<PAGE>
 
void or unenforceable by any court or administrative body of competent
jurisdiction, such term or condition shall be deemed severable from the
remainder of this Agreement, and the other terms and conditions of this
Agreement shall continue to be valid and enforceable.

     14.  Construction.

     This Agreement shall be construed under the laws of the State of
Connecticut. Words of masculine gender mean and include correlative words of the
feminine gender. Section headings are for convenience only and shall not be
considered a part of the terms and provisions of the Agreement.

     IN WITNESS WHEREOF, Employer has caused this Agreement to be executed by a
duly authorized officer and Employee has hereunto set his hand, this ____ day of
October, 1996.

                    THE PEOPLE'S SAVINGS BANK OF NEW BRITAIN


                    By                                   
                       Its


                    RICHARD S. MANSFIELD


                 AMENDED AND RESTATED EMPLOYMENT AGREEMENT

     THIS AGREEMENT is made and entered into as of this ____ day of October,
1996, by and between The People's Savings Bank of New Britain, a Connecticut
savings bank with its principal office and place of business in New Britain,
Connecticut ("Employer") and John G. Medvec, a resident of Newington,
Connecticut ("Employee").

                            W I T N E S S E T H

     WHEREAS, Employee and Employer are parties to an Employment Agreement dated
as of August 1, 1986 (the "Prior Agreement") which, among other things, provides
certain benefits to Employee upon a change in control of Employer; and

     WHEREAS, Employee and Employer have entered into a Change in Control
Agreement dated as of the date hereof (the "Change in Control Agreement"), the
provisions of which are intended to supersede the change in control provisions
in the Prior Agreement; and

     WHEREAS, Employee and Employer desire to amend and restate the Prior
Agreement, upon the terms and conditions set forth herein, to delete from the
Prior Agreement such change in control provisions and to make clear the terms
under which Employee desires to remain in the employ of Employer, and under
which the Employer desires to continue to employ Employee.

     NOW THEREFORE, in consideration of the promises and the mutual
<PAGE>
 
covenants herein contained, the parties hereto, intending to be legally bound,
do hereby mutually covenant and agree as follows:

     1.   Employment.

     Employer hereby agrees to employ Employee as Executive Vice President and
Treasurer of Employer for the Term of Employment, as defined in Section 2.1, and
Employee accepts said employment and agrees to serve in such capacity upon the
terms and conditions hereinafter set forth.

     2.   Definitions.

     2.1  "Term of Employment" shall mean the period commencing with the date
hereof and ending on December 31, 1999. The Term of Employment shall
automatically be extended on each January 1 hereafter by adding an additional
year to the then remaining period of employment without further notice or action
of the parties; provided that either party may serve written notice to the other
at least three (3) months prior to any such January 1 of its desire that the
period of employment not be further automatically extended as provided herein,
in which event there shall thereafter be no such further automatic extensions of
the Term of Employment.

     Notwithstanding the foregoing, the Term of Employment shall end one (1) day
after the occurrence of any of the following events:

          (a)  Employee's termination for "Cause" (as defined in Section 2.3);

          (b)  unilateral termination of Employee's employment by Employee other
               than as permitted under Section 5.2;

          (c)  unilateral termination of Employee's employment by Employer prior
               to a Change of Control as defined in a Change in Control
               Agreement;

          (d)  the death of Employee; or

          (e)  the "permanent disability" of Employee (as defined in Section
               2.2);

          (f)  Payment in full to Employee of the "Severance Amount" as provided
               for in the Change in Control Agreement.

     2.2  Employee's "permanent disability," as this phrase is used throughout
this Agreement, shall mean Employee's disability as defined under the long-term
disability insurance policy of Employer as in effect from time to time.

     2.3  "Cause," as this term is used throughout this Agreement, shall mean:

          (a)  Employee's failure to be available to work on a full-time basis
               in the position set forth in Section 1 hereof other than as a
               result of a permanent disability, if such failure shall not have
               been cured by Employee within thirty (30) days after receipt from
               Employer of written notice of a claimed breach by Employee; or

          (b)  willful material misconduct by Employee, including, but not
<PAGE>
 
               limited to, the commission by Employee of a felony or the
               perpetration by Employee of a common law fraud upon Employer,

in the case of (a) or (b) above, as determined in good faith by a vote of at
least 75% of the members of Employer's Board of Directors.

