Exhibit
      2.1





**MERGER
      AGREEMENT**





THIS
      MERGER AGREEMENT (“Agreement”) is made and entered into as of May 15, 2007, by
      and among HARLEYSVILLE NATIONAL CORPORATION, a Pennsylvania corporation (“HNC”),
      EAST PENN FINANCIAL CORPORATION, a Pennsylvania corporation (“East Penn
      Financial”), and EAST PENN BANK, a Pennsylvania bank (“Bank”).





**BACKGROUND**





A.
      East
      Penn Financial is a registered bank holding company and the sole shareholder
      of
      Bank.  East Penn Financial has approximately 2,751 shareholders of
      record as of the date hereof and its common stock is registered with the U.S.
      Securities and Exchange Commission.





B.
      HNC,
      East Penn Financial and Bank have each determined that it is advisable and
      in
      each of their respective best interests, and consistent with and in furtherance
      of their respective business strategies and goals, that East Penn Financial
      merge with and into HNC, with HNC as the surviving corporation, upon the terms
      and subject to the conditions set forth herein (the “Merger”).





C.
      Each
      of the Parties, by signing this Agreement, adopts it as a plan of reorganization
      as defined in IRC Section 368(a), and intends the Merger to be a reorganization
      as defined in IRC Section 368(a).





D.
      In
      furtherance of this Agreement, the Boards of Directors of HNC, East Penn
      Financial and Bank have each duly, as required by law, approved the execution
      and delivery of this Agreement, and the Directors of East Penn Financial have
      executed a directors support agreement in connection with this transaction
      (“Director Support Agreement”).





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





**ARTICLE
      I**


**DEFINITIONS**





**Section
      1.1 Definitions**Whenever used in this Agreement, the following terms,
      unless the context requires otherwise, shall have the meanings specified below
      in this Article.





“**Acquisition**”
      means an acquisition of substantially all the assets of, or a stock acquisition
      merger, consolidation, business combination, recapitalization, liquidation,
      dissolution or similar transaction in which more than 50% of the voting common
      stock interests or assets of,  East Penn Financial or the Bank, on the
      one hand, or HNC or HNB on the other hand is acquired by a third party then
      unaffiliated with the company which is being acquired or whose assets are being
      acquired.





“**Acquisition
      Proposal**” means any inquiry, proposal or offer, filing of any
      regulatory





application
      or notice, whether in draft or final form, or disclosure of an intention to
      do
      any of the foregoing from any Person relating to any (w) direct or indirect
      acquisition or purchase of a business that constitutes a substantial portion
      of
      the net revenues, net income or net assets of East Penn Financial, (x) direct
      or
      indirect acquisition or purchase of East Penn Financial Common Stock after
      the
      date of this Agreement by a Person who on the date of this Agreement does not
      own 10% or more of East Penn Financial’s Common Stock and such Person by reason
      of such purchase or acquisition first becomes the owner of 10% or more of East
      Penn Financial’s Common Stock after the date of this Agreement or the direct or
      indirect acquisition or purchase of 5% or more of East Penn Financial’s Common
      Stock after the date of this Agreement by a Person who on the date of this
      Agreement owns 10% or more of East Penn Financial’s Common Stock, (y) tender
      offer or exchange offer that if consummated would result in any Person
      beneficially owning 10% or more of any class of equity securities of East Penn
      Financial or (z) merger, consolidation, business combination, recapitalization,
      liquidation, dissolution or similar transaction involving East Penn Financial
      other than the transactions contemplated by this Agreement.





“**Affiliate**”
      means and includes, with respect to the entity in question: (i) any director
      or
      executive officer of the entity in question, (ii) any owner of 5% of more of
      any
      class of voting securities or interests in such entity, and (iii) any Person
      that (directly or indirectly) owns or controls, is owned or controlled by,
      or is
      under common ownership or control with, such entity.





“**Agreement**”
      means this Merger Agreement, as the same may from time to time be amended or
      supplemented (as permitted by the terms of this Agreement) by one or more
      instruments executed by all Parties hereto.





“**Aggregate
      Converted Share Cash**” has the meaning assigned to that term in
      Section 2.2(i).





“**Applicable
      Requirements**” means and includes, as of the time of reference, all
      of the following: (i) all material contractual obligations as set forth in
      the
      Agreement and any Disclosure Schedules or exhibits thereto; (ii) all applicable
      material federal, state and local laws and regulations (including without
      limitation, statutes, rules and regulations) binding upon East Penn Financial,
      the Bank or any Subsidiary; (iii) all other applicable material requirements
      of
      each federal, state or local governmental agency, board, commission,
      instrumentality or other governmental or quasi-governmental body or office;
      and
      (iv) all other applicable material judicial and administrative judgments,
      orders, stipulations, awards, writs and injunctions.





“**Bank
      Merger**” means a merger of Bank with and into HNB as described in
      the Bank Plan of Merger.





“**Bank
      Plan of Merger**” means a Bank Plan of Merger in the form attached to
      this Agreement as **Exhibit 1.1**, completed as indicated therein,
      with such additional provisions as shall be mutually agreeable to the parties
      thereto, and executed by the Bank and HNB.





“**Bank
      Common Stock**” means the shares of common stock of the Bank, par
      value $0.625 per share, authorized for issuance by the Bank.


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“**Bank
      Financial Statements**” shall mean (i) the consolidated quarterly
      report of condition of the Bank as filed with the Bank’s regulators as of any
      fiscal quarter end of the Bank, and (ii) interim calendar month-end financial
      statements of the Bank and its Subsidiaries, stated in the Bank’s customary
      format as of each interim calendar month end.





“**Bank
      Share**” means any share of the Bank Common Stock, and
“**Bank Shares**” means all of them
      collectively.





“**Business
      Day**” means any day except for (i) a Saturday or Sunday, and (ii)
      any other day on which banking institutions in the Commonwealth of Pennsylvania
      are required or permitted by law or by executive order to be
      closed.





“**Cash
      Consideration**” has the meaning assigned to that term in Section
      2.2.





“**Cash
      EPF Share Price**” has the meaning assigned to that term in Section
      2.8.





“**Charter**”
      shall mean the articles of incorporation, certificate of incorporation, articles
      of association or equivalent charter document of East Penn Financial, the Bank,
      a Subsidiary or HNC, as applicable.





“**Claim**”
      means any pending or threatened claim, demand, dispute, litigation or
      proceeding, whether asserted by one or more governmental or judicial agency
      or
      body or one or more private Persons.





“**Closing**”
      shall have the meaning ascribed in Section 2.1(c).





“**Closing
      Date**” means the date on which Closing shall be held.





“**Consent**”
      shall mean any consent, waiver, approval, order or authorization of, or
      registration, declaration or filing with, or notice to, any Person other than
      a
      Regulatory Authority, including but not limited to those (if any) referred
      to on
**East Penn Financial Disclosure Schedule 3.4** or **HNC
      Disclosure Schedule 4.4**.





“**Converted
      Option Shares**” means the number of East Penn Financial Shares
      represented by the East Penn Financial Options that are exercised between the
      date of this Agreement and prior to the Effective Time.





“**Determination
      Date**” means the 11th Business Day prior to the Effective
      Time.





**“****East
      Penn Financial Certificate****”**means
      a certificate that immediately
      prior to the Effective Time represented one or more issued and outstanding
      shares of East Penn Financial Common Stock.





**“****East
      Penn Financial Common Stock****”** has the meaning
      assigned thereto in Section 3.2(a) of this Agreement.


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“**East
      Penn Financial Disclosure Schedule**” means a schedule attached
      hereto, setting forth exceptions to any of the representations, warranties
      and
      covenants of East Penn Financial or the Bank contained herein.





**“****East
      Penn Financial Employment Agreements****”** has the
      meaning assigned thereto in Section 3.8(a).





**“****East
      Penn Financial Employee Benefit Plans****”** has the
      meaning assigned thereto in Section 3.12(a).





“**East
      Penn Financial Equity Plan**” has the meaning assigned thereto in
      Section 3.13.





**“****East
      Penn Financial ERISA Affiliate****”** has the meaning
      assigned thereto in Section 3.12(a).





**“****East
      Penn Financial Option****”**means the rights and
      interests represented by each of the East Penn Financial Stock Options, which
      are convertible upon exercise into an aggregate of 203,248 East Penn Financial
      Shares.





**“****East
      Penn Financial Proxy Statement****”** means the Proxy
      Statement of East Penn Financial on Schedule 14A for its annual meeting in
      2007,
      as heretofore filed with the SEC.





**“****East
      Penn Financial Securities Documents****”** has the
      meaning assigned thereto in Section 3.27.





**“****East
      Penn Financial Share****”**means one (1) share of East
      Penn Financial Common Stock.





“**East
      Penn Financial Shareholders Meeting**” has the meaning provided in
      Section 5.6(a) of this Agreement.





**“****East
      Penn Financial Statements****”** means East Penn
      Financial’s Form 10-K and Annual Report, including the audited consolidated
      financial statements of East Penn Financial as of December 31, 2006, as
      heretofore filed with the SEC.





“**Effective
      Time**” means the effective date and time of the completion of the
      Merger, as determined pursuant to Section 2.1(b), subject to the terms and
      conditions of, this Agreement.





“**Election
      Form**” shall have the meaning assigned thereto in Section
      2.4(c)(i).





“**Encumbrance**”
      shall mean any claim, lien, pledge, option, encumbrance, security
      interest,  charge, right of first refusal, option, easement, security
      interest, deed of trust, mortgage, right-of-way, encroachment, building or
      use
      restriction, conditional sales agreement, restriction, restrictive covenant
      or
      other right of third parties, whether voluntarily incurred or arising by
      operation of law, and includes, without limitation, any agreement to give any
      of
      the foregoing in the future, and any contingent sale or other title retention
      agreement or lease in the nature thereof.


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“**Environmental
      Claim**” shall mean any Claim alleging potential liability
      (including, without limitation, potential liability for investigatory costs,
      cleanup costs, governmental response costs, natural resources damages, property
      damages, personal injuries or penalties) arising out of, based on, or resulting
      from the presence, or release into the environment, of any Hazardous
      Materials.





“**Environmental
      Laws**” shall mean any federal, state or local law, statute,
      ordinance, rule, regulation, code, license, permit, authorization approval,
      consent, order, judgment, decree, injunction or agreement with any governmental
      entity relating to (i) the protection, preservation or restoration of the
      environment (including air, water vapor, surface water, groundwater, drinking
      water supply, surface soil, subsurface soil, plant and animal life or any other
      natural resource), and/or (ii) the use, storage, recycling, treatment,
      generation, transportation, processing, handling, labeling, production, release
      or disposal of Hazardous Materials.  The term Environmental Law
      includes, without limitation, (i) the Comprehensive Environmental Response,
      Compensation and Liability Act, as amended, 42 U.S.C. 9601, et seq.; the
      Resource Conservation and Recovery Act, as amended, 42 U.S.C. 6901, et seq.;
      the
      Clean Air Act, as amended, 42 U.S.C. 7401, et seq.; the Federal Water Pollution
      Control Act, as amended, 33 U.S.C. 1251, et seq.; the Toxic Substances Control
      Act, as amended, 15 U.S.C. 9601, et seq.; the Emergency Planning and Community
      Right to Know Act, 42 U.S.C. 1101, et seq.; the Safe Drinking Water Act, 42
      U.S.C. 300f, et seq.; and all comparable state and local laws, and (ii) any
      common law (including common law that may impose strict liability) that may
      impose liability or obligations for injuries or damages due to, or threatened
      as
      a result of, the presence of or exposure to any Hazardous
      Materials.





“**ERISA**”
      means the Employee Retirement Income Security Act of 1974, as amended, and
      the
      rules and regulations promulgated thereunder.





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





**“****Exchange
      Agent****”** means the agent designated by HNC
      (reasonably promptly following execution of this Agreement) to act as the
      exchange agent for purposes of conducting the election procedures and the
      exchange procedure described in Article II of this Agreement.





**“****Exchange
      Fund****”** has the meaning assigned to that term in
      Section 2.9(a).





“**FDIC**”
      means the Federal Deposit Insurance Corporation.





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





“**GAAP**”
      means those generally accepted accounting principles and practices that are
      recognized as such by the American Institute of Certified Public Accountants
      acting through the Financial Accounting Standards Board or through other
      appropriate boards or committees thereof.





“**Hazardous
      Materials**” includes, without limitation, any flammable explosives,
      radioactive


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materials,
      hazardous materials, asbestos, hazardous wastes, hazardous or toxic substances,
      or other materials or substances regulated under the Environmental
      Laws.





**“****HMS****”**
      means Harleysville Management Services, LLC, an affiliate of HNC.





**“****HNB****”**
      means HNC’s wholly owned subsidiary, The Harleysville National Bank and Trust
      Company, a national banking association.





**“****HNC
      Benefit Plans****”** has the meaning assigned thereto in
      Section 4.13(a).





“**HNC
      Certificate**” has the meaning assigned thereto in Section
      2.9(d).





**“****HNC
      Common Stock****”** means the common stock, par value
      $1.00 per share, that HNC is presently authorized to issue, or the equivalent
      amount of any common stock of HNC or any successor to HNC for which HNC common
      stock may hereafter be exchanged or into which HNC common stock may be
      converted.





“**HNC
      Disclosure Schedule**” means a schedule attached hereto setting forth
      exceptions to any of the representations, warranties and covenants of HNC
      contained herein.





**“****HNC
      ERISA Affiliate****”** has the meaning assigned thereto
      in Section 4.13(a).





“**HNC
      Group**” means HNC and each of its subsidiaries, including without
      limitation HNB.





**“****HNC
      Securities Documents****”** has the meaning assigned
      thereto in Section 4.20.





**“****HNC
      Share****”**means one (1) share of HNC Common
      Stock.





“**IRC**”
      means the Internal Revenue Code of 1986, as amended, and the rules and
      regulations promulgated thereunder.





“**IRS**”
      means the U.S. Internal Revenue Service.





***“*****Material
      Adverse
      Effect*****”*******means, with
      respect to HNC, East Penn Financial or Bank, respectively, any effect that
      (i)
      is material and adverse to the financial position, results of operations or
      business of HNC and its subsidiaries taken as a whole or East Penn Financial
      and
      its Subsidiaries taken as a whole, as the case may be, or (ii) would materially
      impair the ability of any of HNC and its subsidiaries or East Penn Financial
      or
      its Subsidiaries, as the case may be, to perform their respective obligations
      under this Agreement or otherwise materially impede the consummation of the
      Merger; provided, however, that Material Adverse Effect shall not be deemed
      to
      include the impact of (a) changes after the date hereof in banking and similar
      laws of general applicability or interpretations thereof by Governmental
      Authorities, (b) changes after the date hereof in GAAP or regulatory accounting
      requirements applicable to banks, federal savings institutions and their holding
      companies generally, (c) changes after the date hereof in general economic
      or
      market conditions affecting banks and their holding companies generally,
      including changes in interest


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rates,
      (d) public disclosure of the Merger contemplated hereby, (e) costs incurred
      in
      connection with the Merger including, without limitation, change in control
      and
      severance payments, as disclosed herein on the East Penn Financial Disclosure
      Schedules, investment banking fees, legal fees, accounting fees and printing
      costs, in each case in accordance with GAAP and (f) any action or omission
      of
      HNC or any of its subsidiaries, or East Penn Financial or Bank or any other
      of
      the Subsidiaries, as the case may be, taken with the prior consent of the other
      or as otherwise contemplated by this Agreement in connection with the
      consummation of the Merger.





“**Merger
      Consideration**” shall have the meaning assigned to that term in
      Section 2.2.





“**Merger
      Documents**” means this Agreement, the Bank Plan of Merger and all
      other documents, certificates, instruments and agreements executed (or to be
      executed) by any of HNC, East Penn Financial, Bank, or HNB in connection with
      the transactions contemplated by this Agreement.





“**OCC**”
      means the Office of the Comptroller of the Currency of the United States
      Department of Treasury.





“**Option
      Cash-Out Price**” has the meaning assigned to that term in Section
      2.8.





“**Ordinary
      Course of Business**” means the ordinary course of business
      consistent with past custom or practice.





“**Outside
      Effective Time**” means 11:59 p.m. on March 31, 2008.





“**PADOB**”
      means the Department of Banking of the Commonwealth of
      Pennsylvania.





“**Party**”
      or “**Parties**” means East Penn Financial, Bank and HNC, as
      the case may be.





“**Person**”
      means an individual, partnership, limited liability company, corporation
      (including a business trust), joint stock company, trust, unincorporated
      association, joint venture or other entity or a federal, state, local or foreign
      government, or a political subdivision thereof, or any agency of such government
      or subdivision.





“**Prospectus/Proxy
      Statement**” means the prospectus/proxy statement in compliance with
      the standard proxy rules of the SEC whether or not directly applicable, together
      with any supplements thereto, to be sent to holders of East Penn Financial
      Common Stock in connection with East Penn Financial Shareholders Meeting and
      the
      approval of the Merger and this Agreement.





“**Regulatory
      Approvals**” means the approval orders or letters, or statements of
      non-objection, from the Regulatory Authorities that are required in order to
      consummate the transactions identified or contemplated in connection with the
      Merger Documents, including, but not limited to, the approvals referred to
      in
**East Penn Financial Disclosure Schedule 3.4** or**HNC
      Disclosure Schedule 4.4**.


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“**Regulatory
      Filings**” means (i) the filings, notices and registrations with
      applicable regulatory authorities that are required in order to consummate
      the
      transactions identified or contemplated in connection with the Merger Documents,
      (ii) the Securities Filings, (iii) the filings required for Regulatory
      Approvals, including, and (iv) any other filings referred to in **East
      Penn Financial Disclosure Schedule 3.4** or **HNC Disclosure
      Schedule 4.4**.





“**Regulatory
      Authorities**” means, as applicable, the PADOB, the OCC, the FDIC,
      the FRB and any other federal, state or local government or government agency
      having or claiming jurisdiction over Bank, any of the Subsidiaries or the
      transactions contemplated by this Agreement.





“**Resulting
      Bank**” means the banking institution that survives the Bank
      Merger.





“**SEC**”
      means the U.S. Securities and Exchange Commission.





“**Securities
      Filings**” means HNC’s registration statement on Form S-4 including
      any pre-effective or post-effective amendments or supplements thereto, as filed
      with the SEC under the Securities Act with respect to the HNC Common Stock
      to be
      issued in connection with the Merger, together with any applicable state “blue
      sky” securities filings, and the East Penn Financial Proxy Statement including
      any amendments thereto, as filed with the SEC under the Exchange Act in
      connection with the East Penn Financial Shareholders Meeting.





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





**“****Special
      Loan****”** means each loan classified or properly
      classifiable as "Other Loans Specially Mentioned," "Special Mention,"
      "Substandard," "Doubtful," "Loss," "Classified," "Criticized," "Credit Risk
      Assets," "Concerned Loans" or words of similar import.





**“****Special
      REO Property****”** means each property owned by Bank or
      any Subsidiary and acquired for debts or leases previously
      contracted.





“**State
      Corporation Law**” means the Pennsylvania Business Corporation Law,
      as amended.





“**Stock
      Consideration**” has the meaning assigned to that term in Section
      2.2.





“**Subsidiary**”
      shall mean each corporation, partnership, limited partnership, limited liability
      partnership, limited liability company, business trust or other organization
      or
      entity, the majority equity or voting interest in which is owned, directly
      or
      indirectly, by East Penn Financial, the Bank or any other Subsidiary, and
“**Subsidiaries**” means them collectively.





“**Superior
      Proposal**” means any bona fide, unsolicited written Acquisition
      Proposal made by any person or entity, other than HNC, to acquire more than
      50%
      of the combined voting power of the shares of East Penn Financial Common Stock
      then outstanding or all or substantially all of East Penn Financial’s
      consolidated assets for consideration consisting of cash and/or securities
      that
      is on terms that the Board of Directors of East Penn Financial in good faith
      concludes, after consultation


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with
      its
      financial advisors and outside counsel, taking into account, among other things,
      all legal, financial, regulatory and other aspects of the proposal and the
      person making the proposal, including any break-up fees, expense reimbursement
      provisions and conditions to consummation, (A) is on terms that the Board of
      Directors of East Penn Financial in its good faith judgment believes to be
      more
      favorable from a financial point of view to its shareholders than the Merger;
      (B) for which financing, to the extent required, is then fully committed or
      reasonably determined to be available by the Board of Directors of East Penn
      Financial and (C) is reasonably capable of being completed.





“**Tax**”
      means any federal, state, local or foreign taxes, assessments and other
      governmental charges, duties, impositions and liabilities relating to taxes,
      including without limitation, taxes based upon or measured by income, gross
      receipts, license, payroll, employment, excise, severance, stamp, occupation,
      premium, windfall profits, environmental (including without limitation, taxes
      under IRC Section 59A), customs duties, capital stock, franchise, profits,
      withholding, social security (or similar), unemployment, disability, real
      property, personal property, sales, use, transfer, registration, value added,
      recapture, alternative or add-on minimum, estimated, or other tax of any kind
      whatsoever, all of the foregoing together with all interest, penalties, or
      additions thereto, whether disputed or not, and any obligations under any
      agreements or arrangements with any other person with respect to such amounts
      and including any liability for taxes of a predecessor entity.





“**Tax
      Return**” means any return, declaration, report, claim for refund, or
      information return or statement relating to Taxes, including without limitation,
      any schedule or attachment thereto, and including without limitation, any
      amendment thereof.





“**Valuation
      Date**” means the close of business on the last day of the calendar
      month ended on or immediately preceding the Closing Date.





**ARTICLE
      II**


**THE
      MERGER**





**Section
      2.1****The
      Merger; Closing.**





(a)
      Subject to the terms and conditions of this agreement, at the Closing, effective
      as of the Effective Time, the Parties shall effectuate the Merger under the
      following provisions:





(i)
      In
      accordance with State Corporation Law, (A) East Penn Financial shall merge
      with
      and into HNC; (B) the separate existence of East Penn Financial shall cease;
      and
      (C) HNC shall be the surviving corporation in the Merger;




(ii)
      Each
      share of East Penn Financial Common Stock issued and outstanding prior to the
      Effective Time shall be converted into the right to receive Stock Consideration,
      Cash Consideration or a combination of both, as more fully provided in this
      Article II; and




(iii)
      All
      of the property (real, personal or mixed), rights, powers, duties, obligations
      and liabilities of East Penn Financial shall be taken and deemed transferred
      to
      and vest in HNC, as the surviving corporation in the Merger, without further
      act
      or deed.




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(b)
      Upon
      completion of Closing but subject further to the terms hereof, the Parties
      shall
      cause Articles of Merger relating to the Merger to be filed with the Secretary
      of the Commonwealth of Pennsylvania, and the Merger shall become effective
      at a
      date and time, which in all events shall be a time of day after the close of
      trading but before midnight on a Business Day (the “Effective Time”) and,
      subject to the foregoing and the other provisions of this Agreement, shall
      be a
      date and time to be mutually agreed by HNC and East Penn Financial.







(c)
      Closing on the Merger (the “Closing”) shall be held on a date and time to be
      designated by HNC, but no later than ten (10) Business Days after the complete
      satisfaction or waiver of the conditions set forth in this Agreement (other
      than
      conditions that by their nature are to be satisfied at Closing but subject
      nevertheless to fulfillment or waiver of those conditions), at the offices
      of
      HNC at 483 Main Street, Harleysville, Pennsylvania, unless another time or
      place
      is agreed to in writing by the Parties.  Subject to the terms and
      conditions of this Agreement, each of the Parties agrees to use all commercially
      reasonable efforts to cause the Closing to be completed on the earliest
      practicable date.





