used for all grants: dividend yield of 3.30% in 2003 and 4.04% in 2002, risk-free interest rate of 2.38% in 2003 and 1.88% in 2002, expected life of 3.5 years, and expected volatility of 11% in 2003 and 12% in 2002.

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NINE MONTHS ENDED SEPTEMBER 30, 2003			Earnings Per Share
	Net Income		Basic		Diluted
As reported	$	3,945	$	1.25	$	1.23
Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effect		78		0.02		0.02
Pro forma	$	3,867	$	1.23	$	1.21

NINE MONTHS ENDED SEPTEMBER 30, 2002			Earnings Per Share
	Net Income		Basic		Diluted
As reported	$	3,237	$	1.00	$	0.99
Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effect		71		0.02		0.02
Pro forma	$	3,166	$	0.98	$	0.97

The fair value of each option is estimated on the date of grant using the Black-Scholes options-pricing model with the following weighted-average assumptions used for all grants: dividend yield of 3.30% in 2003 and 4.04% in 2002, risk-free interest rate of 2.38% in 2003 and 1.88% in 2002, expected life of 3.5 years, and expected volatility of 11% in 2003 and 12% in 2002.

Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of the financial condition and results of operations of the Company and its subsidiaries should be read in conjunction with the consolidated financial statements and notes thereto, and selected financial and statistical information appearing elsewhere in this Form 10-Q. The purpose of this discussion is to highlight significant changes in the financial condition and results of operations of the Company and its subsidiaries.

Certain information is discussed on a fully taxable equivalent basis. Specifically, included in third quarter 2003 and 2002 net interest income was $472 and $394 thousand of tax-exempt interest income from certain tax-exempt investment securities and loans, which effectively resulted in a tax-equivalent adjustment of $179 and $164 thousand, respectively. For the nine-months ended September 30, 2003 and 2002, tax-exempt interest income included in net interest income amounted to $1,218 and $1,089 thousand, effectively resulting in a $522 and $445 thousand reduction of the Company’s tax expense, respectively. The analysis of net interest income tables included in this Form 10-Q provide a reconciliation of tax-equivalent financial information to the Company’s consolidated financial statements, which have been prepared in accordance with Generally Accepted Accounting Principles. Management believes the disclosure of tax-equivalent net interest income information improves the clarity of financial analysis, and is particularly useful to investors in understanding and evaluating the changes and trends in the Company’s results of operations.

Certain amounts for prior periods have been reclassified to conform with the presentation used currently.

Unless otherwise noted, all dollars are expressed in thousands except per share data.

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FORWARD LOOKING STATEMENTS DISCLAIMER

The following discussion, as well as certain other statements contained in this Form 10-Q, or incorporated herein by reference, contain statements which may be considered to be forward-looking within the meaning of the Private Securities Litigation and Reform Act of 1995 (the “PSLRA”). You can identify these forward-looking statements by the use of words like “strategy,” “expects,” “plans,” “believes,” “will,” “estimates,” “intends,” “projects,” “goals,” “targets,” and other words of similar meaning. You can also identify them by the fact that they do not relate strictly to historical or current facts. For these statements, the Company claims the protection of the safe harbor for forward-looking statements provided by the PSLRA.

Investors are cautioned that forward-looking statements are inherently uncertain. Forward-looking statements include, but are not limited to, those made in connection with estimates with respect to the future results of operation, financial condition, and the business of the Company which are subject to change based on the impact of various factors that could cause actual results to differ materially from those projected or suggested due to certain risks and uncertainties. Those factors include but are not limited to:

          (i) the Company’s success is dependant to a significant extent upon general economic conditions in Maine, and Maine’s ability to attract new business;

          (ii) the Company’s earnings depend to a great extent on the level of net interest income (the difference between interest income earned on loans and investments and the interest expense paid on deposits and borrowings) generated by the Bank, and thus the Bank’s results of operations may be adversely affected by increases or decreases in interest rates;

          (iii) the banking business is highly competitive and the profitability of the Company depends on the Bank’s ability to attract loans and deposits in Maine, where the Bank competes with a variety of traditional banking and nontraditional institutions, such as credit unions and finance companies;

          (iv) a significant portion of the Bank’s loan portfolio is comprised of commercial loans and loans secured by real estate, exposing the Company to the risks inherent in financings based upon analysis of credit risk, the value of underlying collateral, and other intangible factors which are considered in making commercial loans and, accordingly, the Company’s profitability may be negatively impacted by judgment errors in risk analysis, by loan defaults, and the ability of certain borrowers to repay such loans during a downturn in general economic conditions;

          (v) a significant delay in or inability to execute strategic initiatives designed to grow revenues and or control expenses; and

          (vi) significant changes in the extensive laws, regulations, and policies governing bank holding companies and their subsidiaries could alter the Company’s business environment or affect its operations.

The forward looking statements contained herein represent the Company’s judgment as of the date of this Form 10-Q, and the Company cautions readers not to place undue reliance on such statements. The Company disclaims any obligation to publicly update or revise any forward-looking statement contained in the foregoing discussion, or elsewhere in this Form 10-Q, except to the extent required by federal securities laws.

CRITICAL ACCOUNTING POLICIES

Management’s discussion and analysis of the Company’s financial condition are based on the consolidated financial statements which are prepared in accordance with accounting principles generally accepted in the United States. The preparation of such financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities. Management evaluates its estimates, including

14

those related to the allowance for loan losses and review of goodwill for impairment, on an ongoing basis. Management bases its estimates on historical experience and various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis in making judgments about the carrying values of assets that are not readily apparent from other sources. Actual results could differ from the amount derived from management’s estimates and assumptions under different assumptions or conditions.

Management believes the allowance for loan losses is a significant accounting estimate used in the preparation of the Company’s consolidated financial statements. The allowance for loan losses, which is established through a charge to the provision for loan losses, is based on management’s evaluation of the level of allowance required in relation to the loss exposure in the loan portfolio. Management regularly evaluates the allowance for loan losses for adequacy by taking into consideration factors such as previous loss experience, the size and composition of the portfolio, current economic and real estate market conditions and the performance of individual loans in relation to contract terms and estimated fair values of properties to be foreclosed. The use of different estimates or assumptions could produce different provisions for loan losses. Refer to the discussion of “Credit Risk” in the “Risk Management” section of this report for a detailed description of management’s estimation process and methodology related to the reserve for loan losses.

Management utilizes numerous techniques to estimate the value of various assets held by the Company. Management utilized various methods to determine the appropriate carrying value of goodwill as required under Statement of Financial Accounting Standards (“SFAS”) No. 142. At September 30, 2003, the carrying value of goodwill amounted to $375. Goodwill from a purchase acquisition is subject to ongoing periodic impairment tests. Goodwill is evaluated for impairment using several standard valuation techniques including discounted cash flow analyses, as well as an estimation of the impact of business conditions. Different estimates or assumptions are also utilized to determine the appropriate carrying value of other assets including, but not limited to, premises and equipment, mortgage servicing rights, and the overall collectibility of loans and receivables. The use of different estimates or assumptions could produce different estimates of carrying value.

OVERVIEW

The Company reported net income of $1,229 or fully diluted earnings per share of 37 cents, for the three months ended September 30, 2003, compared with $1,147, or fully diluted earnings per share of 35 cents for the same period a year earlier, representing increases of 7.1% and 5.7% respectively. The return on average assets and average shareholders’ equity amounted to 0.87% and 9.29% respectively, compared with 0.86% and 8.62% for the third quarter of 2002.

For the nine months ended September 30, 2003, net income amounted to $3,945 or fully diluted earnings per share of $1.23, compared with $3,237 or fully diluted earnings per share of $0.99 for the same period in 2002, representing increases of $708 and 24 cents, or 21.9% and 24.2% respectively. The return on average assets and average shareholders’ equity amounted to 0.95% and 9.88% respectively, compared with 0.85% and 8.23% for the first nine months of 2002.

Included in prior year earnings was an after tax charge of $247 recorded in the first quarter, resulting from the cumulative effect of a change in accounting required by the adoption of a new accounting standard, SFAS No. 142, “Goodwill and Other Intangible Assets”. Excluding this adjustment, the increases in net income and fully diluted earnings per share for the nine months ended September 30, 2003 compared with the same period in 2002 amounted to 13.2% and 16.0%, respectively.

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RESULTS OF OPERATIONS

Net Interest Income

Net interest income is the principal component of the Company’s income stream and represents the difference or spread between interest generated from earning assets and the interest expense incurred on deposits and borrowed funds. Net interest income is entirely generated by the Bank. Fluctuations in market interest rates as well as volume and mix changes in earning assets and interest bearing liabilities can materially impact net interest income.

For the quarter ended September 30, 2003, net interest income on a fully tax equivalent basis amounted to $4,964, compared with $5,046 during the same quarter in 2002, representing a decrease of $82, or 1.7%. The decline in net interest income was attributed to the net interest margin, which during the third quarter of 2002 amounted to 4.08% compared with 3.73% during the current quarter.

For the nine month period ended September 30, 2003, net interest income on a fully tax equivalent basis amounted to $15,084, compared with $14,781 for the same period in 2002, representing an increase of $303, or 2.0%. The increase in net interest income was principally attributed to average earning asset growth of $44,788, or 9.5% between periods, as the net interest margin declined 29 basis points.

The net interest margin is determined by dividing tax equivalent net interest income by average interest -earning assets. The interest rate spread represents the difference between the average tax equivalent yield earned on interest-earning assets and the average rate paid on interest-bearing liabilities. The net interest margin is generally higher than the interest rate spread due to the additional income earned on those assets funded by non-interest-bearing liabilities, primarily demand deposits and shareholders’ equity.

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Net Interest Income Analysis: The following tables set forth an analysis of net interest income by each major category of interest earning assets and interest bearing liabilities for the three and nine months ended September 30, 2003, and 2002, respectively:

AVERAGE BALANCE SHEET AND
ANALYSIS OF NET INTEREST INCOME
THREE MONTHS ENDED
SEPTEMBER 30, 2003 AND 2002

			2003		2003			2003			2002		2002			2002
			Average					Average			Average					Average
			Balance		Interest			Rate			Balance		Interest			Rate
Interest Earning Assets:
Loans (1,3)			$	375,792	$	5,942			6.27	%	$	331,480	$	6,080			7.28	%
Investment securities (3)				149,423		1,733			4.60	%		149,836		2,165			5.73	%
Fed funds sold, money market funds, and time deposits with other banks				3,151		17			2.14	%		9,766		69			2.80	%
	Total Investments			152,574		1,750			4.55	%		159,602		2,234			5.55	%
		Total Earning Assets		528,366		7,692			5.78	%		491,082		8,314			6.72	%
Non Interest Earning Assets:
Cash and due from banks				9,627								11,055
Other assets (2)				30,093								29,950
		Total Assets	$	568,086							$	532,087
Interest Bearing Liabilities:
Deposits			$	277,408	$	1,041			1.49	%	$	265,703	$	1,506			2.25	%
Securities sold under repurchase agreements				12,145		37			1.21	%		12,231		66			2.14	%
Other borrowings				166,660		1,650			3.93	%		143,669		1,696			4.68	%
	Total Borrowings			178,805		1,687			3.74	%		155,900		1,762			4.48	%
		Total Interest Bearing Liabilities		456,213		2,728			2.37	%		421,603		3,268			3.08	%
Rate Spread									3.41	%							3.64	%
Non Interest Bearing Liabilities:
Demand deposits				50,203								48,345
Other liabilities				8,611								8,789
	Total Liabilities			515,027								478,737
Shareholders’ Equity				53,059								53,350
		Total Liabilities and Shareholders’ Equity	$	568,086							$	532,087
Net Interest Income and Net Interest Margin (3)						4,964			3.73	%				5,046			4.08	%
Less: Tax Equivalent Adjustment						(179	)							(164	)
		Net Interest Income			$	4,785			3.59	%			$	4,882			3.94	%

(1)	For purposes of these computations, non-accrual loans are included in average loans.
(2)	For purposes of these computations, unrealized gains (losses) on available-for-sale securities are recorded in other assets.
(3)	For purposes of these computations, reported on a tax equivalent basis.

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AVERAGE BALANCE SHEET AND
ANALYSIS OF NET INTEREST INCOME
NINE MONTHS ENDED
SEPTEMBER 30, 2003 AND 2002

			2003		2003			2003			2002		2002			2002
			Average					Average			Average					Average
			Balance		Interest			Rate			Balance		Interest			Rate
Interest Earning Assets:
Loans (1,3)			$	363,075	$	17,834			6.57	%	$	318,639	$	17,708			7.43	%
Investment securities (3)				150,810		5,607			4.97	%		146,402		6,567			6.00	%
Fed funds sold, money market funds, and time deposits with other banks				2,995		49			2.19	%		7,051		129			2.45	%
	Total Investments			153,805		5,656			4.92	%		153,453		6,696			5.83	%
		Total Earning Assets		516,880		23,490			6.08	%		472,092		24,404			6.91	%
Non Interest Earning Assets:
Cash and due from banks				7,993								9,561
Other assets (2)				29,847								27,038
		Total Assets	$	554,720							$	508,691
Interest Bearing Liabilities:
Deposits			$	273,238	$	3,346			1.64	%	$	253,814	$	4,505			2.37	%
Securities sold under repurchase agreements				12,293		130			1.41	%		12,735		214			2.25	%
Other borrowings				163,461		4,930			4.03	%		142,130		4,904			4.61	%
	Total Borrowings			175,754		5,060			3.85	%		154,865		5,118			4.42	%
		Total Interest Bearing Liabilities		448,992		8,406			2.50	%		408,679		9,623			3.15	%
Rate Spread									3.58	%							3.76	%
Non Interest Bearing Liabilities:
Demand deposits				43,566								41,880
Other liabilities				8,590								5,382
	Total Liabilities			501,148								455,941
Shareholders’ Equity				53,572								52,750
		Total Liabilities and Shareholders’ Equity	$	554,720							$	508,691
Net Interest Income and Net Interest Margin (3)						15,084			3.90	%				14,781			4.19	%
Less: Tax Equivalent Adjustment						(522	)							(445	)
		Net Interest Income			$	14,562			3.77	%			$	14,336			4.06	%

(1)	For purposes of these computations, non-accrual loans are included in average loans.
(2)	For purposes of these computations, unrealized gains (losses) on available-for-sale securities are recorded in other assets.
(3)	For purposes of these computations, reported on a tax equivalent basis.

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Net Interest Margin Summary: The following table summarizes the net interest margin components over the last seven quarters. Factors contributing to the changes in net interest income and the net interest margin are outlined in the succeeding discussion and analysis.

NET INTEREST MARGIN ANALYSIS
FOR QUARTER ENDED

						2003						2002
			3rd Qtr			2nd Qtr			1st Qtr			4th Qtr			3rd Qtr			2nd Qtr			1st Qtr
			Average			Average			Average			Average			Average			Average			Average
			Rate			Rate			Rate			Rate			Rate			Rate			Rate
Interest Earning Assets:
Loans (1,2)				6.27	%		6.67	%		6.79	%		6.97	%		7.28	%		7.46	%		7.57	%
Investment securities (2)				4.60	%		5.08	%		5.29	%		5.31	%		5.73	%		5.75	%		6.13	%
Fed funds sold, money market funds, and time deposits with other banks				2.14	%		2.15	%		2.32	%		1.54	%		2.80	%		1.85	%		1.98	%
	Total Investments			4.55	%		5.03	%		5.23	%		5.20	%		5.55	%		5.66	%		5.90	%
		Total Earning Assets		5.78	%		6.19	%		6.30	%		6.39	%		6.72	%		6.88	%		6.99	%
Interest Bearing Liabilities:
Deposits				1.49	%		1.67	%		1.79	%		1.97	%		2.25	%		2.42	%		2.46	%
Securities sold under repurchase agreements				1.21	%		1.45	%		1.58	%		2.05	%		2.14	%		2.27	%		2.32	%
Other borrowings				3.93	%		3.99	%		4.19	%		4.52	%		4.68	%		4.47	%		4.69	%
	Total Borrowings			3.74	%		3.83	%		3.99	%		4.30	%		4.48	%		4.31	%		4.46	%
		Total Interest Bearing Liabilities		2.37	%		2.53	%		2.64	%		2.83	%		3.08	%		3.16	%		3.22	%
Rate Spread				3.40	%		3.66	%		3.66	%		3.56	%		3.64	%		3.73	%		3.77	%
Net Interest Margin (2)				3.73	%		3.97	%		4.03	%		3.96	%		4.08	%		4.14	%		4.25	%
Net Interest Margin w/o Tax Equivalent Adjustments				3.59	%		3.83	%		3.90	%		3.83	%		3.94	%		4.03	%		4.12	%

(1)  For purposes of these computations, non-accrual loans are included in average loans.

(2)  For purposes of these computations, reported on a tax equivalent basis.

During the quarter ended September 30, 2003 the net interest margin amounted to 3.73%, representing a decline of 35 basis points compared with the same quarter in 2002. For the nine months ended September 30, 2003, the net interest margin amounted to 3.90%, compared with 4.19% for the same period in 2002, representing a decline of 29 basis points.

The prolonged, historically low interest rate environment has caused sharp yield declines on the Company’s variable rate earning assets and accelerated payment speeds on fixed rate earning assets. From the third quarter of 2002 to the current quarter, the decline in the average yield on interest earning assets exceeded the decline in the rate paid on interest bearing liabilities by 23 basis points.

The Company’s asset sensitive balance sheet has pressured the net interest margin over the past several quarters as interest rates declined to historical lows. This trend was most profound during the quarter ended June 30, 2003, with the yield on the benchmark 10-year Treasury note dropping to as low as 3.07% and the federal funds targeted rate falling to 1.00%, in both cases representing forty-five year lows. While longer-term interest rates increased over 100 basis points during the third quarter and prepayment speeds slowed, the Company’s net interest margin declined 24 basis points. This decline was principally

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attributed to the closing of re-financed loans where commitments had been made in the second quarter, combined with accelerated premium amortization on mortgage-backed securities, also reflecting record setting second quarter re-financing activity. This activity has recently slowed with the net interest margin beginning to stabilize.

During the first nine months of 2003 the Company pursued a number of strategies to ensure a reasonably stable net interest margin in an extended low interest rate environment, while continuing to manage exposure to rising rates over the longer-term horizon. These strategies included a repositioning of a portion of the investment securities portfolio, the addition of two $10 million interest rate swap agreements, the successful marketing of a 10-year fully amortizing mortgage product, and a reinforcement of the Company’s conservative posture with respect to the pricing of loan and deposit products.

As more fully described under Item 3 of this report, Interest Rate Risk, the Company’s balance sheet continues to be asset sensitive, positioning it well for rising rates and an improving economy.

Interest Income: For the quarter ended September 30, 2003, total interest income, on a fully tax equivalent basis, amounted to $7,692 compared with $8,314 for the same quarter in 2002, representing a decline of $622, or 7.5%.

For the nine months ended September 30, 2003, total interest income, on a tax equivalent basis, amounted to $23,490, compared with $24,404 for the same period in 2002, representing a decline of $914, or 3.7%. Contributing to this change was an 83 basis point decrease in the yield on average earning assets between periods, reflecting declines in the Fed Funds targeted rate and parallel shifts in the U.S. Treasury yield curve. The decline in total interest income attributed to lower yields was largely offset by growth in average earning assets, which increased $44,788 or 9.5%, compared with the same period in 2002.

Average earning assets as a percent of average total assets increased between periods, amounting to 93.2% for the nine months ended September 30, 2003, compared with 92.8% for the same period in 2002.

Interest Expense – Total interest expense for the quarter ended September 30, 2003 amounted to $2,728 compared with $3,268 for the same quarter in 2002, representing a decrease of $540, or 16.5%.

For the nine months ended September 30, 2003, total interest expense amounted to $8,406 compared with $9,623 for the same period in 2002, representing a decrease of $1,217, or 12.6%. The decrease in interest expense was principally attributed to a 65 basis point decline in the average cost of interest bearing liabilities between periods, from 3.15% during the first nine months of 2002 to 2.50% for the same period in 2003.

The cost of interest bearing deposits declined 76 basis points to 1.49% in the current quarter, compared with the third quarter of 2002, and was reflective of the declining interest rate environment including the continued replacement of maturing time deposits at lower rates.

The cost of borrowings declined 74 basis points to 3.74% in the current quarter, compared with the third quarter of 2002. Consistent with its asset and liability management strategies, the Company’s borrowings generally have longer maturities than the funding provided by deposits in order to preserve the sensitivity of net interest income in a rising rate environment. While the use of longer maturity borrowings to fund earning assets naturally results in less net interest income, they more closely match the maturities of fixed rate earning assets being added to the Company’s balance sheet. The Company has been deliberate in its efforts to hedge the interest rate risk associated with the addition of fixed rate earning assets to the balance sheet during a period of historically low interest rates, and is positioned to benefit from rising rates and an improving economy.

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Comparing the third quarter 2003 with 2002, the decline in total interest expense resulting from lower interest rates was offset in part by a $34,610 increase in total average interest bearing liabilities.

Rate / Volume Analysis: The following tables set forth a summary analysis of the relative impact on net interest income of changes in the average volume of interest earning assets and interest bearing liabilities, and changes in average rates on such assets and liabilities. The income from tax-exempt assets has been adjusted to a fully tax equivalent basis, thereby allowing uniform comparisons to be made. Because of the numerous simultaneous volume and rate changes during the periods analyzed, it is not possible to precisely allocate changes to volume or rate. For presentation purposes, changes which are not solely due to volume changes or rate changes have been allocated to these categories in proportion to the relationships of the absolute dollar amounts of the change in each.

ANALYSIS OF VOLUME AND RATE CHANGES ON NET INTEREST INCOME
THREE MONTHS ENDED SEPTEMBER 30, 2003 VERSUS SEPTEMBER 30, 2002
INCREASES (DECREASES) DUE TO:

	Average			Average			Net
	Volume			Rate			Interest Income
Loans (1)	$	1,427		$	(1,565	)	$	(138	)
Taxable investment securities		(19	)		(440	)		(459	)
Non-taxable investment securities (1)		18			9			27
Fed funds sold, money market funds, and time deposits with other banks		(39	)		(13	)		(52	)
TOTAL EARNING ASSETS		1,387			(2,009	)		(622	)
Deposits		69			(534	)		(465	)
Securities sold under repurchase agreements		—			(29	)		(29	)
Other borrowings		509			(555	)		(46	)
TOTAL INTEREST BEARING LIABILITIES		578			(1,118	)		(540	)
NET CHANGE IN NET INTEREST INCOME (1)	$	809		$	(891	)	$	(82	)

     (1)  Reported on a tax-equivalent basis.

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ANALYSIS OF VOLUME AND RATE CHANGES ON NET INTEREST INCOME
NINE MONTHS ENDED SEPTEMBER 30, 2003 VERSUS SEPTEMBER 30, 2002
INCREASES (DECREASES) DUE TO:

	Average			Average			Net
	Volume			Rate			Interest Income
Loans (1)	$	2,242		$	(2,116	)	$	126
Taxable investment securities		118			(1,256	)		(1,138	)
Non-taxable investment securities (1)		94			84			178
Fed funds sold, money market funds, and time deposits with other banks		(68	)		(12	)		(80	)
TOTAL EARNING ASSETS		2,386			(3,300	)		(914	)
Deposits		375			(1,534	)		(1,159	)
Securities sold under repurchase agreements		(7	)		(77	)		(84	)
Other borrowings		(686	)		712			26
TOTAL INTEREST BEARING LIABILITIES		(318	)		(899	)		(1,217	)
NET CHANGE IN NET INTEREST INCOME (1)	$	2,704		$	(2,401	)	$	303

     (1)  Reported on a tax-equivalent basis.

Other Operating Income and Expenses

In addition to net interest income, non-interest income is a significant source of revenue for the Company and an important factor in its results of operations. Likewise, non-interest expense represents a significant category of expense for the Company.

For the quarter ended September 30, 2003, total non-interest income amounted to $1,953 compared with $2,174 for the same quarter in 2002, representing a decrease of $221, or 10.2%. For the nine months ended September 30, 2003 total non-interest income amounted to $5,533, compared with $5,143 for the same period in 2002, representing an increase of $390, or 7.6%.

Total non-interest expense amounted to $4,978 for the quarter ended September 30, 2003, compared with $5,120 in the third quarter of 2002, representing a decrease of $142, or 2.8%. For the nine months ended September 30, 2003, total non-interest expense amounted to $14,272, compared with $13,797 for the same period in 2002, representing an increase of $475, or 3.4%.

As more fully disclosed in Note 3 to the consolidated financial statements, the Company manages and operates two major lines of business: Community Banking and Financial Services. The following discussion and analysis of other operating income and expenses focuses on each business segment separately:

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COMMUNITY BANKING
Three Months Ended September 30, 2003 and 2002

	2003		2002		Change			Change
Non-interest income	$	1,537	$	1,704	$	(167	)	–	9.8	%
Non-interest expense	$	4,003	$	4,072	$	(69	)	–	1.7	%

Nine Months Ended September 30, 2003 and 2002

	2003		2002		Change		Change
Non-interest income	$	3,983	$	3,508	$	475		13.5	%
Non-interest expense	$	11,313	$	10,630	$	683		6.4	%

Non-interest Income: For the three and nine months ended September 30, 2003, non-interest income from Community Banking represented 78.7% and 72.0% of the Company’s total non-interest income, respectively, compared with 78.4% and 68.2% during the same periods in 2002.

For the quarter ended September 30, 2003, the Bank’s non-interest income amounted to $1,537, compared with $1,704 during the same quarter in 2002, representing a decrease of $167 or 9.8%. The decline in non-interest income was principally attributed to net gains on the sale of securities, which for the quarter ended September 30, 2003 amounted to $103, or $111 lower than the same quarter in 2002. Also contributing to the decline was the income from the Bank’s merchant credit card program, which lagged prior year levels by $61, or 7.3%. The decline in merchant processing and credit card income was driven by lower transaction volumes compared with the prior year, and was more than offset by a $97 decline in the corresponding processing expenses.

For the nine-months ended September 30, 2003, total non-interest income amounted to $3,983, representing an increase of $475, or 13.5%, compared with the same period in 2002. The increase in non-interest income was principally the result of a $549 increase in net gains on the sale of investment securities, which amounted to $868, compared with $319 during the nine-months ended September 30, 2002. Market interest rates presented opportunities to reposition a portion of the Bank’s investment securities portfolio, particularly in light of accelerated pre-payment speeds on certain mortgaged backed securities held in the available for sale portfolio. There is no assurance that the recording gains on the sale of securities will continue in future periods at these levels. It is important to note, however, that the available for sale investment securities portfolio is managed on a total return basis, in concert with well-structured asset and liability management policies established by the Bank’s Board of Directors. The Bank will continue to respond to changes in market interest rates, changes in securities pre-payment or extension risk, changes in the availability of and yields on alternative investments, and its needs for liquidity.

For the nine months ended September 30, 2003, service charges on deposit accounts declined $11, or 1.0%, compared with the same period in 2002. The decline was principally attributed to continued consolidation of small balance accounts, customers modifying their behavior with respect to overdraft activity, and lower transaction volumes compared with the prior year. Income from mortgage servicing declined between periods, as the Bank has been holding originated mortgages while the pre-payment speeds on its serviced mortgage loan portfolio increased dramatically in reaction to historically low

23

interest rates. Merchant processing and credit card income was lagging prior year levels by $30, but was more than offset by a $102 decline in related processing expenses.

Non-interest Expense: For the three and nine months ended September 30, 2003, non-interest expense from Community Banking represented 80.4% and 79.3% of the Company’s total non-interest expense respectively, compared with 79.5% and 77.0% for the same periods in 2002.

Led by a decline in merchant credit card processing expense, for the three months ended September 30, 2003, the Bank’s total non-interest expense amounted to $4,003 compared with $4,072 during the third quarter of 2002, representing a decrease of $69, or 1.7%.

For the nine months ended September 30, 2003, total non-interest expense amounted to $11,313 compared with $10,630 during the same period in 2002, representing an increase of $683, or 6.4%. The increase in non-interest expense was principally attributed to a 7.1% increase in salary and employee benefits expenses, reflecting strategic additions to staff, employee compensation increases, and increases in subsidized employee health insurance, and deferred compensations. Current year non-interest expense was also impacted by a $95 write-down of obsolete supplies inventory, $35 of which was recorded in the third quarter. Increases in non-interest expense were offset in part by an 11.0% decrease in merchant processing and credit card expense, attributed to lower transaction volumes than experienced in the prior year.

FINANCIAL SERVICES
Three Months Ended September 30, 2003 and 2002

	2003		2002		Change			Change
Non-interest income	$	525	$	531	$	(6	)		-1.1	%
Non-interest expense	$	831	$	879	$	(48	)		-5.5	%

Nine Months Ended September 30, 2003 and 2002

	2003		2002		Change			Change
Non-interest income	$	1,797	$	1,810	$	(13	)		-0.7	%
Non-interest expense	$	2,441	$	2,771	$	(330	)		-11.9	%

Non-interest income: For the three and nine months ended September 30, 2003, non-interest income from financial services offered at BTI Financial Group (“BTI”) represented 26.9% and 32.5% of the Company’s total non-interest income respectively, compared with 24.4% and 35.2% during the same periods in 2002.

For the three months ended September 30, 2003, non-interest income at BTI amounted to $525, compared with $531 during the same quarter in 2002, representing a decrease of $6, or 1.1%.

For the nine months ended September 30, 2003, non-interest income amounted to $1,810, representing a decline of $13 or 0.7%, compared with the same period in 2002.

Fee income at Bar Harbor Trust Services (“Trust”) and Block Capital Management (“Block”) has been impacted by a year-over-year decline in the market values of assets under management, which at September 30, 2003 stood at $171.0 million. While equity markets and managed asset portfolio

24

performance have shown strength during 2003, these gains have been more than offset by closed accounts, in particular, two large relationships amounting to approximately $14 million. Fees charged to clients are derived principally from the market values of managed assets. For the nine-months ended September 30, 2003, total revenue at Block and Trust amounted to $1,325, compared with $1,456 during the same period in 2002, representing a decline of $131, or 9.0%.

Total third quarter revenue at Dirigo Investments, Inc. (“Dirigo”), amounted to $109, compared with $98 during the third quarter of 2002, representing an increase of $11, or 11.2%. For the nine-months ended September 30, 2003, total revenue at Dirigo amounted to $381, representing an increase of $25, or 7.1%.

BTI receives inter-company income in connection with the occupation of its headquarters complex in Ellsworth, Maine by the Bank and Bar Harbor Bankshares. During 2003 these affiliates expanded their occupancy of the building, increasing BTI’s inter-company revenue by $44 during the nine months ended September 30, 2003, compared with the same period last year.

Non-interest expense: For the three and nine months ended September 30, 2003, non-interest expense from BTI operations represented 16.7% and 17.1% of the Company’s total non-interest expense, compared with 17.2% and 20.1% during the same periods in 2002, respectively.

For the quarter ended September 30, 2003, BTI’s non-interest expense amounted to $831, compared with $879 during the same quarter in 2002, representing a decrease of $48, or 5.5%. Third quarter non-interest expenses were impacted by the write-off of $16 in leasehold improvements associated with the downsizing of the Bangor office, an employee severance payment of $8, and costs associated with the hiring of a President & CEO.

For the nine months ended September 30, 2003, total non-interest expense amounted to $2,441, compared with $2,771 during the same period in 2002, representing a decrease of $330, or 11.9%. The decline in non-interest expense between periods was attributed to a combination of factors. Salaries and employee benefit expenses declined $296 or 22.1% compared with the same period in 2002, and were principally the result of management and staffing changes. Occupancy expenses declined between periods, resulting from the downsizing of the Bangor, Maine office in late 2002 and the occupation of additional space in the BTI headquarters complex by affiliates of BTI. Expense reductions were also achieved in a variety of other operating areas as BTI continued pursuing austerity initiatives to improve overall operating efficiency.

Income Taxes

The Company’s effective tax rate for the three and nine-month periods ended September 30, 2003 amounted to 25.1% and 27.0% respectively, compared with 30.9% and 27.5% for the same periods in 2002. The income tax provisions for these periods is less than the expense that would result from applying the federally statutory rate of 34% to income before income taxes principally because of tax exempt interest income on certain investment securities, loans and bank owned life insurance.

FINANCIAL CONDITION

Total Assets

At September 30, 2003 total assets amounted to $578,944 representing a increase of $25,126 or 4.5% compared with December 31, 2002, and an increase of $30,541 or 5.6% compared with the same date in 2002.

The increase in total assets over December 31, 2002 was entirely attributed to growth in the Bank’s consumer and commercial loan portfolios, amounting to $27,203. Loan growth was principally funded by

25

an increase of $12,991 in deposits and $6,347 in cash flow from the investment securities portfolio. The balance was funded with borrowings from the Federal Home Loan Bank of Boston.

Loan Portfolio

     The loan portfolio is primarily secured by real estate in the counties of Hancock and Washington, Maine. The following table represents the components of the Bank’s loan portfolio as of September 30, 2003, December 31, 2002 and September 30, 2002.

LOAN PORTFOLIO SUMMARY

		September 30,		December 31,		September 30,
		2003		2002		2002
Real estate loans:
	Construction and development	$	14,312	$	16,270	$	16,535
	Mortgage		303,455		287,990		273,658
Loans to finance agricultural production and other loans to farmers			11,772		11,053		11,056
Commercial and industrial loans			30,144		20,010		21,780
Loans to individuals for household, family and other personal expenditures			11,977		12,818		13,109
All other loans			5,997		2,684		2,299
Real estate under foreclosure			1,081		710		100
TOTAL LOANS		$	378,738	$	351,535	$	338,537
	Less: Allowance for possible loan losses		5,265		4,975		4,823
NET LOANS		$	373,473	$	346,560	$	333,714

Total Loans: Total loans at September 30, 2003 amounted to $378,738, representing an increase of $27,203 or 7.7% compared with December 31, 2002, and an increase of $40,201 or 11.9%, compared with the same date in 2002.

The increase in loan balances compared with 2002 year-end in part reflects the seasonality of certain local businesses and their corresponding borrowing needs for carrying seasonal inventory and maintaining adequate operating cash flow. Loan growth during the first nine months of 2003 was led by approximately 60% growth in consumer loans, with the balance attributed to commercial loan growth.

The category of “all other loans” includes loans to tax-exempt municipalities. The Bank has aggressively pursued these relationships during 2003, as reflected by an increase of $3,313, or 123.4%.

The 11.9% overall growth in the loan portfolio compared with September 30, 2002 levels was led by strong consumer real estate lending. Origination activity has benefited from a favorable market interest rate environment, a stable local economy, and initiatives designed to expand the Bank’s product offerings and attract new customers while continuing to leverage its existing customer base.

At September 30, 2003 real estate loans comprised 83.9% of the loan portfolio, compared with 86.6% at December 31, 2002 and 85.7% at the same date in 2002. The continued strength in the local real estate markets, both residential and commercial, has led to record property values in the Bank’s market area. Recognizing the impact this trend may have on the loan portfolio and origination pipeline, the Bank periodically reviews its underwriting standards to ensure that the quality of the loan portfolio is not

26

jeopardized by unrealistic loan to value ratios or debt service levels. To date, there has been no significant deterioration in the performance or risk characteristics of the real estate loan portfolio.

Credit Risk: Credit risk is managed through loan officer authorities, loan policies, the Bank’s Senior Loan Committee, oversight from the Bank’s Senior Credit Officer, Director’s Loan Committee, and the Bank’s Board of Directors. Management follows a policy of continually identifying, analyzing and grading credit risk inherent in the loan portfolio. An ongoing independent review, subsequent to Management’s review, of individual credits is performed by an independent loan review function, which reports to the Audit Committee of the Board of Directors.

Non-performing Loans: Non-performing loans include loans on non-accrual status, loans which have been treated as troubled debt restructurings and loans past due 90 days or more and still accruing interest. The following table sets forth the details of non-performing loans at the dates indicated:

TOTAL NONPERFORMING LOANS

		September 30,			December 31,			September 30,
		2003			2002			2002
Loans accounted for on a non-accrual basis		$	1,385		$	986		$	1,011
Accruing loans contractually past due 90 days or more			168			188			23
	Total nonperforming loans	$	1,553		$	1,174		$	1,034
Allowance for Loan Losses to Nonperforming Loans			339	%		424	%		466	%
Non-Performing to Total Loans			0.41	%		0.33	%		0.31	%
Allowance for Loan Losses to Total Loans			1.39	%		1.42	%		1.42	%

At September 30, 2003, total non-performing loans amounted to $1,553, or 0.41% of total loans, compared with $1,174 or 0.33% at December 31, 2002, and $1,034 or 0.31% at the same date last year. While non-performing loans have increased moderately since year-end, they remain at relatively low levels and are not considered to be a reflection of an overall deterioration in the credit quality of loan portfolio.

While the non-performing loan ratios continued during the three month period ended September 30, 2003 to reflect favorably on the quality of the loan portfolio, the Bank is cognizant of soft economic conditions overall and weakness in certain industry segments in particular, and is managing credit risk accordingly. Future levels of non-performing loans may be influenced by economic conditions, including the impact of those conditions on the Bank’s customers, interest rates, and other factors existing at the time.

Other Real Estate Owned: When a real estate loan goes to foreclosure and the Bank purchases the property, the property is transferred from the loan portfolio to Other Real Estate Owned (“OREO”) at its fair value. If the loan balance is higher than the fair value of the property, the difference is charged to the allowance for loan losses at the time of the transfer. At September 30, 2003, OREO amounted to $369, compared with $80 at December 31, 2002 and $100 at the same date a year earlier.

Allowance for Loan Losses and Provision: The allowance for loan losses (“Allowance”) is available to absorb losses on loans. The determination of the adequacy of the Allowance and provisioning for estimated losses is evaluated quarterly based on review of loans, with particular emphasis on non-performing and other loans that management believes warrant special consideration.

The Allowance is maintained at a level that is, in management’s judgment, appropriate for the amount of risk inherent in the loan portfolio given past, present and expected conditions, and adequate to provide for probable losses. Reserves are established for specific loans including impaired loans, a pool of reserves based on historical charge-offs by loan types, and supplemental reserves to reflect current economic conditions, industry specific risks, and other observable data. Loan loss provisions are recorded and the Allowance is increased when loss is identified and deemed likely.

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While management uses available information to recognize losses on loans, changing economic conditions and the economic prospects of the borrowers may necessitate future additions or reductions to the Allowance.

The Bank’s loan loss experience continued its positive trend between reporting periods. For the nine months ended September 30, 2003, net charge-offs amounted to $130, or 0.04% of total average loans, compared with $221, or 0.07% for the same period in 2002.

During the three and nine month periods ended September 30, 2003, the Bank provided $120 and $420 to the allowance for loan losses respectively, compared with $275 and $875 for the same periods in 2002. The decrease in the provision for loan losses reflects an overall strengthening in credit quality between periods, aided by low net charge-off experience. Since September 30, 2002 the allowance for loan losses has increased $442, or 9.2%.

The following table details changes in the allowance for loan losses and summarizes loan loss experience by loan type for nine-month periods ended September 30, 2003 and 2002.

ALLOWANCE FOR LOAN LOSSES
Nine Months Ended
September 30, 2003 and 2002

			2003			2002
Balance at beginning of period			$	4,975		$	4,169
Charge offs:
	Commercial, financial agricultural, others			58			94
	Real estate:
		Construction and development		4			—
		Mortgage		121			115
	Installments and other loans to individuals			98			174
Total charge offs				281			383
Recoveries:
	Commercial, financial agricultural, others			20			113
	Real estate:
		Construction and development		—			—
		Mortgage		79			9
	Installments and other loans to individuals			52			40
Total recoveries				151			162
Net charge offs				130			221
Provision charged to operations				420			875
Balance at end of period			$	5,265		$	4,823
Average loans outstanding during period			$	363,075		$	318,639
Net charge offs to average loans outstanding during period				0.04	%		0.07	%

During the quarter ended September 30, 2003 there were no significant changes in the allocation of the allowance for loan losses by loan type. The following table presents the breakdown of the allowance by loan type as of September 30, 2003 and December 31, 2002.

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ALLOCATION OF ALLOWANCE FOR LOAN LOSSES

		September 2003					December 2002
				Percent of					Percent of
				Loans in					Loans in
				Each					Each
				Category to					Category to
		Amount		Total loans			Amount		Total loans
Commercial, financial, and agricultural		$	2,452		11.07	%	$	1,737		8.84	%
Real estate mortgages:
	Real estate-construction		89		3.78	%		266		4.63	%
	Real estate-mortgage		1,882		80.41	%		1,992		82.12	%
Installments and other loans to individuals			259		3.16	%		531		3.65	%
Other			—		1.58	%		—		0.76	%
Unallocated			583		0.00	%		449		0.00	%
TOTAL		$	5,265		100.00	%	$	4,975		100.00	%

At September 30, 2003, the adequacy analysis resulted in a need for specific reserves of $3,712, general reserves of $622, impaired reserves of $348, and other reserves of $583.

Specific reserves are determined by way of individual review of commercial loan relationships in excess of $250, combined with reserves calculated against total outstanding loans by category using the Bank’s historical loss experience and other observable data. General reserves account for the risk and probable loss inherent in certain pools of industry and geographic concentrations within the loan portfolio. Impaired reserves consider all consumer loans over 90 days past due and impaired commercial loans which are fully reserved within the specific reserves via individual review and specific allocation of probable loss for loan relationships over $250, and pool reserves for smaller impaired loans. The Bank had no troubled debt restructurings during the nine months ended September 30, 2003 and 2002, and all of its impaired loans were considered collateral dependent and were adequately reserved.

There were no major changes in loan concentrations during the nine-month period ended September 30, 2003. However, changes were made to the allowance calculation to incorporate loss estimates relating to emerging issues in the blueberry industry, to which the Bank has extended credit, principally centered in Washington County, Maine. Over the past two years blueberry inventories have grown, as increased supplies have exceeded demand both here and abroad and prices had softened. During the 3rd quarter of 2003, industry sources are reporting strengthening prices, which we are cautiously optimistic will lessen this concern. At September 30, 2003, the adequacy analysis of the Allowance incorporates management’s estimate of inherent losses associated with this industry segment.

Based upon the process employed and giving recognition to all attendant factors associated with the loan portfolio, management considers the Allowance for loan losses at September 30, 2003, to be appropriate for the risks inherent in the loan portfolio and resident in the local and national economy as of that date.

Investment Securities Portfolio

For the three and nine months ended September 30, 2003, total average investment securities, including Federal Funds Sold, money market funds and time deposits with other banks, represented 28.9% and 29.8% of total interest earning assets respectively, compared with 32.5% during the same periods in 2002.

At September 30, 2003, total investment securities amounted to $155,953, compared with $162,300 at December 31, 2002 representing a decrease of $6,347, or 3.9%. Comparing September 30, 2003 totals with the same date in 2002, investment securities have decreased $12,321, or 7.3%.

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The decline in investment securities from December 31, 2002 totals, principally reflects accelerated pay-downs of mortgage-backed securities and the exercise of callable features on certain government agency securities, the proceeds of which were partially utilized to fund loan growth. The year-over year decline in investment securities was attributed to strong loan growth, funded in part by cash flows from the investment securities portfolio.

The investment securities portfolio primarily consists of United States Government agency securities, obligations of state and political subdivisions, mortgage-backed securities, and corporate bonds. The overall objective of the Company’s investment strategy for this portfolio is to maintain an appropriate level of liquidity, diversify earning assets, manage interest rate risk, and generate acceptable levels of net interest income.

In light of the historically low interest rate environment over the past year, the investment strategy has been focused on maintaining a relatively short duration, thereby reducing exposure to sustained increases in interest rates. This is achieved through investments in securities with predictable cash flows and relatively short average lives, and the purchase of certain adjustable rate instruments.

Deposits

The most significant funding source for earning assets continues to be core customer deposits that are gathered through the Bank’s retail branch network.

Total deposits increased $12,991 from December 31, 2002 totals or 4.0%. At September 30, 2003 total deposits amounted to $335,006 compared with $330,903 at the same date in 2002, representing an increase of $4,103, or 1.2%.

A portion of the Company’s deposit base is seasonal in nature, with balances typically declining during Winter and early Spring while peaking in the Fall. Seasonal deposits have typically been used to pay down short-term borrowings. During the three months ended September 30, 2003, the rate of seasonal deposit inflows, particularly non-personal transaction account balances, has been lagging prior year trends.

Borrowed Funds

Borrowed funds principally consist of advances from the Federal Home Loan Bank (FHLB) and, to a lesser extent, securities sold under agreements to repurchase. Borrowings are principally utilized to support the Bank’s investment portfolio and fund loan growth.

At September 30, 2003 total borrowings from the FHLB amounted to $170,881, representing an increase of $14,323 compared with year-end totals. The increase was utilized to fund loan growth as the investment securities portfolio declined $6,347.

Compared with September 30, 2002, total FHLB borrowings have increased $27,174, or 18.9%. The increase in borrowed funds was used to fund loan originations, as loan growth outpaced deposit growth by $36,098 during the period.

At September 30, 2003 total borrowings expressed as a percent of total assets amounted to 31.6%, compared with 30.8% at the same date last year.

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Capital Resources

Consistent with its long-term goal of operating a sound and profitable organization, during the third quarter of 2003 Bar Harbor Bankshares continued to be a “well capitalized” company according to applicable regulatory standards and maintained its strong capital position. The Company considers this vital in promoting depositor and investor confidence and providing a solid foundation for future growth.

The Company and its banking subsidiary are subject to the risk based capital guidelines administered by the Bank’s principal regulators. The risk based capital guidelines are designed to make regulatory capital requirements more sensitive to differences in risk profiles among banks and bank holding companies, to account for off-balance sheet exposure and to minimize disincentives for holding liquid assets. Under these guidelines, assets and off-balance sheet items are assigned to broad risk categories, each with appropriate weights. The resulting capital ratios represent capital as a percentage of risk weighted assets and off-balance sheet items. The guidelines require all banks and bank holding companies to maintain a minimum ratio of total risk based capital to risk weighted assets of 8%, including a minimum ratio of Tier I capital to total risk weighted assets of 4% and a Tier I capital to average assets of 4% (“Leverage Ratio”). Failure to meet minimum capital requirements can initiate certain mandatory, and possibly additional discretionary, actions by regulators that, if undertaken, could have a material effect on the Company’s financial statements.

As of September 30, 2003, the Company and its banking subsidiary are considered well capitalized under the regulatory framework for prompt corrective action. Under the capital adequacy guidelines, a well capitalized institution must maintain a minimum total risk based capital to total risk weighted assets ratio of at least 10%, a minimum Tier I capital to total risk weighted assets ratio of at least 6%, and a minimum leverage ratio of at least 5%.

The following table sets forth the Company’s regulatory capital at September 30, 2003 and December 31, 2002, under the rules applicable at that date.

	September 30, 2003					December 31, 2002
	Amount		Ratio			Amount		Ratio
Total Capital to Risk Weighted Assets	$	54,574		14.3	%	$	53,434		14.5	%
Regulatory Requirement		30,506		8.0	%		29,510		8.0	%
Excess	$	24,072		6.3	%	$	23,924		6.5	%
Tier 1 Capital to Risk Weighted Assets	$	49,805		13.1	%	$	48,819		13.2	%
Regulatory Requirement		15,253		4.0	%		14,755		4.0	%
Excess	$	34,552		9.1	%	$	34,064		9.2	%
Tier 1 Capital Average Assets	$	49,805		8.9	%	$	48,819		8.9	%
Regulatory Requirement		22,497		4.0	%		21,894		4.0	%
Excess	$	27,308		4.9	%	$	26,925		4.9	%

The Company’s principal source of funds to pay cash dividends and support its commitments is derived from its banking subsidiary, Bar Harbor Banking and Trust Company. The Company declared dividends in the aggregate amount of $595 and $611 during the three months ended September 30, 2003 and 2002, respectively, at a rate of $0.19 per share.

In November 1999, the Company announced a stock buyback plan. The Board of Directors of the Company has authorized open market and privately negotiated purchases of up to 10% of the Company’s outstanding shares of common stock, or 344,000 shares. The Board of Directors has authorized the continuance of this program through December 31, 2003. As of September 30, 2003, the Company had repurchased 312,789 shares of stock under the plan, or 90.8% of the total authorized, at a total cost of $5,481 and an average price of $17.54. The Company holds the repurchased shares as treasury stock.

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Off-Balance Sheet Arrangements

The Company is, from time to time, a party to certain off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on the Company’s financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources, that may be material to investors. “Off-balance sheet arrangement” includes any transaction, agreement, or other contractual arrangement to which an unconsolidated entity is a party, under which the Company has:

(i)	any obligation under certain guarantee contracts;
(ii)	a retained or contingent interest in assets transferred to an unconsolidated entity or similar arrangement that serves as credit, liquidity or market risk support to that entity for such assets;
(iii)	any obligation under certain derivative instruments;
(iv)	any obligation under a material variable interest held by the Company in an unconsolidated entity that provides financing, liquidity, market risk or credit risk support to the registrant, or engages in leasing, hedging, or research and development services with the Company.

Stand-by Letters of Credit: The Bank guarantees the obligations or performance of certain customers by issuing standby letters of credit to third parties. These letters of credit are sometimes issued in support of third party debt. The risk involved in issuing standby letters of credit is essentially the same as the credit risk involved in extending loan facilities to customers, and they are subject to the same origination, portfolio maintenance and management procedures in effect to monitor other credit products. The amount of collateral obtained, if deemed necessary by the Bank upon issuance of a standby letter of credit, is based upon management’s credit evaluation of the customer. At September 30, 2003, commitments under existing standby letters of credit totaled $3,669, compared with $2,800 at December 31, 2002 and September 30, 2002.

Other Off-Balance Sheet Arrangements: At September 30, 2003 the Company did not have any other “off-balance sheet arrangements” that have or are reasonably likely to have a current or future effect on the Company’s financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources that is material to investors.

Off Balance Sheet Risk

The Bank is party to financial instruments with off-balance sheet risk in the normal course of business to meet the financial needs of its customers and to reduce its own exposure to fluctuations in interest rates. These financial instruments include commitments to extend credit and interest rate swap agreements.

Commitments to Extend Credit: Commitments to extend credit represent agreements by the Bank to lend to a customer provided there is no violation of any condition established in the contract. These commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee.

Since many of these commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Bank evaluates each customer’s creditworthiness on a case-by-case basis using the same credit policies as it does for its balance sheet instruments. The amount of collateral obtained, if deemed necessary by the Bank upon the issuance of commitment, is based on management’s credit evaluation of the customer.

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The following table summarizes the Bank’s commitments to extend credit:

Commitment	September 30,		December 31,		September 30,
	2003		2002		2002
Commitments to originate loans	$	11,734	$	19,981	$	19,979
Unused lines of credit		59,431		49,107		50,902
Unadvanced portions of construction loans		5,083		2,054		5,627
Total	$	76,248	$	71,142	$	76,508

Derivative Instruments / Counter-party Risk: As part of the Bank’s overall asset liability / management strategy, the Bank periodically uses derivative instruments to minimize significant unplanned fluctuations in earnings and cash flows caused by interest rate volatility. The Bank’s interest rate risk management strategy involves modifying the re-pricing characteristics of certain assets and liabilities so that changes in interest rates do not have a significant adverse effect on net interest income, the net interest margin and cash flows. Derivative instruments that management periodically uses as part of its interest rate risk management strategy include interest rate swaps, caps and floors. These instruments are factored into the Bank’s overall interest rate risk position. A policy statement, approved by the Board of Directors of the Bank, governs use of derivative instruments.

At September 30, 2003 the Bank had three outstanding derivative instruments, all interest rate swap agreements. The details are summarized as follows:

			Notional Amount		Fixed
Description	Maturity		(in thousands)		Interest Rate			Variable Interest Rate	Hedge Pool
Receive fixed rate, pay variable rate		4/26/04	$	10,000		6.425	%	Prime	Home Equity Loans
Receive fixed rate, pay variable rate		9/01/07	$	10,000		6.040	%	Prime	Home Equity Loans
Receive fixed rate, pay variable rate		1/24/09	$	10,000		6.250	%	Prime	Home Equity Loans

The interest rate swap agreements hedge a defined pool of the Bank’s home equity loans yielding an interest rate of prime, which at September 30, 2003 was 4.00%. The Bank is required to pay a counter party monthly variable rate payments indexed to prime, while receiving monthly fixed rate payments based upon interest rates of 6.425%, 6.040%, and 6.250%, respectively over the term of each respective agreement.

The following table summarizes the contractual cash flows of the interest rate swap agreements outstanding at September 30, 2003, based upon the current Prime interest rate of 4.00%:

	Payments Due by Period
			Less Than						Greater Than
	Total		1 Year		1-3 Years		3-5 Years		5 Years
Fixed payments due from counter-party	$	6,066	$	1,600	$	2,461	$	1,808	$	197
Variable payments due to counter-party based on prime rate		3,926		1,030		1,602		1,168		126
Net cash flow	$	2,140	$	570	$	859	$	640	$	71

33

The credit risk associated with the interest rate swap agreements is the risk of non-performance by the counter-party to the agreements. However, management does not anticipate non-performance by the counter-party, and regularly reviews the credit quality of the counter-party from which the instruments have been purchased.

The interest rate swap agreements qualify as a cash flow hedges, and as of September 30, 2003 had total unrealized gains of $388 thousand. In accordance with the Statement of Financial Accounting Standards (SFAS) 133, “Accounting for Derivative Instruments and Hedging Activities”, as amended by SFAS No. 137, and SFAS No. 138, “Accounting for Certain Derivative Instruments and Certain Hedging Activities”, the unrealized gain is recorded in the statement of condition with the offset recorded in the statement of changes in equity as other comprehensive income. The use of the interest rate swap agreements increased interest income by $128 and $324 during the three and nine months ended September 30, 2003, compared with $42 and $70 for the same periods in 2002.

Other Events

On October 27, 2003, Bar Harbor Banking and Trust Company (the “Bank”), the wholly owned banking subsidiary of Bar Harbor Bankshares (the “Registrant”), entered into a definitive Purchase and Assumption Agreement (the “Purchase Agreement”) between the Bank and Androscoggin Savings Bank, a Maine chartered mutual financial institution (“ASB”), pursuant to which the Bank will acquire substantially all of the operating assets and assume certain deposit liabilities and loans of one (1) ASB branch office located at 245 Camden Street, Rockland, Maine (the “Branch”). The Branch acquisition is subject to customary conditions, including receipt of applicable regulatory approvals and the Bank’s assumption of certain deposit liabilities and is expected to close during the first quarter of 2004, or possibly earlier if all conditions of closing set forth under the Purchase Agreement are sooner satisfied. As a result of the Branch acquisition, the Bank will acquire approximately $13,000,000 in loans, approximately $21,000,000 in deposits and approximately $1,000,000 in premises and equipment, including the land and building from which the Branch operations are currently conducted in Rockland, Maine.

The deposit premium in the acquisition is approximately $2.7 million, or 13% of total deposits, and is subject to adjustment should the deposit balance move above or below a specified range prior to closing. The Company expects the Branch acquisition to be accretive to its earnings in the first year of operations. Following the consummation of the Branch acquisition, the Bank will operate the Branch as a Bank branch from the existing Branch location in Rockland, Maine.

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

Interest Rate Risk: Interest rate risk is the most significant market risk affecting the Company. Other types of market risk, such as foreign exchange risk and commodity price risk, do not arise in the normal course of the Company’s business activities.

Interest rate risk can be defined as an exposure to movement in interest rates that could have an adverse impact on the Bank’s net interest income. Interest rate risk arises from the imbalance in the re-pricing, maturity and/or cash flow characteristics of assets and liabilities. Management’s objectives are to measure, monitor and develop strategies in response to the interest rate risk profile inherent in the Bank’s balance sheet. The objectives in managing the Bank’s balance sheet are to preserve the sensitivity of net interest income to actual or potential changes in interest rates, and to enhance profitability through strategies that promise sufficient reward for understood and controlled risk.

The Bank’s interest rate risk measurement and management techniques incorporate the re-pricing and cash flow attributes of balance sheet and off balance sheet instruments as they relate to current and potential changes in interest rates. The level of interest rate risk, measured in terms of the potential future

34

effect on net interest income, is determined through the use of modeling and other techniques under multiple interest rate scenarios. Interest rate risk is evaluated in depth on a quarterly basis and reviewed by the Asset/Liability Committee (“ALCO”) and the Board of Directors.

The Bank’s Asset Liability Management Policy, approved annually by the Board of Directors, establishes interest rate risk limits in terms of variability of net interest income under rising, flat, and decreasing rate scenarios. It is the role of ALCO to evaluate the overall risk profile and to determine actions to maintain and achieve a posture consistent with policy guidelines.

The Bank utilizes an interest rate risk model widely recognized in the financial industry to monitor and measure interest rate risk. The model simulates the behavior of interest income and expense of all on-, and off-balance sheet instruments, under different interest rate scenarios together with a dynamic future balance sheet. Interest rate risk is measured in terms of potential changes in net interest income based upon shifts in the yield curve.

The interest rate risk sensitivity model requires that assets and liabilities be broken down into components as to fixed, variable, and adjustable interest rates, as well as other homogeneous groupings, which are segregated as to maturity and type of instrument. The model includes assumptions about how the balance sheet is likely to evolve through time and in different interest rate environments. The model uses contractual re-pricing dates for variable products, contractual maturities for fixed rate products, and product specific assumptions for deposits accounts, such as money market accounts, that are subject to re-pricing based on current market conditions. Re-pricing margins are also determined for adjustable rate assets and incorporated in the model. Investment securities and borrowings with call provisions, are examined on an individual basis in each rate environment to estimate the likelihood of a call. Prepayment assumptions for mortgage loans and mortgage backed securities are developed from industry median estimates of prepayment speeds, based upon similar coupon ranges and seasoning. Cash flows and maturities are then determined, and for certain assets, prepayment assumptions are estimated under different rate scenarios. Interest income and interest expense are then simulated under several rate conditions including:

• A flat interest rate scenario in which today’s prevailing rates are locked in and the only balance sheet fluctuations that occur are due to cash flows, maturities, new volumes, and re-pricing volumes consistent with this flat rate assumption.

• A 100, 200, and 400 basis point rise or decline in interest rates applied against a parallel shift in the yield curve over a twelve- month period together with a dynamic balance sheet anticipated to be consistent with such interest rate changes.

• Various non-parallel shifts in the yield curve, including changes in either short-term or long-term rates over a twelve-month horizon, together with a dynamic balance sheet anticipated to be consistent with such interest rate changes.

• An extension of the foregoing simulations to each of two, three, four and five year horizons to determine the interest rate risk with the level of interest rates stabilizing in years two through five. Even though rates remain stable during this two to five year time period, re-pricing opportunities driven by maturities, cash flow, and adjustable rate products that will continue to change the balance sheet profile for each of the rate conditions.

Changes in net interest income based upon the foregoing simulations are measured against the flat interest rate scenario and actions are taken to maintain the balance sheet interest rate risk within established policy guidelines.

The following table summarizes the Bank’s net interest income sensitivity analysis as of September 30, 2003, over one and two year horizons and under different interest rate scenarios. In light of the Federal Funds rate of 1.00% on the date presented, the analysis incorporates a declining interest rate scenario of 100 basis points.

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INTEREST RATE RISK
CHANGE IN NET INTEREST INCOME FROM THE FLAT RATE SCENARIO
SEPTEMBER 30, 2003

	-100 Basis Points			+200 Basis Points
	Parallel Yield Curve Shift			Parallel Yield Curve Shift
Year 1
Net interest income change ($)	$	(179	)	$	289
Net interest income change (%)		(0.89	)%		1.44	%
Year 2
Net interest income change ($)	$	(1,252	)	$	760
Net interest income change (%)		(6.25	)%		3.79	%

The Bank continues to be positively positioned for an upward interest rate environment over twelve and twenty-four month horizons. Based upon the information and assumptions in effect at September 30, 2003, management believes that a 200 basis point increase in interest rates over the next twelve months would increase net interest income by $289, or 1.44%, and increase net interest income in year two by $760, or 3.79%.

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The Bank’s net interest income continues to be moderately exposed to declining interest rates. Based upon the assumptions in effect at September 30, 2003, management believes that a 100 basis point decline in interest rates would decrease net interest income by $179 or 0.89% in year one, and $1,252 or 6.25% in year two. Management believes that a sustained 100 basis point decline in interest rates, or a Fed Funds Targeted rate of 0.00%, represents a scenario that is not likely to occur.

Managing the Bank’s interest rate risk sensitivity has been challenging during this period of historically low interest rates. Over the past twelve months the yield curve has showed a relatively sharp, downward, parallel shift, with the yield on the benchmark 10-year Treasury dropping to as low as 3.07% on June 13, 2003. As was anticipated by management through use of the model, the Bank’s net interest income was moderately impacted and, were it not for the growth in earning assets would have resulted in a period-over-period decline.

Management expects interest rates will remain volatile during the remainder of 2003. While net interest income is exposed to declines in a sustained low interest rate environment, management believes the current level of interest rate risk is acceptable. Further, a repositioning of the balance sheet to hedge further declines in interest rates would adversely impact net interest income in a rising rate environment, a scenario management believes is more likely to occur over the longer-term. The balance sheet has been positioned to limit exposure to rising rates over the longer term and benefit from an improving economy.

The preceding sensitivity analysis does not represent a Company forecast and should not be relied upon as being indicative of expected operating results. These hypothetical estimates are based upon numerous assumptions including: the nature and timing of interest rate levels and yield curve shape, prepayment speeds on loans and securities, deposit rates, pricing decisions on loans and deposits, reinvestment/replacement of asset and liability cash flows, and others. While assumptions are developed based upon current economic and local market conditions, the Company cannot make any assurances as to the predictive nature of these assumptions including how customer preferences or competitor influences might change.

As market conditions vary from those assumed in the sensitivity analysis, actual results may also differ due to: prepayment/refinancing levels deviating from those assumed, the impact of interest rate change caps or floors on adjustable rate assets, the potential effect of changing debt service levels on customers with adjustable rate loans, depositor early withdrawals and product preference changes, and other such variables. The sensitivity analysis does not reflect additional actions that ALCO might take in responding to or anticipating changes in interest rates.

Liquidity Risk: Liquidity is measured by the Company’s ability to meet short-term cash needs at a reasonable cost or minimal loss. The Company seeks to obtain favorable sources of liabilities and to maintain prudent levels of liquid assets in order to satisfy varied liquidity demands. Besides serving as a funding source for maturing obligations, liquidity provides flexibility in responding to customer initiated needs. Many factors affect the Company’s ability to meet liquidity needs, including variations in the markets served by its network of offices, its mix of assets and liabilities, reputation and credit standing in the marketplace, and general economic conditions.

The Company actively manages its liquidity position through target ratios established under its asset/liability management policy. Continual monitoring of these ratios, both historical and through forecasts under multiple rate scenarios, allows the Company to employ strategies necessary to maintain adequate liquidity.

37

The Company uses a basic surplus/deficit model to measure its liquidity over 30- and 90-day time horizons. The relationship between liquid assets and short-term liabilities that are vulnerable to non-replacement are routinely monitored. The Company’s policy is to maintain its liquidity position at a minimum of 5% of total assets. At September 30, 2003, liquidity, as measured by the basic surplus/deficit model, was 5.7% for the 30-day horizon and 6.5% for the 90-day horizon.

At September 30, 2003, the Company had $21,040 in unused lines of credit, and qualifying collateral availability to support a $35,088 increase in its line of credit with the Federal Home Loan Bank. The Company also had capacity to borrow funds on a serviced basis utilizing certain un-pledged securities.

The Company maintains a liquidity contingency plan approved by the Bank’s Board of Directors. This plan addresses the steps that would be taken in the event of a liquidity crisis, and identifies other sources of liquidity available to the Company.

ITEM 4. DISCLOSURE CONTROLS AND PROCEDURES

Company management evaluated, with the participation of the Chief Executive Officer and Chief Financial Officer, the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) as of the end of the period covered by this quarterly report. Based on such evaluation, the Chief Executive Officer and the Chief Financial Officer have concluded that the Company’s disclosure controls and procedures are designed to ensure that information required to be disclosed by the Company in the reports it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and regulations and are operating in an effective manner.

No change in the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15(d)-15(f) under the Securities Exchange Act of 1934) occurred during the most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1: Legal Proceedings

As previously reported, Roselle M. Neely filed a complaint dated May 31, 2002 in the United States District Court for the District of Maine naming the Company, the Bank, Bar Harbor Trust Services (“Trust”), certain other subsidiaries, and certain existing or former management personnel as defendants. The complaint relates to a trust established by Mrs. Neely, for which Trust has acted as trustee since May 2000 and for which the Bank formerly acted as trustee. Mrs. Neely alleges in part that Trust improperly disregarded her investment instructions and that the defendants engaged in excessive trading for the purpose of generating commissions for their affiliated broker-dealer. She seeks an unspecified amount of money damages and punitive damages, plus interest and costs. The Company filed an answer denying all allegations of wrongdoing. In March 2003, the Company filed a motion for summary judgment on all counts of Mrs. Neely’s complaint. The Court granted the Company’s motion as to some but not all of these counts. The remaining counts are currently scheduled for trial in December 2003.

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The Company and its subsidiaries are also parties to certain other ordinary routine litigation incidental to the normal conduct of their respective businesses, which in the opinion of management will have no material effect on the Company’s consolidated financial statements.

Item 2: Changes in Securities and Use of Proceeds None

Item 3: Defaults Upon Senior Securities None

Item 4: Submission of Matters to a Vote of Security Holders None

Item 5: Other Information None

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Item 6: Exhibits and Reports on Form 8-K

(a) Exhibits.

EXHIBIT
NUMBER
2	Plan of Acquisition, Reorganization, Agreement, Liquidation, or Succession	Incorporated by reference to Form S-14 filed with the Commission March 26, 1984 (Commission Number 2-90171).
3.1 and 3.2	(i) Articles of Incorporation	(i) Articles as amended July 11, 1995 are incorporated by reference to Form S-14 filed with the Commission March 26, 1984 (Commission Number 2-90171).
	(ii) Bylaws	(ii) Bylaws as amended to date are incorporated by reference to Form 10-K, Item 14 (a)(3) filed with the Commission March 28, 2002. (Commission Number 001-13349).
10	Material Contracts
	10.1 Purchase and Assumption Agreement between Bar Harbor Bank and Trust Company and Androscoggin Savings Bank, dated October 24, 2003.	10.1 Filed herewith.
	10.2 Supplemental Executive Retirement Plan adopted by the Board of Directors on September 16,_2003 and effective as of January 1, 2003, providing Joseph M. Murphy, President and CEO of the Company, Gerald Shencavitz, the Company’s Chief Financial Officer, and Dean S. Read, President of the Bank, with certain defined retirement benefits.	10.2 Filed herewith.
	10.3 Amendment to Employment Agreement, Change in Control, Confidentiality and Noncompetition Agreement between the Company and Joseph M. Murphy, approved by the Company Board of Directors on November 7, 2003.	10.3 Filed herewith.
	10.4 Change in Control, Confidentiality, and Noncompetition Agreement between the Company and Gerald Shencavitz, approved by the Company Board of Directors on November 7, 2003.	10.4 Filed herewith.
	10.5 Change in Control, Confidentiality, and Noncompetition Agreement between the Bank and Dean Read, approved by the Bank Board of Directors on November 7, 2003.	10.5 Filed herewith.
	10.6 Form of Company Chief Executive Officer Joseph M. Murphy Employment Contract	Incorporated by reference to Form 10-K Item 15(a)(10.2), filed with the Commission March 27, 2003. (Commission Number 001-13349).
	10.7 Incentive Stock Option Plan of 2000	Incorporated by reference to Form 10-K, Item 14(a)(3) filed with the Commission on March 28, 2002. (Commission Number 001-13349.)

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EXHIBIT
NUMBER
31.1	Rule 13a-14(a)/15d-14(a) Certifications Certification of Principal Executive Officer, dated November 14, 2003	Filed herewith
31.2	Rule 13a-14(a)/15d-14(a) Certifications Certification of Principal Financial Officer, dated November 14, 2003	Filed herewith
32.1	Section 1350 Certification of Chief Executive Officer	Filed herewith
32.2	Section 1350 Certification of Chief Financial Officer	Filed herewith

     (b)  Reports on Form 8-K

     Current reports on Form 8-K have been filed as follows:

Date Current
Report Filed	Item	Description
10/30/03	7 and 12. Financial Statements, Pro forma Financial Information and Exhibits	Reporting that the Company issued a press release announcing its results of operations for the three and nine months ended September 30, 2003. A copy of the press release was included as exhibit 99.1.
07/30/03	7 and 12. Financial Statement, Pro forma Financial Information and Exhibits.	Reporting that the Company issued a press release announcing its results of operations for the three and six months ended June 30, 2003. A copy of the press release was included as exhibit 99.1.
10/28/03	5. Other Events	Reporting that Bar Harbor Banking and Trust Company entered into a definitive Purchase and Assumption Agreement with Androscoggin Savings Bank (“ASB”), a Maine chartered mutual financial institution, pursuant to which the Bank will acquire substantially all of the operating assets and assume certain deposit liabilities and loans of one (1) ASB bank branch office located at 245 Camden Street, Rockland, Maine.