     2.4  A "Person" shall include natural person, corporation, or other entity.
When two (2) or more persons act as a partnership, limited partnership,
syndicate, or other group for the purpose of acquiring, holding, or disposing of
Employer common stock, such partnership, syndicate, or group shall be considered
a Person. Beneficial ownership shall be determined under the then current
provisions of Securities Exchange Act of 1934 Rule 13d-3, 17 C.F.R. Section
240.13d-3.

     3.   Duties of Employment.

     Employee agrees that, so long as he shall be employed by Employer, Employee
shall perform all duties assigned or delegated to him under the By-Laws of
Employer or from time to time by the Board of Directors of Employer consistent
with his position as a senior executive officer of Employer, and shall perform
all acts and services customarily associated with such position, devoting his
full time, best efforts and attention to the advancement of the interests and
business of Employer. Employee shall not be engaged in or concerned with any
other duties or pursuits which are competitive or inconsistent with the
interests and business of Employer. It is understood that Employee may have
directorships which may, from time to time, require minor portions of his time,
but which shall not interfere or be inconsistent with his duties hereunder.

     4.   Compensation.

     During the Term of Employment, Employer shall pay to Employee as
compensation for the services to be rendered by him hereunder the following:

          (a)  Employer shall pay to Employee a base salary at the rate of
$129,012.00 per year, or such larger sum as the Board of Directors of Employer
may from time to time determine (the "Base Rate"). Such compensation shall be
payable in accordance with normal payroll practices of Employer.

          (b)  In addition, Employee shall receive an annual increase in the
Base Rate at each normal pay adjustment date during such Term of Employment, but
no later than one (1) year from the date of Employee's last increase and
annually thereafter during such Term of Employment, of not less than the
percentage increase in the cost-of-living since Employee's last pay adjustment,
as measured by the Consumer Price Index-All Urban Consumers of the U.S. Bureau
of Labor Statistics, except that no such increase shall be made at any time
during which a salary freeze applicable to all executive employees of Employer
generally may be in effect.

          (c)  Employer shall provide life insurance on the life of Employee in
an amount equal to twice the Base Rate, payable to a beneficiary selected by
Employee, and shall provide comprehensive health insurance and Major Medical
coverage for Employee comparable to such coverage provided for officers of
Employer generally. Employer shall also provide Employee with long-term
disability insurance coverage. Employee shall be eligible to participate in the
pension plan of Employer in accordance with the terms thereof.
<PAGE>
 
          (d)  Except as otherwise set forth herein, if Employee should be
prevented from performing his duties by reason of illness or incapacity or for
any other cause for an aggregate of six months in any one year, then Employer
shall not be obligated to pay Employee any salary or bonus for any period of
absence (except for absence during paid vacation as provided herein) in excess
of the aggregate of six months in any such year.

     5.   Termination of Employment.

     5.1  If Employee's employment is unilaterally terminated by Employer during
the Term of Employment, for any reason other than the reasons provided in
Section 2.3 hereof, Employee shall be entitled to receive, and Employer shall be
obligated to pay to Employee, the following amounts:

          (a)  severance pay in an amount equal to the salary compensation of
Employee defined in Sections 4(a) and 4(b) hereof for an additional twelve (12)
months at the then current rate, from which shall be subtracted only the amount,
if any, payable to Employee under any then effective severance pay plan of
Employer (which, for purposes hereof, shall not include any amount payable to
Employee pursuant to the Change in Control Agreement), the foregoing net amount
to be paid in cash in the month next following Employee's termination of
employment.

          (b)  an amount equal to the aggregate amounts that Employer would have
contributed on behalf of Employee under Employer's Deferred Profit Sharing Plan,
if any such plan shall be in effect, for an additional twelve (12) months had
Employee continued in the employ of Employer for such additional twelve (12)
months and made contributions under said plan at a rate, as a percentage of
salary, equal to the average rate at which Employee had made contributions to
said plan in the period, not exceeding three (3) fiscal years of Employer,
preceding Employee's termination;

          (c)  supplemental pension benefits equal to the difference between (i)
the annual pension benefit that would have been payable to Employee under the
Retirement Plan of Employer (the "Plan") if Employee had been continued in the
employ of Employer for an additional twelve (12) months and had received
compensation at least equal to that specified in Section 4 of this Agreement
until such time and (ii) the annual pension benefit actually payable to Employee
under the Plan, such supplemental pension benefits to be payable at the same
time and in the same manner as benefits under the Plan;

          (d)  to the extent that any form of compensation previously granted to
Employee, such as, by way of example only, restricted stock or performance share
awards, shall not be fully vested or shall require additional service as an
employee at the time of the termination of Employee's employment, Employee shall
be credited with additional service for an additional twelve (12) months;