(d)
      At
      the Closing, East Penn Financial shall deliver and shall cause Bank and the
      Subsidiaries to deliver to HNC the following:





(i)
      All
      certificates representing all Bank Shares, and all certificates representing
      all
      shares or ownership interests issued by each of the Subsidiaries, duly endorsed
      in blank, with signatures guaranteed by a bank or trust.





(ii)
      All
      minute books, corporate seals, stock certificate books and other stock records
      of the Bank and each of the Subsidiaries.





(iii)
      All
      necessary documents required by any banks or other depository institutions
      for
      Bank and each of the Subsidiaries to remove the authorized signatories and
      replace them with the HNC's designees.





(e)
      The
      Bank and HNB shall have taken the additional actions and performed the
      additional terms and conditions set forth in the Bank Plan of
      Merger.





(f)
      HNC
      shall deliver the Merger Consideration to the Exchange Agent at the time and
      in
      the manner provided in this Agreement.





**Section
      2.2 Exchange of and Consideration for East Penn Financial
      Shares.**Upon the Effective Time, all of the East Penn
      Financial Shares issued and outstanding immediately prior to the Effective
      Time,
      shall, at the Effective Time, by reason of the Merger and without any action
      on
      the part of the holder thereof, cease to be outstanding and shall be converted
      into the “Merger Consideration,” which shall be comprised of :




(i)
      the
“Cash Consideration,” which shall be the sum of $50,284,464.00 (or $14.50 per
“Cash Election Share” as defined below assuming 6,305,262 East Penn Financial
      Shares are outstanding at the Effective Time) plus $7.97 per share for each
      of
      the Converted Option Shares (the “Aggregate Converted Share Cash”);
      plus




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(ii)
      shares of HNC Common Stock as more fully provided below (the “Stock
      Consideration”).




Holders
      of East Penn Financial Shares shall be entitled to receive, for each East Penn
      Financial Share, either HNC Common Shares only (a “Stock Election Share”) or
      cash only (a “Cash Election Share”), based on an allocation of the Cash
      Consideration identified above and the "Stock Consideration" shown below
      according to the provisions of this Article II, including without limitation
      Section 2.4:




(a)
      If
      the “Indicated HNC Share Price” (as defined in Section 2.4(b)) is equal to or
      less than $19.84 and equal to or greater than $14.66, the “Stock Consideration”
shall be (I) 2,385,172 shares of HNC Common Stock, plus (II) 0.3782 shares
      of
      HNC Common Stock for each of the Converted Option Shares.




*FOR
      EXAMPLE:*





*Under
      subsection (a), if the Indicated HNC Share Price is $17.25 and 6,305,262 East
      Penn Financial Shares are outstanding, an East Penn Financial shareholder will
      receive 0.8406 shares of HNC Common Stock for each Stock Election Share and
      $14.50 in cash for each Cash Election Share.*





(b)
      If
      the Indicated HNC Share Price is less than $14.66, the “Stock Consideration”
shall be (I) that number of HNC Common Shares equal to the result obtained
      by
      dividing $34,970,559.00 by the Indicated HNC Share Price,  plus (II)
      for each of the Converted Option Shares, that number of HNC Common Shares equal
      to the result obtained by dividing $5.55 by the Indicated HNC Share
      Price.




*FOR
      EXAMPLE:*





*Under
      subsection (b), if the Indicated HNC Share Price is $14.50 and 6,305,262 East
      Penn Financial Shares are outstanding, an East Penn Financial shareholder will
      receive 0.8500 shares of HNC Common Stock for each Stock Election Share and
      $14.50 in cash for each Cash Election Share.*





(c)
      If
      the Indicated HNC Share Price is greater than $19.84, the “Stock Consideration”
shall be (I) that number of HNC Common Shares equal to the result obtained
      by
      dividing $47,313,110.00 by the Indicated HNC Share Price, plus (II) for each
      of
      the Converted Option Shares, that number of HNC Common Shares equal to the
      result obtained by dividing $7.51 by the Indicated HNC Share Price.




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          11
          -


*FOR
      EXAMPLE:*





*Under
      subsection (c), if the Indicated HNC Share Price is $20.00 and 6,305,262 East
      Penn Financial Shares are outstanding, an East Penn Financial shareholder will
      receive 0.8337 shares of HNC Common Stock for each Stock Election Share and
      $14.50 in cash for each Cash Election Share.*





Notwithstanding
      the foregoing, this subsection (c) shall not be applicable, and subsection
      (a)
      shall nevertheless apply if the Indicated HNC Share Price is greater than
      $19.84, if, at the Effective Time, HNC shall have entered into a definitive
      agreement for an Acquisition of HNC or HNB which, at the Effective Time, has
      not
      been terminated.





**Section
      2.3 HNC Common Stock**. Each share of HNC Common Stock issued and
      outstanding immediately prior to the Effective Time shall, on and after the
      Effective Time, continue to be issued and outstanding as an identical share
      of
      HNC Common Stock. Each share of HNC Common Stock issued and held in the treasury
      of HNC immediately prior to the Effective Time, if any, shall, on and after
      the
      Effective Time, continue to be issued and held in the treasury of
      HNC.





**Section
      2.4 Allocation of Merger Consideration.**  This Section shall
      govern the allocation of the Cash Consideration and Stock Consideration among
      the holders of East Penn Financial Shares.





(a)
      **Initial Elections by Holders of East Penn Financial
      Shares.**  Each holder of one or more East Penn Financial
      Shares on the Record Date shall be entitled to preliminarily elect (i) to
      receive only shares of HNC Common Stock (a “Stock Election”), or (ii) to receive
      only cash (a “Cash Election”), or (iii) to received a mixture of Stock
      Consideration and Cash Consideration (a “Mixed Election”), but these elections
      shall nevertheless be subject to the allocation provisions of this Section
      2.4,
      which shall in all events be controlling.





(b)
      **Valuation of HNC Common Stock.**  The value of a share
      of HNC Common Stock for purposes of calculating the value of the Stock
      Consideration and making the allocations provided for in this Section shall
      be
      the “Indicated HNC Share Price,” which shall be the numeric average of the
      closing prices for a share of HNC Common Stock, as reported on the NASDAQ Global
      Market (as reported in The Wall Street Journal or, in the absence thereof,
      as
      reported by another authoritative source mutually agreed upon by HNC and East
      Penn Financial), for each trading day during the period (the “Measurement
      Period”) commencing with the 30th Business Day prior to the Effective Time and
      ending with the Determination Date.





(c)
      **Election Procedures.**





(i)
      HNC
      and East Penn Financial shall cause the Exchange Agent to mail an election
      form
      and other appropriate and customary transmittal materials, which shall specify
      that delivery shall be effected, and risk of loss and title to the
      certificates


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          12
          -


theretofore
      representing East Penn Financial Shares shall pass, only upon proper delivery
      of
      such certificates to the Exchange Agent in such form as HNC and East Penn
      Financial shall mutually agree (an “Election Form”) to holders of East Penn
      Financial Common Stock and East Penn Financial Options not more than forty
      (40)
      Business Days and not less than twenty (20) Business Days prior to a date and
      time (the “Election Deadline”) that shall be mutually agreeable to HNC and East
      Penn Financial, but in any event not less than six (6) Business Days prior
      to
      the Closing Date, and shall be designated in the Election Form as the deadline
      for delivery of such holders’ elections. Each Election Form shall permit the
      holder (or in the case of nominee record holders, the beneficial owner through
      proper instructions and documentation) to make a Stock Election, a Cash Election
      or a Mixed Election.  The East Penn Financial Shares for which the
      holder has duly made a Mixed Election shall be entitled to receive that
      respective proportion of Stock Consideration and Cash Consideration as shall
      be
      determined pursuant to the allocation rules set forth in Section 2.4(e), and
      shall be deemed to hold Stock Election Shares and Cash Election Shares in
      corresponding amounts.





(ii)
      The
      Exchange Agent shall use reasonable efforts to make the Election Form available
      to all persons who become holders of East Penn Financial Common Stock during
      the
      period between the record date for the mailing of the Election Form (the “Record
      Date”) and the Election Deadline. Any holder's election shall have been properly
      made only if the Exchange Agent shall have received at its designated office,
      by
      the Election Deadline, a properly completed and signed Election Form accompanied
      by the East Penn Financial Certificates to which such Election Form relates,
      in
      form acceptable for transfer (or by an appropriate guarantee of delivery of
      such
      East Penn Financial Certificates as set forth in such Election Form from a
      firm
      which is an "eligible guarantor institution" (as defined in Rule 17Ad-15 under
      the Exchange Act) provided that such East Penn Financial Certificates are in
      fact delivered to the Exchange Agent by the time set forth in such guarantee
      of
      delivery).





(iii)
      If,
      as to any East Penn Financial Common Stock, the holder either: (i) does not
      submit a properly completed Election Form before the Election Deadline; (ii)
      revokes an Election Form prior to the Election Deadline and does not resubmit
      a
      properly completed Election Form prior to the Election Deadline; or (iii) fails
      to perfect his, her or its dissenters' rights pursuant to subsection 2.7 of
      this
      Agreement, those shares of East Penn Financial Common Stock shall be designated
      "No-Election Shares." Nominee record holders who hold East Penn Financial Common
      Stock on behalf of multiple beneficial owners shall be required to indicate
      how
      many of the shares held by them are Stock Election Shares, Cash Election Shares
      and No-Election Shares, and how many shares held by them are subject to a Mixed
      Election.





(d)
      **Effective Election.** An Election shall be properly made only if
      the Exchange Agent shall have actually received a properly completed Election
      Form by the Election Deadline. An Election Form may be revoked or changed by
      the
      person submitting such Election Form to the Exchange Agent by written notice
      to
      the Exchange Agent only if such written notice is actually received by the
      Exchange Agent at or prior to the Election Deadline. The
      Exchange


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          13
          -


Agent
      shall have reasonable discretion to (i) determine whether any election,
      modification or revocation is received, (ii) determine whether any election,
      modification or revocation has been properly made, and (iii) disregard
      immaterial defects in any Election Form. Good faith determinations made by
      the
      Exchange Agent regarding such matters shall be binding and conclusive. Neither
      HNC, nor East Penn Financial nor the Exchange Agent shall be under any
      obligation to notify any person of any defect in an Election Form.





(e)
      **Allocation.** Subject to the other provisions of this Article II,
      the Exchange Agent shall effect the allocation of the Merger Consideration
      among
      the holders of East Penn Financial Common Stock in accordance with their
      respective Election Forms and the following allocation rules:





(i)
      **Aggregate Stock Consideration Oversubscribed.** If the number of
      Stock Election Shares would cause the aggregate Stock Consideration to exceed
      the amount of Stock Consideration prescribed in the applicable subsection of
      Section 2.2, then:





(A)
      All
      Cash Election Shares and No-Election Shares shall be converted into the right
      to
      receive the Cash Consideration;





(B)
      The
      Exchange Agent shall convert, on the pro rata basis described in Section
      2.4(e)(iii) below, a sufficient number of Stock Election Shares into Cash
      Election Shares ("Reallocated Cash Shares") such that the total Stock
      Consideration shall equal the amount of Stock Consideration prescribed in the
      applicable subsection of Section 2.2 and such Reallocated Cash Shares shall
      be
      converted into the right to receive the Cash Consideration; and





(C)
      The
      Stock Election Shares which are not Reallocated Cash Shares shall be converted
      into the right to receive the Stock Consideration.





(ii)
      **Aggregate Stock Consideration Undersubscribed.** If the number of
      Stock Election Shares would cause the aggregate Stock Consideration to be less
      than the amount of Stock Consideration prescribed in the applicable subsection
      of Section 2.2, then:





(A)
      All
      Stock Election Shares shall be converted into the right to receive the Stock
      Consideration;





(B)
      No-Election Shares shall be converted into Stock Election Shares to the extent
      necessary to cause the aggregate Stock Consideration to equal the amount of
      Stock Consideration prescribed in the applicable subsection of Section
      2.2.  If less than all of the No-Election Shares need to be converted
      to Stock Election Shares, then the Exchange Agent shall select which No-Election
      Shares shall be converted into Stock Election Shares on a pro rata basis in
      such
      manner as the Exchange Agent, in its sole discretion, shall determine. All
      remaining


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          14
          -


unconverted
      No-Election Shares shall be treated as Cash Election Shares and shall be
      converted into the right to receive the Cash Consideration.





(C)
      If
      all of the No-Election Shares are converted to Stock Election Shares under
      the
      preceding subsection and the resulting total Stock Consideration would remain
      less than the amount of Stock Consideration prescribed in the applicable
      subsection of Section 2.2, then the Exchange Agent shall convert, on a pro
      rata
      basis described in subsection 2.4(e)(iii) below, a sufficient number of Cash
      Election Shares (excluding Dissenting East Penn Financial Shares) into Stock
      Election Shares ("Reallocated Stock Shares") such that the total Stock
      Consideration equals the amount of Stock Consideration prescribed in the
      applicable subsection of Section 2.2, and such Reallocated Stock Shares shall
      be
      converted into the right to receive the Stock Consideration; and





(D)
      All
      Cash Election Shares which are not Reallocated Stock Shares shall be converted
      into the right to receive the Cash Consideration.





(iii)
      **Pro Rata Reallocations.**If the Exchange Agent is required
      pursuant to subsection 2.4(e)(i)(B) to convert some Stock Election Shares into
      Reallocated Cash Shares, each holder of Stock Election Shares shall be allocated
      a pro rata portion of the total Reallocated Cash Shares. If the Exchange Agent
      is required pursuant to subsection 2.4(e)(ii)(C) to convert some Cash Election
      Shares into Reallocated Stock Shares, each holder of Cash Election Shares shall
      be allocated a pro rata portion of the total Reallocated Stock
      Shares.





(f)
      **Calculation of and Allocation of Merger Consideration.** Not
      later than three (3) Business Days prior to Closing, HNC shall deliver to East
      Penn Financial and the Exchange Agent a computation of the relative amounts
      of
      Cash Consideration and Stock Consideration comprising the Merger Consideration
      (subject only to any adjustment that may be required by subsection (g) of this
      Section), showing the components and calculation thereof in reasonable detail
      (the “Initial Allocation Computation”).  Not later than one (1)
      Business Day prior to Closing, East Penn Financial and the Exchange Agent shall
      each notify HNC whether they agree with the Initial Allocation
      Computation.  In the event of a disagreement, the Parties shall
      resolve any differences and disagreements on or before the completion of
      Closing.  If there is a disagreement, Closing and the Effective Time
      shall be delayed until such disagreement can be resolved.





(g)
      **Superseding Allocation to Comply with Tax
      Requirements.**  Notwithstanding any other provision of this
      Agreement, the Initial Allocation Computation shall be further adjusted to
      meet
      such requirements as may be necessary to enable the Parties to obtain opinions
      from their respective special tax advisers in accordance with the provisions
      of
      Section 7.4(c) and Section 8.5(c), respectively.  The Parties
      acknowledge and agree that the determination pursuant to Section 7.4(c) and
      8.5(c) may be based, among other things, on the closing price of HNC Common
      Stock at the close of trading on the trading day on which the Effective Time
      occurs and the resulting amounts of Cash Consideration and Stock
      Consideration


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          15
          -


paid
      to
      each holder of an East Penn Financial Share pursuant to Section 2.8, and may
      be
      affected, among other things, by (i) failure by one or more holders of East
      Penn
      Financial Options to accept the cash-out payment referred to in Section 2.8,
      and
      (ii) the amounts, if any, that may be payable in cash by HNC to holders of
      Dissenting East Penn Financial Shares.  If the allocation of Cash
      Consideration and Stock Consideration needs to be adjusted pursuant to this
      subsection, then, after the close of trading on the date of the Effective Time,
      but at least five (5) hours prior to the Effective Time, HNC shall deliver
      to
      the Exchange Agent and East Penn Financial a computation of the proposed
      adjustments to the allocations of Cash Consideration and Stock Consideration,
      showing the components and calculation thereof in reasonable detail (an
“Adjusted Allocation Computation”).  At least three (3) hours prior to
      the Effective Time, the Exchange Agent and East Penn Financial shall each notify
      HNC whether it agrees with the Adjusted Allocation Computation.  In
      the event of an unresolved disagreement between the Parties, the Parties shall
      delay the Effective Time pursuant to Section 2.4(h).





(h)
      **Final Determination of Allocations; Re-Establishment of Effective
      Time
      in the Event of Non-Agreement.**The respective amounts of
      Cash Consideration and Stock Consideration payable and issuable to each of
      the
      holders of East Penn Financial Common Stock pursuant to the Initial Allocation
      Computation, or if applicable the Adjusted Allocation Computation, shall be
      calculated by the Exchange Agent in accordance with this Agreement and approved
      by HNC and East Penn Financial as soon as practicable and no later than two
      (2)
      hours before the Effective Time.  In the event of a disagreement, HNC,
      East Penn Financial and the Exchange Agent shall resolve any differences and
      disagreements prior to the Effective Time.  If there are any
      unresolved differences, the Parties shall, prior to the originally agreed
      Effective Time, re-establish a new Effective Time which shall be at the earliest
      practicable time, subject to the other terms and conditions of this Agreement,
      by which re-established Effective Time they shall have agreed upon the Initial
      Allocation Computation or Adjusted Allocation Computation, as applicable
      (whichever is applicable, as so finally agreed, herein referred to as the “Final
      Allocation”).  To the extent that Articles of Merger shall have been
      filed that, pursuant to applicable law, would have a time other than the
      Effective Time as it may be established or re-established by the parties, the
      Parties agree to mutually cooperate to take such actions as may be required
      under applicable law to make the Merger effective as of the new Effective Time,
      including, if necessary, the filing of any necessary and appropriate documents
      with the Pennsylvania Department of State to withdraw the original Effective
      Time and establish a new Effective Time.





**Section
      2.5 Treasury Stock.**Each share of East Penn Financial
      Common Stock issued and held in the treasury of East Penn Financial as of the
      Effective Time, if any, shall be cancelled, and no cash, stock or other property
      shall be delivered in exchange therefor.





**Section
      2.6 Fractional Shares.**No fractional shares of HNC Common
      Stock and no scrip or certificates therefor shall be issued in connection with
      the Merger. Any former holder of East Penn Financial Common Stock who would
      otherwise be entitled to receive a fraction of a share of HNC Common Stock
      shall
      receive, in lieu thereof, cash in an amount equal to such fraction of a share
      multiplied by the Indicated HNC Share Price.


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          16
          -


**Section
      2.7 Dissenting East Penn Financial Shareholders.**





(a)
      The
      outstanding shares of East Penn Financial Common Stock any holders of which
      have
      timely perfected any right to demand appraisal for their shares ("Dissenting
      East Penn Financial Shares") pursuant to the State Corporation Law and have
      not
      effectively withdrawn or lost their dissenters' rights under the State
      Corporation Law, shall not be converted into or represent a right to receive
      the
      Cash Consideration or the Stock Consideration under this Agreement, and the
      holders thereof shall be entitled only to such rights as are granted by the
      State Corporation Law.  Notwithstanding the foregoing, a portion of
      the Cash Consideration shall be allocated to Dissenting East Penn Financial
      Shares as if they were Cash Election Shares and shall not be allocated to other
      East Penn Financial Shares.  An additional allocation of Cash
      Consideration to Dissenting East Penn Financial Shares may be made to the extent
      (but only to the extent) necessary to comply with Section 2.4(g).





(b)
      If
      any such holder of East Penn Financial Common Stock shall have failed to perfect
      or effectively shall have withdrawn or lost such right, and if such holder
      shall
      have delivered a properly completed Election Form to the Exchange Agent by
      the
      Election Deadline, the Dissenting East Penn Financial Shares held by such holder
      shall be converted into a right to receive Stock Consideration, Cash
      Consideration or Mixed Consideration in accordance with the applicable
      provisions of this Agreement and shall be designated as Stock Election Shares
      and Cash Election Shares accordingly. If any such holder of East Penn Financial
      Common Stock shall have failed to perfect or effectively shall have withdrawn
      or
      lost such right, and if such holder shall not have delivered a properly
      completed Election Form to the Exchange Agent by the Election Deadline, the
      Dissenting East Penn Financial Shares held by such holder shall be designated
      No-Election Shares and shall be converted on a share by share basis into either
      the right to receive Stock Consideration or Cash Consideration in accordance
      with the applicable provisions of this Agreement.





(c)
      All
      payments in respect of Dissenting East Penn Financial Shares, if any, will
      be
      made by HNC.





**Section
      2.8 East Penn Financial Options.**  HNC agrees to pay each
      present holder of an East Penn Financial Option, at the Effective Time (separate
      from the Merger Consideration), in full release, termination and satisfaction
      of
      such holder’s East Penn Financial Option, the “Option Cash-Out Price” (as
      defined below) for each East Penn Financial Share that is receivable on a full
      cash exercise of the East Penn Financial Option.  The “Option Cash-Out
      Price” for each East Penn Financial Share shall be an amount equal to the
      difference between the “Cash EPF Share Price” (determined as provided below) and
      the per share exercise price for such share pursuant to the applicable East
      Penn
      Financial Option.





(a)
      If
      the Indicated HNC Share Price is equal to or less than $19.84 and equal to
      or
      greater than $14.66, the “Cash EPF Share Price” shall be that dollar amount
      equal to the result of dividing (A) the aggregate value of the Merger
      Consideration (at the Indicated HNC Share Price) under the applicable paragraph
      of Section 2.2, by (B) the number of East Penn Financial Shares issued and
      outstanding immediately prior to the Effective Time;


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          17
          -





(b)
      if
      the Indicated HNC Share Price is less than $14.66, the “Cash EPF Share Price”
shall be $13.52; or





(c)
      if
      the Indicated HNC Share Price is greater than $19.84, the “Cash EPF Share Price”
shall be $15.48.





**Section
      2.9 Surrender and Exchange of East Penn Financial Stock
      Certificates.**





(a)
      **Exchange Fund.** On or prior to the Closing Date, the Exchange
      Agent shall have received a deposit from HNC, in trust for the benefit of
      holders of shares of East Penn Financial Common Stock, sufficient cash and
      certificates representing shares of HNC Common Stock to make all payments and
      deliveries to shareholders of East Penn Financial pursuant to this Article
      II.
      Any cash and certificates for HNC Common Stock deposited with the Exchange
      Agent
      shall hereinafter be referred to as the “Exchange Fund.”





(b)
      **Exchange Procedures for Effective Election Forms Submitted by Election
      Deadline.** As soon as reasonably practicable after the Effective Time
      (and in any case no later than ten (10) Business Days after the Effective Time),
      HNC shall cause the Exchange Agent to mail the Merger Consideration to
      shareholders of East Penn Financial who have submitted effective Election Forms
      prior to the Election Deadline.