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Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	BAR HARBOR BANKSHARES
	/s/ Joseph M. Murphy
Date: November 13, 2003	Joseph M. Murphy
	Chief Executive Officer
	/s/ Gerald Shencavitz
Date: November 13, 2003	Gerald Shencavitz
	Chief Financial Officer

42 EX-10.1 3 b48402bhexv10w1.txt EX 10.1 PURCHASE AND ASSUMPTION AGREEMENT EXHIBIT 10.1 PURCHASE AND ASSUMPTION AGREEMENT by and between Androscoggin Savings Bank and Bar Harbor Banking and Trust Company October 27, 2003 TABLE OF CONTENTS

Page ---- ARTICLE I DEFINITIONS................................................................................ 1 Section 1.1. Defined Terms.............................................................................. 1 Section 1.2. Accounting Terms........................................................................... 8 ARTICLE II PURCHASE AND SALE OF PURCHASED ASSETS AND ASSIGNMENT AND ASSUMPTION OF ASSUMED LIABILITIES........................................................................ 8 Section 2.1. Purchase and Sale of Assets, No Other Assets Purchased..................................... 8 Section 2.2. Assumed Liabilities........................................................................ 9 ARTICLE III PURCHASE PRICE; PAYMENT; SETTLEMENT; TAX ALLOCATION........................................ 10 Section 3.1. Purchase Price............................................................................. 10 Section 3.2. Payment at Closing......................................................................... 11 Section 3.3. Adjustment of Estimated Payment Amount..................................................... 11 Section 3.4. Allocation of Purchase Price............................................................... 11 Section 3.5. Proration, Other Closing Date Adjustments.................................................. 12 ARTICLE IV TAXES...................................................................................... 13 Section 4.1. Sales, Transfer and Use Taxes.............................................................. 13 Section 4.2. Information Reports........................................................................ 13 ARTICLE V CLOSING.................................................................................... 14 Section 5.1. Closing Date............................................................................... 14 Section 5.2. Seller's Deliveries........................................................................ 15 Section 5.3. Purchaser's Deliveries..................................................................... 16 ARTICLE VI REPRESENTATIONS AND WARRANTIES OF SELLER................................................... 17 Section 6.1. Organization............................................................................... 17 Section 6.2. Authority.................................................................................. 18 Section 6.3. Non-Contravention.......................................................................... 18 Section 6.4. Compliance with Law........................................................................ 18 Section 6.5. Legal Proceedings.......................................................................... 18 Section 6.6. Title to Purchased Assets.................................................................. 19 Section 6.7. Loans...................................................................................... 19 Section 6.8. No Broker.................................................................................. 20 Section 6.9. Books and Records.......................................................................... 20 Section 6.10. Certain Labor Matters...................................................................... 20 Section 6.11. Fiduciary Obligations...................................................................... 20 Section 6.12. Agreements with Regulatory Authorities..................................................... 20 Section 6.13. Limitations on and Disclaimer of Representations and Warranties and Purchaser's Release in Connection Therewith............................................................ 21 Section 6.14. WARN Act................................................................................... 23 Section 6.15. Excluded Deposits.......................................................................... 24 Section 6.16. Included Deposits.......................................................................... 24 Section 6.17. Use of Assets.............................................................................. 24 ARTICLE VII REPRESENTATIONS AND WARRANTIES OF PURCHASER................................................ 24 Section 7.1. Organization............................................................................... 24 Section 7.2. Authority.................................................................................. 24

