_____________________________________________________________________________

AGREEMENT AND PLAN OF REORGANIZATION

dated as of November 22, 2004

by and among

GLENS FALLS NATIONAL BANK AND TRUST COMPANY,

ARROW FINANCIAL CORPORATION,

429 SARATOGA ROAD CORPORATION,

CAPITAL FINANCIAL GROUP, INC.

and

JOHN WEBER

1

SMH Draft

3/11/2005 3:59 PM

AGREEMENT AND PLAN OF REORGANIZATION

AGREEMENT AND PLAN OF REORGANIZATION, dated as of _November 22, 2004 (this Agreement"), by and among GLENS FALLS NATIONAL BANK AND TRUST COMPANY, a national bank headquartered in Glens Falls, New York ("GFN"); ARROW FINANCIAL CORPORATION, a New York corporation and parent holding company for GFN ("AFC"); 429 SARATOGA ROAD CORPORATION, a New York corporation and wholly owned subsidiary of GFN ("Newco"); CAPITAL FINANCIAL GROUP, INC., a New York corporation ("Capital"); and JOHN WEBER, the beneficial owner of all of the outstanding shares of capital stock of Capital ("Stockholder").

WHEREAS, the Boards of Directors of GFN, AFC, Newco and Capital have each determined that it is advisable and in the best interest of their respective shareholders, and Stockholder has determined that it is advisable and in his best interest, to consummate the acquisition provided for herein (the "Acquisition"), as a result of which GFN will become the owner of all outstanding shares of the capital stock of Capital; and

WHEREAS, the Acquisition will be effected by way of a merger (the "Merger") of Newco, a newly created wholly owned subsidiary of GFN, with and into Capital, as a result of which Merger (i) Capital will become a wholly owned subsidiary of GFN, and (ii) Stockholder and any other holder or holders of outstanding shares of the capital stock of Capital at the time of the Merger will receive in exchange for such shares (A) shares of the common stock of GFN's parent holding company, AFC, and (B) the right to receive additional consideration in subsequent periods in the form of additional shares of stock of AFC, depending upon the future financial success of Capital; and

WHEREAS, the Boards of Directors of the merging entities in the Merger, Capital and Newco, have approved the Merger; and

WHEREAS, for U.S. Federal income tax purposes it is intended that the Merger qualify as a reorganization under the provisions of Section 368(a)(i)(B) of the Internal Revenue Code of 1986, as amended (the "Code"), and the regulations promulgated thereunder;

NOW, THEREFORE, in consideration of the foregoing premises and the representations, warranties, covenants and agreements herein contained, and intending to be legally bound hereby, GFN, AFC, Newco, Capital, and Stockholder hereby agree as follows:

ARTICLE 1

THE ACQUISITION

Section 1.1.  Structure of the Acquisition; the Merger.  Subject to the terms and conditions provided for herein and in the other documents and agreements relating to the transactions provided for herein, GFN will acquire one hundred percent (100%) of the outstanding stock of Capital (the "Acquisition").  The Acquisition will be accomplished by way of a merger (the "Merger") of Newco, a newly formed, wholly owned subsidiary of GFN having no substantial assets, with and into Capital.  As a result of the Merger, GFN will acquire all of the outstanding stock of Capital.  The Merger will be effected pursuant to a certain Plan of Merger between Newco and Capital, and joined in by AFC, in substantially the form of Exhibit A attached hereto (the "Plan of Merger").  At the Effective Time of the Merger, as defined in Section 1.2, below, Newco will merge with and into Capital, with Capital to continue as the surviving corporation in the Merger and the separate corporate existence of Newco to cease.

Section 1.2.  Effective Time.  The effective time of the Merger ("Effective Time"), shall be a specific time on a specific date (the "Closing Date"), as agreed upon by the parties to the Merger, that is not later than 11:59 p.m. on the thirtieth (30^th) business day after satisfaction of the last to be satisfied of the conditions to effectiveness of the Merger set forth in Section 5.1 hereof.  The Effective Time as thus agreed upon shall be specified in a Certificate of Merger substantially in the form of Exhibit B attached hereto (the "Certificate of Merger") to be duly executed and acknowledged by the parties to the Merger as of the Closing Date and delivered to the Secretary of State of the State of New York for filing pursuant to Section 904 of the New York Business Corporation Law (the "NYBCL").  The closing of the Merger shall be at the offices of GFN, unless another place is agreed to in writing by the parties to the Merger prior to the Closing Date.  

Section 1.3.  Certificate of Incorporation and Bylaws of Surviving Company.  The Certificate of Incorporation of Capital as in effect immediately prior to the Effective Time shall continue as the Certificate of Incorporation of the surviving company in the Merger at and after the Effective Time,  amended at such time as provided in Exhibit C attached hereto.  The By-Laws of Capital in effect immediately prior to the Effective Time shall continue as the By-Laws of  Capital at and after the Effective Time, amended at such time to read in their entirety as provided in Exhibit D attached hereto.

Section 1.4.  Directors.  At the Effective Time, the Board of Directors of Capital shall be reconstituted automatically and without further action on the part of any party hereto to consist of five (5) members, who shall be those five (5) individuals listed in Exhibit E attached hereto, consisting of Stockholder and four (4) additional nominees of GFN (which nominees may be altered at the sole discretion of GFN at any time prior to the Closing Date).  Each such director shall hold office thereafter in accordance with the Certificate of Incorporation and By-Laws of Capital until such director's successor is duly elected or appointed and qualified.

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