(c)
      **Exchange Procedures in Absence of Effective Election Forms Submitted
      by
      Effective Deadline.** As soon as reasonably practicable after the
      Effective Time (and in any case no later than two (2) Business Days thereafter),
      HNC shall cause the Exchange Agent to mail to each record holder of East Penn
      Financial Common Stock immediately prior to the Effective Time who has not
      surrendered East Penn Financial Certificates representing all of the shares
      of
      East Penn Financial Common Stock owned by such holder in accordance with Section
      2.4(c)(ii), a letter of transmittal which shall specify that delivery of the
      East Penn Financial Certificates shall be effected, and risk of loss and title
      to the East Penn Financial Certificates shall pass, only upon delivery of the
      East Penn Financial Certificates to the Exchange Agent, and which letter shall
      be in customary form and have such other provisions as HNC may reasonably
      specify and instructions for effecting the surrender of such East Penn Financial
      Certificates in exchange for the Cash Consideration and/or the Stock
      Consideration, as the case may be. Upon surrender of an East Penn Financial
      Certificate to the Exchange Agent together with such letter of transmittal,
      duly
      executed and completed in accordance with the instructions thereto, and such
      other documents as may reasonably be required by the Exchange Agent, the holder
      of such East Penn Financial Certificate shall be entitled to receive within
      two
      (2) Business Days thereafter and in exchange therefor (i) a certificate
      representing, in the aggregate, the whole number of shares of HNC Common Stock
      that such holder has the right to receive pursuant to this Article II and/or
      (ii) a check in the amount equal to the cash that such holder has the right
      to
      receive pursuant to this Article II. No interest will be paid or will accrue
      on
      any cash payment pursuant to this Section.





(d)
      Each
      certificate for shares of HNC Common Stock (each, an "HNC


-
          18
          -


Certificate")
      issued in exchange for East Penn Financial Certificates pursuant to this Section
      shall be dated the Effective Time and be entitled to dividends, distributions
      and all other rights and privileges pertaining to such shares of HNC Common
      Stock from the Effective Time. Until surrendered, each East Penn Financial
      Certificate shall, from and after the Effective Time, evidence solely the right
      to receive the Merger Consideration.





(e)
      If an
      East Penn Financial Certificate is exchanged on a date following one or more
      record dates after the Effective Time for the payment of dividends or any other
      distribution on shares of HNC Common Stock, HNC shall pay to the holder of
      such
      East Penn Financial Certificate cash in an amount equal to dividends payable
      on
      the shares of HNC Common Stock issued in exchange therefore and pay or deliver
      any other distribution to which such shareholder is entitled. No interest shall
      accrue or be payable in respect of dividends or any other distribution otherwise
      payable under this subsection upon surrender of East Penn Financial
      Certificates. Notwithstanding the foregoing, no Party shall be liable to any
      holder of East Penn Financial Common Stock for any amount paid in good faith
      to
      a public official or agency pursuant to any applicable abandoned property,
      escheat or similar law. Until such time as East Penn Financial Certificates
      are
      surrendered to HNC for exchange, HNC shall have the right to withhold dividends
      or any other distributions on the shares of HNC Common Stock issuable to such
      shareholder.





(f)
      Upon
      the Effective Time, the stock transfer books for East Penn Financial Common
      Stock will be closed and no further transfers of East Penn Financial Common
      Stock will thereafter be made or recognized. All East Penn Financial
      Certificates surrendered pursuant to this Section will be
      cancelled.





(g)
      If
      there is a transfer of ownership of East Penn Financial Common Stock that is
      not
      registered in the transfer records of East Penn Financial, one or more HNC
      Certificates evidencing, in the aggregate, the proper number of shares of HNC
      Common Stock, a check in the proper amount of cash in lieu of any fractional
      shares, the per share Cash Consideration, and any dividends or other
      distributions to which such holder is entitled pursuant to subsection (e) of
      this Section, as applicable and appropriate, may be issued with respect to
      such
      East Penn Financial Common Stock to such a transferee if the East Penn Financial
      Certificate representing such shares of East Penn Financial Common Stock is
      presented to the Exchange Agent, accompanied by all documents required to
      evidence and effect such transfer and to evidence that any applicable stock
      transfer taxes have been paid.





(h)
      If
      any East Penn Financial Certificate shall have been lost, stolen or destroyed,
      the Exchange Agent shall deliver in exchange for such lost, stolen or destroyed
      East Penn Financial Certificate, upon the making of a sworn affidavit of that
      fact by the holder thereof in form satisfactory to the Exchange Agent, the
      Merger Consideration, and any dividends or other distributions to which such
      holder is entitled pursuant to this Section as may be required pursuant to
      this
      Agreement; provided, however, that the Exchange Agent may, in its sole
      discretion and as a condition precedent to the delivery of the Merger
      Consideration to which the holder of such East Penn Financial Certificate is
      entitled as a result of the Merger, require the owner of such lost, stolen
      or
      destroyed East Penn Financial Certificate to deliver a bond in
      such


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          19
          -


amount
      as
      it may direct (but not to exceed $21.75 for each East Penn Financial Share
      represented by such East Penn Financial Certificate) as indemnity against any
      claim that may be made against East Penn Financial, HNC or the Exchange Agent
      or
      their agents with respect to the East Penn Financial Certificate alleged to
      have
      been lost, stolen or destroyed.





**Section
      2.10 Anti-Dilution Provisions.** If HNC shall, at any time before the
      Effective Time:





(a)
      declare a dividend payable in shares of HNC Common Stock with a record date
      on
      or prior to the Effective Time;





(b)
      combine the outstanding shares of HNC Common Stock into a smaller number of
      shares;





(c)
      resolve to effect a split or subdivide the outstanding shares of HNC Common
      Stock with a record date on or prior to the Effective Time; or





(d)
      reclassify the shares of HNC Common Stock or otherwise recapitalize or
      reorganize in any manner affecting the HNC Common Stock;





then,
      in
      any such event, the total Stock Consideration to be delivered to East Penn
      Financial shareholders who are entitled to receive Stock Consideration shall
      be
      adjusted so that each such East Penn Financial shareholder shall be entitled
      to
      receive such number of shares of HNC Common Stock as such East Penn Financial
      shareholder would have been entitled to receive as a result of such event if
      the
      Effective Time had occurred prior to the happening of such event.





**Section
      2.11 Other Matters.**  Nothing set forth in this Agreement or
      any exhibit or schedule to this Agreement shall be construed to preclude (except
      to the extent that it would result in a Material Adverse Effect):





(a)
      HNC
      or any member of the HNC Group from becoming party to any combination with
      any
      third party, whether by issuance or exchange of HNC Common Stock or otherwise,
      unless such transaction would result in a Material Adverse Effect;





(b)
      HNC
      from issuing, or to limit any way the right of HNC to issue or repurchase,
      prior
      to or following the Effective Time, HNC Common Stock or other
      securities;





(c)
      HNC
      from granting employee, director or compensatory options at anytime with respect
      to HNC Common Stock or other securities;





(d)
      Option holders of HNC from exercising options at any time with respect to HNC
      Common Stock or other securities;





(e)
      HNC
      from entering into any stock split or reverse stock split or issuing any stock
      dividend or otherwise entering into any reclassification, recapitalization
      or
      other


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          20
          -


reorganization
      transaction; or





(f)
      HNC
      or any member of the HNC Group from taking, or to limit in any way the right
      of
      either of them to take, any other action not expressly and specifically
      prohibited by the terms of this Agreement, subject nevertheless to the
      provisions of Section 2.10.





**ARTICLE
      III**


**REPRESENTATIONS
      AND WARRANTIES**


**OF
      EAST PENN FINANCIAL AND THE BANK**





In
      addition to representations and warranties, if any, made elsewhere in this
      Agreement, East Penn Financial and the Bank represent and warrant to HNC as
      set
      forth below, subject to any qualifications set forth in the Disclosure
      Schedules.  Except for the representation and warranty contained in
      Section 3.16 (as to which a standard of “materiality” for securities law
      disclosure purposes is applicable), no representation or warranty of East Penn
      Financial or the Bank contained in this Article III shall be deemed untrue
      or
      incorrect for any purpose under this Agreement, and neither East Penn Financial
      nor the Bank shall be deemed to have breached a representation or warranty,
      in
      any case, as a consequence of the existence of any fact, event or circumstance
      except to the extent such fact, circumstance or event, individually or in the
      aggregate with all other facts, events or circumstances inconsistent with any
      representation or warranty set forth in this Article III, has had or would
      be
      reasonably likely to have a Material Adverse Effect





**Section
      3.1 Organization.**





(a)
      East
      Penn Financial is a corporation duly incorporated, validly existing and in
      good
      standing under the laws of the Commonwealth of Pennsylvania. East Penn Financial
      is a bank holding company duly registered under Federal Bank Holding Company
      Act
      of 1956, as amended. East Penn Financial has the corporate power and authority
      to carry on its businesses and operations as now being conducted and to own
      and
      operate the properties and assets now owned and being operated by it. East
      Penn
      Financial is duly licensed, registered or qualified to do business in each
      jurisdiction in which the nature of the business conducted by it or the
      character or location of the properties and assets owned or leased by it makes
      such licensing, registration or qualification necessary, except where the
      failure to be so licensed, registered or qualified would not have a Material
      Adverse Effect, and all such licenses, registrations and qualifications are
      in
      full force and effect.





(b)
      Bank
      is a bank duly organized, validly existing and in good standing under the laws
      of the Commonwealth of Pennsylvania. Bank has the corporate power and authority
      to carry on its business and operations as now being conducted and to own and
      operate the properties and assets now owned and being operated by it. Bank
      is
      duly licensed, registered or qualified to do business in each jurisdiction
      in
      which the nature of the business conducted by it or the character or location
      of
      the properties and assets owned or leased by it makes such licensing,
      registration or qualification necessary, except where the failure to be so
      licensed, registered or qualified would not have a Material Adverse Effect,
      and
      all such licenses, registrations and qualifications are in full force and
      effect.


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          21
          -





(c)
      The
      deposits of Bank are insured by the FDIC to the extent provided in the Federal
      Deposit Insurance Act.





(d)
      East
      Penn Financial has the Subsidiaries (including without limitation the Bank)
      shown on **East Penn Financial Disclosure Schedule
      3.1(d)**.  East Penn Financial has no other
      subsidiaries.





(e)
      The
      respective minute books of East Penn Financial and Bank accurately record all
      corporate actions of their respective shareholders and boards of directors,
      including committees, in each case in accordance with the normal business
      practice of East Penn Financial and Bank, respectively.





(f)
      East
      Penn Financial has delivered to HNC true and correct copies of the respective
      Charter and bylaws of East Penn Financial, Bank and each other Subsidiary,
      each
      as in effect on the date hereof.





(g)
      Neither East Penn Financial, nor Bank, nor any other Subsidiary, conducts
      business under any fictitious or trade names.





**Section
      3.2 Capitalization.**





(a)
      The
      authorized capital stock of East Penn Financial consists of 40,000,000 shares
      of
      common stock, par value $0.625 per share ("East Penn Financial Common Stock"),
      of which at the date hereof 308,292 are validly issued and held by East Penn
      Financial as treasury stock and 6,305,262 shares are validly issued and
      outstanding, fully paid and nonassessable, and free of preemptive rights; and
      16,000,000 shares of preferred stock, with no par value, of which no shares
      are
      issued and outstanding as of the date of this Agreement.





(b)
      East
      Penn Financial has not issued nor is East Penn Financial bound by any
      subscription, option, warrant, call, commitment, agreement or other right of
      any
      character relating to the purchase, sale, or issuance of, or right to receive
      dividends or other distributions on, any shares of East Penn Financial Common
      Stock or any other security of East Penn Financial or any securities
      representing the right to vote, purchase or otherwise receive any shares of
      East
      Penn Financial Common Stock or any other security of East Penn Financial, except
      the East Penn Financial Options.  East Penn Financial has not issued
      or granted any stock appreciation rights, phantom stock interests or similar
      rights or interests measured by the value of any equity security of East Penn
      Financial. Accordingly, immediately prior to the Effective Time, pursuant to
      the
      provisions of this Agreement there will be 6,305,262 East Penn Financial Shares
      issued and outstanding on a fully diluted basis, with the exception of any
      East
      Penn Financial Shares resulting from exercises, after the date of this
      Agreement, of East Penn Financial Options.





(c)
      East
      Penn Financial owns, directly or indirectly, all of the capital stock of Bank
      and the other Subsidiaries, free and clear of any Encumbrances, agreements
      and


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          22
          -


restrictions
      of any kind or nature. There are no subscriptions, options, warrants, calls,
      commitments, agreements, interests or other rights outstanding with respect
      to
      the capital stock of Bank or any other Subsidiary. Except for Subsidiaries,
      East
      Penn Financial does not possess, directly or indirectly, any equity interest
      in
      any corporation, partnership, limited partnership, limited liability company,
      business trust or other entity, except for (i) equity interests in Bank's
      investment portfolio, (ii) equity interests held in connection with Bank's
      commercial loan activities and (iii) as set forth on **East Penn Financial
      Disclosure Schedule 3.2(c)**.





(d)
      To
      the knowledge of East Penn Financial and except as set forth on **East
      Penn Financial Disclosure Schedule 3.2(d)**, no person or group is the
      beneficial owner of 5% or more of the outstanding shares of East Penn Financial
      Common Stock (the terms "person," "group" and "beneficial owner" are as defined
      in Section 13(d) of the Exchange Act, and the rules and regulations
      thereunder).





(e)
      The
      authorized capital stock of the Bank consists of 40,000,000 shares of common
      stock, par value $.0625 per share, of which at the date hereof 6,604,152 shares
      are validly issued and outstanding, are all owned by East Penn Financial, and
      are fully paid and nonassessable and free of preemptive rights; and 16,000,000
      shares of preferred stock, par value $0.625 per share, of which no shares are
      issued and outstanding as of the date of this Agreement.





**Section
      3.3 Authority; No Violation.**





(a)
      East
      Penn Financial has full corporate power and authority to execute and deliver
      this Agreement and to consummate the Mergers, subject to all Regulatory Filings
      and the receipt of all Regulatory Approvals and the approval of this Agreement
      by East Penn Financial's shareholders. The execution and delivery of this
      Agreement by East Penn Financial and the consummation by East Penn Financial
      of
      the Mergers have been duly and validly approved by the Board of Directors of
      East Penn Financial and, except for approval by the shareholders of East Penn
      Financial as required by the State Corporation Law, no other corporate
      proceedings on the part of East Penn Financial are necessary to consummate
      the
      Merger. This Agreement has been duly and validly executed and delivered by
      East
      Penn Financial and constitutes the valid and binding obligation of East Penn
      Financial, enforceable against East Penn Financial in accordance with its terms,
      subject to applicable bankruptcy, insolvency and similar laws affecting
      creditors' rights generally and subject, as to enforceability, to general
      principles of equity.





(b)
      Subject to receipt of Regulatory Approvals and the approval of East Penn
      Financial shareholders, and HNC’s compliance with any conditions contained in
      this Agreement, the execution, delivery and performance of this Agreement,
      the
      consummation of the Merger and compliance with any terms or provisions of this
      Agreement by East Penn Financial and the Bank do not and will not:





(i)
      conflict with or result in a breach of any provision of the respective articles
      of incorporation or bylaws of East Penn Financial, the Bank or any
      Subsidiary;


-
          23
          -





(ii)
      violate any statute, rule, regulation, judgment, order, writ, decree or
      injunction applicable to East Penn Financial, the Bank or any Subsidiary or
      any
      of their respective properties or assets; or





(iii)
      violate, conflict with, result in a breach of any provisions of, constitute
      a
      default (or an event which, with notice or lapse of time, or both, would
      constitute a default) under, result in the termination of, or acceleration
      of,
      the performance required by, or result in a right of termination or acceleration
      or the creation of any Encumbrance upon any of the properties or assets of
      East
      Penn Financial, the Bank or any Subsidiary under any of the terms or conditions
      of any note, bond, mortgage, indenture, license, lease, agreement, commitment
      or
      other instrument or obligation to which East Penn Financial, the Bank or any
      Subsidiary is a party, or by which they or any of their respective properties
      or
      assets may be bound or affected, except where such termination, acceleration
      or
      creation, in the aggregate, would not have a Material Adverse Effect on East
      Penn Financial.





**Section
      3.4 Consents.**   No consents or approvals of, or filings
      or registrations with, any public body or authority, and no consents or
      approvals of any third parties are necessary for East Penn Financial or the
      Bank
      to execute, deliver or perform this Agreement, or consummate the Merger, other
      than East Penn Financial shareholder approval, the Regulatory Filings, the
      Regulatory Approvals and the Consents (if any) set forth on **East Penn
      Financial Disclosure Schedule 3.4**.





**Section
      3.5 Financial Statements.**





(a)
      East
      Penn Financial has previously delivered to HNC the East Penn Financial
      Statements, except those pertaining to quarterly periods commencing after
      December 31, 2006, which it will deliver to HNC within 45 days after the end
      of
      the respective quarter. The delivered East Penn Financial Statements fairly
      present, in all respects, the consolidated financial position, results of
      operations and cash flows of East Penn Financial as of and for the periods
      ended
      on the dates thereof, in accordance with GAAP consistently applied, and, in
      the
      case of interim period financial statements, which are subject to normal
      year-end adjustments and footnotes thereto.





(b)
      Except as set forth in **East Penn Financial Disclosure Schedule
      3.5(b)**, East Penn Financial did not, as of the date of the East Penn
      Financial Statements or any subsequent date, have any liabilities or obligations
      of any nature, whether absolute, accrued, contingent or otherwise, which are
      not
      fully reflected or reserved against in the balance sheets included in the East
      Penn Financial Statements at the date of such balance sheets or which would
      have
      been required to be reflected therein in accordance with GAAP consistently
      applied, or disclosed in a footnote thereto, except for liabilities, obligations
      and loss contingencies which are not material in the aggregate and which are
      incurred in the Ordinary Course of Business, and subject, in the case of any
      unaudited statements, to normal recurring audit adjustments and the absence
      of
      footnotes.


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          24
          -


**Section
      3.6 No Material Adverse Change.** Neither East Penn Financial nor any
      Subsidiary has suffered any adverse change in their respective assets (including
      loan portfolios), liabilities (whether absolute or contingent, fixed or unfixed,
      accrued or unaccrued), liquidity, net worth, business, property, financial
      condition, results of operations or any damage destruction or loss, whether
      or
      not covered by insurance, since December 31, 2006, which change has had a
      Material Adverse Effect.





**Section
      3.7 Taxes.**





(a)
      East
      Penn Financial and Subsidiaries are members of the same affiliated group within
      the meaning of IRC Section 1504(a) of which East Penn Financial is a common
      parent. East Penn Financial has filed, and will file, all federal, state and
      local tax returns required to be filed by, or with respect to, East Penn
      Financial and Subsidiaries on or prior to the Closing Date, except to the extent
      that any failure to file or any inaccuracies would not, individually or in
      the
      aggregate, have a Material Adverse Effect, and has paid or will pay, or has
      made
      or will make, provisions for the payment of all federal, state and local taxes
      which are shown on such returns to be due for the periods covered thereby from
      East Penn Financial or any Subsidiary to any applicable taxing authority, on
      or
      prior to the Closing Date.





(b)
      There
      are no disputes pending, or claims received in writing, for taxes or assessments
      upon East Penn Financial or any Subsidiary, nor has East Penn Financial or
      any
      Subsidiary been requested in writing to give any currently effective waivers
      extending the statutory period of limitation applicable to any federal, state,
      county or local income tax return for any period.





(c)
      Proper and accurate amounts have been withheld by East Penn Financial and each
      Subsidiary from their employees for all prior periods in compliance with the
      tax
      withholding provisions of applicable federal, state and local laws.





**Section
      3.8 Contracts.**





(a)
      Except for those employment agreements, change in control agreements and other
      contracts or agreements with any employee, officer or director expressly
      described in **East Penn Financial Disclosure Schedule 3.8(a)**
      (“East Penn Financial Employment Agreements”) or any East Penn Financial
      Employee Benefit Plans, or as disclosed on one or more other East Penn Financial
      Disclosure Schedules, neither East Penn Financial, nor Bank nor any other
      Subsidiary is a party to or subject to:





(i)
      any
      employment, consulting, severance, "change-in-control" or termination contract
      or arrangement with any officer, director, employee, independent contractor,
      agent or other person, except for "at will" arrangements;





(ii)
      any
      plan, arrangement or contract providing for bonuses, pensions, options, deferred
      compensation, retirement payments, profit sharing or similar arrangements for
      or
      with any officer, director, employee, independent contractor, agent or other
      person;


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          25
          -







(iii)
      any
      collective bargaining agreement with any labor union relating to
      employees;





(iv)
      any
      agreement which by its terms limits the payment of dividends by East Penn
      Financial or any Subsidiary;





(v)
      except in the Ordinary Course of Business, any instrument evidencing or related
      to indebtedness for borrowed money, whether directly or indirectly, by way
      of
      purchase money obligation, conditional sale, lease purchase, guaranty or
      otherwise, in respect of which East Penn Financial or any Subsidiary is an
      obligor to any person, other than deposits, repurchase agreements, bankers
      acceptances and "treasury tax and loan" accounts established in the Ordinary
      Course of Business, instruments relating to transactions entered into in the
      customary course of the banking business of Bank, and transactions in "federal
      funds," or which contains financial covenants or other restrictions, other
      than
      those relating to the payment of principal and interest when due, which would
      be
      applicable on or after the Closing Date;





(vi)
      any
      contract, other than this Agreement, which restricts or prohibits East Penn
      Financial or Bank from engaging in any type of business permissible under
      applicable law;





(vii)
      any
      contract, plan or arrangement which provides for payments or benefits in certain
      circumstances which, together with other payments or benefits payable to any
      participant therein or party thereto, might render any portion of any such
      payments or benefits subject to disallowance of deduction therefor as a result
      of the application of IRC Section 280G;





(viii)
      except in the Ordinary Course of Business, any lease for real
      property;





(ix)
      any
      contract or arrangement with any broker-dealer or investment
      adviser;





(x)
      any
      investment advisory contract with any investment company registered under the
      Investment Company Act of 1940; or





(xi)
      any
      contract or arrangement with, or membership in, any local clearing house or
      self-regulatory organization.





(b)
      (i)
      Except as otherwise described in **East Penn Financial Disclosure Schedule
      3.8(b)(i)**, all of the East Penn Financial Employment Agreements and
      East Penn Financial Employee Benefit Plans are in full force and effect on
      the
      date hereof; and neither East Penn Financial, any Subsidiary nor, to the
      knowledge of East Penn Financial, any other party to


-
          26
          -


any
      such
      contract, plan, arrangement or instrument, has breached any provision of, or
      is
      in default under any term of, any such contract, plan, arrangement or instrument
      and no party to any such contract, plan, arrangement or instrument will have
      the
      right to terminate any or all of the provisions thereof as a result of the
      transactions contemplated by this Agreement.





(ii)
      Except as otherwise described in **East Penn Financial Disclosure Schedule
      3.8(b)(ii)**, no plan, employment agreement, termination agreement or
      similar agreement or arrangement to which East Penn Financial or any Subsidiary
      is a party or by which East Penn Financial or any Subsidiary may be
      bound:





(A)
      contains provisions which permit an employee or an independent contractor to
      terminate it without cause and continue to accrue future benefits
      thereunder;





(B)
      provides for acceleration in the vesting of benefits thereunder upon the
      occurrence of a change in ownership or control or merger or other acquisition
      of
      East Penn Financial or any Subsidiary; or





(C)
      requires East Penn Financial or any Subsidiary to provide a benefit in the
      form
      of East Penn Financial Common Stock or determined by reference to the value
      of
      East Penn Financial Common Stock.