- i - Section 7.3. Non-Contravention.......................................................................... 25 Section 7.4. Legal Proceedings.......................................................................... 25 Section 7.5. Consents and Other Regulatory Matters...................................................... 25 Section 7.6. WARN Act................................................................................... 26 Section 7.7. Capital Available.......................................................................... 26 Section 7.8. No Broker.................................................................................. 26 Section 7.9. Agreements with Regulatory Authorities..................................................... 26 ARTICLE VIII COVENANTS OF SELLER........................................................................ 27 Section 8.1. Conduct of the Business.................................................................... 27 Section 8.2. Regulatory Approvals....................................................................... 27 Section 8.3. Nonsolicitation............................................................................ 27 Section 8.4. Nonsolicitation of Purchaser's Employees................................................... 28 Section 8.5. Maintenance of Premises.................................................................... 28 Section 8.6. Establishment of Facilities................................................................ 28 Section 8.7. Loan Documentation......................................................................... 29 ARTICLE IX COVENANTS OF PURCHASER..................................................................... 29 Section 9.1. Regulatory Approvals and Standards......................................................... 29 Section 9.2. Solicitation of Accounts................................................................... 30 Section 9.3. Recording of Instruments of Assignment..................................................... 30 Section 9.4. Transferred Employees...................................................................... 30 Section 9.5. Interviews................................................................................. 31 Section 9.6. Other Transactions......................................................................... 32 Section 9.7. Nonsolicitation of Seller's Employees...................................................... 32 ARTICLE X ACCESS; EMPLOYEE AND CUSTOMER COMMUNICATIONS............................................... 32 Section 10.1. Access by Purchaser........................................................................ 32 Section 10.2. Communications to Employees, Training...................................................... 32 Section 10.3. Communications with Customers.............................................................. 33 ARTICLE XI TRANSITIONAL MATTERS....................................................................... 34 Section 11.1. Payment of Deposit Liabilities............................................................. 34 Section 11.2. Delivery of Purchaser's Check Forms........................................................ 34 Section 11.3. Uncollected Checks Returned to Seller...................................................... 35 Section 11.4. Default on Loan Payments to Seller......................................................... 35 Section 11.5. Notices to Obligors on Loans............................................................... 35 Section 11.6. New Telephone Numbers...................................................................... 36 Section 11.7. New ATM/Debit Cards........................................................................ 36 Section 11.8. Signage.................................................................................... 36 Section 11.9. Actions With Respect to IRA, Keogh Plan and Employee Pension Plan Deposit Liabilities...... 36 Section 11.10. Bulk Transfer Laws......................................................................... 38 Section 11.11. Seller's Statements to Customers........................................................... 38 Section 11.12. Equipment Conversion and Installation...................................................... 38 Section 11.13. Post-Closing Settlement.................................................................... 38 Section 11.14. Post-Closing Cooperation Generally......................................................... 38 ARTICLE XII CONDITIONS TO CLOSING...................................................................... 39 Section 12.1. Conditions to Obligations of Seller........................................................ 39 Section 12.2. Conditions to Obligations of Purchaser..................................................... 39 - ii - ARTICLE XIII DATA PROCESSING............................................................................ 40 Section 13.1. Conversion................................................................................. 40 ARTICLE XIV INDEMNITY.................................................................................. 41 Section 14.1. Seller's Indemnity......................................................................... 41 Section 14.2. Purchaser Indemnity........................................................................ 41 Section 14.3. Indemnification Procedure.................................................................. 42 Section 14.4. Limitations on Liability................................................................... 42 Section 14.5. General.................................................................................... 43 Section 14.6. Survival................................................................................... 44 ARTICLE XV POST-CLOSING MATTERS....................................................................... 44 Section 15.1. Further Assurances......................................................................... 44 Section 15.2. Access to and Retention of Books and Records............................................... 44 Section 15.3. Deposit Histories.......................................................................... 45 ARTICLE XVI MISCELLANEOUS.............................................................................. 45 Section 16.1. Expenses................................................................................... 45 Section 16.2. Trade Names and Trademarks................................................................. 45 Section 16.3. Termination: Extension of Closing Date.................................................... 46 Section 16.4. Modification and Waiver.................................................................... 46 Section 16.5. Binding Effect: Assignment................................................................. 46 Section 16.6. Confidentiality............................................................................ 47 Section 16.7. Entire Agreement; Governing Law............................................................ 47 Section 16.8. Consent to Jurisdiction; Waiver of Jury Trial.............................................. 48 Section 16.9. Waiver of Certain Damages.................................................................. 48 Section 16.10. Severability............................................................................... 48 Section 16.11. Counterparts............................................................................... 48 Section 16.12. Notices.................................................................................... 48 Section 16.13. Interpretation............................................................................. 49 Section 16.14. Specific Performance....................................................................... 50 Section 16.15. No Third Party Beneficiaries............................................................... 50 - iii - SCHEDULES Schedule 1.1(b) List of Bank Employees Schedule 1.1(c) List of Deposit Liabilities Schedule 1.1(e) List of Excluded Fixed Assets Schedule 1.1(f) List of Fixed Assets Schedule 1.1(g) List of Loans Schedule 1.1(h) Permitted Exceptions Schedule 1.1(i) Description of Premises Schedule 1.1(k) Region Zip Codes Schedule 3.1(a) Price Adjustments Schedule 3.1(b) Premises Purchase Price and Value of Fixed Assets Schedule 3.4 Allocation of Purchase Price Schedule 3.5 Schedule for Safe Deposit Accounts Schedule 6.10 Employee Benefit Plans Schedule 7.5 Regulatory Approvals Schedule 13.1 Conversion of Account Information Schedule 16.2 List of Tradenames and Trademarks - iv - EXHIBITS Exhibit A Form of Quitclaim Deed with Covenant Exhibit B Form of Bill of Sale for the Personalty Exhibit C Form of Assignment and Assumption Agreement Exhibit D Form of Seller's Officer's Certificate Exhibit E Form of FIRPTA Affidavit Exhibit F Form of Purchaser's Officer's Certificate Exhibit G Form of Limited Power of Attorney - v - PURCHASE AND ASSUMPTION AGREEMENT This Purchase and Assumption Agreement (the "Agreement") dated as of October 27, 2003, by and between Androscoggin Savings Bank, a Maine-chartered bank headquartered at 30 Lisbon Street, Lewiston, Maine 04240 ("Seller") and Bar Harbor Banking and Trust Company, a financial institution chartered under the laws of the State of Maine and headquartered at 82 Main Street, Bar Harbor, Maine 04609 ("Purchaser"). WHEREAS, Seller desires to sell, and Purchaser desires to acquire certain assets of Seller in accordance with the terms and provisions of this Agreement; and WHEREAS, Seller desires to transfer to Purchaser, and Purchaser desires to assume from Seller, certain liabilities of Seller in accordance with the terms and provisions of this Agreement. NOW, THEREFORE, in consideration of the premises and the mutual promises and covenants contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and intending to be legally bound hereby subject to the terms and conditions set forth herein, Seller and Purchaser agree as follows: ARTICLE I DEFINITIONS SECTION 1.1. DEFINED TERMS. As used in this Agreement, the following terms shall have the following meanings: "Accrued Interest" shall mean, as of any date, (a) with respect to the Deposit Liabilities, the interest, dividends, fees, costs and other charges that have been accrued on but not paid, credited, or charged to the Deposit Liabilities, and (b) with respect to the Loans, the Advance Lines and the Negative Deposits, interest, fees, premiums, consignment fees, costs and other charges that have accrued on or been charged to the Loans, the Advance Lines and the Negative Deposits but not paid by the applicable borrower, or any guarantor, surety or other obligor therefor, or otherwise collected by offset, recourse to collateral or otherwise. "ADA" shall mean the Americans with Disabilities Act of 1990, as amended, and similar state and local laws, regulations, rules and ordinances. "Adjusted Payment Amount" shall have the meaning specified in Section 3.3(a). "Advance Lines" shall mean all overdraft lines of credit to owners of the Deposit Liabilities, plus any and all Accrued Interest thereon (to the extent such Accrued Interest shall be outstanding and unpaid for ninety (90) days or less prior to the Closing Date), as of the close of business on the Closing Date. "Affiliate" shall mean, with respect to any Person, any other Person that directly or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with, such Person, or a director, officer, partner, joint venturer or member of such Person and any successors of such Person. "Assets" shall mean the Premises, the Fixed Assets, the Loans, the Cash and the Safe Deposit Agreements and all keys for the related safe deposit boxes. "Assignment and Assumption Agreement" shall have the meaning specified in Section 5.2(f). "Assumed Liabilities" shall have the meaning specified in Section 2.2. "Bank Employees" shall mean the employees of Seller listed on Schedule 1.1(b) hereto, but excluding such employees who shall leave Seller's employ between the date hereof and the close of business on the Closing Date, and including replacements of such employees made in the ordinary course of business between the date hereof and the Closing Date and including any Person who fills a vacant position at the Branch in the ordinary course of business between the date hereof and the Closing Date to provide Branch services to Customers, provided that Purchaser has given its written consent, which will not be unreasonably withheld, prior to Seller hiring any replacements or filling any vacancies between the date hereof and the Closing Date. "Branch" shall mean the branch office of Seller to be acquired by Purchaser, which is located at 245 Camden Street, Rockland, Maine. "Business" shall mean the banking business conducted at the Branch, and shall include the Assets, Bank Employees, and Liabilities. "Business Day" shall mean any day that the Federal Reserve Bank of Boston is open. "Cash" shall mean all petty cash, vault cash, teller cash, and prepaid postage located at the Branch (excluding foreign currency), in each case as of the close of business at the Branch on the Closing Date. "Closing" shall have the meaning specified in Section 5.1(a). "Closing Date" shall have the meaning specified in Section 5.1(a). "Code" shall mean the Internal Revenue Code of 1986, as amended, and the regulations promulgated thereunder. "Confidentiality Agreement" shall mean that certain letter agreement between Purchaser and Seller dated as of September 5, 2003 and executed by Purchaser on September 9, 2003. "Customers" shall mean, individually and collectively, (a) the Persons named as the owners of the deposit accounts relating to the Deposit Liabilities, (b) the primary obligors under the Loans, and (c) the parties (other than Seller and its Affiliates) to the Safe Deposit Agreements. "Customer Notices" shall have the meaning specified in Section 10.3(a). 2 "Damages" shall have the meaning specified in Section 14.1. "Deposit accounts" means insured deposits, as defined in Section 3(m)(1) of the FDIA, as amended, booked at the Branch, without regard to whether the same are collected or uncollected funds and without regard to whether the balance in any such account is in excess of the limit of the amount of FDIC deposit insurance coverage for the account. "Deposit Liabilities" or "Deposit Liability" shall mean all of Seller's obligations and liabilities relating to (a) the deposit accounts listed on Schedule 1.1(c) hereto, and (b) deposit accounts which are opened at the Branch between the date indicated on Schedule 1.1(c) and the close of business on the Closing Date, including, without limitation, all passbook accounts, statement savings accounts, checking, Money Market and NOW accounts, certificates of deposit, and IRA, Keogh Plan and Employee Pension Plan accounts, together with Accrued Interest thereon, all as exists at the close of business on the Closing Date, but excluding any claim or other liability relating to the origination of any such deposit account or the administration of any such deposit account prior to the close of business on the Closing Date, and excluding: the Excluded IRA/Keogh/Employee Pension Plan Deposits and the Excluded Deposits. "Deposit Premium" shall have the meaning specified in Section 3.1(a). "Draft Closing Statement" shall mean a draft closing statement as of the close of business of the fifth Business Day immediately preceding the Closing Date setting forth an estimate of the Purchase Price (including all adjustments and prorations thereto). "Employee Pension Plan" shall mean any employee pension plan for which Seller serves as a trustee, including but not limited to, employee pension benefit plans as defined in Section 3(2) of ERISA, retirement plans qualified under the requirements of Section 401 (a) of the Code, nonqualified deferred compensation plans, excess benefit plans and supplemental executive retirement plans. "Environmental Laws" shall mean all Federal, state or local laws, rules, regulations, codes, ordinances, or by-laws, and any judicial or administrative interpretations thereof, including orders, decrees, judgments, rulings, directives or notices of violation, that create duties, obligations or liabilities with respect to (a) human health or (b) environmental pollution, impairment or disruption, including, without limitation, laws governing the existence, use, storage, treatment, discharge, release, containment, transportation, generation, manufacture, refinement, handling, production, disposal, or management of any Hazardous Materials, or otherwise regulating or providing for the protection of the environment and further including, without limitation, the Comprehensive Environmental Response, Compensation and Liability Act (42 U.S.C. Section 9601 et seq.), the Hazardous Materials Transportation Act (49 U.S.C. Section 1801 et seq.), the Public Health Service Act (42 U.S.C. Section 300 et seq.), the Pollution Prevention Act (42 U.S.C. Section 13101 et seq.), the Federal Insecticide, Fungicide and Rodenticide Act (7 U.S.C. Section 136 et seq.), the Resource Conservation and Recovery Act (42 U.S.C. Section 6901 et seq.), the Safe Drinking Water Act (21 U.S.C. Section 349, 42 U.S.C. Sections 201, 300f), the Toxic Substances Control Act (15 U.S.C. Section 2601 et seq.), the Clean Water Act (33 U.S.C. Section 1251 et seq.), the Clean Air Act (42 U.S.C. Section 7401 et seq. ), and similar state and local statutes, and all regulations adopted pursuant thereto. 3 "Environment Report" shall have the meaning specified in Section 6.14(c). "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended (11 U.S.C. Section 1101 et seq.) "Estimated Payment Amount" shall have the meaning specified in Section 3.2. "Estimated Purchase Price" shall mean the estimate of the Purchase Price set forth on the Draft Closing Statement. "Excluded Deposits" shall mean (i) all Deposit Liabilities owned by employees of Seller or its Affiliates (other than Transferred Employees) or Affiliates of Seller, (ii) Deposit Liabilities subject to legal process, (iii) deposits which have been reported as abandoned property under the abandoned property laws of any jurisdiction, (iv) deposits relating to loans or other extensions of credit not included in the Purchased Assets, and (v) Deposit Liabilities constituting obligations of Seller represented by certified checks drawn on Seller. "Excluded Fixed Assets" shall mean (a) artwork, supplies, signs, marketing aids, trade fixtures or equipment specifically identifying or relating to Seller or any of its Affiliates located at the Branch and (b) any other personal property of Seller or any of its Affiliates identified on Schedule 1.1(e) hereto, less any such items consumed or disposed of, plus new similar items acquired or obtained, in the ordinary course of the operation of the Branch through the close of business on the Closing Date. "Excluded IRA/Keogh/Employee Pension Plan Deposits" shall have the meaning specified in Section 11.9(a). "FDIA" shall mean the Federal Deposit Insurance Act, as amended (12 U.S.C.Sections 1811 et seq.). "FDIC" shall mean the Federal Deposit Insurance Corporation. "Federal Funds Rate" means the near closing bid price for federal funds as quoted in the Wall Street Journal for the date in question. "Final" shall mean, as applied to any governmental order or action, that such order or action has not been stayed, vacated or otherwise rendered ineffective and either (a) the time period for taking an appeal therefrom shall have passed without an appeal therefrom having been taken, or (b) if any such appeal shall have been dismissed or resolved, all applicable periods for further appeal of such order or action shall have passed. "Final Approval Date" shall mean, with respect to the transactions contemplated hereby, the date upon which the last of the following has occurred: (a) all Regulatory Approvals have been obtained; (b) all applicable regulatory notices which are required to be published or given prior to consummation of the transactions contemplated hereby have been published or given; (c) the filing of all applicable regulatory reports; and (d) the expiration of all applicable regulatory comment and waiting periods. 4 "Final Loan Schedule" shall have the meaning specified in Section 3.3(a). "FIRPTA Affidavit" shall mean affidavits pursuant to Section 1445 of the Code certifying to the non-foreign entity status of Seller. "First Closing" shall have the meaning specified in Section 5.2(a). "Fixed Assets" shall mean (a) the telephone systems located at the Branch, and (b) copying machines, facsimile machines and scanners, and all of the furniture, fixtures, equipment and other assets of Seller, set forth on Schedule 1.1(f) hereto, including but not limited to leasehold improvements, less any items consumed or disposed of, plus new items acquired or obtained, in the ordinary course of the operation of the Branch through the close of business on the Closing Date, but excluding the Excluded Fixed Assets. "GAAP" shall have the meaning specified in Section 1.2. "Hazardous Materials" means (a) any "hazardous material", "hazardous substance", "hazardous waste", "oil", "regulated substance", "toxic substance" or words of similar import as defined under any of the Environmental Laws, (b) asbestos in any form, (c) urea formaldehyde foam insulation, (d) polychlorinated biphenyls, (e) radon gas, (f) flammable explosives, (g) radioactive materials, (h) any chemical, contaminant, solvent, material, pollutant or substance that may be dangerous or detrimental to any of the Branch, the environment or the health and safety of employees or other occupants of any of the Branch, and (i) any substance, the generation, storage, transportation, utilization, disposal, management, release or location of which, on, under or from any of the Branch is prohibited or otherwise regulated pursuant to any of the Environmental Laws. "Indemnified Party" shall have the meaning specified in Section 14.3. "Indemnitor" shall have the meaning specified in Section 14.3. "IRA" shall mean an individual retirement account as specified in Section 408 and 408A of the Code. "IRS" shall mean the Internal Revenue Service of the United States. "Items" shall mean (a) transfers of funds by wire or through the Automated Clearing House, checks, drafts, negotiable orders of withdrawal and items of a like kind which are drawn on or deposited and credited to the Deposit Liabilities, and (b) payments, advances, disbursements, fees, reimbursements and items of a like kind which are debited or credited to the Loans. "Keogh Plan" shall mean an Employee Pension Plan covering self-employed individuals. "Knowledge" shall mean, with respect to Seller, the actual knowledge as of the date hereof, without further investigation, of any of Seller's officers that hold the title of senior vice president or above or that have responsibility with respect to the operations of the Business 5 including, without limitation, information which is or has been in the books and records of Seller. "Laws" shall have the meaning specified in Section 6.4. "Liabilities" shall mean the Deposit Liabilities and any and all liabilities and obligations relating to or arising out of the Assets, to the extent that such liabilities and obligations arise or accrue after the close of business on the Closing Date, but including Unfunded Advances under the Loans included therein. "Lien" shall mean any lien, easement, restrictions, pledge, charge, encumbrance, security interest, mortgage, deed of trust, lease, option or other adverse claim of any kind or description. "Loan Value" shall mean, as of the Closing Date, the unpaid principal balance of the Loans, plus Accrued Interest thereon, less accrued servicing fees under arrangements with third parties to service such Loans. "Loan Premium" shall have the meaning specified in Section 3.1(a). "Loans" shall mean (a) the consumer, residential, home equity, commercial and small business loans, and lines of credit, listed on Schedule 1.1(g) hereto (excluding any reserves for loan losses) and all obligations of Seller to make additional extensions of credit in connection with such loans, as such loans may be increased, decreased, amended, renewed or extended in the ordinary course of business consistent with Seller's credit standards between the date indicated on Schedule 1.1(g) and the close of business on the Closing Date, and (b) loans of the same type of this listed on Schedule 1.1(g) which originate from customers located within the Region between the date indicated on Schedule 1.1(g) and the close of business on the Closing Date, except for loans originated through Seller's indirect lending program, and credit card and student loans; provided, however, that Loans shall not include any loan, if such loan, as of the Closing Date, is (i) subject to a current legal proceeding related to a Customer's inability or refusal to pay such loan or (ii) not current and with respect to which proceedings are pending against the obligor or obligors of such loan under Title 11 of the United States Code or (iii) Nonperforming. Each Loan shall include all documents executed or delivered in connection with such loan to the extent such documents are in the loan file relating to such loan, any and all collateral held as security therefor or in which a security interest, Lien or mortgage has been granted and any and all guarantees, insurance and other credit enhancements relating thereto, together with Accrued Interest thereon, all as exists at the close of business on the Closing Date. "Material Adverse Effect" shall mean any circumstance, change in or effect on the Purchased Assets or the Assumed Liabilities that is materially adverse to the business, operation, results of operations or the financial condition of the Business; provided, however, that "Material Adverse Effect" shall not include any circumstance, change in or effect on the Business directly or indirectly arising out of or attributable to (a) changes in general economic, legal, regulatory or political conditions, (b) changes in prevailing interest rates, (c) changes in GAAP, (d) any actions taken or omitted to be taken pursuant to this Agreement, or (e) the announcement of the transactions contemplated by this Agreement. 6 "Material Condition" shall mean, with respect to any Regulatory Approval, a condition or requirement that, individually or when aggregated with other conditions or requirements, would reduce materially the benefits which either Seller or Purchaser, as applicable, could reasonably have expected to derive from consummation of the transaction contemplated by this Agreement and which could not reasonably have been anticipated by the party adversely affected. "Negative Deposit" shall mean overdrafts in Deposit Liability accounts (that have been outstanding for 30 days or less) that are not covered by Advance Lines, plus any and all Accrued Interest thereon. "Nonperforming" shall mean as of the close of business on the Closing Date any Loan with respect to which any principal or interest shall be due and unpaid by the borrower thereunder for 90 days or more. "Purchaser's Account" shall have the meaning specified in Section 3.2. "Permitted Exceptions" shall mean the exceptions to title listed on Schedule 1.1(h) hereto. "Permitted Liens" shall mean (a) Liens for taxes, assessments, governmental charges or levies not yet due and payable or which although delinquent can be paid without penalty or are being contested in good faith by appropriate proceedings, (b) Liens resulting from a filing by a lessor as a precautionary filing for a lease, (c) Liens imposed by law, such as carriers', warehousemen's, materialmens' and mechanics' Liens and other similar Liens arising in the ordinary course of business or which are being contested in good faith by appropriate proceedings and which are not material to the value of any Purchased Assets, and (d) any other Liens affecting the Purchased Assets which do not impede the ownership, operation or value of such Purchased Assets in any material respect. "Person" shall mean any individual, partnership, joint venture, corporation, trust, limited liability company, unincorporated organization, government or other entity. "Personalty" shall mean all of the Assets other than the Premises. "Premises" shall mean the real property described on Schedule 1.1(c) and all rights and appurtenances relating thereto, including, without limitation, all of Seller's rights, title and interest, if any, in and to adjacent streets, alleys, right of ways and easements. "Premises Purchase Price" shall mean, with respect to the Premises, the purchase price specified on Schedule 3.1(b) hereto. "Purchase Price" shall have the meaning specified in Section 3.1. "Purchased Assets" shall have the meaning specified in Section 2.1(a). "Purchaser" shall have the meaning specified in the preamble. "Quitclaim Deed" shall have the meaning specified in Section 5.2(d). 7 "Region" shall mean the geographic region that includes the zip codes listed on Schedule 1.1(k). "Regulatory Approval" shall have the meaning specified in Section 7.5(a). "Safe Deposit Agreements" shall mean the agreements between Seller and a Customer or Customers relating to safe deposit boxes located in the Branch as of the close of business on the Closing Date. Schedule 3.5 sets forth the Safe Deposit Agreements immediately prior to execution of this Agreement. "Seller" shall mean Androscoggin Savings Bank and any of its Affiliates. "Survey Report" shall have the meaning specified in Section 6.13(d). "Taxes" shall have the meaning specified in Section 4.1. "Title Company" shall have the meaning specified in Section 5.2(a). "Title Defect" shall have the meaning specified in Section 5.2(a)(ii). "Transfer Date" shall mean the first Business Day following the Closing Date. "Transferred Employees" shall mean all Bank Employees who accept offers of employment from Purchaser as contemplated by Section 9.4(a). "UCC" shall mean the Uniform Commercial Code in effect in the State of Maine. "Unfunded Advance" shall mean an advance requested under a Loan on or prior to the Closing Date pursuant to the terms and provisions of such Loan that Seller is not obligated to fund until following the Closing Date. "WARN Act" shall mean the Worker Adjustment and Retraining Notification Act, as amended (29 U.S.C.Section 2101, et seq.) and similar state and local laws, regulations and other issuances. SECTION 1.2. ACCOUNTING TERMS. All accounting terms not otherwise defined herein shall have the respective meanings assigned to them in accordance with "generally accepted accounting principles" consistently applied as in effect from time to time in the United States of America ("GAAP"). ARTICLE II PURCHASE AND SALE OF PURCHASED ASSETS AND ASSIGNMENT AND ASSUMPTION OF ASSUMED LIABILITIES SECTION 2.1. PURCHASE AND SALE OF ASSETS, NO OTHER ASSETS PURCHASED. (a) Subject to the terms and conditions hereof, including without limitation the assumption by Purchaser of the Assumed Liabilities, as of the close of business on the Closing 8 Date, Seller shall sell, convey, assign, transfer and deliver to Purchaser, and Purchaser shall purchase and accept from Seller, all of Seller's right, title and interest in, to and under certain assets of the Seller as described below (collectively, the "Purchased Assets"): (i) The Assets; (ii) All of Seller's rights with respect to the contracts and relationships giving rise to the Deposit Liabilities; (iii) The Advance Lines and the Negative Deposits, each as of the close of business on the Closing Date; (iv) All contract rights of Seller to the service and similar contracts relating to operation of the Branch, to the extent assignable and except to the extent that Purchaser elects not to accept such assignment; (v) All insurance premiums paid by Seller to the FDIC which are allocated to insurance coverage for the Deposit Liabilities following the Closing Date, to the extent a proration or adjustment is made with respect thereto pursuant to Section 3.5; and (vi) All of Seller's right, title and interest in and to all books and records relating to the Purchased Assets described in the other subsections of this Section 2.1(a) and the Assumed Liabilities, as such books and records may exist and as are held by Seller at the Branch. (b) Purchaser understands and agrees that it is purchasing only the Purchased Assets (and assuming only the Assumed Liabilities) specified in this Agreement and (i) except as may be expressly provided for in this Agreement, Purchaser has no interest in any other business relationship which Seller or any of its Affiliates has or may have with any Customer or (ii) any other customer of Seller or its Affiliates. Purchaser further understands and agrees that Seller and its Affiliates are retaining any and all rights and claims which any of them may have, including but not limited to indemnification or reimbursement rights, with respect to the Purchased Assets and the Assumed Liabilities, to the extent that such rights or claims relate to the conduct of the Business prior to the Closing. SECTION 2.2. ASSUMED LIABILITIES. (a) Subject to the terms and conditions of this Agreement, completion of the transfer of the Purchased Assets to Purchaser pursuant to this Agreement, on the Closing Date, Purchaser shall assume, and thereafter honor and fully and timely, pay, perform and discharge when due, the following liabilities of Seller and shall perform all duties, responsibilities, and obligations of Seller under the following, to the extent that such liabilities, duties, responsibilities and obligations arise or accrue after close of business on the Closing Date (collectively, the "Assumed Liabilities"): (i) The Liabilities; 9 (ii) All of Seller's duties and responsibilities relating to the Deposit Liabilities, including without limitation, with respect to (x) the abandoned property laws of any state or (y) any other applicable law; (iii) The Advance Lines and the Negative Deposits, each as of the close of business on the Closing Date; (iv) Any of Seller's accrued and unpaid expenses related to the operations of the Business including without limitation the cost and expenses of any data processing to the extent a proration or adjustment is made with respect thereto pursuant to Section 3.5; (v) Any and all liabilities or obligations under Environmental Laws relating to, resulting from or arising out of use or operation of the Branch by the Purchaser after the Closing Date. (vi) Any and all other liabilities and obligations relating to or arising out of the Purchased Assets or Assumed Liabilities to be performed after the Closing or arising out of the operation of the Branch from and after the Closing Date, but only to the extent that such liabilities or obligations arise or accrue after the close of business on the Closing Date; and (vii) Unfunded Advances under the Loans. (b) Except for the Assumed Liabilities, and except as otherwise set forth in this Agreement, Purchaser shall not assume or be bound by any duties, responsibilities, obligations or liabilities of any kind or nature, whether known or unknown, whether asserted or unasserted, whether accrued or unaccrued, whether contingent or otherwise. ARTICLE III PURCHASE PRICE; PAYMENT; SETTLEMENT; TAX ALLOCATION SECTION 3.1. PURCHASE PRICE. The purchase price for the Purchased Assets shall be an amount computed as follows (the "Purchase Price"): (a) The sum of $2,731,000 (the "Deposit Premium') and $447,000 (the "Loan Premium"), subject to adjustment as described in Schedule 3.1(a); PLUS (b) The Premises Purchase Price and the value of the Fixed Assets, as set forth in Schedule 3.1(b); PLUS (c) The Loan Value; PLUS (d) The aggregate unpaid principal balance of the Advance Lines and the Negative Deposits, plus Accrued Interest thereon (to the extent such Accrued Interest shall be outstanding and unpaid for 90 days or less prior to the Closing Date), as of the close of business on the Closing Date; PLUS 10 (e) The aggregate amount of Cash as of the close of business on the Closing Date. SECTION 3.2. PAYMENT AT CLOSING. On or prior to the second Business Day immediately preceding the Closing Date, Seller shall deliver to Purchaser the Draft Closing Statement and shall make available such work papers, schedules and other supporting documentation as may be reasonably requested by Purchaser to enable it to verify such documentation. On the Closing Date, Seller shall pay to Purchaser, by wire transfer of immediately available funds to such account as the Purchaser shall advise no later than three Business Days prior to the Closing Date ("Purchaser's Account"), the amount by which the aggregate balance (including Accrued Interest) of the Deposit Liabilities as of the close of business on the fifth Business Day preceding the Closing Date exceeds the Estimated Purchase Price (the "Estimated Payment Amount"). SECTION 3.3. ADJUSTMENT OF ESTIMATED PAYMENT AMOUNT. (a) On or before 12:00 noon on the 30th day following the Closing Date, Seller shall deliver to Purchaser a statement setting forth (i) the Purchase Price (including all adjustments and prorations thereto) and each component thereof (including with respect to the Loans a Schedule as of the close of business on the Closing Date of the Loans (the "Final Loan Schedule")) and (ii) the amount of Deposit Liabilities (including Accrued Interest thereon) transferred to Purchaser as of the close of business on the Closing Date. Seller shall make available to Purchaser and/or its representatives such work papers, schedules and other supporting data as may be reasonably requested by Purchaser to enable Purchaser to verify such determinations. Such statement shall also set forth the amount by which the aggregate balance of the Deposit Liabilities (including Accrued Interest thereon) transferred to Purchaser exceeded the Purchase Price (including all adjustments and prorations thereto), calculated as of the close of business on the Closing Date (the "Adjusted Payment Amount"). (b) On or before 12:00 noon on the 60th day following the Closing Date, Seller shall pay to Purchaser or Purchaser shall pay to Seller, as the case may be, by wire transfer of immediately available funds, an amount equal to the difference between the Adjusted Payment Amount and the Estimated Payment Amount, plus interest calculated using the Federal Funds Rate on such amount from the Closing Date to, but excluding, the payment date. Any payment or refund pursuant to this Section 3.3(b) shall be treated, for all purposes, as an adjustment to the Purchase Price. SECTION 3.4. ALLOCATION OF PURCHASE PRICE. (a) Purchaser and Seller agree that, upon final determination of the Purchase Price, the Purchase Price shall be allocated to the Purchased Assets in accordance with Schedule 3.4 hereto. (b) Purchaser and Seller shall report the transaction contemplated by this Agreement (including income tax reporting requirements imposed pursuant to Section 1060 of the Code) in accordance with the allocation specified on Schedule 3.4 hereto. In the event any party hereto receives notice of a tax audit with respect to the allocation of the Purchase Price specified herein, 11 such party shall immediately notify the other party in writing as to the date and subject of such audit. (c) If any federal, state or local tax return report or filing by Purchaser or Seller relating to the transactions contemplated hereby and filed on the basis of the allocation set forth on Schedule 3.4 hereto, is challenged by the taxing authority with which such return, report or filing was filed, the filing party shall assert and maintain in good faith the validity and correctness of such allocation during the audit thereof until the issuance by the taxing authority of a "30 Day Letter", or a determination of liability equivalent thereto, to such party, whereupon such party shall, in its sole discretion, have the right to pay, compromise, settle, dispute or otherwise deal with its alleged tax liability. If such a tax return, report or filing is challenged as herein described, the party filing such return, report or filing shall timely keep the other party apprised of its decisions and the current status and progress of all administrative and judicial proceedings, if any, that are undertaken at the election of the filing party. (d) If either party (including permitted successors and assigns thereof) to this Agreement fails to fulfill its obligations under this Section 3.4, it shall pay as damages to the other party, so long as such other party has not failed to fulfill its obligations under this Section 3.4, an amount which, after reduction for all income or gain taxes, including without limitation interest and penalties, which would be incurred (calculated at the highest marginal rate applicable in the relevant jurisdictions) as a result of receiving said amount, is equal to the result (but not less than zero) of subtracting the amount in (ii) below from the amount in (i) below: (i) The total amount of income or gains taxes (including interest and penalties calculated at the highest marginal rate applicable in the relevant jurisdictions) to all jurisdictions imposing such taxes upon the non-defaulting party with respect to the transactions contemplated hereby; and (ii) The total amount of income or gains taxes which would have been incurred (including interest and penalties calculated at the highest marginal rate applicable in the relevant jurisdictions) to all jurisdictions imposing such taxes upon the non-defaulting party with respect to the transactions contemplated hereby, if such taxing jurisdictions had accepted the allocations specified in Schedule 3.4 hereto. SECTION 3.5. PRORATION, OTHER CLOSING DATE ADJUSTMENTS. (a) Except as otherwise specifically provided in this Agreement, it is the intention of the parties that Seller will operate the Branch for its own account and own the Loans and other Purchased Assets (and all rights associated therewith) until the close of business on the Closing Date, and that Purchaser shall operate the Branch, own the Loans and other Purchased Assets and assume the Deposit Liabilities and other Assumed Liabilities (and all rights associated therewith) for its own account from and after the close of business on the Closing Date. Thus, except as otherwise specifically provided in this Agreement, items of income and expense shall be prorated as of the close of business on the Closing Date (subject to proration pursuant to Section 3.3(a), and shall be settled between Seller and Purchaser as of the Closing Date or as of the date set forth under Section 3.3(a)). Items of proration will be handled as an adjustment to 12 the Purchase Price and not as adjustments to the Estimated Payment Amount, unless otherwise agreed by the parties hereto. (b) For purposes of this Agreement, items of proration and other adjustments shall include, without limitation: (i) amounts prepaid and unused for safe deposit rentals; (ii) sales, real estate and use taxes (other than such sales, real estate transfer and use taxes that arise as a result of the transactions contemplated by this Agreement which shall be paid by Purchaser or by Seller in accordance with Section 4.1 hereof); (iii) insurance premiums paid or payable to the FDIC attributable to insurance coverage for the Deposit Liabilities for the period from and after the Closing Date; (iv) fees for customary annual or periodic licenses or permits; (v) water, sewer, fuel and utility charges; and (vi) accrued and unpaid vacation balance (not in excess of the greater of 25 days or provisions of Purchaser's policy for each Transferred Employee) of Transferred Employees; (vii) prepaid real and personal property taxes; and (viii) other prepaid items of income and expense, in each case as of the close of business on the Closing Date. Notwithstanding the foregoing, if accurate arrangements cannot be made as of the Closing Date, or as of the date set forth under Section 3.3(a), for any of the foregoing items of proration, the parties shall apportion the charges for the foregoing items on the basis of the bill therefor for the most recent billing period prior to the Closing Date. ARTICLE IV TAXES SECTION 4.1. SALES, TRANSFER AND USE TAXES. Except as otherwise provided in this Agreement, any sales, filing, recordation, or similar fees and taxes (collectively, "Taxes"), which are payable or arise as a result of this Agreement or the consummation of the transactions contemplated hereby, shall be paid by Purchaser on the Closing Date. Purchaser and Seller shall share equally the costs of real estate transfer taxes in accordance with the provisions of 36 M.R.S.A. Section 4641-A. If such Taxes are treated as a proration pursuant to Section 3.5, Seller agrees to remit such Taxes to the proper authority on or before the date the same shall become due, accompanied by such tax returns as may be required to be filed with such payment. Purchaser and Seller will cooperate in the preparation of any filings or returns. SECTION 4.2. INFORMATION REPORTS. (a) Seller will report to applicable taxing authorities and holders of Deposit Liability accounts transferred on the Closing Date, with respect to all periods through the close of business on the Closing Date, all interest credited, withheld from and any early withdrawal penalties imposed upon the Deposit Liability accounts and Purchaser will report to the applicable taxing authorities and holders of Deposit Liability accounts, with respect to all periods commencing after the Closing Date all such interest credited to, withheld from and early withdrawal penalties imposed upon such interest credited to, withheld from and early withdrawal penalties imposed upon such Deposit Liability accounts. Seller will continue backup withholding and remittance through the close of business on the Closing Date. Any amounts required by any governmental agencies to be withheld from any of the Deposit Liability accounts through the close of business on the Closing Date will be withheld by Seller in accordance with applicable law or appropriate 13 notice from any governmental agency and will be remitted by Seller to the appropriate agency on or prior to the applicable due date. Any such withholding required to be made subsequent to the Closing Date shall be withheld by Purchaser in accordance with applicable law or the appropriate notice from any governmental agency and will be remitted by Purchaser to the appropriate agency on or prior to the applicable due date. (b) Unless otherwise agreed by the parties, Seller shall be responsible for delivering to payees all IRS notices with respect to information reporting and tax identification numbers required to be delivered for all periods through the close of business on the Closing Date with respect to the Deposit Liability accounts, and Purchaser shall be responsible for delivery to payees all such notices required to be delivered for all periods following the Closing Date with respect to the Deposit Liability accounts. Purchaser and Seller shall, prior to the Closing Date, consult (and Seller shall take such actions as are necessary) to permit Purchaser timely to deliver notices required to be delivered after the Closing Date. (c) Unless otherwise agreed by the parties, Seller will make all required reports to applicable tax authorities and to obligors on Loans purchased on the Closing Date, with respect to all periods through the close of business on the Closing Date, concerning all interest and points received by the Seller. Purchaser will make all required reports to applicable tax authorities and to obligors on Loans purchased on the Closing Date, with respect to all periods commencing after the Closing Date, concerning all such interest and points received. Seller shall bear the responsibility and liability for and pay all penalties associated with missing taxpayer identification numbers and U.S. Treasury reclamations, and any failures to comply with IRS regulations that occurred through the Closing Date. ARTICLE V CLOSING SECTION 5.1. CLOSING DATE. (a) Upon the terms and subject to the conditions of this Agreement, the purchase and sale of the Purchased Assets and the assumption of the Assumed Liabilities contemplated by this Agreement shall take place at a closing (the "Closing") to be held at the Seller's offices at 30 Lisbon Street, Lewiston, Maine, at 11:00 a.m. (which Closing shall be effective as of the close of business on the Closing Date) within twenty Business Days following the satisfaction or waiver of all conditions to the obligations of the parties set forth in Article XII hereof (other than obligations to be performed at the Closing) or at such other time or on such other date as Seller and Purchaser may mutually agree in writing ("Closing Date"), which date shall be acknowledged in writing by the parties. (b) It is anticipated that the conversion of Seller's account information as to the Deposit Liabilities and the Loans onto Purchaser's data processing system will occur as of the Closing Date. Seller and Purchaser shall each use their commercially reasonable efforts to take such actions, and Seller and Purchaser shall cooperate with each other, to ensure that such conversion is completed as of the Closing Date. 14 SECTION 5.2. SELLER'S DELIVERIES. On or before the Closing Date, Seller shall deliver to Purchaser, duly executed and acknowledged where required: (a) Its Certificate of Existence certified by the Maine Secretary of State; (b) A certificate of the corporate secretary of the Seller attaching authorizing resolutions of its Board of Directors; (c) An incumbency certificate certifying as to the incumbency of Seller's signing officers; (d) A Quitclaim Deed with Covenant for the Premises in the form of Exhibit A attached hereto, pursuant to which the Premises shall be transferred to Purchaser "AS IS," "WHERE IS" and with all faults (the "Quitclaim Deed with Covenant"); provided that, with respect to the Premises, Seller or an affiliate thereof, shall only be required to convey to Purchaser good and marketable fee simple title to the Premises, which is in a condition that permits a reputable title insurance company of national standing and typically accepted by reputable commercial lenders (the "Title Company") to issue an owner's title insurance policy in at least the amount of the Premises Purchase Price, subject only to such exceptions as would not render title unmarketable and other customary exceptions to title not affecting insurability of title. It is understood and agreed that for purposes of this Agreement, the following shall not render title unmarketable: (1) ingress and egress easements for third parties that do not in Purchaser's reasonable discretion materially and adversely affect the current use, occupancy and value of the Premises; (2) any lien or judgment of record which could be satisfied by a payment, provided that such lien or judgment is satisfied by Seller or removed of record at or prior to Closing; (3) any matter that the Title Company would be willing to omit as an exception to coverage or except with insurance against loss, damage or expense, including insurance against collection or enforcement against the interests to be insured under a title policy pursuant to an endorsement or other addition to such title policy in form and substance reasonably satisfactory to Purchaser, or (4) the exceptions to title described on Schedule 1.1(h) (collectively, Items 1-4, the "Permitted Exceptions"). (e) Such affidavits and documents as the Title Company shall reasonably require and are customarily given by sellers in similar transactions; (f) State of Maine Real Estate Transfer Tax Declaration; (g) Title Insurance Owner's Affadavit and Indemnity; (h) Maine REW-3 Residency Affadavit; (i) A bill of sale for the Personalty in substantially the form of Exhibit B hereto, pursuant to which the Personalty shall be transferred to Purchaser "AS IS", "WHERE IS" and with all faults; 15 (j) An assignment and assumption agreement with respect to the Assumed Liabilities in substantially the form of Exhibit C hereto (the "Assignment and Assumption Agreement"); (k) An Officer's Certificate in substantially the form of Exhibit D hereto; (l) The Draft Closing Statement; (m) The resignation of Seller as trustee or custodian, as applicable, with respect to each IRA, Keogh Plan or Employee Pension Plan deposit account included in the Deposit Liabilities and the designation of Purchaser as successor trustee or custodian with respect thereto; (n) The FIRPTA Affidavits in substantially the form of Exhibit E hereto; (o) Physical possession of all Purchased Assets as are capable of physical delivery; (p) Possession of the Premises; (q) Possession of all loan files relating to the Loans and all original collateral and related documentation in the custody of Seller relating to the Loans; (r) Possession of and all right, title and interest in (i) all books and records maintained at the Branch, (ii) all signature cards for the Deposit Accounts and all records of account in Seller's possession with respect to the Deposit Accounts, and (iii) all agreements, instruments, and other documents directly evidencing the Purchased Assets and Assumed Liabilities; (s) Such other documents as are necessary to effect the transactions contemplated hereby as Purchaser shall reasonably request; (t) A limited power of attorney granting Purchasing the authority to execute certain documents on behalf of Seller to effectuate the transfer of Loans and related collateral in substantially the form of Exhibit G hereto; and (u) An opinion of legal counsel to the Seller dated as of the Closing Date in form and substance reasonably satisfactory to counsel for the Purchaser to the effect that (i) Seller is a Maine financial institution validly existing and in good standing under the laws of the State of Maine; (ii) Seller has the power and authority to enter into and perform its obligations under the Agreement; (iii) the transactions contemplated by this Agreement have been duly authorized by all appropriate corporate action of Seller; (iv) upon due execution of this Agreement and the other agreements contemplated hereby, all such agreements will be fully enforceable against the Seller in accordance with their respective terms, subject to standard exceptions relating to creditors' rights and the availability of equitable remedies. SECTION 5.3. PURCHASER'S DELIVERIES. On or before the Closing Date, Purchaser shall deliver to Seller: 16 (a) Its Certificate of Existence duly certified by the Maine Secretary of State; (b) A certificate of the corporate secretary of the Purchaser attaching authorizing resolutions of its Board of Directors; (c) An incumbency certificate certifying as to the incumbency of the Purchaser's signing officers; (d) The Assignment and Assumption Agreement; (e) Purchaser's acceptance of its appointment as of the close of business on the Closing Date as successor trustee or custodian, as applicable, of the IRA, Keogh Plan and Employee Pension Plan deposit accounts included in the Deposit Liabilities and its assumption of the fiduciary obligations of the trustee or custodian with respect thereto; (f) An Officer's Certificate in substantially the form of Exhibit F hereto; (g) Such affidavits and documents as the Title Company shall reasonably require and are customarily given by purchasers in similar transactions; (h) Such other documents as are necessary to effect the transactions contemplated hereby as Seller shall reasonably request, including without limitation the release of Seller's collateral for any Deposit Liabilities and the substitution of Purchaser's Collateral therefore; and (i) An opinion of legal counsel to the Purchaser dated as of the Closing Date in form and substance reasonably satisfactory to counsel for the Seller to the effect that (i) Purchaser is a Maine financial institution validly existing and in good standing under the laws of the State of Maine; (ii) Purchaser has the power and authority to enter into and perform its obligations under the Agreement; (iii) the transactions contemplated by this Agreement have been duly authorized by all appropriate corporate action of Purchaser; (iv) upon due execution of this Agreement and the other agreements contemplated hereby, all such agreements will be fully enforceable against the Purchaser in accordance with their respective terms, subject to standard exceptions relating to creditors' rights and the availability of equitable remedies. ARTICLE VI REPRESENTATIONS AND WARRANTIES OF SELLER Seller represents and warrants to Purchaser as follows: SECTION 6.1. ORGANIZATION. Seller is a financial institution duly organized, validly existing and in good standing under the laws of the State of Maine. Deposit accounts of Seller are insured to applicable limits by the FDIC in accordance with the FDIA, and Seller has paid all assessments and has filed all reports required to be filed by it with the FDIC. 17 SECTION 6.2. AUTHORITY. Seller has the power and authority to enter into and perform this Agreement and any other documents executed pursuant hereto. This Agreement and any other documents or instruments executed pursuant hereto and the execution, delivery and performance hereof and thereof have been duly authorized and approved by all necessary corporate action on the part of Seller, and this Agreement, and each of the instruments and documents executed pursuant hereto, constitutes, or when executed and delivered will constitute, the valid and binding obligations of Seller, enforceable against Seller in accordance with its terms, except as enforcement may be limited by receivership, conservatorship and supervisory powers of bank regulatory agencies generally as well as by bankruptcy, insolvency, reorganization, moratorium or other laws of general applicability relating to or affecting creditors' rights, or the limiting effect of rules of law governing specific performance, equitable relief and other equitable remedies or the waiver of rights or remedies. SECTION 6.3. NON-CONTRAVENTION. The execution and delivery of this Agreement and any instruments and documents executed pursuant hereto by Seller do not and, subject to the receipt of all Regulatory Approvals, the consummation of the transactions contemplated by this Agreement will not constitute (a) a material breach or violation of or default under any law, rule, regulation, judgment, order, governmental permit or license of Seller or to which Seller, or to Seller's Knowledge the Purchased Assets or the Assumed Liabilities are subject, which breach, violation, or default would have a Material Adverse Effect or (b) a breach or violation of or a default under the articles of incorporation or bylaws of Seller or, to the Knowledge of Seller, any material contract to which Seller is a party or by which it is bound, which breach, violation or default would prevent or materially delay Seller from performing its obligations under this Agreement in all material respects. SECTION 6.4. COMPLIANCE WITH LAW. The business and operations of the Business are being conducted in compliance with all applicable laws, rules and regulations, orders, permits and judgments (collectively, the "Laws") of all governmental authorities, other than those Laws of governmental authorities the penalty or liability for the violation of which, if imposed or asserted, would not have a Material Adverse Effect. Seller has not received any notice of any alleged or threatened claim, violation or liability under any Law of a governmental authority in connection with the operation and business of the Branch the penalty or liability for the violation of which, if imposed or asserted, would have a Material Adverse Effect. SECTION 6.5. LEGAL PROCEEDINGS. There are no actions, suits, or proceedings, whether civil, criminal or administrative, pending as of the date of the Agreement or, to the Knowledge of Seller, threatened as of the date of the Agreement against or affecting Seller, or to the Knowledge of Seller, the Purchased Assets or the Assumed Liabilities, (a) which would reasonably be expected to have a Material Adverse 18 Effect, or (b) which would prevent or materially delay Seller from being able to perform its obligations under this Agreement in all material respects. SECTION 6.6. TITLE TO PURCHASED ASSETS. Seller is the lawful owner of each of the Purchased Assets, free and clear of all Liens other than Permitted Liens and Permitted Exceptions and, except for consents required to transfer the Purchased Assets, Seller has the right to sell, convey, transfer, assign and deliver to Purchaser all of the Purchased Assets. SECTION 6.7. LOANS. (a) (i) Each Loan represents the legal, valid and binding obligation of the related borrower or borrowers, enforceable by the holder thereof in accordance with its terms subject, as to enforcement, to applicable bankruptcy, insolvency, reorganization, liquidation and other similar laws and equitable principles relating to or affecting the enforcement of creditors' rights generally. Subject to the foregoing sentence, each of the Loans is based upon a valid, binding and enforceable note to which Seller has good and marketable title, free and clear of all liens and encumbrances; and the collateral for each of the Loans that is secured is (A) the collateral described in the applicable security agreement, mortgage, pledge, collateral assignment or other security document and (B) is secured by a valid, enforceable and perfected lien as described in the note or in the related security agreement, mortgage, pledge, collateral assignment or other security document. (ii) Each Loan (A) was originated or purchased by Seller, (B) to the extent secured is secured by a valid and enforceable Lien in the collateral described in the applicable security agreement, mortgage, pledge, collateral assignment or other security document, which Lien is assignable, (C) contains customary and enforceable provisions such that the rights and remedies of the holder thereof shall be adequate for practical realization against any collateral therefor, and (D) as of date hereof is not a Nonperforming loan. (iii) Each Loan complied at the time the Loan was originated in all material respects with all applicable requirements of applicable federal, state, and local laws, and regulations thereunder. (b) Except as set forth in Section 6.7(a)(i), (ii) and (iii) above, Seller does not make any representation or warranty of any kind to Purchaser relating to the Loans, and Seller shall not be responsible for (i) the collectibility of the Loans or any ancillary document, instrument or agreement in the loan file, (ii) any representation, warranty or statement made by an obligor or other party in or in connection with any Loan, (iii) the financial condition or creditworthiness of any primary or secondary obligor under any Loan or any guarantor or surety or other obligor thereof, (iv) the performance by the obligor or compliance with any of the terms or provisions of any of the documents, instruments and agreements relating to any Loan, or (v) inspecting any of the property, books or records of any obligor. 19 SECTION 6.8. NO BROKER. Except for Ostrowski & Company, Inc., no broker or finder, or any other party or agent performing similar functions, has been retained by Seller or its Affiliates or is entitled to be paid based on any arrangements, agreements or understandings made by Seller or its Affiliates in connection with the transactions contemplated hereby and no other brokerage fee or other commission has been agreed to be paid by Seller or its Affiliates on account of such transaction. SECTION 6.9. BOOKS AND RECORDS. The books and records of Seller pertaining to the Branch and the Purchased Assets and the Assumed Liabilities fairly reflect information regarding the Purchased Assets and the Assumed Liabilities necessary for Purchaser to carry on the business of the Branches upon the Closing of the transaction. Such books and records have been properly kept and maintained and are in compliance in all material respects with all applicable requirements. SECTION 6.10. CERTAIN LABOR MATTERS. Seller is not a party to any employment agreement, severance or similar agreement with any of the Transferred Employees, except for employee benefit plans of general application and except as set forth in Schedule 6.10. Seller is not a party to any union, collective bargaining or similar agreement covering employees at the Branch, and there at no time have been any written or oral communications to Seller from any labor union, labor relations board or tribunal or any person or organization purporting to represent present or past employees of Seller at the Branch. Seller has not taken any action which will result in any liability for back pay, wrongful discharge or assertion of unfair labor practices, or for any other matters relating to employee relations, related to employees at the Branch. Purchaser will have no liability under any existing pension or profit sharing plans of Seller. SECTION 6.11. FIDUCIARY OBLIGATIONS. Other than in respect of IRA and Keough accounts, Seller has no trust or fiduciary relationship or obligations in respect of any of the Deposit Liabilities or in respect of any other Assets. SECTION 6.12. AGREEMENTS WITH REGULATORY AUTHORITIES. Seller is not a party to any written order, decree, agreement or memorandum of understanding with, or commitment letter or similar submission to, any federal or state governmental agency or authority, and has no Knowledge that such authority is contemplating issuing or requesting (or is considering the appropriateness of issuing or requesting) any such order, decree, agreement, memorandum of understanding, commitment letter or submission, which order, decree, agreement, memorandum of understanding, commitment letter or submission either (i) could reasonably be expected to prevent or impair the ability of Seller to perform its obligations under this Agreement in any material respect or (ii) could impair the validity or consummation of this Agreement or the transactions contemplated hereby 20 SECTION 6.13. LIMITATIONS ON AND DISCLAIMER OF REPRESENTATIONS AND WARRANTIES AND PURCHASER'S RELEASE IN CONNECTION THEREWITH. Except as otherwise addressed in this Article VI, notwithstanding anything to the contrary contained herein or in any other document or agreement delivered in connection herewith: (a) To the Seller's Knowledge, the Premises are of adequate structural condition. As used herein, "adequate structural condition" means that no structural repairs are required to the exterior, supporting walls, the roof or foundation to continue the effective use of the Branch. Subject to the foregoing, (i) Seller does not make any representations or warranties, express or implied, as to the physical condition of the Premises and Fixed Assets; and (ii) the Premises and Fixed Assets are being sold "AS IS", "WHERE IS", without recourse and with all faults at the Closing Date. (b) Except as provided in this Section 6.13(b) and in Section 6.13(a) above, Seller does not make any representations or warranty, express or implied, of any type or nature with respect to the physical condition of the Branch which is being sold "AS IS", "WHERE IS" without recourse and with all faults, without any obligation on the part of Seller. Seller has no Knowledge of any impairment or violation under any Environmental Law relating to the Premises. Except as otherwise expressly set forth in this Agreement, by closing this transaction, Purchaser hereby releases and agrees to hold harmless Seller and waives any claims which Purchaser may now or hereafter have against Seller relating to the physical condition of the Branch from and after the Closing, including without limitation with respect to claims under Environmental Laws or with respect to the presence of Hazardous Materials or with respect to claims under the ADA. (c) (i) Within 30 days after the date hereof, Purchaser may contract, at its expense, for an initial environmental screening (which may be a phase one environmental report) of the Premises by an independent third party environmental engineer. Purchaser may and, in the event the initial screening indicates that a potential violation of Environmental Law may exist or that Hazardous Materials may be present on the Premises, shall undertake within an additional 30 days to engage an independent third party environmental engineer to conduct an additional review of the Premises and to complete a written report ("Environmental Report") at the sole expense of Purchaser. If the Environmental Report finds facts that a violation of Environmental Law exists on the Premises, Purchaser shall, within 20 days after receipt of the Environmental Report and written statement setting forth the violation of Environmental Law, notify Seller of the existence of such violation and provide Seller with a copy of the Environmental Report. In such event, Purchaser shall not be obligated to purchase the Premises as required herein and Purchaser may elect not to purchase such Premises by written notice sent to Seller within 10 Business Days after receipt by Seller of the Environmental Report. (ii) In the event that Purchaser elects not to purchase the Premises as provided hereinabove and further provided that the Environmental Law violation or its remediation does not preclude the effective use of the Premises, then (i) Purchaser shall still be obligated to purchase and assume the Deposit Liabilities in accordance with the Agreement; and (ii) Seller and Purchaser shall enter into a lease agreement for the Premises for a term 21 commencing as of the close of business on the Closing Date and expiring on the earlier to occur of (x) the date that is 30 months after the Closing Date (which lease term can be extended for an additional three month term at the election of Purchaser), or (y) one month after such Environmental Law violation is removed of record, for a rental amount equal to $2,500 a month, triple net (which rental amount shall increase to $5,000 a month, triple net, if the term is extended by Purchaser for an additional three months). (iii) Purchaser shall have the right to terminate its lease of the Premises at any time after the first twelve months of the lease term upon not less than ninety (90) days notice. (iv) Purchaser shall promptly obtain a good faith estimate of the cost to remediate the Environmental Law violation and, if it notifies Seller that it will purchase the Premises, may proceed to implement such remediation at Seller's expense; provided, however, that Purchaser shall not commence any remediation until Seller shall have received a copy of, and approved (which approval shall not be unreasonably delayed or conditioned), Purchaser's remediation plan, and provided further that Seller's obligation to pay the expenses of such remediation shall in no event exceed $100,000 and that Purchaser shall be obligated to pay the expenses of such remediation in excess of $100,000. Seller shall indemnify and hold harmless Purchaser from and against any costs, claims or expenses relating to the Environmental Law violation as a result of Purchaser being a lessee of the Premises, which indemnification shall terminate if Purchaser elects to purchase the Premises. Purchaser shall keep Seller apprised of, and permit Seller (if Seller so chooses) to participate in, the remediation action undertaken by Purchaser. If Purchaser elects to remediate and purchase the Premises as set forth in this paragraph (iii), or if all of the Environmental Law violations are removed of record by Seller within two years after the Closing Date, then Seller shall sell to Purchaser and Purchaser shall purchase, such Premises. (v) Purchaser shall instruct the independent third party environmental engineer to provide both Purchaser and Seller with a copy of its Environmental Report, subject to the maintenance of the confidentiality of such Report. In the event that Seller does not receive the Environmental Report described above within 75 days of the date hereof, Purchaser agrees that it shall have no rights under this Section 6.13(c) and that Seller shall be released from any liability or obligation under this Section 6.13(c). (d) (i) Within five (5) business days after the date hereof, Purchaser may contract, at its expense, for a survey of the Premises to be conducted by a licensed surveyor. In the event that the survey reveals an encroachment or other condition which could have a Material Adverse Effect on the continuing use or operation of the Premises as a bank branch by Purchaser (in a manner consistent with the current use and operation by Seller) subsequent to the Closing, Purchaser shall provide a copy of the survey and an explanation of the condition(s) of concern to Seller (the "Survey Report"). Seller shall, within 30 days after receipt that the Survey Report, notify Purchaser whether or not Seller agrees to remove the condition(s) described in the Survey Report to the reasonable satisfaction of Purchaser on or prior to the Closing Date. If Seller elects not to remove or cure such condition(s), then Purchaser may elect (A) not to purchase the Purchased Assets and to terminate this Agreement without further liability; or (B) to waive the condition(s) and purchase the Premises as contemplated by this Agreement; or (C) not purchase the Premises and proceed as provided in subparagraph (ii) below. Purchaser's election shall be 22 by written notice sent to Seller within 10 Business Days after receipt of Seller's notice electing not to remove or cure such violation. (ii) In the event that Seller elects not to remove or cure such condition(s), or elects to but fails to do so, and Purchaser elects not to purchase the Premises but to proceed with the transaction as provided hereinabove, then Purchaser (i) shall purchase and assume the Deposit Liabilities in accordance with the Agreement and (ii) Seller and Purchaser shall enter into a lease agreement for the Premises for a term commencing as of the close of business on the Closing Date and expiring on the earlier to occur of (x) the date that is 30 months after the Closing Date (which lease term can be extended for an additional three month term at the election of Purchaser), or (y) one month after Seller removes, at its sole expense, such condition of record, for a rental amount equal to $2,500 a month, triple net (which rental amount shall increase to $5,000 a month, triple net, if the term is extended by Purchaser for an additional three months). (iii) Purchaser shall have the right to terminate its lease of the Premises at any time after the first twelve months of the lease term upon not less than ninety (90) days notice. (iv) If the offending condition(s) are removed of record by Seller within one year after the Closing Date, and provided that removal thereof does not result in the imposition of other conditions on the Premises that could have a Material Adverse Effect on the Premises or operation by Purchaser of the Purchased Assets, then Seller shall sell to Purchaser and Purchaser shall purchase, the Premises. (v) In the event that Purchaser does not contract for a Survey Report within five (5) business days of the date hereof, Purchaser agrees that it shall have no rights under this Section 6.13(d) and that Seller shall be released from any liability or obligation under this Section. (e) Seller does not make any representations or warranties to Purchaser as to whether, or the length of time during which, any accounts relating to Deposit Liabilities will be maintained by the owners of such Deposit Liabilities at the Branch after the Transfer Date. (f) Except as specifically provided for in this Agreement, Seller disclaims and makes no representations or warranties whatsoever with respect to the Business, Purchased Assets or Assumed Liabilities, express or implied, including, without limitation, any representations or warranties with respect to merchantability, fitness, title, enforceability, collectibility, documentation or freedom from Liens (in whole or in part) and disclaim any liability and responsibility for any negligent representation, warranty, statement or information otherwise made or communicated, by oversight or information otherwise made or communicated, by oversight or otherwise (orally or in writing), to Purchaser in connection with the transactions contemplated hereby. SECTION 6.14. WARN ACT. Seller is not planning or contemplating, and has not made or taken, any decisions or actions concerning the Bank Employees that would require the service of notice under the WARN Act. 23 SECTION 6.15. EXCLUDED DEPOSITS. Taken as a whole, exclusion of the Excluded Deposits from the sale will not, taken as a whole, have a Material Adverse Effect. SECTION 6.16. INCLUDED DEPOSITS. The deposit accounts listed on Schedule 1.1(c) constitutes a substantially complete list of all deposit accounts (other than accounts relating to Excluded Deposits) open at the Branch as of the date of this Agreement. SECTION 6.17. USE OF ASSETS. To the Knowledge of Seller, the Premises and the Fixed Assets are free of underground storage tanks or Hazardous Material. Seller is not required to obtain or maintain any permits, licenses or other authorizations under any Environmental Laws. Seller has no Knowledge of any past, present or future events or circumstances pertaining to the Branch or its operations which might form the basis of any claim, action, demand, suit, proceeding, hearing or investigation relating to Environmental Laws. To the Knowledge of Seller, the use presently being made of the Premises complies with all applicable zoning and building code ordinances and all applicable fire, environmental and occupational safety and health laws, regulations and ordinances. To the Knowledge of Seller, there is no proposed, pending or threatened change in any law, code, ordinance or standard that would adversely affect the Business as presently conducted. There is no pending or, to the Knowledge of Seller, proposed or threatened condemnation proceeding or other action affecting the Branch that would have a material and adverse effect on its operations. ARTICLE VII REPRESENTATIONS AND WARRANTIES OF PURCHASER Purchaser represents and warrants to Seller as follows: SECTION 7.1. ORGANIZATION. Purchaser is a financial institution duly organized, validly existing and in good standing under the laws of the State of Maine. Deposit accounts of Purchaser are insured to applicable limits by the FDIC in accordance with the FDIA, and Purchaser has paid all assessments and has filed all reports required to be filed by it with the FDIC. SECTION 7.2. AUTHORITY. Purchaser has the power and authority to enter into and perform this Agreement and any instruments or other documents executed pursuant hereto. This Agreement and any instruments or other documents executed pursuant hereto, and the execution, delivery and performance hereof and thereof have been duly authorized and approved by all necessary corporate action on the part of Purchaser, and this Agreement when duly executed and delivered will constitute the valid and binding obligation of Purchaser, enforceable against Purchaser in accordance with its terms, except as enforcement may be limited by receivership, conservatorship and supervisory powers of bank regulatory agencies generally as well as bankruptcy, insolvency, reorganization, 24 moratorium or other laws of general applicability relating to or affecting creditors' rights, or the limiting effect of rules of law governing specific performance, equitable relief and other equitable remedies or the waiver of rights or remedies. SECTION 7.3. NON-CONTRAVENTION. The execution and delivery of this Agreement and any instruments or other documents executed pursuant hereto by Purchaser do not and, subject to the receipt of all Regulatory Approvals, the consummation of the transactions contemplated by this Agreement, will not constitute (a) a material breach or violation of or default under any law, rule, regulation, judgment, order, governmental permit or license of Purchaser or to which Purchaser is subject, which breach, violation or default would have a material Adverse Effect, or (b) a breach or violation of or a default under the charter or bylaws of Purchaser or to the Knowledge of Purchaser, any material contract to which Purchaser is a party or by which it is bound which breach, violation or default would prevent or materially delay Purchaser from performing its obligations under this Agreement in all material respects. SECTION 7.4. LEGAL PROCEEDINGS. There are no actions, suits, or proceedings, whether civil, criminal or administrative, pending or, to the Knowledge of Purchaser threatened against or affecting Purchaser that could prevent or materially delay Purchaser from performing its obligations under this Agreement in all material respects. SECTION 7.5. CONSENTS AND OTHER REGULATORY MATTERS. (a) The execution, delivery and performance of this Agreement and the other agreements to be entered into in connection herewith by Purchaser do not and will not require any consent, approval, authorization or other order of, action by, filing or registration with or notification to (i) any governmental authority except as set forth on Schedule 7.5 hereto ("Regulatory Approvals") or (ii) any other party. (b) There are no pending, or to the knowledge of Purchaser, threatened disputes or controversies between Purchaser and any federal, state or local governmental authority, including without limitation with respect to regulatory capital requirements, that (i) would reasonably be expected to prevent or materially delay Purchaser from being able to perform its obligations under this Agreement or (ii) would reasonably be expected to impair the validity or consummation of this Agreement or the transactions contemplated hereby. Purchaser has not received any indication from any federal, state or other governmental authority that such governmental authority would oppose or refuse to grant or issue its consent or approval, if required, with respect to the transactions contemplated hereby. Purchaser believes that it can satisfy all capital and other regulatory requirements necessary to obtain all Regulatory Approvals. (c) As of the date hereof, without giving effect to the transactions contemplated hereby, and following the transactions contemplated hereby, Purchaser is (i) at least "adequately capitalized", as defined in the FDIA, and (ii) meets all capital requirements, standards and ratios required by each state or federal bank regulator with jurisdiction over Purchaser, including 25 without limitation, any such higher requirement, standard or ratio as applies to institutions engaging in the acquisition of insured institution deposits, assets or branches, and no such regulator is likely to, or has indicated that it will, condition any of the Regulatory Approvals upon an increase in Purchaser's capital or compliance with any capital requirement, standard or ratio. (d) To the knowledge of Purchaser, it will not be required to divest any of the Purchased Assets or Assumed Liabilities or any other asset or liability as a condition to the receipt of any of the Regulatory Approvals. (e) Purchaser was rated "Satisfactory" or "Outstanding" following its most recent CRA examination by the regulatory agency responsible for its supervision. Purchaser has received no notice of and has no knowledge of any planned or threatened objection by any community group to the transactions contemplated hereby. SECTION 7.6. WARN ACT. Purchaser is not planning or contemplating, and has not made or taken, any decisions or actions concerning the Transferred Employees after the Closing that would require the service of notice under the WARN Act. SECTION 7.7. CAPITAL AVAILABLE. Purchaser has sufficient capital, under GAAP and for regulatory purposes, to support the acquisition of the Business and to perform Purchaser's other obligations hereunder and under any of the other documents executed in connection herewith and Purchaser's ability to purchase the Purchased Assets and to assume the Assumed Liabilities and to perform Purchaser's other obligations hereunder is not contingent on raising any equity capital, obtaining specific financing thereof, or obtaining the consent of any lender. SECTION 7.8. NO BROKER. Except for RBC Capital Markets, no broker or finder, or any other party or agent performing similar functions, has been retained by Purchaser or its Affiliates or is entitled to be paid based on any arrangements, agreements or understandings made by Purchaser or its Affiliates in connection with the transactions contemplated hereby and no other brokerage fee or other commission has been agreed to be paid by Purchaser or its Affiliates on account of such transaction. SECTION 7.9. AGREEMENTS WITH REGULATORY AUTHORITIES. Purchaser is not a party to any written order, decree, agreement or memorandum of understanding with, or commitment letter or similar submission to, any federal or state governmental agency or authority, that such authority is contemplating issuing or requesting (or is considering the appropriateness of issuing or requesting) any such order, decree, agreement, memorandum of understanding, commitment letter or submission, which order, decree, agreement, memorandum of understanding, commitment letter or submission either (i) could reasonably be expected to prevent or impair the ability of Purchaser to perform its obligations 26 under this Agreement in any material respect or (ii) could impair the validity or consummation of this Agreement or the transactions contemplated hereby. ARTICLE VIII COVENANTS OF SELLER Seller covenants and agrees with Purchaser as follows: SECTION 8.1. CONDUCT OF THE BUSINESS. From the date hereof through the Closing Date, Seller shall (unless Seller receives Purchaser's written consent) (a) conduct its business relating to the Purchased Assets and Assumed Liabilities in the usual, regular and ordinary course consistent with past practice, (b) use its best efforts to maintain and preserve intact its relationships generally with its Bank Employees and Customers; provided, however, that any salary increases with respect to Bank Employees shall be in the ordinary course of business consistent with Seller's past practices, (c) take no action which would adversely affect the ability of any party hereto to obtain any Regulatory Approval or to perform its covenants and agreements under this Agreement, (d) perform its material obligations, commitments, and contracts relating to the operation of the Branch except as modified in accordance with the terms of this Agreement, (e) not modify or terminate any material contract obligations relating to the Business, except in accordance with their contractual terms and in accordance with customary and past practice, (f) operate the Business in material compliance with all current legal or statutory provisions, (g) not dispose of any assets or liabilities of the Branch except in the ordinary course of business consistent with past practice, (h) not materially alter any of its policies or practices between the date of this Agreement and the Closing Date with respect to the rates, fees, charges, or level of services available at or to Customers of the Branch except for such alterations as may be instituted generally for similar branch offices of Seller and in accordance with ordinary course of business consistent with past practice, and (i) not make any capital expenditures in excess of $10,000 with respect to the Branch without Purchaser's written consent, which will not be unreasonably withheld; provided, however that Seller shall be under no obligation to advertise or promote new or substantially new customer services in the principal market area of, or for the benefit of, the Business; provided, further, that Seller shall pay interest on the Deposit Liabilities at rates which are determined in the ordinary course of business consistent with Seller's past practices. SECTION 8.2. REGULATORY APPROVALS. Seller shall use its commercially reasonable efforts to assist Purchaser in obtaining the Regulatory Approvals. Seller shall provide Purchaser or the appropriate governmental authorities with all information reasonably required to be submitted by Seller in connection with the Regulatory Approvals. SECTION 8.3. NONSOLICITATION. For a period of two years following the Closing Date, Seller and its Affiliates shall not solicit any Customer or seek to entice any Customer to open accounts or otherwise transact business with Seller or any of its Affiliates. Notwithstanding the foregoing sentence, Seller and its Affiliates shall be permitted to (a) engage in advertising, solicitations or marketing 27 campaigns, programs or other efforts not primarily directed to or targeted at the Customers, including without limitation such campaigns, programs or efforts in connection with lending, deposit, safe deposit, trust or other financial services relationships with such Customers, (b) engage in other lending, deposit, safe deposit, trust or other financial services relationships, (c) respond to unsolicited inquiries, and (d) provide notices or communications relating to the transactions contemplated hereby in accordance with the provisions hereof. SECTION 8.4. NONSOLICITATION OF PURCHASER'S EMPLOYEES. In consideration of the consummation of the transactions contemplated hereby, Seller and its Affiliates agree that, for a period of two years following the Closing Date, they shall not, directly or indirectly, solicit for employment, retain as an independent contractor or consultant, induce to terminate employment with Purchaser, or otherwise interfere with Purchaser's employment relationship with any Transferred Employee; provided , however, that this Section 8.4 shall not apply (i) if any such employee has been terminated by Purchaser or any of its Affiliates for any reason or (ii) if such employee is hired by a Seller or any of its Affiliates as a result of a general solicitation for employment in newspaper advertisements or other periodicals of general circulation not specifically targeted to employees of Purchaser. SECTION 8.5. MAINTENANCE OF PREMISES. (a) Except as otherwise permitted or required hereunder, Seller shall operate the Premises in substantially the same manner as prior to entering into this Agreement and keep the Premises in substantially the same condition as on the date hereof, subject to normal wear and tear; provided, however, that Seller shall have no obligation to make any capital repairs, capital expenditures or capital improvements to the Premises unless specifically required under this Agreement, except that Seller shall maintain as currently maintained all building and mechanical systems in reasonably satisfactory working order and otherwise in material compliance with applicable ordinances and regulations; (b) Seller shall not create, grant, accept or enter into a lease, use and occupancy arrangement, easement, option to purchase, right of first refusal or other agreement with respect to all or any portion of the Premises without prior written notice to and consent of Purchaser, or enter into any service contract or equipment lease that does not by its terms expire or that cannot be canceled on or prior to the Closing Date (without expense to Purchaser); and (c) Seller shall maintain the Premises in material compliance with all laws, statutes, ordinances, rules, regulations, covenants and restrictions applicable thereto and shall promptly notify Purchaser of all written notices of violations thereof received by Seller and the nature and extent of the same. SECTION 8.6. ESTABLISHMENT OF FACILITIES. For a period of eighteen months after the Closing Date, Seller shall not establish a branch office, automated teller machine, or other facility or office or implement the placement of similar facilities or equipment owned by Seller of any Affiliate in the Region. Notwithstanding the foregoing sentence, Seller or its Affiliates shall not be prevented from acquiring, being acquired by, or merging into or consolidating with any financial institution. 28 SECTION 8.7. LOAN DOCUMENTATION. Notwithstanding other provisions of this Agreement, within thirty (30) days of the Closing Date, Purchaser may identify in writing to Seller any Loan as to which Seller failed to properly perfect or record stated collateral or as to which Seller has not delivered all material documentation (the "Affected Loans"). Within thirty days of receiving written notice, Seller shall repurchase the Affected Loans at the Loan Value (less any principal received from the Closing Date). ARTICLE IX COVENANTS OF PURCHASER Purchaser covenants and agrees with Seller as follows: SECTION 9.1. REGULATORY APPROVALS AND STANDARDS. (a) Purchaser will use its commercially reasonable efforts to obtain as expeditiously as possible the Regulatory Approvals and will file within fifteen (15) business days after the execution of this Agreement and the provision of required information from Seller all necessary applications of Purchaser to obtain the Regulatory Approvals, provided that Seller delivers any information required of Seller necessary for and requested by Purchaser to complete such applications on a timely basis. Purchaser will supply to Seller, at least two Business Days prior to filing, copies of all proposed regulatory applications and filings (other than confidential portions thereof) and will use reasonable efforts to reflect any comments of Seller in such filings. As of the Closing Date, Purchaser will satisfy any and all of the standards and requirements reasonably within its control imposed as a condition to obtaining or necessary to comply with the Regulatory Approvals. Purchaser shall pay any fees charged by any governmental authorities to which it must apply to obtain any of the Regulatory Approvals. Purchaser shall take no action which would adversely affect or delay the ability of any other party hereto to obtain any Regulatory Approval or to perform its covenants and agreements under this Agreement. Purchaser shall notify Seller promptly (and in no event later than one Business Day following notice) of any significant development with respect to any application or notice Purchaser files with any governmental authority in connection with the transactions contemplated by this Agreement. (b) From the date hereof through the Transfer Date, Purchaser shall (i) remain at least "well capitalized", as defined in the FDIA, (ii) meet all capital requirements, standards and ratios required by each state or federal bank regulator with jurisdiction over Purchaser, including without limitation, any such higher requirement, standard or ratio as shall apply to institutions engaging in the acquisition of insured institution deposits, assets or branches and (iii) maintain at least a "satisfactory" CRA rating. (c) Purchaser hereby confirms that after the Transfer Date it is Purchaser's intention to conduct a banking business at the Branch, and therefore as of the date of this Agreement it is not expected that the transactions contemplated by this Agreement will result in the closing, consolidation or relocation of the Branch. Purchaser agrees that it shall be solely responsible for complying with any required branch closing or other notices to regulators and customers in the 29 event Purchaser should at any time determine to close, consolidate or relocate the Branch or to close, consolidate or relocate any branch of Purchaser in connection with or relating to the transactions contemplated by this Agreement. SECTION 9.2. SOLICITATION OF ACCOUNTS. Prior to the Closing Date, neither Purchaser nor any of its Affiliates shall solicit Customers through advertising specifically referencing or targeted to such Customers nor transact their respective businesses in such a way which is reasonably likely to (a) induce such Customers to close Deposit Liability accounts and open deposit accounts directly with Purchaser or any of its Affiliates, or (b) result in the transfer of all or a portion of an existing Deposit Liability from Seller. Notwithstanding the foregoing sentence, Purchaser and its Affiliates shall be permitted to (i) engage in advertising, solicitations or marketing campaigns not primarily directed to or targeted at such Customers, (ii) engage in lending, deposit, safe deposit, trust or other financial services relationships existing as of the date hereof with such Customers through branch offices of Purchaser, (iii) respond to unsolicited inquiries by such Customers with respect to banking or other financial services offered by Purchaser and (iv) provide notices or communications relating to the transactions contemplated hereby in accordance with the provisions hereof. SECTION 9.3. RECORDING OF INSTRUMENTS OF ASSIGNMENT. No later than six months following the Closing Date, Purchaser shall have recorded all other instruments required, necessary or reasonably desirable to evidence the acquisition, assignment and assumption of the Purchased Assets and the Assumed Liabilities, including, without limitation, all assignments of mortgage, financing statements, and security agreements relating to the Loans. SECTION 9.4. TRANSFERRED EMPLOYEES. Purchaser covenants to Seller that it will do or cause the following to occur: (a) No later than the Final Approval Date, Purchaser shall offer employment beginning as of the Closing Date to all Bank Employees in good standing upon terms and conditions described in subsection (b) below and subject to the Closing. Transferred Employees will be subject to the employment terms, conditions and rules applicable to other similarly situated employees of Purchaser. Nothing contained in this Agreement shall be construed as an employment contract between Purchaser and any Transferred Employee. (b) Purchaser shall provide each Transferred Employee with the following: (i) Each Transferred Employee will be eligible to participate in any qualified profit sharing plan/401(k) plan or plans of Purchaser, if he or she is eligible based on each plan's eligibility criteria as of the close of business on the Closing Date. Purchaser shall credit each Transferred Employee with the period of years of service with Seller, its Affiliates and predecessors in determining eligibility to participate, vesting and level of matching contributions in such plan or plans, as if the Transferred Employee had been an employee of Purchaser during such period; 30 (ii) Each Transferred Employee will be eligible to participate in the Purchaser's qualified pension plan or plans, if he or she is eligible based on each such plan's rules and eligibility criteria as of the close of business on the Closing Date. Purchaser shall credit each Transferred Employee with the period of years of service with Seller, its Affiliates and predecessors in determining eligibility to participate, vesting and eligibility to receive benefits (but not accrual of benefits under any defined benefit plan) in Purchaser's pension plan(s), as if the Transferred Employee had been an employee of Purchaser during such period; provided, however, that such crediting of service shall not operate to duplicate any benefit or the funding of any benefit for any period of service; (iii) Each Transferred Employee will receive credit for years of service with Seller, its Affiliates and predecessors for purposes of calculation of benefits and waiting period eligibility in Purchaser's other miscellaneous benefits programs not specifically covered by other subparagraphs of this section, as if the Transferred Employee had been an employee of Purchaser during such period, including but not limited to, vacation, severance, leaves of absence, education assistance, sick leave, short and long-term disability plans and other similar benefits; (iv) On the Closing Date, each Transferred Employee will become immediately eligible to participate in the Purchaser's health and welfare plans (to the extent they are eligible to participate under Seller's health and welfare plans), including but not limited to, medical, dental, life insurance and short and long-term disability plans, as such plans may exist, on the same basis as other similarly situated employees of Purchaser. Purchaser shall waive any pre-existing condition limitations with respect to such Transferred Employee and his or her dependents, to the extent such pre-existing condition limitation can be waived under Purchaser's plans. Purchaser shall cause each Transferred Employee to be eligible as of the Closing Date for substantially the same amount of insurance coverage that he or she maintained under Seller's plans, without requiring such Transferred Employee to provide any evidence of insurability to the extent possible under existing arrangements with Purchaser's carriers. (c) Purchaser shall be responsible for all obligations (including obligations to provide notices) or liabilities, if any, which may arise in connection with any, Transferred Employee under the WARN Act. Purchaser shall indemnify and hold Seller harmless for any WARN Act obligations or liabilities of Seller that are triggered by any mass layoff, plant closing or other employment action by Purchaser within the 90 day period following after Closing Date. (d) Seller will pay out to all Transferred Employees compensation in lieu of any accrued bonuses and accrued but unused vacation through the closing date. SECTION 9.5. INTERVIEWS. Purchaser shall be solely responsible for any acts or omissions that are wrongful, illegal or in contravention of this Agreement made by it in connection with interviewing or hiring the Bank Employees. Purchaser shall reimburse the Bank Employees (if applicable) for reasonable transportation costs to and from the location where Purchaser shall interview such employees. 31 SECTION 9.6. OTHER TRANSACTIONS. From the date of this Agreement until the earlier of the Closing Date or the date of termination of this Agreement, Purchaser covenants and agrees that it shall not take any action which would materially adversely affect or delay the consummation of the transactions contemplated by this Agreement. SECTION 9.7. NONSOLICITATION OF SELLER'S EMPLOYEES. In consideration of, among other things, the willingness of Seller to provide Purchaser with the opportunity to interview and hire the Bank Employees, Purchaser and its Affiliates agree that, except in accordance with this Section 9.7, for a period of two years following the Closing Date, it shall not, directly or indirectly, solicit for employment any person who is employed by Seller or any of its Affiliates, provided, however, that this Section 9.7 shall not apply (i) if any such employee has been terminated by Seller or any of its Affiliates for any reason or (ii) if such employee is hired by Purchaser or any of its Affiliates as a result of a general solicitation for employment in newspaper advertisements or other periodicals of general circulation not specifically targeted to employees of Seller. ARTICLE X ACCESS; EMPLOYEE AND CUSTOMER COMMUNICATIONS SECTION 10.1. ACCESS BY PURCHASER. Upon execution of this Agreement, Seller shall provide Purchaser and its representatives, accountants and counsel reasonable access during normal business hours and upon two Business Days' notice to Seller, to the Branch, Bank Employees, depository records, Loan files, and all other documents and other information concerning the Branch, the Business, the Purchased Assets, the Assumed Liabilities and the Transferred Employees as Purchaser may reasonably request; provided that a representative of Seller shall be permitted to be present at all times and provided further that with respect to information concerning Bank Employees, Seller's sole obligation shall be to provide Purchaser with information concerning the name, position, date of hire and salary of the Bank Employees, and Seller shall not be required to provide Purchaser with access to or copies of any personnel files or other individualized employee files or documents, all of which shall remain the sole property of Seller; provided further, however, that Seller agrees to make Transferred Employees available to be interviewed by Purchaser and to make personnel files for any Transferred Employee available to Purchaser for review to the extent permitted by law and authorized in writing by the Transferred Employee. Notwithstanding the foregoing, in no event shall Seller be required to provide (a) any information which Seller, in its sole discretion deems proprietary, including without limitation, Seller's "credit scoring" system, branch or credit practices, policies or procedures, or staffing models, (b) any information the provision of which to Seller is prohibited by applicable law, (c) any information that is protected by the attorney-client privilege, or (d) its or any of its Affiliates' tax returns. SECTION 10.2. COMMUNICATIONS TO EMPLOYEES, TRAINING. (a) Seller and Purchaser agree that promptly following the execution of this Agreement, meetings may be held at the Branch on such date as Purchaser and Seller shall 32 mutually agree, to allow a representatives of Seller and Purchaser to announce Purchaser's proposed acquisition of the Business to the Bank Employees. Seller and Purchaser shall mutually agree as to the scope and content of all communications to the Bank Employees. Except as specifically provided in Section 10.1 and in this Section 10.2, in no event shall Purchaser contact any Bank Employee without the prior written consent of Seller, which consent may not be unreasonably withheld except those Bank Employees designated in writing by Seller to handle certain transition issues. (b) At mutually agreed upon times following the initial announcement described in Section 10.2(a), Purchaser shall be permitted to meet with the Bank Employees to discuss employment opportunities with Purchaser, provided that representatives of Seller shall be permitted to attend any such meeting. From and after the Final Approval Date, Purchaser shall also be permitted to conduct training sessions outside of normal business hours or at other times as Seller may agree, with the Bank Employees and may, at Seller's sole option, conduct such training seminars at the Branch; provided that Purchaser will in good faith attempt to schedule such training sessions in a manner which does not unreasonably interfere with Seller's normal business operations. Purchaser shall reimburse the Bank Employees for reasonable transportation costs to and from the locations where Purchaser shall train such employees and compensate the Bank Employees or reimburse Seller at the Bank applicable standard or overtime rates for the time spent in such training. SECTION 10.3. COMMUNICATIONS WITH CUSTOMERS. (a) Following the Final Approval Date and no more than 25 days prior to the anticipated Closing Date or a lesser time period as the parties may agree, but in no event prior to the expiration of the time period provided in Section 6.13(d) for Purchaser to terminate this Agreement, Purchaser shall send statements to the Customers announcing the transactions contemplated hereby (such statements being herein called "Customer Notices"). The form and content of each Customer Notice shall be subject to the approval of both parties and the cost of printing and mailing the Customer Notices shall be borne solely by Purchaser. Seller and Purchaser shall fully cooperate with each other in the timely scheduling of such communications. Seller agrees to provide appropriate mailing lists and accompanying electronic data files in order to facilitate the mailing of Customer Notices. Following the Final Approval Date, Purchaser shall also be entitled to provide solely at its own expense such other notices or communications to Customers relating to the transactions contemplated hereby as may be required by law; provided that the text of any such notice or communication and the timing of such notice or communication which is provided prior to the Closing shall be approved in advance by Seller, which approval shall not unreasonably be withheld or delayed. (b) Except as specifically provided herein, in no event will Purchaser or its Affiliates contact any Customers prior to the Final Approval Date without the prior written consent of Seller which may be granted or withheld in its sole discretion; provided that Purchaser may contact Customers in connection with (i) advertising, solicitations or marketing campaigns not primarily directed to or targeted at Customers, (ii) lending, deposit, safe deposit, trust or other financial services relationships of Purchaser with Customers through branch offices of Purchaser existing as of the date hereof, (iii) unsolicited inquiries by Customers to Purchaser with respect 33 to banking or other financial services provided by Purchaser, and (iv) notices or communications relating to the transactions contemplated hereby in accordance with the provisions hereof. ARTICLE XI TRANSITIONAL MATTERS SECTION 11.1. PAYMENT OF DEPOSIT LIABILITIES. (a) From and after the Closing Date, Purchaser shall (i) pay all properly drawn and presented checks, negotiable orders of withdrawal, drafts, debits and other withdrawal orders presented to Purchaser by Deposit Liability account customers, whether drawn on checks, negotiable orders of withdrawal, drafts, or other withdrawal order forms provided by Seller or by Purchaser and (ii) in all other respects discharge, in the usual course of the banking business, all of the duties and obligations of Seller with respect to the balances due and owing to the Customers who have Deposit Liability accounts. If any Customer who has a Deposit Liability account draws checks, drafts, or negotiable orders of withdrawal against the Deposit Liabilities, which are presented or delivered to Seller not later than 90 days after the Closing Date, Seller shall use its commercially reasonable efforts to batch all such checks, drafts, negotiable orders of withdrawal, or other withdrawal order forms and to deliver the same to Purchaser at Purchaser's sole expense. Purchaser acknowledges that any delay, failure, or inability on its part to comply with the obligations imposed upon it as a depository institution under applicable federal or state law, with regard to such checks, drafts, negotiable orders of withdrawal or other withdrawal orders shall not result in any liability or obligation of Seller and shall not affect any of the rights of Seller under this Agreement. Seller shall not be deemed to have made any representations or warranties to Purchaser with respect to any such checks, drafts, negotiable orders of withdrawal or other withdrawal orders and any such representations or warranties implied by law are hereby disclaimed and are the responsibility of Purchaser, except that Seller shall be chargeable with the warranties and representations implied by law with respect to any such check, draft, negotiable orders of withdrawal order, or other withdrawal order, which is paid by Seller over the counter. (b) Purchaser hereby acknowledges that if, after the Closing Date, any Customer who has a Deposit Liability account, instead of accepting the obligation of Purchaser to pay the Deposit Liabilities (including Accrued Interest thereon) shall demand payment from Seller for all or any part of any such Deposit Liabilities (including Accrued interest thereon), Seller shall not be liable or responsible for making such payment. SECTION 11.2. DELIVERY OF PURCHASER'S CHECK FORMS. Following the Final Approval Date, but not less than five Business Days prior to the Closing Date, Purchaser shall, at its sole cost and expense, notify by first class U.S. mail all Customers, who have a Deposit Liability account, in a form reasonably acceptable to Seller, of Purchaser's assumption of the Deposit Liabilities (other than Excluded Deposits) (which shall include a notification to those Deposit Liability account Customers whose accounts are then covered by any type of overdraft protection offered by Seller, including but not limited to Advance Lines, that from and after the Closing Date all such overdraft protection from Seller shall terminate) and Purchaser shall furnish each such Customer with information on the delivery 34 of new checks, deposit tickets, or other similar instruments, which shall be appropriately encoded with Purchaser's routing number. SECTION 11.3. UNCOLLECTED CHECKS RETURNED TO SELLER. From and after the Closing Date, Purchaser shall promptly pay to Seller an amount equivalent to the amount of any checks, negotiable orders of withdrawal, drafts, or any other withdrawal orders (net of the applicable deposit premium paid by Purchaser with respect to the Deposit Liabilities represented by any such instrument) credited as of the close of business on the Closing Date to any Deposit Liability accounts which are returned uncollected to Seller after the Closing Date and which shall include an amount equivalent to holds placed upon such Deposit Liability accounts for Items cashed by Seller (net of the applicable deposit premium paid by Purchaser with respect to the Deposit Liabilities represented by any such instrument), as of the close of business on the Closing Date which Items are subsequently dishonored; provided, however, that if Seller shall have failed to make or properly reflect in the information provided to Purchaser any provisional credit or hold on any such Deposit Liability accounts in respect of uncollected funds represented by any such item, Purchaser's obligations under this Section 11.3 in respect of such Item shall be limited to the amount of collected funds in such Deposit Liability accounts. SECTION 11.4. DEFAULT ON LOAN PAYMENTS TO SELLER. If the balance due on any Loan has been reduced by Seller as a result of a payment by check or draft received prior to the close of business on the Closing Date, which Item is returned to Seller after the Closing Date, the Loan Value of such Loan shall be correspondingly increased and an amount in cash equal to such increase shall be promptly paid by Purchaser to Seller within three Business Days after demand by Seller by wire transfer of immediately available funds to an account designated by Seller; provided, however, that if, as a result of such return, the Loan is Nonperforming, it may, at the election of Purchaser, be excluded from the Final Loan Schedule for purposes of calculating the Adjusted Payment Amount. SECTION 11.5. NOTICES TO OBLIGORS ON LOANS. (a) Purchaser shall, following the Final Approval Date, but no later than 15 days prior to the Closing Date, prepare and transmit, at Purchaser's sole cost and expense, to each obligor on each Loan, a notice in a form satisfying all legal requirements and reasonably acceptable to Seller to the effect that the Loan will be transferred to Purchaser and directing that payments be made after the Closing Date to Purchaser at any address of Purchaser specified by Purchaser, with Purchaser's name as payee on any checks or other instruments used to make such payments, and, with respect to all such Loans on which payment notices or coupon books have been issued, to issue new notices or coupon books reflecting the name and address of Purchaser as the person to whom and the place at which payments are to be made. To the extent that Purchaser's notice pursuant to the prior sentence shall be legally insufficient, Seller agrees, at Purchaser's sole expense, to provide all Loan obligors with all required notices of the assignment and transfer of the Loans. 35 (b) To the extent that any of the Loans transferred from Seller to Purchaser involve a transfer of servicing as defined and governed by the Real Estate Settlement Procedures Act (12 U.S.C. Section 2601, et. seq.), Seller and Purchaser will jointly coordinate any appropriate required Customer notices. SECTION 11.6. NEW TELEPHONE NUMBERS. Seller shall, no later than 5 days prior to the Closing Date, change the billing address for all telephone numbers used at the Branch to Purchaser's billing address for all charges incurred subsequent to the Closing Date. SECTION 11.7. NEW ATM/DEBIT CARDS. Purchaser shall, following the Final Approval Date, but no later than three days prior to the Closing Date, notify Customers who have Deposit Liability accounts (i) that Customers may not continue to use Seller ATM/Debit cards on or after 3 p.m. on the Closing Date, and (ii) of any changes in withdrawal limits which will be effective as of the Transfer Date. Such notification shall be by form of notice reasonably acceptable to Seller. Seller and Purchaser agree to cooperate to assure smooth transition of the ATM located at the Branch from operation by Seller to operation by Purchaser effective as of the Transfer Date. SECTION 11.8. SIGNAGE. During the two day period immediately preceding the Transfer Date, Seller shall cooperate with any commercially reasonable request of Purchaser directed to accomplishing the installation of signage of Purchaser's choosing at the Branch prior to the Closing Date; provided, however, that all such installations shall be at the sole cost and expense of Purchaser, that such installation shall be performed in such a manner that does not significantly interfere with the normal business activities and operations of the Branch, that such signage complies with all applicable zoning and permitting laws and regulations, and that all such installed signage shall be covered in such a way as to be unreadable at all times prior to the Closing. Immediately following the Closing, Seller shall, at its sole cost and expense, cover all of its signage in such a way as to be unreadable after the Closing and shall remove all of Seller's existing signage at the Branch as promptly as practicable following the Closing and in any event, within 10 Business Days after the Closing; provided, that, in the event that Seller shall not have removed such signage within such time frame, Purchaser shall be permitted to remove and store such signage on Seller's behalf, the costs of which shall be reimbursed by Seller to Purchaser. SECTION 11.9. ACTIONS WITH RESPECT TO IRA, KEOGH PLAN AND EMPLOYEE PENSION PLAN DEPOSIT LIABILITIES. (a) On or before the Closing Date, Seller shall (i) resign as of the close of business on the Closing Date as the trustee or custodian, as applicable, of each IRA, Keogh Plan and Employee Pension Plan included in the Assumed Liabilities of which it is the trustee or custodian, (ii) to the extent permitted by the documentation governing each such IRA, Keogh, Plan or Employee Pension Plan and applicable law, appoint Purchaser as successor trustee or custodian, as applicable, of each such IRA, Keogh Plan or Employee Pension Plan, and Purchaser hereby accepts each such trusteeship or custodianship under the terms and conditions 36 of Purchaser's plan documents for its IRA, Keogh Plans and Employee Pension Plan, and assumes all fiduciary and custodial obligations with respect thereto as of the close of business on the Closing Date, and (iii) deliver to the IRA grantor or Keogh Plan or Employee Pension Plan named fiduciary, of each such IRA, Employee Pension Plan or Keogh Plan such notice of the foregoing as is required by the documentation governing each such IRA, Employee Pension Plan or Keogh Plan or applicable law. Purchaser shall be solely responsible for delivering its IRA, Employee Pension Plan and Keogh Plan documents to the applicable IRA grantor and Keogh Plan or Employee Pension Plan named fiduciary, including but not limited to a beneficiary designation form to be completed by the applicable IRA grantor or Keogh Plan or Employee Pension Plan participant; provided, however, that in the event that an IRA grantor or Keogh Plan or Employee Pension Plan participant dies before such time as Purchaser receives a properly completed beneficiary designation form, Seller shall make available to Purchaser such information as may exist in Seller's files regarding any beneficiary designation it may have regarding such decedent. If, pursuant to the terms of the documentation governing any such IRA or Keogh Plan or Employee Pension Plan or applicable law, (X) Seller is not permitted to appoint Purchaser as successor trustee or custodian, or the IRA grantor or Keogh Plan or Employee Pension Plan named fiduciary objects in writing to such designation, or is entitled to, and does, in fact, name a successor trustee or custodian other than Purchaser, or (Y) such IRA or Keogh Plan or Employee Pension Plan includes assets which are not Deposit Liabilities and are not being transferred to Purchaser or the assumption of such deposit liabilities included in such IRA or Keogh Plan or Employee Pension Plan would result in a loss of qualification of such IRA or Keogh Plan or Employee Pension Plan under the Code or applicable IRS regulations, all deposit liabilities of Seller held under such IRA or Keogh Plan or Employee Pension Plan shall be excluded from the Deposit Liabilities (such excluded deposits liabilities being herein called the "Excluded IRA/Keogh/Employee Pension Plan Deposits"). Upon appointment as a successor custodian for such IRA Deposit Liabilities or as a successor trustee for such IRAs or Keogh Plans or Employee Pension Plans, Purchaser shall perform the services and carry out the duties and obligations required of it under the applicable plans, the Code and applicable Federal and state laws and regulations. (b) To the extent the Deposit Liabilities include certain IRAs, Keogh Plans and Employee Pension Plans that are required to make certain periodic distributions to the IRA account owner or Keogh Plan or Employee Pension Plan participant (or beneficiary) either at the account owner's or participant's request or because the account owner or participant has attained age 70 1/2, effective as of the Transfer Date, Purchaser agrees to continue to make such periodic distributions in accordance with the reasonable distribution instructions forwarded by Seller to Purchaser. Purchaser hereby assumes the obligation to pay each minimum distribution required by federal law by December 31 of the calendar year in which the Closing occurs and, in consideration thereof, Seller agrees not to withhold the amount of such distributions from the aggregate amount of the Deposit Liabilities. (c) Prior to the Closing Date, Seller shall provide to Purchaser copies of all plan documents and beneficiary designation forms in Seller's possession with respect to the Employee Pension Plans, IRAs and Keogh Plans. 37 SECTION 11.10. BULK TRANSFER LAWS. Seller and Purchaser hereby waive compliance with any applicable bulk transfer laws. If by reason of any applicable bulk sales law any claims are asserted by creditors of Seller, such claims shall be the responsibility of Purchaser in the case of claims arising under any of the Purchased Assets or Assumed Liabilities. SECTION 11.11. SELLER'S STATEMENTS TO CUSTOMERS. Seller, at its sole cost and expense, shall at its next scheduled mailing date issue standard account statements as of the Closing Date for each statement Savings, NOW and checking account included in the Deposit Liabilities. Passbook information not posted to a Customer passbook as of the Closing Date shall be provided to Purchaser by written report or by such other means as the parties may agree upon. Purchaser agrees to be responsible for posting all passbook entries reflected in such reports. SECTION 11.12. EQUIPMENT CONVERSION AND INSTALLATION. Between the Final Approval Date and the Closing, Seller agrees to cooperate with Purchaser and its agents in order to facilitate installation of teller and other operating equipment in the Branch, provided that such installation shall be at Purchaser's sole cost and expense and shall be planned so as not to interfere significantly with Seller's normal business activities, and provided further, that if this Agreement is terminated, the removal of the equipment and the return of the Branch to its previous condition shall be at the expense of the Purchaser. SECTION 11.13. POST-CLOSING SETTLEMENT. Seller and Purchaser agree to cooperate to assure appropriate settlement of point of sale debit card transactions relating to Deposit Liability accounts settled following the Closing Date. Following the Closing, Purchaser will make commercially reasonable efforts to notify originators of Automated Clearing House ("ACH") entries affecting Deposit Liability accounts or Loans of the transfers contemplated by this Agreement. Seller agrees to cooperate with Purchaser in a commercially reasonable manner to assure prompt delivery and settlement of ACH transactions received by Seller for debit or credit to Deposit Liability accounts or Loans. Seller and Purchaser agree to cooperate with respect to any other items relating to Deposit Liabilities or Loans that come into Seller's possession following the Closing Date. SECTION 11.14. POST-CLOSING COOPERATION GENERALLY. Whether or not specifically addressed in this Section 11, Seller and Purchaser agree to cooperate in a commercially reasonable manner to assure an orderly transition of Branch operations and the Purchased Assets from Seller to Purchaser. 38 ARTICLE XII CONDITIONS TO CLOSING SECTION 12.1. CONDITIONS TO OBLIGATIONS OF SELLER. The obligations of Seller under this Agreement are subject to the satisfaction (or, if applicable, waiver in the sole discretion of Seller, except as to the condition described in 12.1(c)) on or before the Closing Date, of each of the following conditions: (a) All of the covenants and other agreements required by this Agreement to be complied with and performed by Purchaser on or before the Closing Date shall have been duly complied with and performed in all material respects; (b) The representations and warranties made by Purchaser herein or in any certificate or other document delivered pursuant to the provisions hereof or in connection with the transactions contemplated hereby shall be true and correct in all material respects, on and as of the Closing Date, with the same force and effect as though such representations and warranties had been made on the Closing Date provided, however, that the representations and warranties of Purchaser herein or in any certificate or other document delivered pursuant to the provisions hereof shall be deemed to be true and correct in all material respects on and as of the Closing Date, with the same force and effect as though made on the Closing Date, unless the failure to be so true and correct would have a Material Adverse Effect on Purchaser's ability to consummate the transactions contemplated by the Agreement; (c) All Regulatory Approvals shall have been obtained, shall be Final and shall not contain any Material Condition affecting Seller; (d) No court or governmental or regulatory authority of competent jurisdiction shall have enacted, issued, promulgated, enforced or entered any statute, rule, regulation, judgment, decree, injunction or other order (whether temporary, preliminary or permanent), which is in effect, to enjoin, or which prohibits, consummation of the transactions contemplated hereby or which would preclude the operation of the Branch by Purchaser subsequent to the Closing in substantially the same manner as heretofore operated; (e) Seller shall have received the items to be delivered by Purchaser pursuant to Section 5.3. SECTION 12.2. CONDITIONS TO OBLIGATIONS OF PURCHASER. The obligations of Purchaser under this Agreement are subject to the satisfaction (or, if applicable, waiver in the sole discretion of Purchaser, except as to the condition described in Section 12.2(c)) on or before the Closing Date, of each of the following conditions; (a) All of the covenants and agreements required by this Agreement to be complied with and performed by Seller on or before the Closing Date shall have been duly complied with and performed in all material respects; 39 (b) The representations and warranties made by Seller herein or in any certificate or other document delivered pursuant to the provisions hereof or in connection with the transactions contemplated hereby shall be true and correct in all material respects, on and as of the Closing Date, with the same force and effect as though such representations and warranties had been made on the Closing Date; provided, however, that the representations and warranties made by Seller herein or in any certificate or other document delivered pursuant to the provisions hereof shall be deemed to be true and correct in all material respects on and as of the Closing Date, with the same force and effect as though made on the Closing Date, unless the failure to be so true and correct would have a Material Adverse Effect; (c) The Regulatory Approvals shall have been obtained, shall be Final and shall not contain any Material Condition affecting Purchaser; (d) No court or governmental or regulatory authority of competent jurisdiction shall have enacted, issued, promulgated, enforced or entered any statute, rule, regulation, judgment decree, injunction or other order (whether temporary, preliminary or permanent) which is in effect to enjoin, or which prohibits, consummation of the transactions contemplated hereby; and (e) Purchaser shall have received the items to be delivered by Seller pursuant to Section 5.2 and Purchaser is able to occupy the Premises in accordance with provision of Section 6.13(c) as of the Closing Date. (f) Purchaser shall not have elected to terminate the transaction pursuant to Section 6.13(d). ARTICLE XIII DATA PROCESSING SECTION 13.1. CONVERSION. (a) Seller and Purchaser shall convert account information as to Deposit Liabilities and the Loans to be effective the first business day following the Closing in accordance with the Data Processing Conversion Plan to be developed and attached hereto as Schedule 13.1 within thirty (30) days from the date of this Agreement. Purchaser and Seller agree to cooperate fully in the development of the Data Processing Conversion Plan. Purchaser shall pay Seller for services rendered to Seller by outside third-parties in connection with the de-conversion of the Branch's electronic data to a format that can be utilized by Purchaser for and following the Closing of the Purchase and Assumption, provided that in no event will such costs exceed $20,000. (b) All tasks and obligations concerning the provision of data processing services to or for the Branch after the Closing Date, other than those specifically set forth in, and to the extent assumed by Seller pursuant to Schedule 13.1(b) hereof shall be performed solely and exclusively by the Purchaser. Purchaser acknowledges its assumption of all such tasks and obligations, and further acknowledges that any delay, failure or inability on its part to perform such tasks or comply with such obligations, except as and to the extent attributable to any delay, failure or inability on the part of Seller in performing those tasks or complying with those obligations specifically set forth in, and to the extent assumed by Seller pursuant to, 40 Schedule 13.1(b) hereof shall not result in any liability or obligation of Seller and shall not affect any of the rights of Seller under this Agreement. ARTICLE XIV INDEMNITY SECTION 14.1. SELLER'S INDEMNITY. Seller shall indemnify, hold harmless and defend Purchaser, its Affiliates, and their respective successors, permitted assigns, directors, shareholders, officers, agents and employees from and against all claims, losses, liabilities, demands and obligations of any nature whatsoever (including reasonable legal fees and expenses) (collectively, "Damages") which Purchaser or any of its Affiliates or their respective successors, permitted assigns, directors, shareholders, officers, agents or employees shall receive, suffer or incur, arising out of or resulting from: (a) Any liability of Seller which is not an Assumed Liability; (b) The breach of any representation or warranty made by Seller in this Agreement; (c) The breach of any covenant or other agreement made by Seller in this Agreement; (d) Except for Assumed Liabilities, all liabilities under all pension and welfare benefit plans (as defined in Sections 3(l) and (2) of ERISA), or any supplemental unemployment benefit, deferred compensation, or other employee benefit plan of Seller or its Affiliates with respect to any and all periods prior to the Closing Date, including without limitation, all liabilities under ERISA, any liabilities for any accumulated funding deficiency as such term is defined in Section 302 of ERISA and Section 412 of the Code and for any liability to the Pension Benefit Guaranty Corporation, the IRS, participants, beneficiaries, employees, or any other public or private person, incurred with respect to or attributable to any plan of Seller; or (e) Any actions taken or omitted to be taken by Seller prior to the Closing Date and relating to the Business, Premises, the Purchased Assets, the Assumed Liabilities, or the Bank Employees, and any suits or proceedings commenced in connection therewith (other than proceedings to prevent or limit the consummation of the transactions contemplated by this Agreement). SECTION 14.2. PURCHASER INDEMNITY. Purchaser shall indemnify, hold harmless and defend Seller, its Affiliates and their respective successors, permitted assigns, directors, shareholders, officers, agents and employees from and against all Damages which Seller or any of its Affiliates or their respective successors, permitted assigns, directors, shareholders, officers, agents or employees shall receive, suffer or incur, arising out of or resulting from: (a) Any Assumed Liability; 41 (b) Any actions taken or omitted to be taken by Purchaser from and after the date hereof with respect to the Bank Employees, and any suits or proceedings commenced in connection therewith; (c) Any actions taken or omitted to be taken by Purchaser from or after the Closing Date and relating to the Business, the Purchased Assets, the Assumed Liabilities and the Transferred Employees, and any suits or proceedings commenced in connection therewith (other than proceedings to prevent or limit the consummation of the transactions contemplated by this Agreement); (d) The breach of any representation or warranty made by Purchaser in this Agreement; (e) The breach of any covenant or other agreement made by Purchaser in this Agreement; and (f) Any claims arising under any of the Purchased Assets or Assumed Liabilities made by creditors of Seller under any applicable bulk sales laws. SECTION 14.3. INDEMNIFICATION PROCEDURE. If a party entitled to indemnification hereunder ("Indemnified Party") is aware that a claim, demand or other circumstance exists that has given or may reasonably be expected to give rise to a right of indemnification under this Article XIV (whether or not the amount of the claim is then quantifiable), such Indemnified Party shall promptly give written notice thereof to the other party ("Indemnitor"), and the Indemnified Party will thereafter keep the Indemnitor reasonably informed with respect thereto, provided that failure of the Indemnified Party to give the Indemnitor prompt notice as provided herein shall not relieve the Indemnitor of its obligations hereunder except to the extent, if any, that the Indemnitor's rights shall have been prejudiced or the Indemnitor's liability shall have been materially increased thereby. In case any such action, suit or proceeding is brought against an Indemnified Party, the Indemnitor shall be entitled to participate in the defense thereof with counsel reasonably satisfactory to the Indemnified Party or, if it acknowledges its obligation to indemnify the Indemnified Party in full with respect to such claim, may in its discretion assume the defense thereof, provided, however, that in such event the Indemnified Party shall be entitled to participate in any such action, suit or proceeding with counsel of its own choice at its expense. The party assuming defense of the claim, action, suit or proceeding giving rise to a claim for indemnification will not settle any such claim, action, suit or proceeding without the consent of the other party, which consent shall not be unreasonably withheld. SECTION 14.4. LIMITATIONS ON LIABILITY. Notwithstanding anything to the contrary contained in this Article XIV, unless otherwise provided in this Agreement, no party shall be entitled to indemnification pursuant to Section 14.1(b) or 14.2(d) until its aggregate Damages shall be in excess of $35,000, at which time such party shall be entitled to indemnification for the full amount of its Damages to the extent such Damages exceed such amount. In no event shall the Damages payable by Seller or 42 Purchaser in the aggregate exceed the Purchase Price and in no event shall any party be entitled to any incidental, consequential, special, exemplary or punitive Damages. SECTION 14.5. GENERAL. (a) Each Indemnified Party shall be obligated in connection with any claim for indemnification under this Article XIV to use all commercially reasonable efforts to obtain any insurance proceeds available to such Indemnified Party with regard to the applicable claims. The amount which any Indemnitor is or may be required to pay to any Indemnified Party pursuant to this Article XIV shall be reduced (retroactively, if necessary) by any insurance proceeds or other amounts actually recovered (net of any direct relevant collections costs) by or on behalf of such Indemnified Party in reduction of the related Damages. If an Indemnified Party shall have received the payment required by this Agreement from the Indemnitor in respect of Damages and shall subsequently receive insurance proceeds or other amounts in respect of such Damages, then such Indemnified Party shall promptly repay to the Indemnitor a sum equal to the amount of such insurance proceeds or other amounts actually received (net of any direct relevant collection costs). The amount of any Damages arising from a breach by Seller of the representation set forth in Section 6.7 due to the existence of a Lien which is not in respect of borrowed money and does not materially impair the continued use and operation of any of the Purchased Assets shall be limited to the lesser of (x) the cost of satisfying or removing such Lien and (y) the actual impairment to the Purchased Asset caused by the existence of such Lien. (b) In addition to the requirements of paragraph (a) above, each Indemnified Party shall be obligated in connection with any claim for indemnification under this Article XIV to use all commercially reasonable efforts to mitigate Damages upon and after becoming aware of any event which could reasonably be expected to give rise to such Damages. (c) Subject to the rights of existing insurers of an Indemnified Party, an Indemnitor shall, upon payment in full of a claim for indemnification, be subrogated to any right of action which the Indemnified Party may have against any other Person with respect to any matter giving rise to a claim. (d) Except for the parties' rights to specific performance and injunctive relief as described in Section 16.14, the indemnification provided in this Article XIV shall be the exclusive post-Closing Date remedy available to any Indemnified Party with respect to any breach of any representation, warranty, covenant or agreement made by Purchaser or Seller in this Agreement. The parties hereto further acknowledge that no indemnity shall be payable for any Damages with respect to any breach of representations or warranties in this Agreement if prior to Closing such party receives a written notice from the other party (i) disclosing such breach or breaches and (ii) informing such party that such breach or breaches constitute a Material Adverse Effect entitling the party receiving the notice to terminate this Agreement. (e) All indemnification payments under this Article XIV shall be deemed adjustments to the Purchase Price as defined in Section 3.1. 43 SECTION 14.6. SURVIVAL. All representations, warranties and covenants contained in or made pursuant to this Agreement shall survive the execution and delivery of the Agreement and shall continue in full force and effect for a period of one year after the Closing Date and thereafter shall terminate, except as to any claim for which written notice shall have been given prior to such date; and provided, further, that all covenants or agreements which by their terms are to be performed after the first anniversary of the Closing Date shall survive for a period of one year from the date upon which they are fully discharged. ARTICLE XV POST-CLOSING MATTERS SECTION 15.1. FURTHER ASSURANCES. From and after the Closing Date: (a) Except as specifically provided otherwise herein, Seller shall assist Purchaser in the orderly transition of the operations of the Business and shall give such further assurances and execute, acknowledge and deliver all such instruments as may be necessary and appropriate to effectively vest in Purchaser title in the Purchased Assets in the manner contemplated hereby; provided that Seller need not incur any out-of-pocket costs or expenses in connection with its agreements in this Section 15.1 unless such costs or expenses are reimbursed by Purchaser; and (b) Except as specifically provided otherwise herein, Purchaser shall give such further assurances to Seller and shall execute, acknowledge and deliver all such acknowledgments and other instruments and take such further action as may be necessary and appropriate to effectively relieve and discharge Seller from any obligations remaining with respect to the Deposit Liabilities or other Assumed Liabilities; provided that Purchaser need not incur any out-of-pocket costs or expenses in connection with its agreements in this Section 15.1 unless such costs or expenses are reimbursed by Seller. SECTION 15.2. ACCESS TO AND RETENTION OF BOOKS AND RECORDS. For a period of six years from the Closing Date, each party shall have commercially reasonable access to any books and records of the other party relating to the Purchased Assets and the Assumed Liabilities, and the requesting party, at its own expense, may make copies and extracts when such copies and extracts are required by regulatory authorities, for litigation purposes, or for tax or accounting purposes; provided that in the event that as of the end of such period, any tax year of Seller is under examination by any taxing authority, Seller shall inform Purchaser in writing of the audit and such books and records shall be maintained by Purchaser until a final determination of the tax liability of Seller for that year has been made. If such copies or extracts require use of a party's equipment or Branch, the user shall reimburse the other party for all costs incurred, including without limitation employee expenses. Notwithstanding the foregoing, neither party shall be obligated to retain records beyond any commonly acceptable time limit, and the obligation of either party to provide access to records shall be subject to all applicable laws and regulations governing the confidentiality of such records. 44 SECTION 15.3. DEPOSIT HISTORIES. In case of any dispute with or inquiry by any Customer whose Deposit Liability account is included in the Assumed Liabilities, which dispute or inquiry relates to the servicing of such account by Seller prior to the date for which a deposit history has been provided to Purchaser, Seller will provide Purchaser, where available and to the extent reasonably requested by Purchaser and not already provided to Purchaser, information regarding the Deposit Liability account and copies of pertinent documents or instruments with respect to such dispute or inquiry so as to permit Purchaser to respond to such Customer within a period of time and in a manner which would comply with standard banking practices and customs and all applicable laws. ARTICLE XVI MISCELLANEOUS SECTION 16.1. EXPENSES. (a) Except as otherwise provided herein, Seller and Purchaser shall each pay all of their own out-of-pocket expenses in connection with this Agreement, including investment banking, appraisal, accounting, consulting, professional and legal fees, if any, whether or not the transactions contemplated by this Agreement are consummated. (b) Purchaser shall pay all (i) recording, filing or other fees, cost and expenses (including without limitation fees, costs and expenses for (w) preparation and issuance of title commitments, abstracts or searches, surveys, inspections, environmental audits or other investigations, (x) filing of any forms (including without limitation tax forms) with governmental authorities in connection with the transfer of the Fixed Assets, and (y) recording instruments or documents evidencing any transfers of interests in real property); provided that Seller shall pay one half of the State of Maine transfer tax due upon transfer of the Real Estate and shall pay all such fees, costs or expenses with respect to matters described in (x) and (y) which Seller is required by law to pay and costs and expenses relating to the preparation, execution and recording of assignments or satisfactions of mortgages, financing statements, notes, security agreements or other instruments applicable to or arising in connection with the transfer, assignment or assumption of the Purchased Assets and Assumed Liabilities. SECTION 16.2. TRADE NAMES AND TRADEMARKS. The Purchaser acknowledges and agrees that notwithstanding anything to the contrary contained herein, it has, and following the Closing shall have, no interest in or to the names Androscoggin Savings Bank, Androscoggin Bank or Androscoggin Bank of Rockland or any derivative thereof, or any trade name, trademark or service mark, logo or corporate name of Seller or any of its respective Affiliates, including, without limitation, the tradenames and trademarks listed on Schedule 16.2 hereto. After the Closing Date, Purchaser and any of its Affiliates shall not use any of the trade names, trademarks, service marks, logos or corporate names of Seller or any of its respective Affiliates including, without, limitation, the tradenames and trademarks listed on Schedule 16.2 hereto. 45 SECTION 16.3. TERMINATION: EXTENSION OF CLOSING DATE. This Agreement shall terminate and shall be of no further force or effect as between the parties hereto, except as to the liability for actual direct damages due to a willful breach of any material representation, warranty or covenant occurring or arising prior to the date of termination, and except for the confidentiality obligations set forth in Section 16.6, upon the occurrence of any of the following: (a) Upon mutual agreement of the parties; (b) Upon written notice by either Purchaser or Seller to the other parties immediately upon receipt by Purchaser or Seller of notice from any governmental authority that Purchaser or Seller, as the case may be, has been denied any Regulatory Approval by Final order or that any Regulatory Approval contains a Material Condition adversely affecting the party providing the notice; (c) Upon written notice by either Purchaser or Seller to the other parties, if the Closing has not occurred on or before May 31, 2004; or (d) By either the Purchaser or Seller (provided that the terminating party is not then in material breach of any representation, warranty, covenant or other agreement contained herein) if there shall have been a material breach of any of the representations, warranties, covenants or other agreements set forth in this Agreement on the part of the other party, which breach is not cured within 30 days following written notice to the party committing such breach, or which breach, by its nature, cannot be cured prior to the Closing; provided, however, that Purchaser and Seller shall not have the right to terminate this Agreement pursuant to this Section 16.3(d) unless the breach of representation, warranty, covenant, or other agreement together with all other such breaches would have a Material Adverse Effect. SECTION 16.4. MODIFICATION AND WAIVER. No modification of any provision of this Agreement shall be binding unless in writing and executed by the party or parties sought to be bound thereby. Performance of or compliance with any covenant given herein or satisfaction of any condition to the obligations of either party hereunder may be waived by the parties to whom such covenant is given or to whom such condition is intended to benefit, except as otherwise provided in this Agreement or to the extent any such condition is required by law; provided, that, any such waiver must be in writing. SECTION 16.5. BINDING EFFECT: ASSIGNMENT. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and permitted assigns; provided, however, that neither this Agreement nor any rights, privileges, duties or obligations of the parties hereto may be assigned without the prior written consent of the other party hereto. 46 SECTION 16.6. CONFIDENTIALITY. (a) From and after the date hereof, the parties hereto and their Affiliates shall keep confidential the terms of this Agreement and the negotiations relating hereto and all documents and information obtained by a party from another party in connection with the transactions contemplated hereby, except (i) to the extent this Agreement and such negotiations need to be disclosed to obtain a Regulatory Approval, (ii) to fulfill obligations under the Securities Exchange Act of 1934, as amended, or rules promulgated thereunder by the Securities and Exchange Commission, (iii) for disclosures made in accordance with the terms of this Agreement, and (iv) to the extent required by applicable law, regulations or rules of any applicable national securities exchange. This section shall survive any termination of this Agreement. Notwithstanding anything herein to the contrary, Purchaser and Seller may disclose to any and all persons, without limitation of any kind, the tax treatment and tax structure of the transactions contemplated by this Agreement, and all materials of any kind (including opinions or other tax analyses) that are provided to it relating to such tax treatment and tax structure; provided however, that such disclosure may only be made to the extent reasonably necessary to comply with any applicable federal or state securities laws. For the purposes of the foregoing sentence, (i) the "tax treatment" means the purported or claimed federal or state income tax treatment of this transaction, and (ii) the "tax structure" means any fact that may be relevant to understanding the purported or claimed federal or state income tax treatment of the transactions contemplated by this Agreement. (b) Except as otherwise required by law, regulations or rules, including the rules of any self regulatory organization (as defined in the Securities Exchange Act of 1934, as amended), the parties hereto shall each furnish to the other the text of all notices and communications, written or oral, proposed to be sent by the furnishing party regarding the transactions contemplated hereby. Except as otherwise required by law, regulations or rules of the National Association of Securities Dealers or any national stock exchange, the furnishing party shall not send or transmit such notices or communications or otherwise make them public unless and until the consent of the other parties is received, which consent shall not be unreasonably withheld or delayed. (c) Purchaser and Seller may issue press releases on the date of this Agreement and on the Closing Date or the first Business Day thereafter, the content of which press releases shall be mutually agreed upon between the parties. (d) The provisions of this Section 16.6 shall survive any termination of this Agreement. SECTION 16.7 ENTIRE AGREEMENT; GOVERNING LAW. This Agreement, together with the exhibits and schedules attached hereto and made a part hereof, contains the entire agreement between the parties hereto with respect to the transactions covered and contemplated hereunder, and supersedes all prior agreements or understandings between the parties hereto relating to the subject matter hereof, provided that the terms of the Confidentiality Agreement, to the extent not inconsistent with the terms hereof, shall continue to 47 apply. This Agreement shall be governed by and construed in accordance with the laws of the State of Maine (without reference to conflicts or choice of law provisions). SECTION 16.8. CONSENT TO JURISDICTION; WAIVER OF JURY TRIAL. Each party hereto, to the extent it may lawfully do so, hereby submits to the jurisdiction of the courts of the State of Maine and the United States District Court for the District of Maine as well as to the jurisdiction of all courts from which an appeal may be taken or other review sought from the aforesaid courts, for the purpose of any suit, action or other proceeding arising out of such party's obligations under or with respect to this agreement or any of the agreements, instruments or documents contemplated hereby (other than the confidentiality agreement), and expressly waives any and all objections it may have as to venue in any of such courts. Each party hereto hereby waives trial by jury in any action, proceeding or counterclaim arising out of or in any way concerned with this agreement or any of the agreements, instruments or documents contemplated hereby. No party hereto, nor any assignee or successor of a party hereto shall seek a jury trial in any lawsuit, proceeding, counterclaim or any other litigation procedure based upon, or arising out of, this agreement or any of the agreements, instruments or documents contemplated hereby. No party will seek to consolidate any such action, in which a jury trial has been waived, with any other action in which a jury trial cannot be or has not been waived. The provisions of this have been fully discussed by the parties hereto, and the provisions shall be subject to no exceptions. No party has in anyway agreed with or represented to any other party that the provisions of this section will not be fully enforced in all instances. SECTION 16.9. WAIVER OF CERTAIN DAMAGES. Each of the parties hereto to the fullest extent permitted by law irrevocably waives any rights that they may have to punitive, special, incidental, exemplary or consequential damages in respect of any litigation based upon, or arising out of, this agreement or any related agreement or any course of conduct, course of dealing, statements or actions of any of them relating thereto. SECTION 16.10. SEVERABILITY. In the event that any provision of this shall be held invalid, illegal, or unenforceable in any respect, the validity, legality, and enforceability of the remaining provisions contained in this Agreement shall not in any way be affected or impaired thereby, and this Agreement shall otherwise remain in full force and effect. SECTION 16.11. COUNTERPARTS. This Agreement may be executed in one or more counterparts, all of which shall be considered one and the same agreement and shall become effective when one or more counterparts have been signed by each of the parties hereto. SECTION 16.12. NOTICES. All notices, consents, requests, instructions, approvals, waivers, stipulations and other communications provided for herein to be given by one party hereto to the other party shall be 48 deemed validly given, made or served, if in writing and delivered personally or sent by certified mail, return receipt requested, nationally recognized overnight delivery service, or facsimile transmission, if to Seller addressed to: Steven A. Closson President and Chief Executive Officer Androscoggin Savings Bank 30 Lisbon Street, P.O. Box 1407 Lewiston, Maine 04240 with copies to: Luse Gorman Pomerenk & Schick, P.C. 5335 Wisconsin Avenue, N.W., Suite 400 Washington, D.C. 20015-2035 Attention: John J. Gorman, Esq. and if to Purchaser addressed to: Bar Harbor Banking & Trust Company 82 Main Street Bar Harbor, Maine 04609 Attention: Chief Executive Officer with copies to: Eaton Peabody 80 Exchange Street Bangor, Maine 04401 Attention: Daniel G. McKay, Esq. Notice by certified mail shall be deemed to be received three Business Days after mailing of the same. Notice by overnight courier shall be deemed effective on the next business day following delivery to such courier. Either party may change the persons or addresses to whom or to which notices may be sent by written notice to the others. SECTION 16.13. INTERPRETATION. Article titles, headings to sections and any table of contents are inserted for convenience of reference only and are not intended to be a part of or to affect the meaning or interpretation hereof. The Schedules and Exhibits referred to herein shall be construed with and as an integral part of this Agreement to the same extent as if they were set forth verbatim herein. As used herein, "include", "includes" and "including" are deemed to be followed by "without limitation" whether or not they are in fact followed by such words or words of like import; "writing", "written" and comparable terms refer to printing, typing, lithography and other means of reproducing words in a visible form; references to a person are also to its successors and assigns; except as the context may otherwise require, "`hereof", "herein", "hereunder" and comparable 49 terms refer to the entirety hereof and not to any particular article, section or other subdivision hereof or attachment hereto; references to any gender include the other, except as the context may otherwise require, the singular includes the plural and vice versa; references to any agreement or other document are to such agreement or document as amended and supplemented from time to time; references to "Article", "Section" or another subdivision or to an "Exhibit" or "Schedule" are to an article, section or subdivision hereof or an "Exhibit" or "Schedule". The parties acknowledge that each party and its counsel have reviewed and revised this Agreement and that the normal rule of construction to the effect that any ambiguities are to be resolved against the drafting party shall not be employed in the interpretation, construction and enforcement of this Agreement or any amendment, schedule or exhibit hereto. SECTION 16.14. SPECIFIC PERFORMANCE. The parties hereto acknowledge that monetary damages could not adequately compensate either party hereto in the event of a breach of this Agreement by the other, that the non-breaching party would suffer irreparable harm in the event of such breach and that the non-breaching party shall have, in addition to any other rights or remedies it may have at law or in equity, specific performance and injunctive relief as a remedy for the enforcement hereof. SECTION 16.15. NO THIRD PARTY BENEFICIARIES. The parties hereto intend that this Agreement shall not benefit or create any right or cause of action in or on behalf of any person other than the parties hereto. No future or present employee or customer of either of the parties nor their affiliates, successors or assigns or other person shall be treated as a third party beneficiary in or under this Agreement. 50 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed, by their duly authorized representatives, as of the day and year first above written. ANDROSCOGGIN SAVINGS BANK By: ______________________________________________ Name: Steven A. Closson Title: President and Chief Executive Officer BAR HARBOR BANKING AND TRUST COMPANY By: ______________________________________________ Name: Joseph M. Murphy Title: Chief Executive Officer 51 EXHIBIT A FORM OF QUITCLAIM DEED WITH COVENANT SHORT FORM QUITCLAIM DEED WITH COVENANT Androscoggin Savings Bank, a Maine banking corporation, with an address of 30 Lisbon Street, Lewiston, Maine 04240, FOR CONSIDERATION PAID, grants to Bar Harbor Banking and Trust Company, a Maine banking corporation with an address at 82 Main Street, Bar Harbor, Maine 04609, with QUITCLAIM COVENANTS, that certain property located in___________, __________ County, Maine all as more particularly described on Exhibit A attached hereto and mad a part hereof. IN WITNESS WHEREOF, Androscoggin Savings Bank has caused this instrument to be executed under seal by _______________, its _________________, thereunto duly authorized, this __ day of _____________, 200_. WITNESS: ANDROSCOGGIN SAVINGS BANK ______________________ By:________________________________ Name: Title: State of Maine County of ____________, ss. __________________, 200_ PERSONALLY APPEARED the above named ________________________, ____________ of Androscoggin Savings Bank as aforesaid and acknowledged the foregoing instrument to be his free act and deed in his said capacity and the free act and deed of said corporation. Before me, ________________________________ Notary Public My commission expires: EXHIBIT B FORM OF BILL OF SALE AND ASSIGNMENT This BILL OF SALE AND ASSIGNMENT is made and entered into as of ________, 2003, by Androscoggin Savings Bank, a Maine-chartered bank with its principal offices at 30 Lisbon Street, Lewiston, Maine 04240 ("Seller"), and Bar Harbor Banking & Trust Company, a Maine financial institution with its principal offices at 82 Main Street, Bar Harbor, Maine 04609 ("Purchaser"). Capitalized terms used herein which are defined in that certain Purchase and Assumption Agreement, dated as of ______________ ___, 2003, by and between Seller and Purchaser (the "Agreement"), shall have the same meanings herein as therein unless defined herein or the context requires otherwise herein. WITNESSETH: WHEREAS, pursuant to the Agreement, among other matters, Seller has agreed to transfer the Personalty to Purchaser; NOW, THEREFORE, for good and valuable consideration paid by Purchaser to Seller at or before the execution of this Bill of Sale and Assignment, the receipt and sufficiency of which are hereby acknowledged, Seller by this Bill of Sale and Assignment does hereby convey, grant, bargain, sell, transfer, set over, assign, alienate, remise, release, deliver and confirm unto Purchaser, its successors and assigns, forever, all of Seller's right, title, interest in and to the Personalty as of the close of business on the date hereof. TO HAVE AND TO HOLD all and singular the Personalty unto Purchaser, its successors and assigns, to its and their own use and enjoyment forever. SELLER FURTHER COVENANTS AND AGREES AS FOLLOWS: A. This Bill of Sale and Assignment shall not constitute an assignment in whole or in part of any Personalty if an attempted assignment of the same without the consent of any other party thereto or with an interest therein would constitute a breach thereof or in any way affect the rights of Seller thereunder or be contrary to applicable law. If any such consent is not obtained with respect to any such Personalty, then Seller, its respective successors and assigns, shall act as Purchaser's agent in order to obtain for Purchaser, its successors and assigns, the benefits thereunder. B. Seller has good and marketable title to the Personalty free and clear of all liens and encumbrances. Seller has the right and authority to sell and transfer the Personalty, and the Personalty is being delivered "AS IS", "WHERE IS" and with all faults. C. This Bill of Sale and Assignment is given pursuant to the provisions of the Agreement, and, except as herein otherwise provided, the transfer of the Personalty hereunder is made subject to the terms and provisions of the Agreement. D. This Bill of Sale and Assignment is only for the benefit of the Purchaser and its successors and assigns and shall not be relied upon by, or inure to the benefit of, any other party. E. Any notice, request or other document to be given hereunder or in connection herewith to any party hereto shall be given in the manner described in the Agreement. F. This Bill of Sale and Assignment shall be governed by, and construed in accordance with, the laws of the State of Maine. IN WITNESS WHEREOF, Seller has duly executed and delivered this Bill of Sale and Assignment as of the day and year first above written. ___________________ By: __________________________________________ Name: Title: Chairman and Chief Executive Officer EXHIBIT B [Legal Description of Premises] EXHIBIT C FORM OF ASSIGNMENT AND ASSUMPTION AGREEMENT This ASSIGNMENT AND ASSUMPTION AGREEMENT (this "Agreement"), is made and entered into as of ____________, 2003, by and between Bar Harbor Banking & Trust Company, a Maine financial institution ("Purchaser") and Androscoggin Savings Bank, a Maine-chartered bank ("Seller"). Capitalized terms used herein which are defined in that certain Purchase and Assumption Agreement, dated as of ____________ ___, 2003, by and between Seller and Purchaser (the "Purchase and Assumption Agreement"), shall have the same meanings herein as therein unless defined herein or the context requires otherwise herein. WITNESSETH WHEREAS, pursuant to the terms of the Purchase and Assumption Agreement, Purchaser agreed to assume certain liabilities and obligations of Seller; NOW, THEREFORE, in consideration of the mutual agreements contained in the Purchase and Assumption Agreement and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: For value received, Seller hereby assigns, and Purchaser hereby assumes and agrees to perform and discharge, the Assumed Liabilities. With respect to the assumption of any Assumed Liability or acceptance of any right, title, interest or obligation, to any Assumed Liability as to which a consent is required for the assignment and assumption thereof, this Agreement shall not constitute an assignment, transfer or sublicense (or attempted assignment, transfer or sublicense) thereof from Seller to Purchaser unless and until such consent is obtained, whereupon this instrument shall automatically and without further action by any party be effective to assign and transfer such Assumed Liability from Seller to Purchaser in accordance with all of the terms and conditions of the Agreement, such assignment and transfer (and the assumption thereof by Purchaser) to be effective as of the date hereof. With respect to any Assumed Liability as to which a consent to assignment is not in full force and effect on the date hereof, or as to which any consent obtained is subject to conditions which would materially diminish the value of the benefits to be derived by Purchaser from such assignment, Purchaser shall perform all duties and obligations of Seller thereunder pending the receipt of such consent, Seller shall, at its sole expense, use its best efforts to obtain such consent, and Seller shall make available to Purchaser all the benefits thereof to the maximum extent possible during such period. The Assumed Liabilities being assumed pursuant to this Agreement are subject to the terms and conditions of the Purchase and Assumption Agreement. Notwithstanding anything to the contrary set forth herein, if there is any conflict between the terms and conditions of this Agreement and the terms and conditions of the Purchase and Assumption Agreement, the terms and conditions of the Purchase and Assumption shall control. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns and shall not be relied upon or inure to the benefit of, any other party. Any notice, request or other document to be given hereunder or in connection herewith to any party hereto shall be given in the manner described in the Purchase and Assumption Agreement. This Agreement shall be governed by, construed and enforced in accordance with the laws of the State of Maine. IN WITNESS WHEREOF, each of the parties by their respective duly authorized officers has caused this instrument to be executed as of the date first above written. ANDROSCOGGIN SAVINGS BANK By:_________________________________ Name_____________________________ Title:___________________________ __________________ By:_________________________________ Name_____________________________ Title:___________________________ EXHIBIT D FORM OF SELLER'S OFFICER'S CERTIFICATE ANDROSCOGGIN SAVINGS BANK OFFICER'S CERTIFICATE I, ________________, being the duly elected ________________________ of Androscoggin Savings Bank, a Maine chartered bank ("Seller"), do hereby certify, pursuant to Section 5.2(g) of that certain Purchase and Assumption Agreement, dated as of _______________ ___, 2003, by and between Seller and __________________, a __________________, ("Purchaser") (the "Agreement"), that: 1. All of the covenants and other agreements required by the Agreement to be complied with and performed by Seller on or before the date hereof have been duly complied with and performed in all material respects. 2. The representations and warranties made by Seller in the Agreement and in any certificate or other document delivered pursuant to the provisions thereof or in connection with the transactions contemplated thereby are true and correct in all material respects on and as of the date hereof, with the same force and effect as though such representations and warranties had been made on the date hereof; provided however, that the representations and warranties of Seller in the Agreement or in any certificate or other document delivered pursuant to the provisions thereof shall be deemed to be true and correct in all material respects on and as of the date hereof, with the same force and effect as though made on the date hereof, unless the failure to be so true and correct would have a Material Adverse Effect. Capitalized terms used herein and not otherwise defined herein shall have the meanings given to them in the Agreement. IN WITNESS WHEREOF, the undersigned has executed this Certificate on this ___ day of ____________, 2003. ANDROSCOGGIN SAVINGS BANK By:____________________________________________ Name: Steven A. Closson Title: President and Chief Executive Officer EXHIBIT E FIRPTA NON-FOREIGN PERSON CERTIFICATE Section 1445 of the Internal Revenue Code of 1986, as amended (the "Code"), provides that a transferee (purchaser) of U.S. real property interest must withhold tax if the transferor (seller) is a foreign person. Pursuant to a Purchase and Assumption Agreement, dated as of ________________ ___, 2004 (the "Agreement") by and between Androscoggin Savings Bank and __________________ ("Purchaser"), Purchaser is purchasing and assuming assets and liabilities associated with a bank branch in Rockland, Maine (the "Branch") from Androscoggin Savings Bank. To inform the Purchaser that withholding of tax is not required upon the sale of the Branch, the undersigned hereby certifies as follows, as required by Section 5.2(j) of the Agreement: 1. The undersigned is not a nonresident alien individual, foreign corporation, foreign partnership, foreign trust or foreign estate (as those terms are defined in the Code and income tax regulations); 2. The undersigned's U.S. employer identification or social security number is ___________; and 3. The address of the undersigned is____________________________. The undersigned understands that this certification may be disclosed to the Internal Revenue Service by the transferee and that any false statement contained herein could be punished by fine, imprisonment, or both. Under penalties of perjury, I declare that I have examined this certification and to the best of my knowledge and belief it is true, correct and complete. Dated: ___________, 2003 _________________________________ By:____________________________________________ Name: Title: President and Chief Executive Officer EXHIBIT F FORM OF PURCHASER OFFICER'S CERTIFICATE __________________ Officer's Certificate I, _________________, being the duly elected _________________ of __________________, a ________________ ("Purchaser"), do hereby certify, pursuant to Section 5.3(c) of that certain Purchase and Assumption Agreement, dated as of _________________ ___, 2003, by and between Androscoggin Savings Bank, a Maine-chartered bank ("Seller") and Purchaser (the "Agreement"), that: 1. All of the covenants and agreements required by the Agreement to be complied with and performed by Purchaser on or before the date hereof have been duly complied with and performed in all material respects. 2. The representations and warranties made by Purchaser in the Agreement or in any certificate or other document delivered pursuant to the provisions thereof or in connection with the transactions contemplated thereby are true and correct in all material respects, on and as of the date hereof, with the same force and effect as though such representations and warranties had been made on the date hereof; provided, however, that the representations and warranties of Purchaser in the Agreement or in any certificate or other document delivered pursuant to the provisions thereof shall be deemed to be true and correct in all material respects on and as of the date hereof, with the same force and effect as though made on the date hereof, unless the failure to be so true and correct would have a Material Adverse Effect. Capitalized terms used herein and not otherwise defined herein shall have the meanings given to them in the Agreement IN WITNESS WHEREOF, the undersigned has executed this Officer's Certificate on the __ day of _________, 2003. ____________________________________ By:_________________________________ Name_____________________________ Title:___________________________ EX-10.2 4 b48402bhexv10w2.txt EX 10.2 SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN EXHIBIT 10.2 9/9/2003 BAR HARBOR BANKSHARES SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN As adopted effective as of January 1, 2003 BAR HARBOR BANKSHARES SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN Table of Contents ARTICLE 1 DESIGNATION AND PURPOSE 1.1 Designation 1.2 Purpose 1.3 Effective Date ARTICLE 2 DEFINITIONS ARTICLE 3 ELIGIBILITY 3.1 Eligibility to Participate 3.2 Duration of Participation ARTICLE 4 RETIREMENT BENEFITS 4.1 Normal Retirement Benefit 4.2 Early Retirement Benefit 4.3 Disability Retirement Benefit 4.4 Vested Deferred Benefit 4.5 Alternative Lump Sum Form of Benefit Payment ARTICLE 5 DEATH BENEFIT 5.1 Death Before Benefit Commencement 5.2 Death After Benefit Commencement 5.3 No Other Death Benefits ARTICLE 6 UNFORESEEABLE FINANCIAL EMERGENCY 6.1 Withdrawal for Unforeseeable Financial Emergency ARTICLE 7 OTHER PLAN PROVISIONS 7.1 Funding 7.2 Consent to Insurance Procedures 7.3 Benefits Not Assignable 7.4 Beneficiaries i ARTICLE 8 SUSPENSION AND TERMINATION OF BENEFIT PAYMENTS 8.1 Suspension of Benefit Payments 8.2 Termination of Benefit Payments ARTICLE 9 ADMINISTRATION 9.1 Plan Administrator 9.2 Powers of Plan Administrator 9.3 Annual Statements 9.4 Facility of Payment 9.5 Address of Payee Unknown 9.6 Reliance on Professionals 9.7 Payment of Expenses ARTICLE 10 BENEFIT CLAIMS PROCEDURE 10.1 Claims for Benefits 10.2 Request for Review of Denial 10.3 Decision on Review of Denial 10.4 Arbitration ARTICLE 11 AMENDMENT 11.1 Right to Amend ARTICLE 12 MISCELLANEOUS 12.1 Titles are for Reference Only 12.2 Construction 12.3 Successors 12.4 No Contract 12.5 Beneficiaries' Rights 12.6 Gender and Number ANNEX A Schedule of Benefits ii BAR HARBOR BANKSHARES SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN Pursuant to a resolution of its board of directors, Bar Harbor Bankshares, a Maine corporation, has adopted this supplemental executive retirement plan. ARTICLE 1 DESIGNATION AND PURPOSE 1.1 Designation. The Plan is designated the "Bar Harbor Bankshares Supplemental Executive Retirement Plan". 1.2 Purpose. The purpose of the Plan is to provide certain eligible employees of Bar Harbor Bankshares and its affiliated companies with retirement income pursuant to an unfunded, deferred compensation arrangement maintained solely for a select group of management or highly compensated employees. 1.3 Effective Date. The effective date of this Plan is January 1, 2003. 1 ARTICLE 2 DEFINITIONS When used herein, each of the words and phrases defined hereinafter shall have the following meaning unless a different meaning is clearly required by the context of the Plan. 2.1 "Accrued Benefit" shall mean the monthly retirement benefit which a Participant is entitled to receive under the Plan if the payment of his or her benefit commences prior to his or her Normal Retirement Date, as set forth in Section A.3 of Annex A. 2.2 "Beneficiary" shall mean the person or persons named by the Participant as his or her beneficiary pursuant to the provisions of Section 7.4. 2.3 "Cause" shall be deemed to exist only in the event the Participant is convicted by a court of competent jurisdiction of a felony involving dishonesty or fraud on the part of the Participant in his or her relationship with the Company. 2.4 "Change in Control" shall mean the occurrence of any one of the following events: (a) Any person, including a group (as such term is used in Section 13(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) becomes the beneficial owner (as determined pursuant to Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Principal Company representing more than fifty percent (50%) of the combined voting power of the Principal Company's then outstanding securities, other than as a result of an issuance of securities initiated by the Principal Company in the ordinary course of its business; or (b) The Principal Company is party to a Business Combination (as hereinafter defined) unless, following consummation of the Business Combination, more than fifty percent (50%) of the outstanding voting securities of the resulting entity are beneficially owned, directly or indirectly, by the holders of the Principal Company's outstanding voting securities immediately prior to the Business Combination in substantially the same proportions as those existing immediately prior to the Business Combination; or (c) The stockholders of the Principal Company approve a plan of complete liquidation of the Principal Company or an agreement for the sale or disposition by the Principal Company of all or substantially all of the Principal Company's assets to another person or entity which is not a wholly-owned subsidiary of the Principal Company. For purposes of this Section 2.4, a Business Combination means any cash tender or exchange offer, merger or other business combination, sale of stock, or sale of all or substantially all of the assets, or any combination of the foregoing transactions. 2 No internal reorganization of the board of directors of the Principal Company or any affiliate's board membership will be deemed to be a Change in Control for purposes of this Section 2.4 2.5 "Code" shall mean the Internal Revenue Code of 1986, as amended. 2.6 "Company" shall mean the Principal Company and any other corporation or other entity which has assumed the obligations of the Plan with respect to its employees with the consent of the Principal Company, and any successor thereof. 2.7 "Disabled Participant" shall mean a Participant who incurs a permanent and total disability (as defined in the Company's long term disability insurance plan) while employed by the Company, and who is receiving a disability income under the Company's long term disability insurance plan that was awarded as a result of such permanent and total disability. Such disability shall be deemed to exist only if an application for benefits is filed with the administrator of the Company's long term disability insurance plan by or on behalf of such individual in the manner described in such long term disability insurance plan. 2.8 "Disability Retirement Date" shall mean the first day of the month coinciding with or next following the date on which the Plan Administrator determines that a Participant is a Disabled Participant. 2.9 "Early Retirement Date" shall mean the first day of the month coinciding with or next following the date on which a Participant reaches age 50. 2.10 "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended. 2.11 "Good Reason" shall mean, unless the Participant consents to such action, a reduction in the Participant's compensation that does not apply generally to all senior executive officers of the Company, a material reduction in the duties of the Participant, or a change in the principal worksite of the Participant to a location that is more than fifty (50) miles from Bar Harbor, Maine. 2.12 "Normal Retirement Benefit" shall mean the monthly retirement benefit which a Participant is entitled to receive if the payment of his or her benefit commences on or after his or her Normal Retirement Date, as set forth in Section A.2 of Annex A. 2.13 "Normal Retirement Date" shall mean the first day of the month coinciding with or next following the date on which a Participant reaches the age set forth in Section A.1 of Annex A. 2.14 "Participant" shall mean an individual who is designated in Article 3 of the Plan as being eligible to participate in the Plan. 2.15 "Plan" shall mean the Bar Harbor Bankshares Supplemental Executive Retirement Plan as of its original effective date, including any amendments thereto. 2.16 "Plan Administrator" shall mean the person, persons or entity designated by the board of directors of the Principal Company in accordance with Article 9. The Plan Administrator shall be a named fiduciary with respect to the Plan. 2.17 "Plan Year" shall mean the 12-month period ending on December 31 of each year. 2.18 "Present Value" shall mean the lump sum present value of a benefit which a Participant or Beneficiary is entitled to receive under the Plan, determined as of a particular date and calculated using a six percent (6%) rate of interest. 2.19 "Principal Company" shall mean Bar Harbor Bankshares. 2.20 "Retirement Benefit" shall mean a Normal Retirement Benefit, an Early Retirement Benefit, a Disability Retirement Benefit or a Vested Deferred Benefit, each as defined in Article 4. 2.21 "Unforeseeable Financial Emergency" shall mean an unanticipated emergency that is caused by an event beyond the control of the Participant and that would result in severe financial hardship to the Participant due to (a) a sudden and unexpected illness or accident of the Participant or a dependent of the Participant, (b) a loss of the Participant's property due to casualty, or (c) such other extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the Participant, all as determined in the sole discretion of the Plan Administrator. ARTICLE 3 ELIGIBILITY 3.1 Eligibility to Participate. The following individuals shall be Participants in the Plan: Joseph M. Murphy Dean S. Read Gerald Shencavitz Notwithstanding the foregoing, however, an individual shall not be a Participant in the Plan unless the individual is a member of a select group of management or highly compensated employees within the meaning of Sections 201, 301 and 401 of ERISA. 3.2 Duration of Participation. Each individual named in Section 3.1 shall remain a Participant in the Plan for as long as he or she is entitled to any benefits under the Plan. ARTICLE 4 RETIREMENT BENEFITS 4.1 Normal Retirement Benefit. A Normal Retirement Benefit shall be payable to an eligible Participant who retires on or after his or her Normal Retirement Date (as set forth in Section A.1 of Annex A) in an amount equal to his or her Normal Retirement Benefit (as set forth in Section A.2 of Annex A). The Normal Retirement Benefit shall commence on the first scheduled pay date of the month coinciding with or next following the date on which the Participant retires, and shall be paid for a period of two hundred forty (240) months certain. 4.2 Early Retirement Benefit. An Early Retirement Benefit shall be payable to an eligible Participant who retires on or after his or her Early Retirement Date and prior to his or her Normal Retirement Date in an amount equal to his or her Accrued Benefit (as set forth in Section A.3 of Annex A). The Early Retirement Benefit shall commence on the first scheduled pay date of the month coinciding with or next following the date on which the Participant retires, and shall be paid for a period of two hundred forty (240) months certain. Notwithstanding the above, if an eligible Participant terminates employment on or after his or her Early Retirement Date and prior to his or her Normal Retirement Date and within three years after a Change in Control, and if the eligible Participant terminates employment for Good Reason or is terminated without Cause, then the amount of his or her Early Retirement Benefit shall be equal to his or her Normal Retirement Benefit. 4.3 Disability Retirement Benefit. A Disability Retirement Benefit shall be payable to an eligible Participant who becomes a Disabled Participant prior to his or her Normal Retirement Date and who is employed by the Company at the time he or she becomes a Disabled Participant. The amount of the Disability Retirement Benefit shall be equal to his or her Accrued Benefit (as set forth in Section A.3 of Annex A). The Disability Retirement Benefit shall commence on the first scheduled pay date coinciding with or next following the Participant's Disability Retirement Date, and shall be paid for a period of two hundred forty (240) months certain. Notwithstanding the above, if an eligible Participant becomes a Disabled Participant prior to his or her Normal Retirement Date, while employed by the Company, and within three years after a Change in Control, then the amount of his or her Disability Retirement Benefit shall be equal to his or her Normal Retirement Benefit. If an eligible Participant ceases to be a Disabled Participant, the Participant's Disability Retirement Benefit shall cease. Thereafter, if the Participant subsequently becomes eligible to receive a Normal Retirement Benefit, an Early Retirement Benefit or a Vested Deferred Benefit, then the number of months during which such Normal Retirement Benefit, Early Retirement Benefit or Vested Deferred Benefit is payable shall be reduced so that the Present Value of such adjusted Normal Retirement Benefit, Early Retirement Benefit or Vested Deferred Benefit shall equal the excess of: (a) the Present Value of the unadjusted Normal Retirement Benefit, Early Retirement Benefit or Vested Deferred Benefit, over (b) the Present Value of the amount previously received by the Participant as a Disability Retirement Benefit. 4.4 Vested Deferred Benefit. A Vested Deferred Benefit shall be payable to an eligible Participant who terminates employment prior to his or her Early Retirement Date in an amount equal to his or her Accrued Benefit (as set forth in Section A.3 of Annex A). The Vested Deferred Benefit shall commence on the first scheduled pay date coinciding with or next following the Participant's Early Retirement Date, and shall be paid for a period of two hundred forty (240) months certain. Notwithstanding the above, if an eligible Participant terminates employment prior to his or her Early Retirement Date and within three years after a Change in Control, and if the eligible Participant terminates employment for Good Reason or is terminated without Cause, then the amount of his or her Vested Deferred Benefit shall be equal to his or her Normal Retirement Benefit. 4.5 Alternative Lump Sum Form of Benefit Payment. Notwithstanding any provisions of this Article 4 to the contrary, a Participant who has not yet become eligible to receive a Retirement Benefit may elect not to have his or her Retirement Benefit paid for a period of two hundred forty (240) months certain, but may elect to have his or her Retirement Benefit paid instead in a single lump sum payment equal to the Present Value of his or her Retirement Benefit. A Participant may make such an election by submitting an election form to the Plan Administrator. Any such election shall be subject to the acceptance and approval of the Plan Administrator in its sole discretion. In addition, any such election shall not be effective if the Participant's Retirement Benefit commences prior to the first anniversary of the date on which the election is received by the Plan Administrator. That election which has become effective and which was most recently accepted by the Plan Administrator shall govern the form of payment of the Participant's Retirement Benefit. ARTICLE 5 DEATH BENEFIT 5.1 Death Before Benefit Commencement. A Death Benefit shall be payable to the Beneficiary of an eligible Participant who dies while employed by the Company prior to the commencement of his or her Retirement Benefit. The amount of the Death Benefit shall be equal to the Participant's Normal Retirement Benefit (as set forth in Section A.2 of Annex A); provided, however, that if the Company obtained a life insurance policy on the life of the Participant prior to his or her death but the Company is unable to obtain the death benefit under the life insurance policy for any reason, then the amount of the Death Benefit payable to the Participant's Beneficiary shall be equal to the Participant's Accrued Benefit (as set forth in Section A.3 of Annex A) as of the date of his or her death. The Death Benefit shall commence as of the first scheduled pay date of the month following the Participant's death and shall be paid for a period of two hundred forty (240) months certain. 5.2 Death After Benefit Commencement. A Death Benefit shall be payable to the Beneficiary of an eligible Participant who dies after commencing to receive his or her Retirement Benefit in a form other than a single lump sum payment. The amount of the Death Benefit shall be at the same level as the monthly Retirement Benefit paid to the Participant during his or her lifetime. The Death Benefit shall commence as of the first scheduled pay date of the month following the Participant's death and shall be paid for a period equal to the remainder of the two hundred forty (240) months certain. 5.3 No Other Death Benefits. Except as provided in Section 5.1 and Section 5.2, there shall be no death benefits payable under the Plan. ARTICLE 6 UNFORESEEABLE FINANCIAL EMERGENCY 6.1 Withdrawal for Unforeseeable Financial Emergency. If the Participant experiences an Unforeseeable Financial Emergency, the Participant may request a withdrawal of all or a portion of his or her Retirement Benefit. However, in no event may a Participant receive such a withdrawal to the extent that the Unforeseeable Financial Emergency can be relieved through reimbursement or compensation by insurance or otherwise, or by liquidation of the Participant's assets (to the extent such liquidation would not itself cause a severe financial hardship). The amount of a withdrawal due to an Unforeseeable Financial Emergency shall not exceed the lesser of the Present Value of the Participant's Retirement Benefit or the amount reasonably needed to satisfy the Unforeseeable Financial Emergency. If, subject to the sole discretion of the Plan Administrator, the Participant's request for a withdrawal is approved, the withdrawal shall be made within sixty (60) days after the date of such approval. If: (a) a Participant receives a withdrawal due to an Unforeseeable Financial Emergency, and (b) the Participant subsequently becomes eligible to receive a Retirement Benefit (or the Participant's Beneficiary subsequently become eligible to receive a Death Benefit), then the number of months during which such Retirement Benefit (or Death Benefit) is payable shall be reduced so that the Present Value of such adjusted Retirement Benefit (or Death Benefit) shall equal the excess of: (a) the Present Value of the unadjusted Retirement Benefit (or Death Benefit), over (b) the Present Value of the amount of the withdrawal which the Participant previously received due to an Unforeseeable Financial Emergency. ARTICLE 7 OTHER PLAN PROVISIONS 7.1 Funding. (a) It is the intention of the Company, the Participants, their Beneficiaries, and each other party to the Plan that the arrangements hereunder be unfunded for tax purposes and for purposes of Title I of ERISA. The rights of Participants and their Beneficiaries shall be solely those of a general unsecured creditor of the Company. The Plan constitutes a mere promise by the Company to make benefit payments in the future. (b) Prior to the occurrence of a Change in Control, the Company shall not have any obligation to set aside assets to provide the benefits payable under the Plan. However, if the Company determines, prior to a Change in Control, that assets should be set aside to provide the benefits payable under the Plan, it may utilize, singly or in combination, any method which it may deem appropriate, including, but not limited to, a grantor trust or life insurance contracts. Moreover, the terms of any grantor trust which may be created by the Company to assist the Company in meeting its obligations under the Plan shall conform with the language of the model trust agreement set forth in Revenue Procedure 92-64 issued by the Internal Revenue Service (or any successor thereto) relating to trusts established in connection with unfunded deferred compensation arrangements (or, if such trusts are no longer available for use in connection with unfunded deferred compensation arrangements, any other instrument which is designed to provide a similar level of security and to have the same tax results as such trust). Upon the occurrence of a Change in Control, the Company shall (unless the Company's liabilities under the Plan have been fully discharged) adopt and fully fund a grantor trust, the terms of which shall conform with the language of the model trust agreement set forth in Revenue Procedure 92-64 issued by the Internal Revenue Service (or any successor thereto). (c) The Plan Administrator may direct that payments be made before they would otherwise be due if, based on a change in the Federal tax or revenue laws, a published ruling or similar announcement issued by the Internal Revenue Service, a regulation issued by the Secretary of the Treasury, a decision by a court of competent jurisdiction involving a Participant or his or her Beneficiary or a closing agreement made under Section 7121 of the Code that is approved by the Internal Revenue Service and involved a Participant or his or her Beneficiary, the Plan Administrator determines that a Participant or his or her Beneficiary has or will recognize income for Federal income tax purposes with respect to amounts that are or will be payable under the Plan before they are to be paid. Amounts so paid shall then be used as an offset to the benefits, if any, thereafter payable hereunder. 7.2 Consent to Insurance Procedures. In order to be eligible for benefits hereunder, a Participant must agree that the Company may from time to time apply for and take out in its own name and at its own expense such life, health, accident or other insurance upon the Participant as the Company may deem necessary or advisable to protect its interests hereunder. The Participant must also agree to submit to any medical or other examination necessary for such purpose and to assist and cooperate with the Company in procuring such insurance. The Participant and his or her Beneficiary must also agree that they shall have no right, title or interest in and to such insurance whether presently existing or hereafter procured. 7.3 Benefits Not Assignable. Except as required by law, the right of any Participant or his or her Beneficiary to any benefit or payment under the Plan: (a) shall not be subject to voluntary or involuntary anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, attachment, or garnishment by creditors of the Participant or his or her Beneficiary; (b) shall not be considered an asset of the Participant or his or her Beneficiary in the event of any divorce, insolvency or bankruptcy; and (c) shall not be subject to attachment, execution, garnishment, sequestration or other legal or equitable process. In the event that a Participant or his or her Beneficiary who is receiving or is entitled to receive benefits under the Plan attempts to assign, transfer or dispose of such right, or if an attempt is made to subject said right to such process, such assignment, transfer, disposition or process shall, unless otherwise required by law, be null and void. 7.4 Beneficiaries. A Participant may designate one or more Beneficiaries and contingent Beneficiaries to receive any benefits payable under the Plan after his or her death by delivering a written designation thereof over his or her signature to the Plan Administrator. A Participant may designate different Beneficiaries at any time by delivering a new written designation over his or her signature to the Plan Administrator. Any such designation shall become effective only upon its receipt by the Plan Administrator. The last effective designation received by the Plan Administrator shall supersede all prior designations. If a Participant fails to designate a Beneficiary, or if no designated Beneficiary survives the Participant, the Participant shall be deemed to have designated the Participant's estate as his or her Beneficiary. ARTICLE 8 SUSPENSION AND TERMINATION OF BENEFIT PAYMENTS 8.1 Suspension of Benefit Payments. In the event that a Participant commences receiving a Retirement Benefit hereunder and is subsequently re-employed on a full-time basis by the Company or any of its affiliates, the payment of his or her Retirement Benefit under the Plan shall cease as of the date of his or her re-employment. After the Participant's re-employment ends and he or she again becomes eligible to receive a Retirement Benefit (determined as of the date of his or her subsequent termination of employment), then the number of months during which such Retirement Benefit is payable shall be reduced so that the Present Value of such adjusted Retirement Benefit shall equal the excess of: (a) the Present Value of the unadjusted Retirement Benefit, over (b) the Present Value of the amount previously received by the Participant as a Retirement Benefit. 8.2 Termination of Benefit Payments. In the event that the Company terminates a Participant's employment for Cause, or in the event that a Participant who is receiving or is entitled to receive benefits hereunder violates any written agreement with the Company or any of its affiliates (including, without limitation, any written agreement relating to noncompetition or the nondisclosure of secret or confidential information or knowledge), then all rights to future benefit payments with respect to such Participant shall be forfeited and terminate. ARTICLE 9 ADMINISTRATION 9.1 Plan Administrator. The board of directors of the Principal Company shall have the responsibility for the administration of the Plan. The board of directors may, by written instruction, designate one or more persons to carry out any specified responsibilities under the Plan and may, in the same manner, revoke such delegation of responsibilities. Upon the designation of such a person or persons and the delegation of such responsibilities to him or them, all references in this Plan to "Plan Administrator" shall be deemed to refer to such person or persons. 9.2 Powers of Plan Administrator. The Plan Administrator shall have such authority and powers as may be necessary to discharge its duties hereunder. The determination of the Plan Administrator as to any question involving the general administration and interpretation of the Plan shall be final, binding and conclusive, unless the Plan Administrator has acted in an arbitrary or capricious manner. Any discretionary actions to be taken under the Plan by the Plan Administrator shall be uniform in their nature and applicable to all persons similarly situated. Without limiting the generality of the foregoing, the Plan Administrator shall have the following powers and duties: (a) to construe and interpret the Plan, decide all questions of eligibility for and determine the amount and time of payment of any benefits hereunder; (b) to prescribe procedures to be followed by Participants and their Beneficiaries for filing applications for benefits; (c) to prepare and distribute information explaining the Plan; and (d) to appoint or employ individuals to assist in the administration of the Plan and any other agents it deems advisable, including legal counsel (who may be counsel for the Company). 9.3 Annual Statements. At least once each year, the Plan Administrator shall provide each Participant with a statement setting forth the amount of the Retirement Benefit to which the Participant would be entitled if he or she continued to be employed until his or her Normal Retirement Date, as well as the amount of the Retirement Benefit to which he or she would be entitled if he or she terminated employment immediately. 9.4 Facility of Payment. Whenever, in the Plan Administrator's opinion, a person entitled to receive any payment of a benefit or installment thereof hereunder is under a legal disability or is incapacitated in any way so as to be unable to manage his or her financial affairs, the Plan Administrator may issue directions that payments shall be made to another person for his or her benefit, or the Plan Administrator may direct that payments be applied for the benefit of such person in such manner as the Plan Administrator considers advisable. Any payment of a benefit or installment thereof in accordance with the provisions of this Section 9.4 shall be a complete discharge of any liability for the making of such payment under the provisions of the Plan. 9.5 Address of Payee Unknown. If the Company is unable to make payment to any Participant or other person to whom a payment is due under the Plan because it cannot ascertain the identity or whereabouts of such Participant or other person after reasonable efforts have been made to identify or locate such person (including a notice of the payment so due mailed to the last known address of such Participant or other person shown on the records of the Company), such payment and all subsequent payments otherwise due to such Participant or other person shall be forfeited twenty-four (24) months after the date such payment first became due; provided, however, that such payment and any subsequent payments shall be reinstated retroactively, no later than sixty (60) days after the date on which the Participant or person is identified or located. 9.6 Reliance on Professionals. To the extent permitted by law, the Company and any person to whom it may delegate any duty or power in connection with administering the Plan, and the officers and directors thereof, shall be entitled to rely conclusively upon, and shall be fully protected in any action taken or suffered by them in good faith in reliance upon, any actuary, counsel, accountant, other specialist, or other person selected by the Company, or in reliance upon any tables, valuations, certificates, opinions or reports which shall be furnished by any of them. Further, to the extent permitted by law, neither the Company, nor the officers or directors thereof, shall be liable for any neglect, omission or wrongdoing of any other agent, officer or employee of the Company. Any person claiming under the Plan shall look solely to the Company for redress. 9.7 Payment of Expenses. All expenses incurred prior to the termination of the Plan that shall arise in connection with the administration of the Plan, including but not limited to administrative expenses, proper charges and disbursements, compensation and other expenses and charges of any actuary, counsel, accountant, specialist or other person who shall be employed by the Company in connection with the administration thereof, shall be paid by the Company. ARTICLE 10 BENEFIT CLAIMS PROCEDURE 10.1 Claims for Benefits. Any claim for benefits under the Plan shall be made in writing to the Plan Administrator. If such claim for benefits is wholly or partially denied, the Plan Administrator shall, within ninety (90) days after receipt of the claim, notify the claimant of the denial of the claim. Such notice of denial: (a) shall be in writing; (b) shall be written in a manner calculated to be understood by the claimant; and (c) shall contain (i) the specific reason or reasons for denial of the claim, (ii) a specific reference to the pertinent Plan provisions upon which the denial is based, (iii) a description of any additional material or information necessary to perfect the claim, along with an explanation of why such material or information is necessary, and (iv) an explanation of the claim review procedure. 10.2 Request for Review of Denial. Within sixty (60) days after the receipt by the claimant of a written notice of denial of the claim, or such later time as shall be deemed reasonable taking into account the nature of the benefit subject to the claim and any other attendant circumstances, the claimant may file a written request with the Plan Administrator that it conduct a full and fair review of the denial of the claim for benefits. 10.3 Decision on Review of Denial. The Plan Administrator shall deliver to the claimant a written decision on the claim within sixty (60) days after receipt of the aforesaid request for review, except that if there are special circumstances (such as the need to hold a hearing) which require an extension of time for processing, the aforesaid sixty (60) day period shall be extended to one hundred twenty (120) days. Such decision shall: (a) be written in a manner calculated to be understood by the claimant; (b) include the specific reason or reasons for the decision; and (c) contain a specific reference to the pertinent Plan provisions upon which the decision is based. 10.4 Mediation and Arbitration. If, after the Plan Administrator's decision following its review of a benefit denial, the Plan Administrator and the claimant continue to dispute the benefit denial based on the meaning and effect of the terms and conditions of the Plan, then the claimant may take the following actions: (a) Within sixty (60) days after the claimant receives notice of the Plan Administrator's decision following its review of the benefit denial, the claimant may submit the dispute to a mediator mutually agreeable to the claimant and the Plan Administrator. The mediator shall review the benefit denial and shall attempt to reach a resolution of the matter that is acceptable to both parties. (b) If a mediator is unable to be named or the mediator is unable to reach a mutually acceptable resolution of the matter within one hundred twenty (120) days after the claimant receives notice of the Plan Administrator's decision following its review of the benefit denial, the claimant may submit the dispute to an arbitrator mutually agreeable to the claimant and the Plan Administrator. The arbitrator shall operate under any generally recognized set of arbitration rules. The parties hereto agree that they and their heirs, personal representatives, successors and assigns shall be bound by the decision of such arbitrator with respect to any controversy properly submitted to the arbitrator for determination. (c) If the parties are unable to agree to the designation of an arbitrator within one hundred eighty (180) days after the claimant receives notice of the Plan Administrator's decision following its review of the benefit denial, the claimant may submit the dispute to a board of arbitration for final arbitration. Said board shall consist of one member selected by the claimant, one member selected by the Plan Administrator and a third member selected by the first two members. The board shall operate under any generally recognized set of arbitration rules. The parties hereto agree that they and their heirs, personal representatives, successors and assigns shall be bound by the decision of such board with respect to any controversy properly submitted to the board for determination. ARTICLE 11 AMENDMENT 11.1 Right to Amend. At any time, and from time to time, the board of directors of the Principal Company, by resolutions adopted by it, may amend the Plan or change the designation of eligible Participants under the Plan; provided, however, that no amendment to the Plan which adversely affects the Accrued Benefit (or Death Benefit) of any Participant (or the Beneficiary of a deceased Participant) shall be effective without the prior unanimous written consent of the Participants (or their Beneficiaries); and provided further that, subsequent to a Change in Control, no amendment to the Plan shall be effective without the prior unanimous written consent of the Participants (or their Beneficiaries). ARTICLE 12 MISCELLANEOUS 12.1 Titles are for Reference Only. The titles in this Plan are for reference only. In the event of a conflict between a title and the content of a section, the content of the section shall control. 12.2 Construction. The provisions of the Plan shall be construed according to the law of the State of Maine, except as such law is superceded by federal law. 12.3 Successors. The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or other transaction) of all or substantially all of the business and/or assets of the Company, to expressly assume and agree to perform the Company's obligations under the Plan in the same manner and to the same extent that the Company would be required to perform them if no such succession had taken place. Each such successor shall execute a written agreement evidencing its assumption of the Company's obligations under the Plan prior to the effective date of any such purchase, merger, consolidation or other transaction. 12.4 No Contract. This Plan shall not be deemed to be a contract of employment with the Participant, nor shall any provision hereof restrict the right of the Company to terminate the Participant's employment. 12.5 Beneficiaries' Rights. Wherever the rights of a Participant are stated or limited in the Plan, his or her Beneficiaries shall be bound thereby. 12.6 Gender and Number. Where appearing in the Plan, the masculine gender shall be deemed to include the feminine gender and the singular number shall include the plural, unless the context clearly indicates to the contrary. Dated this day of , 20 . Witness: BAR HARBOR BANKSHARES _____________________ By _________________________ Title: ANNEX A SCHEDULE OF BENEFITS A.1 Normal Retirement Date. The Normal Retirement Date of a Participant is the first day of the month coinciding with or next following the date on which he or she reaches the age set forth below:

Name Age Normal Retirement Date ---- --- ---------------------- Joseph M. Murphy 68 October 1, 2010 Dean S. Read 65 July 1, 2012 Gerald Shencavitz 65 June 1, 2018

A.2 Normal Retirement Benefit. The monthly Normal Retirement Benefit of a Participant is the following:

Name Monthly Normal Retirement Benefit ---- --------------------------------- Joseph M. Murphy $11,200 Dean S. Read $10,458 Gerald Shencavitz $ 8,583

A.3 Accrued Benefit. The monthly Accrued Benefit of a Participant is the following:

Name For commencement after Monthly Accrued Benefit ---- ---------------------- ----------------------- Joseph M. Murphy December 31, 2002 $ 684 December 31, 2003 $ 1,597 December 31, 2004 $ 2,621 December 31, 2005 $ 3,764 December 31, 2006 $ 5,039 December 31, 2007 $ 6,457 December 31, 2008 $ 8,030 December 31, 2009 $ 9,773 September 30, 2010 $ 11,200 Dean S. Read December 31, 2002 $ 1,421 December 31, 2003 $ 2,012 December 31, 2004 $ 2,982 December 31, 2005 $ 4,064 December 31, 2006 $ 5,217 December 31, 2007 $ 6,551

1 December 31, 2008 $ 8,029 December 31, 2009 $ 9,605 December 31, 2010 $ 9,943 December 31, 2011 $ 10,285 June 30, 2012 $ 10,458 Gerald Shencavitz December 31, 2002 $ 302 December 31, 2003 $ 535 December 31, 2004 $ 796 December 31, 2005 $ 1,086 December 31, 2006 $ 1,409 December 31, 2007 $ 1,768 December 31, 2008 $ 2,166 December 31, 2009 $ 2,606 December 31, 2010 $ 3,092 December 31, 2011 $ 3,629 December 31, 2012 $ 4,219 December 31, 2013 $ 4,869 December 31, 2014 $ 5,583 December 31, 2015 $ 6,366 December 31, 2016 $ 7,225 December 31, 2017 $ 8,166 May 31, 2018 $ 8,583 If a Participant's Early Retirement Benefit, Disability Retirement Benefit or Vested Deferred Benefit commences on a date other than the first scheduled pay date in January, the amount of the Participant's Accrued Benefit will be interpolated. For example, assume that Mr. Murphy's benefit commences on the first scheduled pay date in March, 2009. The amount of his Accrued Benefit will equal: $8,030 + 2/12($9,773 - $8,030) = $8,030 + $291 = $8,321 EX-10.3 5 b48402bhexv10w3.txt EX 10.3 CHANGE IN CONTROL AGREEMENT - MURPHY EXHIBIT 10.3 AMENDMENT TO EMPLOYMENT AGREEMENT AND CHANGE IN CONTROL, CONFIDENTIALITY AND NONCOMPETITION AGREEMENT This Agreement is effective as of the 7th day of November, 2003 by and between BAR HARBOR BANKSHARES, a Maine corporation with its principal office at 82 Main Street, P.O. Box 400, Bar Harbor, ME 04609-0400 (the "Employer"), and JOSEPH M. MURPHY of Mount Desert, ME (the "Executive"). W I T N E S S E T H: WHEREAS, Bar Harbor Banking and Trust Company is a wholly-owned subsidiary of Bar Harbor Bankshares; and WHEREAS, the Executive is an employee of the Employer; and WHEREAS, the Employer desires to enhance the ability of the Employer to retain the services of the Executive and to reward the Executive for his valuable, dedicated service to the Employer in the event of his termination of employment in connection with a change in control; and WHEREAS, the Executive and the Employer entered into an employment agreement dated January 3, 2003; and WHEREAS, the Employer and the Executive wish to amend the employment agreement so that the provisions of this Agreement will supercede the corresponding provisions of the employment agreement which relate to severance payments in the event of a change in control and which contain confidentiality and noncompetition covenants. NOW, THEREFORE, the parties hereto do hereby agree as follows: 1. Definitions 1.1. Bank shall mean Bar Harbor Banking and Trust Company. 1.2. Base Compensation shall mean the annual base salary payable by the Employer to the Executive, excluding any bonuses, incentive compensation and other forms of additional compensation. 1.3. Cause shall be deemed to exist only in the event the Executive is convicted by a court of competent jurisdiction of a felony involving dishonesty or fraud on the part of the Executive in his relationship with the Employer, the Holding Company or the Bank. 1.4. Change in Control shall mean the occurrence of any one of the following events: (a) Any person, including a group (as such term is used in Section 13(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) becomes the beneficial owner (as determined pursuant to Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of Bar Harbor Bankshares representing more than fifty percent (50%) of the combined voting power of Bar Harbor Bankshares' then outstanding securities, other than as a result of an issuance of securities initiated by Bar Harbor Bankshares in the ordinary course of its business; or (b) Bar Harbor Bankshares is party to a Business Combination (as hereinafter defined) unless, following consummation of the Business Combination, more than fifty percent (50%) of the outstanding voting securities of the resulting entity are beneficially owned, directly or indirectly, by the holders of Bar Harbor Bankshares' outstanding voting securities immediately prior to the Business Combination in substantially the same proportions as those existing immediately prior to the Business Combination; or (c) The stockholders of Bar Harbor Bankshares approve a plan of complete liquidation of Bar Harbor Bankshares or an agreement for the sale or disposition by Bar Harbor Bankshares of all or substantially all of Bar Harbor Bankshares' assets to another person or entity that is not a wholly owned subsidiary of Bar Harbor Bankshares. For purposes of this Section 1.4, a Business Combination means any cash tender or exchange offer, merger or other business combination, sale of stock, or sale of all or substantially all of the assets, or any combination of the foregoing transactions. For purposes of this Section 1.4, a Change in Control shall exclude any internal corporate change, reorganization or other such event, which occurred prior to or may occur following the date of this Agreement. 1.5. Code shall mean the Internal Revenue Code of 1986, as amended, and as it may be amended from time to time, together with the rules and regulations promulgated under such code. 1.6. Date of Termination shall mean: (a) If the Executive's employment is terminated for Disability, thirty (30) days after Notice of Termination for Disability is given by the Employer to the Executive and the Executive shall not have returned to the performance of his duties on a full-time basis during such thirty (30) day period; (b) If the Executive's employment is terminated by the Employer for Cause or by the Executive for Good Reason, the date specified in the Notice of Termination, but not earlier than the date on which such Notice of Termination is given; and 2 (c) If the Executive's employment is terminated or terminates for any other reason, the date on which the Executive ceases to perform services for the Employer as a common law employee. 1.7 Disability shall mean a permanent and total disability (as defined in the Employer's long term disability plan) which is incurred by the Executive while he is employed by the Employer and which makes the Executive eligible to receive a disability income under the Employer's long term disability insurance plan. Such disability shall be deemed to exist only if an application for benefits is filed with the administrator of the Employer's long term disability insurance plan by or on behalf of the Executive and is approved by the administrator, each in the manner described in such long term disability insurance plan. 1.8 Employment Agreement shall mean the employment agreement between the Executive and the Employer dated January 3, 2003. 1.9. Employer shall mean Bar Harbor Bankshares. 1.10. Good Reason shall mean, unless the Executive consents to such action, a reduction in the Executive's compensation that does not apply generally to all senior executive officers of the Employer, the Holding Company and the Bank, a material reduction in the duties of the Executive, or a change in the principal worksite of the Executive to a location that is more than fifty (50) miles from Bar Harbor, Maine. 1.11. Holding Company shall mean Bar Harbor Bankshares, its subsidiaries and affiliates. 1.12. Notice of Termination shall mean the notice provided pursuant to Section 4. 2. Amendments to Employment Agreement. The parties intend that all agreements between the Executive and the Employer regarding the payment of severance benefits in the event of a change in control, as well as any confidentiality and noncompetition covenants made by the Executive, shall be governed solely by the terms of this Agreement. Therefore, effective as of the date of this Agreement, Section 6(e)(x), Section 7, Section 8, Section 9, Section 10, Section 12, Section 13 and the last sentence of the first paragraph of Section 20 of the Employment Agreement are deleted and shall hereafter be of no force and effect. In addition, Section 6(a), Section 6(b), Section 6(e)(ii) and Section 22 of the Employment Agreement are modified to delete any references to Sections 7, 8 and 9 of the Employment Agreement. 3. Severance Benefits. 3 In the event that: (a) the Employer terminates the Executive's employment other than as a result of Disability and other than for Cause, or the Executive terminates his employment for Good Reason; and (b) the Executive's termination of employment occurs in anticipation of or after a Change in Control, then the Employer shall pay the Executive the severance benefits described in this Section 3. The Executive's termination of employment shall be deemed to be in anticipation of a Change in Control if it occurs within the twelve (12) month period prior to the occurrence of the Change in Control. The severance benefits described in this Section 3 shall equal the following: (a) The Executive shall receive a lump sum severance payment within five (5) days after the Date of Termination. Such payment shall equal 2.0 times the Executive's Base Compensation, determined as of the Date of Termination. (b) The Executive and his dependents shall continue to be eligible to receive the same medical, health, dental and life insurance benefits which the Executive is eligible to receive on the Date of Termination. The Executive shall be required to make the same premium contributions that he was required to make immediately prior to the Date of Termination. The ability of the Executive and his dependents to receive such benefits shall continue for a period of twenty-four (24) months following the Date of Termination. (c) In the event of a Change of Control, all stock options granted but unexercised under the Bar Harbor Bankshares and Subsidiaries Incentive Stock Option Plan of 2000 or any other subsequent equity plan shall become 100% vested immediately prior to any such Change of Control. These grants will remain subject to all other terms and conditions in the Bar Harbor Bankshares and Subsidiaries Incentive Stock Option Plan of 2000 or any subsequent equity plan. The Executive shall not be required to mitigate the amount of any severance benefits described in this Section 3 by seeking other employment. 4. Notice of Termination. Any termination of the Executive's employment by the Employer due to Disability or for Cause, or by the Executive due to Good Reason, shall be communicated by written Notice of Termination to the other party. Notwithstanding the above, however, the Executive shall not be entitled to give a Notice of Termination that the Executive is terminating employment for Good Reason more than six (6) months following the occurrence of the event alleged to constitute Good Reason. A Notice of Termination must indicate the specific provisions in this Agreement which are relied upon as the basis for the termination of the Executive's employment, and must also set 4 forth in reasonable detail the facts and circumstances claimed to provide the basis for such termination under the provisions so indicated. 5. Loss of Severance Benefits. If the Employer shall terminate the Executive's employment due to Disability or for Cause, or if the Executive shall terminate his employment other than for Good Reason, or if the Executive shall die, then the Executive shall have no right to receive any severance benefits under this Agreement. 6. No Other Benefits Payable. (a) If the Executive is entitled to receive the severance benefits described in Section 3 of this Agreement, he shall not be entitled to receive: (i) any severance benefits under the terms of any general severance pay policy or plan of the Employer, the Holding Company or the Bank; or (ii) any other compensation, benefits or payments under the terms of any other plan of, or agreement with, the Employer, the Holding Company or the Bank. (b) Notwithstanding the above, the Executive shall be entitled to receive any compensation, benefits or payments which are specifically authorized by the terms of any plan of, or agreement with, the Employer, the Holding Company or the Bank to be paid in addition to the severance benefits described in Section 3 of this Agreement. Moreover, notwithstanding the above, the Executive shall be entitled to receive, in addition to the severance benefits described in Section 3 of this Agreement, any compensation, benefits or payments which the Executive is entitled to receive under: (i) the Employment Agreement (as amended by this Agreement); (ii) the Bar Harbor Bankshares Supplemental Executive Retirement Plan; (iii) any incentive compensation plan maintained by the Employer, the Holding Company or the Bank which provides for payment to a terminated employee of incentive compensation earned by the employee prior to his or her termination of employment; or (iv) any payroll plan or policy of the Employer, the Holding Company or the Bank which provides for payment to a terminated employee of any unpaid vacation, holiday or sick pay accrued by the employee prior to his or her termination of employment. 7. Certain Additional Payments by the Employer. (a) Anything in this Agreement to the contrary notwithstanding and except as set forth below, in the event it shall be determined that any payment or distribution made at any time by the Employer or to or for the benefit of the Executive (whether paid or payable, or distributed or distributable, pursuant to the terms of this Agreement or otherwise, but determined without regard to any additional payments required under this Section 7) (a "Payment") would be subject to the excise tax imposed by Section 4999 of the Code, or any interest or penalties are incurred by the Executive with respect to such 5 excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the "Excise Tax"), then the Executive shall be entitled to receive an additional payment (a "Gross-Up Payment"). The Gross-Up Payment shall equal such an amount that, after payment by the Executive of all taxes (including, without limitation, any federal, state or local income taxes, Social Security taxes and Medicare taxes, and any interest or penalties imposed with respect thereto) and Excise Tax imposed upon the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments. Notwithstanding the foregoing provisions of this Section 7(a), if it shall be determined that the Executive is entitled to a Gross-Up Payment, but that the Payments do not exceed 110% of the greatest amount (the "Reduced Amount") that could be paid to the Executive such that the receipt of Payments would not give rise to any Excise Tax, then no Gross-Up Payment shall be made to the Executive and the Payments, in the aggregate, shall be reduced to the Reduced Amount. (b) Subject to the provisions of Section 7(d), all determinations required to be made under this Section 7 (including, without limitation, whether and when a Gross-Up Payment is required, the amount of such Gross-Up Payment, and the assumptions to be utilized in arriving at such determination) shall be made by KPMG Peat Marwick or such other certified public accounting firm as may be designated by the Executive (the "Accounting Firm"). The Accounting Firm shall provide detailed supporting calculations both to the Employer and to the Executive within fifteen (15) business days after the receipt of notice from the Executive that there has been a Payment, or such earlier time as is requested by the Employer. In the event that the Accounting Firm is serving as accountant or auditor for the individual, entity or group effecting the Change of Control, the Executive shall appoint another nationally recognized accounting firm to make the determinations required hereunder (which accounting firm shall then be referred to as the Accounting Firm hereunder). All fees and expenses of the Accounting Firm shall be borne solely by the Employer. Any Gross-Up Payment, as determined pursuant to this Section 7, shall be paid by the Employer to the Executive within five (5) days after its receipt of the Accounting Firm's determination. Any determination by the Accounting Firm shall be binding upon the Employer and the Executive. (c) As a result of the uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that Gross-Up Payments which will not have been made by the Employer should have been made ("Underpayment"), consistent with the calculations required to be made hereunder. In the event that the Employer exhausts its remedies pursuant to Section 7(d) and the Executive thereafter is required to make a payment of any Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred, and any such Underpayment shall be promptly paid by the Employer to or for the benefit of the Executive. 6 (d) The Executive shall notify the Employer in writing of any claim by the Internal Revenue Service or any other taxing authority that, if successful, would require the payment by the Employer of a Gross-Up Payment. Such notification shall be given as soon as practicable, but no later than ten (10) business days after the Executive is informed in writing of such claim. The notification shall apprise the Employer of the nature of such claim and the date on which such claim is requested to be paid. The Executive shall not pay such claim prior to the expiration of the thirty (30) day period following the date on which it gives such notice to the Employer (or such shorter period ending on the date that any payment of taxes with respect to such claim is due). If the Employer notifies the Executive in writing prior to the expiration of such period that it desires to contest such claim, the Executive shall: (i) give the Employer any information reasonably requested by the Employer relating to such claim; (ii) take such action in connection with contesting such claim as the Employer shall reasonably request in writing from time to time, including, without limitation, accepting legal representation with respect to such claim by an attorney reasonably selected by the Employer; (iii) cooperate with the Employer in good faith in order effectively to contest such claim; and (iv) permit the Employer to participate in any proceedings relating to such claim; provided, however, that the Employer shall bear and pay directly all costs and expenses (including additional interest and penalties) incurred in connection with such contest, and shall indemnify and hold the Executive harmless, on an after-tax basis, for any Excise Tax or other taxes (including interest and penalties with respect thereto) imposed as a result of such representation and the payment of any costs and expenses. Without limitation on the foregoing provisions of this Section 7(d), the Employer shall control all proceedings taken in connection with such contest and, at its sole option, may pursue or forego any and all administrative appeals, proceedings, hearings and conferences with the taxing authority in respect of such claim, and may, at its sole option, either direct the Executive to pay the tax claimed and sue for a refund or contest the claim in any permissible manner. The Executive agrees to prosecute any such contest to a determination before any administrative tribunal, in a court of initial jurisdiction, and in one or more appellate courts, as the Employer shall determine; provided, however, that if the Employer directs the Executive to pay such claim and sue for a refund, the Employer shall advance the amount of such payment to the Executive on an interest-free basis, and shall indemnify and hold the Executive harmless, on an after-tax basis, from any Excise Tax or other taxes (including interest or penalties with respect thereto) imposed with respect to such advance or with respect to any imputed income with respect to such 7 advance; and further provided, that any extension of the statute of limitations relating to the payment of taxes for the taxable year of the Executive with respect to which such contested amount is claimed to be due is limited solely to such contested amount. Furthermore, the Employer's control of the contest shall be limited to issues with respect to which a Gross-Up Payment would be payable hereunder, and the Executive shall be entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority. (e) If, after the receipt by the Executive of an amount advanced by the Employer pursuant to Section 7(d), the Executive becomes entitled to receive any refund with respect to such claim, the Executive shall (subject to the Employer's complying with the requirements of Section 7(d)) promptly pay to the Employer the amount of such refund (together with any interest paid or credited thereon, after taxes applicable thereto). If, after the receipt by the Executive of an amount advanced by the Employer pursuant to Section 7(d), a determination is made that the Executive shall not be entitled to any refund with respect to such claim and the Employer does not notify the Executive in writing of its intent to contest such denial of refund prior to the expiration of thirty (30) days after such determination, then such advance shall be forgiven and shall not be required to be repaid, and the amount of such advance shall offset, to the extent thereof, the amount of the Gross-Up Payment required to be paid. 8. Successors. (a) The Employer will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Employer to expressly assume and agree to perform its obligations under this Agreement in the same manner and to the same extent that the Employer would be required to perform them if no such succession had taken place. Each such successor shall execute a written agreement evidencing its assumption of the Employer's obligations under this Agreement prior to the effective date of any such purchase, merger, consolidation or other transaction. (b) The failure of the Employer to obtain from each successor the written agreement described in Section 8(a) shall be a breach of the obligations of the Employer under this Agreement, and shall entitle the Executive to compensation from the Employer in the same amount and on the same terms as he would be entitled hereunder if the Employer had terminated the Executive's employment after a Change in Control other than for Disability or Cause; except that, for purposes of implementing the foregoing, the date on which any such succession becomes effective shall be deemed to be the Date of Termination. (c) As used in this Section 8, the Employer shall include the Employer, the Holding Company, the Bank, and any successor to all or substantially all of the business and/or assets of any of them (whether direct or indirect, by purchase, merger, 8 consolidation or otherwise) which executes and delivers the written agreement described in Section 8(a) or which otherwise becomes bound by all the terms and provisions of this Agreement. 9. Confidential Information, Non Competition Obligations, and Non-Solicitation. (a) Confidential Information The Executive recognizes and acknowledges that certain assets of the Holding Company, the Bank, or any of their affiliates or subsidiaries constitutes Confidential Information. For purposes hereof, the term "Confidential Information" means any and all information and compilations of information, in whatever form or medium (including any copies thereof), relating to any part of the business of the Holding Company, the Bank or any of their subsidiaries or affiliates, or the business of their customers, provided to the Executive, or which the Executive obtained or compiled or had obtained or compiled on his behalf, which information or compilations of information are not a matter of public record or generally known to the public, including without limitation: (i) Financial information regarding the Holding Company, the Bank, or any of their subsidiaries or affiliates; (ii) Personnel data, including compensation arrangements relating to the Executive or any other employees of the Holding Company, the Bank, or any of their subsidiaries or affiliates; (iii) Internal plans, practices, and procedures of the Holding Company, the Bank or any of their subsidiaries or affiliates; (iv) The names, portfolio information, investment strategies, requirements, lending or deposit information, or any similar information of any customers, clients, or prospects of the Holding Company, the Bank, or any of their subsidiaries or affiliates; (v) Business methods and marketing strategies of the Holding Company, the Bank, or any of their subsidiaries or affiliates; (vi) Any other information expressly deemed confidential by the officers and directors of the Holding Company, the Bank, or any of their subsidiaries or affiliates; and 9 (viii) The terms and conditions of the Agreement and any documents or instruments executed in connection herewith that are not of public record. The Executive shall not, without the prior written consent of the Holding Company, the Bank, or any of their subsidiaries or affiliates, use or disclose, or negligently permit any unauthorized person to use, disclose, or gain access to, any Confidential Information. Upon termination of employment, the Executive hereby agrees to deliver promptly to the Holding Company, the Bank, or any of their affiliates or subsidiaries all memoranda, notes, records, manuals, or other documents, including all copies of such materials, containing Confidential Information, whether made or compiled by the Executive or furnished to him from any source by virtue of the Executive's relationship with the Holding Company, the Bank, or any of their subsidiaries or affiliates. Regardless of the reason for his cessation of employment, the Executive will furnish such information as may be in the Executive's possession and cooperate with the Holding Company, the Bank, or any of their affiliates or subsidiaries as may reasonably be requested in connection with any claims or legal actions in which the Holding Company, the Bank, or any of their subsidiaries or affiliates are or may become a party. The Employer will reimburse the Executive for any reasonable out-of-pocket expenses the Executive incurs in order to satisfy his obligations under this clause. (b) Non-Competition Obligations In consideration of the covenants of the Employer contained herein, the Executive covenants and agrees with the Employer that, during the " Non-Compete Period" (as hereinafter defined) and within a one hundred fifty (150) "air" mile radius from Bar Harbor, Maine, the Executive shall not without specific written approval, directly or indirectly: (i) Engage in any insurance, brokerage, trust, banking, or other financial services as an owner, employee, consultant, representative, or in any other capacity; (ii) Directly or indirectly request or advise any past, present, or future customers of the Holding Company, the Bank or any of their subsidiaries or affiliates to withdraw, curtail, or cancel his or her or its business with the Holding Company, the Bank, or any of their subsidiaries or affiliates; (iii) Directly or indirectly cause, suggest, or induce others to call on any past, present, or future customers of the Holding Company, the Bank or any of their affiliated entities; or 10 (iv) Canvas, solicit, or accept any business on behalf of any other bank, insurance agency, trust, or other financial services business, other than the Holding Company, the Bank or any of their affiliated entities, from any past or present customer of the Holding Company, the Bank or any of their affiliated entities. The "Non-Compete Period" shall commence on the date hereof and terminate one (1) year after the cessation of the Executive's employment with the Employer and all of its affiliates, regardless of reason, whether or not pursuant to this Agreement. (c) Non-Solicitation of Employees While employed by the Employer, and for one (1) year following cessation of his employment with the Employer and all of its affiliates for any reason, the Executive shall not, directly or indirectly, by any means or device whatsoever, for himself or on behalf of, or in conjunction with, any other person, partnership or corporation, solicit, entice, hire, or attempt to hire or employ any employee of the Holding Company, the Bank or any of their affiliated entities. During this Agreement, the Executive shall not interview or negotiate employment with, or accept employment from, a competitor in the market area described in Section 9(b) above except with the written consent of the Employer. 10. Reformation; Injunctive Relief. (a) All the parties hereto acknowledge that the parties have carefully considered the nature and scope of this Agreement. The activities, period and area covered by Section 9 are expressly acknowledged and agreed to be fair, reasonable and necessary. To the extent that any covenant contained in Section 9 is held to be invalid, illegal or unenforceable because of the extent of activities, duration of such covenant, the geographic area covered thereby, or otherwise, the parties agree that the court making such determination shall reform such covenant to include as much of its nature and scope as will render it enforceable and, in its reduced form, said covenant shall be valid, legal and enforceable to the fullest extent of the law. (b) The Executive acknowledges and agrees that, upon any breach by the Executive of his obligations under Section 9 hereof, the Employer will have no adequate remedy at law, and accordingly will be entitled to specific performance and other appropriate injunctive and equitable relief, notwithstanding Section 11 hereof. Nothing herein shall be construed as prohibiting the Employer from pursuing any other remedies available to it, including the recovery of damages from the Executive. 11 11. Mediation and Arbitration. If the Executive and the Employer have any dispute whatsoever relating to the interpretation, validity or performance of this Agreement, or any other dispute arising out of this Agreement, every reasonable attempt will be made to resolve any differences or dispute within thirty (30) days of an issuance of written notice by either party to the other party. If a successful resolution of any differences or dispute has not been achieved to the satisfaction of both parties at the end of the 30-day period, the following steps will be used: Except as otherwise expressly provided hereunder, the parties agree that any and all differences or disputes arising out of the Executive's employment or cessation of employment, including but not limited to any dispute, controversy, or claim arising under any federal, state, or local statute, law, ordinance or regulation or under this Agreement, shall be resolved exclusively by Alternative Dispute Resolution described in this Agreement ("ADR"). The initiation of ADR shall first require mediation, and the parties agree to first try to settle any dispute through mediation. Mediation shall be initiated by either party by the serving of a written notice of intent to mediate (a "Mediation Notice") by one party upon the other. If no resolution has been mutually agreed through mediation within ninety (90) days of service of a Mediation Notice, then and only then may the dispute be submitted to arbitration. Arbitration shall be initiated by the serving of a written notice of intent to arbitrate (an "Arbitration Notice") by one party upon the other. Notwithstanding the foregoing, nothing in this Agreement shall be deemed to preclude the Employer from seeking temporary or permanent injunctive relief and/or damages from a court of competent jurisdiction with respect to any breach of Section 9 of this Agreement. In the event that a party wishes to initiate ADR, a Mediation Notice must be served on the other party within six (6) months from the date on which the claim arose. If the parties cannot mutually agree on a mediator, then a mediator shall be selected in accordance with the Employment Mediation Rules of the American Arbitration Association. In the event that mediation is unsuccessful and arbitration is initiated, it shall be conducted under the National Rules of the Resolution of Employment Disputes of the American Arbitration Association. There shall be a single arbitrator to be agreed upon by the parties, provided that, if the parties are unable to agree upon a single arbitrator, each party shall name an arbitrator and the two so named shall name a third arbitrator The arbitration proceedings shall be heard by the arbitrator(s) and the decision of the arbitrator, or the majority of the panel if one has been selected, shall be final and binding on the parties. Judgment upon the arbitration award may be entered in any court of competent jurisdiction. An Arbitration Notice must be served on the other party within one (1) year from the date on which the claim arose, and the failure to bring such a claim within such one-year period shall constitute a waiver of such claim and an absolute bar to 12 any further proceedings in any forum with respect to it. All mediation and arbitration proceedings shall be conducted in Bangor, Maine, unless the parties otherwise agree in writing. The cost of any mediation proceeding under this Section 11 will be paid by the Employer. The cost of any arbitration proceeding will be shared equally by the parties to the dispute; provided, however, that, if the dispute is resolved in favor of the Executive, such cost shall be paid in full by the Employer. 12. Post-Termination Obligations. All payments and benefits due to the Executive under this Agreement shall be subject to the Executive's compliance with this Section 12 for one full year following the Executive's Date of Termination. The Executive shall, upon reasonable notice, furnish such information and assistance to the Employer, the Holding Company and the Bank as may reasonably be required by the Employer, the Holding Company or the Bank in connection with any litigation in which it or any of its subsidiaries or affiliates is, or may become, a party. 13. General Provisions. (a) All notices required by this Agreement shall be in writing and shall be sufficiently given if delivered personally or mailed by registered mail or certified mail, return receipt requested, to the parties at their then current addresses. All notices shall be deemed to have been given as of the date so delivered or mailed. (b) This Agreement and the plans and agreements described in Section 6(b) contain the entire transaction between the parties, and there are no other representations, warranties, conditions or agreements relating to the subject matter thereof. (c) The waiver by any party of any breach or default of any provision of this Agreement shall not operate or be construed as a waiver of any subsequent breach. (d) This Agreement may not be changed orally but only by an agreement in writing executed on behalf of the party against which enforcement of any waiver, change, modification, consent or discharge is sought. (e) This Agreement shall be binding upon and inure to the benefit of the Employer and the Executive and their respective successors, assigns, heirs and legal representatives (including, but not limited to, any successor of the Employer described in Section 8). 13 (f) Each of the parties agrees to execute all further instruments and documents and to take all further action as the other party may reasonably request in order to effectuate the terms and purposes of this Agreement. (g) This Agreement may be executed in one or more counterparts, all of which taken together shall constitute one and the same instrument. (h) This Agreement shall be construed pursuant to and in accordance with the laws of the State of Maine. Actions brought by the Employer under this Agreement shall be subject to the exclusive jurisdiction of the state and federal courts of Maine. Both parties consent to the personal jurisdiction of such courts for such actions, and agree that they may be served with process in accordance with Section 13(a). (i) The Executive acknowledges that he has had a full and complete opportunity to review the terms, enforceability and implications of this Agreement, and that the Employer has not made any representations or warranties to the Executive concerning the terms, enforceability and implications of this Agreement other than as are reflected in this Agreement. IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the _____ day of ______________, 20____. Witness: EMPLOYER: BAR HARBOR BANKSHARES _________________________ By _______________________________ Title: Witness: EXECUTIVE: _________________________ __________________________________ Joseph M. Murphy 14 EX-10.4 6 b48402bhexv10w4.txt EX 10.4 CHANGE IN CONTROL AGREEMENT - SHENCAVITZ EXHIBIT 10.4 CHANGE IN CONTROL, CONFIDENTIALITY AND NONCOMPETITION AGREEMENT This Agreement is effective as of the 7th day of November, 2003 by and between BAR HARBOR BANKSHARES, a Maine corporation with its principal office at 82 Main Street, P.O. Box 400, Bar Harbor, ME 04609-0400 (the "Employer"), and GERALD SHENCAVITZ of Mt Desert, ME (the "Executive"). W I T N E S S E T H: WHEREAS, Bar Harbor Banking and Trust Company is a wholly-owned subsidiary of Bar Harbor Bankshares; and WHEREAS, the Executive is an employee of the Employer; and WHEREAS, the Employer desires to enhance the ability of the Employer to retain the services of the Executive and to reward the Executive for his valuable, dedicated service to the Employer in the event of his termination of employment in connection with a change in control. NOW, THEREFORE, the parties hereto do hereby agree as follows: 1. Definitions 1.1. Bank shall mean Bar Harbor Banking and Trust Company. 1.2. Base Compensation shall mean the annual base salary payable by the Employer to the Executive, excluding any bonuses, incentive compensation and other forms of additional compensation. 1.3. Cause shall be deemed to exist only in the event the Executive is convicted by a court of competent jurisdiction of a felony involving dishonesty or fraud on the part of the Executive in his relationship with the Employer, the Holding Company or the Bank. 1.4. Change in Control shall mean the occurrence of any one of the following events: (a) Any person, including a group (as such term is used in Section 13(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) becomes the beneficial owner (as determined pursuant to Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of Bar Harbor Bankshares representing more than fifty percent (50%) of the combined voting power of Bar Harbor Bankshares' then outstanding securities, other than as a result of an issuance of securities initiated by Bar Harbor Bankshares in the ordinary course of its business; or (b) Bar Harbor Bankshares is party to a Business Combination (as hereinafter defined) unless, following consummation of the Business Combination, more than fifty percent (50%) of the outstanding voting securities of the resulting entity are beneficially owned, directly or indirectly, by the holders of Bar Harbor Bankshares' outstanding voting securities immediately prior to the Business Combination in substantially the same proportions as those existing immediately prior to the Business Combination; or (c) The stockholders of Bar Harbor Bankshares approve a plan of complete liquidation of Bar Harbor Bankshares or an agreement for the sale or disposition by Bar Harbor Bankshares of all or substantially all of Bar Harbor Bankshares' assets to another person or entity that is not a wholly owned subsidiary of Bar Harbor Bankshares. For purposes of this Section 1.4, a Business Combination means any cash tender or exchange offer, merger or other business combination, sale of stock, or sale of all or substantially all of the assets, or any combination of the foregoing transactions. For purposes of this Section 1.4, a Change in Control shall exclude any internal corporate change, reorganization or other such event, which occurred prior to or may occur following the date of this Agreement. 1.5. Code shall mean the Internal Revenue Code of 1986, as amended, and as it may be amended from time to time, together with the rules and regulations promulgated under such code. 1.6. Date of Termination shall mean: (a) If the Executive's employment is terminated for Disability, thirty (30) days after Notice of Termination for Disability is given by the Employer to the Executive and the Executive shall not have returned to the performance of his duties on a full-time basis during such thirty (30) day period; (b) If the Executive's employment is terminated by the Employer for Cause or by the Executive for Good Reason, the date specified in the Notice of Termination, but not earlier than the date on which such Notice of Termination is given; and (c) If the Executive's employment is terminated or terminates for any other reason, the date on which the Executive ceases to perform services for the Employer as a common law employee. 1.7 Disability shall mean a permanent and total disability (as defined in the Employer's long term disability plan) which is incurred by the Executive while he is employed by the Employer and which makes the Executive eligible to receive a disability income under the Employer's long term disability insurance plan. Such disability shall be deemed to exist only if an application for benefits is filed with the administrator of the Employer's long term disability 2 insurance plan by or on behalf of the Executive and is approved by the administrator, each in the manner described in such long term disability insurance plan. 1.8 Employer shall mean Bar Harbor Bankshares. 1.9. Good Reason shall mean, unless the Executive consents to such action, a reduction in the Executive's compensation that does not apply generally to all senior executive officers of the Employer, the Holding Company and the Bank, a material reduction in the duties of the Executive, or a change in the principal worksite of the Executive to a location that is more than fifty (50) miles from Bar Harbor, Maine. 1.10. Holding Company shall mean Bar Harbor Bankshares, its subsidiaries and affiliates. 1.11. Notice of Termination shall mean the notice provided pursuant to Section 3. 2. Severance Benefits. In the event that: (a) the Employer terminates the Executive's employment other than as a result of Disability and other than for Cause, or the Executive terminates his employment for Good Reason; and (b) the Executive's termination of employment occurs in anticipation of or after a Change in Control, then the Employer shall pay the Executive the severance benefits described in this Section 2. The Executive's termination of employment shall be deemed to be in anticipation of a Change in Control if it occurs within the twelve (12) month period prior to the occurrence of the Change in Control. The severance benefits described in this Section 2 shall equal the following: (a) The Executive shall receive a lump sum severance payment within five (5) days after the Date of Termination. Such payment shall equal 1.5 times the Executive's Base Compensation, determined as of the Date of Termination. (b) The Executive and his dependents shall continue to be eligible to receive the same medical, health, dental and life insurance benefits which the Executive is eligible to receive on the Date of Termination. The Executive shall be required to make the same premium contributions that he was required to make immediately prior to the Date of Termination. The ability of the Executive and his dependents to receive such benefits shall continue for a period of eighteen (18) months following the Date of Termination. (c) In the event of a Change of Control, all stock options granted but unexercised under the Bar Harbor Bankshares and Subsidiaries Incentive Stock Option Plan of 2000 or any other subsequent equity plan shall become 100% vested immediately prior to any such Change of Control. These grants will remain subject to all other terms 3 and conditions in the Bar Harbor Bankshares and Subsidiaries Incentive Stock Option Plan of 2000 or any subsequent equity plan. The Executive shall not be required to mitigate the amount of any severance benefits described in this Section 2 by seeking other employment. 3. Notice of Termination. Any termination of the Executive's employment by the Employer due to Disability or for Cause, or by the Executive due to Good Reason, shall be communicated by written Notice of Termination to the other party. Notwithstanding the above, however, the Executive shall not be entitled to give a Notice of Termination that the Executive is terminating employment for Good Reason more than six (6) months following the occurrence of the event alleged to constitute Good Reason. A Notice of Termination must indicate the specific provisions in this Agreement which are relied upon as the basis for the termination of the Executive's employment, and must also set forth in reasonable detail the facts and circumstances claimed to provide the basis for such termination under the provisions so indicated. 4. Loss of Severance Benefits. If the Employer shall terminate the Executive's employment due to Disability or for Cause, or if the Executive shall terminate his employment other than for Good Reason, or if the Executive shall die, then the Executive shall have no right to receive any severance benefits under this Agreement. 5. No Other Benefits Payable. (a) If the Executive is entitled to receive the severance benefits described in Section 2 of this Agreement, he shall not be entitled to receive: (i) any severance benefits under the terms of any general severance pay policy or plan of the Employer, the Holding Company or the Bank; or (ii) any other compensation, benefits or payments under the terms of any other plan of, or agreement with, the Employer, the Holding Company or the Bank. (b) Notwithstanding the above, the Executive shall be entitled to receive any compensation, benefits or payments which are specifically authorized by the terms of any plan of, or agreement with, the Employer, the Holding Company or the Bank to be paid in addition to the severance benefits described in Section 2 of this Agreement. Moreover, notwithstanding the above, the Executive shall be entitled to receive, in addition to the severance benefits described in Section 2 of this Agreement, any compensation, benefits or payments which the Executive is entitled to receive under: (i) the Bar Harbor Bankshares Supplemental Executive Retirement Plan; (ii) any incentive compensation 4 plan maintained by the Employer, the Holding Company or the Bank which provides for payment to a terminated employee of incentive compensation earned by the employee prior to his or her termination of employment; or (iii) any payroll plan or policy of the Employer, the Holding Company or the Bank which provides for payment to a terminated employee of any unpaid vacation, holiday or sick pay accrued by the employee prior to his or her termination of employment. 6. Certain Additional Payments by the Employer. (a) Anything in this Agreement to the contrary notwithstanding and except as set forth below, in the event it shall be determined that any payment or distribution made at any time by the Employer or to or for the benefit of the Executive (whether paid or payable, or distributed or distributable, pursuant to the terms of this Agreement or otherwise, but determined without regard to any additional payments required under this Section 6) (a "Payment") would be subject to the excise tax imposed by Section 4999 of the Code, or any interest or penalties are incurred by the Executive with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the "Excise Tax"), then the Executive shall be entitled to receive an additional payment (a "Gross-Up Payment"). The Gross-Up Payment shall equal such an amount that, after payment by the Executive of all taxes (including, without limitation, any federal, state or local income taxes, Social Security taxes and Medicare taxes, and any interest or penalties imposed with respect thereto) and Excise Tax imposed upon the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments. Notwithstanding the foregoing provisions of this Section 6(a), if it shall be determined that the Executive is entitled to a Gross-Up Payment, but that the Payments do not exceed 110% of the greatest amount (the "Reduced Amount") that could be paid to the Executive such that the receipt of Payments would not give rise to any Excise Tax, then no Gross-Up Payment shall be made to the Executive and the Payments, in the aggregate, shall be reduced to the Reduced Amount. (b) Subject to the provisions of Section 6(d), all determinations required to be made under this Section 6 (including, without limitation, whether and when a Gross-Up Payment is required, the amount of such Gross-Up Payment, and the assumptions to be utilized in arriving at such determination) shall be made by KPMG Peat Marwick or such other certified public accounting firm as may be designated by the Executive (the "Accounting Firm"). The Accounting Firm shall provide detailed supporting calculations both to the Employer and to the Executive within fifteen (15) business days after the receipt of notice from the Executive that there has been a Payment, or such earlier time as is requested by the Employer. In the event that the Accounting Firm is serving as accountant or auditor for the individual, entity or group effecting the Change of Control, the Executive shall appoint another nationally recognized accounting firm to make the determinations required hereunder (which accounting firm shall then be referred to as the Accounting Firm hereunder). All fees and expenses of the Accounting Firm shall be 5 borne solely by the Employer. Any Gross-Up Payment, as determined pursuant to this Section 6, shall be paid by the Employer to the Executive within five (5) days after its receipt of the Accounting Firm's determination. Any determination by the Accounting Firm shall be binding upon the Employer and the Executive. (c) As a result of the uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that Gross-Up Payments which will not have been made by the Employer should have been made ("Underpayment"), consistent with the calculations required to be made hereunder. In the event that the Employer exhausts its remedies pursuant to Section 6(d) and the Executive thereafter is required to make a payment of any Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred, and any such Underpayment shall be promptly paid by the Employer to or for the benefit of the Executive. (d) The Executive shall notify the Employer in writing of any claim by the Internal Revenue Service or any other taxing authority that, if successful, would require the payment by the Employer of a Gross-Up Payment. Such notification shall be given as soon as practicable, but no later than ten (10) business days after the Executive is informed in writing of such claim. The notification shall apprise the Employer of the nature of such claim and the date on which such claim is requested to be paid. The Executive shall not pay such claim prior to the expiration of the thirty (30) day period following the date on which it gives such notice to the Employer (or such shorter period ending on the date that any payment of taxes with respect to such claim is due). If the Employer notifies the Executive in writing prior to the expiration of such period that it desires to contest such claim, the Executive shall: (i) give the Employer any information reasonably requested by the Employer relating to such claim; (ii) take such action in connection with contesting such claim as the Employer shall reasonably request in writing from time to time, including, without limitation, accepting legal representation with respect to such claim by an attorney reasonably selected by the Employer; (iii) cooperate with the Employer in good faith in order effectively to contest such claim; and (iv) permit the Employer to participate in any proceedings relating to such claim; provided, however, that the Employer shall bear and pay directly all costs and expenses (including additional interest and penalties) incurred in connection with such contest, and shall indemnify and hold the Executive harmless, on an after-tax basis, for any Excise 6 Tax or other taxes (including interest and penalties with respect thereto) imposed as a result of such representation and the payment of any costs and expenses. Without limitation on the foregoing provisions of this Section 6(d), the Employer shall control all proceedings taken in connection with such contest and, at its sole option, may pursue or forego any and all administrative appeals, proceedings, hearings and conferences with the taxing authority in respect of such claim, and may, at its sole option, either direct the Executive to pay the tax claimed and sue for a refund or contest the claim in any permissible manner. The Executive agrees to prosecute any such contest to a determination before any administrative tribunal, in a court of initial jurisdiction, and in one or more appellate courts, as the Employer shall determine; provided, however, that if the Employer directs the Executive to pay such claim and sue for a refund, the Employer shall advance the amount of such payment to the Executive on an interest-free basis, and shall indemnify and hold the Executive harmless, on an after-tax basis, from any Excise Tax or other taxes (including interest or penalties with respect thereto) imposed with respect to such advance or with respect to any imputed income with respect to such advance; and further provided, that any extension of the statute of limitations relating to the payment of taxes for the taxable year of the Executive with respect to which such contested amount is claimed to be due is limited solely to such contested amount. Furthermore, the Employer's control of the contest shall be limited to issues with respect to which a Gross-Up Payment would be payable hereunder, and the Executive shall be entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority. (e) If, after the receipt by the Executive of an amount advanced by the Employer pursuant to Section 6(d), the Executive becomes entitled to receive any refund with respect to such claim, the Executive shall (subject to the Employer's complying with the requirements of Section 6(d)) promptly pay to the Employer the amount of such refund (together with any interest paid or credited thereon, after taxes applicable thereto). If, after the receipt by the Executive of an amount advanced by the Employer pursuant to Section 6(d), a determination is made that the Executive shall not be entitled to any refund with respect to such claim and the Employer does not notify the Executive in writing of its intent to contest such denial of refund prior to the expiration of thirty (30) days after such determination, then such advance shall be forgiven and shall not be required to be repaid, and the amount of such advance shall offset, to the extent thereof, the amount of the Gross-Up Payment required to be paid. 7. Successors. (a) The Employer will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Employer to expressly assume and agree to perform its obligations under this Agreement in the same manner and to the same extent that the Employer would be required to perform them if no such succession had taken place. Each such successor shall execute a written agreement evidencing its assumption of the Employer's 7 obligations under this Agreement prior to the effective date of any such purchase, merger, consolidation or other transaction. (b) The failure of the Employer to obtain from each successor the written agreement described in Section 7(a) shall be a breach of the obligations of the Employer under this Agreement, and shall entitle the Executive to compensation from the Employer in the same amount and on the same terms as he would be entitled hereunder if the Employer had terminated the Executive's employment after a Change in Control other than for Disability or Cause; except that, for purposes of implementing the foregoing, the date on which any such succession becomes effective shall be deemed to be the Date of Termination. (c) As used in this Section 7, the Employer shall include the Employer, the Holding Company, the Bank, and any successor to all or substantially all of the business and/or assets of any of them (whether direct or indirect, by purchase, merger, consolidation or otherwise) which executes and delivers the written agreement described in Section 7(a) or which otherwise becomes bound by all the terms and provisions of this Agreement. 8. Confidential Information, Non Competition Obligations, and Non-Solicitation. (a) Confidential Information The Executive recognizes and acknowledges that certain assets of the Holding Company, the Bank, or any of their affiliates or subsidiaries constitutes Confidential Information. For purposes hereof, the term "Confidential Information" means any and all information and compilations of information, in whatever form or medium (including any copies thereof), relating to any part of the business of the Holding Company, the Bank or any of their subsidiaries or affiliates, or the business of their customers, provided to the Executive, or which the Executive obtained or compiled or had obtained or compiled on his behalf, which information or compilations of information are not a matter of public record or generally known to the public, including without limitation: (i) Financial information regarding the Holding Company, the Bank, or any of their subsidiaries or affiliates; (ii) Personnel data, including compensation arrangements relating to the Executive or any other employees of the Holding Company, the Bank, or any of their subsidiaries or affiliates; (iii) Internal plans, practices, and procedures of the Holding Company, the Bank or any of their subsidiaries or affiliates; 8 (iv) The names, portfolio information, investment strategies, requirements, lending or deposit information, or any similar information of any customers, clients, or prospects of the Holding Company, the Bank, or any of their subsidiaries or affiliates; (v) Business methods and marketing strategies of the Holding Company, the Bank, or any of their subsidiaries or affiliates; (vi) Any other information expressly deemed confidential by the officers and directors of the Holding Company, the Bank, or any of their subsidiaries or affiliates; and (viii) The terms and conditions of the Agreement and any documents or instruments executed in connection herewith that are not of public record. The Executive shall not, without the prior written consent of the Holding Company, the Bank, or any of their subsidiaries or affiliates, use or disclose, or negligently permit any unauthorized person to use, disclose, or gain access to, any Confidential Information. Upon termination of employment, the Executive hereby agrees to deliver promptly to the Holding Company, the Bank, or any of their affiliates or subsidiaries all memoranda, notes, records, manuals, or other documents, including all copies of such materials, containing Confidential Information, whether made or compiled by the Executive or furnished to him from any source by virtue of the Executive's relationship with the Holding Company, the Bank, or any of their subsidiaries or affiliates. Regardless of the reason for his cessation of employment, the Executive will furnish such information as may be in the Executive's possession and cooperate with the Holding Company, the Bank, or any of their affiliates or subsidiaries as may reasonably be requested in connection with any claims or legal actions in which the Holding Company, the Bank, or any of their subsidiaries or affiliates are or may become a party. The Employer will reimburse the Executive for any reasonable out-of-pocket expenses the Executive incurs in order to satisfy his obligations under this clause. (b) Non-Competition Obligations In consideration of the covenants of the Employer contained herein, the Executive covenants and agrees with the Employer that, during the " Non-Compete Period" (as hereinafter defined) and within a one hundred fifty (150) "air" mile radius from Bar Harbor, Maine, the Executive shall not without specific written approval, directly or indirectly: 9 (i) Engage in any insurance, brokerage, trust, banking, or other financial services as an owner, employee, consultant, representative, or in any other capacity; (ii) Directly or indirectly request or advise any past, present, or future customers of the Holding Company, the Bank or any of their subsidiaries or affiliates to withdraw, curtail, or cancel his or her or its business with the Holding Company, the Bank, or any of their subsidiaries or affiliates; (iii) Directly or indirectly cause, suggest, or induce others to call on any past, present, or future customers of the Holding Company, the Bank or any of their affiliated entities; or (iv) Canvas, solicit, or accept any business on behalf of any other bank, insurance agency, trust, or other financial services business, other than the Holding Company, the Bank or any of their affiliated entities, from any past or present customer of the Holding Company, the Bank or any of their affiliated entities. The "Non-Compete Period" shall commence on the date hereof and terminate one (1) year after the cessation of the Executive's employment with the Employer and all of its affiliates, regardless of reason, whether or not pursuant to this Agreement. (c) Non-Solicitation of Employees While employed by the Employer, and for one (1) year following cessation of his employment with the Employer and all of its affiliates for any reason, the Executive shall not, directly or indirectly, by any means or device whatsoever, for himself or on behalf of, or in conjunction with, any other person, partnership or corporation, solicit, entice, hire, or attempt to hire or employ any employee of the Holding Company, the Bank or any of their affiliated entities. During this Agreement, the Executive shall not interview or negotiate employment with, or accept employment from, a competitor in the market area described in Section 8(b) above except with the written consent of the Employer. 9. Reformation; Injunctive Relief. (a) All the parties hereto acknowledge that the parties have carefully considered the nature and scope of this Agreement. The activities, period and area covered by Section 8 are expressly acknowledged and agreed to be fair, reasonable and necessary. To the extent that any covenant contained in Section 8 is held to be invalid, illegal or unenforceable because of the extent of activities, duration of such covenant, the 10 geographic area covered thereby, or otherwise, the parties agree that the court making such determination shall reform such covenant to include as much of its nature and scope as will render it enforceable and, in its reduced form, said covenant shall be valid, legal and enforceable to the fullest extent of the law. (b) The Executive acknowledges and agrees that, upon any breach by the Executive of his obligations under Section 8 hereof, the Employer will have no adequate remedy at law, and accordingly will be entitled to specific performance and other appropriate injunctive and equitable relief, notwithstanding Section 10 hereof. Nothing herein shall be construed as prohibiting the Employer from pursuing any other remedies available to it, including the recovery of damages from the Executive. 10. Mediation and Arbitration. If the Executive and the Employer have any dispute whatsoever relating to the interpretation, validity or performance of this Agreement, or any other dispute arising out of this Agreement, every reasonable attempt will be made to resolve any differences or dispute within thirty (30) days of an issuance of written notice by either party to the other party. If a successful resolution of any differences or dispute has not been achieved to the satisfaction of both parties at the end of the 30-day period, the following steps will be used: Except as otherwise expressly provided hereunder, the parties agree that any and all differences or disputes arising out of the Executive's employment or cessation of employment, including but not limited to any dispute, controversy, or claim arising under any federal, state, or local statute, law, ordinance or regulation or under this Agreement, shall be resolved exclusively by Alternative Dispute Resolution described in this Agreement ("ADR"). The initiation of ADR shall first require mediation, and the parties agree to first try to settle any dispute through mediation. Mediation shall be initiated by either party by the serving of a written notice of intent to mediate (a "Mediation Notice") by one party upon the other. If no resolution has been mutually agreed through mediation within ninety (90) days of service of a Mediation Notice, then and only then may the dispute be submitted to arbitration. Arbitration shall be initiated by the serving of a written notice of intent to arbitrate (an "Arbitration Notice") by one party upon the other. Notwithstanding the foregoing, nothing in this Agreement shall be deemed to preclude the Employer from seeking temporary or permanent injunctive relief and/or damages from a court of competent jurisdiction with respect to any breach of Section 8 of this Agreement. In the event that a party wishes to initiate ADR, a Mediation Notice must be served on the other party within six (6) months from the date on which the claim arose. If the parties cannot mutually agree on a mediator, then a mediator shall be selected in 11 accordance with the Employment Mediation Rules of the American Arbitration Association. In the event that mediation is unsuccessful and arbitration is initiated, it shall be conducted under the National Rules of the Resolution of Employment Disputes of the American Arbitration Association. There shall be a single arbitrator to be agreed upon by the parties, provided that, if the parties are unable to agree upon a single arbitrator, each party shall name an arbitrator and the two so named shall name a third arbitrator The arbitration proceedings shall be heard by the arbitrator(s) and the decision of the arbitrator, or the majority of the panel if one has been selected, shall be final and binding on the parties. Judgment upon the arbitration award may be entered in any court of competent jurisdiction. An Arbitration Notice must be served on the other party within one (1) year from the date on which the claim arose, and the failure to bring such a claim within such one-year period shall constitute a waiver of such claim and an absolute bar to any further proceedings in any forum with respect to it. All mediation and arbitration proceedings shall be conducted in Bangor, Maine, unless the parties otherwise agree in writing. The cost of any mediation proceeding under this Section 10 will be paid by the Employer. The cost of any arbitration proceeding will be shared equally by the parties to the dispute; provided, however, that, if the dispute is resolved in favor of the Executive, such cost shall be paid in full by the Employer. 11. Post-Termination Obligations. All payments and benefits due to the Executive under this Agreement shall be subject to the Executive's compliance with this Section 11 for one full year following the Executive's Date of Termination. The Executive shall, upon reasonable notice, furnish such information and assistance to the Employer, the Holding Company and the Bank as may reasonably be required by the Employer, the Holding Company or the Bank in connection with any litigation in which it or any of its subsidiaries or affiliates is, or may become, a party. 12. General Provisions. (a) All notices required by this Agreement shall be in writing and shall be sufficiently given if delivered personally or mailed by registered mail or certified mail, return receipt requested, to the parties at their then current addresses. All notices shall be deemed to have been given as of the date so delivered or mailed. (b) This Agreement and the plans and agreements described in Section 5(b) contain the entire transaction between the parties, and there are no other representations, warranties, conditions or agreements relating to the subject matter thereof. 12 (c) The waiver by any party of any breach or default of any provision of this Agreement shall not operate or be construed as a waiver of any subsequent breach. (d) This Agreement may not be changed orally but only by an agreement in writing executed on behalf of the party against which enforcement of any waiver, change, modification, consent or discharge is sought. (e) This Agreement shall be binding upon and inure to the benefit of the Employer and the Executive and their respective successors, assigns, heirs and legal representatives (including, but not limited to, any successor of the Employer described in Section 7). (f) Each of the parties agrees to execute all further instruments and documents and to take all further action as the other party may reasonably request in order to effectuate the terms and purposes of this Agreement. (g) This Agreement may be executed in one or more counterparts, all of which taken together shall constitute one and the same instrument. (h) This Agreement shall be construed pursuant to and in accordance with the laws of the State of Maine. Actions brought by the Employer under this Agreement shall be subject to the exclusive jurisdiction of the state and federal courts of Maine. Both parties consent to the personal jurisdiction of such courts for such actions, and agree that they may be served with process in accordance with Section 12(a). (i) The Executive acknowledges that he has had a full and complete opportunity to review the terms, enforceability and implications of this Agreement, and that the Employer has not made any representations or warranties to the Executive concerning the terms, enforceability and implications of this Agreement other than as are reflected in this Agreement. 13 IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the _____ day of ______________, 20____. Witness: EMPLOYER: BAR HARBOR BANKSHARES _________________________ By____________________________ Title: Witness: EXECUTIVE: ___________________________ ______________________________ Gerald Shencavitz 14 EX-10.5 7 b48402bhexv10w5.txt EX 10.5 CHANGE IN CONTROL AGREEMENT - READ EXHIBIT 10.5 CHANGE IN CONTROL, CONFIDENTIALITY AND NONCOMPETITION AGREEMENT This Agreement is effective as of the 7th day of November, 2003 by and between BAR HARBOR BANKING AND TRUST COMPANY, a Maine corporation with its principal office at 82 Main Street, P.O. Box 400, Bar Harbor, ME 04609-0400 (the "Employer"), and DEAN S. READ of Bar Harbor ME (the "Executive"). W I T N E S S E T H: WHEREAS, Bar Harbor Banking and Trust Company is a wholly-owned subsidiary of Bar Harbor Bankshares; and WHEREAS, the Executive is an employee of the Employer; and WHEREAS, the Employer desires to enhance the ability of the Employer to retain the services of the Executive and to reward the Executive for his valuable, dedicated service to the Employer in the event of his termination of employment in connection with a change in control. NOW, THEREFORE, the parties hereto do hereby agree as follows: 1. Definitions 1.1. Bank shall mean Bar Harbor Banking and Trust Company. 1.2. Base Compensation shall mean the annual base salary payable by the Employer to the Executive, excluding any bonuses, incentive compensation and other forms of additional compensation. 1.3. Cause shall be deemed to exist only in the event the Executive is convicted by a court of competent jurisdiction of a felony involving dishonesty or fraud on the part of the Executive in his relationship with the Employer, the Holding Company or the Bank. 1.4. Change in Control shall mean the occurrence of any one of the following events: (a) Any person, including a group (as such term is used in Section 13(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) becomes the beneficial owner (as determined pursuant to Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of Bar Harbor Bankshares representing more than fifty percent (50%) of the combined voting power of Bar Harbor Bankshares' then outstanding securities, other than as a result of an issuance of securities initiated by Bar Harbor Bankshares in the ordinary course of its business; or (b) Bar Harbor Bankshares is party to a Business Combination (as hereinafter defined) unless, following consummation of the Business Combination, more than fifty percent (50%) of the outstanding voting securities of the resulting entity are beneficially owned, directly or indirectly, by the holders of Bar Harbor Bankshares' outstanding voting securities immediately prior to the Business Combination in substantially the same proportions as those existing immediately prior to the Business Combination; or (c) The stockholders of Bar Harbor Bankshares approve a plan of complete liquidation of Bar Harbor Bankshares or an agreement for the sale or disposition by Bar Harbor Bankshares of all or substantially all of Bar Harbor Bankshares' assets to another person or entity that is not a wholly owned subsidiary of Bar Harbor Bankshares. For purposes of this Section 1.4, a Business Combination means any cash tender or exchange offer, merger or other business combination, sale of stock, or sale of all or substantially all of the assets, or any combination of the foregoing transactions. For purposes of this Section 1.4, a Change in Control shall exclude any internal corporate change, reorganization or other such event, which occurred prior to or may occur following the date of this Agreement. 1.5. Code shall mean the Internal Revenue Code of 1986, as amended, and as it may be amended from time to time, together with the rules and regulations promulgated under such code. 1.6. Date of Termination shall mean: (a) If the Executive's employment is terminated for Disability, thirty (30) days after Notice of Termination for Disability is given by the Employer to the Executive and the Executive shall not have returned to the performance of his duties on a full-time basis during such thirty (30) day period; (b) If the Executive's employment is terminated by the Employer for Cause or by the Executive for Good Reason, the date specified in the Notice of Termination, but not earlier than the date on which such Notice of Termination is given; and (c) If the Executive's employment is terminated or terminates for any other reason, the date on which the Executive ceases to perform services for the Employer as a common law employee. 1.7 Disability shall mean a permanent and total disability (as defined in the Employer's long term disability plan) which is incurred by the Executive while he is employed by the Employer and which makes the Executive eligible to receive a disability income under the Employer's long term disability insurance plan. Such disability shall be deemed to exist only if an application for benefits is filed with the administrator of the Employer's long term disability 2 insurance plan by or on behalf of the Executive and is approved by the administrator, each in the manner described in such long term disability insurance plan. 1.8 Employer shall mean the Bank. 1.9. Good Reason shall mean, unless the Executive consents to such action, a reduction in the Executive's compensation that does not apply generally to all senior executive officers of the Employer, the Holding Company and the Bank, a material reduction in the duties of the Executive, or a change in the principal worksite of the Executive to a location that is more than fifty (50) miles from Bar Harbor, Maine. Notwithstanding the above, Good Reason shall not include any reorganization of the board of directors of the Holding Company or the Bank, or any change in the Executive's position with the Holding Company or the Bank, that occurred prior to the date of this Agreement. 1.10. Holding Company shall mean Bar Harbor Bankshares, its subsidiaries and affiliates. 1.11. Notice of Termination shall mean the notice provided pursuant to Section 3. 2. Severance Benefits. In the event that: (a) the Employer terminates the Executive's employment other than as a result of Disability and other than for Cause, or the Executive terminates his employment for Good Reason; and (b) the Executive's termination of employment occurs in anticipation of or after a Change in Control, then the Employer shall pay the Executive the severance benefits described in this Section 2. The Executive's termination of employment shall be deemed to be in anticipation of a Change in Control if it occurs within the twelve (12) month period prior to the occurrence of the Change in Control. The severance benefits described in this Section 2 shall equal the following: (a) The Executive shall receive a lump sum severance payment within five (5) days after the Date of Termination. Such payment shall equal 1.5 times the Executive's Base Compensation, determined as of the Date of Termination. (b) The Executive and his dependents shall continue to be eligible to receive the same medical, health, dental and life insurance benefits which the Executive is eligible to receive on the Date of Termination. The Executive shall be required to make the same premium contributions that he was required to make immediately prior to the Date of Termination. The ability of the Executive and his dependents to receive such benefits shall continue for a period of eighteen (18) months following the Date of Termination. 3 (c) In the event of a Change of Control, all stock options granted but unexercised under the Bar Harbor Bankshares and Subsidiaries Incentive Stock Option Plan of 2000 or any other subsequent equity plan shall become 100% vested immediately prior to any such Change of Control. These grants will remain subject to all other terms and conditions in the Bar Harbor Bankshares and Subsidiaries Incentive Stock Option Plan of 2000 or any subsequent equity plan. The Executive shall not be required to mitigate the amount of any severance benefits described in this Section 2 by seeking other employment. 3. Notice of Termination. Any termination of the Executive's employment by the Employer due to Disability or for Cause, or by the Executive due to Good Reason, shall be communicated by written Notice of Termination to the other party. Notwithstanding the above, however, the Executive shall not be entitled to give a Notice of Termination that the Executive is terminating employment for Good Reason more than six (6) months following the occurrence of the event alleged to constitute Good Reason. A Notice of Termination must indicate the specific provisions in this Agreement which are relied upon as the basis for the termination of the Executive's employment, and must also set forth in reasonable detail the facts and circumstances claimed to provide the basis for such termination under the provisions so indicated. 4. Loss of Severance Benefits. If the Employer shall terminate the Executive's employment due to Disability or for Cause, or if the Executive shall terminate his employment other than for Good Reason, or if the Executive shall die, then the Executive shall have no right to receive any severance benefits under this Agreement. 5. No Other Benefits Payable. (a) If the Executive is entitled to receive the severance benefits described in Section 2 of this Agreement, he shall not be entitled to receive: (i) any severance benefits under the terms of any general severance pay policy or plan of the Employer, the Holding Company or the Bank; or (ii) any other compensation, benefits or payments under the terms of any other plan of, or agreement with, the Employer, the Holding Company or the Bank. (b) Notwithstanding the above, the Executive shall be entitled to receive any compensation, benefits or payments which are specifically authorized by the terms of any plan of, or agreement with, the Employer, the Holding Company or the Bank to be paid in addition to the severance benefits described in Section 2 of this Agreement. Moreover, 4 notwithstanding the above, the Executive shall be entitled to receive, in addition to the severance benefits described in Section 2 of this Agreement, any compensation, benefits or payments which the Executive is entitled to receive under: (i) the Bar Harbor Bankshares Supplemental Executive Retirement Plan; (ii) any incentive compensation plan maintained by the Employer, the Holding Company or the Bank which provides for payment to a terminated employee of incentive compensation earned by the employee prior to his or her termination of employment; or (iii) any payroll plan or policy of the Employer, the Holding Company or the Bank which provides for payment to a terminated employee of any unpaid vacation, holiday or sick pay accrued by the employee prior to his or her termination of employment. 6. Certain Additional Payments by the Employer. (a) Anything in this Agreement to the contrary notwithstanding and except as set forth below, in the event it shall be determined that any payment or distribution made at any time by the Employer or to or for the benefit of the Executive (whether paid or payable, or distributed or distributable, pursuant to the terms of this Agreement or otherwise, but determined without regard to any additional payments required under this Section 6) (a "Payment") would be subject to the excise tax imposed by Section 4999 of the Code, or any interest or penalties are incurred by the Executive with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the "Excise Tax"), then the Executive shall be entitled to receive an additional payment (a "Gross-Up Payment"). The Gross-Up Payment shall equal such an amount that, after payment by the Executive of all taxes (including, without limitation, any federal, state or local income taxes, Social Security taxes and Medicare taxes, and any interest or penalties imposed with respect thereto) and Excise Tax imposed upon the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments. Notwithstanding the foregoing provisions of this Section 6(a), if it shall be determined that the Executive is entitled to a Gross-Up Payment, but that the Payments do not exceed 110% of the greatest amount (the "Reduced Amount") that could be paid to the Executive such that the receipt of Payments would not give rise to any Excise Tax, then no Gross-Up Payment shall be made to the Executive and the Payments, in the aggregate, shall be reduced to the Reduced Amount. (b) Subject to the provisions of Section 6(d), all determinations required to be made under this Section 6 (including, without limitation, whether and when a Gross-Up Payment is required, the amount of such Gross-Up Payment, and the assumptions to be utilized in arriving at such determination) shall be made by KPMG Peat Marwick or such other certified public accounting firm as may be designated by the Executive (the "Accounting Firm"). The Accounting Firm shall provide detailed supporting calculations both to the Employer and to the Executive within fifteen (15) business days after the receipt of notice from the Executive that there has been a Payment, or such earlier time as is requested by the Employer. In the event that the Accounting Firm is serving as 5 accountant or auditor for the individual, entity or group effecting the Change of Control, the Executive shall appoint another nationally recognized accounting firm to make the determinations required hereunder (which accounting firm shall then be referred to as the Accounting Firm hereunder). All fees and expenses of the Accounting Firm shall be borne solely by the Employer. Any Gross-Up Payment, as determined pursuant to this Section 6, shall be paid by the Employer to the Executive within five (5) days after its receipt of the Accounting Firm's determination. Any determination by the Accounting Firm shall be binding upon the Employer and the Executive. (c) As a result of the uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that Gross-Up Payments which will not have been made by the Employer should have been made ("Underpayment"), consistent with the calculations required to be made hereunder. In the event that the Employer exhausts its remedies pursuant to Section 6(d) and the Executive thereafter is required to make a payment of any Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred, and any such Underpayment shall be promptly paid by the Employer to or for the benefit of the Executive. (d) The Executive shall notify the Employer in writing of any claim by the Internal Revenue Service or any other taxing authority that, if successful, would require the payment by the Employer of a Gross-Up Payment. Such notification shall be given as soon as practicable, but no later than ten (10) business days after the Executive is informed in writing of such claim. The notification shall apprise the Employer of the nature of such claim and the date on which such claim is requested to be paid. The Executive shall not pay such claim prior to the expiration of the thirty (30) day period following the date on which it gives such notice to the Employer (or such shorter period ending on the date that any payment of taxes with respect to such claim is due). If the Employer notifies the Executive in writing prior to the expiration of such period that it desires to contest such claim, the Executive shall: (i) give the Employer any information reasonably requested by the Employer relating to such claim; (ii) take such action in connection with contesting such claim as the Employer shall reasonably request in writing from time to time, including, without limitation, accepting legal representation with respect to such claim by an attorney reasonably selected by the Employer; (iii) cooperate with the Employer in good faith in order effectively to contest such claim; and (iv) permit the Employer to participate in any proceedings relating to such claim; 6 provided, however, that the Employer shall bear and pay directly all costs and expenses (including additional interest and penalties) incurred in connection with such contest, and shall indemnify and hold the Executive harmless, on an after-tax basis, for any Excise Tax or other taxes (including interest and penalties with respect thereto) imposed as a result of such representation and the payment of any costs and expenses. Without limitation on the foregoing provisions of this Section 6(d), the Employer shall control all proceedings taken in connection with such contest and, at its sole option, may pursue or forego any and all administrative appeals, proceedings, hearings and conferences with the taxing authority in respect of such claim, and may, at its sole option, either direct the Executive to pay the tax claimed and sue for a refund or contest the claim in any permissible manner. The Executive agrees to prosecute any such contest to a determination before any administrative tribunal, in a court of initial jurisdiction, and in one or more appellate courts, as the Employer shall determine; provided, however, that if the Employer directs the Executive to pay such claim and sue for a refund, the Employer shall advance the amount of such payment to the Executive on an interest-free basis, and shall indemnify and hold the Executive harmless, on an after-tax basis, from any Excise Tax or other taxes (including interest or penalties with respect thereto) imposed with respect to such advance or with respect to any imputed income with respect to such advance; and further provided, that any extension of the statute of limitations relating to the payment of taxes for the taxable year of the Executive with respect to which such contested amount is claimed to be due is limited solely to such contested amount. Furthermore, the Employer's control of the contest shall be limited to issues with respect to which a Gross-Up Payment would be payable hereunder, and the Executive shall be entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority. (e) If, after the receipt by the Executive of an amount advanced by the Employer pursuant to Section 6(d), the Executive becomes entitled to receive any refund with respect to such claim, the Executive shall (subject to the Employer's complying with the requirements of Section 6(d)) promptly pay to the Employer the amount of such refund (together with any interest paid or credited thereon, after taxes applicable thereto). If, after the receipt by the Executive of an amount advanced by the Employer pursuant to Section 6(d), a determination is made that the Executive shall not be entitled to any refund with respect to such claim and the Employer does not notify the Executive in writing of its intent to contest such denial of refund prior to the expiration of thirty (30) days after such determination, then such advance shall be forgiven and shall not be required to be repaid, and the amount of such advance shall offset, to the extent thereof, the amount of the Gross-Up Payment required to be paid. 7. Successors. (a) The Employer will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business 7 and/or assets of the Employer to expressly assume and agree to perform its obligations under this Agreement in the same manner and to the same extent that the Employer would be required to perform them if no such succession had taken place. Each such successor shall execute a written agreement evidencing its assumption of the Employer's obligations under this Agreement prior to the effective date of any such purchase, merger, consolidation or other transaction. (b) The failure of the Employer to obtain from each successor the written agreement described in Section 7(a) shall be a breach of the obligations of the Employer under this Agreement, and shall entitle the Executive to compensation from the Employer in the same amount and on the same terms as he would be entitled hereunder if the Employer had terminated the Executive's employment after a Change in Control other than for Disability or Cause; except that, for purposes of implementing the foregoing, the date on which any such succession becomes effective shall be deemed to be the Date of Termination. (c) As used in this Section 7, the Employer shall include the Employer, the Holding Company, the Bank, and any successor to all or substantially all of the business and/or assets of any of them (whether direct or indirect, by purchase, merger, consolidation or otherwise) which executes and delivers the written agreement described in Section 7(a) or which otherwise becomes bound by all the terms and provisions of this Agreement. 8. Confidential Information, Non Competition Obligations, and Non-Solicitation. (a) Confidential Information The Executive recognizes and acknowledges that certain assets of the Holding Company, the Bank, or any of their affiliates or subsidiaries constitutes Confidential Information. For purposes hereof, the term "Confidential Information" means any and all information and compilations of information, in whatever form or medium (including any copies thereof), relating to any part of the business of the Holding Company, the Bank or any of their subsidiaries or affiliates, or the business of their customers, provided to the Executive, or which the Executive obtained or compiled or had obtained or compiled on his behalf, which information or compilations of information are not a matter of public record or generally known to the public, including without limitation: (i) Financial information regarding the Holding Company, the Bank, or any of their subsidiaries or affiliates; 8 (ii) Personnel data, including compensation arrangements relating to the Executive or any other employees of the Holding Company, the Bank, or any of their subsidiaries or affiliates; (iii) Internal plans, practices, and procedures of the Holding Company, the Bank or any of their subsidiaries or affiliates; (iv) The names, portfolio information, investment strategies, requirements, lending or deposit information, or any similar information of any customers, clients, or prospects of the Holding Company, the Bank, or any of their subsidiaries or affiliates; (v) Business methods and marketing strategies of the Holding Company, the Bank, or any of their subsidiaries or affiliates; (vi) Any other information expressly deemed confidential by the officers and directors of the Holding Company, the Bank, or any of their subsidiaries or affiliates; and (viii) The terms and conditions of the Agreement and any documents or instruments executed in connection herewith that are not of public record. The Executive shall not, without the prior written consent of the Holding Company, the Bank, or any of their subsidiaries or affiliates, use or disclose, or negligently permit any unauthorized person to use, disclose, or gain access to, any Confidential Information. Upon termination of employment, the Executive hereby agrees to deliver promptly to the Holding Company, the Bank, or any of their affiliates or subsidiaries all memoranda, notes, records, manuals, or other documents, including all copies of such materials, containing Confidential Information, whether made or compiled by the Executive or furnished to him from any source by virtue of the Executive's relationship with the Holding Company, the Bank, or any of their subsidiaries or affiliates. Regardless of the reason for his cessation of employment, the Executive will furnish such information as may be in the Executive's possession and cooperate with the Holding Company, the Bank, or any of their affiliates or subsidiaries as may reasonably be requested in connection with any claims or legal actions in which the Holding Company, the Bank, or any of their subsidiaries or affiliates are or may become a party. The Employer will reimburse the Executive for any reasonable out-of-pocket expenses the Executive incurs in order to satisfy his obligations under this clause. 9 (b) Non-Competition Obligations In consideration of the covenants of the Employer contained herein, the Executive covenants and agrees with the Employer that, during the " Non-Compete Period" (as hereinafter defined) and within a one hundred fifty (150) "air" mile radius from Bar Harbor, Maine, the Executive shall not without specific written approval, directly or indirectly: (i) Engage in any insurance, brokerage, trust, banking, or other financial services as an owner, employee, consultant, representative, or in any other capacity; (ii) Directly or indirectly request or advise any past, present, or future customers of the Holding Company, the Bank or any of their subsidiaries or affiliates to withdraw, curtail, or cancel his or her or its business with the Holding Company, the Bank, or any of their subsidiaries or affiliates; (iii) Directly or indirectly cause, suggest, or induce others to call on any past, present, or future customers of the Holding Company, the Bank or any of their affiliated entities; or (iv) Canvas, solicit, or accept any business on behalf of any other bank, insurance agency, trust, or other financial services business, other than the Holding Company, the Bank or any of their affiliated entities, from any past or present customer of the Holding Company, the Bank or any of their affiliated entities. The "Non-Compete Period" shall commence on the date hereof and terminate one (1) year after the cessation of the Executive's employment with the Employer and all of its affiliates, regardless of reason, whether or not pursuant to this Agreement. (c) Non-Solicitation of Employees While employed by the Employer, and for one (1) year following cessation of his employment with the Employer and all of its affiliates for any reason, the Executive shall not, directly or indirectly, by any means or device whatsoever, for himself or on behalf of, or in conjunction with, any other person, partnership or corporation, solicit, entice, hire, or attempt to hire or employ any employee of the Holding Company, the Bank or any of their affiliated entities. During this Agreement, the Executive shall not interview or negotiate employment with, or accept employment from, a competitor in the market area described in Section 8(b) above except with the written consent of the Employer. 10 9. Reformation; Injunctive Relief. (a) All the parties hereto acknowledge that the parties have carefully considered the nature and scope of this Agreement. The activities, period and area covered by Section 8 are expressly acknowledged and agreed to be fair, reasonable and necessary. To the extent that any covenant contained in Section 8 is held to be invalid, illegal or unenforceable because of the extent of activities, duration of such covenant, the geographic area covered thereby, or otherwise, the parties agree that the court making such determination shall reform such covenant to include as much of its nature and scope as will render it enforceable and, in its reduced form, said covenant shall be valid, legal and enforceable to the fullest extent of the law. (b) The Executive acknowledges and agrees that, upon any breach by the Executive of his obligations under Section 8 hereof, the Employer will have no adequate remedy at law, and accordingly will be entitled to specific performance and other appropriate injunctive and equitable relief, notwithstanding Section 10 hereof. Nothing herein shall be construed as prohibiting the Employer from pursuing any other remedies available to it, including the recovery of damages from the Executive. 10. Mediation and Arbitration. If the Executive and the Employer have any dispute whatsoever relating to the interpretation, validity or performance of this Agreement, or any other dispute arising out of this Agreement, every reasonable attempt will be made to resolve any differences or dispute within thirty (30) days of an issuance of written notice by either party to the other party. If a successful resolution of any differences or dispute has not been achieved to the satisfaction of both parties at the end of the 30-day period, the following steps will be used: Except as otherwise expressly provided hereunder, the parties agree that any and all differences or disputes arising out of the Executive's employment or cessation of employment, including but not limited to any dispute, controversy, or claim arising under any federal, state, or local statute, law, ordinance or regulation or under this Agreement, shall be resolved exclusively by Alternative Dispute Resolution described in this Agreement ("ADR"). The initiation of ADR shall first require mediation, and the parties agree to first try to settle any dispute through mediation. Mediation shall be initiated by either party by the serving of a written notice of intent to mediate (a "Mediation Notice") by one party upon the other. If no resolution has been mutually agreed through mediation within ninety (90) days of service of a Mediation Notice, then and only then may the dispute be submitted to arbitration. Arbitration shall be initiated by the serving of a written notice of intent to arbitrate (an "Arbitration Notice") by one party upon the other. Notwithstanding the foregoing, nothing in this Agreement shall be deemed to preclude 11 the Employer from seeking temporary or permanent injunctive relief and/or damages from a court of competent jurisdiction with respect to any breach of Section 8 of this Agreement. In the event that a party wishes to initiate ADR, a Mediation Notice must be served on the other party within six (6) months from the date on which the claim arose. If the parties cannot mutually agree on a mediator, then a mediator shall be selected in accordance with the Employment Mediation Rules of the American Arbitration Association. In the event that mediation is unsuccessful and arbitration is initiated, it shall be conducted under the National Rules of the Resolution of Employment Disputes of the American Arbitration Association. There shall be a single arbitrator to be agreed upon by the parties, provided that, if the parties are unable to agree upon a single arbitrator, each party shall name an arbitrator and the two so named shall name a third arbitrator The arbitration proceedings shall be heard by the arbitrator(s) and the decision of the arbitrator, or the majority of the panel if one has been selected, shall be final and binding on the parties. Judgment upon the arbitration award may be entered in any court of competent jurisdiction. An Arbitration Notice must be served on the other party within one (1) year from the date on which the claim arose, and the failure to bring such a claim within such one-year period shall constitute a waiver of such claim and an absolute bar to any further proceedings in any forum with respect to it. All mediation and arbitration proceedings shall be conducted in Bangor, Maine, unless the parties otherwise agree in writing. The cost of any mediation proceeding under this Section 10 will be paid by the Employer. The cost of any arbitration proceeding will be shared equally by the parties to the dispute; provided, however, that, if the dispute is resolved in favor of the Executive, such cost shall be paid in full by the Employer. 11. Post-Termination Obligations. All payments and benefits due to the Executive under this Agreement shall be subject to the Executive's compliance with this Section 11 for one full year following the Executive's Date of Termination. The Executive shall, upon reasonable notice, furnish such information and assistance to the Employer, the Holding Company and the Bank as may reasonably be required by the Employer, the Holding Company or the Bank in connection with any litigation in which it or any of its subsidiaries or affiliates is, or may become, a party. 12. General Provisions. (a) All notices required by this Agreement shall be in writing and shall be sufficiently given if delivered personally or mailed by registered mail or certified mail, 12 return receipt requested, to the parties at their then current addresses. All notices shall be deemed to have been given as of the date so delivered or mailed. (b) This Agreement and the plans and agreements described in Section 5(b) contain the entire transaction between the parties, and there are no other representations, warranties, conditions or agreements relating to the subject matter thereof. (c) The waiver by any party of any breach or default of any provision of this Agreement shall not operate or be construed as a waiver of any subsequent breach. (d) This Agreement may not be changed orally but only by an agreement in writing executed on behalf of the party against which enforcement of any waiver, change, modification, consent or discharge is sought. (e) This Agreement shall be binding upon and inure to the benefit of the Employer and the Executive and their respective successors, assigns, heirs and legal representatives (including, but not limited to, any successor of the Employer described in Section 7). (f) Each of the parties agrees to execute all further instruments and documents and to take all further action as the other party may reasonably request in order to effectuate the terms and purposes of this Agreement. (g) This Agreement may be executed in one or more counterparts, all of which taken together shall constitute one and the same instrument. (h) This Agreement shall be construed pursuant to and in accordance with the laws of the State of Maine. Actions brought by the Employer under this Agreement shall be subject to the exclusive jurisdiction of the state and federal courts of Maine. Both parties consent to the personal jurisdiction of such courts for such actions, and agree that they may be served with process in accordance with Section 12(a). (i) The Executive acknowledges that he has had a full and complete opportunity to review the terms, enforceability and implications of this Agreement, and that the Employer has not made any representations or warranties to the Executive concerning the terms, enforceability and implications of this Agreement other than as are reflected in this Agreement. 13 IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the _____ day of ______________, 20____. Witness: EMPLOYER: BAR HARBOR BANKING AND TRUST COMPANY _________________________ By____________________________ Title: Witness: EXECUTIVE: _________________________ ______________________________ Dean S. Read Bar Harbor Bankshares hereby guarantees and agrees to perform the obligations of Bar Harbor Banking and Trust Company under the terms of this Agreement. The liability of Bar Harbor Bankshares under this guarantee is primary, direct and independent. This guarantee shall be enforceable against Bar Harbor Bankshares in the same manner as if Bar Harbor Bankshares were the Employer under the terms of this Agreement. Witness: GUARANTOR: BAR HARBOR BANKSHARES _________________________ By____________________________ Title: 14 EX-31.1 8 b48402bhexv31w1.txt EX 31.1 SECTION 302 CERTIFICATION OF CEO EXHIBIT 31.1 CERTIFICATION I, Joseph M. Murphy, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Bar Harbor Bankshares; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e) for the registrant and we have: a. designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b. evaluated the effectiveness of this registrant's controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and c. Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting. 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a. all significant deficiencies and material weaknesses in the design or operations of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: November 13, 2003 /s/ Joseph M. Murphy -------------------- Joseph M. Murphy President and Chief Executive Officer EX-31.2 9 b48402bhexv31w2.txt EX 31.2 SECTION 302 CERTIFICATION OF CFO EXHIBIT 31.2 CERTIFICATION I, Gerald Shencavitz, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Bar Harbor Bankshares; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e) for the registrant and we have: a. designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b. evaluated the effectiveness of this registrant's controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and c. Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting. 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a. all significant deficiencies and material weaknesses in the design or operations of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: November 13, 2003 /s/ Gerald Shencavitz ------------------------------ Gerald Shencavitz Chief Financial Officer EX-32.1 10 b48402bhexv32w1.txt EX 32.1 SECTION 906 CERTIFICATION OF CEO EXHIBIT 32.1 CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 (18 U.S.C. 1350) The undersigned executive officer of Bar Harbor Bankshares (the "Registrant") hereby certifies that the Registrant's Form 10-Q for the period ended September 30, 2003, fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 and that the information contained therein fairly presents, in all material respects, the financial condition and results of operations of the Registrant. /s/ Joseph M. Murphy ------------------------------ Date: November 13, 2003 Name: Joseph M. Murphy Title: Chief Executive Officer EX-32.2 11 b48402bhexv32w2.txt EX 32.2 SECTION 906 CERTIFICATION OF CFO EXHIBIT 32.2 CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 (18 U.S.C. 1350) The undersigned executive officer of Bar Harbor Bankshares (the "Registrant") hereby certifies that the Registrant's Form 10-Q for the period ended September 30, 2003, fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 and that the information contained therein fairly presents, in all material respects, the financial condition and results of operations of the Registrant. /s/ Gerald Shencavitz ------------------------------- Date: November 13, 2003 Name: Gerald Shencavitz Title: Chief Financial Officer -----END PRIVACY-ENHANCED MESSAGE-----