**Section
      3.9 Ownership of Property; Insurance Coverage.**





(a)
      East
      Penn Financial and each Subsidiary has, or will have as to property acquired
      after the date hereof, good, and as to real property, marketable, title to
      all
      assets and properties owned or represented as owned by East Penn Financial
      or
      such Subsidiary, whether real or personal, tangible or intangible, including
      securities, assets and properties reflected in the balance sheets contained
      in
      the East Penn Financial Statements or acquired subsequent thereto (except to
      the
      extent that such securities are held in any fiduciary or agency capacity and
      except to the extent that such assets and properties have been disposed of
      for
      fair value, in the Ordinary Course of Business, or have been disposed of as
      obsolete since the date of such balance sheets), subject to no Encumbrances,
      except:





(i)
      Those
      items that secure liabilities for borrowed money and that are described in
      **East Penn Financial Disclosure Schedule 3.9(a)**or permitted
      under Article V hereof;





(ii)
      Statutory liens for amounts not yet delinquent or which are being contested
      in
      good faith;





(iii)
      Liens for current taxes not yet due and payable;





(iv)
      Pledges to secure deposits and other liens incurred in the ordinary course
      of
      banking business;


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          27
          -





(v)
      The
      imperfections of title, easements and Encumbrances, if any, as are not material
      in character, amount or extent;





(vi)
      Dispositions and Encumbrances for adequate consideration in the Ordinary Course
      of Business. East Penn Financial and each Subsidiary have the right under leases
      of properties used by East Penn Financial or such Subsidiary in the conduct
      of
      their respective businesses to occupy and use all such properties as presently
      occupied and used by them; and





(vii)
      As
      reflected as a liability in East Penn Financial Statements or the footnotes
      thereto.





(b)
      With
      respect to all agreements pursuant to which East Penn Financial or any
      Subsidiary has purchased securities subject to an agreement to resell, if any,
      East Penn Financial or such Subsidiary has a valid, perfected first lien or
      security interest in the securities or other collateral securing the repurchase
      agreement, and the value of such collateral equals or exceeds the amount of
      the
      debt secured thereby.





(c)
      East
      Penn Financial and each Subsidiary maintain insurance in amounts considered
      by
      East Penn Financial to be reasonable for their respective operations, and such
      insurance is similar in scope and coverage to that maintained by other
      businesses similarly situated. Neither East Penn Financial nor any Subsidiary
      has received notice from any insurance carrier that:





(i)
      The
      insurance will be cancelled or that coverage thereunder will be reduced or
      eliminated; or





(ii)
      Premium costs with respect to such insurance will be substantially
      increased.





(d)
      East
      Penn Financial and each Subsidiary maintain such fidelity bonds and errors
      and
      omissions insurance as may be customary or required under applicable laws or
      regulations.





**Section
      3.10 Legal Proceedings.** Except as set forth in **East Penn
      Financial Disclosure Schedule 3.10**, neither East Penn Financial nor any
      Subsidiary is a party to any, and there are no pending or, to the knowledge
      of
      East Penn Financial, threatened, legal, administrative, arbitration or other
      proceedings, claims, actions, customer complaints, or governmental
      investigations or inquiries of any nature (a) against East Penn Financial,
      Bank
      or any other Subsidiary, or (b) to which the assets of East Penn Financial,
      Bank
      or any other Subsidiary are subject, or (c) challenging the validity or
      propriety of the Merger or the Bank Merger; except for any proceedings, claims,
      actions, investigations, or inquiries which, individually or in the aggregate,
      would not have a Material Adverse Effect.


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          28
          -


**Section
      3.11 Compliance with Applicable Law.**





(a)
      East
      Penn Financial and each Subsidiary hold all licenses, franchises, permits and
      authorizations necessary for the lawful conduct of their respective businesses
      under, and have complied with, applicable laws, statutes, orders, rules or
      regulations of any Regulatory Authority relating to them.





(b)
      East
      Penn Financial and each Subsidiary have filed all reports, registrations and
      statements, together with any amendments required to be made with respect
      thereto, that they were required to file with any Regulatory Authority, and
      have
      filed all other reports and statements required to be filed by them, including
      without limitation any report or statement required to be filed pursuant to
      the
      laws, rules or regulations of the United States, any state or any Regulatory
      Authority, and have paid all fees and assessments due and payable in connection
      therewith.





(c)
      No
      Regulatory Authority has initiated any proceeding or, to the knowledge of East
      Penn Financial, investigation into the business or operations of East Penn
      Financial or any Subsidiary.





(d)
      Neither East Penn Financial nor any Subsidiary has received any notification
      or
      communication from any Regulatory Authority:





(i)
      Asserting that East Penn Financial or any Subsidiary is not in substantial
      compliance with any of the statutes, regulations or ordinances which such
      Regulatory Authority enforces, unless such assertion has been waived, withdrawn
      or otherwise resolved;





(ii)
      Threatening to revoke any license, franchise, permit or governmental
      authorization;





(iii)
      Requiring or threatening to require East Penn Financial or any Subsidiary,
      or
      indicating that East Penn Financial or any Subsidiary may be required, to enter
      into a cease and desist order, agreement or memorandum of understanding or
      any
      other agreement restricting or limiting, or purporting to restrict or limit,
      in
      any manner the operations of East Penn Financial or any Subsidiary, including
      without limitation any restriction on the payment of dividends; or





(iv)
      Directing, restricting or limiting, or purporting to direct, restrict or limit,
      in any manner the operations of East Penn Financial or any Subsidiary (any
      such
      notice, communication, memorandum, agreement or order described in this sentence
      and addressed specifically to East Penn Financial or Bank, herein referred
      to as
      a "Regulatory Agreement");





(e)
      Neither East Penn Financial nor any Subsidiary has received, consented to,
      or
      entered into any Regulatory Agreement.


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          29
          -





(f)
      There
      is no unresolved violation, criticism, or exception by any Regulatory Authority
      with respect to any Regulatory Agreement.





(g)
      There
      is no injunction, order, judgment or decree imposed upon East Penn Financial
      or
      any Subsidiary or the assets of East Penn Financial or any
      Subsidiary.





(h)
      East
      Penn Financial and Bank are in compliance with the applicable provisions of
      the
      CRA, and, as of the date hereof, Bank has received a CRA rating of
      "satisfactory" or better from the FDIC. To the knowledge of East Penn Financial,
      there is no fact or circumstance or set of facts or circumstances which would
      cause East Penn Financial or Bank to fail to comply with such
      provisions.





**Section
      3.12 ERISA.**





(a)
      East
      Penn Financial has delivered to HNC true and complete copies of, and
**East Penn Financial Disclosure Schedule 3.12** lists, all
      employee pension benefit plans within the meaning of ERISA Section 3(2), profit
      sharing plans, stock purchase plans, deferred compensation and supplemental
      income plans, supplemental executive retirement plans, annual incentive plans,
      group insurance plans, and all other employee welfare benefit plans within
      the
      meaning of ERISA Section 3(1) (including vacation pay, sick leave, short-term
      disability, long-term disability, and medical plans) and all other employee
      benefit plans, policies, agreements and arrangements currently maintained or
      contributed to for the benefit of the employees or former employees (including
      retired employees) and any beneficiaries thereof or directors or former
      directors of East Penn Financial or any other entity (an "East Penn Financial
      ERISA Affiliate") that, together with East Penn Financial, is treated as a
      single employer under IRC Sections 414(b),(c),(m) or (o) (collectively, the
      "East Penn Financial Employee Benefit Plans"), together with:





(i)
      The
      most recent actuarial reports (if any) and financial reports relating to those
      East Penn Financial Employee Benefit Plans which constitute "qualified plans"
      under IRC Section 401(a);





(ii)
      The
      most recent Form 5500 (if any) relating to such East Penn Financial Employee
      Benefit Plans filed with the IRS; and





(iii)
      The
      most recent IRS determination letters which pertain to any such East Penn
      Financial Employee Benefit Plans.





(b)
      Neither East Penn Financial nor any East Penn Financial ERISA Affiliate, and
      no
      pension plan (within the meaning of ERISA Section 3(2) maintained or contributed
      to by East Penn Financial or any East Penn Financial ERISA Affiliate, has
      incurred any liability to the Pension Benefit Guaranty Corporation or to the
      IRS
      with respect to any pension plan qualified under IRC Section 401(a) which
      liability has resulted or will result in a Material Adverse Effect with respect
      to East Penn Financial, except liabilities to the Pension Benefit
      Guaranty


-
          30
          -


Corporation
      pursuant to ERISA Section 4007, all of which have been fully paid, nor has
      any
      reportable event under ERISA Section 4043(b) (with respect to which the 30
      day
      notice requirement has not been waived) occurred with respect to any such
      pension plan which could result in a Material Adverse Effect.





(c)
      Neither East Penn Financial nor any East Penn Financial ERISA Affiliate has
      ever
      contributed to or otherwise incurred any liability with respect to a
      multi-employer plan (within the meaning of ERISA Section 3(37)).





(d)
      Each
      East Penn Financial Employee Benefit Plan has been maintained, operated and
      administered in compliance in all respects with its terms and related documents
      or agreements and the applicable provisions of all laws, including ERISA and
      the
      IRC.





(e)
      To
      the knowledge of East Penn Financial, no audit has occurred or is pending or
      scheduled of any East Penn Financial Employee Benefit Plan by the IRS, the
      U.S.
      Department of Labor, the Pension Benefit Guaranty Corporation or any other
      governmental authority. In addition, there are no pending or, to the knowledge
      of East Penn Financial, threatened claims by, on behalf of or with respect
      to
      any East Penn Financial Employee Benefit Plan, or by or on behalf of any
      individual participant or beneficiary of any East Penn Financial Employee
      Benefit Plan, alleging any violation of ERISA or any other applicable laws,
      or
      claiming benefits (other than claims for benefits not in dispute and expected
      to
      be granted promptly in the Ordinary Course of Business ), nor to the knowledge
      of East Penn Financial, is there any basis for such claim.





(f)
      With
      respect to any services which East Penn Financial or any Subsidiary may provide
      as a record-keeper, administrator, custodian, fiduciary, trustee or otherwise
      for any plan, program, or arrangement subject to ERISA (other than any East
      Penn
      Financial Employee Benefit Plan), East Penn Financial, Bank and each
      Subsidiary:





(i)
      Have
      correctly computed all contributions, payments or other amounts for which it
      is
      responsible;





(ii)
      Have
      not engaged in any prohibited transactions (as defined in ERISA Section 406
      for
      which an exemption does not exist);





(iii)
      Have not breached any duty imposed by ERISA: and





(iv)
      Have
      not otherwise incurred any liability to the IRS, the U.S. Department of Labor,
      the Pension Benefit Guaranty Corporation, or to any beneficiary, fiduciary
      or
      sponsor of any ERISA plan in the performance (or non- performance) of services,
      other than in the Ordinary Course of Business.





**Section
      3.13 Equity Plans and Agreements.**  Neither East Penn
      Financial, nor the Bank, nor any other Subsidiary, is party to any plan,
      agreement or arrangement under or pursuant to or in connection with which any
      person or entity is entitled to the issuance of any shares of any equity
      security of East Penn Financial, the Bank or any Subsidiary, or any option
      or
      warrant for


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any
      of
      the foregoing, or any other equity interest in East Penn Financial, the Bank
      or
      any other Subsidiary, present, contingent, vested, unvested or otherwise, other
      than the plans, agreements and other arrangements described in **East Penn
      Financial Disclosure Schedule 3.13** (each plan, agreement or arrangement
      described in **East Penn Financial Disclosure Schedule 3.13** is
      sometimes referred to in this Agreement individually as an “East Penn Financial
      Equity Plan,” and collectively as “East Penn Financial Equity
      Plans.”  **East Penn Financial Disclosure Schedule 3.13**
      sets forth, itemized by grant date, the number and specific class, series or
      other types of shares, interests, or other applicable unit to which each
      participant, director, officer, employee, recipient, transferee, grantee or
      other person or entity may hereafter be entitled.





**Section
      3.14 Environmental Matters.**





(a)
      Except as set forth on **East Penn Financial Disclosure Schedule
      3.14**, neither East Penn Financial nor any Subsidiary, nor any property
      owned or operated by East Penn Financial or any Subsidiary, has been or is
      in
      violation of or liable under any Environmental Law. There are no actions, suits
      or proceedings, or demands, claims of notices, including without limitation
      notices, demand letters or requests for information from any Regulatory
      Authority, instituted or pending, or to the knowledge of East Penn Financial,
      threatened, or any investigation pending, relating to the liability of East
      Penn
      Financial or any Subsidiary with respect to any property owned or operated
      by
      East Penn Financial or any Subsidiary under any Environmental Law.





(b)
      No
      property, now or formerly owned or operated by East Penn Financial or any
      Subsidiary or on which East Penn Financial or any Subsidiary holds or held
      a
      mortgage or other security interest or has foreclosed or taken a deed in lieu
      of
      foreclosure, has been listed or proposed for listing on the National Priority
      List under the Comprehensive Environmental Response Compensation and Liability
      Act of 1980, as amended ("CERCLA"), on the Comprehensive Environmental Response
      Compensation and Liabilities Information System, or any similar state list,
      or
      which is the subject of federal, state or local enforcement actions or other
      investigations which may lead to claims against East Penn Financial or any
      Subsidiary for response costs, remedial work, investigation, damage to natural
      resources or for personal injury or property damage claim, including, but not
      limited to, claims under CERCLA.





**Section
      3.15 Brokers, Finders and Financial Advisers.** Neither East Penn
      Financial, any Subsidiary, nor any of their respective officers, directors,
      employees, independent contractors or agents, has employed any broker, finder,
      investment banker or financial advisor, or incurred any liability for any fees
      or commissions to any such person, in connection with the transactions
      contemplated by this Agreement, except that East Penn Financial has employed
      Sandler O’Neill & Partners as its financial adviser, pursuant to the
      engagement letter attached as**Exhibit 3.15**.





**Section
      3.16 Information to be Supplied.**





(a)
      The
      information supplied by East Penn Financial for inclusion in the
      Securities


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          32
          -


Filings
      (including the Prospectus/Proxy Statement) will not, at the time the Securities
      Filings are declared effective pursuant to federal and state laws as applicable,
      and as of the date the Prospectus/Proxy Statement is mailed to shareholders
      of
      East Penn Financial, and up to and including the date of East Penn Financial
      Shareholders Meeting, contain any untrue statement of a material fact or omit
      to
      state any material fact necessary in order to make the statements made therein,
      in the light of the circumstances in which they were made, not
      misleading.





(b)
      The
      information supplied by East Penn Financial for inclusion in the Regulatory
      Filings will, at the time each such document is filed with any Regulatory
      Authority and up to and including the dates of any required Regulatory Approvals
      or consents, as such Regulatory Filings may be amended by subsequent filings,
      be
      accurate in all material respects.





**Section
      3.17 Related Party Mergers.**





(a)
      Except as set forth on **East Penn Financial Disclosure Schedule
      3.17** or as is expressly disclosed and itemized either in the footnotes
      to the East Penn Financial Statements, as of the date hereof neither East Penn
      Financial nor any Subsidiary is a party to any transaction (including any loan
      or other credit accommodation but excluding deposits in the Ordinary Course
      of
      Business) with any Affiliate of East Penn Financial or any Subsidiary, and
      all
      such transactions were made on substantially the same terms, including interest
      rates and collateral, as those prevailing at the time for comparable
      transactions with other "persons" (as defined in Section 13(d) of the Exchange
      Act, and the rules and regulations thereunder).





(b)
      As of
      the date hereof, no loan or credit accommodation to any East Penn Financial
      Affiliate is presently in default or, during the three-year period prior to
      the
      date of this Agreement, has been in default or has been restructured, modified
      or extended. The loan grade classification accorded such loan or credit
      accommodation is appropriate.  To the knowledge of East Penn
      Financial, as of the date hereof, principal and interest with respect to any
      each loan or other credit accommodation will be paid when due.





**Section
      3.18 Loans.** The Bank holds good and marketable title, free and clear of
      any and all Encumbrances, to all loans reflected as assets in the East Penn
      Financial Statements, and all such loans are evidenced by notes, agreements
      or
      other evidences of indebtedness which are true, genuine and correct, and to
      the
      extent secured, are secured by valid liens and security interests that are
      legal, valid and binding obligations of the maker thereof, enforceable in
      accordance with the respective terms thereof, except as such enforcement may
      be
      limited by bankruptcy, insolvency, reorganization or other similar laws or
      equitable principles affecting the enforcement of creditors' rights, which
      have
      been perfected.





**Section
      3.19 Allowance for Loan Losses.** The allowance for loan losses reflected
      in East Penn Financial's and Bank's reports to Regulatory Authorities has been
      and will be established in compliance with the requirements of all regulatory
      criteria, and the allowance for loan losses shown in East Penn Financial
      Statements has been and will be established in accordance with GAAP. East Penn
      Financial has disclosed to HNC in writing prior to the date hereof the amounts
      of all loans, leases, advances, credit enhancements, other extensions of credit,
      commitments and interest-bearing assets of East Penn Financial that East Penn
      Financial has classified internally as


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          33
          -


Special
      Loans, and East Penn Financial shall disclose promptly to HNC after the end
      of
      each month after the date hereof the amount of each such classification. East
      Penn Financial has disclosed to HNC in writing prior to the date hereof the
      amounts of all overdrafts occurring since December 31, 2006 and East Penn
      Financial shall disclose promptly to HNC after the end of each month after
      the
      date hereof and on the Effective Time the amount of such overdrafts. The OREO
      and in-substance foreclosures included in any of East Penn Financial's
      non-performing assets are carried net of reserves at the lower of cost or market
      value based on current independent appraisals or current management appraisals.
      Furthermore, true, complete and materially correct copies of reports containing
      the amounts of all loans, leases, advances, credit enhancements, other
      extensions of credit, commitments and interest bearing assets of East Penn
      Financial that East Penn Financial has classified internally as Special Loans
      and the amounts of all overdrafts occurring since December 31, 2006 are attached
      hereto on **East Penn Financial Disclosure Schedule 3.19**of this
      Agreement.





**Section
      3.20 Investment Securities.** None of the investments reflected in the
      East Penn Financial Statements under the headings "Securities Available for
      Sale” and "Securities Held to Maturity" and none of the investments made since
      December 31, 2006, are subject to any restrictions, whether contractual or
      statutory, that materially impairs the ability of East Penn Financial to freely
      dispose of the investments at any time, and all of the investments comply with
      applicable laws, rules and regulations.





**Section
      3.21 Fairness Opinion.** East Penn Financial has received a written
      opinion from Sandler O’Neill & Partners with respect to the Merger in the
      form attached to this Agreement as **Exhibit 3.21**.





**Section
      3.22 Registration Under the Exchange Act and the Securities Act.** All
      issued and outstanding shares of East Penn Financial Common Stock have been
      duly
      registered under Section 12 of the Exchange Act and East Penn Financial is
      subject to the periodic reporting requirements imposed by Section 13 or 15(d)
      of
      the Exchange Act.





**Section
      3.23 Quality of Representations.** No representation made by East Penn
      Financial or the Bank in this Agreement contains any untrue statement of a
      material fact or omits to state a material fact required to be stated therein
      or
      necessary to make the statements therein not misleading.





**Section
      3.24 Absence of Certain Changes.** Since December 31, 2006 there has not
      been:





(a)
      any
      material transaction by East Penn Financial or any Subsidiary other than in
      the
      Ordinary Course of Business;





(b)
      Except as may be expressly described on **East Penn Financial Disclosure
      Schedule 3.24(b)**, any acquisition or disposition of property by East
      Penn Financial or any Subsidiary of any property or asset, whether real or
      personal, having a fair market value, singularly or in the aggregate, in an
      amount greater than $50,000.00, other than acquisitions or dispositions made
      in
      the Ordinary Course of Business;


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          34
          -




(c)
      any
      Encumbrance on any of the respective properties or assets of East Penn Financial
      or any Subsidiary, except to secure extensions of credit in the Ordinary Course
      of Business and in conformity with past practice (pledges of and liens on assets
      to secure Federal Home Loan Bank or Federal Reserve Bank advances being deemed
      both in the Ordinary Course of Business);





(d)
      any
      increase in, or commitment to increase, the compensation payable or to become
      payable to any officer, director, employee, or agent of East Penn Financial
      or
      any Subsidiary, or any bonus payment, stock option award, restricted stock
      award
      or similar arrangement made to or with any of such officers, directors,
      employees or agents, other than routine increases made in the Ordinary Course
      of
      Business;





(e)
      Except as may be expressly described on **East Penn Financial Disclosure
      Schedule 3.24(e)**, any incurring of, assumption of, by East Penn
      Financial or any Subsidiary, or taking by any of them of any property subject
      to, any liability in excess of $50,000.00, except for liabilities incurred
      or
      assumed or property taken subsequent to December 31, 2006 in the Ordinary Course
      of Business;





(f)
      Except as may be expressly described on **East Penn Financial Disclosure
      Schedule 3.24(f)**, any material alteration in the manner of keeping the
      books, accounts or records of East Penn Financial or any Subsidiary, or in
      the
      accounting policies or practices therein reflected;





(g)
      any
      elimination of employee benefits;





(h)
      any
      deferred routine maintenance of real property or leased premises;





(i)
      any
      elimination of a reserve where the liability related to such reserve has
      remained;





(j)
      any
      failure to depreciate capital assets in accordance with past practice or to
      eliminate capital assets which are no longer used in its business;
      or





(k)
      any
      extraordinary reduction or deferral of ordinary or necessary
      expenses.





**Section
      3.25 Absence of Undisclosed Liabilities and
      Contingencies.**  Neither East Penn Financial nor any
      Subsidiary has any obligation or liability except as disclosed in the East
      Penn
      Financial Statements.  Since December 31, 2006, neither East Penn
      Financial nor any Subsidiary has incurred or paid any obligation, liability
      or
      contingency which would be material to the financial condition or operations
      of
      any of them, except for obligations paid in connection with transactions made
      by
      them in the Ordinary Course of Business consistent with past practice and
      applicable law.


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          35
          -







**Section
      3.26 Reorganization**.  As of the date hereof, East Penn
      Financial does not have any reason to believe that the Merger will fail to
      qualify as a reorganization under IRC Section 368(a).  East Penn
      Financial shall not take any action which would preclude the Merger from
      qualifying as a reorganization within the meaning of IRC Section
      368.





**Section
      3.27 Securities Documents**.  East Penn Financial has delivered
      to HNC, or there have been filed with and are available on the SEC’s Electronic
      Data Gathering and Retrieval System, true and complete copies of the following
      (collectively, the “East Penn Financial Securities Documents”):





(a)
      East
      Penn Financial's annual reports on SEC Form 10-K for the years ended December
      31, 2006 and 2005;





(b)
      All
      other reports, registration statements and filings of East Penn Financial filed
      with the SEC since December 31, 2006; and





(c)
      East
      Penn Financial's proxy materials used, or to be used, in connection with its
      meetings of shareholders held in 2007.





Except
      as
      publicly disclosed in the East Penn Financial Securities Documents, since
      December 31, 2006, no event or events have occurred that have had or are
      reasonably likely to have, either individually or in the aggregate, a Material
      Adverse Effect with respect to East Penn Financial or the
      Bank.  Except as publicly disclosed in the East Penn Financial
      Securities Documents or any securities filings made with respect to the Merger,
      East Penn Financial, Bank and each Subsidiary have carried on their respective
      businesses in all material respects in the Ordinary Course of
      Business.





**ARTICLE
      IV**


**REPRESENTATIONS
      AND WARRANTIES**


**OF
      HNC**





In
      addition to representations and warranties, if any, made elsewhere in this
      Agreement, HNC represents and warrants to East Penn Financial, as set forth
      below.  Except for the representation and warranty contained in
      Section 4.17 (as to which a standard of “materiality” for securities law
      disclosure purposes is applicable), no representation or warranty of HNC
      contained in this Article IV shall be deemed untrue or incorrect for any purpose
      under this Agreement, and HNC shall not be deemed to have breached a
      representation or warranty, in any case, as a consequence of the existence
      of
      any fact, event or circumstance except to the extent such fact, circumstance
      or
      event, individually or in the aggregate with all other facts, events or
      circumstances inconsistent with any representation or warranty set forth in
      this
      Article IV, has had or would be reasonably likely to have a Material Adverse
      Effect.