EX-10.1

                                                                    EXHIBIT 10.1

                        PURCHASE AND ASSUMPTION AGREEMENT

                                 by and between

                            Androscoggin Savings Bank

                                       and

                      Bar Harbor Banking and Trust Company

October 27, 2003



                                TABLE OF CONTENTS



                                                                                                                  Page
                                                                                                                  ----
                                                                                                               
ARTICLE I             DEFINITIONS................................................................................   1
Section 1.1.          Defined Terms..............................................................................   1
Section 1.2.          Accounting Terms...........................................................................   8
ARTICLE II            PURCHASE AND SALE OF PURCHASED ASSETS AND ASSIGNMENT AND ASSUMPTION OF
                      ASSUMED LIABILITIES........................................................................   8
Section 2.1.          Purchase and Sale of Assets, No Other Assets Purchased.....................................   8
Section 2.2.          Assumed Liabilities........................................................................   9
ARTICLE III           PURCHASE PRICE; PAYMENT; SETTLEMENT; TAX ALLOCATION........................................  10
Section 3.1.          Purchase Price.............................................................................  10
Section 3.2.          Payment at Closing.........................................................................  11
Section 3.3.          Adjustment of Estimated Payment Amount.....................................................  11
Section 3.4.          Allocation of Purchase Price...............................................................  11
Section 3.5.          Proration, Other Closing Date Adjustments..................................................  12
ARTICLE IV            TAXES......................................................................................  13
Section 4.1.          Sales, Transfer and Use Taxes..............................................................  13
Section 4.2.          Information Reports........................................................................  13
ARTICLE V             CLOSING....................................................................................  14
Section 5.1.          Closing Date...............................................................................  14
Section 5.2.          Seller's Deliveries........................................................................  15
Section 5.3.          Purchaser's Deliveries.....................................................................  16
ARTICLE VI            REPRESENTATIONS AND WARRANTIES OF SELLER...................................................  17
Section 6.1.          Organization...............................................................................  17
Section 6.2.          Authority..................................................................................  18
Section 6.3.          Non-Contravention..........................................................................  18
Section 6.4.          Compliance with Law........................................................................  18
Section 6.5.          Legal Proceedings..........................................................................  18
Section 6.6.          Title to Purchased Assets..................................................................  19
Section 6.7.          Loans......................................................................................  19
Section 6.8.          No Broker..................................................................................  20
Section 6.9.          Books and Records..........................................................................  20
Section 6.10.         Certain Labor Matters......................................................................  20
Section 6.11.         Fiduciary Obligations......................................................................  20
Section 6.12.         Agreements with Regulatory Authorities.....................................................  20
Section 6.13.         Limitations on and Disclaimer of Representations and Warranties and Purchaser's
                      Release in Connection Therewith............................................................  21
Section 6.14.         WARN Act...................................................................................  23
Section 6.15.         Excluded Deposits..........................................................................  24
Section 6.16.         Included Deposits..........................................................................  24
Section 6.17.         Use of Assets..............................................................................  24
ARTICLE VII           REPRESENTATIONS AND WARRANTIES OF PURCHASER................................................  24
Section 7.1.          Organization...............................................................................  24
Section 7.2.          Authority..................................................................................  24


                                      - i -



                                                                                                                
Section 7.3.          Non-Contravention..........................................................................  25
Section 7.4.          Legal Proceedings..........................................................................  25
Section 7.5.          Consents and Other Regulatory Matters......................................................  25
Section 7.6.          WARN Act...................................................................................  26
Section 7.7.          Capital Available..........................................................................  26
Section 7.8.          No Broker..................................................................................  26
Section 7.9.          Agreements with Regulatory Authorities.....................................................  26
ARTICLE VIII          COVENANTS OF SELLER........................................................................  27
Section 8.1.          Conduct of the Business....................................................................  27
Section 8.2.          Regulatory Approvals.......................................................................  27
Section 8.3.          Nonsolicitation............................................................................  27
Section 8.4.          Nonsolicitation of Purchaser's Employees...................................................  28
Section 8.5.          Maintenance of Premises....................................................................  28
Section 8.6.          Establishment of Facilities................................................................  28
Section 8.7.          Loan Documentation.........................................................................  29
ARTICLE IX            COVENANTS OF PURCHASER.....................................................................  29
Section 9.1.          Regulatory Approvals and Standards.........................................................  29
Section 9.2.          Solicitation of Accounts...................................................................  30
Section 9.3.          Recording of Instruments of Assignment.....................................................  30
Section 9.4.          Transferred Employees......................................................................  30
Section 9.5.          Interviews.................................................................................  31
Section 9.6.          Other Transactions.........................................................................  32
Section 9.7.          Nonsolicitation of Seller's Employees......................................................  32
ARTICLE X             ACCESS; EMPLOYEE AND CUSTOMER COMMUNICATIONS...............................................  32
Section 10.1.         Access by Purchaser........................................................................  32
Section 10.2.         Communications to Employees, Training......................................................  32
Section 10.3.         Communications with Customers..............................................................  33
ARTICLE XI            TRANSITIONAL MATTERS.......................................................................  34
Section 11.1.         Payment of Deposit Liabilities.............................................................  34
Section 11.2.         Delivery of Purchaser's Check Forms........................................................  34
Section 11.3.         Uncollected Checks Returned to Seller......................................................  35
Section 11.4.         Default on Loan Payments to Seller.........................................................  35
Section 11.5.         Notices to Obligors on Loans...............................................................  35
Section 11.6.         New Telephone Numbers......................................................................  36
Section 11.7.         New ATM/Debit Cards........................................................................  36
Section 11.8.         Signage....................................................................................  36
Section 11.9.         Actions With Respect to IRA, Keogh Plan and Employee Pension Plan Deposit Liabilities......  36
Section 11.10.        Bulk Transfer Laws.........................................................................  38
Section 11.11.        Seller's Statements to Customers...........................................................  38
Section 11.12.        Equipment Conversion and Installation......................................................  38
Section 11.13.        Post-Closing Settlement....................................................................  38
Section 11.14.        Post-Closing Cooperation Generally.........................................................  38
ARTICLE XII           CONDITIONS TO CLOSING......................................................................  39
Section 12.1.         Conditions to Obligations of Seller........................................................  39
Section 12.2.         Conditions to Obligations of Purchaser.....................................................  39



                                     - ii -



                                                                                                                
ARTICLE XIII          DATA PROCESSING............................................................................  40
Section 13.1.         Conversion.................................................................................  40
ARTICLE XIV           INDEMNITY..................................................................................  41
Section 14.1.         Seller's Indemnity.........................................................................  41
Section 14.2.         Purchaser Indemnity........................................................................  41
Section 14.3.         Indemnification Procedure..................................................................  42
Section 14.4.         Limitations on Liability...................................................................  42
Section 14.5.         General....................................................................................  43
Section 14.6.         Survival...................................................................................  44
ARTICLE XV            POST-CLOSING MATTERS.......................................................................  44
Section 15.1.         Further Assurances.........................................................................  44
Section 15.2.         Access to and Retention of Books and Records...............................................  44
Section 15.3.         Deposit Histories..........................................................................  45
ARTICLE XVI           MISCELLANEOUS..............................................................................  45
Section 16.1.         Expenses...................................................................................  45
Section 16.2.         Trade Names and Trademarks.................................................................  45
Section 16.3.         Termination:  Extension of Closing Date....................................................  46
Section 16.4.         Modification and Waiver....................................................................  46
Section 16.5.         Binding Effect: Assignment.................................................................  46
Section 16.6.         Confidentiality............................................................................  47
Section 16.7.         Entire Agreement; Governing Law............................................................  47
Section 16.8.         Consent to Jurisdiction; Waiver of Jury Trial..............................................  48
Section 16.9.         Waiver of Certain Damages..................................................................  48
Section 16.10.        Severability...............................................................................  48
Section 16.11.        Counterparts...............................................................................  48
Section 16.12.        Notices....................................................................................  48
Section 16.13.        Interpretation.............................................................................  49
Section 16.14.        Specific Performance.......................................................................  50
Section 16.15.        No Third Party Beneficiaries...............................................................  50



                                     - iii -



SCHEDULES

Schedule 1.1(b)              List of Bank Employees
Schedule 1.1(c)              List of Deposit Liabilities
Schedule 1.1(e)              List of Excluded Fixed Assets
Schedule 1.1(f)              List of Fixed Assets
Schedule 1.1(g)              List of Loans
Schedule 1.1(h)              Permitted Exceptions
Schedule 1.1(i)              Description of Premises
Schedule 1.1(k)              Region Zip Codes
Schedule 3.1(a)              Price Adjustments
Schedule 3.1(b)              Premises Purchase Price and Value of Fixed Assets
Schedule 3.4                 Allocation of Purchase Price
Schedule 3.5                 Schedule for Safe Deposit Accounts
Schedule 6.10                Employee Benefit Plans
Schedule 7.5                 Regulatory Approvals
Schedule 13.1                Conversion of Account Information
Schedule 16.2                List of Tradenames and Trademarks

                                     - iv -



EXHIBITS

Exhibit A                    Form of Quitclaim Deed with Covenant
Exhibit B                    Form of Bill of Sale for the Personalty
Exhibit C                    Form of Assignment and Assumption Agreement
Exhibit D                    Form of Seller's Officer's Certificate
Exhibit E                    Form of FIRPTA Affidavit
Exhibit F                    Form of Purchaser's Officer's Certificate
Exhibit G                    Form of Limited Power of Attorney

                                      - v -



                        PURCHASE AND ASSUMPTION AGREEMENT

         This Purchase and Assumption Agreement (the "Agreement") dated as of
October 27, 2003, by and between Androscoggin Savings Bank, a Maine-chartered
bank headquartered at 30 Lisbon Street, Lewiston, Maine 04240 ("Seller") and Bar
Harbor Banking and Trust Company, a financial institution chartered under the
laws of the State of Maine and headquartered at 82 Main Street, Bar Harbor,
Maine 04609 ("Purchaser").

         WHEREAS, Seller desires to sell, and Purchaser desires to acquire
certain assets of Seller in accordance with the terms and provisions of this
Agreement; and

         WHEREAS, Seller desires to transfer to Purchaser, and Purchaser desires
to assume from Seller, certain liabilities of Seller in accordance with the
terms and provisions of this Agreement.

         NOW, THEREFORE, in consideration of the premises and the mutual
promises and covenants contained herein, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, and
intending to be legally bound hereby subject to the terms and conditions set
forth herein, Seller and Purchaser agree as follows:

                                    ARTICLE I
                                   DEFINITIONS

SECTION 1.1. DEFINED TERMS.

         As used in this Agreement, the following terms shall have the following
meanings:

         "Accrued Interest" shall mean, as of any date, (a) with respect to the
Deposit Liabilities, the interest, dividends, fees, costs and other charges that
have been accrued on but not paid, credited, or charged to the Deposit
Liabilities, and (b) with respect to the Loans, the Advance Lines and the
Negative Deposits, interest, fees, premiums, consignment fees, costs and other
charges that have accrued on or been charged to the Loans, the Advance Lines and
the Negative Deposits but not paid by the applicable borrower, or any guarantor,
surety or other obligor therefor, or otherwise collected by offset, recourse to
collateral or otherwise.

         "ADA" shall mean the Americans with Disabilities Act of 1990, as
amended, and similar state and local laws, regulations, rules and ordinances.

         "Adjusted Payment Amount" shall have the meaning specified in Section
3.3(a).

         "Advance Lines" shall mean all overdraft lines of credit to owners of
the Deposit Liabilities, plus any and all Accrued Interest thereon (to the
extent such Accrued Interest shall be outstanding and unpaid for ninety (90)
days or less prior to the Closing Date), as of the close of business on the
Closing Date.

         "Affiliate" shall mean, with respect to any Person, any other Person
that directly or indirectly through one or more intermediaries, controls, is
controlled by, or is under common



control with, such Person, or a director, officer, partner, joint venturer or
member of such Person and any successors of such Person.

         "Assets" shall mean the Premises, the Fixed Assets, the Loans, the Cash
and the Safe Deposit Agreements and all keys for the related safe deposit boxes.

         "Assignment and Assumption Agreement" shall have the meaning specified
in Section 5.2(f).

         "Assumed Liabilities" shall have the meaning specified in Section 2.2.

         "Bank Employees" shall mean the employees of Seller listed on Schedule
1.1(b) hereto, but excluding such employees who shall leave Seller's employ
between the date hereof and the close of business on the Closing Date, and
including replacements of such employees made in the ordinary course of business
between the date hereof and the Closing Date and including any Person who fills
a vacant position at the Branch in the ordinary course of business between the
date hereof and the Closing Date to provide Branch services to Customers,
provided that Purchaser has given its written consent, which will not be
unreasonably withheld, prior to Seller hiring any replacements or filling any
vacancies between the date hereof and the Closing Date.

         "Branch" shall mean the branch office of Seller to be acquired by
Purchaser, which is located at 245 Camden Street, Rockland, Maine.

         "Business" shall mean the banking business conducted at the Branch, and
shall include the Assets, Bank Employees, and Liabilities.

         "Business Day" shall mean any day that the Federal Reserve Bank of
Boston is open.

         "Cash" shall mean all petty cash, vault cash, teller cash, and prepaid
postage located at the Branch (excluding foreign currency), in each case as of
the close of business at the Branch on the Closing Date.

         "Closing" shall have the meaning specified in Section 5.1(a).

         "Closing Date" shall have the meaning specified in Section 5.1(a).

         "Code" shall mean the Internal Revenue Code of 1986, as amended, and
the regulations promulgated thereunder.

         "Confidentiality Agreement" shall mean that certain letter agreement
between Purchaser and Seller dated as of September 5, 2003 and executed by
Purchaser on September 9, 2003.

         "Customers" shall mean, individually and collectively, (a) the Persons
named as the owners of the deposit accounts relating to the Deposit Liabilities,
(b) the primary obligors under the Loans, and (c) the parties (other than Seller
and its Affiliates) to the Safe Deposit Agreements.

         "Customer Notices" shall have the meaning specified in Section 10.3(a).

                                        2



         "Damages" shall have the meaning specified in Section 14.1.

         "Deposit accounts" means insured deposits, as defined in Section
3(m)(1) of the FDIA, as amended, booked at the Branch, without regard to whether
the same are collected or uncollected funds and without regard to whether the
balance in any such account is in excess of the limit of the amount of FDIC
deposit insurance coverage for the account.

         "Deposit Liabilities" or "Deposit Liability" shall mean all of Seller's
obligations and liabilities relating to (a) the deposit accounts listed on
Schedule 1.1(c) hereto, and (b) deposit accounts which are opened at the Branch
between the date indicated on Schedule 1.1(c) and the close of business on the
Closing Date, including, without limitation, all passbook accounts, statement
savings accounts, checking, Money Market and NOW accounts, certificates of
deposit, and IRA, Keogh Plan and Employee Pension Plan accounts, together with
Accrued Interest thereon, all as exists at the close of business on the Closing
Date, but excluding any claim or other liability relating to the origination of
any such deposit account or the administration of any such deposit account prior
to the close of business on the Closing Date, and excluding: the Excluded
IRA/Keogh/Employee Pension Plan Deposits and the Excluded Deposits.

         "Deposit Premium" shall have the meaning specified in Section 3.1(a).

         "Draft Closing Statement" shall mean a draft closing statement as of
the close of business of the fifth Business Day immediately preceding the
Closing Date setting forth an estimate of the Purchase Price (including all
adjustments and prorations thereto).

         "Employee Pension Plan" shall mean any employee pension plan for which
Seller serves as a trustee, including but not limited to, employee pension
benefit plans as defined in Section 3(2) of ERISA, retirement plans qualified
under the requirements of Section 401 (a) of the Code, nonqualified deferred
compensation plans, excess benefit plans and supplemental executive retirement
plans.

         "Environmental Laws" shall mean all Federal, state or local laws,
rules, regulations, codes, ordinances, or by-laws, and any judicial or
administrative interpretations thereof, including orders, decrees, judgments,
rulings, directives or notices of violation, that create duties, obligations or
liabilities with respect to (a) human health or (b) environmental pollution,
impairment or disruption, including, without limitation, laws governing the
existence, use, storage, treatment, discharge, release, containment,
transportation, generation, manufacture, refinement, handling, production,
disposal, or management of any Hazardous Materials, or otherwise regulating or
providing for the protection of the environment and further including, without
limitation, the Comprehensive Environmental Response, Compensation and Liability
Act (42 U.S.C. Section 9601 et seq.), the Hazardous Materials Transportation Act
(49 U.S.C. Section 1801 et seq.), the Public Health Service Act (42 U.S.C.
Section 300 et seq.), the Pollution Prevention Act (42 U.S.C. Section 13101 et
seq.), the Federal Insecticide, Fungicide and Rodenticide Act (7 U.S.C. Section
136 et seq.), the Resource Conservation and Recovery Act (42 U.S.C. Section 6901
et seq.), the Safe Drinking Water Act (21 U.S.C. Section 349, 42 U.S.C. Sections
201, 300f), the Toxic Substances Control Act (15 U.S.C. Section 2601 et seq.),
the Clean Water Act (33 U.S.C. Section 1251 et seq.), the Clean Air Act (42
U.S.C. Section 7401 et seq. ), and similar state and local statutes, and all
regulations adopted pursuant thereto.

                                        3



         "Environment Report" shall have the meaning specified in Section
6.14(c).

         "ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as amended (11 U.S.C. Section 1101 et seq.)

         "Estimated Payment Amount" shall have the meaning specified in Section
3.2.

         "Estimated Purchase Price" shall mean the estimate of the Purchase
Price set forth on the Draft Closing Statement.

         "Excluded Deposits" shall mean (i) all Deposit Liabilities owned by
employees of Seller or its Affiliates (other than Transferred Employees) or
Affiliates of Seller, (ii) Deposit Liabilities subject to legal process, (iii)
deposits which have been reported as abandoned property under the abandoned
property laws of any jurisdiction, (iv) deposits relating to loans or other
extensions of credit not included in the Purchased Assets, and (v) Deposit
Liabilities constituting obligations of Seller represented by certified checks
drawn on Seller.

         "Excluded Fixed Assets" shall mean (a) artwork, supplies, signs,
marketing aids, trade fixtures or equipment specifically identifying or relating
to Seller or any of its Affiliates located at the Branch and (b) any other
personal property of Seller or any of its Affiliates identified on Schedule
1.1(e) hereto, less any such items consumed or disposed of, plus new similar
items acquired or obtained, in the ordinary course of the operation of the
Branch through the close of business on the Closing Date.

         "Excluded IRA/Keogh/Employee Pension Plan Deposits" shall have the
meaning specified in Section 11.9(a).

         "FDIA" shall mean the Federal Deposit Insurance Act, as amended (12
U.S.C.Sections 1811 et seq.).

         "FDIC" shall mean the Federal Deposit Insurance Corporation.

         "Federal Funds Rate" means the near closing bid price for federal funds
as quoted in the Wall Street Journal for the date in question.

         "Final" shall mean, as applied to any governmental order or action,
that such order or action has not been stayed, vacated or otherwise rendered
ineffective and either (a) the time period for taking an appeal therefrom shall
have passed without an appeal therefrom having been taken, or (b) if any such
appeal shall have been dismissed or resolved, all applicable periods for further
appeal of such order or action shall have passed.

         "Final Approval Date" shall mean, with respect to the transactions
contemplated hereby, the date upon which the last of the following has occurred:
(a) all Regulatory Approvals have been obtained; (b) all applicable regulatory
notices which are required to be published or given prior to consummation of the
transactions contemplated hereby have been published or given; (c) the filing of
all applicable regulatory reports; and (d) the expiration of all applicable
regulatory comment and waiting periods.

                                        4



         "Final Loan Schedule" shall have the meaning specified in Section
3.3(a).

         "FIRPTA Affidavit" shall mean affidavits pursuant to Section 1445 of
the Code certifying to the non-foreign entity status of Seller.

         "First Closing" shall have the meaning specified in Section 5.2(a).

         "Fixed Assets" shall mean (a) the telephone systems located at the
Branch, and (b) copying machines, facsimile machines and scanners, and all of
the furniture, fixtures, equipment and other assets of Seller, set forth on
Schedule 1.1(f) hereto, including but not limited to leasehold improvements,
less any items consumed or disposed of, plus new items acquired or obtained, in
the ordinary course of the operation of the Branch through the close of business
on the Closing Date, but excluding the Excluded Fixed Assets.

         "GAAP" shall have the meaning specified in Section 1.2.

         "Hazardous Materials" means (a) any "hazardous material", "hazardous
substance", "hazardous waste", "oil", "regulated substance", "toxic substance"
or words of similar import as defined under any of the Environmental Laws, (b)
asbestos in any form, (c) urea formaldehyde foam insulation, (d) polychlorinated
biphenyls, (e) radon gas, (f) flammable explosives, (g) radioactive materials,
(h) any chemical, contaminant, solvent, material, pollutant or substance that
may be dangerous or detrimental to any of the Branch, the environment or the
health and safety of employees or other occupants of any of the Branch, and (i)
any substance, the generation, storage, transportation, utilization, disposal,
management, release or location of which, on, under or from any of the Branch is
prohibited or otherwise regulated pursuant to any of the Environmental Laws.

         "Indemnified Party" shall have the meaning specified in Section 14.3.

         "Indemnitor" shall have the meaning specified in Section 14.3.

         "IRA" shall mean an individual retirement account as specified in
Section 408 and 408A of the Code.

         "IRS" shall mean the Internal Revenue Service of the United States.

         "Items" shall mean (a) transfers of funds by wire or through the
Automated Clearing House, checks, drafts, negotiable orders of withdrawal and
items of a like kind which are drawn on or deposited and credited to the Deposit
Liabilities, and (b) payments, advances, disbursements, fees, reimbursements and
items of a like kind which are debited or credited to the Loans.

         "Keogh Plan" shall mean an Employee Pension Plan covering self-employed
individuals.

         "Knowledge" shall mean, with respect to Seller, the actual knowledge as
of the date hereof, without further investigation, of any of Seller's officers
that hold the title of senior vice president or above or that have
responsibility with respect to the operations of the Business

                                        5



including, without limitation, information which is or has been in the books and
records of Seller.

         "Laws" shall have the meaning specified in Section 6.4.

         "Liabilities" shall mean the Deposit Liabilities and any and all
liabilities and obligations relating to or arising out of the Assets, to the
extent that such liabilities and obligations arise or accrue after the close of
business on the Closing Date, but including Unfunded Advances under the Loans
included therein.

         "Lien" shall mean any lien, easement, restrictions, pledge, charge,
encumbrance, security interest, mortgage, deed of trust, lease, option or other
adverse claim of any kind or description.

         "Loan Value" shall mean, as of the Closing Date, the unpaid principal
balance of the Loans, plus Accrued Interest thereon, less accrued servicing fees
under arrangements with third parties to service such Loans.

         "Loan Premium" shall have the meaning specified in Section 3.1(a).

         "Loans" shall mean (a) the consumer, residential, home equity,
commercial and small business loans, and lines of credit, listed on Schedule
1.1(g) hereto (excluding any reserves for loan losses) and all obligations of
Seller to make additional extensions of credit in connection with such loans, as
such loans may be increased, decreased, amended, renewed or extended in the
ordinary course of business consistent with Seller's credit standards between
the date indicated on Schedule 1.1(g) and the close of business on the Closing
Date, and (b) loans of the same type of this listed on Schedule 1.1(g) which
originate from customers located within the Region between the date indicated on
Schedule 1.1(g) and the close of business on the Closing Date, except for loans
originated through Seller's indirect lending program, and credit card and
student loans; provided, however, that Loans shall not include any loan, if such
loan, as of the Closing Date, is (i) subject to a current legal proceeding
related to a Customer's inability or refusal to pay such loan or (ii) not
current and with respect to which proceedings are pending against the obligor or
obligors of such loan under Title 11 of the United States Code or (iii)
Nonperforming. Each Loan shall include all documents executed or delivered in
connection with such loan to the extent such documents are in the loan file
relating to such loan, any and all collateral held as security therefor or in
which a security interest, Lien or mortgage has been granted and any and all
guarantees, insurance and other credit enhancements relating thereto, together
with Accrued Interest thereon, all as exists at the close of business on the
Closing Date.

         "Material Adverse Effect" shall mean any circumstance, change in or
effect on the Purchased Assets or the Assumed Liabilities that is materially
adverse to the business, operation, results of operations or the financial
condition of the Business; provided, however, that "Material Adverse Effect"
shall not include any circumstance, change in or effect on the Business directly
or indirectly arising out of or attributable to (a) changes in general economic,
legal, regulatory or political conditions, (b) changes in prevailing interest
rates, (c) changes in GAAP, (d) any actions taken or omitted to be taken
pursuant to this Agreement, or (e) the announcement of the transactions
contemplated by this Agreement.

                                        6



         "Material Condition" shall mean, with respect to any Regulatory
Approval, a condition or requirement that, individually or when aggregated with
other conditions or requirements, would reduce materially the benefits which
either Seller or Purchaser, as applicable, could reasonably have expected to
derive from consummation of the transaction contemplated by this Agreement and
which could not reasonably have been anticipated by the party adversely
affected.

         "Negative Deposit" shall mean overdrafts in Deposit Liability accounts
(that have been outstanding for 30 days or less) that are not covered by Advance
Lines, plus any and all Accrued Interest thereon.

         "Nonperforming" shall mean as of the close of business on the Closing
Date any Loan with respect to which any principal or interest shall be due and
unpaid by the borrower thereunder for 90 days or more.

         "Purchaser's Account" shall have the meaning specified in Section 3.2.

         "Permitted Exceptions" shall mean the exceptions to title listed on
Schedule 1.1(h) hereto.

         "Permitted Liens" shall mean (a) Liens for taxes, assessments,
governmental charges or levies not yet due and payable or which although
delinquent can be paid without penalty or are being contested in good faith by
appropriate proceedings, (b) Liens resulting from a filing by a lessor as a
precautionary filing for a lease, (c) Liens imposed by law, such as carriers',
warehousemen's, materialmens' and mechanics' Liens and other similar Liens
arising in the ordinary course of business or which are being contested in good
faith by appropriate proceedings and which are not material to the value of any
Purchased Assets, and (d) any other Liens affecting the Purchased Assets which
do not impede the ownership, operation or value of such Purchased Assets in any
material respect.

         "Person" shall mean any individual, partnership, joint venture,
corporation, trust, limited liability company, unincorporated organization,
government or other entity.

         "Personalty" shall mean all of the Assets other than the Premises.

         "Premises" shall mean the real property described on Schedule 1.1(c)
and all rights and appurtenances relating thereto, including, without
limitation, all of Seller's rights, title and interest, if any, in and to
adjacent streets, alleys, right of ways and easements.

         "Premises Purchase Price" shall mean, with respect to the Premises, the
purchase price specified on Schedule 3.1(b) hereto.

         "Purchase Price" shall have the meaning specified in Section 3.1.

         "Purchased Assets" shall have the meaning specified in Section 2.1(a).

         "Purchaser" shall have the meaning specified in the preamble.

         "Quitclaim Deed" shall have the meaning specified in Section 5.2(d).

                                        7



         "Region" shall mean the geographic region that includes the zip codes
listed on Schedule 1.1(k).

         "Regulatory Approval" shall have the meaning specified in Section
7.5(a).

         "Safe Deposit Agreements" shall mean the agreements between Seller and
a Customer or Customers relating to safe deposit boxes located in the Branch as
of the close of business on the Closing Date. Schedule 3.5 sets forth the Safe
Deposit Agreements immediately prior to execution of this Agreement.

         "Seller" shall mean Androscoggin Savings Bank and any of its
Affiliates.

         "Survey Report" shall have the meaning specified in Section 6.13(d).

         "Taxes" shall have the meaning specified in Section 4.1.

         "Title Company" shall have the meaning specified in Section 5.2(a).

         "Title Defect" shall have the meaning specified in Section 5.2(a)(ii).

         "Transfer Date" shall mean the first Business Day following the Closing
Date.

         "Transferred Employees" shall mean all Bank Employees who accept offers
of employment from Purchaser as contemplated by Section 9.4(a).

         "UCC" shall mean the Uniform Commercial Code in effect in the State of
Maine.

         "Unfunded Advance" shall mean an advance requested under a Loan on or
prior to the Closing Date pursuant to the terms and provisions of such Loan that
Seller is not obligated to fund until following the Closing Date.

         "WARN Act" shall mean the Worker Adjustment and Retraining Notification
Act, as amended (29 U.S.C.Section 2101, et seq.) and similar state and local
laws, regulations and other issuances.

SECTION 1.2. ACCOUNTING TERMS.

         All accounting terms not otherwise defined herein shall have the
respective meanings assigned to them in accordance with "generally accepted
accounting principles" consistently applied as in effect from time to time in
the United States of America ("GAAP").

                                   ARTICLE II
            PURCHASE AND SALE OF PURCHASED ASSETS AND ASSIGNMENT AND
                        ASSUMPTION OF ASSUMED LIABILITIES

SECTION 2.1. PURCHASE AND SALE OF ASSETS, NO OTHER ASSETS PURCHASED.

         (a)      Subject to the terms and conditions hereof, including without
limitation the assumption by Purchaser of the Assumed Liabilities, as of the
close of business on the Closing

                                        8



Date, Seller shall sell, convey, assign, transfer and deliver to Purchaser, and
Purchaser shall purchase and accept from Seller, all of Seller's right, title
and interest in, to and under certain assets of the Seller as described below
(collectively, the "Purchased Assets"):

                  (i)      The Assets;

                  (ii)     All of Seller's rights with respect to the contracts
and relationships giving rise to the Deposit Liabilities;

                  (iii)    The Advance Lines and the Negative Deposits, each as
of the close of business on the Closing Date;

                  (iv)     All contract rights of Seller to the service and
similar contracts relating to operation of the Branch, to the extent assignable
and except to the extent that Purchaser elects not to accept such assignment;

                  (v)      All insurance premiums paid by Seller to the FDIC
which are allocated to insurance coverage for the Deposit Liabilities following
the Closing Date, to the extent a proration or adjustment is made with respect
thereto pursuant to Section 3.5; and

                  (vi)     All of Seller's right, title and interest in and to
all books and records relating to the Purchased Assets described in the other
subsections of this Section 2.1(a) and the Assumed Liabilities, as such books
and records may exist and as are held by Seller at the Branch.

         (b)      Purchaser understands and agrees that it is purchasing only
the Purchased Assets (and assuming only the Assumed Liabilities) specified in
this Agreement and (i) except as may be expressly provided for in this
Agreement, Purchaser has no interest in any other business relationship which
Seller or any of its Affiliates has or may have with any Customer or (ii) any
other customer of Seller or its Affiliates. Purchaser further understands and
agrees that Seller and its Affiliates are retaining any and all rights and
claims which any of them may have, including but not limited to indemnification
or reimbursement rights, with respect to the Purchased Assets and the Assumed
Liabilities, to the extent that such rights or claims relate to the conduct of
the Business prior to the Closing.

SECTION 2.2. ASSUMED LIABILITIES.

         (a)      Subject to the terms and conditions of this Agreement,
completion of the transfer of the Purchased Assets to Purchaser pursuant to this
Agreement, on the Closing Date, Purchaser shall assume, and thereafter honor and
fully and timely, pay, perform and discharge when due, the following liabilities
of Seller and shall perform all duties, responsibilities, and obligations of
Seller under the following, to the extent that such liabilities, duties,
responsibilities and obligations arise or accrue after close of business on the
Closing Date (collectively, the "Assumed Liabilities"):

                  (i)      The Liabilities;

                                       9



                  (ii)     All of Seller's duties and responsibilities relating
to the Deposit Liabilities, including without limitation, with respect to (x)
the abandoned property laws of any state or (y) any other applicable law;

                  (iii)    The Advance Lines and the Negative Deposits, each as
of the close of business on the Closing Date;

                  (iv)     Any of Seller's accrued and unpaid expenses related
to the operations of the Business including without limitation the cost and
expenses of any data processing to the extent a proration or adjustment is made
with respect thereto pursuant to Section 3.5;

                  (v)      Any and all liabilities or obligations under
Environmental Laws relating to, resulting from or arising out of use or
operation of the Branch by the Purchaser after the Closing Date.

                  (vi)     Any and all other liabilities and obligations
relating to or arising out of the Purchased Assets or Assumed Liabilities to be
performed after the Closing or arising out of the operation of the Branch from
and after the Closing Date, but only to the extent that such liabilities or
obligations arise or accrue after the close of business on the Closing Date; and

                  (vii)    Unfunded Advances under the Loans.

         (b)      Except for the Assumed Liabilities, and except as otherwise
set forth in this Agreement, Purchaser shall not assume or be bound by any
duties, responsibilities, obligations or liabilities of any kind or nature,
whether known or unknown, whether asserted or unasserted, whether accrued or
unaccrued, whether contingent or otherwise.

                                   ARTICLE III
               PURCHASE PRICE; PAYMENT; SETTLEMENT; TAX ALLOCATION

SECTION 3.1. PURCHASE PRICE.

         The purchase price for the Purchased Assets shall be an amount computed
as follows (the "Purchase Price"):

         (a)      The sum of $2,731,000 (the "Deposit Premium') and $447,000
(the "Loan Premium"), subject to adjustment as described in Schedule 3.1(a);
PLUS

         (b)      The Premises Purchase Price and the value of the Fixed Assets,
as set forth in Schedule 3.1(b); PLUS

         (c)      The Loan Value; PLUS

         (d)      The aggregate unpaid principal balance of the Advance Lines
and the Negative Deposits, plus Accrued Interest thereon (to the extent such
Accrued Interest shall be outstanding and unpaid for 90 days or less prior to
the Closing Date), as of the close of business on the Closing Date; PLUS

                                       10



         (e)      The aggregate amount of Cash as of the close of business on
the Closing Date.

SECTION 3.2. PAYMENT AT CLOSING.

         On or prior to the second Business Day immediately preceding the
Closing Date, Seller shall deliver to Purchaser the Draft Closing Statement and
shall make available such work papers, schedules and other supporting
documentation as may be reasonably requested by Purchaser to enable it to verify
such documentation. On the Closing Date, Seller shall pay to Purchaser, by wire
transfer of immediately available funds to such account as the Purchaser shall
advise no later than three Business Days prior to the Closing Date ("Purchaser's
Account"), the amount by which the aggregate balance (including Accrued
Interest) of the Deposit Liabilities as of the close of business on the fifth
Business Day preceding the Closing Date exceeds the Estimated Purchase Price
(the "Estimated Payment Amount").

SECTION 3.3. ADJUSTMENT OF ESTIMATED PAYMENT AMOUNT.

         (a)      On or before 12:00 noon on the 30th day following the Closing
Date, Seller shall deliver to Purchaser a statement setting forth (i) the
Purchase Price (including all adjustments and prorations thereto) and each
component thereof (including with respect to the Loans a Schedule as of the
close of business on the Closing Date of the Loans (the "Final Loan Schedule"))
and (ii) the amount of Deposit Liabilities (including Accrued Interest thereon)
transferred to Purchaser as of the close of business on the Closing Date. Seller
shall make available to Purchaser and/or its representatives such work papers,
schedules and other supporting data as may be reasonably requested by Purchaser
to enable Purchaser to verify such determinations. Such statement shall also set
forth the amount by which the aggregate balance of the Deposit Liabilities
(including Accrued Interest thereon) transferred to Purchaser exceeded the
Purchase Price (including all adjustments and prorations thereto), calculated as
of the close of business on the Closing Date (the "Adjusted Payment Amount").

         (b)      On or before 12:00 noon on the 60th day following the Closing
Date, Seller shall pay to Purchaser or Purchaser shall pay to Seller, as the
case may be, by wire transfer of immediately available funds, an amount equal to
the difference between the Adjusted Payment Amount and the Estimated Payment
Amount, plus interest calculated using the Federal Funds Rate on such amount
from the Closing Date to, but excluding, the payment date. Any payment or refund
pursuant to this Section 3.3(b) shall be treated, for all purposes, as an
adjustment to the Purchase Price.

SECTION 3.4. ALLOCATION OF PURCHASE PRICE.

         (a)      Purchaser and Seller agree that, upon final determination of
the Purchase Price, the Purchase Price shall be allocated to the Purchased
Assets in accordance with Schedule 3.4 hereto.

         (b)      Purchaser and Seller shall report the transaction contemplated
by this Agreement (including income tax reporting requirements imposed pursuant
to Section 1060 of the Code) in accordance with the allocation specified on
Schedule 3.4 hereto. In the event any party hereto receives notice of a tax
audit with respect to the allocation of the Purchase Price specified herein,

                                       11



such party shall immediately notify the other party in writing as to the date
and subject of such audit.

         (c)      If any federal, state or local tax return report or filing by
Purchaser or Seller relating to the transactions contemplated hereby and filed
on the basis of the allocation set forth on Schedule 3.4 hereto, is challenged
by the taxing authority with which such return, report or filing was filed, the
filing party shall assert and maintain in good faith the validity and
correctness of such allocation during the audit thereof until the issuance by
the taxing authority of a "30 Day Letter", or a determination of liability
equivalent thereto, to such party, whereupon such party shall, in its sole
discretion, have the right to pay, compromise, settle, dispute or otherwise deal
with its alleged tax liability. If such a tax return, report or filing is
challenged as herein described, the party filing such return, report or filing
shall timely keep the other party apprised of its decisions and the current
status and progress of all administrative and judicial proceedings, if any, that
are undertaken at the election of the filing party.

         (d)      If either party (including permitted successors and assigns
thereof) to this Agreement fails to fulfill its obligations under this Section
3.4, it shall pay as damages to the other party, so long as such other party has
not failed to fulfill its obligations under this Section 3.4, an amount which,
after reduction for all income or gain taxes, including without limitation
interest and penalties, which would be incurred (calculated at the highest
marginal rate applicable in the relevant jurisdictions) as a result of receiving
said amount, is equal to the result (but not less than zero) of subtracting the
amount in (ii) below from the amount in (i) below:

                  (i)      The total amount of income or gains taxes (including
interest and penalties calculated at the highest marginal rate applicable in the
relevant jurisdictions) to all jurisdictions imposing such taxes upon the
non-defaulting party with respect to the transactions contemplated hereby; and

                  (ii)     The total amount of income or gains taxes which would
have been incurred (including interest and penalties calculated at the highest
marginal rate applicable in the relevant jurisdictions) to all jurisdictions
imposing such taxes upon the non-defaulting party with respect to the
transactions contemplated hereby, if such taxing jurisdictions had accepted the
allocations specified in Schedule 3.4 hereto.

SECTION 3.5. PRORATION, OTHER CLOSING DATE ADJUSTMENTS.

         (a)      Except as otherwise specifically provided in this Agreement,
it is the intention of the parties that Seller will operate the Branch for its
own account and own the Loans and other Purchased Assets (and all rights
associated therewith) until the close of business on the Closing Date, and that
Purchaser shall operate the Branch, own the Loans and other Purchased Assets and
assume the Deposit Liabilities and other Assumed Liabilities (and all rights
associated therewith) for its own account from and after the close of business
on the Closing Date. Thus, except as otherwise specifically provided in this
Agreement, items of income and expense shall be prorated as of the close of
business on the Closing Date (subject to proration pursuant to Section 3.3(a),
and shall be settled between Seller and Purchaser as of the Closing Date or as
of the date set forth under Section 3.3(a)). Items of proration will be handled
as an adjustment to

                                       12



the Purchase Price and not as adjustments to the Estimated Payment Amount,
unless otherwise agreed by the parties hereto.

         (b)      For purposes of this Agreement, items of proration and other
adjustments shall include, without limitation: (i) amounts prepaid and unused
for safe deposit rentals; (ii) sales, real estate and use taxes (other than such
sales, real estate transfer and use taxes that arise as a result of the
transactions contemplated by this Agreement which shall be paid by Purchaser or
by Seller in accordance with Section 4.1 hereof); (iii) insurance premiums paid
or payable to the FDIC attributable to insurance coverage for the Deposit
Liabilities for the period from and after the Closing Date; (iv) fees for
customary annual or periodic licenses or permits; (v) water, sewer, fuel and
utility charges; and (vi) accrued and unpaid vacation balance (not in excess of
the greater of 25 days or provisions of Purchaser's policy for each Transferred
Employee) of Transferred Employees; (vii) prepaid real and personal property
taxes; and (viii) other prepaid items of income and expense, in each case as of
the close of business on the Closing Date. Notwithstanding the foregoing, if
accurate arrangements cannot be made as of the Closing Date, or as of the date
set forth under Section 3.3(a), for any of the foregoing items of proration, the
parties shall apportion the charges for the foregoing items on the basis of the
bill therefor for the most recent billing period prior to the Closing Date.

                                   ARTICLE IV
                                      TAXES

SECTION 4.1. SALES, TRANSFER AND USE TAXES.

         Except as otherwise provided in this Agreement, any sales, filing,
recordation, or similar fees and taxes (collectively, "Taxes"), which are
payable or arise as a result of this Agreement or the consummation of the
transactions contemplated hereby, shall be paid by Purchaser on the Closing
Date. Purchaser and Seller shall share equally the costs of real estate transfer
taxes in accordance with the provisions of 36 M.R.S.A. Section 4641-A. If such
Taxes are treated as a proration pursuant to Section 3.5, Seller agrees to remit
such Taxes to the proper authority on or before the date the same shall become
due, accompanied by such tax returns as may be required to be filed with such
payment. Purchaser and Seller will cooperate in the preparation of any filings
or returns.

SECTION 4.2. INFORMATION REPORTS.

         (a)      Seller will report to applicable taxing authorities and
holders of Deposit Liability accounts transferred on the Closing Date, with
respect to all periods through the close of business on the Closing Date, all
interest credited, withheld from and any early withdrawal penalties imposed upon
the Deposit Liability accounts and Purchaser will report to the applicable
taxing authorities and holders of Deposit Liability accounts, with respect to
all periods commencing after the Closing Date all such interest credited to,
withheld from and early withdrawal penalties imposed upon such interest credited
to, withheld from and early withdrawal penalties imposed upon such Deposit
Liability accounts. Seller will continue backup withholding and remittance
through the close of business on the Closing Date. Any amounts required by any
governmental agencies to be withheld from any of the Deposit Liability accounts
through the close of business on the Closing Date will be withheld by Seller in
accordance with applicable law or appropriate

                                       13



notice from any governmental agency and will be remitted by Seller to the
appropriate agency on or prior to the applicable due date. Any such withholding
required to be made subsequent to the Closing Date shall be withheld by
Purchaser in accordance with applicable law or the appropriate notice from any
governmental agency and will be remitted by Purchaser to the appropriate agency
on or prior to the applicable due date.

         (b)      Unless otherwise agreed by the parties, Seller shall be
responsible for delivering to payees all IRS notices with respect to information
reporting and tax identification numbers required to be delivered for all
periods through the close of business on the Closing Date with respect to the
Deposit Liability accounts, and Purchaser shall be responsible for delivery to
payees all such notices required to be delivered for all periods following the
Closing Date with respect to the Deposit Liability accounts. Purchaser and
Seller shall, prior to the Closing Date, consult (and Seller shall take such
actions as are necessary) to permit Purchaser timely to deliver notices required
to be delivered after the Closing Date.

         (c)      Unless otherwise agreed by the parties, Seller will make all
required reports to applicable tax authorities and to obligors on Loans
purchased on the Closing Date, with respect to all periods through the close of
business on the Closing Date, concerning all interest and points received by the
Seller. Purchaser will make all required reports to applicable tax authorities
and to obligors on Loans purchased on the Closing Date, with respect to all
periods commencing after the Closing Date, concerning all such interest and
points received. Seller shall bear the responsibility and liability for and pay
all penalties associated with missing taxpayer identification numbers and U.S.
Treasury reclamations, and any failures to comply with IRS regulations that
occurred through the Closing Date.

                                    ARTICLE V
                                     CLOSING

SECTION 5.1. CLOSING DATE.

         (a)      Upon the terms and subject to the conditions of this
Agreement, the purchase and sale of the Purchased Assets and the assumption of
the Assumed Liabilities contemplated by this Agreement shall take place at a
closing (the "Closing") to be held at the Seller's offices at 30 Lisbon Street,
Lewiston, Maine, at 11:00 a.m. (which Closing shall be effective as of the close
of business on the Closing Date) within twenty Business Days following the
satisfaction or waiver of all conditions to the obligations of the parties set
forth in Article XII hereof (other than obligations to be performed at the
Closing) or at such other time or on such other date as Seller and Purchaser may
mutually agree in writing ("Closing Date"), which date shall be acknowledged in
writing by the parties.

         (b)      It is anticipated that the conversion of Seller's account
information as to the Deposit Liabilities and the Loans onto Purchaser's data
processing system will occur as of the Closing Date. Seller and Purchaser shall
each use their commercially reasonable efforts to take such actions, and Seller
and Purchaser shall cooperate with each other, to ensure that such conversion is
completed as of the Closing Date.

                                       14



SECTION 5.2. SELLER'S DELIVERIES.

         On or before the Closing Date, Seller shall deliver to Purchaser, duly
executed and acknowledged where required:

         (a)      Its Certificate of Existence certified by the Maine Secretary
of State;

         (b)      A certificate of the corporate secretary of the Seller
attaching authorizing resolutions of its Board of Directors;

         (c)      An incumbency certificate certifying as to the incumbency of
Seller's signing officers;

         (d)      A Quitclaim Deed with Covenant for the Premises in the form of
Exhibit A attached hereto, pursuant to which the Premises shall be transferred
to Purchaser "AS IS," "WHERE IS" and with all faults (the "Quitclaim Deed with
Covenant"); provided that, with respect to the Premises, Seller or an affiliate
thereof, shall only be required to convey to Purchaser good and marketable fee
simple title to the Premises, which is in a condition that permits a reputable
title insurance company of national standing and typically accepted by reputable
commercial lenders (the "Title Company") to issue an owner's title insurance
policy in at least the amount of the Premises Purchase Price, subject only to
such exceptions as would not render title unmarketable and other customary
exceptions to title not affecting insurability of title. It is understood and
agreed that for purposes of this Agreement, the following shall not render title
unmarketable: (1) ingress and egress easements for third parties that do not in
Purchaser's reasonable discretion materially and adversely affect the current
use, occupancy and value of the Premises; (2) any lien or judgment of record
which could be satisfied by a payment, provided that such lien or judgment is
satisfied by Seller or removed of record at or prior to Closing; (3) any matter
that the Title Company would be willing to omit as an exception to coverage or
except with insurance against loss, damage or expense, including insurance
against collection or enforcement against the interests to be insured under a
title policy pursuant to an endorsement or other addition to such title policy
in form and substance reasonably satisfactory to Purchaser, or (4) the
exceptions to title described on Schedule 1.1(h) (collectively, Items 1-4, the
"Permitted Exceptions").

         (e)      Such affidavits and documents as the Title Company shall
reasonably require and are customarily given by sellers in similar transactions;

         (f)      State of Maine Real Estate Transfer Tax Declaration;

         (g)      Title Insurance Owner's Affadavit and Indemnity;

         (h)      Maine REW-3 Residency Affadavit;

         (i)      A bill of sale for the Personalty in substantially the form of
Exhibit B hereto, pursuant to which the Personalty shall be transferred to
Purchaser "AS IS", "WHERE IS" and with all faults;

                                       15



         (j)      An assignment and assumption agreement with respect to the
Assumed Liabilities in substantially the form of Exhibit C hereto (the
"Assignment and Assumption Agreement");

         (k)      An Officer's Certificate in substantially the form of Exhibit
D hereto;

         (l)      The Draft Closing Statement;

         (m)      The resignation of Seller as trustee or custodian, as
applicable, with respect to each IRA, Keogh Plan or Employee Pension Plan
deposit account included in the Deposit Liabilities and the designation of
Purchaser as successor trustee or custodian with respect thereto;

         (n)      The FIRPTA Affidavits in substantially the form of Exhibit E
hereto;

         (o)      Physical possession of all Purchased Assets as are capable of
physical delivery;

         (p)      Possession of the Premises;

         (q)      Possession of all loan files relating to the Loans and all
original collateral and related documentation in the custody of Seller relating
to the Loans;

         (r)      Possession of and all right, title and interest in (i) all
books and records maintained at the Branch, (ii) all signature cards for the
Deposit Accounts and all records of account in Seller's possession with respect
to the Deposit Accounts, and (iii) all agreements, instruments, and other
documents directly evidencing the Purchased Assets and Assumed Liabilities;

         (s)      Such other documents as are necessary to effect the
transactions contemplated hereby as Purchaser shall reasonably request;

         (t)      A limited power of attorney granting Purchasing the authority
to execute certain documents on behalf of Seller to effectuate the transfer of
Loans and related collateral in substantially the form of Exhibit G hereto; and

         (u)      An opinion of legal counsel to the Seller dated as of the
Closing Date in form and substance reasonably satisfactory to counsel for the
Purchaser to the effect that (i) Seller is a Maine financial institution validly
existing and in good standing under the laws of the State of Maine; (ii) Seller
has the power and authority to enter into and perform its obligations under the
Agreement; (iii) the transactions contemplated by this Agreement have been duly
authorized by all appropriate corporate action of Seller; (iv) upon due
execution of this Agreement and the other agreements contemplated hereby, all
such agreements will be fully enforceable against the Seller in accordance with
their respective terms, subject to standard exceptions relating to creditors'
rights and the availability of equitable remedies.

SECTION 5.3. PURCHASER'S DELIVERIES.

         On or before the Closing Date, Purchaser shall deliver to Seller:

                                       16



         (a)      Its Certificate of Existence duly certified by the Maine
Secretary of State;

         (b)      A certificate of the corporate secretary of the Purchaser
attaching authorizing resolutions of its Board of Directors;

         (c)      An incumbency certificate certifying as to the incumbency of
the Purchaser's signing officers;

         (d)      The Assignment and Assumption Agreement;

         (e)      Purchaser's acceptance of its appointment as of the close of
business on the Closing Date as successor trustee or custodian, as applicable,
of the IRA, Keogh Plan and Employee Pension Plan deposit accounts included in
the Deposit Liabilities and its assumption of the fiduciary obligations of the
trustee or custodian with respect thereto;

         (f)      An Officer's Certificate in substantially the form of Exhibit
F hereto;

         (g)      Such affidavits and documents as the Title Company shall
reasonably require and are customarily given by purchasers in similar
transactions;

         (h)      Such other documents as are necessary to effect the
transactions contemplated hereby as Seller shall reasonably request, including
without limitation the release of Seller's collateral for any Deposit
Liabilities and the substitution of Purchaser's Collateral therefore; and

         (i)      An opinion of legal counsel to the Purchaser dated as of the
Closing Date in form and substance reasonably satisfactory to counsel for the
Seller to the effect that (i) Purchaser is a Maine financial institution validly
existing and in good standing under the laws of the State of Maine; (ii)
Purchaser has the power and authority to enter into and perform its obligations
under the Agreement; (iii) the transactions contemplated by this Agreement have
been duly authorized by all appropriate corporate action of Purchaser; (iv) upon
due execution of this Agreement and the other agreements contemplated hereby,
all such agreements will be fully enforceable against the Purchaser in
accordance with their respective terms, subject to standard exceptions relating
to creditors' rights and the availability of equitable remedies.

                                   ARTICLE VI
                    REPRESENTATIONS AND WARRANTIES OF SELLER

         Seller represents and warrants to Purchaser as follows:

SECTION 6.1. ORGANIZATION.

         Seller is a financial institution duly organized, validly existing and
in good standing under the laws of the State of Maine. Deposit accounts of
Seller are insured to applicable limits by the FDIC in accordance with the FDIA,
and Seller has paid all assessments and has filed all reports required to be
filed by it with the FDIC.

                                       17



SECTION 6.2. AUTHORITY.

         Seller has the power and authority to enter into and perform this
Agreement and any other documents executed pursuant hereto. This Agreement and
any other documents or instruments executed pursuant hereto and the execution,
delivery and performance hereof and thereof have been duly authorized and
approved by all necessary corporate action on the part of Seller, and this
Agreement, and each of the instruments and documents executed pursuant hereto,
constitutes, or when executed and delivered will constitute, the valid and
binding obligations of Seller, enforceable against Seller in accordance with its
terms, except as enforcement may be limited by receivership, conservatorship and
supervisory powers of bank regulatory agencies generally as well as by
bankruptcy, insolvency, reorganization, moratorium or other laws of general
applicability relating to or affecting creditors' rights, or the limiting effect
of rules of law governing specific performance, equitable relief and other
equitable remedies or the waiver of rights or remedies.

SECTION 6.3. NON-CONTRAVENTION.

         The execution and delivery of this Agreement and any instruments and
documents executed pursuant hereto by Seller do not and, subject to the receipt
of all Regulatory Approvals, the consummation of the transactions contemplated
by this Agreement will not constitute (a) a material breach or violation of or
default under any law, rule, regulation, judgment, order, governmental permit or
license of Seller or to which Seller, or to Seller's Knowledge the Purchased
Assets or the Assumed Liabilities are subject, which breach, violation, or
default would have a Material Adverse Effect or (b) a breach or violation of or
a default under the articles of incorporation or bylaws of Seller or, to the
Knowledge of Seller, any material contract to which Seller is a party or by
which it is bound, which breach, violation or default would prevent or
materially delay Seller from performing its obligations under this Agreement in
all material respects.

SECTION 6.4. COMPLIANCE WITH LAW.

         The business and operations of the Business are being conducted in
compliance with all applicable laws, rules and regulations, orders, permits and
judgments (collectively, the "Laws") of all governmental authorities, other than
those Laws of governmental authorities the penalty or liability for the
violation of which, if imposed or asserted, would not have a Material Adverse
Effect. Seller has not received any notice of any alleged or threatened claim,
violation or liability under any Law of a governmental authority in connection
with the operation and business of the Branch the penalty or liability for the
violation of which, if imposed or asserted, would have a Material Adverse
Effect.