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          36
          -




**Section
      4.1 Organization.**





(a)
      HNC
      is a corporation duly incorporated, organized and subsisting under the laws
      of
      the Commonwealth of Pennsylvania. HNC is a bank holding company duly registered
      under the Bank Holding Company Act of 1956, as amended. HNC has the corporate
      power to carry on its businesses and operations as now being conducted and
      to
      own and operate the properties and assets now owned and being operated by it.
      HNC is duly licensed, registered or qualified to do business in each
      jurisdiction in which the nature of the business conducted by it or the
      character or location of the properties and assets owned or leased by it makes
      the licensing, registration or qualification necessary, except where the failure
      to be so licensed, registered or qualified will not have a Material Adverse
      Effect, and all the licenses, registrations and qualifications are in full
      force
      and effect in all material respects.





(b)
      HNC
      has no Subsidiaries other than those identified in **HNC Disclosure
      Schedule 4.1(b)**.





(c)
      The
      minute books of HNC accurately record, in all material respects, all material
      corporate actions of HNC’s shareholders and board of directors, including
      committees, in each case in accordance with the normal business practice of
      HNC.





(d)
      HNC
      has delivered to East Penn Financial true and correct copies of the articles
      of
      incorporation and bylaws of HNC, as in effect on the date hereof.





**Section
      4.2 Capitalization**.  The authorized capital stock of HNC
      consists of (a) 75,000,000 shares of common stock, par value $1.00 per share,
      of
      which, as of December 31, 2006, 109,767 shares are validly issued and held
      by
      HNC as treasury stock and 28,964,483 shares are validly issued and outstanding,
      fully paid and nonassessable and free of preemptive rights, except as may be
      defined in HNC's articles of incorporation, and (b) 8,000,000 shares of
      preferred stock, par value $1.00 per share, of which none are issued and
      outstanding.





**Section
      4.3 Authority; No Violation.**





(a)
      HNC
      has full corporate power and authority to execute and deliver this Agreement
      and
      to consummate the Mergers. The execution and delivery of this Agreement by
      HNC
      and the consummation by HNC of the Mergers have been duly and validly approved
      by the Board of Directors of HNC by unanimous vote and no other corporate
      proceedings on the part of HNC are necessary to consummate the Merger. This
      Agreement has been duly and validly executed and delivered by HNC and, subject
      to receipt of the required approvals of Regulatory Authorities, described in
      Section 4.4 hereof, constitutes the valid and binding obligation of HNC,
      enforceable against HNC in accordance with its terms, subject to applicable
      bankruptcy, insolvency and similar laws affecting creditors' rights generally
      and subject, as to enforceability, to general principles of equity.





(b)
      The
      execution, delivery and performance of this Agreement by HNC do not and will
      not:


(i)
      conflict with or result in a breach of any provision of the respective articles
      of incorporation, articles of association or bylaws of HNC;


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            37
            -





(ii)
      violate any statute, rule, regulation, judgment, order, writ, decree or
      injunction applicable to HNC or its properties or assets; or





(iii)
      violate, conflict with, result in a breach of any provisions of, constitute
      a
      default (or an event which, with notice or lapse of time, or both, would
      constitute a default) under, result in the termination of, or acceleration
      of
      the performance required by, or result in a right of termination or acceleration
      or the creation of any Encumbrance upon any of the properties or assets of
      HNC
      under, any of the terms or conditions of any note, bond, mortgage, indenture,
      license, lease, agreement, commitment or other instrument or obligation to
      which
      HNC is a party, or by which it or its properties or assets may be bound or
      affected, except to the extent that the failure to comply, in the aggregate,
      would not have a Material Adverse Effect.





**Section
      4.4 Consents.** No consents or approvals of, or filings or registrations
      with, any public body or authority, and no consents or approvals of any third
      parties are necessary for HNC to execute, deliver or perform this Agreement
      or
      consummate the Merger, other than the Regulatory Filings, Regulatory Approvals
      and Consents set forth on **HNC Disclosure Schedule
      4.4**.





**Section
      4.5 Financial Statements.**





(a)
      HNC
      has delivered to East Penn Financial the HNC Financials, except those pertaining
      to quarterly periods commencing after December 31, 2006, which it will deliver
      to East Penn Financial within 40 days after the end of the respective quarter.
      The delivered HNC Financials fairly present, in all material respects, the
      consolidated financial position, results of operations and cash flows of HNC
      as
      of and for the periods ended on the dates thereof, in accordance with GAAP
      consistently applied, and, in the case of interim period financial statements
      which are subject to normal year-end adjustments and footnotes
      thereto.





(b)
      To
      the knowledge of HNC, HNC did not have any liabilities or obligations of any
      nature, whether absolute, accrued, contingent or otherwise, which are not fully
      reflected or reserved against in the balance sheets included in the HNC
      Financials at the date of such balance sheets which would have been required
      to
      be reflected therein in accordance with GAAP consistently applied or disclosed
      in a footnote thereto, except for liabilities and obligations which were
      incurred in the Ordinary Course of Business, and except for liabilities and
      obligations which are within the subject matter of a specific representation
      and
      warranty herein or which otherwise have not had a Material Adverse
      Effect.





**Section
      4.6. No Material Adverse Change.** Neither HNC nor any material
      subsidiary of HNC has suffered any adverse change in their respective assets
      (including loan portfolios), liabilities (whether absolute or contingent, fixed
      or unfixed, accrued or unaccrued), liquidity, net worth, business, property,
      financial condition, results of operations or any damage destruction or loss,
      whether or not covered by insurance, since December 31, 2006, which change
      has
      had a Material Adverse Effect.


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          38
          -







**Section
      4.7 Taxes.**





(a)
      HNC
      and HNC’s subsidiaries are members of the same affiliated group within the
      meaning of IRC Section 1504(a) of which HNC is the common parent. HNC has filed,
      and will file, all material federal, state and local tax returns required to be
      filed by, or with respect to, HNC and the HNC subsidiaries on or prior to the
      Closing Date, except (i) as may be disclosed on **HNC Disclosure Schedule
      4.7**, or (ii) to the extent that any failure to file or any inaccuracies
      would not, individually or in the aggregate, have a Material Adverse Effect,
      and
      has paid or will pay, or made or will make, provisions for the payment of all
      federal, state and local taxes which are shown on such returns to be due for
      the
      periods covered thereby from HNC or any subsidiary of HNC to any applicable
      taxing authority, on or prior to the Closing Date, other than taxes which (i)
      are not delinquent or are being contested in good faith, (ii) have not been
      finally determined, or (iii) the failure to pay would not, individually or
      in
      the aggregate, have a Material Adverse Effect.





(b)
      To
      the knowledge of HNC, there are no material disputes pending, or claims asserted
      in writing, for taxes or assessments upon HNC or any subsidiary of HNC, nor
      has
      HNC or any subsidiary of HNC been requested in writing to give any currently
      effective waivers extending the statutory period of limitation applicable to
      any
      federal, state, county or local income tax return for any period.





**Section
      4.8 Contracts.** Each of the material contracts, to which HNC is a party
      that relates to or affects the assets or operations of HNC is a valid and
      binding obligation of HNC and is in full force and effect, except for where
      the
      failure to be in full force and effect would not, individually or in the
      aggregate, have a Material Adverse Effect.





**Section
      4.9 Ownership of Property.** HNC has good and marketable title to its
      properties and assets (other than property as to which HNC is lessee), except
      for (i) such items shown in the HNC consolidated financial statements or notes
      thereto; (ii) liens on real property for current real estate taxes not yet
      delinquent, or (iii) such defects in title which would not, individually or
      in
      the aggregate, have a Material Adverse Effect on HNC.





**Section
      4.10 Financing.** At the Effective Time, HNC will have available cash
      sufficient to pay the amounts required to be paid as Cash Consideration to
      East
      Penn Financial shareholders pursuant to this Agreement and shares available
      and
      reserved to pay the Stock Consideration, upon Effective Time.





**Section
      4.11 Legal Proceedings.** Neither HNC nor any subsidiary of HNC is a
      party to any, and there are no pending or, to the knowledge of HNC, threatened,
      any legal, administrative, arbitration or other proceedings, claims, actions,
      customer complaints, or governmental investigations or inquiries (a) against
      HNC
      or any of its subsidiaries, or (b) to which the assets of HNC or any of its
      subsidiaries are subject, or (c) challenging the validity or propriety of the
      Merger or the Bank Merger; except for any proceedings, claims, actions,
      investigations, or inquiries which, individually or in the aggregate, would
      not
      have a Material Adverse Effect.


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          39
          -




**Section
      4.12 Compliance with Applicable Law.** Except where noncompliance would
      not have a Material Adverse Effect: (i) HNC and its Subsidiaries are in
      compliance with all statutes, laws, ordinances, rules, regulations, judgments,
      orders, decrees, directives, consent agreements, memoranda of understanding,
      permits, concessions, grants, franchises, licenses, and other governmental
      authorizations or approvals applicable to them or to any of their properties;
      and (ii) all permits, concessions, grants, franchises, licenses and other
      governmental authorizations and approvals necessary for the conduct of the
      business of HNC or its Subsidiaries as presently conducted have been duly
      obtained and are in full force and effect and there are no proceedings pending,
      or to the knowledge of HNC, threatened, which may result in the revocation,
      cancellation, suspension or material adverse modification of any
      thereof.





**Section
      4.13 ERISA**





(a)
      HNC
      has delivered to East Penn Financial true and complete copies of, and
**HNC Disclosure Schedule 4.13** lists, all employee pension
      benefit plans within the meaning of ERISA Section 3(2), profit sharing plans,
      stock purchase plans, deferred compensation and supplemental income plans,
      supplemental executive retirement plans, annual incentive plans, group insurance
      plans, and all other employee welfare benefit plans within the meaning of ERISA
      Section 3(1) (including vacation pay, sick leave, short-term disability,
      long-term disability, and medical plans) and all other employee benefit plans,
      policies, agreements and arrangements currently maintained or contributed to
      for
      the benefit of the employees or former employees (including retired employees)
      and any beneficiaries thereof or directors or former directors of HNC or any
      other entity (an "HNC ERISA Affiliate") that, together with HNC, is treated
      as a
      single employer under IRC Sections 414(b),(c),(m) or (o) (collectively, the
      "HNC
      Benefit Plans"), together with:





(i)
      The
      most recent actuarial reports (if any) and financial reports relating to those
      HNC Benefit Plans which constitute "qualified plans" under IRC Section
      401(a);





(ii)
      The
      most recent Form 5500 (if any) relating to such HNC Benefit Plans filed with
      the
      IRS; and





(iii)
      The
      most recent IRS determination letters which pertain to any such HNC Benefit
      Plans.





(b)
      No
      pension plan (within the meaning of ERISA Section 3(2) maintained or contributed
      to by HNC or any HNC ERISA Affiliate, has incurred any liability to the Pension
      Benefit Guaranty Corporation or to the IRS with respect to any pension plan
      qualified under IRC Section 401(a) which liability has resulted or will result
      in a Material Adverse Effect with respect to HNC, except liabilities to the
      Pension Benefit Guaranty Corporation pursuant to ERISA Section 4007, all of
      which have been fully paid, nor has any reportable event under ERISA Section
      4043(b) (with respect to which the 30 day notice requirement has not been
      waived) occurred with respect to any such pension plan which could result in
      a
      Material Adverse Effect.


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          -




(c)
      Neither HNC nor any HNC ERISA Affiliate has ever contributed to or otherwise
      incurred any liability with respect to a multi-employer plan (within the meaning
      of ERISA Section 3(37)).





(d)
      Each
      HNC Benefit Plan has been maintained, operated and administered in compliance
      in
      all respects with its terms and related documents or agreements and the
      applicable provisions of all laws, including ERISA and the IRC.





(e)
      To
      the knowledge of HNC, no audit has occurred or is pending or scheduled of any
      HNC Benefit Plan by the IRS, the U.S. Department of Labor, the Pension Benefit
      Guaranty Corporation or any other governmental authority. In addition, to the
      knowledge of HNC, there are no pending or threatened claims by, on behalf of
      or
      with respect to any HNC Benefit Plan, or by or on behalf of any individual
      participant or beneficiary of any HNC Benefit Plan, alleging any violation
      of
      ERISA or any other applicable laws, or claiming benefits (other than claims
      for
      benefits not in dispute and expected to be granted promptly in the Ordinary
      Course of Business), nor to the knowledge of HNC, is there any basis for such
      claim.





(f)
      With
      respect to any services which HNC or any subsidiary of HNC may provide as a
      record-keeper, administrator, custodian, fiduciary, trustee or otherwise for
      any
      plan, program, or arrangement subject to ERISA (other than any HNC Benefit
      Plan), to the knowledge of HNC, HNC and each of its subsidiaries:





(i)
      Have
      correctly computed all contributions, payments or other amounts for which it
      is
      responsible;





(ii)
      Have
      not engaged in any prohibited transactions (as defined in ERISA Section 406
      for
      which an exemption does not exist);





(iii)
      Have not breached any duty imposed by ERISA; and





(iv)
      Have
      not otherwise incurred any liability to the IRS, the U.S. Department of Labor,
      the Pension Benefit Guaranty Corporation, or to any beneficiary, fiduciary
      or
      sponsor of any ERISA plan in the performance (or non- performance) of
      services.





**Section
      4.14 Environmental Matters.** To HNC’s knowledge, neither HNC, any
      subsidiary of HNC, nor any property owned or operated by HNC or any subsidiary
      of HNC, has been or is in violation of or liable under any Environmental Law,
      except for such violations or liabilities that, individually or in the
      aggregate, would not have a Material Adverse Effect. To HNC’s knowledge, there
      are no actions, suits or proceedings, or demands, claims or notices, including
      without limitation notices, demand letters or requests for information from
      any
      Regulatory Authority, instituted or pending, or to the knowledge of HNC,
      threatened, or any investigation pending, relating to the liability of HNC
      or
      any subsidiary of HNC with respect to


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          41
          -


any
      property owned or operated by HNC or any subsidiary of HNC under any
      Environmental Law, except as to any such actions or other matters which would
      not result in a Material Adverse Effect.





**Section
      4.15 Brokers and Finders.** Neither HNC nor any subsidiary of HNC, nor
      any of their respective officers, directors, employees, independent contractors
      or agents, has employed any broker, finder, investment banker or financial
      advisor, or incurred any liability for any fees or commissions to any such
      person, in connection with the Merger, except that HNC has employed Janney
      Montgomery Scott LLC as its financial adviser pursuant to the engagement letter
      attached as**Exhibit 4.15**.





**Section
      4.16 Allowance for Loan Losses.** To HNC’s knowledge, the allowance for
      loan losses reflected in HNC's and its subsidiaries’ reports to Regulatory
      Authorities has been and will be established in accordance with and in
      compliance with the requirements of all regulatory criteria and the allowance
      for loan losses shown on the HNC Financial Statements has been and will be
      established in accordance with GAAP.





**Section
      4.17 Information to be Supplied.**The information
      supplied by HNC for inclusion in the Securities Filings (including the
      Prospectus/Proxy Statement) will not, at the time the Securities Filings are
      declared effective pursuant to the Securities Act, and as of the date the
      Prospectus/Proxy Statement is mailed to shareholders of East Penn Financial,
      and
      up to and including the date of East Penn Financial Shareholders Meeting,
      contain any untrue statement of a material fact or omit to state any material
      fact necessary in order to make the statements made therein, in the light of
      the
      circumstances in which they were made, not misleading.





**Section
      4.18 Reporting Requirements.** HNC Common Stock is registered under
      Section 12 of the Exchange Act and is subject to the periodic reporting
      requirements imposed by Section 13 or 15(d) of the Exchange Act.





**Section
      4.19 HNC Common Stock**. The shares of HNC Common Stock to be issued and
      delivered to East Penn Financial shareholders in accordance with this Agreement,
      when so issued and delivered, will be validly authorized and issued and fully
      paid and non-assessable, and no shareholder of HNC shall have any pre-emptive
      right with respect thereto.





**Section
      4.20 Securities Documents**.  HNC has delivered to East Penn
      Financial, or there have been filed with and are available on the SEC’s
      Electronic Data Gathering and Retrieval System, true and complete copies of
      each
      of the following (the “HNC Securities Documents”):





(a)
      HNC's
      annual reports on SEC Form 10-K for the years ended December 31, 2006 and
      2005;





(b)
      All
      other reports, registration statements and filings of HNC filed with the SEC
      since December 31, 2006; and




(c)
      HNC's
      proxy materials used, or to be used, in connection with its meetings of
      shareholders held in 2007.


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            42
            -


Except
      as
      publicly disclosed in the HNC Securities Documents, since December 31, 2006,
      no
      event or events have occurred that have had or are reasonably likely to have,
      either individually or in the aggregate, a Material Adverse Effect with respect
      to HNC or any material subsidiary of HNC.  Except as publicly
      disclosed in the HNC Securities Documents or any filings made with respect
      to
      the Merger, HNC and its subsidiaries have carried on their respective businesses
      in all material respects in the Ordinary Course of Business.





**Section
      4.21 Fairness Opinion.**  HNC has received a written opinion
      from Janney Montgomery Scott LLC with respect to the Merger in the form attached
      to this Agreement as **Exhibit 4.21**.





**Section
      4.22 Reorganization.**As of the date hereof, HNC does not
      have any reason to believe that the Merger will fail to qualify as a
      reorganization under IRC Section 368(a).  HNC shall not take any
      action which would preclude the Merger from qualifying as a reorganization
      within the meaning of IRC Section 368(a).





**Section
      4.23 Quality of Representations.** To the knowledge of HNC, no
      representation made by HNC in this Agreement contains any untrue statement
      of a
      material fact or omits to state a material fact required to be stated therein
      or
      necessary to make the statements therein not misleading.





**ARTICLE
      V**


**COVENANTS**


**OF
      EAST PENN FINANCIAL AND BANK**





**Section
      5.1 No Rights Triggered.**East Penn Financial shall cause Bank and each
      of the Subsidiaries to take all necessary steps to ensure that the entering
      into
      of this Agreement and the consummation of the transactions contemplated hereby
      and any other action or combination of actions, or any other transactions
      contemplated hereby, do not and will not result in the grant of any rights
      to
      any Person (i) under its Charter or bylaws, or (ii) under any material agreement
      to which it or any of its Subsidiaries is a party.





S**ection
      5.2 Conduct of Business.**During the period from the date of
      this Agreement to the Closing Date, the business of East Penn Financial, Bank
      and the Subsidiaries shall be conducted only in the Ordinary Course of Business
      and in material compliance with all applicable laws, rules and regulations,
      and
      each of them shall use commercially reasonable efforts to preserve its business
      organization intact, keep available the services of its officers and employees,
      and maintain its goodwill and existing relations with customers, suppliers,
      landlords, agents and other business associates.  During the period
      from the date of this Agreement to the Closing Date (except as contemplated
      by
      the Merger Documents, as otherwise consented to in writing by HNC, or as
      required by Applicable Requirements but only with prior written notice to HNC),
      neither East Penn Financial, nor Bank nor any of the Subsidiaries
      will:


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          43
          -




(a)
      Except as set forth in **East Penn Financial Disclosure Schedule
      5.2(a)**, acquire any capital assets exceeding $100,000 in amount, either
      individually or in the aggregate, or form or acquire any new subsidiary, or
      engage in any new activity or materially expand any existing
      activities;





(b)
      declare, set aside, make or pay any dividend or other distribution in respect
      of
      its capital stock, other than semi-annual cash dividends to be payable, on
      dates
      in August 2007 and (if the Effective Time has not yet then occurred) February
      2008 to be determined by East Penn Financial, to shareholders of record on
      dates, respectively in July 2007 and January 2008 to be determined by East
      Penn
      Financial, in respective amounts not to exceed 12 cents per share in August
      2007
      and 13 cents per share in February 2008, and otherwise on terms consistent
      with
      the historic practices and terms of cash dividends by East Penn
      Financial;





(c)
      (i)
      except to the extent necessary to honor exercises of presently outstanding
      East
      Penn Financial Options, issue, sell or otherwise permit to become outstanding
      any additional East Penn Financial Shares (including without limitation any
      that
      may be held as treasury stock), (ii) issue any stock options, warrants, stock
      appreciation rights, phantom stock or similar rights relating to or reflecting
      East Penn Financial Shares or their value, (iii) redeem any presently
      outstanding East Penn Financial Shares, (iv) take any of such actions with
      regard to the capital stock of Bank or any of the other Subsidiaries, or (v)
      attempt, or enter into or negotiate for any agreement, to do any of the
      foregoing;





(d)
      terminate, except for cause, the employment of any officer of Vice President
      level or above, except in the Ordinary Course of Business, or hire any new
      officers of Vice President level or above;





(e)
      purchase or otherwise acquire, or sell, encumber, or otherwise dispose of,
      any
      assets or incur any liabilities other than in the Ordinary Course of
      Business;





(f)
      engage in any transaction or enter into any agreement with any officer, director
      or shareholder of East Penn Financial or Bank or any of the Subsidiaries or
      any
      affiliate of any such officer, director or shareholder;





(g)
      amend
      its Charter or bylaws or equivalent corporate governance documents;





(h)
      impose, or suffer the imposition, on any share of stock held by Bank of any
      Encumbrance or permit any such Encumbrance to exist;





(i)
      fail
      to comply in any material respect with any Applicable Requirements;





(j)
      elect
      any additional officers or directors other than those directors who will be
      elected at the 2007 annual meeting and those officers to be reappointed at
      the
      2007 annual reorganizational meetings of East Penn Financial and the
      Bank;




(k)
      increase the rate of compensation of any of its directors, officers or
      employees, or pay or agree to pay any incentive compensation or bonus, except
      in
      the Ordinary Course of Business;


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            44
            -





(l)
      enter
      into or materially modify (except as may be required by applicable law or
      changes in group insurance contracts) any pension, retirement, stock option,
      stock purchase, stock appreciation right, savings, profit sharing, deferred
      compensation, consulting, bonus, or other employee benefit, incentive or welfare
      contract, plan or arrangement, or any trust, agreement related thereto, in
      respect of any of its directors, officers or other employees;





(m)
      (i)  From the date of this Agreement through the Effective Time,
      except as otherwise permitted by this Section 5.2, East Penn Financial will
      not,
      and will not authorize or permit any of its directors, officers, employees,
      investment bankers, attorneys, accountants, advisors, agents, Affiliates or
      representatives (collectively, “Representatives”) to, directly or indirectly,
      (i) initiate, solicit, encourage or take any action to facilitate, including
      by
      way of furnishing information, any Acquisition Proposal or any inquiries with
      respect to or the making of any Acquisition Proposal, (ii) enter into or
      participate in any discussions or negotiations with, furnish any information
      relating to East Penn Financial or afford access to the business, properties,
      assets, books or records of East Penn Financial to, otherwise cooperate in
      any
      way with, or knowingly assist, participate in, facilitate or encourage any
      effort by any third party that is seeking to make, or has made, an Acquisition
      Proposal or (iii) except in accordance with Section 10.1(e), approve, endorse
      or
      recommend or enter into any letter of intent or similar document or any
      contract, agreement or commitment contemplating or otherwise relating to an
      Acquisition Proposal.