SECTION 6.5. LEGAL PROCEEDINGS.

         There are no actions, suits, or proceedings, whether civil, criminal or
administrative, pending as of the date of the Agreement or, to the Knowledge of
Seller, threatened as of the date of the Agreement against or affecting Seller,
or to the Knowledge of Seller, the Purchased Assets or the Assumed Liabilities,
(a) which would reasonably be expected to have a Material Adverse

                                       18



Effect, or (b) which would prevent or materially delay Seller from being able to
perform its obligations under this Agreement in all material respects.

SECTION 6.6. TITLE TO PURCHASED ASSETS.

         Seller is the lawful owner of each of the Purchased Assets, free and
clear of all Liens other than Permitted Liens and Permitted Exceptions and,
except for consents required to transfer the Purchased Assets, Seller has the
right to sell, convey, transfer, assign and deliver to Purchaser all of the
Purchased Assets.

SECTION 6.7. LOANS.

         (a)      (i)      Each Loan represents the legal, valid and binding
obligation of the related borrower or borrowers, enforceable by the holder
thereof in accordance with its terms subject, as to enforcement, to applicable
bankruptcy, insolvency, reorganization, liquidation and other similar laws and
equitable principles relating to or affecting the enforcement of creditors'
rights generally. Subject to the foregoing sentence, each of the Loans is based
upon a valid, binding and enforceable note to which Seller has good and
marketable title, free and clear of all liens and encumbrances; and the
collateral for each of the Loans that is secured is (A) the collateral described
in the applicable security agreement, mortgage, pledge, collateral assignment or
other security document and (B) is secured by a valid, enforceable and perfected
lien as described in the note or in the related security agreement, mortgage,
pledge, collateral assignment or other security document.

                  (ii)     Each Loan (A) was originated or purchased by Seller,
(B) to the extent secured is secured by a valid and enforceable Lien in the
collateral described in the applicable security agreement, mortgage, pledge,
collateral assignment or other security document, which Lien is assignable, (C)
contains customary and enforceable provisions such that the rights and remedies
of the holder thereof shall be adequate for practical realization against any
collateral therefor, and (D) as of date hereof is not a Nonperforming loan.

                  (iii)    Each Loan complied at the time the Loan was
originated in all material respects with all applicable requirements of
applicable federal, state, and local laws, and regulations thereunder.

         (b)      Except as set forth in Section 6.7(a)(i), (ii) and (iii)
above, Seller does not make any representation or warranty of any kind to
Purchaser relating to the Loans, and Seller shall not be responsible for (i) the
collectibility of the Loans or any ancillary document, instrument or agreement
in the loan file, (ii) any representation, warranty or statement made by an
obligor or other party in or in connection with any Loan, (iii) the financial
condition or creditworthiness of any primary or secondary obligor under any Loan
or any guarantor or surety or other obligor thereof, (iv) the performance by the
obligor or compliance with any of the terms or provisions of any of the
documents, instruments and agreements relating to any Loan, or (v) inspecting
any of the property, books or records of any obligor.

                                       19



SECTION 6.8. NO BROKER.

         Except for Ostrowski & Company, Inc., no broker or finder, or any other
party or agent performing similar functions, has been retained by Seller or its
Affiliates or is entitled to be paid based on any arrangements, agreements or
understandings made by Seller or its Affiliates in connection with the
transactions contemplated hereby and no other brokerage fee or other commission
has been agreed to be paid by Seller or its Affiliates on account of such
transaction.

SECTION 6.9. BOOKS AND RECORDS.

         The books and records of Seller pertaining to the Branch and the
Purchased Assets and the Assumed Liabilities fairly reflect information
regarding the Purchased Assets and the Assumed Liabilities necessary for
Purchaser to carry on the business of the Branches upon the Closing of the
transaction. Such books and records have been properly kept and maintained and
are in compliance in all material respects with all applicable requirements.

SECTION 6.10. CERTAIN LABOR MATTERS.

         Seller is not a party to any employment agreement, severance or similar
agreement with any of the Transferred Employees, except for employee benefit
plans of general application and except as set forth in Schedule 6.10. Seller is
not a party to any union, collective bargaining or similar agreement covering
employees at the Branch, and there at no time have been any written or oral
communications to Seller from any labor union, labor relations board or tribunal
or any person or organization purporting to represent present or past employees
of Seller at the Branch. Seller has not taken any action which will result in
any liability for back pay, wrongful discharge or assertion of unfair labor
practices, or for any other matters relating to employee relations, related to
employees at the Branch. Purchaser will have no liability under any existing
pension or profit sharing plans of Seller.

SECTION 6.11. FIDUCIARY OBLIGATIONS.

         Other than in respect of IRA and Keough accounts, Seller has no trust
or fiduciary relationship or obligations in respect of any of the Deposit
Liabilities or in respect of any other Assets.

SECTION 6.12. AGREEMENTS WITH REGULATORY AUTHORITIES.

         Seller is not a party to any written order, decree, agreement or
memorandum of understanding with, or commitment letter or similar submission to,
any federal or state governmental agency or authority, and has no Knowledge that
such authority is contemplating issuing or requesting (or is considering the
appropriateness of issuing or requesting) any such order, decree, agreement,
memorandum of understanding, commitment letter or submission, which order,
decree, agreement, memorandum of understanding, commitment letter or submission
either (i) could reasonably be expected to prevent or impair the ability of
Seller to perform its obligations under this Agreement in any material respect
or (ii) could impair the validity or consummation of this Agreement or the
transactions contemplated hereby

                                       20



SECTION 6.13. LIMITATIONS ON AND DISCLAIMER OF REPRESENTATIONS AND WARRANTIES
              AND PURCHASER'S RELEASE IN CONNECTION THEREWITH.

         Except as otherwise addressed in this Article VI, notwithstanding
anything to the contrary contained herein or in any other document or agreement
delivered in connection herewith:

         (a)      To the Seller's Knowledge, the Premises are of adequate
structural condition. As used herein, "adequate structural condition" means that
no structural repairs are required to the exterior, supporting walls, the roof
or foundation to continue the effective use of the Branch. Subject to the
foregoing, (i) Seller does not make any representations or warranties, express
or implied, as to the physical condition of the Premises and Fixed Assets; and
(ii) the Premises and Fixed Assets are being sold "AS IS", "WHERE IS", without
recourse and with all faults at the Closing Date.

         (b)      Except as provided in this Section 6.13(b) and in Section
6.13(a) above, Seller does not make any representations or warranty, express or
implied, of any type or nature with respect to the physical condition of the
Branch which is being sold "AS IS", "WHERE IS" without recourse and with all
faults, without any obligation on the part of Seller. Seller has no Knowledge of
any impairment or violation under any Environmental Law relating to the
Premises. Except as otherwise expressly set forth in this Agreement, by closing
this transaction, Purchaser hereby releases and agrees to hold harmless Seller
and waives any claims which Purchaser may now or hereafter have against Seller
relating to the physical condition of the Branch from and after the Closing,
including without limitation with respect to claims under Environmental Laws or
with respect to the presence of Hazardous Materials or with respect to claims
under the ADA.

         (c)      (i)      Within 30 days after the date hereof, Purchaser may
contract, at its expense, for an initial environmental screening (which may be a
phase one environmental report) of the Premises by an independent third party
environmental engineer. Purchaser may and, in the event the initial screening
indicates that a potential violation of Environmental Law may exist or that
Hazardous Materials may be present on the Premises, shall undertake within an
additional 30 days to engage an independent third party environmental engineer
to conduct an additional review of the Premises and to complete a written report
("Environmental Report") at the sole expense of Purchaser. If the Environmental
Report finds facts that a violation of Environmental Law exists on the Premises,
Purchaser shall, within 20 days after receipt of the Environmental Report and
written statement setting forth the violation of Environmental Law, notify
Seller of the existence of such violation and provide Seller with a copy of the
Environmental Report. In such event, Purchaser shall not be obligated to
purchase the Premises as required herein and Purchaser may elect not to purchase
such Premises by written notice sent to Seller within 10 Business Days after
receipt by Seller of the Environmental Report.

                  (ii)     In the event that Purchaser elects not to purchase
the Premises as provided hereinabove and further provided that the Environmental
Law violation or its remediation does not preclude the effective use of the
Premises, then (i) Purchaser shall still be obligated to purchase and assume the
Deposit Liabilities in accordance with the Agreement; and (ii) Seller and
Purchaser shall enter into a lease agreement for the Premises for a term

                                       21



commencing as of the close of business on the Closing Date and expiring on the
earlier to occur of (x) the date that is 30 months after the Closing Date (which
lease term can be extended for an additional three month term at the election of
Purchaser), or (y) one month after such Environmental Law violation is removed
of record, for a rental amount equal to $2,500 a month, triple net (which rental
amount shall increase to $5,000 a month, triple net, if the term is extended by
Purchaser for an additional three months).

                  (iii)    Purchaser shall have the right to terminate its lease
of the Premises at any time after the first twelve months of the lease term upon
not less than ninety (90) days notice.

                  (iv)     Purchaser shall promptly obtain a good faith estimate
of the cost to remediate the Environmental Law violation and, if it notifies
Seller that it will purchase the Premises, may proceed to implement such
remediation at Seller's expense; provided, however, that Purchaser shall not
commence any remediation until Seller shall have received a copy of, and
approved (which approval shall not be unreasonably delayed or conditioned),
Purchaser's remediation plan, and provided further that Seller's obligation to
pay the expenses of such remediation shall in no event exceed $100,000 and that
Purchaser shall be obligated to pay the expenses of such remediation in excess
of $100,000. Seller shall indemnify and hold harmless Purchaser from and against
any costs, claims or expenses relating to the Environmental Law violation as a
result of Purchaser being a lessee of the Premises, which indemnification shall
terminate if Purchaser elects to purchase the Premises. Purchaser shall keep
Seller apprised of, and permit Seller (if Seller so chooses) to participate in,
the remediation action undertaken by Purchaser. If Purchaser elects to remediate
and purchase the Premises as set forth in this paragraph (iii), or if all of the
Environmental Law violations are removed of record by Seller within two years
after the Closing Date, then Seller shall sell to Purchaser and Purchaser shall
purchase, such Premises.

                  (v)      Purchaser shall instruct the independent third party
environmental engineer to provide both Purchaser and Seller with a copy of its
Environmental Report, subject to the maintenance of the confidentiality of such
Report. In the event that Seller does not receive the Environmental Report
described above within 75 days of the date hereof, Purchaser agrees that it
shall have no rights under this Section 6.13(c) and that Seller shall be
released from any liability or obligation under this Section 6.13(c).

         (d)      (i)      Within five (5) business days after the date hereof,
Purchaser may contract, at its expense, for a survey of the Premises to be
conducted by a licensed surveyor. In the event that the survey reveals an
encroachment or other condition which could have a Material Adverse Effect on
the continuing use or operation of the Premises as a bank branch by Purchaser
(in a manner consistent with the current use and operation by Seller) subsequent
to the Closing, Purchaser shall provide a copy of the survey and an explanation
of the condition(s) of concern to Seller (the "Survey Report"). Seller shall,
within 30 days after receipt that the Survey Report, notify Purchaser whether or
not Seller agrees to remove the condition(s) described in the Survey Report to
the reasonable satisfaction of Purchaser on or prior to the Closing Date. If
Seller elects not to remove or cure such condition(s), then Purchaser may elect
(A) not to purchase the Purchased Assets and to terminate this Agreement without
further liability; or (B) to waive the condition(s) and purchase the Premises as
contemplated by this Agreement; or (C) not purchase the Premises and proceed as
provided in subparagraph (ii) below. Purchaser's election shall be

                                       22



by written notice sent to Seller within 10 Business Days after receipt of
Seller's notice electing not to remove or cure such violation.

                  (ii)     In the event that Seller elects not to remove or cure
such condition(s), or elects to but fails to do so, and Purchaser elects not to
purchase the Premises but to proceed with the transaction as provided
hereinabove, then Purchaser (i) shall purchase and assume the Deposit
Liabilities in accordance with the Agreement and (ii) Seller and Purchaser shall
enter into a lease agreement for the Premises for a term commencing as of the
close of business on the Closing Date and expiring on the earlier to occur of
(x) the date that is 30 months after the Closing Date (which lease term can be
extended for an additional three month term at the election of Purchaser), or
(y) one month after Seller removes, at its sole expense, such condition of
record, for a rental amount equal to $2,500 a month, triple net (which rental
amount shall increase to $5,000 a month, triple net, if the term is extended by
Purchaser for an additional three months).

                  (iii)    Purchaser shall have the right to terminate its lease
of the Premises at any time after the first twelve months of the lease term upon
not less than ninety (90) days notice.

                  (iv)     If the offending condition(s) are removed of record
by Seller within one year after the Closing Date, and provided that removal
thereof does not result in the imposition of other conditions on the Premises
that could have a Material Adverse Effect on the Premises or operation by
Purchaser of the Purchased Assets, then Seller shall sell to Purchaser and
Purchaser shall purchase, the Premises.

                  (v)      In the event that Purchaser does not contract for a
Survey Report within five (5) business days of the date hereof, Purchaser agrees
that it shall have no rights under this Section 6.13(d) and that Seller shall be
released from any liability or obligation under this Section.

         (e)      Seller does not make any representations or warranties to
Purchaser as to whether, or the length of time during which, any accounts
relating to Deposit Liabilities will be maintained by the owners of such Deposit
Liabilities at the Branch after the Transfer Date.

         (f)      Except as specifically provided for in this Agreement, Seller
disclaims and makes no representations or warranties whatsoever with respect to
the Business, Purchased Assets or Assumed Liabilities, express or implied,
including, without limitation, any representations or warranties with respect to
merchantability, fitness, title, enforceability, collectibility, documentation
or freedom from Liens (in whole or in part) and disclaim any liability and
responsibility for any negligent representation, warranty, statement or
information otherwise made or communicated, by oversight or information
otherwise made or communicated, by oversight or otherwise (orally or in
writing), to Purchaser in connection with the transactions contemplated hereby.

SECTION 6.14. WARN ACT.

         Seller is not planning or contemplating, and has not made or taken, any
decisions or actions concerning the Bank Employees that would require the
service of notice under the WARN Act.

                                       23


SECTION 6.15. EXCLUDED DEPOSITS.

         Taken as a whole, exclusion of the Excluded Deposits from the sale will
not, taken as a whole, have a Material Adverse Effect.

SECTION 6.16. INCLUDED DEPOSITS.

         The deposit accounts listed on Schedule 1.1(c) constitutes a
substantially complete list of all deposit accounts (other than accounts
relating to Excluded Deposits) open at the Branch as of the date of this
Agreement.

SECTION 6.17. USE OF ASSETS.

         To the Knowledge of Seller, the Premises and the Fixed Assets are free
of underground storage tanks or Hazardous Material. Seller is not required to
obtain or maintain any permits, licenses or other authorizations under any
Environmental Laws. Seller has no Knowledge of any past, present or future
events or circumstances pertaining to the Branch or its operations which might
form the basis of any claim, action, demand, suit, proceeding, hearing or
investigation relating to Environmental Laws. To the Knowledge of Seller, the
use presently being made of the Premises complies with all applicable zoning and
building code ordinances and all applicable fire, environmental and occupational
safety and health laws, regulations and ordinances. To the Knowledge of Seller,
there is no proposed, pending or threatened change in any law, code, ordinance
or standard that would adversely affect the Business as presently conducted.
There is no pending or, to the Knowledge of Seller, proposed or threatened
condemnation proceeding or other action affecting the Branch that would have a
material and adverse effect on its operations.

                                   ARTICLE VII
                   REPRESENTATIONS AND WARRANTIES OF PURCHASER

         Purchaser represents and warrants to Seller as follows:

SECTION 7.1. ORGANIZATION.

         Purchaser is a financial institution duly organized, validly existing
and in good standing under the laws of the State of Maine. Deposit accounts of
Purchaser are insured to applicable limits by the FDIC in accordance with the
FDIA, and Purchaser has paid all assessments and has filed all reports required
to be filed by it with the FDIC.

SECTION 7.2. AUTHORITY.

         Purchaser has the power and authority to enter into and perform this
Agreement and any instruments or other documents executed pursuant hereto. This
Agreement and any instruments or other documents executed pursuant hereto, and
the execution, delivery and performance hereof and thereof have been duly
authorized and approved by all necessary corporate action on the part of
Purchaser, and this Agreement when duly executed and delivered will constitute
the valid and binding obligation of Purchaser, enforceable against Purchaser in
accordance with its terms, except as enforcement may be limited by receivership,
conservatorship and supervisory powers of bank regulatory agencies generally as
well as bankruptcy, insolvency, reorganization,

                                       24


moratorium or other laws of general applicability relating to or affecting
creditors' rights, or the limiting effect of rules of law governing specific
performance, equitable relief and other equitable remedies or the waiver of
rights or remedies.

SECTION 7.3. NON-CONTRAVENTION.

         The execution and delivery of this Agreement and any instruments or
other documents executed pursuant hereto by Purchaser do not and, subject to the
receipt of all Regulatory Approvals, the consummation of the transactions
contemplated by this Agreement, will not constitute (a) a material breach or
violation of or default under any law, rule, regulation, judgment, order,
governmental permit or license of Purchaser or to which Purchaser is subject,
which breach, violation or default would have a material Adverse Effect, or (b)
a breach or violation of or a default under the charter or bylaws of Purchaser
or to the Knowledge of Purchaser, any material contract to which Purchaser is a
party or by which it is bound which breach, violation or default would prevent
or materially delay Purchaser from performing its obligations under this
Agreement in all material respects.

SECTION 7.4. LEGAL PROCEEDINGS.

         There are no actions, suits, or proceedings, whether civil, criminal or
administrative, pending or, to the Knowledge of Purchaser threatened against or
affecting Purchaser that could prevent or materially delay Purchaser from
performing its obligations under this Agreement in all material respects.

SECTION 7.5. CONSENTS AND OTHER REGULATORY MATTERS.

         (a)      The execution, delivery and performance of this Agreement and
the other agreements to be entered into in connection herewith by Purchaser do
not and will not require any consent, approval, authorization or other order of,
action by, filing or registration with or notification to (i) any governmental
authority except as set forth on Schedule 7.5 hereto ("Regulatory Approvals") or
(ii) any other party.

         (b)      There are no pending, or to the knowledge of Purchaser,
threatened disputes or controversies between Purchaser and any federal, state or
local governmental authority, including without limitation with respect to
regulatory capital requirements, that (i) would reasonably be expected to
prevent or materially delay Purchaser from being able to perform its obligations
under this Agreement or (ii) would reasonably be expected to impair the validity
or consummation of this Agreement or the transactions contemplated hereby.
Purchaser has not received any indication from any federal, state or other
governmental authority that such governmental authority would oppose or refuse
to grant or issue its consent or approval, if required, with respect to the
transactions contemplated hereby. Purchaser believes that it can satisfy all
capital and other regulatory requirements necessary to obtain all Regulatory
Approvals.

         (c)      As of the date hereof, without giving effect to the
transactions contemplated hereby, and following the transactions contemplated
hereby, Purchaser is (i) at least "adequately capitalized", as defined in the
FDIA, and (ii) meets all capital requirements, standards and ratios required by
each state or federal bank regulator with jurisdiction over Purchaser, including

                                       25


without limitation, any such higher requirement, standard or ratio as applies to
institutions engaging in the acquisition of insured institution deposits, assets
or branches, and no such regulator is likely to, or has indicated that it will,
condition any of the Regulatory Approvals upon an increase in Purchaser's
capital or compliance with any capital requirement, standard or ratio.

         (d)      To the knowledge of Purchaser, it will not be required to
divest any of the Purchased Assets or Assumed Liabilities or any other asset or
liability as a condition to the receipt of any of the Regulatory Approvals.

         (e)      Purchaser was rated "Satisfactory" or "Outstanding" following
its most recent CRA examination by the regulatory agency responsible for its
supervision. Purchaser has received no notice of and has no knowledge of any
planned or threatened objection by any community group to the transactions
contemplated hereby.

SECTION 7.6. WARN ACT.

         Purchaser is not planning or contemplating, and has not made or taken,
any decisions or actions concerning the Transferred Employees after the Closing
that would require the service of notice under the WARN Act.

SECTION 7.7. CAPITAL AVAILABLE.

         Purchaser has sufficient capital, under GAAP and for regulatory
purposes, to support the acquisition of the Business and to perform Purchaser's
other obligations hereunder and under any of the other documents executed in
connection herewith and Purchaser's ability to purchase the Purchased Assets and
to assume the Assumed Liabilities and to perform Purchaser's other obligations
hereunder is not contingent on raising any equity capital, obtaining specific
financing thereof, or obtaining the consent of any lender.

SECTION 7.8. NO BROKER.

         Except for RBC Capital Markets, no broker or finder, or any other party
or agent performing similar functions, has been retained by Purchaser or its
Affiliates or is entitled to be paid based on any arrangements, agreements or
understandings made by Purchaser or its Affiliates in connection with the
transactions contemplated hereby and no other brokerage fee or other commission
has been agreed to be paid by Purchaser or its Affiliates on account of such
transaction.

SECTION 7.9. AGREEMENTS WITH REGULATORY AUTHORITIES.

         Purchaser is not a party to any written order, decree, agreement or
memorandum of understanding with, or commitment letter or similar submission to,
any federal or state governmental agency or authority, that such authority is
contemplating issuing or requesting (or is considering the appropriateness of
issuing or requesting) any such order, decree, agreement, memorandum of
understanding, commitment letter or submission, which order, decree, agreement,
memorandum of understanding, commitment letter or submission either (i) could
reasonably be expected to prevent or impair the ability of Purchaser to perform
its obligations

                                       26


under this Agreement in any material respect or (ii) could impair the validity
or consummation of this Agreement or the transactions contemplated hereby.

                                  ARTICLE VIII
                               COVENANTS OF SELLER

         Seller covenants and agrees with Purchaser as follows:

SECTION 8.1. CONDUCT OF THE BUSINESS.

         From the date hereof through the Closing Date, Seller shall (unless
Seller receives Purchaser's written consent) (a) conduct its business relating
to the Purchased Assets and Assumed Liabilities in the usual, regular and
ordinary course consistent with past practice, (b) use its best efforts to
maintain and preserve intact its relationships generally with its Bank Employees
and Customers; provided, however, that any salary increases with respect to Bank
Employees shall be in the ordinary course of business consistent with Seller's
past practices, (c) take no action which would adversely affect the ability of
any party hereto to obtain any Regulatory Approval or to perform its covenants
and agreements under this Agreement, (d) perform its material obligations,
commitments, and contracts relating to the operation of the Branch except as
modified in accordance with the terms of this Agreement, (e) not modify or
terminate any material contract obligations relating to the Business, except in
accordance with their contractual terms and in accordance with customary and
past practice, (f) operate the Business in material compliance with all current
legal or statutory provisions, (g) not dispose of any assets or liabilities of
the Branch except in the ordinary course of business consistent with past
practice, (h) not materially alter any of its policies or practices between the
date of this Agreement and the Closing Date with respect to the rates, fees,
charges, or level of services available at or to Customers of the Branch except
for such alterations as may be instituted generally for similar branch offices
of Seller and in accordance with ordinary course of business consistent with
past practice, and (i) not make any capital expenditures in excess of $10,000
with respect to the Branch without Purchaser's written consent, which will not
be unreasonably withheld; provided, however that Seller shall be under no
obligation to advertise or promote new or substantially new customer services in
the principal market area of, or for the benefit of, the Business; provided,
further, that Seller shall pay interest on the Deposit Liabilities at rates
which are determined in the ordinary course of business consistent with Seller's
past practices.

SECTION 8.2. REGULATORY APPROVALS.

         Seller shall use its commercially reasonable efforts to assist
Purchaser in obtaining the Regulatory Approvals. Seller shall provide Purchaser
or the appropriate governmental authorities with all information reasonably
required to be submitted by Seller in connection with the Regulatory Approvals.

SECTION 8.3. NONSOLICITATION.

         For a period of two years following the Closing Date, Seller and its
Affiliates shall not solicit any Customer or seek to entice any Customer to open
accounts or otherwise transact business with Seller or any of its Affiliates.
Notwithstanding the foregoing sentence, Seller and its Affiliates shall be
permitted to (a) engage in advertising, solicitations or marketing

                                       27


campaigns, programs or other efforts not primarily directed to or targeted at
the Customers, including without limitation such campaigns, programs or efforts
in connection with lending, deposit, safe deposit, trust or other financial
services relationships with such Customers, (b) engage in other lending,
deposit, safe deposit, trust or other financial services relationships, (c)
respond to unsolicited inquiries, and (d) provide notices or communications
relating to the transactions contemplated hereby in accordance with the
provisions hereof.

SECTION 8.4. NONSOLICITATION OF PURCHASER'S EMPLOYEES.

         In consideration of the consummation of the transactions contemplated
hereby, Seller and its Affiliates agree that, for a period of two years
following the Closing Date, they shall not, directly or indirectly, solicit for
employment, retain as an independent contractor or consultant, induce to
terminate employment with Purchaser, or otherwise interfere with Purchaser's
employment relationship with any Transferred Employee; provided , however, that
this Section 8.4 shall not apply (i) if any such employee has been terminated by
Purchaser or any of its Affiliates for any reason or (ii) if such employee is
hired by a Seller or any of its Affiliates as a result of a general solicitation
for employment in newspaper advertisements or other periodicals of general
circulation not specifically targeted to employees of Purchaser.

SECTION 8.5. MAINTENANCE OF PREMISES.

         (a)      Except as otherwise permitted or required hereunder, Seller
shall operate the Premises in substantially the same manner as prior to entering
into this Agreement and keep the Premises in substantially the same condition as
on the date hereof, subject to normal wear and tear; provided, however, that
Seller shall have no obligation to make any capital repairs, capital
expenditures or capital improvements to the Premises unless specifically
required under this Agreement, except that Seller shall maintain as currently
maintained all building and mechanical systems in reasonably satisfactory
working order and otherwise in material compliance with applicable ordinances
and regulations;

         (b)      Seller shall not create, grant, accept or enter into a lease,
use and occupancy arrangement, easement, option to purchase, right of first
refusal or other agreement with respect to all or any portion of the Premises
without prior written notice to and consent of Purchaser, or enter into any
service contract or equipment lease that does not by its terms expire or that
cannot be canceled on or prior to the Closing Date (without expense to
Purchaser); and

         (c)      Seller shall maintain the Premises in material compliance with
all laws, statutes, ordinances, rules, regulations, covenants and restrictions
applicable thereto and shall promptly notify Purchaser of all written notices of
violations thereof received by Seller and the nature and extent of the same.

SECTION 8.6. ESTABLISHMENT OF FACILITIES.

         For a period of eighteen months after the Closing Date, Seller shall
not establish a branch office, automated teller machine, or other facility or
office or implement the placement of similar facilities or equipment owned by
Seller of any Affiliate in the Region. Notwithstanding the foregoing sentence,
Seller or its Affiliates shall not be prevented from acquiring, being acquired
by, or merging into or consolidating with any financial institution.

                                       28


SECTION 8.7. LOAN DOCUMENTATION.

         Notwithstanding other provisions of this Agreement, within thirty (30)
days of the Closing Date, Purchaser may identify in writing to Seller any Loan
as to which Seller failed to properly perfect or record stated collateral or as
to which Seller has not delivered all material documentation (the "Affected
Loans"). Within thirty days of receiving written notice, Seller shall repurchase
the Affected Loans at the Loan Value (less any principal received from the
Closing Date).

                                   ARTICLE IX
                             COVENANTS OF PURCHASER

         Purchaser covenants and agrees with Seller as follows:

SECTION 9.1. REGULATORY APPROVALS AND STANDARDS.

         (a)      Purchaser will use its commercially reasonable efforts to
obtain as expeditiously as possible the Regulatory Approvals and will file
within fifteen (15) business days after the execution of this Agreement and the
provision of required information from Seller all necessary applications of
Purchaser to obtain the Regulatory Approvals, provided that Seller delivers any
information required of Seller necessary for and requested by Purchaser to
complete such applications on a timely basis. Purchaser will supply to Seller,
at least two Business Days prior to filing, copies of all proposed regulatory
applications and filings (other than confidential portions thereof) and will use
reasonable efforts to reflect any comments of Seller in such filings. As of the
Closing Date, Purchaser will satisfy any and all of the standards and
requirements reasonably within its control imposed as a condition to obtaining
or necessary to comply with the Regulatory Approvals. Purchaser shall pay any
fees charged by any governmental authorities to which it must apply to obtain
any of the Regulatory Approvals. Purchaser shall take no action which would
adversely affect or delay the ability of any other party hereto to obtain any
Regulatory Approval or to perform its covenants and agreements under this
Agreement. Purchaser shall notify Seller promptly (and in no event later than
one Business Day following notice) of any significant development with respect
to any application or notice Purchaser files with any governmental authority in
connection with the transactions contemplated by this Agreement.

         (b)      From the date hereof through the Transfer Date, Purchaser
shall (i) remain at least "well capitalized", as defined in the FDIA, (ii) meet
all capital requirements, standards and ratios required by each state or federal
bank regulator with jurisdiction over Purchaser, including without limitation,
any such higher requirement, standard or ratio as shall apply to institutions
engaging in the acquisition of insured institution deposits, assets or branches
and (iii) maintain at least a "satisfactory" CRA rating.

         (c)      Purchaser hereby confirms that after the Transfer Date it is
Purchaser's intention to conduct a banking business at the Branch, and therefore
as of the date of this Agreement it is not expected that the transactions
contemplated by this Agreement will result in the closing, consolidation or
relocation of the Branch. Purchaser agrees that it shall be solely responsible
for complying with any required branch closing or other notices to regulators
and customers in the

                                       29


event Purchaser should at any time determine to close, consolidate or relocate
the Branch or to close, consolidate or relocate any branch of Purchaser in
connection with or relating to the transactions contemplated by this Agreement.

SECTION 9.2. SOLICITATION OF ACCOUNTS.

         Prior to the Closing Date, neither Purchaser nor any of its Affiliates
shall solicit Customers through advertising specifically referencing or targeted
to such Customers nor transact their respective businesses in such a way which
is reasonably likely to (a) induce such Customers to close Deposit Liability
accounts and open deposit accounts directly with Purchaser or any of its
Affiliates, or (b) result in the transfer of all or a portion of an existing
Deposit Liability from Seller. Notwithstanding the foregoing sentence, Purchaser
and its Affiliates shall be permitted to (i) engage in advertising,
solicitations or marketing campaigns not primarily directed to or targeted at
such Customers, (ii) engage in lending, deposit, safe deposit, trust or other
financial services relationships existing as of the date hereof with such
Customers through branch offices of Purchaser, (iii) respond to unsolicited
inquiries by such Customers with respect to banking or other financial services
offered by Purchaser and (iv) provide notices or communications relating to the
transactions contemplated hereby in accordance with the provisions hereof.

SECTION 9.3. RECORDING OF INSTRUMENTS OF ASSIGNMENT.

         No later than six months following the Closing Date, Purchaser shall
have recorded all other instruments required, necessary or reasonably desirable
to evidence the acquisition, assignment and assumption of the Purchased Assets
and the Assumed Liabilities, including, without limitation, all assignments of
mortgage, financing statements, and security agreements relating to the Loans.

SECTION 9.4. TRANSFERRED EMPLOYEES.

         Purchaser covenants to Seller that it will do or cause the following to
occur:

         (a)      No later than the Final Approval Date, Purchaser shall offer
employment beginning as of the Closing Date to all Bank Employees in good
standing upon terms and conditions described in subsection (b) below and subject
to the Closing. Transferred Employees will be subject to the employment terms,
conditions and rules applicable to other similarly situated employees of
Purchaser. Nothing contained in this Agreement shall be construed as an
employment contract between Purchaser and any Transferred Employee.

         (b)      Purchaser shall provide each Transferred Employee with the
following:

                  (i)      Each Transferred Employee will be eligible to
participate in any qualified profit sharing plan/401(k) plan or plans of
Purchaser, if he or she is eligible based on each plan's eligibility criteria as
of the close of business on the Closing Date. Purchaser shall credit each
Transferred Employee with the period of years of service with Seller, its
Affiliates and predecessors in determining eligibility to participate, vesting
and level of matching contributions in such plan or plans, as if the Transferred
Employee had been an employee of Purchaser during such period;

                                       30


                  (ii)     Each Transferred Employee will be eligible to
participate in the Purchaser's qualified pension plan or plans, if he or she is
eligible based on each such plan's rules and eligibility criteria as of the
close of business on the Closing Date. Purchaser shall credit each Transferred
Employee with the period of years of service with Seller, its Affiliates and
predecessors in determining eligibility to participate, vesting and eligibility
to receive benefits (but not accrual of benefits under any defined benefit plan)
in Purchaser's pension plan(s), as if the Transferred Employee had been an
employee of Purchaser during such period; provided, however, that such crediting
of service shall not operate to duplicate any benefit or the funding of any
benefit for any period of service;

                  (iii)    Each Transferred Employee will receive credit for
years of service with Seller, its Affiliates and predecessors for purposes of
calculation of benefits and waiting period eligibility in Purchaser's other
miscellaneous benefits programs not specifically covered by other subparagraphs
of this section, as if the Transferred Employee had been an employee of
Purchaser during such period, including but not limited to, vacation, severance,
leaves of absence, education assistance, sick leave, short and long-term
disability plans and other similar benefits;

                  (iv)     On the Closing Date, each Transferred Employee will
become immediately eligible to participate in the Purchaser's health and welfare
plans (to the extent they are eligible to participate under Seller's health and
welfare plans), including but not limited to, medical, dental, life insurance
and short and long-term disability plans, as such plans may exist, on the same
basis as other similarly situated employees of Purchaser. Purchaser shall waive
any pre-existing condition limitations with respect to such Transferred Employee
and his or her dependents, to the extent such pre-existing condition limitation
can be waived under Purchaser's plans. Purchaser shall cause each Transferred
Employee to be eligible as of the Closing Date for substantially the same amount
of insurance coverage that he or she maintained under Seller's plans, without
requiring such Transferred Employee to provide any evidence of insurability to
the extent possible under existing arrangements with Purchaser's carriers.

         (c)      Purchaser shall be responsible for all obligations (including
obligations to provide notices) or liabilities, if any, which may arise in
connection with any, Transferred Employee under the WARN Act. Purchaser shall
indemnify and hold Seller harmless for any WARN Act obligations or liabilities
of Seller that are triggered by any mass layoff, plant closing or other
employment action by Purchaser within the 90 day period following after Closing
Date.

         (d)      Seller will pay out to all Transferred Employees compensation
in lieu of any accrued bonuses and accrued but unused vacation through the
closing date.

SECTION 9.5. INTERVIEWS.

         Purchaser shall be solely responsible for any acts or omissions that
are wrongful, illegal or in contravention of this Agreement made by it in
connection with interviewing or hiring the Bank Employees. Purchaser shall
reimburse the Bank Employees (if applicable) for reasonable transportation costs
to and from the location where Purchaser shall interview such employees.

                                       31


SECTION 9.6. OTHER TRANSACTIONS.

         From the date of this Agreement until the earlier of the Closing Date
or the date of termination of this Agreement, Purchaser covenants and agrees
that it shall not take any action which would materially adversely affect or
delay the consummation of the transactions contemplated by this Agreement.

SECTION 9.7. NONSOLICITATION OF SELLER'S EMPLOYEES.

         In consideration of, among other things, the willingness of Seller to
provide Purchaser with the opportunity to interview and hire the Bank Employees,
Purchaser and its Affiliates agree that, except in accordance with this Section
9.7, for a period of two years following the Closing Date, it shall not,
directly or indirectly, solicit for employment any person who is employed by
Seller or any of its Affiliates, provided, however, that this Section 9.7 shall
not apply (i) if any such employee has been terminated by Seller or any of its
Affiliates for any reason or (ii) if such employee is hired by Purchaser or any
of its Affiliates as a result of a general solicitation for employment in
newspaper advertisements or other periodicals of general circulation not
specifically targeted to employees of Seller.

                                    ARTICLE X
                  ACCESS; EMPLOYEE AND CUSTOMER COMMUNICATIONS

SECTION 10.1. ACCESS BY PURCHASER.

         Upon execution of this Agreement, Seller shall provide Purchaser and
its representatives, accountants and counsel reasonable access during normal
business hours and upon two Business Days' notice to Seller, to the Branch, Bank
Employees, depository records, Loan files, and all other documents and other
information concerning the Branch, the Business, the Purchased Assets, the
Assumed Liabilities and the Transferred Employees as Purchaser may reasonably
request; provided that a representative of Seller shall be permitted to be
present at all times and provided further that with respect to information
concerning Bank Employees, Seller's sole obligation shall be to provide
Purchaser with information concerning the name, position, date of hire and
salary of the Bank Employees, and Seller shall not be required to provide
Purchaser with access to or copies of any personnel files or other
individualized employee files or documents, all of which shall remain the sole
property of Seller; provided further, however, that Seller agrees to make
Transferred Employees available to be interviewed by Purchaser and to make
personnel files for any Transferred Employee available to Purchaser for review
to the extent permitted by law and authorized in writing by the Transferred
Employee. Notwithstanding the foregoing, in no event shall Seller be required to
provide (a) any information which Seller, in its sole discretion deems
proprietary, including without limitation, Seller's "credit scoring" system,
branch or credit practices, policies or procedures, or staffing models, (b) any
information the provision of which to Seller is prohibited by applicable law,
(c) any information that is protected by the attorney-client privilege, or (d)
its or any of its Affiliates' tax returns.

SECTION 10.2. COMMUNICATIONS TO EMPLOYEES, TRAINING.

         (a)      Seller and Purchaser agree that promptly following the
execution of this Agreement, meetings may be held at the Branch on such date as
Purchaser and Seller shall

                                       32


mutually agree, to allow a representatives of Seller and Purchaser to announce
Purchaser's proposed acquisition of the Business to the Bank Employees. Seller
and Purchaser shall mutually agree as to the scope and content of all
communications to the Bank Employees. Except as specifically provided in Section
10.1 and in this Section 10.2, in no event shall Purchaser contact any Bank
Employee without the prior written consent of Seller, which consent may not be
unreasonably withheld except those Bank Employees designated in writing by
Seller to handle certain transition issues.

         (b)      At mutually agreed upon times following the initial
announcement described in Section 10.2(a), Purchaser shall be permitted to meet
with the Bank Employees to discuss employment opportunities with Purchaser,
provided that representatives of Seller shall be permitted to attend any such
meeting. From and after the Final Approval Date, Purchaser shall also be
permitted to conduct training sessions outside of normal business hours or at
other times as Seller may agree, with the Bank Employees and may, at Seller's
sole option, conduct such training seminars at the Branch; provided that
Purchaser will in good faith attempt to schedule such training sessions in a
manner which does not unreasonably interfere with Seller's normal business
operations. Purchaser shall reimburse the Bank Employees for reasonable
transportation costs to and from the locations where Purchaser shall train such
employees and compensate the Bank Employees or reimburse Seller at the Bank
applicable standard or overtime rates for the time spent in such training.

SECTION 10.3. COMMUNICATIONS WITH CUSTOMERS.

                  (a)      Following the Final Approval Date and no more than 25
days prior to the anticipated Closing Date or a lesser time period as the
parties may agree, but in no event prior to the expiration of the time period
provided in Section 6.13(d) for Purchaser to terminate this Agreement, Purchaser
shall send statements to the Customers announcing the transactions contemplated
hereby (such statements being herein called "Customer Notices"). The form and
content of each Customer Notice shall be subject to the approval of both parties
and the cost of printing and mailing the Customer Notices shall be borne solely
by Purchaser. Seller and Purchaser shall fully cooperate with each other in the
timely scheduling of such communications. Seller agrees to provide appropriate
mailing lists and accompanying electronic data files in order to facilitate the
mailing of Customer Notices. Following the Final Approval Date, Purchaser shall
also be entitled to provide solely at its own expense such other notices or
communications to Customers relating to the transactions contemplated hereby as
may be required by law; provided that the text of any such notice or
communication and the timing of such notice or communication which is provided
prior to the Closing shall be approved in advance by Seller, which approval
shall not unreasonably be withheld or delayed.

                  (b)      Except as specifically provided herein, in no event
will Purchaser or its Affiliates contact any Customers prior to the Final
Approval Date without the prior written consent of Seller which may be granted
or withheld in its sole discretion; provided that Purchaser may contact
Customers in connection with (i) advertising, solicitations or marketing
campaigns not primarily directed to or targeted at Customers, (ii) lending,
deposit, safe deposit, trust or other financial services relationships of
Purchaser with Customers through branch offices of Purchaser existing as of the
date hereof, (iii) unsolicited inquiries by Customers to Purchaser with respect

                                       33


to banking or other financial services provided by Purchaser, and (iv) notices
or communications relating to the transactions contemplated hereby in accordance
with the provisions hereof.

                                   ARTICLE XI
                              TRANSITIONAL MATTERS

SECTION 11.1. PAYMENT OF DEPOSIT LIABILITIES.

         (a)      From and after the Closing Date, Purchaser shall (i) pay all
properly drawn and presented checks, negotiable orders of withdrawal, drafts,
debits and other withdrawal orders presented to Purchaser by Deposit Liability
account customers, whether drawn on checks, negotiable orders of withdrawal,
drafts, or other withdrawal order forms provided by Seller or by Purchaser and
(ii) in all other respects discharge, in the usual course of the banking
business, all of the duties and obligations of Seller with respect to the
balances due and owing to the Customers who have Deposit Liability accounts. If
any Customer who has a Deposit Liability account draws checks, drafts, or
negotiable orders of withdrawal against the Deposit Liabilities, which are
presented or delivered to Seller not later than 90 days after the Closing Date,
Seller shall use its commercially reasonable efforts to batch all such checks,
drafts, negotiable orders of withdrawal, or other withdrawal order forms and to
deliver the same to Purchaser at Purchaser's sole expense. Purchaser
acknowledges that any delay, failure, or inability on its part to comply with
the obligations imposed upon it as a depository institution under applicable
federal or state law, with regard to such checks, drafts, negotiable orders of
withdrawal or other withdrawal orders shall not result in any liability or
obligation of Seller and shall not affect any of the rights of Seller under this
Agreement. Seller shall not be deemed to have made any representations or
warranties to Purchaser with respect to any such checks, drafts, negotiable
orders of withdrawal or other withdrawal orders and any such representations or
warranties implied by law are hereby disclaimed and are the responsibility of
Purchaser, except that Seller shall be chargeable with the warranties and
representations implied by law with respect to any such check, draft, negotiable
orders of withdrawal order, or other withdrawal order, which is paid by Seller
over the counter.

         (b)      Purchaser hereby acknowledges that if, after the Closing Date,
any Customer who has a Deposit Liability account, instead of accepting the
obligation of Purchaser to pay the Deposit Liabilities (including Accrued
Interest thereon) shall demand payment from Seller for all or any part of any
such Deposit Liabilities (including Accrued interest thereon), Seller shall not
be liable or responsible for making such payment.

SECTION 11.2. DELIVERY OF PURCHASER'S CHECK FORMS.

         Following the Final Approval Date, but not less than five Business Days
prior to the Closing Date, Purchaser shall, at its sole cost and expense, notify
by first class U.S. mail all Customers, who have a Deposit Liability account, in
a form reasonably acceptable to Seller, of Purchaser's assumption of the Deposit
Liabilities (other than Excluded Deposits) (which shall include a notification
to those Deposit Liability account Customers whose accounts are then covered by
any type of overdraft protection offered by Seller, including but not limited to
Advance Lines, that from and after the Closing Date all such overdraft
protection from Seller shall terminate) and Purchaser shall furnish each such
Customer with information on the delivery

                                       34


of new checks, deposit tickets, or other similar instruments, which shall be
appropriately encoded with Purchaser's routing number.

SECTION 11.3. UNCOLLECTED CHECKS RETURNED TO SELLER.

         From and after the Closing Date, Purchaser shall promptly pay to Seller
an amount equivalent to the amount of any checks, negotiable orders of
withdrawal, drafts, or any other withdrawal orders (net of the applicable
deposit premium paid by Purchaser with respect to the Deposit Liabilities
represented by any such instrument) credited as of the close of business on the
Closing Date to any Deposit Liability accounts which are returned uncollected to
Seller after the Closing Date and which shall include an amount equivalent to
holds placed upon such Deposit Liability accounts for Items cashed by Seller
(net of the applicable deposit premium paid by Purchaser with respect to the
Deposit Liabilities represented by any such instrument), as of the close of
business on the Closing Date which Items are subsequently dishonored; provided,
however, that if Seller shall have failed to make or properly reflect in the
information provided to Purchaser any provisional credit or hold on any such
Deposit Liability accounts in respect of uncollected funds represented by any
such item, Purchaser's obligations under this Section 11.3 in respect of such
Item shall be limited to the amount of collected funds in such Deposit Liability
accounts.

SECTION 11.4. DEFAULT ON LOAN PAYMENTS TO SELLER.

         If the balance due on any Loan has been reduced by Seller as a result
of a payment by check or draft received prior to the close of business on the
Closing Date, which Item is returned to Seller after the Closing Date, the Loan
Value of such Loan shall be correspondingly increased and an amount in cash
equal to such increase shall be promptly paid by Purchaser to Seller within
three Business Days after demand by Seller by wire transfer of immediately
available funds to an account designated by Seller; provided, however, that if,
as a result of such return, the Loan is Nonperforming, it may, at the election
of Purchaser, be excluded from the Final Loan Schedule for purposes of
calculating the Adjusted Payment Amount.

SECTION 11.5. NOTICES TO OBLIGORS ON LOANS.

         (a)      Purchaser shall, following the Final Approval Date, but no
later than 15 days prior to the Closing Date, prepare and transmit, at
Purchaser's sole cost and expense, to each obligor on each Loan, a notice in a
form satisfying all legal requirements and reasonably acceptable to Seller to
the effect that the Loan will be transferred to Purchaser and directing that
payments be made after the Closing Date to Purchaser at any address of Purchaser
specified by Purchaser, with Purchaser's name as payee on any checks or other
instruments used to make such payments, and, with respect to all such Loans on
which payment notices or coupon books have been issued, to issue new notices or
coupon books reflecting the name and address of Purchaser as the person to whom
and the place at which payments are to be made. To the extent that Purchaser's
notice pursuant to the prior sentence shall be legally insufficient, Seller
agrees, at Purchaser's sole expense, to provide all Loan obligors with all
required notices of the assignment and transfer of the Loans.

                                       35


         (b)      To the extent that any of the Loans transferred from Seller to
Purchaser involve a transfer of servicing as defined and governed by the Real
Estate Settlement Procedures Act (12 U.S.C. Section 2601, et. seq.), Seller and
Purchaser will jointly coordinate any appropriate required Customer notices.

SECTION 11.6. NEW TELEPHONE NUMBERS.

         Seller shall, no later than 5 days prior to the Closing Date, change
the billing address for all telephone numbers used at the Branch to Purchaser's
billing address for all charges incurred subsequent to the Closing Date.

SECTION 11.7. NEW ATM/DEBIT CARDS.

         Purchaser shall, following the Final Approval Date, but no later than
three days prior to the Closing Date, notify Customers who have Deposit
Liability accounts (i) that Customers may not continue to use Seller ATM/Debit
cards on or after 3 p.m. on the Closing Date, and (ii) of any changes in
withdrawal limits which will be effective as of the Transfer Date. Such
notification shall be by form of notice reasonably acceptable to Seller. Seller
and Purchaser agree to cooperate to assure smooth transition of the ATM located
at the Branch from operation by Seller to operation by Purchaser effective as of
the Transfer Date.

SECTION 11.8. SIGNAGE.

         During the two day period immediately preceding the Transfer Date,
Seller shall cooperate with any commercially reasonable request of Purchaser
directed to accomplishing the installation of signage of Purchaser's choosing at
the Branch prior to the Closing Date; provided, however, that all such
installations shall be at the sole cost and expense of Purchaser, that such
installation shall be performed in such a manner that does not significantly
interfere with the normal business activities and operations of the Branch, that
such signage complies with all applicable zoning and permitting laws and
regulations, and that all such installed signage shall be covered in such a way
as to be unreadable at all times prior to the Closing. Immediately following the
Closing, Seller shall, at its sole cost and expense, cover all of its signage in
such a way as to be unreadable after the Closing and shall remove all of
Seller's existing signage at the Branch as promptly as practicable following the
Closing and in any event, within 10 Business Days after the Closing; provided,
that, in the event that Seller shall not have removed such signage within such
time frame, Purchaser shall be permitted to remove and store such signage on
Seller's behalf, the costs of which shall be reimbursed by Seller to Purchaser.

SECTION 11.9. ACTIONS WITH RESPECT TO IRA, KEOGH PLAN AND EMPLOYEE PENSION PLAN
              DEPOSIT LIABILITIES.

         (a)      On or before the Closing Date, Seller shall (i) resign as of
the close of business on the Closing Date as the trustee or custodian, as
applicable, of each IRA, Keogh Plan and Employee Pension Plan included in the
Assumed Liabilities of which it is the trustee or custodian, (ii) to the extent
permitted by the documentation governing each such IRA, Keogh, Plan or Employee
Pension Plan and applicable law, appoint Purchaser as successor trustee or
custodian, as applicable, of each such IRA, Keogh Plan or Employee Pension Plan,
and Purchaser hereby accepts each such trusteeship or custodianship under the
terms and conditions

                                       36


of Purchaser's plan documents for its IRA, Keogh Plans and Employee Pension
Plan, and assumes all fiduciary and custodial obligations with respect thereto
as of the close of business on the Closing Date, and (iii) deliver to the IRA
grantor or Keogh Plan or Employee Pension Plan named fiduciary, of each such
IRA, Employee Pension Plan or Keogh Plan such notice of the foregoing as is
required by the documentation governing each such IRA, Employee Pension Plan or
Keogh Plan or applicable law. Purchaser shall be solely responsible for
delivering its IRA, Employee Pension Plan and Keogh Plan documents to the
applicable IRA grantor and Keogh Plan or Employee Pension Plan named fiduciary,
including but not limited to a beneficiary designation form to be completed by
the applicable IRA grantor or Keogh Plan or Employee Pension Plan participant;
provided, however, that in the event that an IRA grantor or Keogh Plan or
Employee Pension Plan participant dies before such time as Purchaser receives a
properly completed beneficiary designation form, Seller shall make available to
Purchaser such information as may exist in Seller's files regarding any
beneficiary designation it may have regarding such decedent. If, pursuant to the
terms of the documentation governing any such IRA or Keogh Plan or Employee
Pension Plan or applicable law, (X) Seller is not permitted to appoint Purchaser
as successor trustee or custodian, or the IRA grantor or Keogh Plan or Employee
Pension Plan named fiduciary objects in writing to such designation, or is
entitled to, and does, in fact, name a successor trustee or custodian other than
Purchaser, or (Y) such IRA or Keogh Plan or Employee Pension Plan includes
assets which are not Deposit Liabilities and are not being transferred to
Purchaser or the assumption of such deposit liabilities included in such IRA or
Keogh Plan or Employee Pension Plan would result in a loss of qualification of
such IRA or Keogh Plan or Employee Pension Plan under the Code or applicable IRS
regulations, all deposit liabilities of Seller held under such IRA or Keogh Plan
or Employee Pension Plan shall be excluded from the Deposit Liabilities (such
excluded deposits liabilities being herein called the "Excluded
IRA/Keogh/Employee Pension Plan Deposits"). Upon appointment as a successor
custodian for such IRA Deposit Liabilities or as a successor trustee for such
IRAs or Keogh Plans or Employee Pension Plans, Purchaser shall perform the
services and carry out the duties and obligations required of it under the
applicable plans, the Code and applicable Federal and state laws and
regulations.

         (b)      To the extent the Deposit Liabilities include certain IRAs,
Keogh Plans and Employee Pension Plans that are required to make certain
periodic distributions to the IRA account owner or Keogh Plan or Employee
Pension Plan participant (or beneficiary) either at the account owner's or
participant's request or because the account owner or participant has attained
age 70 1/2, effective as of the Transfer Date, Purchaser agrees to continue to
make such periodic distributions in accordance with the reasonable distribution
instructions forwarded by Seller to Purchaser. Purchaser hereby assumes the
obligation to pay each minimum distribution required by federal law by December
31 of the calendar year in which the Closing occurs and, in consideration
thereof, Seller agrees not to withhold the amount of such distributions from the
aggregate amount of the Deposit Liabilities.

         (c)      Prior to the Closing Date, Seller shall provide to Purchaser
copies of all plan documents and beneficiary designation forms in Seller's
possession with respect to the Employee Pension Plans, IRAs and Keogh Plans.

                                       37


SECTION 11.10. BULK TRANSFER LAWS.

         Seller and Purchaser hereby waive compliance with any applicable bulk
transfer laws. If by reason of any applicable bulk sales law any claims are
asserted by creditors of Seller, such claims shall be the responsibility of
Purchaser in the case of claims arising under any of the Purchased Assets or
Assumed Liabilities.

SECTION 11.11. SELLER'S STATEMENTS TO CUSTOMERS.

         Seller, at its sole cost and expense, shall at its next scheduled
mailing date issue standard account statements as of the Closing Date for each
statement Savings, NOW and checking account included in the Deposit Liabilities.
Passbook information not posted to a Customer passbook as of the Closing Date
shall be provided to Purchaser by written report or by such other means as the
parties may agree upon. Purchaser agrees to be responsible for posting all
passbook entries reflected in such reports.

SECTION 11.12. EQUIPMENT CONVERSION AND INSTALLATION.

         Between the Final Approval Date and the Closing, Seller agrees to
cooperate with Purchaser and its agents in order to facilitate installation of
teller and other operating equipment in the Branch, provided that such
installation shall be at Purchaser's sole cost and expense and shall be planned
so as not to interfere significantly with Seller's normal business activities,
and provided further, that if this Agreement is terminated, the removal of the
equipment and the return of the Branch to its previous condition shall be at the
expense of the Purchaser.

SECTION 11.13. POST-CLOSING SETTLEMENT.

         Seller and Purchaser agree to cooperate to assure appropriate
settlement of point of sale debit card transactions relating to Deposit
Liability accounts settled following the Closing Date. Following the Closing,
Purchaser will make commercially reasonable efforts to notify originators of
Automated Clearing House ("ACH") entries affecting Deposit Liability accounts or
Loans of the transfers contemplated by this Agreement. Seller agrees to
cooperate with Purchaser in a commercially reasonable manner to assure prompt
delivery and settlement of ACH transactions received by Seller for debit or
credit to Deposit Liability accounts or Loans. Seller and Purchaser agree to
cooperate with respect to any other items relating to Deposit Liabilities or
Loans that come into Seller's possession following the Closing Date.

SECTION 11.14. POST-CLOSING COOPERATION GENERALLY.

         Whether or not specifically addressed in this Section 11, Seller and
Purchaser agree to cooperate in a commercially reasonable manner to assure an
orderly transition of Branch operations and the Purchased Assets from Seller to
Purchaser.

                                       38


                                   ARTICLE XII
                              CONDITIONS TO CLOSING

SECTION 12.1. CONDITIONS TO OBLIGATIONS OF SELLER.

         The obligations of Seller under this Agreement are subject to the
satisfaction (or, if applicable, waiver in the sole discretion of Seller, except
as to the condition described in 12.1(c)) on or before the Closing Date, of each
of the following conditions:

         (a)      All of the covenants and other agreements required by this
Agreement to be complied with and performed by Purchaser on or before the
Closing Date shall have been duly complied with and performed in all material
respects;

         (b)      The representations and warranties made by Purchaser herein or
in any certificate or other document delivered pursuant to the provisions hereof
or in connection with the transactions contemplated hereby shall be true and
correct in all material respects, on and as of the Closing Date, with the same
force and effect as though such representations and warranties had been made on
the Closing Date provided, however, that the representations and warranties of
Purchaser herein or in any certificate or other document delivered pursuant to
the provisions hereof shall be deemed to be true and correct in all material
respects on and as of the Closing Date, with the same force and effect as though
made on the Closing Date, unless the failure to be so true and correct would
have a Material Adverse Effect on Purchaser's ability to consummate the
transactions contemplated by the Agreement;

         (c)      All Regulatory Approvals shall have been obtained, shall be
Final and shall not contain any Material Condition affecting Seller;

         (d)      No court or governmental or regulatory authority of competent
jurisdiction shall have enacted, issued, promulgated, enforced or entered any
statute, rule, regulation, judgment, decree, injunction or other order (whether
temporary, preliminary or permanent), which is in effect, to enjoin, or which
prohibits, consummation of the transactions contemplated hereby or which would
preclude the operation of the Branch by Purchaser subsequent to the Closing in
substantially the same manner as heretofore operated;

         (e)      Seller shall have received the items to be delivered by
Purchaser pursuant to Section 5.3.

SECTION 12.2. CONDITIONS TO OBLIGATIONS OF PURCHASER.

         The obligations of Purchaser under this Agreement are subject to the
satisfaction (or, if applicable, waiver in the sole discretion of Purchaser,
except as to the condition described in Section 12.2(c)) on or before the
Closing Date, of each of the following conditions;

         (a)      All of the covenants and agreements required by this Agreement
to be complied with and performed by Seller on or before the Closing Date shall
have been duly complied with and performed in all material respects;

                                       39


         (b)      The representations and warranties made by Seller herein or in
any certificate or other document delivered pursuant to the provisions hereof or
in connection with the transactions contemplated hereby shall be true and
correct in all material respects, on and as of the Closing Date, with the same
force and effect as though such representations and warranties had been made on
the Closing Date; provided, however, that the representations and warranties
made by Seller herein or in any certificate or other document delivered pursuant
to the provisions hereof shall be deemed to be true and correct in all material
respects on and as of the Closing Date, with the same force and effect as though
made on the Closing Date, unless the failure to be so true and correct would
have a Material Adverse Effect;

         (c)      The Regulatory Approvals shall have been obtained, shall be
Final and shall not contain any Material Condition affecting Purchaser;

         (d)      No court or governmental or regulatory authority of competent
jurisdiction shall have enacted, issued, promulgated, enforced or entered any
statute, rule, regulation, judgment decree, injunction or other order (whether
temporary, preliminary or permanent) which is in effect to enjoin, or which
prohibits, consummation of the transactions contemplated hereby; and

         (e)      Purchaser shall have received the items to be delivered by
Seller pursuant to Section 5.2 and Purchaser is able to occupy the Premises in
accordance with provision of Section 6.13(c) as of the Closing Date.

         (f)      Purchaser shall not have elected to terminate the transaction
pursuant to Section 6.13(d).

                                  ARTICLE XIII
                                 DATA PROCESSING

SECTION 13.1. CONVERSION.

         (a)      Seller and Purchaser shall convert account information as to
Deposit Liabilities and the Loans to be effective the first business day
following the Closing in accordance with the Data Processing Conversion Plan to
be developed and attached hereto as Schedule 13.1 within thirty (30) days from
the date of this Agreement. Purchaser and Seller agree to cooperate fully in the
development of the Data Processing Conversion Plan. Purchaser shall pay Seller
for services rendered to Seller by outside third-parties in connection with the
de-conversion of the Branch's electronic data to a format that can be utilized
by Purchaser for and following the Closing of the Purchase and Assumption,
provided that in no event will such costs exceed $20,000.

         (b)      All tasks and obligations concerning the provision of data
processing services to or for the Branch after the Closing Date, other than
those specifically set forth in, and to the extent assumed by Seller pursuant to
Schedule 13.1(b) hereof shall be performed solely and exclusively by the
Purchaser. Purchaser acknowledges its assumption of all such tasks and
obligations, and further acknowledges that any delay, failure or inability on
its part to perform such tasks or comply with such obligations, except as and to
the extent attributable to any delay, failure or inability on the part of Seller
in performing those tasks or complying with those obligations specifically set
forth in, and to the extent assumed by Seller pursuant to,

                                       40


Schedule 13.1(b) hereof shall not result in any liability or obligation of
Seller and shall not affect any of the rights of Seller under this Agreement.

                                   ARTICLE XIV
                                    INDEMNITY

SECTION 14.1. SELLER'S INDEMNITY.

         Seller shall indemnify, hold harmless and defend Purchaser, its
Affiliates, and their respective successors, permitted assigns, directors,
shareholders, officers, agents and employees from and against all claims,
losses, liabilities, demands and obligations of any nature whatsoever (including
reasonable legal fees and expenses) (collectively, "Damages") which Purchaser or
any of its Affiliates or their respective successors, permitted assigns,
directors, shareholders, officers, agents or employees shall receive, suffer or
incur, arising out of or resulting from:

         (a)      Any liability of Seller which is not an Assumed Liability;

         (b)      The breach of any representation or warranty made by Seller in
this Agreement;

         (c)      The breach of any covenant or other agreement made by Seller
in this Agreement;

         (d)      Except for Assumed Liabilities, all liabilities under all
pension and welfare benefit plans (as defined in Sections 3(l) and (2) of
ERISA), or any supplemental unemployment benefit, deferred compensation, or
other employee benefit plan of Seller or its Affiliates with respect to any and
all periods prior to the Closing Date, including without limitation, all
liabilities under ERISA, any liabilities for any accumulated funding deficiency
as such term is defined in Section 302 of ERISA and Section 412 of the Code and
for any liability to the Pension Benefit Guaranty Corporation, the IRS,
participants, beneficiaries, employees, or any other public or private person,
incurred with respect to or attributable to any plan of Seller; or

         (e)      Any actions taken or omitted to be taken by Seller prior to
the Closing Date and relating to the Business, Premises, the Purchased Assets,
the Assumed Liabilities, or the Bank Employees, and any suits or proceedings
commenced in connection therewith (other than proceedings to prevent or limit
the consummation of the transactions contemplated by this Agreement).

SECTION 14.2. PURCHASER INDEMNITY.

         Purchaser shall indemnify, hold harmless and defend Seller, its
Affiliates and their respective successors, permitted assigns, directors,
shareholders, officers, agents and employees from and against all Damages which
Seller or any of its Affiliates or their respective successors, permitted
assigns, directors, shareholders, officers, agents or employees shall receive,
suffer or incur, arising out of or resulting from:

         (a)      Any Assumed Liability;

                                       41


         (b)      Any actions taken or omitted to be taken by Purchaser from and
after the date hereof with respect to the Bank Employees, and any suits or
proceedings commenced in connection therewith;

         (c)      Any actions taken or omitted to be taken by Purchaser from or
after the Closing Date and relating to the Business, the Purchased Assets, the
Assumed Liabilities and the Transferred Employees, and any suits or proceedings
commenced in connection therewith (other than proceedings to prevent or limit
the consummation of the transactions contemplated by this Agreement);

         (d)      The breach of any representation or warranty made by Purchaser
in this Agreement;

         (e)      The breach of any covenant or other agreement made by
Purchaser in this Agreement; and

         (f)      Any claims arising under any of the Purchased Assets or
Assumed Liabilities made by creditors of Seller under any applicable bulk sales
laws.

SECTION 14.3. INDEMNIFICATION PROCEDURE.

         If a party entitled to indemnification hereunder ("Indemnified Party")
is aware that a claim, demand or other circumstance exists that has given or may
reasonably be expected to give rise to a right of indemnification under this
Article XIV (whether or not the amount of the claim is then quantifiable), such
Indemnified Party shall promptly give written notice thereof to the other party
("Indemnitor"), and the Indemnified Party will thereafter keep the Indemnitor
reasonably informed with respect thereto, provided that failure of the
Indemnified Party to give the Indemnitor prompt notice as provided herein shall
not relieve the Indemnitor of its obligations hereunder except to the extent, if
any, that the Indemnitor's rights shall have been prejudiced or the Indemnitor's
liability shall have been materially increased thereby. In case any such action,
suit or proceeding is brought against an Indemnified Party, the Indemnitor shall
be entitled to participate in the defense thereof with counsel reasonably
satisfactory to the Indemnified Party or, if it acknowledges its obligation to
indemnify the Indemnified Party in full with respect to such claim, may in its
discretion assume the defense thereof, provided, however, that in such event the
Indemnified Party shall be entitled to participate in any such action, suit or
proceeding with counsel of its own choice at its expense. The party assuming
defense of the claim, action, suit or proceeding giving rise to a claim for
indemnification will not settle any such claim, action, suit or proceeding
without the consent of the other party, which consent shall not be unreasonably
withheld.

SECTION 14.4. LIMITATIONS ON LIABILITY.

         Notwithstanding anything to the contrary contained in this Article XIV,
unless otherwise provided in this Agreement, no party shall be entitled to
indemnification pursuant to Section 14.1(b) or 14.2(d) until its aggregate
Damages shall be in excess of $35,000, at which time such party shall be
entitled to indemnification for the full amount of its Damages to the extent
such Damages exceed such amount. In no event shall the Damages payable by Seller
or

                                       42


Purchaser in the aggregate exceed the Purchase Price and in no event shall any
party be entitled to any incidental, consequential, special, exemplary or
punitive Damages.

SECTION 14.5. GENERAL.

         (a)      Each Indemnified Party shall be obligated in connection with
any claim for indemnification under this Article XIV to use all commercially
reasonable efforts to obtain any insurance proceeds available to such
Indemnified Party with regard to the applicable claims. The amount which any
Indemnitor is or may be required to pay to any Indemnified Party pursuant to
this Article XIV shall be reduced (retroactively, if necessary) by any insurance
proceeds or other amounts actually recovered (net of any direct relevant
collections costs) by or on behalf of such Indemnified Party in reduction of the
related Damages. If an Indemnified Party shall have received the payment
required by this Agreement from the Indemnitor in respect of Damages and shall
subsequently receive insurance proceeds or other amounts in respect of such
Damages, then such Indemnified Party shall promptly repay to the Indemnitor a
sum equal to the amount of such insurance proceeds or other amounts actually
received (net of any direct relevant collection costs). The amount of any
Damages arising from a breach by Seller of the representation set forth in
Section 6.7 due to the existence of a Lien which is not in respect of borrowed
money and does not materially impair the continued use and operation of any of
the Purchased Assets shall be limited to the lesser of (x) the cost of
satisfying or removing such Lien and (y) the actual impairment to the Purchased
Asset caused by the existence of such Lien.

         (b)      In addition to the requirements of paragraph (a) above, each
Indemnified Party shall be obligated in connection with any claim for
indemnification under this Article XIV to use all commercially reasonable
efforts to mitigate Damages upon and after becoming aware of any event which
could reasonably be expected to give rise to such Damages.

         (c)      Subject to the rights of existing insurers of an Indemnified
Party, an Indemnitor shall, upon payment in full of a claim for indemnification,
be subrogated to any right of action which the Indemnified Party may have
against any other Person with respect to any matter giving rise to a claim.

         (d)      Except for the parties' rights to specific performance and
injunctive relief as described in Section 16.14, the indemnification provided in
this Article XIV shall be the exclusive post-Closing Date remedy available to
any Indemnified Party with respect to any breach of any representation,
warranty, covenant or agreement made by Purchaser or Seller in this Agreement.
The parties hereto further acknowledge that no indemnity shall be payable for
any Damages with respect to any breach of representations or warranties in this
Agreement if prior to Closing such party receives a written notice from the
other party (i) disclosing such breach or breaches and (ii) informing such party
that such breach or breaches constitute a Material Adverse Effect entitling the
party receiving the notice to terminate this Agreement.

         (e)      All indemnification payments under this Article XIV shall be
deemed adjustments to the Purchase Price as defined in Section 3.1.

                                       43


SECTION 14.6. SURVIVAL.

         All representations, warranties and covenants contained in or made
pursuant to this Agreement shall survive the execution and delivery of the
Agreement and shall continue in full force and effect for a period of one year
after the Closing Date and thereafter shall terminate, except as to any claim
for which written notice shall have been given prior to such date; and provided,
further, that all covenants or agreements which by their terms are to be
performed after the first anniversary of the Closing Date shall survive for a
period of one year from the date upon which they are fully discharged.

                                   ARTICLE XV
                              POST-CLOSING MATTERS

SECTION 15.1. FURTHER ASSURANCES.

         From and after the Closing Date:

         (a)      Except as specifically provided otherwise herein, Seller shall
assist Purchaser in the orderly transition of the operations of the Business and
shall give such further assurances and execute, acknowledge and deliver all such
instruments as may be necessary and appropriate to effectively vest in Purchaser
title in the Purchased Assets in the manner contemplated hereby; provided that
Seller need not incur any out-of-pocket costs or expenses in connection with its
agreements in this Section 15.1 unless such costs or expenses are reimbursed by
Purchaser; and

         (b)      Except as specifically provided otherwise herein, Purchaser
shall give such further assurances to Seller and shall execute, acknowledge and
deliver all such acknowledgments and other instruments and take such further
action as may be necessary and appropriate to effectively relieve and discharge
Seller from any obligations remaining with respect to the Deposit Liabilities or
other Assumed Liabilities; provided that Purchaser need not incur any
out-of-pocket costs or expenses in connection with its agreements in this
Section 15.1 unless such costs or expenses are reimbursed by Seller.

SECTION 15.2. ACCESS TO AND RETENTION OF BOOKS AND RECORDS.

         For a period of six years from the Closing Date, each party shall have
commercially reasonable access to any books and records of the other party
relating to the Purchased Assets and the Assumed Liabilities, and the requesting
party, at its own expense, may make copies and extracts when such copies and
extracts are required by regulatory authorities, for litigation purposes, or for
tax or accounting purposes; provided that in the event that as of the end of
such period, any tax year of Seller is under examination by any taxing
authority, Seller shall inform Purchaser in writing of the audit and such books
and records shall be maintained by Purchaser until a final determination of the
tax liability of Seller for that year has been made. If such copies or extracts
require use of a party's equipment or Branch, the user shall reimburse the other
party for all costs incurred, including without limitation employee expenses.
Notwithstanding the foregoing, neither party shall be obligated to retain
records beyond any commonly acceptable time limit, and the obligation of either
party to provide access to records shall be subject to all applicable laws and
regulations governing the confidentiality of such records.

                                       44


SECTION 15.3. DEPOSIT HISTORIES.

         In case of any dispute with or inquiry by any Customer whose Deposit
Liability account is included in the Assumed Liabilities, which dispute or
inquiry relates to the servicing of such account by Seller prior to the date for
which a deposit history has been provided to Purchaser, Seller will provide
Purchaser, where available and to the extent reasonably requested by Purchaser
and not already provided to Purchaser, information regarding the Deposit
Liability account and copies of pertinent documents or instruments with respect
to such dispute or inquiry so as to permit Purchaser to respond to such Customer
within a period of time and in a manner which would comply with standard banking
practices and customs and all applicable laws.

                                   ARTICLE XVI
                                  MISCELLANEOUS

SECTION 16.1. EXPENSES.

         (a)      Except as otherwise provided herein, Seller and Purchaser
shall each pay all of their own out-of-pocket expenses in connection with this
Agreement, including investment banking, appraisal, accounting, consulting,
professional and legal fees, if any, whether or not the transactions
contemplated by this Agreement are consummated.

         (b)      Purchaser shall pay all (i) recording, filing or other fees,
cost and expenses (including without limitation fees, costs and expenses for (w)
preparation and issuance of title commitments, abstracts or searches, surveys,
inspections, environmental audits or other investigations, (x) filing of any
forms (including without limitation tax forms) with governmental authorities in
connection with the transfer of the Fixed Assets, and (y) recording instruments
or documents evidencing any transfers of interests in real property); provided
that Seller shall pay one half of the State of Maine transfer tax due upon
transfer of the Real Estate and shall pay all such fees, costs or expenses with
respect to matters described in (x) and (y) which Seller is required by law to
pay and costs and expenses relating to the preparation, execution and recording
of assignments or satisfactions of mortgages, financing statements, notes,
security agreements or other instruments applicable to or arising in connection
with the transfer, assignment or assumption of the Purchased Assets and Assumed
Liabilities.

SECTION 16.2. TRADE NAMES AND TRADEMARKS.

         The Purchaser acknowledges and agrees that notwithstanding anything to
the contrary contained herein, it has, and following the Closing shall have, no
interest in or to the names Androscoggin Savings Bank, Androscoggin Bank or
Androscoggin Bank of Rockland or any derivative thereof, or any trade name,
trademark or service mark, logo or corporate name of Seller or any of its
respective Affiliates, including, without limitation, the tradenames and
trademarks listed on Schedule 16.2 hereto. After the Closing Date, Purchaser and
any of its Affiliates shall not use any of the trade names, trademarks, service
marks, logos or corporate names of Seller or any of its respective Affiliates
including, without, limitation, the tradenames and trademarks listed on Schedule
16.2 hereto.

                                       45


SECTION 16.3. TERMINATION: EXTENSION OF CLOSING DATE.

         This Agreement shall terminate and shall be of no further force or
effect as between the parties hereto, except as to the liability for actual
direct damages due to a willful breach of any material representation, warranty
or covenant occurring or arising prior to the date of termination, and except
for the confidentiality obligations set forth in Section 16.6, upon the
occurrence of any of the following:

         (a)      Upon mutual agreement of the parties;

         (b)      Upon written notice by either Purchaser or Seller to the other
parties immediately upon receipt by Purchaser or Seller of notice from any
governmental authority that Purchaser or Seller, as the case may be, has been
denied any Regulatory Approval by Final order or that any Regulatory Approval
contains a Material Condition adversely affecting the party providing the
notice;

         (c)      Upon written notice by either Purchaser or Seller to the other
parties, if the Closing has not occurred on or before May 31, 2004; or

         (d)      By either the Purchaser or Seller (provided that the
terminating party is not then in material breach of any representation,
warranty, covenant or other agreement contained herein) if there shall have been
a material breach of any of the representations, warranties, covenants or other
agreements set forth in this Agreement on the part of the other party, which
breach is not cured within 30 days following written notice to the party
committing such breach, or which breach, by its nature, cannot be cured prior to
the Closing; provided, however, that Purchaser and Seller shall not have the
right to terminate this Agreement pursuant to this Section 16.3(d) unless the
breach of representation, warranty, covenant, or other agreement together with
all other such breaches would have a Material Adverse Effect.

SECTION 16.4. MODIFICATION AND WAIVER.

         No modification of any provision of this Agreement shall be binding
unless in writing and executed by the party or parties sought to be bound
thereby. Performance of or compliance with any covenant given herein or
satisfaction of any condition to the obligations of either party hereunder may
be waived by the parties to whom such covenant is given or to whom such
condition is intended to benefit, except as otherwise provided in this Agreement
or to the extent any such condition is required by law; provided, that, any such
waiver must be in writing.

SECTION 16.5. BINDING EFFECT: ASSIGNMENT.

         This Agreement shall be binding upon and shall inure to the benefit of
the parties hereto and their respective successors and permitted assigns;
provided, however, that neither this Agreement nor any rights, privileges,
duties or obligations of the parties hereto may be assigned without the prior
written consent of the other party hereto.

                                       46


SECTION 16.6. CONFIDENTIALITY.