(ii)
      Notwithstanding anything herein to the contrary, East Penn Financial and its
      Board of Directors shall be permitted (i) to comply with Rule 14d-9 and Rule
      14e-2 promulgated under the Exchange Act with regard to an Acquisition Proposal
      provided that the Board of Directors of East Penn Financial shall not withdraw
      or modify in a manner adverse to HNC its Approval Recommendation except as
      set
      forth in subsection (iii) below; (ii) to engage in any discussions or
      negotiations with, and provide any information to, any person in response to
      a
      Superior Proposal by any such person, if and only to the extent that (x) East
      Penn Financial’s Board of Directors concludes in good faith, after consulting
      with outside counsel, that failure to do so would reasonably be expected to
      breach its fiduciary duties to East Penn Financial’s shareholders under
      applicable law, (y) prior to providing any information or data to any person
      in
      connection with a Superior Proposal by any such person, East Penn Financial’s
      Board of Directors receives from such person an executed confidentiality
      agreement, which confidentiality terms shall be no less favorable to East Penn
      Financial than those contained in the Confidentiality Agreement between East
      Penn Financial and HNC, a copy of which executed confidentiality agreement
      shall
      have been provided to HNC for informational purposes and (z) at least 72 hours
      prior to providing any information or data to any person or entering into
      discussions or negotiations with any person, East Penn Financial promptly
      notifies HNC in writing of the name of such person and the material terms and
      conditions of any such Superior Proposal and (iii) to withdraw, modify, qualify
      in a manner adverse to HNC, condition or refuse to make its Approval
      Recommendation (the “Change in East Penn Financial Recommendation”) if East Penn


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          45
          -


Financial’s
      Board of Directors concludes in good faith, after consultation with outside
      counsel and financial advisors, that failure to do so would reasonably be
      expected to breach its fiduciary duties to East Penn Financial’s shareholders
      under applicable law.





(iii)
      East Penn Financial will promptly, and in any event within 24 hours, notify
      HNC
      in writing of the receipt of any Acquisition Proposal or any information related
      thereto, which notification shall describe the Acquisition Proposal and identify
      the third party making the same.





(iv)
      East
      Penn Financial agrees that it will, and will cause its Representatives to,
      immediately cease and cause to be terminated any activities, discussions or
      negotiations existing as of the date of this Agreement with any parties
      conducted heretofore with respect to any Acquisition Proposal.





(n)
      except as permitted under subsection (m) of this Section, enter into (i) any
      material agreement, arrangement or commitment not made in the Ordinary Course
      of
      Business, other than agreements or memoranda of understanding with Regulatory
      Authorities in connection with the transactions contemplated by this Agreement,
      (ii) any agreement, indenture or other instrument relating to the borrowing
      of
      money by East Penn Financial or Bank or guarantee by East Penn Financial or
      Bank
      of any such obligation, except in the Ordinary Course of Business and except
      for
      drawing on currently existing lines of credit, (iii) any agreement, arrangement
      or commitment relating to the employment of, or severance of, a consultant
      or
      the employment, severance, election or retention in office of any present or
      former director, officer or employee, or (iv) any contract, agreement or
      understanding with a labor union;





(o)
      change its lending, investment or asset-liability management policies in any
      material respect;





(p)
      change its method of accounting in effect at December 31, 2006, except as
      required by changes in Applicable Requirements or GAAP concurred in by its
      independent certified public accountants, or change any of its methods of
      reporting income and deductions for federal income tax purposes from those
      employed in the preparation of its federal income tax returns for the year
      ended
      December 31, 2006;





(q)
      Except as set forth in **East Penn Financial Disclosure Schedule
      5.2(q)**, establish or make any commitment relating to the establishment
      of any new branch or office facility;





(r)
      waive
      any claims or rights noted with a value in excess of $25,000;





(s)
      take
      any action materially inconsistent with, or omit to take any action required
      by,
      the representations, warranties and covenants contained in this
      Agreement;





(t)
      except strictly as may be required by the Regulatory Authorities, modify their
      reserve practices with respect to loans, Special Loans or Special REO Properties
      or fail to comply with any provision of this Agreement explicitly addressing
      Special Loans or Special REO Properties; or


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          46
          -







(u)
      agree
      to do any of the foregoing.





**Section
      5.3 Approvals of Third Parties.**East Penn Financial and the
      Bank shall use their commercially reasonable efforts to cooperate with each
      other in the effort to secure at the earliest reasonably practicable date all
      necessary Regulatory Approvals and Consents that may be required in order to
      permit the consummation of the transactions contemplated by this
      Agreement.





**Section
      5.4 Transitional Matters**





(a)
      From
      the date of this Agreement through the Closing Date, East Penn Financial and
      the
      Bank shall provide HNC all reasonable assistance requested by them in order
      to
      effect the Closing, including, but without limitation, the provision of all
      information and documents that are reasonably necessary for the Regulatory
      Filings, the applications for Regulatory Approvals and the Securities Filings
      to
      be made by HNC.  East Penn Financial shall also use reasonable efforts
      to cause to be duly and timely filed the Securities Filings to be made by East
      Penn Financial.  East Penn Financial and the Bank shall cooperate
      fully with HNC in preparing and filing the Regulatory Filings, the Securities
      Filings and any amendments and supplements thereto.





(b)
      During the period from the date of this Agreement through the Closing Date,
      East
      Penn Financial and the Bank shall furnish or make available to HNC a copy of
      (i)
      each filing made with any Regulatory Authority or any federal or state
      securities regulatory agency, (ii) each state or local income tax or franchise
      tax return filed by or for Bank or any of the Subsidiaries with any state or
      local taxing authority and (iii) interim monthly financial statements related
      to
      East Penn Financial, Bank and each of the Subsidiaries in the form currently
      utilized.





(c)
      During the period between the date of this Agreement and the Closing Date:
      (i)
      HNC shall have reasonable access to officers and employees of East Penn
      Financial and Bank at their respective offices for informational meetings
      regarding human resource matters and the procedures, policies and operations
      that HNC plans to implement from and after the Closing Date; and (ii) East
      Penn
      Financial and the Bank shall cooperate with HNC in arranging for meetings
      between HNC and the employees of East Penn Financial and Bank at the reasonable
      request of HNC.





(d)
      During the period between the date of this Agreement and the Closing Date,
      East
      Penn Financial and the Bank will notify HNC of all regular and special meetings
      of the Boards of Directors and Executive Committees of East Penn Financial
      and
      Bank, and HNC or its representative will be permitted to attend all such
      meetings in person or by telephone, except to the extent the exclusion of HNC
      and its representatives may be required for the Board of Directors to exercise
      its duty under Pennsylvania law or otherwise as required under applicable
      law.  In the event that HNC or its representative is unable to attend
      such meetings, East Penn Financial or Bank shall advise HNC of the matters
      conducted at such meeting as soon as practical.  Notwithstanding the
      foregoing, all Board discussions and action concerning this Agreement or the
      Merger may be held at East Penn Financial’s discretion in a confidential
      session.


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          47
          -




(e)
      During the period between the date of this Agreement and the Effective Time,
      East Penn Financial and the Bank shall notify HNC in writing of any material
      regulatory, financial, operational or other developments affecting East Penn
      Financial and/or Bank, and/or their respective businesses.





(f)
      HNC,
      East Penn Financial and the Bank shall cooperate with each other in the
      preparation and filing, as soon as practicable, of the Regulatory Filings,
      the
      Prospectus/Proxy Statement, and all other documents necessary to obtain any
      other approvals and consents required to effect Effective Time.





(g)
      HNC
      and East Penn Financial shall consult upon the form and substance of any press
      release related to this Agreement and the Merger, but nothing contained herein
      shall prohibit either Party, following reasonable notification to the other
      Party, from making any disclosure which its counsel deems necessary under
      Applicable Requirements.





(h)
      HNC,
      on the one hand, and East Penn Financial and Bank, on the other hand, shall
      cooperate with each other, and if mutually agreed in the interest of an orderly,
      cost effective consolidation of operations, terminate any contract or
      arrangement East Penn Financial or any Subsidiary may have with an outside
      service bureau or other vendor of services and substitute a contract or
      arrangement between HNC or any subsidiary of HNC (as HNC shall elect) and East
      Penn Financial for the provision of similar services to East Penn Financial
      or
      any Subsidiary on terms and conditions mutually acceptable to East Penn
      Financial and HNC. Except as otherwise provided in this Agreement, nothing
      in
      this subsection shall be construed as obligating East Penn Financial to
      terminate any contract or arrangement.





(i)
      HNC
      and East Penn Financial shall, subject to applicable legal requirements,
      cooperate with each other, and if mutually agreed in the interest of an orderly,
      cost-effective consolidation of operations, terminate any in-house back office,
      support, processing or other operational activities or services of East Penn
      Financial or any Subsidiary, including without limitation accounting, loan
      processing and deposit services, and substitute a contract or arrangement
      between HNC or any subsidiary of HNC (as HNC shall select) and East Penn
      Financial for the provision of similar services to East Penn Financial or any
      Subsidiary on terms and conditions mutually acceptable to East Penn Financial
      and HNC. Except as otherwise provided in this Agreement, nothing in this
      subsection shall be construed as obligating East Penn Financial to terminate
      any
      activity or service prior to the Effective Time.





(j)
      HNC
      and East Penn Financial shall each use reasonable best efforts and cooperate
      with each other to cause the Effective Time to occur on or before the Outside
      Effective Time; however, nothing herein shall be construed as committing either
      Party to close the transaction contemplated by this Agreement on or before
      such
      date.







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          48
          -




**Section
      5.5 Tax Matters**




(a)
      From
      the date of this Agreement and until the Closing Date, East Penn Financial
      shall
      cause each of its Subsidiaries to prepare, or cause to be prepared, in a manner
      consistent with prior Tax Returns (except to the extent counsel for any of
      them
      determines there is no reasonable basis in law therefor), and shall file, or
      cause to be filed, any Tax Returns (including amendments thereto) required
      to be
      filed (taking into account any permitted exceptions) under federal, state,
      county, local or any foreign laws by or on behalf of East Penn Financial, the
      Bank and each Subsidiary.





(b)
      Prior
      to the Closing Date, East Penn Financial and Bank shall make or cause to be
      made
      available for HNC’s inspection, as reasonably requested, copies of the federal,
      state, county, local and foreign Tax Returns, reports and estimates for periods
      prior to the Closing Date for the East Penn Financial, the Bank and each of
      the
      Subsidiaries.





(c)
      After
      the Closing Date, HNC and East Penn Financial will provide each other with
      such
      cooperation and information as either of them reasonably may request of the
      other in filing any Tax Return, amended return, determining a liability for
      Taxes or participating in or conducting any audit or other proceeding in respect
      of Taxes.  Without limiting the scope of the foregoing, HNC and East
      Penn Financial shall each make available to the other, as reasonably requested,
      all information, records or documents relating to federal, state, county, local
      or foreign Tax matters of HNC, East Penn Financial, the Bank and each of the
      Subsidiaries for all taxable periods prior to or including the Closing Date
      and
      shall preserve all such information, records and documents until the expiration
      of any applicable Tax statute of limitations or extensions thereof.





**Section
      5.6 East Penn Financial Shareholders Meeting; Bank
      Shareholder.**





(a)
      East
      Penn Financial shall take, in accordance with applicable law and the East Penn
      Financial articles of incorporation and the East Penn Financial bylaws, all
      action necessary to duly call, give notice of, convene and hold as soon as
      reasonably practicable after the date on which the Registration Statement
      becomes effective a special meeting of its shareholders (including any
      adjournment or postponement, the “East Penn Financial Shareholders Meeting”) to
      consider and vote upon the approval of this Agreement and any other matters
      required to be approved by East Penn Financial’s shareholders for consummation
      of the Merger unless this Agreement shall have been terminated in accordance
      with its terms. Subject to the right of East Penn Financial and its Board of
      Directors to take any action permitted by Section 5.2(m)(ii) with respect to
      a
      Superior Proposal, East Penn Financial shall, through its Board of Directors,
      recommend to its shareholders, in the East Penn Financial Proxy Statement and
      otherwise, approval of this Agreement and the transactions contemplated hereby
      and shall take all reasonable lawful action to solicit such approval by its
      shareholders (the “Approval Recommendation”).





(b)
      As
      sole shareholder of the Bank, East Penn Financial agrees to vote to approve
      and
      adopt this Agreement and the other Merger Documents and approve the transactions
      contemplated hereby and thereby.





**Section
      5.7 Due Diligence Review.**During the period prior to the Effective
      Time, HNC may continue its reasonable due diligence review and investigation
      with regard to Bank and the Subsidiaries.  East Penn Financial, Bank
      and the Subsidiaries and their respective representatives,


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          49
          -


employees,
      directors, officers, consultants and similar parties shall assist HNC in
      conducting such review and investigation and furnish or make available such
      information and documents as may be reasonably requested by
      HNC.  During the course of such review and investigation, HNC may
      undertake such investigation and review as it deems appropriate, including,
      but
      not limited to, review of all corporate documentation and correspondence of
      Bank
      and the Subsidiaries, including board and board committee minutes (but excluding
      any matters in connection with the Merger or the decision process of the East
      Penn Financial board in connection with the Merger), consultation with the
      independent auditors and banking regulators of East Penn Financial and Bank
      (to
      the extent permitted by the governing Regulatory Authority), an inspection
      of
      any real property related to the transaction, and inspection of any buildings
      and building systems associated with the business of East Penn Financial, the
      Bank and any of the Subsidiaries, whether such are owned or leased by East
      Penn
      Financial or Bank.





**Section
      5.8 Regulatory Approval.**East Penn Financial and Bank will
      use diligent efforts to complete and file, and to cooperate with HNC and HNB
      in
      completing and filing, all applications they are required to file with
      applicable regulators, and to pursue all Regulatory Approvals they are required
      to obtain for the transaction contemplated herein.





**Section
      5.10 Phase I Audit.**East Penn Financial shall permit HNC, if
      HNC elects to do so, at its own cost and expense, to cause a "phase I
      environmental audit" (together with any additional tests, studies or
      investigations recommended in such audit) to be performed at any physical
      location owned or occupied by East Penn Financial or any Subsidiary. HNC must
      complete such audit no later than ten (10) days prior to the Effective Time
      or
      its right to do so shall be waived.





**Section
      5.11 East Penn Financial Options.**East Penn Financial shall
      use its best efforts to cause each of the present the holders of each of the
      East Penn Financial Options to accept, at the Effective Time, a cash payment
      in
      full liquidation of all of the East Penn Financial Options, with the goal that
      (i) no East Penn Financial Options shall be exercised after the date of this
      Agreement and (ii) no East Penn Financial Options shall be outstanding at the
      Effective Time.





**Section
      5.12****Tax Opinion.**East Penn Financial shall
      use reasonable diligence to obtain the tax opinion described in Section 8.5(c)
      on a timely basis.  To the extent that East Penn Financial is not able
      to obtain such an opinion, East Penn Financial shall consult promptly in detail
      with HNC with regard to the specific reasons why it cannot obtain the opinion
      and HNC shall have a reasonable opportunity prior to Closing to take such
      actions as may be reasonably necessary to address any such reasons.





**ARTICLE
      VI**


**COVENANTS**


**OF
      HNC**





**Section
      6.1 Approvals of Third Parties.**HNC shall use commercially
      reasonable efforts to prepare, file and publish all applications, notices and
      registrations required by applicable law as soon as practicable and shall in
      any
      event prepare, publish and file such applications, notices and registrations
      not
      later than one hundred twenty (120) days after the date of this Agreement,
      and
      shall


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use
      reasonable efforts to secure at the earliest practicable date all Regulatory
      Approvals and shall otherwise use commercially reasonable efforts to cause
      the
      consummation of the transactions contemplated hereby in accordance with the
      terms and conditions of this Agreement.  HNC will afford East Penn
      Financial, Bank and their counsel a reasonable opportunity to review all such
      applications, notices and registrations before filing with Regulatory
      Authorities and will not file any such applications, notices or registrations
      if, promptly after their receipt, East Penn Financial, Bank or their counsel
      reasonably object thereto.













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**Section
      6.2 Benefits for Bank Employees.**





(a)
      Except as otherwise provided in this Agreement, HNC will honor all East Penn
      Financial Employment Agreements set forth on East Penn Financial Disclosure
      Schedule 3.8(a).





(b)
      HNC
      will endeavor to continue the employment of all current Bank employees in
      positions that will contribute to the successful performance of the combined
      organization.  During the period prior to the Effective Time, HNC will
      cooperate with East Penn Financial to identify the roles that Bank's current
      employees will be expected to play with HNC after the Effective Time. If prior
      to the Effective Time or within one year after the Effective Time, HNC elects
      to
      displace an employee or eliminate a position, or does not offer the employee
      comparable employment (i.e. a position of substantially similar job description
      or responsibilities at substantially the same salary level), then HNC will
      make
      severance payment of two (2) weeks of compensation for each year of the
      employee’s combined service with the Bank and HNC (subject to applicable taxes
      and withholding requirements), with a minimum of four (4) weeks up to a maximum
      of twenty-six (26) weeks.  Terminated Bank employees will have the
      right to continue coverage under the group health plans of HNC or HNB in
      accordance with Code Section 4980(f). During the severance payment term or
      until
      the employee is enrolled in another health plan, whichever occurs first, HNC
      will continue to pay the employer’s share of medical benefits that it pays for
      its employees generally, provided that any coverage period required under IRC
      4980B shall run concurrently with the period that HNC pays the employer’s share
      of health coverage under this Section.





(c)
      Bank’s employees will, immediately upon Effective Time, be eligible for all HNC
      Benefit Plans that are generally available to HNC employees upon the terms
      of
      the HNC Benefit Plans applicable from time to time.  HNC shall, and
      shall cause HNB, to waive all limitations as to preexisting conditions,
      exclusions and waiting periods with respect to participation and coverage
      requirements applicable to such employees to the extent such conditions were
      satisfied under any corresponding East Penn Financial Employee Benefit Plans.
      To
      the extent allowed under each applicable plan, but in any event only to the
      extent that East Penn Financial shall have provided to HNC prior to the
      Effective Time detailed, verifiable information on the amounts to be credited
      to
      each employee, HNC will provide credit under such plans for any deductibles
      incurred by Bank’s employees during the portion of the calendar year prior to
      the commencement of their participation in HNC’s plans.  Those of
      Bank’s employees that continue to be employed by HNC after Effective Time will
      be given full credit for years of service with Bank for purposes of eligibility
      and vesting, but not for purposes of calculating benefit amounts, under HNC’s
      applicable employee benefit plans.





(d)
      Except (i) as expressly provided in this Agreement or (ii) as expressly provided
      in any East Penn Financial Employment Agreements set forth on East Penn
      Financial Disclosure Schedule 3.8(a) (but subject, nevertheless, to any rights
      HNC has after the Effective Time as employer under any of the East Penn
      Financial Employment Agreements), and (iii)  as expressly provided in
      the employment agreement to be entered into between HNC and Brent L. Peters
      pursuant to Section 7.11(b), HNC shall have no obligation to provide to any
      directors,


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officers
      or employees of East Penn Financial, Bank or any Subsidiary any benefits of
      any
      sort other than, as to employees of East Penn Financial and the Bank, HNC’s
      normal and customary benefits for HNC’s employees.





(e)
      Notwithstanding any other provision of this Agreement, at or promptly after
      the
      Effective Time, HNC shall have the right to freeze, merge or terminate the
      existing 401(k) plan and where applicable transfer its assets into HNC’s
      existing 401(k) plan.





(f)  Employees
      of East Penn Financial and Bank shall not be deemed third party beneficiaries
      of
      the commitments set forth in this Section 6.2.





**Section
      6.3 Post-Closing Business Strategies for East Penn Bank Division of
      HNB.**Upon the Effective Time and for three (3) years
      thereafter, HNC and HNB shall:





(a)
      Operate the Bank as a division of HNB with the name “East Penn Bank” and utilize
      the Bank’s logo as it is on the date of this Agreement (or as changed hereafter
      by the Bank prior to the Effective Time with the prior written approval of
      HNC).





(b)
      Transfer nine (9) existing HNB branches located in Lehigh, Carbon, Monroe and
      Northampton Counties into, and administer and operate them within, HNB’s East
      Penn Bank division, under the “East Penn Bank” name and signage, and under the
      authority of that division’s management team.





(c)
      Retain autonomous loan authority levels for the “East Penn Bank” division
      subject to HNC’s loan policies, credit quality administration and OCC rules and
      regulations.





(d)
      Integrally involve the “East Penn Bank” division and its management in HNC’s and
      HNB’s marketing efforts, including a regional marketing presence for “East Penn
      Bank.”





(e)
      Retain the “East Penn Bank” division’s ability to make community contributions
      consistent with the Bank’s historical levels within overall HNC company-wide
      budget parameters.





(f)
      Retain an advisory board of directors for the “East Penn Bank” division composed
      of at least five individuals of the East Penn Financial board of directors
      prior
      to the Effective Time who elected in writing, at or prior to the Effective
      Time,
      to serve after the Effective Time (the “East Penn Bank Division Board”), for
      which the annual director retainer will be $8,000, plus $150 per meeting
      attended up to a maximum of $1,200.00 in meeting fees per
      individual.  The East Penn Bank Division Board will choose its own
      chairman and shall hold at least eight (8) meetings annually.





(g)
      Appoint at the Effective Time and maintain Brent L. Peters as a member of the
      board of directors of HNC and HNB.


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If
      Brent
      Peters’ employment with HNC is terminated within the three (3) year period for
      any “Permitted Reason” (as defined below), HNC and HNB shall continue to comply
      with the provisions of subsection (f) of this Section for the full three (3)
      years, but shall not be obligated to continue any of the other foregoing
      strategies.  For purposes of this Agreement, “Permitted Reason” means
      (i) termination by HNC of Brent Peters’ employment with HNC for “cause” as
      defined in his employment agreement with HNC, or (ii) termination of his
      employment with HNC by Brent Peters for reasons other than “good reason” as
      defined in his employment agreement with HNC, or (iii) termination of Brent
      Peters’ employment with HNC due to his death or total disability.  The
      commitments set forth in this Section 6.3 shall survive the Effective Time
      as
      reflected in a formal resolution of the HNC Board to be reflected in the minutes
      of HNC as the survivor of the Merger. The members of the East Penn Bank Division
      Board who were formerly East Penn Financial directors shall be deemed to be
      third party beneficiaries of the commitments set forth in this Section
      6.3.





**Section
      6.4****Tax Opinion.**HNC shall use reasonable
      diligence to obtain the tax opinion described in Section 7.4(c) on a timely
      basis.  To the extent that HNC is not able to obtain such an opinion,
      HNC shall consult promptly in detail with East Penn Financial with regard to
      the
      specific reasons why it cannot obtain the opinion and East Penn Financial shall
      have a reasonable opportunity prior to Closing to take such actions as may
      be
      reasonably necessary to address any such reasons.





**ARTICLE
      VII**


**CONDITIONS**


**TO
      OBLIGATIONS OF HNC**





The
      obligations of HNC under this Agreement (including without limitation, its
      obligation to consummate the Closing) are subject to satisfaction of the
      following conditions at or prior to the Closing Date, which conditions may
      be
      waived in the discretion of HNC:





**Section
      7.1 Representations, Warranties and Covenants.**The
      representations and warranties of East Penn Financial and the Bank contained
      in
      this Agreement shall be true and correct in all material respects on the date
      of
      this Agreement and on the Closing Date with the same effect as though made
      at
      such time (unless such representations and warranties speak as of a different
      date), except to the extent (i) waived by HNC hereunder or (ii) such
      representation or warranty is no longer true due to action or inaction of East
      Penn Financial or Bank that was consented to in writing by HNC.  East
      Penn Financial, Bank, and each Subsidiary shall have performed in all material
      respects all obligations and agreements, and shall have materially complied
      with
      all terms, covenants and conditions contained in this Agreement to be performed
      or complied with by them prior to or at the Closing Date.