         (a)      From and after the date hereof, the parties hereto and their
Affiliates shall keep confidential the terms of this Agreement and the
negotiations relating hereto and all documents and information obtained by a
party from another party in connection with the transactions contemplated
hereby, except (i) to the extent this Agreement and such negotiations need to be
disclosed to obtain a Regulatory Approval, (ii) to fulfill obligations under the
Securities Exchange Act of 1934, as amended, or rules promulgated thereunder by
the Securities and Exchange Commission, (iii) for disclosures made in accordance
with the terms of this Agreement, and (iv) to the extent required by applicable
law, regulations or rules of any applicable national securities exchange. This
section shall survive any termination of this Agreement. Notwithstanding
anything herein to the contrary, Purchaser and Seller may disclose to any and
all persons, without limitation of any kind, the tax treatment and tax structure
of the transactions contemplated by this Agreement, and all materials of any
kind (including opinions or other tax analyses) that are provided to it relating
to such tax treatment and tax structure; provided however, that such disclosure
may only be made to the extent reasonably necessary to comply with any
applicable federal or state securities laws. For the purposes of the foregoing
sentence, (i) the "tax treatment" means the purported or claimed federal or
state income tax treatment of this transaction, and (ii) the "tax structure"
means any fact that may be relevant to understanding the purported or claimed
federal or state income tax treatment of the transactions contemplated by this
Agreement.

         (b)      Except as otherwise required by law, regulations or rules,
including the rules of any self regulatory organization (as defined in the
Securities Exchange Act of 1934, as amended), the parties hereto shall each
furnish to the other the text of all notices and communications, written or
oral, proposed to be sent by the furnishing party regarding the transactions
contemplated hereby. Except as otherwise required by law, regulations or rules
of the National Association of Securities Dealers or any national stock
exchange, the furnishing party shall not send or transmit such notices or
communications or otherwise make them public unless and until the consent of the
other parties is received, which consent shall not be unreasonably withheld or
delayed.

         (c)      Purchaser and Seller may issue press releases on the date of
this Agreement and on the Closing Date or the first Business Day thereafter, the
content of which press releases shall be mutually agreed upon between the
parties.

         (d)      The provisions of this Section 16.6 shall survive any
termination of this Agreement.

SECTION 16.7 ENTIRE AGREEMENT; GOVERNING LAW.

         This Agreement, together with the exhibits and schedules attached
hereto and made a part hereof, contains the entire agreement between the parties
hereto with respect to the transactions covered and contemplated hereunder, and
supersedes all prior agreements or understandings between the parties hereto
relating to the subject matter hereof, provided that the terms of the
Confidentiality Agreement, to the extent not inconsistent with the terms hereof,
shall continue to

                                       47


apply. This Agreement shall be governed by and construed in accordance with the
laws of the State of Maine (without reference to conflicts or choice of law
provisions).

SECTION 16.8. CONSENT TO JURISDICTION; WAIVER OF JURY TRIAL.

         Each party hereto, to the extent it may lawfully do so, hereby submits
to the jurisdiction of the courts of the State of Maine and the United States
District Court for the District of Maine as well as to the jurisdiction of all
courts from which an appeal may be taken or other review sought from the
aforesaid courts, for the purpose of any suit, action or other proceeding
arising out of such party's obligations under or with respect to this agreement
or any of the agreements, instruments or documents contemplated hereby (other
than the confidentiality agreement), and expressly waives any and all objections
it may have as to venue in any of such courts.

         Each party hereto hereby waives trial by jury in any action, proceeding
or counterclaim arising out of or in any way concerned with this agreement or
any of the agreements, instruments or documents contemplated hereby. No party
hereto, nor any assignee or successor of a party hereto shall seek a jury trial
in any lawsuit, proceeding, counterclaim or any other litigation procedure based
upon, or arising out of, this agreement or any of the agreements, instruments or
documents contemplated hereby. No party will seek to consolidate any such
action, in which a jury trial has been waived, with any other action in which a
jury trial cannot be or has not been waived. The provisions of this have been
fully discussed by the parties hereto, and the provisions shall be subject to no
exceptions. No party has in anyway agreed with or represented to any other party
that the provisions of this section will not be fully enforced in all instances.

SECTION 16.9. WAIVER OF CERTAIN DAMAGES.

         Each of the parties hereto to the fullest extent permitted by law
irrevocably waives any rights that they may have to punitive, special,
incidental, exemplary or consequential damages in respect of any litigation
based upon, or arising out of, this agreement or any related agreement or any
course of conduct, course of dealing, statements or actions of any of them
relating thereto.

SECTION 16.10. SEVERABILITY.

         In the event that any provision of this shall be held invalid, illegal,
or unenforceable in any respect, the validity, legality, and enforceability of
the remaining provisions contained in this Agreement shall not in any way be
affected or impaired thereby, and this Agreement shall otherwise remain in full
force and effect.

SECTION 16.11. COUNTERPARTS.

         This Agreement may be executed in one or more counterparts, all of
which shall be considered one and the same agreement and shall become effective
when one or more counterparts have been signed by each of the parties hereto.

SECTION 16.12. NOTICES.

         All notices, consents, requests, instructions, approvals, waivers,
stipulations and other communications provided for herein to be given by one
party hereto to the other party shall be

                                       48


deemed validly given, made or served, if in writing and delivered personally or
sent by certified mail, return receipt requested, nationally recognized
overnight delivery service, or facsimile transmission, if to Seller addressed
to:

                  Steven A. Closson
                  President and Chief Executive Officer
                  Androscoggin Savings Bank
                  30 Lisbon Street, P.O. Box 1407
                  Lewiston, Maine 04240

         with copies to:

                  Luse Gorman Pomerenk & Schick, P.C.
                  5335 Wisconsin Avenue, N.W., Suite 400
                  Washington, D.C. 20015-2035
                  Attention: John J. Gorman, Esq.

         and if to Purchaser addressed to:

                  Bar Harbor Banking & Trust Company
                  82 Main Street
                  Bar Harbor, Maine 04609
                  Attention: Chief Executive Officer

         with copies to:

                  Eaton Peabody
                  80 Exchange Street
                  Bangor, Maine 04401
                  Attention: Daniel G. McKay, Esq.

         Notice by certified mail shall be deemed to be received three Business
Days after mailing of the same. Notice by overnight courier shall be deemed
effective on the next business day following delivery to such courier. Either
party may change the persons or addresses to whom or to which notices may be
sent by written notice to the others.

SECTION 16.13. INTERPRETATION.

         Article titles, headings to sections and any table of contents are
inserted for convenience of reference only and are not intended to be a part of
or to affect the meaning or interpretation hereof. The Schedules and Exhibits
referred to herein shall be construed with and as an integral part of this
Agreement to the same extent as if they were set forth verbatim herein. As used
herein, "include", "includes" and "including" are deemed to be followed by
"without limitation" whether or not they are in fact followed by such words or
words of like import; "writing", "written" and comparable terms refer to
printing, typing, lithography and other means of reproducing words in a visible
form; references to a person are also to its successors and assigns; except as
the context may otherwise require, "`hereof", "herein", "hereunder" and
comparable

                                       49


terms refer to the entirety hereof and not to any particular article, section or
other subdivision hereof or attachment hereto; references to any gender include
the other, except as the context may otherwise require, the singular includes
the plural and vice versa; references to any agreement or other document are to
such agreement or document as amended and supplemented from time to time;
references to "Article", "Section" or another subdivision or to an "Exhibit" or
"Schedule" are to an article, section or subdivision hereof or an "Exhibit" or
"Schedule". The parties acknowledge that each party and its counsel have
reviewed and revised this Agreement and that the normal rule of construction to
the effect that any ambiguities are to be resolved against the drafting party
shall not be employed in the interpretation, construction and enforcement of
this Agreement or any amendment, schedule or exhibit hereto.

SECTION 16.14. SPECIFIC PERFORMANCE.

         The parties hereto acknowledge that monetary damages could not
adequately compensate either party hereto in the event of a breach of this
Agreement by the other, that the non-breaching party would suffer irreparable
harm in the event of such breach and that the non-breaching party shall have, in
addition to any other rights or remedies it may have at law or in equity,
specific performance and injunctive relief as a remedy for the enforcement
hereof.

SECTION 16.15. NO THIRD PARTY BENEFICIARIES.

         The parties hereto intend that this Agreement shall not benefit or
create any right or cause of action in or on behalf of any person other than the
parties hereto. No future or present employee or customer of either of the
parties nor their affiliates, successors or assigns or other person shall be
treated as a third party beneficiary in or under this Agreement.

                                       50


         IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed, by their duly authorized representatives, as of the day and year first
above written.

                              ANDROSCOGGIN SAVINGS BANK

                              By: ______________________________________________
                                  Name:  Steven A. Closson
                                  Title: President and Chief Executive Officer

                              BAR HARBOR BANKING AND TRUST COMPANY

                              By: ______________________________________________
                                  Name:  Joseph M. Murphy
                                  Title: Chief Executive Officer

                                       51


                                                                       EXHIBIT A

                      FORM OF QUITCLAIM DEED WITH COVENANT

                     SHORT FORM QUITCLAIM DEED WITH COVENANT

Androscoggin Savings Bank, a Maine banking corporation, with an address of 30
Lisbon Street, Lewiston, Maine 04240, FOR CONSIDERATION PAID, grants to Bar
Harbor Banking and Trust Company, a Maine banking corporation with an address at
82 Main Street, Bar Harbor, Maine 04609, with QUITCLAIM COVENANTS, that certain
property located in___________, __________ County, Maine all as more
particularly described on Exhibit A attached hereto and mad a part hereof.

IN WITNESS WHEREOF, Androscoggin Savings Bank has caused this instrument to be
executed under seal by _______________, its _________________, thereunto duly
authorized, this __ day of _____________, 200_.

WITNESS:                                    ANDROSCOGGIN SAVINGS BANK

______________________                      By:________________________________
                                               Name:
                                               Title:

State of Maine

County of ____________, ss.                            __________________, 200_

PERSONALLY APPEARED the above named ________________________, ____________ of
Androscoggin Savings Bank as aforesaid and acknowledged the foregoing instrument
to be his free act and deed in his said capacity and the free act and deed of
said corporation.

                                               Before me,

                                               ________________________________
                                               Notary Public
                                               My commission expires:



                                                                       EXHIBIT B

                       FORM OF BILL OF SALE AND ASSIGNMENT

         This BILL OF SALE AND ASSIGNMENT is made and entered into as of
________, 2003, by Androscoggin Savings Bank, a Maine-chartered bank with its
principal offices at 30 Lisbon Street, Lewiston, Maine 04240 ("Seller"), and Bar
Harbor Banking & Trust Company, a Maine financial institution with its principal
offices at 82 Main Street, Bar Harbor, Maine 04609 ("Purchaser"). Capitalized
terms used herein which are defined in that certain Purchase and Assumption
Agreement, dated as of ______________ ___, 2003, by and between Seller and
Purchaser (the "Agreement"), shall have the same meanings herein as therein
unless defined herein or the context requires otherwise herein.

                                   WITNESSETH:

         WHEREAS, pursuant to the Agreement, among other matters, Seller has
agreed to transfer the Personalty to Purchaser;

         NOW, THEREFORE, for good and valuable consideration paid by Purchaser
to Seller at or before the execution of this Bill of Sale and Assignment, the
receipt and sufficiency of which are hereby acknowledged, Seller by this Bill of
Sale and Assignment does hereby convey, grant, bargain, sell, transfer, set
over, assign, alienate, remise, release, deliver and confirm unto Purchaser, its
successors and assigns, forever, all of Seller's right, title, interest in and
to the Personalty as of the close of business on the date hereof.

         TO HAVE AND TO HOLD all and singular the Personalty unto Purchaser, its
successors and assigns, to its and their own use and enjoyment forever.

         SELLER FURTHER COVENANTS AND AGREES AS FOLLOWS:

A.       This Bill of Sale and Assignment shall not constitute an assignment in
         whole or in part of any Personalty if an attempted assignment of the
         same without the consent of any other party thereto or with an interest
         therein would constitute a breach thereof or in any way affect the
         rights of Seller thereunder or be contrary to applicable law. If any
         such consent is not obtained with respect to any such Personalty, then
         Seller, its respective successors and assigns, shall act as Purchaser's
         agent in order to obtain for Purchaser, its successors and assigns, the
         benefits thereunder.

B.       Seller has good and marketable title to the Personalty free and clear
         of all liens and encumbrances. Seller has the right and authority to
         sell and transfer the Personalty, and the Personalty is being delivered
         "AS IS", "WHERE IS" and with all faults.

C.       This Bill of Sale and Assignment is given pursuant to the provisions of
         the Agreement, and, except as herein otherwise provided, the transfer
         of the Personalty hereunder is made subject to the terms and provisions
         of the Agreement.



D.       This Bill of Sale and Assignment is only for the benefit of the
         Purchaser and its successors and assigns and shall not be relied upon
         by, or inure to the benefit of, any other party.

E.       Any notice, request or other document to be given hereunder or in
         connection herewith to any party hereto shall be given in the manner
         described in the Agreement.

F.       This Bill of Sale and Assignment shall be governed by, and construed in
         accordance with, the laws of the State of Maine.

         IN WITNESS WHEREOF, Seller has duly executed and delivered this Bill of
Sale and Assignment as of the day and year first above written.

                                ___________________

                                By: __________________________________________
                                    Name:
                                    Title: Chairman and Chief Executive Officer



                                    EXHIBIT B

                         [Legal Description of Premises]



                                                                       EXHIBIT C

                   FORM OF ASSIGNMENT AND ASSUMPTION AGREEMENT

         This ASSIGNMENT AND ASSUMPTION AGREEMENT (this "Agreement"), is made
and entered into as of ____________, 2003, by and between Bar Harbor Banking &
Trust Company, a Maine financial institution ("Purchaser") and Androscoggin
Savings Bank, a Maine-chartered bank ("Seller"). Capitalized terms used herein
which are defined in that certain Purchase and Assumption Agreement, dated as of
____________ ___, 2003, by and between Seller and Purchaser (the "Purchase and
Assumption Agreement"), shall have the same meanings herein as therein unless
defined herein or the context requires otherwise herein.

                                   WITNESSETH

         WHEREAS, pursuant to the terms of the Purchase and Assumption
Agreement, Purchaser agreed to assume certain liabilities and obligations of
Seller;

         NOW, THEREFORE, in consideration of the mutual agreements contained in
the Purchase and Assumption Agreement and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:

         For value received, Seller hereby assigns, and Purchaser hereby assumes
and agrees to perform and discharge, the Assumed Liabilities.

         With respect to the assumption of any Assumed Liability or acceptance
of any right, title, interest or obligation, to any Assumed Liability as to
which a consent is required for the assignment and assumption thereof, this
Agreement shall not constitute an assignment, transfer or sublicense (or
attempted assignment, transfer or sublicense) thereof from Seller to Purchaser
unless and until such consent is obtained, whereupon this instrument shall
automatically and without further action by any party be effective to assign and
transfer such Assumed Liability from Seller to Purchaser in accordance with all
of the terms and conditions of the Agreement, such assignment and transfer (and
the assumption thereof by Purchaser) to be effective as of the date hereof.

         With respect to any Assumed Liability as to which a consent to
assignment is not in full force and effect on the date hereof, or as to which
any consent obtained is subject to conditions which would materially diminish
the value of the benefits to be derived by Purchaser from such assignment,
Purchaser shall perform all duties and obligations of Seller thereunder pending
the receipt of such consent, Seller shall, at its sole expense, use its best
efforts to obtain such consent, and Seller shall make available to Purchaser all
the benefits thereof to the maximum extent possible during such period.

         The Assumed Liabilities being assumed pursuant to this Agreement are
subject to the terms and conditions of the Purchase and Assumption Agreement.
Notwithstanding anything to the contrary set forth herein, if there is any
conflict between the terms and conditions of this



Agreement and the terms and conditions of the Purchase and Assumption Agreement,
the terms and conditions of the Purchase and Assumption shall control.

         This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and assigns and shall not be
relied upon or inure to the benefit of, any other party.

         Any notice, request or other document to be given hereunder or in
connection herewith to any party hereto shall be given in the manner described
in the Purchase and Assumption Agreement.

         This Agreement shall be governed by, construed and enforced in
accordance with the laws of the State of Maine.



         IN WITNESS WHEREOF, each of the parties by their respective duly
authorized officers has caused this instrument to be executed as of the date
first above written.

                                            ANDROSCOGGIN SAVINGS BANK

                                            By:_________________________________
                                               Name_____________________________
                                               Title:___________________________

                                            __________________

                                            By:_________________________________
                                               Name_____________________________
                                               Title:___________________________



                                                                       EXHIBIT D

                     FORM OF SELLER'S OFFICER'S CERTIFICATE

                            ANDROSCOGGIN SAVINGS BANK

                              OFFICER'S CERTIFICATE

         I, ________________, being the duly elected ________________________ of
Androscoggin Savings Bank, a Maine chartered bank ("Seller"), do hereby certify,
pursuant to Section 5.2(g) of that certain Purchase and Assumption Agreement,
dated as of _______________ ___, 2003, by and between Seller and
__________________, a __________________, ("Purchaser") (the "Agreement"), that:

         1.       All of the covenants and other agreements required by the
                  Agreement to be complied with and performed by Seller on or
                  before the date hereof have been duly complied with and
                  performed in all material respects.

         2.       The representations and warranties made by Seller in the
                  Agreement and in any certificate or other document delivered
                  pursuant to the provisions thereof or in connection with the
                  transactions contemplated thereby are true and correct in all
                  material respects on and as of the date hereof, with the same
                  force and effect as though such representations and warranties
                  had been made on the date hereof; provided however, that the
                  representations and warranties of Seller in the Agreement or
                  in any certificate or other document delivered pursuant to the
                  provisions thereof shall be deemed to be true and correct in
                  all material respects on and as of the date hereof, with the
                  same force and effect as though made on the date hereof,
                  unless the failure to be so true and correct would have a
                  Material Adverse Effect.

         Capitalized terms used herein and not otherwise defined herein shall
have the meanings given to them in the Agreement.



         IN WITNESS WHEREOF, the undersigned has executed this Certificate on
this ___ day of ____________, 2003.

                               ANDROSCOGGIN SAVINGS BANK

                               By:____________________________________________
                                  Name: Steven A. Closson
                                  Title: President and Chief Executive Officer



                                                                       EXHIBIT E

                      FIRPTA NON-FOREIGN PERSON CERTIFICATE

         Section 1445 of the Internal Revenue Code of 1986, as amended (the
"Code"), provides that a transferee (purchaser) of U.S. real property interest
must withhold tax if the transferor (seller) is a foreign person. Pursuant to a
Purchase and Assumption Agreement, dated as of ________________ ___, 2004 (the
"Agreement") by and between Androscoggin Savings Bank and __________________
("Purchaser"), Purchaser is purchasing and assuming assets and liabilities
associated with a bank branch in Rockland, Maine (the "Branch") from
Androscoggin Savings Bank. To inform the Purchaser that withholding of tax is
not required upon the sale of the Branch, the undersigned hereby certifies as
follows, as required by Section 5.2(j) of the Agreement:

         1.       The undersigned is not a nonresident alien individual, foreign
corporation, foreign partnership, foreign trust or foreign estate (as those
terms are defined in the Code and income tax regulations);

         2.       The undersigned's U.S. employer identification or social
security number is ___________; and

         3.       The address of the undersigned is____________________________.

         The undersigned understands that this certification may be disclosed to
the Internal Revenue Service by the transferee and that any false statement
contained herein could be punished by fine, imprisonment, or both.

         Under penalties of perjury, I declare that I have examined this
certification and to the best of my knowledge and belief it is true, correct and
complete.

Dated: ___________, 2003

                               _________________________________

                               By:____________________________________________
                                  Name:
                                  Title: President and Chief Executive Officer



                                                                       EXHIBIT F

                     FORM OF PURCHASER OFFICER'S CERTIFICATE

__________________

Officer's Certificate

         I, _________________, being the duly elected _________________ of
__________________, a ________________ ("Purchaser"), do hereby certify,
pursuant to Section 5.3(c) of that certain Purchase and Assumption Agreement,
dated as of _________________ ___, 2003, by and between Androscoggin Savings
Bank, a Maine-chartered bank ("Seller") and Purchaser (the "Agreement"), that:

         1.       All of the covenants and agreements required by the Agreement
                  to be complied with and performed by Purchaser on or before
                  the date hereof have been duly complied with and performed in
                  all material respects.

         2.       The representations and warranties made by Purchaser in the
                  Agreement or in any certificate or other document delivered
                  pursuant to the provisions thereof or in connection with the
                  transactions contemplated thereby are true and correct in all
                  material respects, on and as of the date hereof, with the same
                  force and effect as though such representations and warranties
                  had been made on the date hereof; provided, however, that the
                  representations and warranties of Purchaser in the Agreement
                  or in any certificate or other document delivered pursuant to
                  the provisions thereof shall be deemed to be true and correct
                  in all material respects on and as of the date hereof, with
                  the same force and effect as though made on the date hereof,
                  unless the failure to be so true and correct would have a
                  Material Adverse Effect.

         Capitalized terms used herein and not otherwise defined herein shall
have the meanings given to them in the Agreement



         IN WITNESS WHEREOF, the undersigned has executed this Officer's
Certificate on the __ day of _________, 2003.

                                        ____________________________________

                                        By:_________________________________
                                           Name_____________________________
                                           Title:___________________________

EX-10.2

                                                                    EXHIBIT 10.2

9/9/2003

                              BAR HARBOR BANKSHARES
                     SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN

                                              As adopted
                                              effective as of January 1, 2003



                              BAR HARBOR BANKSHARES
                     SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN

                                Table of Contents

          
ARTICLE 1    DESIGNATION AND PURPOSE

             1.1      Designation
             1.2      Purpose
             1.3      Effective Date

ARTICLE 2    DEFINITIONS

ARTICLE 3    ELIGIBILITY

             3.1      Eligibility to Participate
             3.2      Duration of Participation

ARTICLE 4    RETIREMENT BENEFITS

             4.1      Normal Retirement Benefit
             4.2      Early Retirement Benefit
             4.3      Disability Retirement Benefit
             4.4      Vested Deferred Benefit
             4.5      Alternative Lump Sum Form of Benefit Payment

ARTICLE 5    DEATH BENEFIT

             5.1      Death Before Benefit Commencement
             5.2      Death After Benefit Commencement
             5.3      No Other Death Benefits

ARTICLE 6    UNFORESEEABLE FINANCIAL EMERGENCY

             6.1      Withdrawal for Unforeseeable Financial Emergency

ARTICLE 7    OTHER PLAN PROVISIONS

             7.1      Funding
             7.2      Consent to Insurance Procedures
             7.3      Benefits Not Assignable
             7.4      Beneficiaries



                                       i


          
ARTICLE 8    SUSPENSION AND TERMINATION OF BENEFIT PAYMENTS

             8.1      Suspension of Benefit Payments
             8.2      Termination of Benefit Payments

ARTICLE 9    ADMINISTRATION

             9.1      Plan Administrator
             9.2      Powers of Plan Administrator
             9.3      Annual Statements
             9.4      Facility of Payment
             9.5      Address of Payee Unknown
             9.6      Reliance on Professionals
             9.7      Payment of Expenses

ARTICLE 10   BENEFIT CLAIMS PROCEDURE

             10.1     Claims for Benefits
             10.2     Request for Review of Denial
             10.3     Decision on Review of Denial
             10.4     Arbitration

ARTICLE 11   AMENDMENT

             11.1     Right to Amend

ARTICLE 12   MISCELLANEOUS

             12.1     Titles are for Reference Only
             12.2     Construction
             12.3     Successors
             12.4     No Contract
             12.5     Beneficiaries' Rights
             12.6     Gender and Number

ANNEX A      Schedule of Benefits



                                       ii


                              BAR HARBOR BANKSHARES
                     SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN

         Pursuant to a resolution of its board of directors, Bar Harbor
Bankshares, a Maine corporation, has adopted this supplemental executive
retirement plan.

                                    ARTICLE 1
                             DESIGNATION AND PURPOSE

         1.1      Designation. The Plan is designated the "Bar Harbor Bankshares
Supplemental Executive Retirement Plan".

         1.2      Purpose. The purpose of the Plan is to provide certain
eligible employees of Bar Harbor Bankshares and its affiliated companies with
retirement income pursuant to an unfunded, deferred compensation arrangement
maintained solely for a select group of management or highly compensated
employees.

         1.3      Effective Date. The effective date of this Plan is January 1,
2003.

                                       1


                                    ARTICLE 2
                                   DEFINITIONS

         When used herein, each of the words and phrases defined hereinafter
shall have the following meaning unless a different meaning is clearly required
by the context of the Plan.

         2.1      "Accrued Benefit" shall mean the monthly retirement benefit
which a Participant is entitled to receive under the Plan if the payment of his
or her benefit commences prior to his or her Normal Retirement Date, as set
forth in Section A.3 of Annex A.

         2.2      "Beneficiary" shall mean the person or persons named by the
Participant as his or her beneficiary pursuant to the provisions of Section 7.4.

         2.3      "Cause" shall be deemed to exist only in the event the
Participant is convicted by a court of competent jurisdiction of a felony
involving dishonesty or fraud on the part of the Participant in his or her
relationship with the Company.

         2.4      "Change in Control" shall mean the occurrence of any one of
the following events:

                  (a)      Any person, including a group (as such term is used
         in Section 13(d) of the Securities Exchange Act of 1934, as amended
         (the "Exchange Act")) becomes the beneficial owner (as determined
         pursuant to Rule 13d-3 under the Exchange Act), directly or indirectly,
         of securities of the Principal Company representing more than fifty
         percent (50%) of the combined voting power of the Principal Company's
         then outstanding securities, other than as a result of an issuance of
         securities initiated by the Principal Company in the ordinary course of
         its business; or

                  (b)      The Principal Company is party to a Business
         Combination (as hereinafter defined) unless, following consummation of
         the Business Combination, more than fifty percent (50%) of the
         outstanding voting securities of the resulting entity are beneficially
         owned, directly or indirectly, by the holders of the Principal
         Company's outstanding voting securities immediately prior to the
         Business Combination in substantially the same proportions as those
         existing immediately prior to the Business Combination; or

                  (c)      The stockholders of the Principal Company approve a
         plan of complete liquidation of the Principal Company or an agreement
         for the sale or disposition by the Principal Company of all or
         substantially all of the Principal Company's assets to another person
         or entity which is not a wholly-owned subsidiary of the Principal
         Company.

         For purposes of this Section 2.4, a Business Combination means any cash
tender or exchange offer, merger or other business combination, sale of stock,
or sale of all or substantially all of the assets, or any combination of the
foregoing transactions.

                                       2


         No internal reorganization of the board of directors of the Principal
Company or any affiliate's board membership will be deemed to be a Change in
Control for purposes of this Section 2.4

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

         2.6      "Company" shall mean the Principal Company and any other
corporation or other entity which has assumed the obligations of the Plan with
respect to its employees with the consent of the Principal Company, and any
successor thereof.

         2.7      "Disabled Participant" shall mean a Participant who incurs a
permanent and total disability (as defined in the Company's long term disability
insurance plan) while employed by the Company, and who is receiving a disability
income under the Company's long term disability insurance plan that was awarded
as a result of such permanent and total disability. Such disability shall be
deemed to exist only if an application for benefits is filed with the
administrator of the Company's long term disability insurance plan by or on
behalf of such individual in the manner described in such long term disability
insurance plan.

         2.8      "Disability Retirement Date" shall mean the first day of the
month coinciding with or next following the date on which the Plan Administrator
determines that a Participant is a Disabled Participant.

         2.9      "Early Retirement Date" shall mean the first day of the month
coinciding with or next following the date on which a Participant reaches age
50.

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

         2.11     "Good Reason" shall mean, unless the Participant consents to
such action, a reduction in the Participant's compensation that does not apply
generally to all senior executive officers of the Company, a material reduction
in the duties of the Participant, or a change in the principal worksite of the
Participant to a location that is more than fifty (50) miles from Bar Harbor,
Maine.

         2.12     "Normal Retirement Benefit" shall mean the monthly retirement
benefit which a Participant is entitled to receive if the payment of his or her
benefit commences on or after his or her Normal Retirement Date, as set forth in
Section A.2 of Annex A.

         2.13     "Normal Retirement Date" shall mean the first day of the month
coinciding with or next following the date on which a Participant reaches the
age set forth in Section A.1 of Annex A.

         2.14     "Participant" shall mean an individual who is designated in
Article 3 of the Plan as being eligible to participate in the Plan.



         2.15     "Plan" shall mean the Bar Harbor Bankshares Supplemental
Executive Retirement Plan as of its original effective date, including any
amendments thereto.

         2.16     "Plan Administrator" shall mean the person, persons or entity
designated by the board of directors of the Principal Company in accordance with
Article 9. The Plan Administrator shall be a named fiduciary with respect to the
Plan.

         2.17     "Plan Year" shall mean the 12-month period ending on December
31 of each year.

         2.18     "Present Value" shall mean the lump sum present value of a
benefit which a Participant or Beneficiary is entitled to receive under the
Plan, determined as of a particular date and calculated using a six percent (6%)
rate of interest.

         2.19     "Principal Company" shall mean Bar Harbor Bankshares.

         2.20     "Retirement Benefit" shall mean a Normal Retirement Benefit,
an Early Retirement Benefit, a Disability Retirement Benefit or a Vested
Deferred Benefit, each as defined in Article 4.

         2.21     "Unforeseeable Financial Emergency" shall mean an
unanticipated emergency that is caused by an event beyond the control of the
Participant and that would result in severe financial hardship to the
Participant due to (a) a sudden and unexpected illness or accident of the
Participant or a dependent of the Participant, (b) a loss of the Participant's
property due to casualty, or (c) such other extraordinary and unforeseeable
circumstances arising as a result of events beyond the control of the
Participant, all as determined in the sole discretion of the Plan Administrator.



                                    ARTICLE 3
                                   ELIGIBILITY

         3.1      Eligibility to Participate. The following individuals shall be
Participants in the Plan:

                                    Joseph M. Murphy
                                    Dean S. Read
                                    Gerald Shencavitz

Notwithstanding the foregoing, however, an individual shall not be a Participant
in the Plan unless the individual is a member of a select group of management or
highly compensated employees within the meaning of Sections 201, 301 and 401 of
ERISA.

         3.2      Duration of Participation. Each individual named in Section
3.1 shall remain a Participant in the Plan for as long as he or she is entitled
to any benefits under the Plan.



                                    ARTICLE 4
                               RETIREMENT BENEFITS

         4.1      Normal Retirement Benefit. A Normal Retirement Benefit shall
be payable to an eligible Participant who retires on or after his or her Normal
Retirement Date (as set forth in Section A.1 of Annex A) in an amount equal to
his or her Normal Retirement Benefit (as set forth in Section A.2 of Annex A).
The Normal Retirement Benefit shall commence on the first scheduled pay date of
the month coinciding with or next following the date on which the Participant
retires, and shall be paid for a period of two hundred forty (240) months
certain.

         4.2      Early Retirement Benefit. An Early Retirement Benefit shall be
payable to an eligible Participant who retires on or after his or her Early
Retirement Date and prior to his or her Normal Retirement Date in an amount
equal to his or her Accrued Benefit (as set forth in Section A.3 of Annex A).
The Early Retirement Benefit shall commence on the first scheduled pay date of
the month coinciding with or next following the date on which the Participant
retires, and shall be paid for a period of two hundred forty (240) months
certain.

         Notwithstanding the above, if an eligible Participant terminates
employment on or after his or her Early Retirement Date and prior to his or her
Normal Retirement Date and within three years after a Change in Control, and if
the eligible Participant terminates employment for Good Reason or is terminated
without Cause, then the amount of his or her Early Retirement Benefit shall be
equal to his or her Normal Retirement Benefit.

         4.3      Disability Retirement Benefit. A Disability Retirement Benefit
shall be payable to an eligible Participant who becomes a Disabled Participant
prior to his or her Normal Retirement Date and who is employed by the Company at
the time he or she becomes a Disabled Participant. The amount of the Disability
Retirement Benefit shall be equal to his or her Accrued Benefit (as set forth in
Section A.3 of Annex A). The Disability Retirement Benefit shall commence on the
first scheduled pay date coinciding with or next following the Participant's
Disability Retirement Date, and shall be paid for a period of two hundred forty
(240) months certain.

         Notwithstanding the above, if an eligible Participant becomes a
Disabled Participant prior to his or her Normal Retirement Date, while employed
by the Company, and within three years after a Change in Control, then the
amount of his or her Disability Retirement Benefit shall be equal to his or her
Normal Retirement Benefit.

         If an eligible Participant ceases to be a Disabled Participant, the
Participant's Disability Retirement Benefit shall cease. Thereafter, if the
Participant subsequently becomes eligible to receive a Normal Retirement
Benefit, an Early Retirement Benefit or a Vested Deferred Benefit, then the
number of months during which such Normal Retirement Benefit, Early Retirement
Benefit or Vested Deferred Benefit is payable shall be reduced so that the
Present Value of such adjusted Normal Retirement Benefit, Early Retirement
Benefit or Vested Deferred Benefit shall



equal the excess of: (a) the Present Value of the unadjusted Normal Retirement
Benefit, Early Retirement Benefit or Vested Deferred Benefit, over (b) the
Present Value of the amount previously received by the Participant as a
Disability Retirement Benefit.

         4.4      Vested Deferred Benefit. A Vested Deferred Benefit shall be
payable to an eligible Participant who terminates employment prior to his or her
Early Retirement Date in an amount equal to his or her Accrued Benefit (as set
forth in Section A.3 of Annex A). The Vested Deferred Benefit shall commence on
the first scheduled pay date coinciding with or next following the Participant's
Early Retirement Date, and shall be paid for a period of two hundred forty (240)
months certain.

         Notwithstanding the above, if an eligible Participant terminates
employment prior to his or her Early Retirement Date and within three years
after a Change in Control, and if the eligible Participant terminates employment
for Good Reason or is terminated without Cause, then the amount of his or her
Vested Deferred Benefit shall be equal to his or her Normal Retirement Benefit.

         4.5      Alternative Lump Sum Form of Benefit Payment.

         Notwithstanding any provisions of this Article 4 to the contrary, a
Participant who has not yet become eligible to receive a Retirement Benefit may
elect not to have his or her Retirement Benefit paid for a period of two hundred
forty (240) months certain, but may elect to have his or her Retirement Benefit
paid instead in a single lump sum payment equal to the Present Value of his or
her Retirement Benefit. A Participant may make such an election by submitting an
election form to the Plan Administrator. Any such election shall be subject to
the acceptance and approval of the Plan Administrator in its sole discretion. In
addition, any such election shall not be effective if the Participant's
Retirement Benefit commences prior to the first anniversary of the date on which
the election is received by the Plan Administrator. That election which has
become effective and which was most recently accepted by the Plan Administrator
shall govern the form of payment of the Participant's Retirement Benefit.



                                    ARTICLE 5
                                  DEATH BENEFIT

         5.1      Death Before Benefit Commencement. A Death Benefit shall be
payable to the Beneficiary of an eligible Participant who dies while employed by
the Company prior to the commencement of his or her Retirement Benefit. The
amount of the Death Benefit shall be equal to the Participant's Normal
Retirement Benefit (as set forth in Section A.2 of Annex A); provided, however,
that if the Company obtained a life insurance policy on the life of the
Participant prior to his or her death but the Company is unable to obtain the
death benefit under the life insurance policy for any reason, then the amount of
the Death Benefit payable to the Participant's Beneficiary shall be equal to the
Participant's Accrued Benefit (as set forth in Section A.3 of Annex A) as of the
date of his or her death. The Death Benefit shall commence as of the first
scheduled pay date of the month following the Participant's death and shall be
paid for a period of two hundred forty (240) months certain.

         5.2      Death After Benefit Commencement. A Death Benefit shall be
payable to the Beneficiary of an eligible Participant who dies after commencing
to receive his or her Retirement Benefit in a form other than a single lump sum
payment. The amount of the Death Benefit shall be at the same level as the
monthly Retirement Benefit paid to the Participant during his or her lifetime.
The Death Benefit shall commence as of the first scheduled pay date of the month
following the Participant's death and shall be paid for a period equal to the
remainder of the two hundred forty (240) months certain.

         5.3      No Other Death Benefits. Except as provided in Section 5.1 and
Section 5.2, there shall be no death benefits payable under the Plan.



                                    ARTICLE 6
                        UNFORESEEABLE FINANCIAL EMERGENCY

         6.1      Withdrawal for Unforeseeable Financial Emergency. If the
Participant experiences an Unforeseeable Financial Emergency, the Participant
may request a withdrawal of all or a portion of his or her Retirement Benefit.
However, in no event may a Participant receive such a withdrawal to the extent
that the Unforeseeable Financial Emergency can be relieved through reimbursement
or compensation by insurance or otherwise, or by liquidation of the
Participant's assets (to the extent such liquidation would not itself cause a
severe financial hardship).

         The amount of a withdrawal due to an Unforeseeable Financial Emergency
shall not exceed the lesser of the Present Value of the Participant's Retirement
Benefit or the amount reasonably needed to satisfy the Unforeseeable Financial
Emergency. If, subject to the sole discretion of the Plan Administrator, the
Participant's request for a withdrawal is approved, the withdrawal shall be made
within sixty (60) days after the date of such approval.

         If: (a) a Participant receives a withdrawal due to an Unforeseeable
Financial Emergency, and (b) the Participant subsequently becomes eligible to
receive a Retirement Benefit (or the Participant's Beneficiary subsequently
become eligible to receive a Death Benefit), then the number of months during
which such Retirement Benefit (or Death Benefit) is payable shall be reduced so
that the Present Value of such adjusted Retirement Benefit (or Death Benefit)
shall equal the excess of: (a) the Present Value of the unadjusted Retirement
Benefit (or Death Benefit), over (b) the Present Value of the amount of the
withdrawal which the Participant previously received due to an Unforeseeable
Financial Emergency.



                                    ARTICLE 7
                              OTHER PLAN PROVISIONS

         7.1      Funding.

         (a)      It is the intention of the Company, the Participants, their
Beneficiaries, and each other party to the Plan that the arrangements hereunder
be unfunded for tax purposes and for purposes of Title I of ERISA. The rights of
Participants and their Beneficiaries shall be solely those of a general
unsecured creditor of the Company. The Plan constitutes a mere promise by the
Company to make benefit payments in the future.

         (b)      Prior to the occurrence of a Change in Control, the Company
shall not have any obligation to set aside assets to provide the benefits
payable under the Plan. However, if the Company determines, prior to a Change in
Control, that assets should be set aside to provide the benefits payable under
the Plan, it may utilize, singly or in combination, any method which it may deem
appropriate, including, but not limited to, a grantor trust or life insurance
contracts. Moreover, the terms of any grantor trust which may be created by the
Company to assist the Company in meeting its obligations under the Plan shall
conform with the language of the model trust agreement set forth in Revenue
Procedure 92-64 issued by the Internal Revenue Service (or any successor
thereto) relating to trusts established in connection with unfunded deferred
compensation arrangements (or, if such trusts are no longer available for use in
connection with unfunded deferred compensation arrangements, any other
instrument which is designed to provide a similar level of security and to have
the same tax results as such trust).

         Upon the occurrence of a Change in Control, the Company shall (unless
the Company's liabilities under the Plan have been fully discharged) adopt and
fully fund a grantor trust, the terms of which shall conform with the language
of the model trust agreement set forth in Revenue Procedure 92-64 issued by the
Internal Revenue Service (or any successor thereto).

         (c)      The Plan Administrator may direct that payments be made before
they would otherwise be due if, based on a change in the Federal tax or revenue
laws, a published ruling or similar announcement issued by the Internal Revenue
Service, a regulation issued by the Secretary of the Treasury, a decision by a
court of competent jurisdiction involving a Participant or his or her
Beneficiary or a closing agreement made under Section 7121 of the Code that is
approved by the Internal Revenue Service and involved a Participant or his or
her Beneficiary, the Plan Administrator determines that a Participant or his or
her Beneficiary has or will recognize income for Federal income tax purposes
with respect to amounts that are or will be payable under the Plan before they
are to be paid. Amounts so paid shall then be used as an offset to the benefits,
if any, thereafter payable hereunder.

         7.2      Consent to Insurance Procedures. In order to be eligible for
benefits hereunder, a Participant must agree that the Company may from time to
time apply for and take out in its own name and at its own expense such life,
health, accident or other insurance upon the Participant as the Company may deem
necessary or advisable to protect its interests hereunder. The Participant



must also agree to submit to any medical or other examination necessary for such
purpose and to assist and cooperate with the Company in procuring such
insurance. The Participant and his or her Beneficiary must also agree that they
shall have no right, title or interest in and to such insurance whether
presently existing or hereafter procured.

         7.3      Benefits Not Assignable. Except as required by law, the right
of any Participant or his or her Beneficiary to any benefit or payment under the
Plan: (a) shall not be subject to voluntary or involuntary anticipation,
alienation, sale, transfer, assignment, pledge, encumbrance, attachment, or
garnishment by creditors of the Participant or his or her Beneficiary; (b) shall
not be considered an asset of the Participant or his or her Beneficiary in the
event of any divorce, insolvency or bankruptcy; and (c) shall not be subject to
attachment, execution, garnishment, sequestration or other legal or equitable
process. In the event that a Participant or his or her Beneficiary who is
receiving or is entitled to receive benefits under the Plan attempts to assign,
transfer or dispose of such right, or if an attempt is made to subject said
right to such process, such assignment, transfer, disposition or process shall,
unless otherwise required by law, be null and void.

         7.4      Beneficiaries. A Participant may designate one or more
Beneficiaries and contingent Beneficiaries to receive any benefits payable under
the Plan after his or her death by delivering a written designation thereof over
his or her signature to the Plan Administrator. A Participant may designate
different Beneficiaries at any time by delivering a new written designation over
his or her signature to the Plan Administrator. Any such designation shall
become effective only upon its receipt by the Plan Administrator. The last
effective designation received by the Plan Administrator shall supersede all
prior designations. If a Participant fails to designate a Beneficiary, or if no
designated Beneficiary survives the Participant, the Participant shall be deemed
to have designated the Participant's estate as his or her Beneficiary.



                                    ARTICLE 8
                 SUSPENSION AND TERMINATION OF BENEFIT PAYMENTS

         8.1      Suspension of Benefit Payments. In the event that a
Participant commences receiving a Retirement Benefit hereunder and is
subsequently re-employed on a full-time basis by the Company or any of its
affiliates, the payment of his or her Retirement Benefit under the Plan shall
cease as of the date of his or her re-employment. After the Participant's
re-employment ends and he or she again becomes eligible to receive a Retirement
Benefit (determined as of the date of his or her subsequent termination of
employment), then the number of months during which such Retirement Benefit is
payable shall be reduced so that the Present Value of such adjusted Retirement
Benefit shall equal the excess of: (a) the Present Value of the unadjusted
Retirement Benefit, over (b) the Present Value of the amount previously received
by the Participant as a Retirement Benefit.

         8.2      Termination of Benefit Payments. In the event that the Company
terminates a Participant's employment for Cause, or in the event that a
Participant who is receiving or is entitled to receive benefits hereunder
violates any written agreement with the Company or any of its affiliates
(including, without limitation, any written agreement relating to noncompetition
or the nondisclosure of secret or confidential information or knowledge), then
all rights to future benefit payments with respect to such Participant shall be
forfeited and terminate.



                                    ARTICLE 9
                                 ADMINISTRATION

         9.1      Plan Administrator. The board of directors of the Principal
Company shall have the responsibility for the administration of the Plan. The
board of directors may, by written instruction, designate one or more persons to
carry out any specified responsibilities under the Plan and may, in the same
manner, revoke such delegation of responsibilities. Upon the designation of such
a person or persons and the delegation of such responsibilities to him or them,
all references in this Plan to "Plan Administrator" shall be deemed to refer to
such person or persons.

         9.2      Powers of Plan Administrator. The Plan Administrator shall
have such authority and powers as may be necessary to discharge its duties
hereunder. The determination of the Plan Administrator as to any question
involving the general administration and interpretation of the Plan shall be
final, binding and conclusive, unless the Plan Administrator has acted in an
arbitrary or capricious manner. Any discretionary actions to be taken under the
Plan by the Plan Administrator shall be uniform in their nature and applicable
to all persons similarly situated. Without limiting the generality of the
foregoing, the Plan Administrator shall have the following powers and duties:

         (a)      to construe and interpret the Plan, decide all questions of
eligibility for and determine the amount and time of payment of any benefits
hereunder;

         (b)      to prescribe procedures to be followed by Participants and
their Beneficiaries for filing applications for benefits;

         (c)      to prepare and distribute information explaining the Plan; and

         (d)      to appoint or employ individuals to assist in the
administration of the Plan and any other agents it deems advisable, including
legal counsel (who may be counsel for the Company).

         9.3      Annual Statements. At least once each year, the Plan
Administrator shall provide each Participant with a statement setting forth the
amount of the Retirement Benefit to which the Participant would be entitled if
he or she continued to be employed until his or her Normal Retirement Date, as
well as the amount of the Retirement Benefit to which he or she would be
entitled if he or she terminated employment immediately.

         9.4      Facility of Payment. Whenever, in the Plan Administrator's
opinion, a person entitled to receive any payment of a benefit or installment
thereof hereunder is under a legal disability or is incapacitated in any way so
as to be unable to manage his or her financial affairs, the Plan Administrator
may issue directions that payments shall be made to another person for his or
her benefit, or the Plan Administrator may direct that payments be applied for
the benefit of such person in such manner as the Plan Administrator considers
advisable. Any payment of a



benefit or installment thereof in accordance with the provisions of this Section
9.4 shall be a complete discharge of any liability for the making of such
payment under the provisions of the Plan.

         9.5      Address of Payee Unknown. If the Company is unable to make
payment to any Participant or other person to whom a payment is due under the
Plan because it cannot ascertain the identity or whereabouts of such Participant
or other person after reasonable efforts have been made to identify or locate
such person (including a notice of the payment so due mailed to the last known
address of such Participant or other person shown on the records of the
Company), such payment and all subsequent payments otherwise due to such
Participant or other person shall be forfeited twenty-four (24) months after the
date such payment first became due; provided, however, that such payment and any
subsequent payments shall be reinstated retroactively, no later than sixty (60)
days after the date on which the Participant or person is identified or located.

         9.6      Reliance on Professionals. To the extent permitted by law, the
Company and any person to whom it may delegate any duty or power in connection
with administering the Plan, and the officers and directors thereof, shall be
entitled to rely conclusively upon, and shall be fully protected in any action
taken or suffered by them in good faith in reliance upon, any actuary, counsel,
accountant, other specialist, or other person selected by the Company, or in
reliance upon any tables, valuations, certificates, opinions or reports which
shall be furnished by any of them. Further, to the extent permitted by law,
neither the Company, nor the officers or directors thereof, shall be liable for
any neglect, omission or wrongdoing of any other agent, officer or employee of
the Company. Any person claiming under the Plan shall look solely to the Company
for redress.

         9.7      Payment of Expenses. All expenses incurred prior to the
termination of the Plan that shall arise in connection with the administration
of the Plan, including but not limited to administrative expenses, proper
charges and disbursements, compensation and other expenses and charges of any
actuary, counsel, accountant, specialist or other person who shall be employed
by the Company in connection with the administration thereof, shall be paid by
the Company.



                                   ARTICLE 10
                            BENEFIT CLAIMS PROCEDURE

         10.1     Claims for Benefits. Any claim for benefits under the Plan
shall be made in writing to the Plan Administrator. If such claim for benefits
is wholly or partially denied, the Plan Administrator shall, within ninety (90)
days after receipt of the claim, notify the claimant of the denial of the claim.
Such notice of denial: (a) shall be in writing; (b) shall be written in a manner
calculated to be understood by the claimant; and (c) shall contain (i) the
specific reason or reasons for denial of the claim, (ii) a specific reference to
the pertinent Plan provisions upon which the denial is based, (iii) a
description of any additional material or information necessary to perfect the
claim, along with an explanation of why such material or information is
necessary, and (iv) an explanation of the claim review procedure.

         10.2     Request for Review of Denial. Within sixty (60) days after the
receipt by the claimant of a written notice of denial of the claim, or such
later time as shall be deemed reasonable taking into account the nature of the
benefit subject to the claim and any other attendant circumstances, the claimant
may file a written request with the Plan Administrator that it conduct a full
and fair review of the denial of the claim for benefits.

         10.3     Decision on Review of Denial. The Plan Administrator shall
deliver to the claimant a written decision on the claim within sixty (60) days
after receipt of the aforesaid request for review, except that if there are
special circumstances (such as the need to hold a hearing) which require an
extension of time for processing, the aforesaid sixty (60) day period shall be
extended to one hundred twenty (120) days. Such decision shall: (a) be written
in a manner calculated to be understood by the claimant; (b) include the
specific reason or reasons for the decision; and (c) contain a specific
reference to the pertinent Plan provisions upon which the decision is based.

         10.4     Mediation and Arbitration. If, after the Plan Administrator's
decision following its review of a benefit denial, the Plan Administrator and
the claimant continue to dispute the benefit denial based on the meaning and
effect of the terms and conditions of the Plan, then the claimant may take the
following actions:

         (a)      Within sixty (60) days after the claimant receives notice of
the Plan Administrator's decision following its review of the benefit denial,
the claimant may submit the dispute to a mediator mutually agreeable to the
claimant and the Plan Administrator. The mediator shall review the benefit
denial and shall attempt to reach a resolution of the matter that is acceptable
to both parties.

         (b)      If a mediator is unable to be named or the mediator is unable
to reach a mutually acceptable resolution of the matter within one hundred
twenty (120) days after the claimant receives notice of the Plan Administrator's
decision following its review of the benefit denial, the claimant may submit the
dispute to an arbitrator mutually agreeable to the claimant and the Plan



Administrator. The arbitrator shall operate under any generally recognized set
of arbitration rules. The parties hereto agree that they and their heirs,
personal representatives, successors and assigns shall be bound by the decision
of such arbitrator with respect to any controversy properly submitted to the
arbitrator for determination.

         (c)      If the parties are unable to agree to the designation of an
arbitrator within one hundred eighty (180) days after the claimant receives
notice of the Plan Administrator's decision following its review of the benefit
denial, the claimant may submit the dispute to a board of arbitration for final
arbitration. Said board shall consist of one member selected by the claimant,
one member selected by the Plan Administrator and a third member selected by the
first two members. The board shall operate under any generally recognized set of
arbitration rules. The parties hereto agree that they and their heirs, personal
representatives, successors and assigns shall be bound by the decision of such
board with respect to any controversy properly submitted to the board for
determination.



                                   ARTICLE 11
                                   AMENDMENT

         11.1     Right to Amend. At any time, and from time to time, the board
of directors of the Principal Company, by resolutions adopted by it, may amend
the Plan or change the designation of eligible Participants under the Plan;
provided, however, that no amendment to the Plan which adversely affects the
Accrued Benefit (or Death Benefit) of any Participant (or the Beneficiary of a
deceased Participant) shall be effective without the prior unanimous written
consent of the Participants (or their Beneficiaries); and provided further that,
subsequent to a Change in Control, no amendment to the Plan shall be effective
without the prior unanimous written consent of the Participants (or their
Beneficiaries).



                                   ARTICLE 12
                                  MISCELLANEOUS

         12.1     Titles are for Reference Only. The titles in this Plan are for
reference only. In the event of a conflict between a title and the content of a
section, the content of the section shall control.

         12.2     Construction. The provisions of the Plan shall be construed
according to the law of the State of Maine, except as such law is superceded by
federal law.

         12.3     Successors. The Company will require any successor (whether
direct or indirect, by purchase, merger, consolidation or other transaction) of
all or substantially all of the business and/or assets of the Company, to
expressly assume and agree to perform the Company's obligations under the Plan
in the same manner and to the same extent that the Company would be required to
perform them if no such succession had taken place. Each such successor shall
execute a written agreement evidencing its assumption of the Company's
obligations under the Plan prior to the effective date of any such purchase,
merger, consolidation or other transaction.

         12.4     No Contract. This Plan shall not be deemed to be a contract of
employment with the Participant, nor shall any provision hereof restrict the
right of the Company to terminate the Participant's employment.

         12.5     Beneficiaries' Rights. Wherever the rights of a Participant
are stated or limited in the Plan, his or her Beneficiaries shall be bound
thereby.

         12.6     Gender and Number. Where appearing in the Plan, the masculine
gender shall be deemed to include the feminine gender and the singular number
shall include the plural, unless the context clearly indicates to the contrary.

         Dated this          day of             , 20     .

Witness:                                            BAR HARBOR BANKSHARES

 _____________________                              By _________________________

                                                       Title:



                                                                         ANNEX A

                              SCHEDULE OF BENEFITS

         A.1      Normal Retirement Date. The Normal Retirement Date of a
Participant is the first day of the month coinciding with or next following the
date on which he or she reaches the age set forth below:



      Name                         Age                  Normal Retirement Date
      ----                         ---                  ----------------------
                                                  
Joseph M. Murphy                   68                       October 1, 2010
Dean S. Read                       65                       July 1, 2012
Gerald Shencavitz                  65                       June 1, 2018


         A.2      Normal Retirement Benefit. The monthly Normal Retirement
Benefit of a Participant is the following:



       Name                                 Monthly Normal Retirement Benefit
       ----                                 ---------------------------------
                                         
Joseph M. Murphy                                          $11,200
Dean S. Read                                              $10,458
Gerald Shencavitz                                         $ 8,583


         A.3      Accrued Benefit. The monthly Accrued Benefit of a Participant
is the following:



      Name              For commencement after          Monthly Accrued Benefit
      ----              ----------------------          -----------------------
                                                  
Joseph M. Murphy          December 31, 2002                   $    684
                          December 31, 2003                   $  1,597
                          December 31, 2004                   $  2,621
                          December 31, 2005                   $  3,764
                          December 31, 2006                   $  5,039
                          December 31, 2007                   $  6,457
                          December 31, 2008                   $  8,030
                          December 31, 2009                   $  9,773
                         September 30, 2010                   $ 11,200

Dean S. Read              December 31, 2002                   $  1,421
                          December 31, 2003                   $  2,012
                          December 31, 2004                   $  2,982
                          December 31, 2005                   $  4,064
                          December 31, 2006                   $  5,217
                          December 31, 2007                   $  6,551


                                       1


                                                        
                          December 31, 2008                   $  8,029
                          December 31, 2009                   $  9,605
                          December 31, 2010                   $  9,943
                          December 31, 2011                   $ 10,285
                          June 30, 2012                       $ 10,458

Gerald Shencavitz         December 31, 2002                   $    302
                          December 31, 2003                   $    535
                          December 31, 2004                   $    796
                          December 31, 2005                   $  1,086
                          December 31, 2006                   $  1,409
                          December 31, 2007                   $  1,768
                          December 31, 2008                   $  2,166
                          December 31, 2009                   $  2,606
                          December 31, 2010                   $  3,092
                          December 31, 2011                   $  3,629
                          December 31, 2012                   $  4,219
                          December 31, 2013                   $  4,869
                          December 31, 2014                   $  5,583
                          December 31, 2015                   $  6,366
                          December 31, 2016                   $  7,225
                          December 31, 2017                   $  8,166
                          May 31, 2018                        $  8,583



If a Participant's Early Retirement Benefit, Disability Retirement Benefit or
Vested Deferred Benefit commences on a date other than the first scheduled pay
date in January, the amount of the Participant's Accrued Benefit will be
interpolated. For example, assume that Mr. Murphy's benefit commences on the
first scheduled pay date in March, 2009. The amount of his Accrued Benefit will
equal:

             $8,030 + 2/12($9,773 - $8,030) = $8,030 + $291 = $8,321

EX-10.3

                                                                    EXHIBIT 10.3

                      AMENDMENT TO EMPLOYMENT AGREEMENT AND
                       CHANGE IN CONTROL, CONFIDENTIALITY
                          AND NONCOMPETITION AGREEMENT

         This Agreement is effective as of the 7th day of November, 2003 by and
between BAR HARBOR BANKSHARES, a Maine corporation with its principal office at
82 Main Street, P.O. Box 400, Bar Harbor, ME 04609-0400 (the "Employer"), and
JOSEPH M. MURPHY of Mount Desert, ME (the "Executive").

                              W I T N E S S E T H:

         WHEREAS, Bar Harbor Banking and Trust Company is a wholly-owned
subsidiary of Bar Harbor Bankshares; and

         WHEREAS, the Executive is an employee of the Employer; and

         WHEREAS, the Employer desires to enhance the ability of the Employer to
retain the services of the Executive and to reward the Executive for his
valuable, dedicated service to the Employer in the event of his termination of
employment in connection with a change in control; and

         WHEREAS, the Executive and the Employer entered into an employment
agreement dated January 3, 2003; and

         WHEREAS, the Employer and the Executive wish to amend the employment
agreement so that the provisions of this Agreement will supercede the
corresponding provisions of the employment agreement which relate to severance
payments in the event of a change in control and which contain confidentiality
and noncompetition covenants.

         NOW, THEREFORE, the parties hereto do hereby agree as follows:

1.       Definitions

         1.1.     Bank shall mean Bar Harbor Banking and Trust Company.

         1.2.     Base Compensation shall mean the annual base salary payable by
the Employer to the Executive, excluding any bonuses, incentive compensation and
other forms of additional compensation.

         1.3.     Cause shall be deemed to exist only in the event the Executive
is convicted by a court of competent jurisdiction of a felony involving
dishonesty or fraud on the part of the Executive in his relationship with the
Employer, the Holding Company or the Bank.



         1.4.     Change in Control shall mean the occurrence of any one of the
following events:

                  (a)      Any person, including a group (as such term is used
         in Section 13(d) of the Securities Exchange Act of 1934, as amended
         (the "Exchange Act")) becomes the beneficial owner (as determined
         pursuant to Rule 13d-3 under the Exchange Act), directly or indirectly,
         of securities of Bar Harbor Bankshares representing more than fifty
         percent (50%) of the combined voting power of Bar Harbor Bankshares'
         then outstanding securities, other than as a result of an issuance of
         securities initiated by Bar Harbor Bankshares in the ordinary course of
         its business; or

                  (b)      Bar Harbor Bankshares is party to a Business
         Combination (as hereinafter defined) unless, following consummation of
         the Business Combination, more than fifty percent (50%) of the
         outstanding voting securities of the resulting entity are beneficially
         owned, directly or indirectly, by the holders of Bar Harbor Bankshares'
         outstanding voting securities immediately prior to the Business
         Combination in substantially the same proportions as those existing
         immediately prior to the Business Combination; or

                  (c)      The stockholders of Bar Harbor Bankshares approve a
         plan of complete liquidation of Bar Harbor Bankshares or an agreement
         for the sale or disposition by Bar Harbor Bankshares of all or
         substantially all of Bar Harbor Bankshares' assets to another person or
         entity that is not a wholly owned subsidiary of Bar Harbor Bankshares.

         For purposes of this Section 1.4, a Business Combination means any cash
tender or exchange offer, merger or other business combination, sale of stock,
or sale of all or substantially all of the assets, or any combination of the
foregoing transactions.

         For purposes of this Section 1.4, a Change in Control shall exclude any
internal corporate change, reorganization or other such event, which occurred
prior to or may occur following the date of this Agreement.

         1.5.     Code shall mean the Internal Revenue Code of 1986, as amended,
and as it may be amended from time to time, together with the rules and
regulations promulgated under such code.

         1.6.     Date of Termination shall mean:

                  (a)      If the Executive's employment is terminated for
         Disability, thirty (30) days after Notice of Termination for Disability
         is given by the Employer to the Executive and the Executive shall not
         have returned to the performance of his duties on a full-time basis
         during such thirty (30) day period;

                  (b)      If the Executive's employment is terminated by the
         Employer for Cause or by the Executive for Good Reason, the date
         specified in the Notice of Termination, but not earlier than the date
         on which such Notice of Termination is given; and

                                       2


                  (c)      If the Executive's employment is terminated or
         terminates for any other reason, the date on which the Executive ceases
         to perform services for the Employer as a common law employee.

         1.7      Disability shall mean a permanent and total disability (as
defined in the Employer's long term disability plan) which is incurred by the
Executive while he is employed by the Employer and which makes the Executive
eligible to receive a disability income under the Employer's long term
disability insurance plan. Such disability shall be deemed to exist only if an
application for benefits is filed with the administrator of the Employer's long
term disability insurance plan by or on behalf of the Executive and is approved
by the administrator, each in the manner described in such long term disability
insurance plan.

         1.8      Employment Agreement shall mean the employment agreement
between the Executive and the Employer dated January 3, 2003.

         1.9.     Employer shall mean Bar Harbor Bankshares.

         1.10.    Good Reason shall mean, unless the Executive consents to such
action, a reduction in the Executive's compensation that does not apply
generally to all senior executive officers of the Employer, the Holding Company
and the Bank, a material reduction in the duties of the Executive, or a change
in the principal worksite of the Executive to a location that is more than fifty
(50) miles from Bar Harbor, Maine.

         1.11.    Holding Company shall mean Bar Harbor Bankshares, its
subsidiaries and affiliates.


         1.12.    Notice of Termination shall mean the notice provided pursuant
to Section 4.

2.       Amendments to Employment Agreement.

         The parties intend that all agreements between the Executive and the
Employer regarding the payment of severance benefits in the event of a change in
control, as well as any confidentiality and noncompetition covenants made by the
Executive, shall be governed solely by the terms of this Agreement. Therefore,
effective as of the date of this Agreement, Section 6(e)(x), Section 7, Section
8, Section 9, Section 10, Section 12, Section 13 and the last sentence of the
first paragraph of Section 20 of the Employment Agreement are deleted and shall
hereafter be of no force and effect. In addition, Section 6(a), Section 6(b),
Section 6(e)(ii) and Section 22 of the Employment Agreement are modified to
delete any references to Sections 7, 8 and 9 of the Employment Agreement.

3.       Severance Benefits.

                                       3


         In the event that: (a) the Employer terminates the Executive's
employment other than as a result of Disability and other than for Cause, or the
Executive terminates his employment for Good Reason; and (b) the Executive's
termination of employment occurs in anticipation of or after a Change in
Control, then the Employer shall pay the Executive the severance benefits
described in this Section 3. The Executive's termination of employment shall be
deemed to be in anticipation of a Change in Control if it occurs within the
twelve (12) month period prior to the occurrence of the Change in Control.

         The severance benefits described in this Section 3 shall equal the
following:

                  (a)      The Executive shall receive a lump sum severance
         payment within five (5) days after the Date of Termination. Such
         payment shall equal 2.0 times the Executive's Base Compensation,
         determined as of the Date of Termination.

                  (b)      The Executive and his dependents shall continue to be
         eligible to receive the same medical, health, dental and life insurance
         benefits which the Executive is eligible to receive on the Date of
         Termination. The Executive shall be required to make the same premium
         contributions that he was required to make immediately prior to the
         Date of Termination. The ability of the Executive and his dependents to
         receive such benefits shall continue for a period of twenty-four (24)
         months following the Date of Termination.

                  (c)      In the event of a Change of Control, all stock
         options granted but unexercised under the Bar Harbor Bankshares and
         Subsidiaries Incentive Stock Option Plan of 2000 or any other
         subsequent equity plan shall become 100% vested immediately prior to
         any such Change of Control. These grants will remain subject to all
         other terms and conditions in the Bar Harbor Bankshares and
         Subsidiaries Incentive Stock Option Plan of 2000 or any subsequent
         equity plan.

         The Executive shall not be required to mitigate the amount of any
severance benefits described in this Section 3 by seeking other employment.

4.       Notice of Termination.

         Any termination of the Executive's employment by the Employer due to
Disability or for Cause, or by the Executive due to Good Reason, shall be
communicated by written Notice of Termination to the other party.
Notwithstanding the above, however, the Executive shall not be entitled to give
a Notice of Termination that the Executive is terminating employment for Good
Reason more than six (6) months following the occurrence of the event alleged to
constitute Good Reason.

         A Notice of Termination must indicate the specific provisions in this
Agreement which are relied upon as the basis for the termination of the
Executive's employment, and must also set

                                       4


forth in reasonable detail the facts and circumstances claimed to provide the
basis for such termination under the provisions so indicated.

5.       Loss of Severance Benefits.

         If the Employer shall terminate the Executive's employment due to
Disability or for Cause, or if the Executive shall terminate his employment
other than for Good Reason, or if the Executive shall die, then the Executive
shall have no right to receive any severance benefits under this Agreement.

6.       No Other Benefits Payable.

                  (a)      If the Executive is entitled to receive the severance
         benefits described in Section 3 of this Agreement, he shall not be
         entitled to receive: (i) any severance benefits under the terms of any
         general severance pay policy or plan of the Employer, the Holding
         Company or the Bank; or (ii) any other compensation, benefits or
         payments under the terms of any other plan of, or agreement with, the
         Employer, the Holding Company or the Bank.

                  (b)      Notwithstanding the above, the Executive shall be
         entitled to receive any compensation, benefits or payments which are
         specifically authorized by the terms of any plan of, or agreement with,
         the Employer, the Holding Company or the Bank to be paid in addition to
         the severance benefits described in Section 3 of this Agreement.
         Moreover, notwithstanding the above, the Executive shall be entitled to
         receive, in addition to the severance benefits described in Section 3
         of this Agreement, any compensation, benefits or payments which the
         Executive is entitled to receive under: (i) the Employment Agreement
         (as amended by this Agreement); (ii) the Bar Harbor Bankshares
         Supplemental Executive Retirement Plan; (iii) any incentive
         compensation plan maintained by the Employer, the Holding Company or
         the Bank which provides for payment to a terminated employee of
         incentive compensation earned by the employee prior to his or her
         termination of employment; or (iv) any payroll plan or policy of the
         Employer, the Holding Company or the Bank which provides for payment to
         a terminated employee of any unpaid vacation, holiday or sick pay
         accrued by the employee prior to his or her termination of employment.

7.       Certain Additional Payments by the Employer.

                  (a)      Anything in this Agreement to the contrary
         notwithstanding and except as set forth below, in the event it shall be
         determined that any payment or distribution made at any time by the
         Employer or to or for the benefit of the Executive (whether paid or
         payable, or distributed or distributable, pursuant to the terms of this
         Agreement or otherwise, but determined without regard to any additional
         payments required under this Section 7) (a "Payment") would be subject
         to the excise tax imposed by Section 4999 of the Code, or any interest
         or penalties are incurred by the Executive with respect to such

                                       5


         excise tax (such excise tax, together with any such interest and
         penalties, are hereinafter collectively referred to as the "Excise
         Tax"), then the Executive shall be entitled to receive an additional
         payment (a "Gross-Up Payment"). The Gross-Up Payment shall equal such
         an amount that, after payment by the Executive of all taxes (including,
         without limitation, any federal, state or local income taxes, Social
         Security taxes and Medicare taxes, and any interest or penalties
         imposed with respect thereto) and Excise Tax imposed upon the Gross-Up
         Payment, the Executive retains an amount of the Gross-Up Payment equal
         to the Excise Tax imposed upon the Payments. Notwithstanding the
         foregoing provisions of this Section 7(a), if it shall be determined
         that the Executive is entitled to a Gross-Up Payment, but that the
         Payments do not exceed 110% of the greatest amount (the "Reduced
         Amount") that could be paid to the Executive such that the receipt of
         Payments would not give rise to any Excise Tax, then no Gross-Up
         Payment shall be made to the Executive and the Payments, in the
         aggregate, shall be reduced to the Reduced Amount.

                  (b)      Subject to the provisions of Section 7(d), all
         determinations required to be made under this Section 7 (including,
         without limitation, whether and when a Gross-Up Payment is required,
         the amount of such Gross-Up Payment, and the assumptions to be utilized
         in arriving at such determination) shall be made by KPMG Peat Marwick
         or such other certified public accounting firm as may be designated by
         the Executive (the "Accounting Firm"). The Accounting Firm shall
         provide detailed supporting calculations both to the Employer and to
         the Executive within fifteen (15) business days after the receipt of
         notice from the Executive that there has been a Payment, or such
         earlier time as is requested by the Employer. In the event that the
         Accounting Firm is serving as accountant or auditor for the individual,
         entity or group effecting the Change of Control, the Executive shall
         appoint another nationally recognized accounting firm to make the
         determinations required hereunder (which accounting firm shall then be
         referred to as the Accounting Firm hereunder). All fees and expenses of
         the Accounting Firm shall be borne solely by the Employer. Any Gross-Up
         Payment, as determined pursuant to this Section 7, shall be paid by the
         Employer to the Executive within five (5) days after its receipt of the
         Accounting Firm's determination. Any determination by the Accounting
         Firm shall be binding upon the Employer and the Executive.

                  (c)      As a result of the uncertainty in the application of
         Section 4999 of the Code at the time of the initial determination by
         the Accounting Firm hereunder, it is possible that Gross-Up Payments
         which will not have been made by the Employer should have been made
         ("Underpayment"), consistent with the calculations required to be made
         hereunder. In the event that the Employer exhausts its remedies
         pursuant to Section 7(d) and the Executive thereafter is required to
         make a payment of any Excise Tax, the Accounting Firm shall determine
         the amount of the Underpayment that has occurred, and any such
         Underpayment shall be promptly paid by the Employer to or for the
         benefit of the Executive.

                                       6


                  (d)      The Executive shall notify the Employer in writing of
         any claim by the Internal Revenue Service or any other taxing authority
         that, if successful, would require the payment by the Employer of a
         Gross-Up Payment. Such notification shall be given as soon as
         practicable, but no later than ten (10) business days after the
         Executive is informed in writing of such claim. The notification shall
         apprise the Employer of the nature of such claim and the date on which
         such claim is requested to be paid. The Executive shall not pay such
         claim prior to the expiration of the thirty (30) day period following
         the date on which it gives such notice to the Employer (or such shorter
         period ending on the date that any payment of taxes with respect to
         such claim is due). If the Employer notifies the Executive in writing
         prior to the expiration of such period that it desires to contest such
         claim, the Executive shall:

                           (i)      give the Employer any information reasonably
                  requested by the Employer relating to such claim;

                           (ii)     take such action in connection with
                  contesting such claim as the Employer shall reasonably request
                  in writing from time to time, including, without limitation,
                  accepting legal representation with respect to such claim by
                  an attorney reasonably selected by the Employer;

                           (iii)    cooperate with the Employer in good faith in
                  order effectively to contest such claim; and

                           (iv)     permit the Employer to participate in any
                  proceedings relating to such claim;

         provided, however, that the Employer shall bear and pay directly all
         costs and expenses (including additional interest and penalties)
         incurred in connection with such contest, and shall indemnify and hold
         the Executive harmless, on an after-tax basis, for any Excise Tax or
         other taxes (including interest and penalties with respect thereto)
         imposed as a result of such representation and the payment of any costs
         and expenses. Without limitation on the foregoing provisions of this
         Section 7(d), the Employer shall control all proceedings taken in
         connection with such contest and, at its sole option, may pursue or
         forego any and all administrative appeals, proceedings, hearings and
         conferences with the taxing authority in respect of such claim, and
         may, at its sole option, either direct the Executive to pay the tax
         claimed and sue for a refund or contest the claim in any permissible
         manner. The Executive agrees to prosecute any such contest to a
         determination before any administrative tribunal, in a court of initial
         jurisdiction, and in one or more appellate courts, as the Employer
         shall determine; provided, however, that if the Employer directs the
         Executive to pay such claim and sue for a refund, the Employer shall
         advance the amount of such payment to the Executive on an interest-free
         basis, and shall indemnify and hold the Executive harmless, on an
         after-tax basis, from any Excise Tax or other taxes (including interest
         or penalties with respect thereto) imposed with respect to such advance
         or with respect to any imputed income with respect to such

                                       7


         advance; and further provided, that any extension of the statute of
         limitations relating to the payment of taxes for the taxable year of
         the Executive with respect to which such contested amount is claimed to
         be due is limited solely to such contested amount. Furthermore, the
         Employer's control of the contest shall be limited to issues with
         respect to which a Gross-Up Payment would be payable hereunder, and the
         Executive shall be entitled to settle or contest, as the case may be,
         any other issue raised by the Internal Revenue Service or any other
         taxing authority.

                  (e)      If, after the receipt by the Executive of an amount
         advanced by the Employer pursuant to Section 7(d), the Executive
         becomes entitled to receive any refund with respect to such claim, the
         Executive shall (subject to the Employer's complying with the
         requirements of Section 7(d)) promptly pay to the Employer the amount
         of such refund (together with any interest paid or credited thereon,
         after taxes applicable thereto). If, after the receipt by the Executive
         of an amount advanced by the Employer pursuant to Section 7(d), a
         determination is made that the Executive shall not be entitled to any
         refund with respect to such claim and the Employer does not notify the
         Executive in writing of its intent to contest such denial of refund
         prior to the expiration of thirty (30) days after such determination,
         then such advance shall be forgiven and shall not be required to be
         repaid, and the amount of such advance shall offset, to the extent
         thereof, the amount of the Gross-Up Payment required to be paid.

8.       Successors.

                  (a)      The Employer will require any successor (whether
         direct or indirect, by purchase, merger, consolidation or otherwise) to
         all or substantially all of the business and/or assets of the Employer
         to expressly assume and agree to perform its obligations under this
         Agreement in the same manner and to the same extent that the Employer
         would be required to perform them if no such succession had taken
         place. Each such successor shall execute a written agreement evidencing
         its assumption of the Employer's obligations under this Agreement prior
         to the effective date of any such purchase, merger, consolidation or
         other transaction.

                  (b)      The failure of the Employer to obtain from each
         successor the written agreement described in Section 8(a) shall be a
         breach of the obligations of the Employer under this Agreement, and
         shall entitle the Executive to compensation from the Employer in the
         same amount and on the same terms as he would be entitled hereunder if
         the Employer had terminated the Executive's employment after a Change
         in Control other than for Disability or Cause; except that, for
         purposes of implementing the foregoing, the date on which any such
         succession becomes effective shall be deemed to be the Date of
         Termination.

                  (c)      As used in this Section 8, the Employer shall include
         the Employer, the Holding Company, the Bank, and any successor to all
         or substantially all of the business and/or assets of any of them
         (whether direct or indirect, by purchase, merger,

                                       8


         consolidation or otherwise) which executes and delivers the written
         agreement described in Section 8(a) or which otherwise becomes bound by
         all the terms and provisions of this Agreement.


9.       Confidential Information, Non Competition Obligations, and
Non-Solicitation.

                  (a)      Confidential Information

                  The Executive recognizes and acknowledges that certain assets
         of the Holding Company, the Bank, or any of their affiliates or
         subsidiaries constitutes Confidential Information.

                  For purposes hereof, the term "Confidential Information" means
         any and all information and compilations of information, in whatever
         form or medium (including any copies thereof), relating to any part of
         the business of the Holding Company, the Bank or any of their
         subsidiaries or affiliates, or the business of their customers,
         provided to the Executive, or which the Executive obtained or compiled
         or had obtained or compiled on his behalf, which information or
         compilations of information are not a matter of public record or
         generally known to the public, including without limitation:

                           (i)      Financial information regarding the Holding
                  Company, the Bank, or any of their subsidiaries or affiliates;

                           (ii)     Personnel data, including compensation
                  arrangements relating to the Executive or any other employees
                  of the Holding Company, the Bank, or any of their subsidiaries
                  or affiliates;

                           (iii)    Internal plans, practices, and procedures of
                  the Holding Company, the Bank or any of their subsidiaries or
                  affiliates;

                           (iv)     The names, portfolio information, investment
                  strategies, requirements, lending or deposit information, or
                  any similar information of any customers, clients, or
                  prospects of the Holding Company, the Bank, or any of their
                  subsidiaries or affiliates;

                           (v)      Business methods and marketing strategies of
                  the Holding Company, the Bank, or any of their subsidiaries or
                  affiliates;

                           (vi)     Any other information expressly deemed
                  confidential by the officers and directors of the Holding
                  Company, the Bank, or any of their subsidiaries or affiliates;
                  and

                                       9


                           (viii)   The terms and conditions of the Agreement
                  and any documents or instruments executed in connection
                  herewith that are not of public record.