S**ection
      7.2 Officer’s Certification.**HNC shall have received a
      certification signed by the Presidents of East Penn Financial and the Bank
      solely in their capacity as such officers and without personal liability, dated
      the Closing Date, to the effect that (a) all of the representations and
      warranties made by East Penn Financial and the Bank under this Agreement and
      the
      information contained in the Exhibits and Schedules and other documents
      delivered by East Penn Financial and


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the
      Bank
      pursuant to this Agreement are true and correct in all material respects on
      the
      date of this Agreement and on the Closing Date with the same effect as though
      made at such time (unless such representations and warranties speak as of a
      different date), except to the extent (i) waived in writing by HNC hereunder
      or
      (ii) such representation or warranty is no longer true due to action or inaction
      of East Penn Financial, Bank or applicable Subsidiary that was consented to
      in
      writing by HNC; and (b) East Penn Financial, Bank, and each Subsidiary have
      performed in all material respects all obligations and agreements, and have
      materially complied with all terms, covenants and conditions, contained in
      this
      Agreement to be performed or complied with by them prior to or at the Closing
      Date.





S**ection
      7.3 Litigation; Other Prohibitions.**There shall be no pending or
      threatened claim, action, litigation or proceeding, judicial or administrative,
      or governmental action against East Penn Financial, Bank, any Subsidiary or
      any
      Person within the HNC Group for the purpose of enjoining or preventing the
      Merger or otherwise preventing the consummation of the Closing or otherwise
      claiming that this Agreement or the Merger or the consummation of the Closing
      is
      illegal or unauthorized.  There shall not be in effect any order,
      decree or injunction of a court or agency of competent jurisdiction which
      enjoins or prohibits Effective Time.  No statute, rule or regulation
      shall have been enacted, entered, promulgated or enforced by any governmental
      authority that prohibits, restricts or makes illegal the consummation of the
      transactions contemplated by this Agreement.





S**ection
      7.4 Opinions of Counsel and Related Matters.**





(a)
      HNC
      shall have received an opinion from legal counsel for East Penn Financial,
      Bank
      and each Subsidiary in accordance with **Exhibit 7.4(a)** to this
      Agreement.





(b)
      HNC
      shall have received subsistence certificates from (i) the Department of State
      of
      the state in which East Penn Financial has been formed, with respect to East
      Penn Financial (ii) from the PADOB (and a certificate of deposit insurance
      from
      the FDIC) with respect to the Bank, and (iii) from the Department of State
      of
      each state in which a Subsidiary is formed, with respect to each of the
      Subsidiaries, all of which shall be dated within five (5) days prior the Closing
      Date.





(c)
      HNC
      shall have received an opinion from its counsel, dated the Closing Date, to
      the
      effect that (i) the Merger constitutes a reorganization under IRC Section
      368(a), and (ii) any gain realized in the Merger will be recognized only to
      the
      extent of cash or other property (other than HNC Common Stock) received in
      the
      Merger, including cash received in lieu of fractional share interests; in
      rendering their opinion, such counsel may make reasonable assumptions and
      require and rely upon representations of either or both Parties or their agents
      or third parties, including without limitation those contained in certificates
      of officers of East Penn Financial, HNC and others.





**Section
      7.5 Regulatory Approvals and Consents.**All Regulatory
      Approvals required to consummate the Merger shall have been obtained, including
      the receipt of any necessary Regulatory Approval to operate the main and branch
      offices of East Penn Financial as offices of the Surviving Bank, and shall
      remain in full force and effect and all statutory waiting periods in respect
      thereof shall have expired and no such approvals shall contain any conditions,
      restrictions or requirements that the HNC Board reasonably determines in good
      faith would, individually or in the aggregate,


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materially
      and adversely affect the economic or business benefits to HNC of the Merger,
      the
      business or financial condition of HNC on a consolidated basis, or the business
      presently operated by East Penn Financial, the Bank and each Subsidiary as
      it is
      to be acquired by HNC.  Any landlord Consent which requires an
      increase in rents or an extension of the lease term shall be deemed to
      materially and adversely affect the lease which is the subject of such
      Consent.****Without limiting the foregoing, East Penn
      Financial and Bank shall have received all consents and authorizations of
      landlords and other persons that are necessary to permit the Merger to be
      consummated without the violation of any lease or other material agreement
      to
      which East Penn Financial or Bank is a party or by which any of its properties
      are bound, except where failure to obtain such consent or authorization would
      be
      reasonably expected not to have a Material Adverse Effect.  All
      statutory and regulatory waiting periods relating to the Merger shall have
      expired.





**Section
      7.6 Additional Actions.**At and after the Effective Time,
      East Penn Financial, Bank, each Subsidiary and each of their officers and
      directors shall execute and deliver all such proper deeds, assignments and
      assurances in law and to do all acts necessary or proper to vest, perfect or
      confirm title to and possession of full, unconditional ownership and control
      of
      Bank and each Subsidiary and their respective rights, properties and assets
      in
      HNC, and otherwise to carry out the purposes of this Agreement.





S**ection
      7.7 Shareholder Approval.**  East Penn Financial and East Penn
      Financial’s shareholders, and Bank and each Subsidiary shall have taken all
      necessary action on behalf of East Penn Financial, the Bank and each Subsidiary
      to approve all of the transactions to be completed hereunder in connection
      with
      or to consummate Closing.





S**ection
      7.8 No Material Adverse Change.**No change in the business, property,
      assets (including loan portfolios), liabilities (whether absolute, contingent
      or
      otherwise), operations, liquidity, income, or financial condition of East Penn
      Financial, Bank or any of the Subsidiary shall have occurred since the date
      of
      this Agreement, which has had, or would reasonably be likely to have, a Material
      Adverse Effect.





S**ection
      7.9 Satisfaction with Phase 1 Results**.  The results of any
      Phase 1 environmental audit conducted by HNC shall be acceptable in all respects
      to HNC.





S**ection
      7.10 Other Cooperation.**  HNC shall have received such other
      certificates, documents or instruments from East Penn Financial or its officers
      or others as HNC shall have reasonably requested in connection with accounting
      or income tax treatment of the Merger, or related securities law
      compliance.





S**ection
      7.11 Employment Related Agreements with Brent L. Peters.**  The
      following shall have occurred with respect to certain employment related
      agreements between or among East Penn Financial, Bank and Brent L.
      Peters:





(a)
      Brent
      L. Peters’ employment agreement with East Penn Financial and the Bank shall have
      been terminated in accordance with the provisions of the Termination of
      Employment Agreement attached to this Agreement as **Exhibit
      7.11(a)**.


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          -





(b)
      Brent
      L. Peters shall have executed an Employment Agreement with HMS in the form
      attached to this Agreement as **Exhibit 7.11(b)**, effective at the
      Effective Time.





S**ection
      7.12 Execution of Other Agreements.**  In connection with and
      at the time of execution of this Agreement:





(a)
      Each
      director of East Penn Financial and each director of the Bank shall have
      delivered to HNC an executed Director Support Agreement in the form attached
      hereto as **Exhibit 7.12(a)**.





(b)
      Brent
      L. Peters shall have delivered to East Penn Financial, Bank and HNC an
      Inducement Agreement with respect to his existing Employment Agreement and
      Supplemental Executive Retirement Plan with East Penn Financial and Bank, in
      the
      form attached hereto as **Exhibit 7.12(b)**.





**Section
      7.13 Execution of Affiliate Agreements.**  HNC shall have
      received from each director and executive officer of East Penn Financial an
      executed counterpart of an affiliate's agreement, in the form attached hereto
      as
**Exhibit 7.13**.





**Section
      7.14 Securities Filings.**  The Securities Filings shall be
      effective under applicable federal and state securities laws, and no proceedings
      shall be pending or threatened to suspend the effectiveness of any Securities
      Filings or to prohibit the issuance of the HNC Common Stock to East Penn
      Financial shareholders; and all approvals deemed necessary by HNC's counsel
      from
      state securities or "blue sky" authorities with respect to the transactions
      contemplated by this Agreement shall have been obtained.  HNC Common
      Stock to be issued to East Penn Financial shareholders shall be approved and
      listed on the NASDAQ Global Stock Market.





S**ection
      7.15 East Penn Financial and Bank Authorizations.**  All action
      required to be taken by, or on the part of, East Penn Financial, Bank and each
      Subsidiary to authorize the execution, delivery and performance of this
      Agreement, and the Effective Time, shall have been duly and validly taken by
      East Penn Financial and Bank, respectively, and HNC shall have received
      certified copies of the resolutions evidencing such authorizations.





**Section
      7.16 Agreement on Allocation.**  The Parties and the Exchange
      Agent shall have agreed upon the Final Allocation.





**ARTICLE
      VIII**


**CONDITIONS**


**TO
      OBLIGATIONS OF EAST PENN FINANCIAL AND BANK**





The
      obligations of East Penn Financial, Bank, and each Subsidiary under this
      Agreement (including, without limitation its obligation to consummate the
      Closing) are subject to satisfaction of the following conditions at or prior
      to
      the Closing Date, which conditions may be waived in the discretion of East
      Penn
      Financial:


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          57
          -





**Section
      8.1 Representations, Warranties and Covenants of HNC.**The
      representations and warranties of HNC contained in this Agreement shall be
      true
      and correct on the date of this Agreement and on the Closing Date with the
      same
      effect as though made at such time (unless such representations and warranties
      speak as of a different date), except to the extent (i) waived hereunder by
      East
      Penn Financial, or (ii) such representation or warranty is no longer true due
      to
      action or inaction of HNC that was consented to in writing by East Penn
      Financial.  HNC shall have performed in all material respects all
      obligations and agreements, and shall have materially complied with all terms,
      covenants and conditions, contained in this Agreement to be performed or
      complied with by it prior to or at the Closing Date.





**Section
      8.2 Officer’s Certification.**  East Penn Financial shall have
      received a certification signed by the President of HNC, solely in her capacity
      as such officer and without personal liability, dated the Closing Date, to
      the
      effect that (a) all of the representations and warranties made by HNC under
      this
      Agreement and the information contained in the Exhibits and Schedules and other
      documents delivered by HNC pursuant to this Agreement are true and correct
      in
      all material respects on the date of this Agreement and on the Closing Date
      with
      the same effect as though made at such time (unless such representations and
      warranties speak as of a different date), except to the extent (i) waived in
      writing by East Penn Financial hereunder or (ii) such representation or warranty
      is no longer true due to action or inaction of HNC or any of HNC’s subsidiaries
      that was consented to in writing by East Penn Financial; and (b) HNC has
      performed in all material respects all obligations and agreements, and have
      materially complied with all terms, covenants and conditions, contained in
      this
      Agreement to be performed or complied with by HNC prior to or at the Closing
      Date.





S**ection
      8.3 Litigation.**There shall be no pending or threatened
      claim, action, litigation or proceeding, judicial or administrative, or
      governmental action against East Penn Financial, Bank, any Subsidiary or HNC
      or
      any Person within the HNC Group for the purpose of enjoining or preventing
      the
      Merger or otherwise preventing the consummation of the Closing or otherwise
      claiming that this Agreement or the Merger or the consummation of the Closing
      is
      illegal or unauthorized.  There shall not be in effect any order,
      decree or injunction of a court or agency of competent jurisdiction which
      enjoins or prohibits Effective Time.  No statute, rule or regulation
      shall have been enacted, entered, promulgated or enforced by any governmental
      authority that prohibits, restricts or makes illegal the consummation of the
      transactions contemplated by this Agreement.





S**ection
      8.4 Regulatory Approvals.**All Regulatory Approvals shall
      have been obtained, shall not contain any conditions that are not acceptable
      to
      East Penn Financial in its reasonable discretion and shall be in full force
      and
      effect, and all statutory or regulatory waiting periods in connection with
      such
      Regulatory Approvals, if any, shall have expired.





S**ection
      8.5 Opinions of Counsel and Related Matters.**





(a)
      East
      Penn Financial shall have received an opinion of legal counsel to HNC in
      accordance with **Exhibit 8.5(a)** to this
      Agreement.


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(b)
      East
      Penn Financial shall have received a subsistence certificate from the Department
      of State of the state in which HNC has been formed, with respect to HNC, dated
      within five (5) days prior the Closing Date.





(c)
      East
      Penn Financial shall have received an opinion, satisfactory to East Penn
      Financial in its sole discretion, from its tax adviser with respect to the
      status of the Merger as a reorganization under IRC Section 368(a) and any gain
      or loss that may be recognized by East Penn Financial shareholders in connection
      with the Merger.





**Section
      8.6  Shareholder Approval.**This Agreement and the
      Merger shall have been duly approved by the requisite vote of the holders of
      outstanding shares of East Penn Financial Common Stock as required by law and
      the East Penn Financial articles of incorporation and bylaws.





**Section
      8.7 Securities Filings.**  The Securities Filings shall be
      effective under applicable federal and state securities laws, and no proceedings
      shall be pending or threatened to suspend the effectiveness of any Securities
      Filings or to prohibit the issuance of the HNC Common Stock to East Penn
      Financial shareholders; and all approvals deemed necessary by East Penn
      Financial's counsel from state securities or "blue sky" authorities with respect
      to the transactions contemplated by this Agreement shall have been
      obtained.  HNC Common Stock to be issued to East Penn Financial
      shareholders shall be approved and listed on the NASDAQ Global Stock
      Market.





S**ection
      8.8 No Material Adverse Change.**No change in the business, property,
      assets (including loan portfolios), liabilities (whether absolute, contingent
      or
      otherwise), operations, liquidity, income, or financial condition of HNC or
      any
      material subsidiary of HNC shall have occurred since the date of this Agreement,
      which has had, or would reasonably be likely to have, a Material Adverse
      Effect.





S**ection
      8.9 Deposit of Merger Consideration.**  East Penn Financial
      shall have received confirmation from the Exchange Agent that, pursuant to
      Section 2.9(a), a sufficient amount of Merger Consideration has been deposited
      in the Exchange Fund.





**Section
      8.10 Agreement on Allocation.**  The Parties and the Exchange
      Agent shall have agreed upon the Final Allocation.





**Section
      8.11 Other Cooperation.**  East Penn Financial shall have
      received such other certificates, documents or instruments from HNC or its
      officers or others as East Penn Financial shall have reasonably requested in
      connection with income tax treatment of the Merger or related securities law
      compliance.





**ARTICLE
      IX**


**SURVIVAL;
      INDEMNIFICATION**





**Section
      9.1 Survival.**All representations and warranties contained
      in this Agreement or in any exhibit, Disclosure Schedule or other instrument
      delivered pursuant to this Agreement shall


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          -


terminate
      upon the Effective Time.  Any other covenants, agreements and
      indemnities contained in this Agreement or in any exhibit, Disclosure Schedule
      or other instrument delivered pursuant to this Agreement which, by their nature,
      are intended to be performed in whole or part after the Effective Time, shall
      survive the Closing, the Effective Time or any termination of this Agreement,
      as
      the case may be.  Notwithstanding anything in the foregoing to the
      contrary, no representations, warranties, agreements and covenants contained
      in
      this Agreement shall be deemed to be terminated or extinguished so as to deprive
      a party hereto or any of its affiliates of any defense at law or in equity
      that
      otherwise would be available against the claims of any Person, including without
      limitation any shareholder or former shareholder.  Without limiting
      the foregoing, Article II, Section 6.2, Section 6.3 and Article IX specifically
      shall survive the Effective Time.





S**ection
      9.2 Indemnification by East Penn Financial.**So long as the
      Effective Time shall not have occurred, and for three (3) years from the date
      of
      termination of this Agreement, East Penn Financial, for itself and its
      successors (the “Indemnifying Party”), hereby agrees to indemnify and to defend
      and hold harmless HNC, its subsidiaries and affiliates, and any of their
      respective successors or assigns and their officers, directors, shareholders,
      managers, members and employees (each, an “HNC Indemnified Party” and
      collectively, “HNC Indemnified Parties”), from and against all claims, damages
      (including without limitation punitive and exemplary damages), losses,
      liabilities, costs and expenses (including, without limitation, settlement
      costs
      and any legal, accounting or other expenses for investigating or defending
      any
      actions or threatened actions) (collectively, the “Losses”) arising out of,
      relating to, resulting from or incurred in connection with any Claim of any
      third party based in whole or part on an allegation that the entry by East
      Penn
      Financial or the Bank into this Agreement violates such third party’s
      rights.  Notwithstanding any other provision of this Agreement, the
      provisions of this indemnification shall not survive the Effective
      Time.





**Section
      9.3 Indemnification by
      HNC; Insurance**.





(a)
      From
      and after the Effective Time, HNC (the “Indemnifying Party”) shall indemnify and
      hold harmless each present and former director, officer and employee of East
      Penn Financial or a Subsidiary, as applicable, (the “East Penn Financial
      Indemnified Parties”) against any costs or expenses, including reasonable
      attorneys’ fees, judgments, fines, losses, claims, damages or liabilities
      incurred in connection with any claim, action, suit, proceeding or
      investigation, whether civil, criminal, administrative or investigative, arising
      out of matters existing or occurring at or prior to the Effective Time, whether
      asserted or claimed prior to, at or after the Effective Time, arising in whole
      or in part out of or pertaining to the fact that, prior to the Effective Time,
      he or she was a director, officer, employee, fiduciary or agent of East Penn
      Financial or any Subsidiary or is or was serving at the request of East Penn
      Financial or any of the East Penn Financial Subsidiaries as a director, officer,
      employee, fiduciary or agent of another corporation, partnership, joint venture,
      trust or other enterprise, including without limitation matters related to
      the
      negotiation, execution and performance of this Agreement or consummation of
      the
      Merger, to the fullest extent that such East Penn Financial Indemnified Parties
      would be mandatorily entitled under the East Penn Financial Charter and the
      East
      Penn Financial bylaws or equivalent documents of any Subsidiary, as
      applicable.





(b)
      From
      and after the Effective Time through the tenth (10th) anniversary of
      the


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Effective
      Time, HNC (the “Indemnifying Party”) shall indemnify and hold harmless each
      Person that is a shareholder of East Penn Financial at the Effective Time (also
      included individually in the definition of an East Penn Financial Indemnified
      Party and collectively in the definition of East Penn Financial Indemnified
      Parties) against any taxes, costs or expenses, including reasonable attorneys’
fees, interest, judgments, penalties, fines, losses, claims, damages or
      liabilities incurred, resulting from the failure of the Merger to qualify as
      a
      reorganization under IRC Section 368(a).  The shareholders of East
      Penn Financial as of the Effective Time shall be deemed to be third party
      beneficiaries of the provisions of this subsection (b) and the other provisions
      of this Article IX applicable thereto, and shall have all right of
      enforceability thereof, but as a condition thereto shall also be bound by
      provisions of Section 9.4 applicable to an Indemnified Party or Indemnified
      Parties.





(c)
      Prior
      to the Effective Time, HNC shall cause the persons serving as directors and
      officers of East Penn Financial immediately prior to the Effective Time to
      be
      covered by the directors’ and officers’ liability insurance policy maintained by
      East Penn Financial for a period of six years after the Effective Time, provided
      that HNC may substitute therefor policies of at least the same coverage and
      amounts containing terms and conditions that are not materially less
      advantageous than such policy or single premium tail coverage with policy limits
      equal to East Penn Financial’s existing coverage limits, with respect to acts or
      omissions occurring prior to the Effective Time that were committed by such
      directors and officers in their capacities as such, provided that in no event
      shall HNC be required to expend for any one year an amount in excess of 150%
      of
      the annual premium currently paid by East Penn Financial for such insurance
      (the
“Insurance Amount”), and further provided that if HNC is unable to maintain or
      obtain the insurance called for by this subsection as a result of the preceding
      provision, HNC shall use its commercially reasonable best efforts to obtain
      the
      most advantageous coverage as is available for the Insurance
      Amount.





(d)
      The
      provisions of this Section are intended to be for the benefit of and shall
      be
      enforceable by each of the Indemnified Parties and its successors and his or
      her
      personal representatives and heirs, and shall survive the Effective
      Date.





**Section
      9.4 Conditions to Indemnification.******Any HNC
      Indemnified Party wishing to claim indemnification under Section 9.2, and any
      East Penn Financial Indemnified Party wishing to claim indemnification under
      Section 9.3 (in this Agreement, an “Indemnified Party”) upon learning of any
      such claim, action, suit, proceeding or investigation, shall promptly notify
      the
      the applicable “Indemnifying Party” (either HNC, in the case of an East Penn
      Financial Indemnifying Party, or East Penn Financial in the case of an HNC
      Indemnified Party), but the failure to so notify shall not relieve the
      Indemnifying Party of any liability it may have to such Indemnified Party if
      such failure does not actually prejudice the Indemnifying Party. In the event
      of
      any such claim, action, suit, proceeding or investigation, whether arising
      before or after the Effective Time, (i) the Indemnifying Party shall have the
      right to assume the defense thereof and the Indemnifying Party shall not be
      liable to such Indemnified Party for any legal expenses of other counsel or
      any
      other expenses subsequently incurred by such Indemnified Party in connection
      with the defense thereof, except that if the Indemnifying Party elects not
      to
      assume such defense or counsel for the Indemnified Party and advises the
      Indemnified Party that there


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are
      issues that raise conflicts of interest between the Indemnifying Party and
      the
      Indemnified Party, the Indemnified Party may retain counsel which is reasonably
      satisfactory to the Indemnifying Party, and the Indemnifying Party shall pay,
      promptly as statements therefor are received, the reasonable fees and expenses
      of such counsel for the Indemnified Party, which may not exceed one firm in
      any
      jurisdiction, (ii) the Indemnified Party will cooperate in the defense of any
      such matter, (iii) the Indemnifying Party shall not be liable for any settlement
      effected without its prior written consent which shall not be unreasonably
      withheld and (iv) the Indemnifying Party shall have no obligation hereunder
      in
      the event that a federal or state banking agency or a court of competent
      jurisdiction shall determine that indemnification of an Indemnified Party in
      the
      manner contemplated hereby is prohibited by applicable laws and
      regulations.





**ARTICLE
      X**


**TERMINATION**





**Section
      10.1 Termination of Agreement.**  This Agreement may be
      terminated on or at any time prior to the Closing Date:





(a)
      By
      the mutual written consent of the Parties;





(b)
      By
      HNC or East Penn Financial:





(i)
      If
      there shall have been any material breach of any representation, warranty or
      obligation of the other Party and such breach cannot be, or shall not have
      been,
      remedied within 30 days after receipt by such Party of written notice specifying
      the nature of such breach and requesting that it be remedied; provided, that,
      if
      such breach cannot reasonably be cured within such 30-day period but may
      reasonably be cured within 60 days, and such cure is being diligently pursued,
      no such termination shall occur prior to the expiration of such 60-day
      period;





(ii)
      If
      the Closing Date and the Effective Time shall not have occurred prior to the
      Outside Effective Time (except that if the Closing Date or Effective Time shall
      not have occurred prior to the Outside Effective Time because of a breach of
      this Agreement by a Party, such breaching Party shall not be entitled to
      terminate this Agreement in accordance with this provision);





(iii)
      If
      any Regulatory Authority whose approval or consent is required for consummation
      of the Merger or the Bank Merger shall issue a definitive written denial of
      such
      approval or consent and the time period for appeals and requests for
      reconsideration has run; or





(iv)
      If
      East Penn Financial Shareholders vote but fail to approve the Merger at East
      Penn Financial Shareholders Meeting.





(c)
      By
      HNC if East Penn Financial, Bank or any Subsidiary enters into any
      term


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          62
          -


sheet,
      letter of intent, agreement or similar type agreement with a view to being
      acquired by, or effecting a business combination with, any other Person; or
      any
      agreement to merge, consolidate, to combine or to sell a material portion of
      its
      assets or to be acquired in any other manner by any other Person or to acquire
      a
      material amount of assets or a material equity position in any other Person,
      whether financial or otherwise.





(d)
      By
      HNC if East Penn Financial withdraws, changes, or modifies its recommendation
      to
      its shareholders in any manner adverse to HNC regarding this Agreement or the
      Merger.





(e)
      At
      any time prior to the date of mailing of the Prospectus/Proxy Statement to
      East
      Penn Financial shareholders, by East Penn Financial in order to enter
      concurrently into a Superior Proposal; provided, however, that this Agreement
      may be terminated by East Penn Financial pursuant to this Section 10.1(e) only
      after the fifth Business Day following East Penn Financial’s provision of
      written notice to HNC advising HNC, that the East Penn Financial Board of
      Directors is prepared to accept such Superior Proposal (it being agreed that
      the
      delivery of such notice shall not entitle HNC to terminate this Agreement
      pursuant to Section 10.1(c)) and only if (i) during such five-Business Day
      period, East Penn Financial has caused its financial and legal advisors to
      negotiate with HNC in good faith to make such adjustments in the terms and
      conditions of this Agreement such that such Acquisition Proposal would no longer
      constitute a Superior Proposal, (ii) East Penn Financial’s Board of Directors
      has considered such adjustments in the terms and conditions of this Agreement
      resulting from such negotiations and has concluded in good faith, based upon
      consultation with its financial and legal advisers, that such Acquisition
      Proposal remains a Superior Proposal even after giving effect to the adjustments
      proposed by HNC and further provided that such termination shall not be
      effective until East Penn Financial has paid the Termination Fee to
      HNC.





(f)
      By
      East Penn Financial if it determines by a vote of the majority of the members
      of
      its Board of Directors, and notifies HNC, at any time during the five (5) day
      period commencing two (2) Business Days after the Determination Date and if
      both
      of the following conditions are satisfied:





(i)
      The
      Indicated HNC Share Price shall be less than the product of 0.825 and the
      Starting Price; and





(ii)
      (x)
      the number obtained by dividing the Indicated HNC Share Price by the Starting
      Price (such number being referred to herein as the “HNC Ratio”) shall be less
      than (y) the result obtained by subtracting 0.175  from quotient (the
“Index Ratio”) obtained by dividing the Index Price on the Determination Date by
      the Index Price on the Starting Date;





If
      East
      Penn Financial elects to terminate this Agreement pursuant to this Section
      10.1(f), it shall give notice to HNC within the aforementioned five (5) day
      period.





For
      purposes of this Section 10.1(f), the following terms shall have the meaning
      indicated


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          63
          -


below:





“**Index
      Group**” means the seventeen (17) financial institution companies
      listed below, the common stock of all of which shall be publicly traded and
      as
      to which there shall not have been a publicly announced proposal since the
      Starting Date and before the Determination Date for any such company to be
      acquired or for such company to acquire another company or companies in
      transactions with a value exceeding 25% of the acquiror’s market
      capitalization.  In the event that any such company is removed from
      the Index Group, the weights (which shall be determined based upon the market
      capitalization of the outstanding shares of common stock) shall be redistributed
      proportionately for purposes of determining the Index Price. The seventeen
      (17)
      financial institution companies and the weights attributed to them are as
      follows:





**Name**
            
            **Ticker**
            
            **Factor**Arrow
                Financial Corp.
            
            AROW
            
            3.2%Community
                Bank System Inc.
            
            CBU
            
            8.5%F.N.B.
                Corp.
            
            FNB
            
            13.9%Financial
                Institutions Inc.
            
            FISI
            
            3.0%Lakeland
                Bancorp
            
            LBAI
            
            4.0%National
                Penn Bancshares Inc.
            
            NPBC
            
            12.2%NBT
                Bancorp Inc.
            
            NBTB
            
            10.2%Omega
                Financial Corp.
            
            OMEF
            
            4.9%Pennsylvania
                Commerce Bancorp
            
            COBH
            
            2.2%S&T
                Bancorp Inc.
            
            STBA
            
            11.1%Sandy
                Spring Bancorp Inc.
            
            SASR
            
            7.0%Sun
                Bancorp Inc.
            
            SNBC
            
            5.3%Tompkins
                Trustco Inc.
            
            TMP
            
            5.2%Univest
                Corp. of Pennsylvania
            
            UVSP
            
            4.1%Yardville
                National Bancorp
            
            YANB
            
            5.2%





“**Index
      Price**” on a given date, means the weighted average (weighted in
      accordance with the Weighting Factors above, which were calculated with
      reference to the market capitalizations of the outstanding shares of common
      stock of the companies listed above) based upon the closing prices on such
      date
      of the common stock of the companies comprising the Index Group.





“**Starting
      Date**” means the trading day on the NASDAQ Global Market immediately
      preceding the day on which the Parties publicly announced the signing of this
      agreement.





“**Starting
      Price**” means the closing price of HNC Common Stock on the Starting
      Date, subject to adjustment pursuant to Section 2.10 and round to the nearest
      whole cent.





If
      any
      company belonging to the Index Group declares or effects a stock dividend,
      reclassification, recapitalization, split-up, combination, exchange of shares
      or
      similar


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          64
          -


transaction
      between the Starting Date and the Determination Date, the prices for the common
      stock of such company shall be appropriately adjusted for the purposes of
      applying this Section 10.1(f).





*FOR
      EXAMPLE:*





*If
      the Starting Price is $16.73, the Indicated HNC Share Price must fall to $13.80
      or below on the Determination Date to satisfy the condition in paragraph (i)
      of
      this subsection.  To determine whether the condition in paragraph (ii)
      of this subsection is satisfied, assume that:*





*HNC
                  Ratio=*
              *Indicated
                  HNC Share Price*
                  *Starting
                    Price*
              *=*
              *$12.00*
                *$16.73*
              *=*
              *0.7172743*





*Then
      in this example 0.7172743 is the number referred to in clause (x) of paragraph
      (ii) of this subsection.*





*Assume
      further that the Index Price on the Starting Date is $16.00 and the Index Price
      on the Determination Date is $15.00*





*The
                  Index Ratio =*
              *$15.00*
                *$16.00*
              *=*
              *0.9375**Then:  [Index
                  Ratio] –*
              *[0.175]*
              *=*
              *0.7625**Then:  [Index
                Ratio] –*
              *[0.175]*
              *=*
              *0.7625*




*Then
      in this example 0.7625 is the number referred to in clause (y) of paragraph
      (ii)
      of this subsection.*





*In
      this example, because 0.7172743 is less than 0.7625, the condition in paragraph
      (ii) of this subsection is also satisfied.  In this example, because
      the conditions in both paragraph (i) and paragraph (ii) would be satisfied,
      East
      Penn Financial would have a termination right under this subsection
      (f).*





(g)
      By
      HNC if it determines by a vote of the majority of the members of its Board
      of
      Directors, and notifies East Penn Financial, at any time during the five (5)
      day
      period commencing two (2) Business Days after the Determination Date and if
      the
      Indicated HNC Share Price is less than $11.50.  If HNC terminates this
      Agreement pursuant to this Section 10.l(g), HNC shall be responsible for all
      reasonable out-of-pocket expenses incurred by East Penn Financial in connection
      with this Merger including but not limited to advisory fees, investment banker
      fees, attorneys fees, professional fees, application fees, and printing and
      mailing expenses to be paid within two (2) Business Days of the date of HNC's
      notice of termination pursuant to this Section.





Notwithstanding
      anything to the contrary contained in this Agreement, no Party hereto shall
      have
      the right to terminate this Agreement on account of its own
      breach.


-
          65
          -





**Section
      10.2 Waiver of Right to Terminate.**Any Party may, at its
      election, waive its right to terminate this Agreement under the foregoing
      provisions of this Article X.





S**ection
      10.3 Effect of Termination.**Except as otherwise provided in
      this Agreement, in the event of termination of this Agreement, each Party shall
      be responsible for its own expenses and neither Party shall be liable in damages
      to the other unless termination results from the breach or default of this
      Agreement by one of the Parties, in which event liability will be limited to
      the
      non-breaching Party’s out-of-pocket expenses relating to this Agreement and the
      Merger, including without limitation all reasonable out-of-pocket expenses
      incurred by it in connection with this Merger including but not limited to
      advisory fees, investment banker fees, attorneys fees, professional fees,
      application fees, and printing and mailing expenses.  Notwithstanding
      the foregoing, East Penn Financial and Bank hereby agree that if this Agreement
      is terminated by HNC as a result of East Penn Financial entering into an
      agreement to sell or actually selling or transferring any Bank Shares to any
      Person other than the HNC prior to this Agreement being terminated in accordance
      with this Article X, then East Penn Financial and Bank shall be jointly and
      severally liable to pay to HNC the Termination Fee provided in Section 10.4
      of
      this Agreement, reduced by the amount of any expenses of HNC that shall have
      been paid by East Penn Financial or Bank under this Section.





**Section
      10.4 Termination Fee in Certain Cases.**If this Agreement is
      terminated by HNC in accordance with Section 10.1(c) or (d), or by East Penn
      Financial pursuant to Section 10.1(e), then in any such event East Penn
      Financial shall immediately pay HNC a fee equal to four and one-half percent
      (4.5%) times the dollar amount of the total Merger Consideration calculated
      as
      of the date of termination of this Agreement as if such termination date were
      the Determination Date (the “Termination Fee”), in total satisfaction of any
      obligation to pay any damages.  If HNC terminates this Agreement in
      accordance with Section 10.1(b)(i) and such termination is due to either (i)
      a
      knowing breach of a representation or warranty by East Penn Financial or the
      Bank and such breach has had or would be reasonably likely to have a Material
      Adverse Effect, or (ii) a knowing, material breach by East Penn Financial or
      the
      Bank of any other obligation under this Agreement, HNC and if, within eighteen
      (18) months after such termination, an Acquisition of East Penn Financial or
      the
      Bank occurs, East Penn Financial shall immediately pay HNC the Termination
      Fee,
      reduced by the amount of any expenses of HNC that shall have been paid by East
      Penn Financial or Bank under Section 10.3. East Penn Financial and the Bank
      agree that the amount of losses HNC would incur in such event are not reasonably
      capable of estimation, that the Termination Fee is a reasonable estimation
      and
      liquidation thereof under the circumstances, and that HNC would not enter into
      this Agreement without this provision.  In the event a court would
      otherwise determine that the Termination Fee would be unenforceable in whole
      or
      part on the grounds that it is excessive, the amount of the Termination Fee
      shall be reduced to the maximum amount consistent with enforceability of this
      provision, and this provision shall otherwise be reformed and construed so
      that
      it shall be enforceable as nearly consistent as possible with its original
      intent.





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          66
          -


**ARTICLE
      XI**


**MISCELLANEOUS**





**Section
      11.1 Access to Information**





(a)
      Prior
      to the Closing Date, East Penn Financial and the Bank shall permit HNC and
      HNC’s
      representatives (including, without limitation, its attorneys, accountants
      and
      structural and environmental experts) to have access during regular business
      hours, upon prior reasonable notice, to such officers, employees and agents
      of
      East Penn Financial and Bank as HNC or HNC’s representatives deem reasonably
      necessary or appropriate for purpose of conducting HNC’s ongoing due
      diligence.





(b)
      HNC
      and East Penn Financial and the Bank shall provide each other promptly with
      information as to any significant developments in the performance of this
      Agreement or in any document or agreement delivered in connection with this
      Agreement and shall promptly notify the other if either discovers that any
      of
      its representations and warranties contained in this Agreement or in any
      document delivered in connection with this Agreement was or were not true and
      correct in all material respects or becomes or became untrue or incorrect in
      any
      material respect or any covenant has been breached or is expected to be breached
      with the passage of time.





(c)
      Any
      due diligence investigations and any information obtained by either Party shall
      not limit or adversely affect the enforceability by that Party of any
      representations and warranties made by the other Party or Parties
      hereunder.





**Section
      11.2 Severability.**The terms and provisions to this
      Agreement are expressly made subject to Applicable Requirements.  In
      the event any provision of this Agreement would otherwise be determined by
      a
      court of competent jurisdiction to be in violation of any Applicable
      Requirement, such provision shall be of no force or effect, and this Agreement
      shall be interpreted and construed as though such superseded provision were
      not
      contained in this Agreement, in order to achieve its general intent as otherwise
      expressed in this Agreement.





**Section
      11.3 Payment of Costs.**Except as is otherwise specifically
      provided in this Agreement, whether or not the Closing takes place or whether
      this Agreement is terminated, each Party shall pay its own costs and expenses
      in
      connection with this Agreement and the transactions contemplated hereby,
      including, but not by way of limitation, all regulatory fees, attorneys’ fees,
      investment banking fees, accounting fees and other expenses.





**Section
      11.4 Notices.**All notices, demands, and other such
      communications hereunder shall be in writing and shall be deemed to have been
      duly given upon delivery if delivered in person, or the next day if sent via
      overnight delivery by Federal Express or similar overnight courier service,
      fees
      prepaid, or the day of transmission if delivered by facsimile transmission
      (followed by telephone communication and hard copy) or otherwise actually
      delivered, addressed as follows:





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          67
          -


If
      to
      East Penn Financial or the Bank to:





East
      Penn
      Financial Corporation


22
      South
      2nd Street


P.O.
      Box
      869


Emmaus,
      PA 18049


Attn:
      Brent L. Peters, President & CEO


Telecopier:
      (610) 966-5168





With
                a copy to:
            Bybel
                Rutledge LLP


1017
      Mumma Road


Suite
      302


Lemoyne,
      PA 17043


Attn:
      Nicholas Bybel, Jr.


Telecopier:
      (717) 731-8205





If
                to HNC, to:
            Harleysville
                National Corporation


483
      Main
      Street


Harleysville,
      PA 19438


Attn:
      Corporate Secretary


Telecopier:
      (215) 256-1931





With
                a copy to:
            Stradley
                Ronon Stevens & Young, LLP


30
      Valley
      Stream Parkway


Malvern,
      PA 19355-1481


Attn:
      David F. Scranton, Esquire


Telecopier:
      (610) 640-1965





The
      persons or addresses to which deliveries shall be made may change from time
      to
      time by notice given pursuant to the provisions of this Section.





**Section
      11.5 Successors and Assigns**.This
      Agreement shall inure to the benefit of and be binding upon each Party and
      its
      successors.  Neither Party may assign any of its rights or obligations
      hereunder to any other Person, without the prior written consent of the other
      Party.





**Section
      11.6 Third-Party Beneficiaries.**Except as specifically set
      forth in this Agreement, each Party hereto intends 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.  This Agreement shall be expressly the
      obligation of any successor to any Party, and each Party shall require any
      successor to such Party to assume the obligations of such Party
      hereunder.





**Section
      11.7 Confidentiality**





(a)
      HNC
      shall cause all materials and other information (other than information which
      is
      a matter of public knowledge by no violation of this Section or is provided
      in
      other sources


-
          68
          -


readily
      available to the public) pertaining to East Penn Financial and the Bank obtained
      by HNC, its legal counsel and other authorized representatives in connection
      with the negotiation and performance of this Agreement to be held in confidence,
      not to be disclosed or disseminated to any Person not an employee or authorized
      representative of HNC without the prior written consent of East Penn Financial
      (except as may be required by law or as may be necessary to obtain the
      Regulatory Approvals), and shall cause all copies of all such materials and
      other information to be returned to East Penn Financial or destroyed promptly
      upon any termination of this Agreement without the Closing having been
      held.  HNC shall cause its representatives and agents to comply with
      the provisions of this Section.  Notwithstanding anything contained
      herein to the contrary, the obligation of HNC to maintain confidentiality with
      respect to any matter related to the business of East Penn Financial and Bank
      shall terminate effective as of the Effective Time.





(b)
      East
      Penn Financial, Bank and each Subsidiary shall cause all materials and other
      information (other than information which is a matter of public knowledge by
      no
      violation of this Section or is provided in other sources readily available
      to
      the public) pertaining to HNC obtained by East Penn Financial, Bank, their
      counsel or other authorized representatives to he held in confidence, not to
      be
      disclosed or disseminated to any Person not an employee or authorized
      representative of East Penn Financial or Bank without the prior written consent
      of HNC (except as may be required by law), and shall cause all copies of all
      such materials and other information to be returned to HNC or destroyed promptly
      upon any termination of this Agreement without the Closing having been held
      or
      upon the consummation of the Closing.  East Penn Financial and the
      Bank shall each use its best efforts to cause its representatives, affiliates
      and agents to comply with the provisions of this Section.





**Section
      11.8 Counterparts.**This Agreement may be executed in one or
      more counterparts, all of which taken together shall constitute one
      instrument.





**Section
      11.9 Governing Law.**The laws of the Commonwealth of
      Pennsylvania, (without regard to its conflicts of law principles or rules of
      choice of law) and federal law to the extent it pre-empts state law, shall
      govern the validity and interpretation hereof and the performance of the Parties
      of their respective duties and obligations hereunder.





**Section
      11.10 Specific Performance.**Each of the Parties acknowledges
      and agrees that the other Party would be damaged irreparably in the event any
      of
      the provisions of this Agreement are not performed in accordance with their
      specific terms or otherwise are breached.  Accordingly, except as
      otherwise provided at herein, each of the Parties agrees that the other Party
      shall be entitled to seek an injunction or injunctions to prevent breaches
      of
      the provisions of this Agreement and to enforce specifically this Agreement
      and
      the terms and provisions hereof in any action instituted in any court of the
      United States or any state thereof having jurisdiction over the Parties and
      the
      matter, in addition to any other remedy to which it may be entitled, at law
      or
      in equity.





**Section
      11.11 Entire Agreement; Amendments.**This Agreement (together
      with the Exhibits and Schedules referenced herein) embodies the entire
      understanding of the Parties, and there are no further or other agreements
      or
      understandings, written or oral, in effect between the Parties relating to
      the
      subject matter hereof.  This instrument and the agreements contained
      herein


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          69
          -


may
      be
      amended or modified only by an instrument of equal formality signed by the
      Parties or their duly authorized agents.





**Section
      11.12 Interpretations.**The section headings of this
      Agreement are for convenience of reference only and do not form a part of this
      Agreement and do not in any way modify, interpret or construe the intentions
      of
      the Parties.  References in this Agreement to sections, schedules and
      exhibits are to sections of, and schedules and exhibits to, this Agreement
      unless otherwise indicated. Words in the singular include the plural and in
      the
      plural include the singular.  Any references to this Agreement shall
      be deemed to mean this Agreement including all schedules and exhibits
      hereto.  All words used in this Agreement will be construed as being
      of such gender or number as the circumstances require.  A Person will
      be deemed to have “knowledge” of a particular fact or other matters if he is
      actually aware of such fact or other matter.  For purposes of this
      Agreement, the phrases “knowledge of” a Party, “to a Party’s knowledge” or “to
      the best of a Party’s knowledge” shall refer to the knowledge (as defined above)
      of all officers, directors and key employees of such Party, and any similar
      references to the Bank shall refer to the knowledge (as defined above) of all
      officers, directors and key employees of both the Bank and East Penn
      Financial.








*[The
      balance of this page is intentionally left blank.]*


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IN
      WITNESS WHEREOF, the undersigned have duly executed this Merger Agreement as
      of
      the date first written above.





Attest:
              
              
              /s/ Fred C.
                Reim
              (Signature)
              Print
                Name: Fred C. Reim
              Title:
                Regional President
            HARLEYSVILLE
                NATIONAL CORPORATION
              
              
              By:    /s/ Demetra M.
                Takes
              (Signature)
              Print
                Name: Demetra M. Takes
              Title:
                Interim President & CEOAttest:
              
              
              /s/ Theresa M.
                Wasko
              (Signature)
              Print
                Name: Theresa M. Wasko
              Title:
                Treasurer & CFO
            EAST
                PENN FINANCIAL CORPORATION
              
              
              By:     /s/ Brent L.
                Peters
              (Signature)
              Print
                Name: Brent L. Peters
              Title:
                Chairman, President, CEOAttest:
              
              
              /s/ Theresa M.
                Wasko
              (Signature)
              Print
                Name: Theresa M. Wasko
              Title:
                Treasurer & CFO
            EAST
                PENN BANK
              
              
              By:     /s/ Brent L.
                Peters
              (Signature)
              Print
                Name: Brent L. Peters
              Title:
                Chairman, President, CEO











**List
                of Exhibits and Schedules**EXHIBITSExhibit
            Title/Contents1.1
            Bank
                Plan of Merger3.15
            Sandler
                Engagement Letter3.21
            Sandler
                Fairness Opinion4.15
            Janney
                Engagement Letter4.21
            Janney
                Fairness Opinion7.4(a)
            Form
                of closing opinion of counsel to East Penn Financial and East Penn
                Bank7.11(a)
            Form
                of Termination of Employment Agreement of Brent L.
                Peters7.11(b)
            Form
                of Employment Agreement for Brent L. Peters7.12(a)
            Form
                of Director Support Agreement






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          71
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**List
      of Exhibits and Schedules**




7.12(b)
            Form
                of Inducement Agreement of Brent L. Peters7.13
            Form
                of Affiliates Agreement8.5(a)
            Form
                of closing opinion of counsel to HNCEAST
                PENN FINANCIAL DISCLOSURE SCHEDULESSchedule
            Title/Contents3.1(d)
            East
                Penn Financial Subsidiaries3.2(c)
            Equity
                Interests in Entities other than Subsidiaries3.2(d)
            Beneficial
                owners of 5% or more of the outstanding shares of East Penn Financial
                Common Stock3.4
            Regulatory
                Filings, Regulatory Approvals and Consents3.5(b)
            Certain
                Liabilities, Obligations and Contingencies3.8(a)
            East
                Penn Financial Employment Agreements3.8(b)
            Post-Termination
                Benefits, Benefit Accelerations and Equity Benefits3.8(b)(i)
            Extent
                to which East Penn Financial Employment Agreements and East Penn
                Financial
                Employee Benefit Plans are not in full force and effect3.8(b)(ii)
            Certain
                termination and benefit rights under East Penn Financial Employment
                Agreements and East Penn Financial Employee Benefit
                Plans3.9(a)
            Encumbrances
                securing certain liabilities for borrowed money3.10
            Legal
                Proceedings3.12
            East
                Penn Financial Employee Benefit Plans3.13
            East
                Penn Financial Equity Plans3.14
            Certain
                environmental matters3.17
            Affiliate
                transactions3.19
            Classified
                Assets and Credits; Overdrafts3.24(b)
            Acquisitions
                and dispositions since December 31, 20063.24(e)
            Liabilities
                over $50,000 occurred outside the ordinary course of business since
                December 31, 20063.24(f)
            Material
                alterations in books, accounts and records5.2(a)
            Exceptions
                to covenant limiting acquisitions and new activities5.2(q)
            Exceptions
                to covenant limiting new branches and office facilitiesHNC
                DISCLOSURE SCHEDULESSchedule
            Title/Contents4.1(g)
            HNC
                Subsidiaries4.4
            Regulatory
                Filings, Regulatory Approvals and Consents4.7
            Certain
                tax matters4.13
            HNC
                Benefit Plans







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