                  The Executive shall not, without the prior written consent of
         the Holding Company, the Bank, or any of their subsidiaries or
         affiliates, use or disclose, or negligently permit any unauthorized
         person to use, disclose, or gain access to, any Confidential
         Information.

                  Upon termination of employment, the Executive hereby agrees to
         deliver promptly to the Holding Company, the Bank, or any of their
         affiliates or subsidiaries all memoranda, notes, records, manuals, or
         other documents, including all copies of such materials, containing
         Confidential Information, whether made or compiled by the Executive or
         furnished to him from any source by virtue of the Executive's
         relationship with the Holding Company, the Bank, or any of their
         subsidiaries or affiliates.

                  Regardless of the reason for his cessation of employment, the
         Executive will furnish such information as may be in the Executive's
         possession and cooperate with the Holding Company, the Bank, or any of
         their affiliates or subsidiaries as may reasonably be requested in
         connection with any claims or legal actions in which the Holding
         Company, the Bank, or any of their subsidiaries or affiliates are or
         may become a party. The Employer will reimburse the Executive for any
         reasonable out-of-pocket expenses the Executive incurs in order to
         satisfy his obligations under this clause.

                  (b)      Non-Competition Obligations

                  In consideration of the covenants of the Employer contained
         herein, the Executive covenants and agrees with the Employer that,
         during the " Non-Compete Period" (as hereinafter defined) and within a
         one hundred fifty (150) "air" mile radius from Bar Harbor, Maine, the
         Executive shall not without specific written approval, directly or
         indirectly:

                           (i)      Engage in any insurance, brokerage, trust,
                  banking, or other financial services as an owner, employee,
                  consultant, representative, or in any other capacity;

                           (ii)     Directly or indirectly request or advise any
                  past, present, or future customers of the Holding Company, the
                  Bank or any of their subsidiaries or affiliates to withdraw,
                  curtail, or cancel his or her or its business with the Holding
                  Company, the Bank, or any of their subsidiaries or affiliates;

                           (iii)    Directly or indirectly cause, suggest, or
                  induce others to call on any past, present, or future
                  customers of the Holding Company, the Bank or any of their
                  affiliated entities; or

                                       10


                           (iv)     Canvas, solicit, or accept any business on
                  behalf of any other bank, insurance agency, trust, or other
                  financial services business, other than the Holding Company,
                  the Bank or any of their affiliated entities, from any past or
                  present customer of the Holding Company, the Bank or any of
                  their affiliated entities.

                  The "Non-Compete Period" shall commence on the date hereof and
         terminate one (1) year after the cessation of the Executive's
         employment with the Employer and all of its affiliates, regardless of
         reason, whether or not pursuant to this Agreement.

         (c)      Non-Solicitation of Employees

                  While employed by the Employer, and for one (1) year following
         cessation of his employment with the Employer and all of its affiliates
         for any reason, the Executive shall not, directly or indirectly, by any
         means or device whatsoever, for himself or on behalf of, or in
         conjunction with, any other person, partnership or corporation,
         solicit, entice, hire, or attempt to hire or employ any employee of the
         Holding Company, the Bank or any of their affiliated entities.

                  During this Agreement, the Executive shall not interview or
         negotiate employment with, or accept employment from, a competitor in
         the market area described in Section 9(b) above except with the written
         consent of the Employer.

10.      Reformation; Injunctive Relief.

                  (a)      All the parties hereto acknowledge that the parties
         have carefully considered the nature and scope of this Agreement. The
         activities, period and area covered by Section 9 are expressly
         acknowledged and agreed to be fair, reasonable and necessary. To the
         extent that any covenant contained in Section 9 is held to be invalid,
         illegal or unenforceable because of the extent of activities, duration
         of such covenant, the geographic area covered thereby, or otherwise,
         the parties agree that the court making such determination shall reform
         such covenant to include as much of its nature and scope as will render
         it enforceable and, in its reduced form, said covenant shall be valid,
         legal and enforceable to the fullest extent of the law.

                  (b)      The Executive acknowledges and agrees that, upon any
         breach by the Executive of his obligations under Section 9 hereof, the
         Employer will have no adequate remedy at law, and accordingly will be
         entitled to specific performance and other appropriate injunctive and
         equitable relief, notwithstanding Section 11 hereof. Nothing herein
         shall be construed as prohibiting the Employer from pursuing any other
         remedies available to it, including the recovery of damages from the
         Executive.

                                       11


11.      Mediation and Arbitration.

         If the Executive and the Employer have any dispute whatsoever relating
to the interpretation, validity or performance of this Agreement, or any other
dispute arising out of this Agreement, every reasonable attempt will be made to
resolve any differences or dispute within thirty (30) days of an issuance of
written notice by either party to the other party.

         If a successful resolution of any differences or dispute has not been
achieved to the satisfaction of both parties at the end of the 30-day period,
the following steps will be used:

                  Except as otherwise expressly provided hereunder, the parties
         agree that any and all differences or disputes arising out of the
         Executive's employment or cessation of employment, including but not
         limited to any dispute, controversy, or claim arising under any
         federal, state, or local statute, law, ordinance or regulation or under
         this Agreement, shall be resolved exclusively by Alternative Dispute
         Resolution described in this Agreement ("ADR"). The initiation of ADR
         shall first require mediation, and the parties agree to first try to
         settle any dispute through mediation. Mediation shall be initiated by
         either party by the serving of a written notice of intent to mediate (a
         "Mediation Notice") by one party upon the other. If no resolution has
         been mutually agreed through mediation within ninety (90) days of
         service of a Mediation Notice, then and only then may the dispute be
         submitted to arbitration. Arbitration shall be initiated by the serving
         of a written notice of intent to arbitrate (an "Arbitration Notice") by
         one party upon the other. Notwithstanding the foregoing, nothing in
         this Agreement shall be deemed to preclude the Employer from seeking
         temporary or permanent injunctive relief and/or damages from a court of
         competent jurisdiction with respect to any breach of Section 9 of this
         Agreement.

                  In the event that a party wishes to initiate ADR, a Mediation
         Notice must be served on the other party within six (6) months from the
         date on which the claim arose. If the parties cannot mutually agree on
         a mediator, then a mediator shall be selected in accordance with the
         Employment Mediation Rules of the American Arbitration Association.

                  In the event that mediation is unsuccessful and arbitration is
         initiated, it shall be conducted under the National Rules of the
         Resolution of Employment Disputes of the American Arbitration
         Association. There shall be a single arbitrator to be agreed upon by
         the parties, provided that, if the parties are unable to agree upon a
         single arbitrator, each party shall name an arbitrator and the two so
         named shall name a third arbitrator The arbitration proceedings shall
         be heard by the arbitrator(s) and the decision of the arbitrator, or
         the majority of the panel if one has been selected, shall be final and
         binding on the parties. Judgment upon the arbitration award may be
         entered in any court of competent jurisdiction. An Arbitration Notice
         must be served on the other party within one (1) year from the date on
         which the claim arose, and the failure to bring such a claim within
         such one-year period shall constitute a waiver of such claim and an
         absolute bar to

                                       12


         any further proceedings in any forum with respect to it. All mediation
         and arbitration proceedings shall be conducted in Bangor, Maine, unless
         the parties otherwise agree in writing.

         The cost of any mediation proceeding under this Section 11 will be paid
by the Employer. The cost of any arbitration proceeding will be shared equally
by the parties to the dispute; provided, however, that, if the dispute is
resolved in favor of the Executive, such cost shall be paid in full by the
Employer.

12.      Post-Termination Obligations.

         All payments and benefits due to the Executive under this Agreement
shall be subject to the Executive's compliance with this Section 12 for one full
year following the Executive's Date of Termination. The Executive shall, upon
reasonable notice, furnish such information and assistance to the Employer, the
Holding Company and the Bank as may reasonably be required by the Employer, the
Holding Company or the Bank in connection with any litigation in which it or any
of its subsidiaries or affiliates is, or may become, a party.

13.      General Provisions.

                  (a)      All notices required by this Agreement shall be in
         writing and shall be sufficiently given if delivered personally or
         mailed by registered mail or certified mail, return receipt requested,
         to the parties at their then current addresses. All notices shall be
         deemed to have been given as of the date so delivered or mailed.

                  (b)      This Agreement and the plans and agreements described
         in Section 6(b) contain the entire transaction between the parties, and
         there are no other representations, warranties, conditions or
         agreements relating to the subject matter thereof.

                  (c)      The waiver by any party of any breach or default of
         any provision of this Agreement shall not operate or be construed as a
         waiver of any subsequent breach.

                  (d)      This Agreement may not be changed orally but only by
         an agreement in writing executed on behalf of the party against which
         enforcement of any waiver, change, modification, consent or discharge
         is sought.

                  (e)      This Agreement shall be binding upon and inure to the
         benefit of the Employer and the Executive and their respective
         successors, assigns, heirs and legal representatives (including, but
         not limited to, any successor of the Employer described in Section 8).

                                       13


                  (f)      Each of the parties agrees to execute all further
         instruments and documents and to take all further action as the other
         party may reasonably request in order to effectuate the terms and
         purposes of this Agreement.

                  (g)      This Agreement may be executed in one or more
         counterparts, all of which taken together shall constitute one and the
         same instrument.

                  (h)      This Agreement shall be construed pursuant to and in
         accordance with the laws of the State of Maine. Actions brought by the
         Employer under this Agreement shall be subject to the exclusive
         jurisdiction of the state and federal courts of Maine. Both parties
         consent to the personal jurisdiction of such courts for such actions,
         and agree that they may be served with process in accordance with
         Section 13(a).

                  (i)      The Executive acknowledges that he has had a full and
         complete opportunity to review the terms, enforceability and
         implications of this Agreement, and that the Employer has not made any
         representations or warranties to the Executive concerning the terms,
         enforceability and implications of this Agreement other than as are
         reflected in this Agreement.

         IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the _____ day of ______________, 20____.

Witness:                                      EMPLOYER:
                                              BAR HARBOR BANKSHARES

_________________________                     By _______________________________

                                                 Title:

Witness:                                      EXECUTIVE:

_________________________                     __________________________________
                                              Joseph M. Murphy

                                       14

EX-10.4

                                                                    EXHIBIT 10.4

                       CHANGE IN CONTROL, CONFIDENTIALITY
                          AND NONCOMPETITION AGREEMENT

         This Agreement is effective as of the 7th day of November, 2003 by and
between BAR HARBOR BANKSHARES, a Maine corporation with its principal office at
82 Main Street, P.O. Box 400, Bar Harbor, ME 04609-0400 (the "Employer"), and
GERALD SHENCAVITZ of Mt Desert, ME (the "Executive").

                              W I T N E S S E T H:

         WHEREAS, Bar Harbor Banking and Trust Company is a wholly-owned
subsidiary of Bar Harbor Bankshares; and

         WHEREAS, the Executive is an employee of the Employer; and

         WHEREAS, the Employer desires to enhance the ability of the Employer to
retain the services of the Executive and to reward the Executive for his
valuable, dedicated service to the Employer in the event of his termination of
employment in connection with a change in control.

         NOW, THEREFORE, the parties hereto do hereby agree as follows:

1.       Definitions

         1.1.     Bank shall mean Bar Harbor Banking and Trust Company.

         1.2.     Base Compensation shall mean the annual base salary payable by
the Employer to the Executive, excluding any bonuses, incentive compensation and
other forms of additional compensation.

         1.3.     Cause shall be deemed to exist only in the event the Executive
is convicted by a court of competent jurisdiction of a felony involving
dishonesty or fraud on the part of the Executive in his relationship with the
Employer, the Holding Company or the Bank.

         1.4.     Change in Control shall mean the occurrence of any one of the
following events:

                  (a)      Any person, including a group (as such term is used
         in Section 13(d) of the Securities Exchange Act of 1934, as amended
         (the "Exchange Act")) becomes the beneficial owner (as determined
         pursuant to Rule 13d-3 under the Exchange Act), directly or indirectly,
         of securities of Bar Harbor Bankshares representing more than fifty
         percent (50%) of the combined voting power of Bar Harbor Bankshares'
         then outstanding securities, other than as a result of an issuance of
         securities initiated by Bar Harbor Bankshares in the ordinary course of
         its business; or



                  (b)      Bar Harbor Bankshares is party to a Business
         Combination (as hereinafter defined) unless, following consummation of
         the Business Combination, more than fifty percent (50%) of the
         outstanding voting securities of the resulting entity are beneficially
         owned, directly or indirectly, by the holders of Bar Harbor Bankshares'
         outstanding voting securities immediately prior to the Business
         Combination in substantially the same proportions as those existing
         immediately prior to the Business Combination; or

                  (c)      The stockholders of Bar Harbor Bankshares approve a
         plan of complete liquidation of Bar Harbor Bankshares or an agreement
         for the sale or disposition by Bar Harbor Bankshares of all or
         substantially all of Bar Harbor Bankshares' assets to another person or
         entity that is not a wholly owned subsidiary of Bar Harbor Bankshares.

         For purposes of this Section 1.4, a Business Combination means any cash
tender or exchange offer, merger or other business combination, sale of stock,
or sale of all or substantially all of the assets, or any combination of the
foregoing transactions.

         For purposes of this Section 1.4, a Change in Control shall exclude any
internal corporate change, reorganization or other such event, which occurred
prior to or may occur following the date of this Agreement.

         1.5.     Code shall mean the Internal Revenue Code of 1986, as amended,
and as it may be amended from time to time, together with the rules and
regulations promulgated under such code.

         1.6.     Date of Termination shall mean:

                  (a)      If the Executive's employment is terminated for
         Disability, thirty (30) days after Notice of Termination for Disability
         is given by the Employer to the Executive and the Executive shall not
         have returned to the performance of his duties on a full-time basis
         during such thirty (30) day period;

                  (b)      If the Executive's employment is terminated by the
         Employer for Cause or by the Executive for Good Reason, the date
         specified in the Notice of Termination, but not earlier than the date
         on which such Notice of Termination is given; and

                  (c)      If the Executive's employment is terminated or
         terminates for any other reason, the date on which the Executive ceases
         to perform services for the Employer as a common law employee.

         1.7      Disability shall mean a permanent and total disability (as
defined in the Employer's long term disability plan) which is incurred by the
Executive while he is employed by the Employer and which makes the Executive
eligible to receive a disability income under the Employer's long term
disability insurance plan. Such disability shall be deemed to exist only if an
application for benefits is filed with the administrator of the Employer's long
term disability

                                       2


insurance plan by or on behalf of the Executive and is approved by the
administrator, each in the manner described in such long term disability
insurance plan.

         1.8      Employer shall mean Bar Harbor Bankshares.

         1.9.     Good Reason shall mean, unless the Executive consents to such
action, a reduction in the Executive's compensation that does not apply
generally to all senior executive officers of the Employer, the Holding Company
and the Bank, a material reduction in the duties of the Executive, or a change
in the principal worksite of the Executive to a location that is more than fifty
(50) miles from Bar Harbor, Maine.

         1.10.    Holding Company shall mean Bar Harbor Bankshares, its
subsidiaries and affiliates.

         1.11.    Notice of Termination shall mean the notice provided pursuant
to Section 3.

2.       Severance Benefits.

         In the event that: (a) the Employer terminates the Executive's
employment other than as a result of Disability and other than for Cause, or the
Executive terminates his employment for Good Reason; and (b) the Executive's
termination of employment occurs in anticipation of or after a Change in
Control, then the Employer shall pay the Executive the severance benefits
described in this Section 2. The Executive's termination of employment shall be
deemed to be in anticipation of a Change in Control if it occurs within the
twelve (12) month period prior to the occurrence of the Change in Control.

         The severance benefits described in this Section 2 shall equal the
following:

                  (a)      The Executive shall receive a lump sum severance
         payment within five (5) days after the Date of Termination. Such
         payment shall equal 1.5 times the Executive's Base Compensation,
         determined as of the Date of Termination.

                  (b)      The Executive and his dependents shall continue to be
         eligible to receive the same medical, health, dental and life insurance
         benefits which the Executive is eligible to receive on the Date of
         Termination. The Executive shall be required to make the same premium
         contributions that he was required to make immediately prior to the
         Date of Termination. The ability of the Executive and his dependents to
         receive such benefits shall continue for a period of eighteen (18)
         months following the Date of Termination.

                  (c)      In the event of a Change of Control, all stock
         options granted but unexercised under the Bar Harbor Bankshares and
         Subsidiaries Incentive Stock Option Plan of 2000 or any other
         subsequent equity plan shall become 100% vested immediately prior to
         any such Change of Control. These grants will remain subject to all
         other terms

                                       3


         and conditions in the Bar Harbor Bankshares and Subsidiaries Incentive
         Stock Option Plan of 2000 or any subsequent equity plan.

         The Executive shall not be required to mitigate the amount of any
severance benefits described in this Section 2 by seeking other employment.

3.       Notice of Termination.

         Any termination of the Executive's employment by the Employer due to
Disability or for Cause, or by the Executive due to Good Reason, shall be
communicated by written Notice of Termination to the other party.
Notwithstanding the above, however, the Executive shall not be entitled to give
a Notice of Termination that the Executive is terminating employment for Good
Reason more than six (6) months following the occurrence of the event alleged to
constitute Good Reason.

         A Notice of Termination must indicate the specific provisions in this
Agreement which are relied upon as the basis for the termination of the
Executive's employment, and must also set forth in reasonable detail the facts
and circumstances claimed to provide the basis for such termination under the
provisions so indicated.

4.       Loss of Severance Benefits.

         If the Employer shall terminate the Executive's employment due to
Disability or for Cause, or if the Executive shall terminate his employment
other than for Good Reason, or if the Executive shall die, then the Executive
shall have no right to receive any severance benefits under this Agreement.

5.       No Other Benefits Payable.

                  (a)      If the Executive is entitled to receive the severance
         benefits described in Section 2 of this Agreement, he shall not be
         entitled to receive: (i) any severance benefits under the terms of any
         general severance pay policy or plan of the Employer, the Holding
         Company or the Bank; or (ii) any other compensation, benefits or
         payments under the terms of any other plan of, or agreement with, the
         Employer, the Holding Company or the Bank.

                  (b)      Notwithstanding the above, the Executive shall be
         entitled to receive any compensation, benefits or payments which are
         specifically authorized by the terms of any plan of, or agreement with,
         the Employer, the Holding Company or the Bank to be paid in addition to
         the severance benefits described in Section 2 of this Agreement.
         Moreover, notwithstanding the above, the Executive shall be entitled to
         receive, in addition to the severance benefits described in Section 2
         of this Agreement, any compensation, benefits or payments which the
         Executive is entitled to receive under: (i) the Bar Harbor Bankshares
         Supplemental Executive Retirement Plan; (ii) any incentive compensation

                                       4


         plan maintained by the Employer, the Holding Company or the Bank which
         provides for payment to a terminated employee of incentive compensation
         earned by the employee prior to his or her termination of employment;
         or (iii) any payroll plan or policy of the Employer, the Holding
         Company or the Bank which provides for payment to a terminated employee
         of any unpaid vacation, holiday or sick pay accrued by the employee
         prior to his or her termination of employment.

6.       Certain Additional Payments by the Employer.

                  (a)      Anything in this Agreement to the contrary
         notwithstanding and except as set forth below, in the event it shall be
         determined that any payment or distribution made at any time by the
         Employer or to or for the benefit of the Executive (whether paid or
         payable, or distributed or distributable, pursuant to the terms of this
         Agreement or otherwise, but determined without regard to any additional
         payments required under this Section 6) (a "Payment") would be subject
         to the excise tax imposed by Section 4999 of the Code, or any interest
         or penalties are incurred by the Executive with respect to such excise
         tax (such excise tax, together with any such interest and penalties,
         are hereinafter collectively referred to as the "Excise Tax"), then the
         Executive shall be entitled to receive an additional payment (a
         "Gross-Up Payment"). The Gross-Up Payment shall equal such an amount
         that, after payment by the Executive of all taxes (including, without
         limitation, any federal, state or local income taxes, Social Security
         taxes and Medicare taxes, and any interest or penalties imposed with
         respect thereto) and Excise Tax imposed upon the Gross-Up Payment, the
         Executive retains an amount of the Gross-Up Payment equal to the Excise
         Tax imposed upon the Payments. Notwithstanding the foregoing provisions
         of this Section 6(a), if it shall be determined that the Executive is
         entitled to a Gross-Up Payment, but that the Payments do not exceed
         110% of the greatest amount (the "Reduced Amount") that could be paid
         to the Executive such that the receipt of Payments would not give rise
         to any Excise Tax, then no Gross-Up Payment shall be made to the
         Executive and the Payments, in the aggregate, shall be reduced to the
         Reduced Amount.

                  (b)      Subject to the provisions of Section 6(d), all
         determinations required to be made under this Section 6 (including,
         without limitation, whether and when a Gross-Up Payment is required,
         the amount of such Gross-Up Payment, and the assumptions to be utilized
         in arriving at such determination) shall be made by KPMG Peat Marwick
         or such other certified public accounting firm as may be designated by
         the Executive (the "Accounting Firm"). The Accounting Firm shall
         provide detailed supporting calculations both to the Employer and to
         the Executive within fifteen (15) business days after the receipt of
         notice from the Executive that there has been a Payment, or such
         earlier time as is requested by the Employer. In the event that the
         Accounting Firm is serving as accountant or auditor for the individual,
         entity or group effecting the Change of Control, the Executive shall
         appoint another nationally recognized accounting firm to make the
         determinations required hereunder (which accounting firm shall then be
         referred to as the Accounting Firm hereunder). All fees and expenses of
         the Accounting Firm shall be

                                       5


         borne solely by the Employer. Any Gross-Up Payment, as determined
         pursuant to this Section 6, shall be paid by the Employer to the
         Executive within five (5) days after its receipt of the Accounting
         Firm's determination. Any determination by the Accounting Firm shall be
         binding upon the Employer and the Executive.

                  (c)      As a result of the uncertainty in the application of
         Section 4999 of the Code at the time of the initial determination by
         the Accounting Firm hereunder, it is possible that Gross-Up Payments
         which will not have been made by the Employer should have been made
         ("Underpayment"), consistent with the calculations required to be made
         hereunder. In the event that the Employer exhausts its remedies
         pursuant to Section 6(d) and the Executive thereafter is required to
         make a payment of any Excise Tax, the Accounting Firm shall determine
         the amount of the Underpayment that has occurred, and any such
         Underpayment shall be promptly paid by the Employer to or for the
         benefit of the Executive.

                  (d)      The Executive shall notify the Employer in writing of
         any claim by the Internal Revenue Service or any other taxing authority
         that, if successful, would require the payment by the Employer of a
         Gross-Up Payment. Such notification shall be given as soon as
         practicable, but no later than ten (10) business days after the
         Executive is informed in writing of such claim. The notification shall
         apprise the Employer of the nature of such claim and the date on which
         such claim is requested to be paid. The Executive shall not pay such
         claim prior to the expiration of the thirty (30) day period following
         the date on which it gives such notice to the Employer (or such shorter
         period ending on the date that any payment of taxes with respect to
         such claim is due). If the Employer notifies the Executive in writing
         prior to the expiration of such period that it desires to contest such
         claim, the Executive shall:

                           (i)      give the Employer any information reasonably
                  requested by the Employer relating to such claim;

                           (ii)     take such action in connection with
                  contesting such claim as the Employer shall reasonably request
                  in writing from time to time, including, without limitation,
                  accepting legal representation with respect to such claim by
                  an attorney reasonably selected by the Employer;

                           (iii)    cooperate with the Employer in good faith in
                  order effectively to contest such claim; and

                           (iv)     permit the Employer to participate in any
                  proceedings relating to such claim;

         provided, however, that the Employer shall bear and pay directly all
         costs and expenses (including additional interest and penalties)
         incurred in connection with such contest, and shall indemnify and hold
         the Executive harmless, on an after-tax basis, for any Excise

                                       6


         Tax or other taxes (including interest and penalties with respect
         thereto) imposed as a result of such representation and the payment of
         any costs and expenses. Without limitation on the foregoing provisions
         of this Section 6(d), the Employer shall control all proceedings taken
         in connection with such contest and, at its sole option, may pursue or
         forego any and all administrative appeals, proceedings, hearings and
         conferences with the taxing authority in respect of such claim, and
         may, at its sole option, either direct the Executive to pay the tax
         claimed and sue for a refund or contest the claim in any permissible
         manner. The Executive agrees to prosecute any such contest to a
         determination before any administrative tribunal, in a court of initial
         jurisdiction, and in one or more appellate courts, as the Employer
         shall determine; provided, however, that if the Employer directs the
         Executive to pay such claim and sue for a refund, the Employer shall
         advance the amount of such payment to the Executive on an interest-free
         basis, and shall indemnify and hold the Executive harmless, on an
         after-tax basis, from any Excise Tax or other taxes (including interest
         or penalties with respect thereto) imposed with respect to such advance
         or with respect to any imputed income with respect to such advance; and
         further provided, that any extension of the statute of limitations
         relating to the payment of taxes for the taxable year of the Executive
         with respect to which such contested amount is claimed to be due is
         limited solely to such contested amount. Furthermore, the Employer's
         control of the contest shall be limited to issues with respect to which
         a Gross-Up Payment would be payable hereunder, and the Executive shall
         be entitled to settle or contest, as the case may be, any other issue
         raised by the Internal Revenue Service or any other taxing authority.

                  (e)      If, after the receipt by the Executive of an amount
         advanced by the Employer pursuant to Section 6(d), the Executive
         becomes entitled to receive any refund with respect to such claim, the
         Executive shall (subject to the Employer's complying with the
         requirements of Section 6(d)) promptly pay to the Employer the amount
         of such refund (together with any interest paid or credited thereon,
         after taxes applicable thereto). If, after the receipt by the Executive
         of an amount advanced by the Employer pursuant to Section 6(d), a
         determination is made that the Executive shall not be entitled to any
         refund with respect to such claim and the Employer does not notify the
         Executive in writing of its intent to contest such denial of refund
         prior to the expiration of thirty (30) days after such determination,
         then such advance shall be forgiven and shall not be required to be
         repaid, and the amount of such advance shall offset, to the extent
         thereof, the amount of the Gross-Up Payment required to be paid.

7.       Successors.

                  (a)      The Employer will require any successor (whether
         direct or indirect, by purchase, merger, consolidation or otherwise) to
         all or substantially all of the business and/or assets of the Employer
         to expressly assume and agree to perform its obligations under this
         Agreement in the same manner and to the same extent that the Employer
         would be required to perform them if no such succession had taken
         place. Each such successor shall execute a written agreement evidencing
         its assumption of the Employer's

                                       7


         obligations under this Agreement prior to the effective date of any
         such purchase, merger, consolidation or other transaction.

                  (b)      The failure of the Employer to obtain from each
         successor the written agreement described in Section 7(a) shall be a
         breach of the obligations of the Employer under this Agreement, and
         shall entitle the Executive to compensation from the Employer in the
         same amount and on the same terms as he would be entitled hereunder if
         the Employer had terminated the Executive's employment after a Change
         in Control other than for Disability or Cause; except that, for
         purposes of implementing the foregoing, the date on which any such
         succession becomes effective shall be deemed to be the Date of
         Termination.

                  (c)      As used in this Section 7, the Employer shall include
         the Employer, the Holding Company, the Bank, and any successor to all
         or substantially all of the business and/or assets of any of them
         (whether direct or indirect, by purchase, merger, consolidation or
         otherwise) which executes and delivers the written agreement described
         in Section 7(a) or which otherwise becomes bound by all the terms and
         provisions of this Agreement.

8.       Confidential Information, Non Competition Obligations, and
         Non-Solicitation.

                  (a)      Confidential Information

                  The Executive recognizes and acknowledges that certain assets
         of the Holding Company, the Bank, or any of their affiliates or
         subsidiaries constitutes Confidential Information.

                  For purposes hereof, the term "Confidential Information" means
         any and all information and compilations of information, in whatever
         form or medium (including any copies thereof), relating to any part of
         the business of the Holding Company, the Bank or any of their
         subsidiaries or affiliates, or the business of their customers,
         provided to the Executive, or which the Executive obtained or compiled
         or had obtained or compiled on his behalf, which information or
         compilations of information are not a matter of public record or
         generally known to the public, including without limitation:

                           (i)      Financial information regarding the Holding
                  Company, the Bank, or any of their subsidiaries or affiliates;

                           (ii)     Personnel data, including compensation
                  arrangements relating to the Executive or any other employees
                  of the Holding Company, the Bank, or any of their subsidiaries
                  or affiliates;

                           (iii)    Internal plans, practices, and procedures of
                  the Holding Company, the Bank or any of their subsidiaries or
                  affiliates;

                                       8


                           (iv)     The names, portfolio information, investment
                  strategies, requirements, lending or deposit information, or
                  any similar information of any customers, clients, or
                  prospects of the Holding Company, the Bank, or any of their
                  subsidiaries or affiliates;

                           (v)      Business methods and marketing strategies of
                  the Holding Company, the Bank, or any of their subsidiaries or
                  affiliates;

                           (vi)     Any other information expressly deemed
                  confidential by the officers and directors of the Holding
                  Company, the Bank, or any of their subsidiaries or affiliates;
                  and

                           (viii)   The terms and conditions of the Agreement
                  and any documents or instruments executed in connection
                  herewith that are not of public record.

                  The Executive shall not, without the prior written consent of
         the Holding Company, the Bank, or any of their subsidiaries or
         affiliates, use or disclose, or negligently permit any unauthorized
         person to use, disclose, or gain access to, any Confidential
         Information.

                  Upon termination of employment, the Executive hereby agrees to
         deliver promptly to the Holding Company, the Bank, or any of their
         affiliates or subsidiaries all memoranda, notes, records, manuals, or
         other documents, including all copies of such materials, containing
         Confidential Information, whether made or compiled by the Executive or
         furnished to him from any source by virtue of the Executive's
         relationship with the Holding Company, the Bank, or any of their
         subsidiaries or affiliates.

                  Regardless of the reason for his cessation of employment, the
         Executive will furnish such information as may be in the Executive's
         possession and cooperate with the Holding Company, the Bank, or any of
         their affiliates or subsidiaries as may reasonably be requested in
         connection with any claims or legal actions in which the Holding
         Company, the Bank, or any of their subsidiaries or affiliates are or
         may become a party. The Employer will reimburse the Executive for any
         reasonable out-of-pocket expenses the Executive incurs in order to
         satisfy his obligations under this clause.

                  (b)      Non-Competition Obligations

                  In consideration of the covenants of the Employer contained
         herein, the Executive covenants and agrees with the Employer that,
         during the " Non-Compete Period" (as hereinafter defined) and within a
         one hundred fifty (150) "air" mile radius from Bar Harbor, Maine, the
         Executive shall not without specific written approval, directly or
         indirectly:

                                       9


                           (i)      Engage in any insurance, brokerage, trust,
                  banking, or other financial services as an owner, employee,
                  consultant, representative, or in any other capacity;

                           (ii)     Directly or indirectly request or advise any
                  past, present, or future customers of the Holding Company, the
                  Bank or any of their subsidiaries or affiliates to withdraw,
                  curtail, or cancel his or her or its business with the Holding
                  Company, the Bank, or any of their subsidiaries or affiliates;

                           (iii)    Directly or indirectly cause, suggest, or
                  induce others to call on any past, present, or future
                  customers of the Holding Company, the Bank or any of their
                  affiliated entities; or

                           (iv)     Canvas, solicit, or accept any business on
                  behalf of any other bank, insurance agency, trust, or other
                  financial services business, other than the Holding Company,
                  the Bank or any of their affiliated entities, from any past or
                  present customer of the Holding Company, the Bank or any of
                  their affiliated entities.

                  The "Non-Compete Period" shall commence on the date hereof and
         terminate one (1) year after the cessation of the Executive's
         employment with the Employer and all of its affiliates, regardless of
         reason, whether or not pursuant to this Agreement.

         (c)      Non-Solicitation of Employees

                  While employed by the Employer, and for one (1) year following
         cessation of his employment with the Employer and all of its affiliates
         for any reason, the Executive shall not, directly or indirectly, by any
         means or device whatsoever, for himself or on behalf of, or in
         conjunction with, any other person, partnership or corporation,
         solicit, entice, hire, or attempt to hire or employ any employee of the
         Holding Company, the Bank or any of their affiliated entities.

                  During this Agreement, the Executive shall not interview or
         negotiate employment with, or accept employment from, a competitor in
         the market area described in Section 8(b) above except with the written
         consent of the Employer.

9.       Reformation; Injunctive Relief.

                  (a)      All the parties hereto acknowledge that the parties
         have carefully considered the nature and scope of this Agreement. The
         activities, period and area covered by Section 8 are expressly
         acknowledged and agreed to be fair, reasonable and necessary. To the
         extent that any covenant contained in Section 8 is held to be invalid,
         illegal or unenforceable because of the extent of activities, duration
         of such covenant, the

                                       10


         geographic area covered thereby, or otherwise, the parties agree that
         the court making such determination shall reform such covenant to
         include as much of its nature and scope as will render it enforceable
         and, in its reduced form, said covenant shall be valid, legal and
         enforceable to the fullest extent of the law.

                  (b)      The Executive acknowledges and agrees that, upon any
         breach by the Executive of his obligations under Section 8 hereof, the
         Employer will have no adequate remedy at law, and accordingly will be
         entitled to specific performance and other appropriate injunctive and
         equitable relief, notwithstanding Section 10 hereof. Nothing herein
         shall be construed as prohibiting the Employer from pursuing any other
         remedies available to it, including the recovery of damages from the
         Executive.

10.      Mediation and Arbitration.

         If the Executive and the Employer have any dispute whatsoever relating
to the interpretation, validity or performance of this Agreement, or any other
dispute arising out of this Agreement, every reasonable attempt will be made to
resolve any differences or dispute within thirty (30) days of an issuance of
written notice by either party to the other party.

         If a successful resolution of any differences or dispute has not been
achieved to the satisfaction of both parties at the end of the 30-day period,
the following steps will be used:

                  Except as otherwise expressly provided hereunder, the parties
         agree that any and all differences or disputes arising out of the
         Executive's employment or cessation of employment, including but not
         limited to any dispute, controversy, or claim arising under any
         federal, state, or local statute, law, ordinance or regulation or under
         this Agreement, shall be resolved exclusively by Alternative Dispute
         Resolution described in this Agreement ("ADR"). The initiation of ADR
         shall first require mediation, and the parties agree to first try to
         settle any dispute through mediation. Mediation shall be initiated by
         either party by the serving of a written notice of intent to mediate (a
         "Mediation Notice") by one party upon the other. If no resolution has
         been mutually agreed through mediation within ninety (90) days of
         service of a Mediation Notice, then and only then may the dispute be
         submitted to arbitration. Arbitration shall be initiated by the serving
         of a written notice of intent to arbitrate (an "Arbitration Notice") by
         one party upon the other. Notwithstanding the foregoing, nothing in
         this Agreement shall be deemed to preclude the Employer from seeking
         temporary or permanent injunctive relief and/or damages from a court of
         competent jurisdiction with respect to any breach of Section 8 of this
         Agreement.

                  In the event that a party wishes to initiate ADR, a Mediation
         Notice must be served on the other party within six (6) months from the
         date on which the claim arose. If the parties cannot mutually agree on
         a mediator, then a mediator shall be selected in

                                       11


         accordance with the Employment Mediation Rules of the American
         Arbitration Association.

                  In the event that mediation is unsuccessful and arbitration is
         initiated, it shall be conducted under the National Rules of the
         Resolution of Employment Disputes of the American Arbitration
         Association. There shall be a single arbitrator to be agreed upon by
         the parties, provided that, if the parties are unable to agree upon a
         single arbitrator, each party shall name an arbitrator and the two so
         named shall name a third arbitrator The arbitration proceedings shall
         be heard by the arbitrator(s) and the decision of the arbitrator, or
         the majority of the panel if one has been selected, shall be final and
         binding on the parties. Judgment upon the arbitration award may be
         entered in any court of competent jurisdiction. An Arbitration Notice
         must be served on the other party within one (1) year from the date on
         which the claim arose, and the failure to bring such a claim within
         such one-year period shall constitute a waiver of such claim and an
         absolute bar to any further proceedings in any forum with respect to
         it. All mediation and arbitration proceedings shall be conducted in
         Bangor, Maine, unless the parties otherwise agree in writing.

         The cost of any mediation proceeding under this Section 10 will be paid
by the Employer. The cost of any arbitration proceeding will be shared equally
by the parties to the dispute; provided, however, that, if the dispute is
resolved in favor of the Executive, such cost shall be paid in full by the
Employer.

11.      Post-Termination Obligations.

         All payments and benefits due to the Executive under this Agreement
shall be subject to the Executive's compliance with this Section 11 for one full
year following the Executive's Date of Termination. The Executive shall, upon
reasonable notice, furnish such information and assistance to the Employer, the
Holding Company and the Bank as may reasonably be required by the Employer, the
Holding Company or the Bank in connection with any litigation in which it or any
of its subsidiaries or affiliates is, or may become, a party.

12.      General Provisions.

                  (a)      All notices required by this Agreement shall be in
         writing and shall be sufficiently given if delivered personally or
         mailed by registered mail or certified mail, return receipt requested,
         to the parties at their then current addresses. All notices shall be
         deemed to have been given as of the date so delivered or mailed.

                  (b)      This Agreement and the plans and agreements described
         in Section 5(b) contain the entire transaction between the parties, and
         there are no other representations, warranties, conditions or
         agreements relating to the subject matter thereof.

                                       12


                  (c)      The waiver by any party of any breach or default of
         any provision of this Agreement shall not operate or be construed as a
         waiver of any subsequent breach.

                  (d)      This Agreement may not be changed orally but only by
         an agreement in writing executed on behalf of the party against which
         enforcement of any waiver, change, modification, consent or discharge
         is sought.

                  (e)      This Agreement shall be binding upon and inure to the
         benefit of the Employer and the Executive and their respective
         successors, assigns, heirs and legal representatives (including, but
         not limited to, any successor of the Employer described in Section 7).

                  (f)      Each of the parties agrees to execute all further
         instruments and documents and to take all further action as the other
         party may reasonably request in order to effectuate the terms and
         purposes of this Agreement.

                  (g)      This Agreement may be executed in one or more
         counterparts, all of which taken together shall constitute one and the
         same instrument.

                  (h)      This Agreement shall be construed pursuant to and in
         accordance with the laws of the State of Maine. Actions brought by the
         Employer under this Agreement shall be subject to the exclusive
         jurisdiction of the state and federal courts of Maine. Both parties
         consent to the personal jurisdiction of such courts for such actions,
         and agree that they may be served with process in accordance with
         Section 12(a).

                  (i)      The Executive acknowledges that he has had a full and
         complete opportunity to review the terms, enforceability and
         implications of this Agreement, and that the Employer has not made any
         representations or warranties to the Executive concerning the terms,
         enforceability and implications of this Agreement other than as are
         reflected in this Agreement.

                                       13


         IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the _____ day of ______________, 20____.

Witness:                            EMPLOYER:
                                    BAR HARBOR BANKSHARES

_________________________           By____________________________

                                      Title:

Witness:                            EXECUTIVE:

___________________________         ______________________________
                                    Gerald Shencavitz

                                       14

EX-10.5

                                                                    EXHIBIT 10.5

                       CHANGE IN CONTROL, CONFIDENTIALITY
                          AND NONCOMPETITION AGREEMENT

         This Agreement is effective as of the 7th day of November, 2003 by and
between BAR HARBOR BANKING AND TRUST COMPANY, a Maine corporation with its
principal office at 82 Main Street, P.O. Box 400, Bar Harbor, ME 04609-0400 (the
"Employer"), and DEAN S. READ of Bar Harbor ME (the "Executive").

                              W I T N E S S E T H:

         WHEREAS, Bar Harbor Banking and Trust Company is a wholly-owned
subsidiary of Bar Harbor Bankshares; and

         WHEREAS, the Executive is an employee of the Employer; and

         WHEREAS, the Employer desires to enhance the ability of the Employer to
retain the services of the Executive and to reward the Executive for his
valuable, dedicated service to the Employer in the event of his termination of
employment in connection with a change in control.

         NOW, THEREFORE, the parties hereto do hereby agree as follows:

1.       Definitions

         1.1.     Bank shall mean Bar Harbor Banking and Trust Company.

         1.2.     Base Compensation shall mean the annual base salary payable by
the Employer to the Executive, excluding any bonuses, incentive compensation and
other forms of additional compensation.

         1.3.     Cause shall be deemed to exist only in the event the Executive
is convicted by a court of competent jurisdiction of a felony involving
dishonesty or fraud on the part of the Executive in his relationship with the
Employer, the Holding Company or the Bank.

         1.4.     Change in Control shall mean the occurrence of any one of the
following events:

                  (a)      Any person, including a group (as such term is used
         in Section 13(d) of the Securities Exchange Act of 1934, as amended
         (the "Exchange Act")) becomes the beneficial owner (as determined
         pursuant to Rule 13d-3 under the Exchange Act), directly or indirectly,
         of securities of Bar Harbor Bankshares representing more than fifty
         percent (50%) of the combined voting power of Bar Harbor Bankshares'
         then outstanding securities, other than as a result of an issuance of
         securities initiated by Bar Harbor Bankshares in the ordinary course of
         its business; or



                  (b)      Bar Harbor Bankshares is party to a Business
         Combination (as hereinafter defined) unless, following consummation of
         the Business Combination, more than fifty percent (50%) of the
         outstanding voting securities of the resulting entity are beneficially
         owned, directly or indirectly, by the holders of Bar Harbor Bankshares'
         outstanding voting securities immediately prior to the Business
         Combination in substantially the same proportions as those existing
         immediately prior to the Business Combination; or

                  (c)      The stockholders of Bar Harbor Bankshares approve a
         plan of complete liquidation of Bar Harbor Bankshares or an agreement
         for the sale or disposition by Bar Harbor Bankshares of all or
         substantially all of Bar Harbor Bankshares' assets to another person or
         entity that is not a wholly owned subsidiary of Bar Harbor Bankshares.

         For purposes of this Section 1.4, a Business Combination means any cash
tender or exchange offer, merger or other business combination, sale of stock,
or sale of all or substantially all of the assets, or any combination of the
foregoing transactions.

         For purposes of this Section 1.4, a Change in Control shall exclude any
internal corporate change, reorganization or other such event, which occurred
prior to or may occur following the date of this Agreement.

         1.5.     Code shall mean the Internal Revenue Code of 1986, as amended,
and as it may be amended from time to time, together with the rules and
regulations promulgated under such code.

         1.6.     Date of Termination shall mean:

                  (a)      If the Executive's employment is terminated for
         Disability, thirty (30) days after Notice of Termination for Disability
         is given by the Employer to the Executive and the Executive shall not
         have returned to the performance of his duties on a full-time basis
         during such thirty (30) day period;

                  (b)      If the Executive's employment is terminated by the
         Employer for Cause or by the Executive for Good Reason, the date
         specified in the Notice of Termination, but not earlier than the date
         on which such Notice of Termination is given; and

                  (c)      If the Executive's employment is terminated or
         terminates for any other reason, the date on which the Executive ceases
         to perform services for the Employer as a common law employee.

         1.7      Disability shall mean a permanent and total disability (as
defined in the Employer's long term disability plan) which is incurred by the
Executive while he is employed by the Employer and which makes the Executive
eligible to receive a disability income under the Employer's long term
disability insurance plan. Such disability shall be deemed to exist only if an
application for benefits is filed with the administrator of the Employer's long
term disability

                                       2


insurance plan by or on behalf of the Executive and is approved by the
administrator, each in the manner described in such long term disability
insurance plan.

         1.8      Employer shall mean the Bank.

         1.9.     Good Reason shall mean, unless the Executive consents to such
action, a reduction in the Executive's compensation that does not apply
generally to all senior executive officers of the Employer, the Holding Company
and the Bank, a material reduction in the duties of the Executive, or a change
in the principal worksite of the Executive to a location that is more than fifty
(50) miles from Bar Harbor, Maine. Notwithstanding the above, Good Reason shall
not include any reorganization of the board of directors of the Holding Company
or the Bank, or any change in the Executive's position with the Holding Company
or the Bank, that occurred prior to the date of this Agreement.

         1.10.    Holding Company shall mean Bar Harbor Bankshares, its
subsidiaries and affiliates.

         1.11.    Notice of Termination shall mean the notice provided pursuant
to Section 3.

2.       Severance Benefits.

         In the event that: (a) the Employer terminates the Executive's
employment other than as a result of Disability and other than for Cause, or the
Executive terminates his employment for Good Reason; and (b) the Executive's
termination of employment occurs in anticipation of or after a Change in
Control, then the Employer shall pay the Executive the severance benefits
described in this Section 2. The Executive's termination of employment shall be
deemed to be in anticipation of a Change in Control if it occurs within the
twelve (12) month period prior to the occurrence of the Change in Control.

         The severance benefits described in this Section 2 shall equal the
following:

                  (a)      The Executive shall receive a lump sum severance
         payment within five (5) days after the Date of Termination. Such
         payment shall equal 1.5 times the Executive's Base Compensation,
         determined as of the Date of Termination.

                  (b)      The Executive and his dependents shall continue to be
         eligible to receive the same medical, health, dental and life insurance
         benefits which the Executive is eligible to receive on the Date of
         Termination. The Executive shall be required to make the same premium
         contributions that he was required to make immediately prior to the
         Date of Termination. The ability of the Executive and his dependents to
         receive such benefits shall continue for a period of eighteen (18)
         months following the Date of Termination.

                                       3


                  (c)      In the event of a Change of Control, all stock
         options granted but unexercised under the Bar Harbor Bankshares and
         Subsidiaries Incentive Stock Option Plan of 2000 or any other
         subsequent equity plan shall become 100% vested immediately prior to
         any such Change of Control. These grants will remain subject to all
         other terms and conditions in the Bar Harbor Bankshares and
         Subsidiaries Incentive Stock Option Plan of 2000 or any subsequent
         equity plan.

         The Executive shall not be required to mitigate the amount of any
severance benefits described in this Section 2 by seeking other employment.

3.       Notice of Termination.

         Any termination of the Executive's employment by the Employer due to
Disability or for Cause, or by the Executive due to Good Reason, shall be
communicated by written Notice of Termination to the other party.
Notwithstanding the above, however, the Executive shall not be entitled to give
a Notice of Termination that the Executive is terminating employment for Good
Reason more than six (6) months following the occurrence of the event alleged to
constitute Good Reason.

         A Notice of Termination must indicate the specific provisions in this
Agreement which are relied upon as the basis for the termination of the
Executive's employment, and must also set forth in reasonable detail the facts
and circumstances claimed to provide the basis for such termination under the
provisions so indicated.

4.       Loss of Severance Benefits.

         If the Employer shall terminate the Executive's employment due to
Disability or for Cause, or if the Executive shall terminate his employment
other than for Good Reason, or if the Executive shall die, then the Executive
shall have no right to receive any severance benefits under this Agreement.

5.       No Other Benefits Payable.

                  (a)      If the Executive is entitled to receive the severance
         benefits described in Section 2 of this Agreement, he shall not be
         entitled to receive: (i) any severance benefits under the terms of any
         general severance pay policy or plan of the Employer, the Holding
         Company or the Bank; or (ii) any other compensation, benefits or
         payments under the terms of any other plan of, or agreement with, the
         Employer, the Holding Company or the Bank.

                  (b)      Notwithstanding the above, the Executive shall be
         entitled to receive any compensation, benefits or payments which are
         specifically authorized by the terms of any plan of, or agreement with,
         the Employer, the Holding Company or the Bank to be paid in addition to
         the severance benefits described in Section 2 of this Agreement.
         Moreover,

                                       4


         notwithstanding the above, the Executive shall be entitled to receive,
         in addition to the severance benefits described in Section 2 of this
         Agreement, any compensation, benefits or payments which the Executive
         is entitled to receive under: (i) the Bar Harbor Bankshares
         Supplemental Executive Retirement Plan; (ii) any incentive compensation
         plan maintained by the Employer, the Holding Company or the Bank which
         provides for payment to a terminated employee of incentive compensation
         earned by the employee prior to his or her termination of employment;
         or (iii) any payroll plan or policy of the Employer, the Holding
         Company or the Bank which provides for payment to a terminated employee
         of any unpaid vacation, holiday or sick pay accrued by the employee
         prior to his or her termination of employment.

6.       Certain Additional Payments by the Employer.

                  (a)      Anything in this Agreement to the contrary
         notwithstanding and except as set forth below, in the event it shall be
         determined that any payment or distribution made at any time by the
         Employer or to or for the benefit of the Executive (whether paid or
         payable, or distributed or distributable, pursuant to the terms of this
         Agreement or otherwise, but determined without regard to any additional
         payments required under this Section 6) (a "Payment") would be subject
         to the excise tax imposed by Section 4999 of the Code, or any interest
         or penalties are incurred by the Executive with respect to such excise
         tax (such excise tax, together with any such interest and penalties,
         are hereinafter collectively referred to as the "Excise Tax"), then the
         Executive shall be entitled to receive an additional payment (a
         "Gross-Up Payment"). The Gross-Up Payment shall equal such an amount
         that, after payment by the Executive of all taxes (including, without
         limitation, any federal, state or local income taxes, Social Security
         taxes and Medicare taxes, and any interest or penalties imposed with
         respect thereto) and Excise Tax imposed upon the Gross-Up Payment, the
         Executive retains an amount of the Gross-Up Payment equal to the Excise
         Tax imposed upon the Payments. Notwithstanding the foregoing provisions
         of this Section 6(a), if it shall be determined that the Executive is
         entitled to a Gross-Up Payment, but that the Payments do not exceed
         110% of the greatest amount (the "Reduced Amount") that could be paid
         to the Executive such that the receipt of Payments would not give rise
         to any Excise Tax, then no Gross-Up Payment shall be made to the
         Executive and the Payments, in the aggregate, shall be reduced to the
         Reduced Amount.

                  (b)      Subject to the provisions of Section 6(d), all
         determinations required to be made under this Section 6 (including,
         without limitation, whether and when a Gross-Up Payment is required,
         the amount of such Gross-Up Payment, and the assumptions to be utilized
         in arriving at such determination) shall be made by KPMG Peat Marwick
         or such other certified public accounting firm as may be designated by
         the Executive (the "Accounting Firm"). The Accounting Firm shall
         provide detailed supporting calculations both to the Employer and to
         the Executive within fifteen (15) business days after the receipt of
         notice from the Executive that there has been a Payment, or such
         earlier time as is requested by the Employer. In the event that the
         Accounting Firm is serving as

                                       5


         accountant or auditor for the individual, entity or group effecting the
         Change of Control, the Executive shall appoint another nationally
         recognized accounting firm to make the determinations required
         hereunder (which accounting firm shall then be referred to as the
         Accounting Firm hereunder). All fees and expenses of the Accounting
         Firm shall be borne solely by the Employer. Any Gross-Up Payment, as
         determined pursuant to this Section 6, shall be paid by the Employer to
         the Executive within five (5) days after its receipt of the Accounting
         Firm's determination. Any determination by the Accounting Firm shall be
         binding upon the Employer and the Executive.

                  (c)      As a result of the uncertainty in the application of
         Section 4999 of the Code at the time of the initial determination by
         the Accounting Firm hereunder, it is possible that Gross-Up Payments
         which will not have been made by the Employer should have been made
         ("Underpayment"), consistent with the calculations required to be made
         hereunder. In the event that the Employer exhausts its remedies
         pursuant to Section 6(d) and the Executive thereafter is required to
         make a payment of any Excise Tax, the Accounting Firm shall determine
         the amount of the Underpayment that has occurred, and any such
         Underpayment shall be promptly paid by the Employer to or for the
         benefit of the Executive.

                  (d)      The Executive shall notify the Employer in writing of
         any claim by the Internal Revenue Service or any other taxing authority
         that, if successful, would require the payment by the Employer of a
         Gross-Up Payment. Such notification shall be given as soon as
         practicable, but no later than ten (10) business days after the
         Executive is informed in writing of such claim. The notification shall
         apprise the Employer of the nature of such claim and the date on which
         such claim is requested to be paid. The Executive shall not pay such
         claim prior to the expiration of the thirty (30) day period following
         the date on which it gives such notice to the Employer (or such shorter
         period ending on the date that any payment of taxes with respect to
         such claim is due). If the Employer notifies the Executive in writing
         prior to the expiration of such period that it desires to contest such
         claim, the Executive shall:

                           (i)      give the Employer any information reasonably
                  requested by the Employer relating to such claim;

                           (ii)     take such action in connection with
                  contesting such claim as the Employer shall reasonably request
                  in writing from time to time, including, without limitation,
                  accepting legal representation with respect to such claim by
                  an attorney reasonably selected by the Employer;

                           (iii)    cooperate with the Employer in good faith in
                  order effectively to contest such claim; and

                           (iv)     permit the Employer to participate in any
                  proceedings relating to such claim;

                                       6


         provided, however, that the Employer shall bear and pay directly all
         costs and expenses (including additional interest and penalties)
         incurred in connection with such contest, and shall indemnify and hold
         the Executive harmless, on an after-tax basis, for any Excise Tax or
         other taxes (including interest and penalties with respect thereto)
         imposed as a result of such representation and the payment of any costs
         and expenses. Without limitation on the foregoing provisions of this
         Section 6(d), the Employer shall control all proceedings taken in
         connection with such contest and, at its sole option, may pursue or
         forego any and all administrative appeals, proceedings, hearings and
         conferences with the taxing authority in respect of such claim, and
         may, at its sole option, either direct the Executive to pay the tax
         claimed and sue for a refund or contest the claim in any permissible
         manner. The Executive agrees to prosecute any such contest to a
         determination before any administrative tribunal, in a court of initial
         jurisdiction, and in one or more appellate courts, as the Employer
         shall determine; provided, however, that if the Employer directs the
         Executive to pay such claim and sue for a refund, the Employer shall
         advance the amount of such payment to the Executive on an interest-free
         basis, and shall indemnify and hold the Executive harmless, on an
         after-tax basis, from any Excise Tax or other taxes (including interest
         or penalties with respect thereto) imposed with respect to such advance
         or with respect to any imputed income with respect to such advance; and
         further provided, that any extension of the statute of limitations
         relating to the payment of taxes for the taxable year of the Executive
         with respect to which such contested amount is claimed to be due is
         limited solely to such contested amount. Furthermore, the Employer's
         control of the contest shall be limited to issues with respect to which
         a Gross-Up Payment would be payable hereunder, and the Executive shall
         be entitled to settle or contest, as the case may be, any other issue
         raised by the Internal Revenue Service or any other taxing authority.

                  (e)      If, after the receipt by the Executive of an amount
         advanced by the Employer pursuant to Section 6(d), the Executive
         becomes entitled to receive any refund with respect to such claim, the
         Executive shall (subject to the Employer's complying with the
         requirements of Section 6(d)) promptly pay to the Employer the amount
         of such refund (together with any interest paid or credited thereon,
         after taxes applicable thereto). If, after the receipt by the Executive
         of an amount advanced by the Employer pursuant to Section 6(d), a
         determination is made that the Executive shall not be entitled to any
         refund with respect to such claim and the Employer does not notify the
         Executive in writing of its intent to contest such denial of refund
         prior to the expiration of thirty (30) days after such determination,
         then such advance shall be forgiven and shall not be required to be
         repaid, and the amount of such advance shall offset, to the extent
         thereof, the amount of the Gross-Up Payment required to be paid.

7.       Successors.

                  (a)      The Employer will require any successor (whether
         direct or indirect, by purchase, merger, consolidation or otherwise) to
         all or substantially all of the business

                                       7


         and/or assets of the Employer to expressly assume and agree to perform
         its obligations under this Agreement in the same manner and to the same
         extent that the Employer would be required to perform them if no such
         succession had taken place. Each such successor shall execute a written
         agreement evidencing its assumption of the Employer's obligations under
         this Agreement prior to the effective date of any such purchase,
         merger, consolidation or other transaction.

                  (b)      The failure of the Employer to obtain from each
         successor the written agreement described in Section 7(a) shall be a
         breach of the obligations of the Employer under this Agreement, and
         shall entitle the Executive to compensation from the Employer in the
         same amount and on the same terms as he would be entitled hereunder if
         the Employer had terminated the Executive's employment after a Change
         in Control other than for Disability or Cause; except that, for
         purposes of implementing the foregoing, the date on which any such
         succession becomes effective shall be deemed to be the Date of
         Termination.

                  (c)      As used in this Section 7, the Employer shall include
         the Employer, the Holding Company, the Bank, and any successor to all
         or substantially all of the business and/or assets of any of them
         (whether direct or indirect, by purchase, merger, consolidation or
         otherwise) which executes and delivers the written agreement described
         in Section 7(a) or which otherwise becomes bound by all the terms and
         provisions of this Agreement.

8.       Confidential Information, Non Competition Obligations, and
         Non-Solicitation.

                  (a)      Confidential Information

                  The Executive recognizes and acknowledges that certain assets
         of the Holding Company, the Bank, or any of their affiliates or
         subsidiaries constitutes Confidential Information.

                  For purposes hereof, the term "Confidential Information" means
         any and all information and compilations of information, in whatever
         form or medium (including any copies thereof), relating to any part of
         the business of the Holding Company, the Bank or any of their
         subsidiaries or affiliates, or the business of their customers,
         provided to the Executive, or which the Executive obtained or compiled
         or had obtained or compiled on his behalf, which information or
         compilations of information are not a matter of public record or
         generally known to the public, including without limitation:

                           (i)      Financial information regarding the Holding
                  Company, the Bank, or any of their subsidiaries or affiliates;

                                       8


                           (ii)     Personnel data, including compensation
                  arrangements relating to the Executive or any other employees
                  of the Holding Company, the Bank, or any of their subsidiaries
                  or affiliates;

                           (iii)    Internal plans, practices, and procedures of
                  the Holding Company, the Bank or any of their subsidiaries or
                  affiliates;

                           (iv)     The names, portfolio information, investment
                  strategies, requirements, lending or deposit information, or
                  any similar information of any customers, clients, or
                  prospects of the Holding Company, the Bank, or any of their
                  subsidiaries or affiliates;

                           (v)      Business methods and marketing strategies of
                  the Holding Company, the Bank, or any of their subsidiaries or
                  affiliates;

                           (vi)     Any other information expressly deemed
                  confidential by the officers and directors of the Holding
                  Company, the Bank, or any of their subsidiaries or affiliates;
                  and

                           (viii)   The terms and conditions of the Agreement
                  and any documents or instruments executed in connection
                  herewith that are not of public record.

                  The Executive shall not, without the prior written consent of
         the Holding Company, the Bank, or any of their subsidiaries or
         affiliates, use or disclose, or negligently permit any unauthorized
         person to use, disclose, or gain access to, any Confidential
         Information.

                  Upon termination of employment, the Executive hereby agrees to
         deliver promptly to the Holding Company, the Bank, or any of their
         affiliates or subsidiaries all memoranda, notes, records, manuals, or
         other documents, including all copies of such materials, containing
         Confidential Information, whether made or compiled by the Executive or
         furnished to him from any source by virtue of the Executive's
         relationship with the Holding Company, the Bank, or any of their
         subsidiaries or affiliates.

                  Regardless of the reason for his cessation of employment, the
         Executive will furnish such information as may be in the Executive's
         possession and cooperate with the Holding Company, the Bank, or any of
         their affiliates or subsidiaries as may reasonably be requested in
         connection with any claims or legal actions in which the Holding
         Company, the Bank, or any of their subsidiaries or affiliates are or
         may become a party. The Employer will reimburse the Executive for any
         reasonable out-of-pocket expenses the Executive incurs in order to
         satisfy his obligations under this clause.

                                       9


                  (b)      Non-Competition Obligations

                  In consideration of the covenants of the Employer contained
         herein, the Executive covenants and agrees with the Employer that,
         during the " Non-Compete Period" (as hereinafter defined) and within a
         one hundred fifty (150) "air" mile radius from Bar Harbor, Maine, the
         Executive shall not without specific written approval, directly or
         indirectly:

                           (i)      Engage in any insurance, brokerage, trust,
                  banking, or other financial services as an owner, employee,
                  consultant, representative, or in any other capacity;

                           (ii)     Directly or indirectly request or advise any
                  past, present, or future customers of the Holding Company, the
                  Bank or any of their subsidiaries or affiliates to withdraw,
                  curtail, or cancel his or her or its business with the Holding
                  Company, the Bank, or any of their subsidiaries or affiliates;

                           (iii)    Directly or indirectly cause, suggest, or
                  induce others to call on any past, present, or future
                  customers of the Holding Company, the Bank or any of their
                  affiliated entities; or

                           (iv)     Canvas, solicit, or accept any business on
                  behalf of any other bank, insurance agency, trust, or other
                  financial services business, other than the Holding Company,
                  the Bank or any of their affiliated entities, from any past or
                  present customer of the Holding Company, the Bank or any of
                  their affiliated entities.

                  The "Non-Compete Period" shall commence on the date hereof and
         terminate one (1) year after the cessation of the Executive's
         employment with the Employer and all of its affiliates, regardless of
         reason, whether or not pursuant to this Agreement.

         (c)      Non-Solicitation of Employees

                  While employed by the Employer, and for one (1) year following
         cessation of his employment with the Employer and all of its affiliates
         for any reason, the Executive shall not, directly or indirectly, by any
         means or device whatsoever, for himself or on behalf of, or in
         conjunction with, any other person, partnership or corporation,
         solicit, entice, hire, or attempt to hire or employ any employee of the
         Holding Company, the Bank or any of their affiliated entities.

                  During this Agreement, the Executive shall not interview or
         negotiate employment with, or accept employment from, a competitor in
         the market area described in Section 8(b) above except with the written
         consent of the Employer.

                                       10


9.       Reformation; Injunctive Relief.

                  (a)      All the parties hereto acknowledge that the parties
         have carefully considered the nature and scope of this Agreement. The
         activities, period and area covered by Section 8 are expressly
         acknowledged and agreed to be fair, reasonable and necessary. To the
         extent that any covenant contained in Section 8 is held to be invalid,
         illegal or unenforceable because of the extent of activities, duration
         of such covenant, the geographic area covered thereby, or otherwise,
         the parties agree that the court making such determination shall reform
         such covenant to include as much of its nature and scope as will render
         it enforceable and, in its reduced form, said covenant shall be valid,
         legal and enforceable to the fullest extent of the law.

                  (b)      The Executive acknowledges and agrees that, upon any
         breach by the Executive of his obligations under Section 8 hereof, the
         Employer will have no adequate remedy at law, and accordingly will be
         entitled to specific performance and other appropriate injunctive and
         equitable relief, notwithstanding Section 10 hereof. Nothing herein
         shall be construed as prohibiting the Employer from pursuing any other
         remedies available to it, including the recovery of damages from the
         Executive.

10.      Mediation and Arbitration.

         If the Executive and the Employer have any dispute whatsoever relating
to the interpretation, validity or performance of this Agreement, or any other
dispute arising out of this Agreement, every reasonable attempt will be made to
resolve any differences or dispute within thirty (30) days of an issuance of
written notice by either party to the other party.

         If a successful resolution of any differences or dispute has not been
achieved to the satisfaction of both parties at the end of the 30-day period,
the following steps will be used:

                  Except as otherwise expressly provided hereunder, the parties
         agree that any and all differences or disputes arising out of the
         Executive's employment or cessation of employment, including but not
         limited to any dispute, controversy, or claim arising under any
         federal, state, or local statute, law, ordinance or regulation or under
         this Agreement, shall be resolved exclusively by Alternative Dispute
         Resolution described in this Agreement ("ADR"). The initiation of ADR
         shall first require mediation, and the parties agree to first try to
         settle any dispute through mediation. Mediation shall be initiated by
         either party by the serving of a written notice of intent to mediate (a
         "Mediation Notice") by one party upon the other. If no resolution has
         been mutually agreed through mediation within ninety (90) days of
         service of a Mediation Notice, then and only then may the dispute be
         submitted to arbitration. Arbitration shall be initiated by the serving
         of a written notice of intent to arbitrate (an "Arbitration Notice") by
         one party upon the other. Notwithstanding the foregoing, nothing in
         this Agreement shall be deemed to preclude

                                       11


         the Employer from seeking temporary or permanent injunctive relief
         and/or damages from a court of competent jurisdiction with respect to
         any breach of Section 8 of this Agreement.

                  In the event that a party wishes to initiate ADR, a Mediation
         Notice must be served on the other party within six (6) months from the
         date on which the claim arose. If the parties cannot mutually agree on
         a mediator, then a mediator shall be selected in accordance with the
         Employment Mediation Rules of the American Arbitration Association.

                  In the event that mediation is unsuccessful and arbitration is
         initiated, it shall be conducted under the National Rules of the
         Resolution of Employment Disputes of the American Arbitration
         Association. There shall be a single arbitrator to be agreed upon by
         the parties, provided that, if the parties are unable to agree upon a
         single arbitrator, each party shall name an arbitrator and the two so
         named shall name a third arbitrator The arbitration proceedings shall
         be heard by the arbitrator(s) and the decision of the arbitrator, or
         the majority of the panel if one has been selected, shall be final and
         binding on the parties. Judgment upon the arbitration award may be
         entered in any court of competent jurisdiction. An Arbitration Notice
         must be served on the other party within one (1) year from the date on
         which the claim arose, and the failure to bring such a claim within
         such one-year period shall constitute a waiver of such claim and an
         absolute bar to any further proceedings in any forum with respect to
         it. All mediation and arbitration proceedings shall be conducted in
         Bangor, Maine, unless the parties otherwise agree in writing.

         The cost of any mediation proceeding under this Section 10 will be paid
by the Employer. The cost of any arbitration proceeding will be shared equally
by the parties to the dispute; provided, however, that, if the dispute is
resolved in favor of the Executive, such cost shall be paid in full by the
Employer.

11.      Post-Termination Obligations.

         All payments and benefits due to the Executive under this Agreement
shall be subject to the Executive's compliance with this Section 11 for one full
year following the Executive's Date of Termination. The Executive shall, upon
reasonable notice, furnish such information and assistance to the Employer, the
Holding Company and the Bank as may reasonably be required by the Employer, the
Holding Company or the Bank in connection with any litigation in which it or any
of its subsidiaries or affiliates is, or may become, a party.

12.      General Provisions.

                  (a)      All notices required by this Agreement shall be in
         writing and shall be sufficiently given if delivered personally or
         mailed by registered mail or certified mail,

                                       12


         return receipt requested, to the parties at their then current
         addresses. All notices shall be deemed to have been given as of the
         date so delivered or mailed.

                  (b)      This Agreement and the plans and agreements described
         in Section 5(b) contain the entire transaction between the parties, and
         there are no other representations, warranties, conditions or
         agreements relating to the subject matter thereof.

                  (c)      The waiver by any party of any breach or default of
         any provision of this Agreement shall not operate or be construed as a
         waiver of any subsequent breach.

                  (d)      This Agreement may not be changed orally but only by
         an agreement in writing executed on behalf of the party against which
         enforcement of any waiver, change, modification, consent or discharge
         is sought.

                  (e)      This Agreement shall be binding upon and inure to the
         benefit of the Employer and the Executive and their respective
         successors, assigns, heirs and legal representatives (including, but
         not limited to, any successor of the Employer described in Section 7).

                  (f)      Each of the parties agrees to execute all further
         instruments and documents and to take all further action as the other
         party may reasonably request in order to effectuate the terms and
         purposes of this Agreement.

                  (g)      This Agreement may be executed in one or more
         counterparts, all of which taken together shall constitute one and the
         same instrument.

                  (h)      This Agreement shall be construed pursuant to and in
         accordance with the laws of the State of Maine. Actions brought by the
         Employer under this Agreement shall be subject to the exclusive
         jurisdiction of the state and federal courts of Maine. Both parties
         consent to the personal jurisdiction of such courts for such actions,
         and agree that they may be served with process in accordance with
         Section 12(a).

                  (i)      The Executive acknowledges that he has had a full and
         complete opportunity to review the terms, enforceability and
         implications of this Agreement, and that the Employer has not made any
         representations or warranties to the Executive concerning the terms,
         enforceability and implications of this Agreement other than as are
         reflected in this Agreement.

                                       13


         IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the _____ day of ______________, 20____.

Witness:                            EMPLOYER:
                                    BAR HARBOR BANKING AND TRUST COMPANY

_________________________           By____________________________

                                      Title:

Witness:                            EXECUTIVE:

_________________________           ______________________________
                                    Dean S. Read

         Bar Harbor Bankshares hereby guarantees and agrees to perform the
obligations of Bar Harbor Banking and Trust Company under the terms of this
Agreement. The liability of Bar Harbor Bankshares under this guarantee is
primary, direct and independent. This guarantee shall be enforceable against Bar
Harbor Bankshares in the same manner as if Bar Harbor Bankshares were the
Employer under the terms of this Agreement.

Witness:                            GUARANTOR:
                                    BAR HARBOR BANKSHARES

_________________________           By____________________________
                                      Title:

                                       14

EX-31.1

                                                                    EXHIBIT 31.1

                                  CERTIFICATION

I, Joseph M. Murphy, certify that:

     1.  I have reviewed this quarterly report on Form 10-Q of Bar Harbor
         Bankshares;

     2.  Based on my knowledge, this quarterly report does not contain any
         untrue statement of a material fact or omit to state a material fact
         necessary to make the statements made, in light of the circumstances
         under which such statements were made, not misleading with respect to
         the period covered by this quarterly report;

     3.  Based on my knowledge, the financial statements, and other financial
         information included in this quarterly report, fairly present in all
         material respects the financial condition, results of operations and
         cash flows of the registrant as of, and for, the periods presented in
         this report;

     4.  The registrant's other certifying officer(s) and I are responsible for
         establishing and maintaining disclosure controls and procedures (as
         defined in Exchange Act Rules 13a-15(e) and 15d-15(e) for the
         registrant and we have:

              a.  designed such disclosure controls and procedures, or caused
                  such disclosure controls and procedures to be designed under
                  our supervision, to ensure that material information relating
                  to the registrant, including its consolidated subsidiaries, is
                  made known to us by others within those entities, particularly
                  during the period in which this quarterly report is being
                  prepared;

              b.  evaluated the effectiveness of this registrant's controls and
                  procedures and presented in this report our conclusions about
                  the effectiveness of the disclosure controls and procedures as
                  of the end of the period covered by this report based on such
                  evaluation; and

              c.  Disclosed in this report any change in the registrant's
                  internal control over financial reporting that occurred during
                  the registrant's most recent fiscal quarter (the registrant's
                  fourth fiscal quarter in the case of an annual report) that
                  has materially affected, or is reasonably likely to materially
                  affect, the registrant's internal control over financial
                  reporting.

     5.  The registrant's other certifying officer(s) and I have disclosed,
         based on our most recent evaluation of internal control over financial
         reporting, to the registrants auditors and the audit committee of
         registrant's board of directors (or persons performing the equivalent
         function):

              a.  all significant deficiencies and material weaknesses in the
                  design or operations of internal control over financial
                  reporting which are reasonably likely to adversely affect the
                  registrant's ability to record, process, summarize and report
                  financial information; and

              b.  any fraud, whether or not material, that involves management
                  or other employees who have a significant role in the
                  registrant's internal control over financial reporting.

Date: November 13, 2003                    /s/ Joseph M. Murphy
                                           --------------------
                                           Joseph M. Murphy
                                           President and Chief Executive Officer

EX-31.2

                                                                    EXHIBIT 31.2

                                  CERTIFICATION

I, Gerald Shencavitz, certify that:

     1.  I have reviewed this quarterly report on Form 10-Q of Bar Harbor
         Bankshares;

     2.  Based on my knowledge, this quarterly report does not contain any
         untrue statement of a material fact or omit to state a material fact
         necessary to make the statements made, in light of the circumstances
         under which such statements were made, not misleading with respect to
         the period covered by this quarterly report;

     3.  Based on my knowledge, the financial statements, and other financial
         information included in this quarterly report, fairly present in all
         material respects the financial condition, results of operations and
         cash flows of the registrant as of, and for, the periods presented in
         this report;

     4.  The registrant's other certifying officer(s) and I are responsible for
         establishing and maintaining disclosure controls and procedures (as
         defined in Exchange Act Rules 13a-15(e) and 15d-15(e) for the
         registrant and we have:

              a.  designed such disclosure controls and procedures, or caused
                  such disclosure controls and procedures to be designed under
                  our supervision, to ensure that material information relating
                  to the registrant, including its consolidated subsidiaries, is
                  made known to us by others within those entities, particularly
                  during the period in which this quarterly report is being
                  prepared;

              b.  evaluated the effectiveness of this registrant's controls and
                  procedures and presented in this report our conclusions about
                  the effectiveness of the disclosure controls and procedures as
                  of the end of the period covered by this report based on such
                  evaluation; and

              c.  Disclosed in this report any change in the registrant's
                  internal control over financial reporting that occurred during
                  the registrant's most recent fiscal quarter (the registrant's
                  fourth fiscal quarter in the case of an annual report) that
                  has materially affected, or is reasonably likely to materially
                  affect, the registrant's internal control over financial
                  reporting.

     5.  The registrant's other certifying officer(s) and I have disclosed,
         based on our most recent evaluation of internal control over financial
         reporting, to the registrants auditors and the audit committee of
         registrant's board of directors (or persons performing the equivalent
         function):

              a.  all significant deficiencies and material weaknesses in the
                  design or operations of internal control over financial
                  reporting which are reasonably likely to adversely affect the
                  registrant's ability to record, process, summarize and report
                  financial information; and

              b.  any fraud, whether or not material, that involves management
                  or other employees who have a significant role in the
                  registrant's internal control over financial reporting.

Date: November 13, 2003                           /s/ Gerald Shencavitz
                                                  ------------------------------
                                                  Gerald Shencavitz
                                                  Chief Financial Officer

EX-32.1

                                                                    EXHIBIT 32.1

                    CERTIFICATION OF CHIEF EXECUTIVE OFFICER

   PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 (18 U.S.C. 1350)

The undersigned executive officer of Bar Harbor Bankshares (the "Registrant")
hereby certifies that the Registrant's Form 10-Q for the period ended September
30, 2003, fully complies with the requirements of Section 13(a) of the
Securities Exchange Act of 1934 and that the information contained therein
fairly presents, in all material respects, the financial condition and results
of operations of the Registrant.

                                                  /s/ Joseph M. Murphy
                                                  ------------------------------
Date: November 13, 2003                           Name:   Joseph M. Murphy
                                                  Title: Chief Executive Officer

EX-32.2

                                                                    EXHIBIT 32.2

                    CERTIFICATION OF CHIEF FINANCIAL OFFICER

   PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 (18 U.S.C. 1350)

The undersigned executive officer of Bar Harbor Bankshares (the "Registrant")
hereby certifies that the Registrant's Form 10-Q for the period ended September
30, 2003, fully complies with the requirements of Section 13(a) of the
Securities Exchange Act of 1934 and that the information contained therein
fairly presents, in all material respects, the financial condition and results
of operations of the Registrant.

                                                /s/ Gerald Shencavitz
                                                -------------------------------
Date: November 13, 2003                         Name:  Gerald Shencavitz
                                                Title:  Chief Financial Officer