          (e)  for an additional twelve (12) months, Employee shall also
continue to participate in all life, health, disability and similar insurance
plans and programs of Employer to the extent that such continued participation
is possible under the general terms and provisions of such plans and programs,
with Employer and Employee paying the same portion of the cost of each such plan
or program as existed at the time of Employee's termination. In the event that
Employee's continued participation in any group plans and programs is not
permitted, then in lieu thereof, Employer shall acquire, with the same cost
sharing, individual insurance policies providing comparable coverage for
Employee; provided that Employer shall 
<PAGE>
 
not be obligated to pay for any such individual coverage more than three (3)
times Employer's cost of such group coverage; and provided further, if any such
individual coverage is unavailable, then Employer shall pay to Employee for such
additional twelve (12) month period an amount equal to the sum of the average
annual contributions, payments, credits, or allocations made by Employer for
such insurance on Employee's behalf over the three (3) fiscal years of Employer
preceding the termination of his employment; and

          (f)  Employee shall continue to receive for an additional twelve (12)
months such perquisites as he was receiving at the time of the termination of
his employment.

     5.2  Employee shall have the right during the Term of Employment, at his
sole option, by thirty (30) days' advance written notice to the Board of
Directors of Employer, to terminate his services hereunder upon the occurrence
of any action by Employer which (i) significantly reduces Employee's job
responsibilities, (ii) results in a significant worsening of Employee's work
conditions, or (iii) requires a relocation by Employee to a place of work
outside of New Britain, Connecticut. Termination of Employee's services under
this Section 5.2 shall be deemed a unilateral, involuntary termination of
employment by Employer and shall be governed by the provisions of Section 5.1
hereof. Subject to the provisions of Section 7, Employee shall have no further
obligation under this Agreement.

     5.3  Employee shall have no duty to mitigate damages in the event of a
termination under the terms of Sections 5.1 or 5.2 or in the event of his
permanent disability under Section 5.4, and if he voluntarily obtains other
employment (including self-employment), any compensation or profits received or
accrued, directly or indirectly, from such other employment shall not reduce or
otherwise affect the obligations of Employer to make payments hereunder.

     5.4  If the employment of Employee shall terminate during the Term of
Employment by reason of the permanent disability of Employee, all payments that
would have been due to Employee under this Agreement had he remained in the
employ of Employer for an additional twelve (12) months reduced by the amount of
disability insurance payments made to Employee under any policy or plan
maintained by Employer, shall continue to be made to him for an additional
twelve (12) months, or until he shall no longer be considered permanently
disabled under Section 2.2, if earlier. If Employee shall die following a
termination of his employment under Section 5.1 or 5.2, or following a
termination during the Term of Employment by reason of the permanent disability
of Employee, all payments that would have been due to Employee under this
Agreement had he lived for a period of twelve (12) months following the
termination of his employment shall be made instead to such beneficiary as
Employee shall have designated in writing. To the extent that neither Employee
nor his designee shall live for such twelve (12) month period following the
termination of Employee's employment, after the death of the second of them to
die, said payments shall be made to the estate of such person. If Employee shall
die without a beneficiary designation in effect, said payments shall be made to
Employee's estate.

     5.5  If the employment of Employee shall terminate at a time other than
during the Term of Employment, or if said employment shall terminate for any of
the reasons provided in Section 2.3 hereof, or if Employee shall unilaterally
terminate his employment other than as permitted under Section 5.2, all payments
that would have been due to Employee under this Agreement on or after the date
of such termination shall cease, and Employer shall have no further obligations
under this Agreement other than for amounts 
<PAGE>
 
accrued but not paid as of the date of such termination.

     6.   Other Benefits

     6.1  During the Term of Employment while actively employed, Employee shall
be entitled to and shall be included in any employee welfare or pension benefit
plan or program of Employer available generally to the employees of Employer to
the extent that he is eligible to participate under the general provisions of
such plans.

     6.2  During the Term of Employment while actively employed, Employee shall
be entitled each year to a vacation of at least four (4) weeks, and during such
time his compensation shall be paid in full. The period of vacation selected
each year shall be with the approval of the Employer. Vacation time which is not
taken by the Employee in any year may be deferred and taken in the first quarter
of the following year or, at the option of the Employer, shall be purchased by
the Employer at a per diem rate calculated on the basis of Employee's then base
salary.

     7.   Confidential Information

     Employee understands that in the course of his employment by Employer,
Employee will receive confidential information concerning the business or
purposes of Employer, and which Employer desires to protect. Employee agrees
that he will not at any time during or after the Term of Employment reveal to
anyone outside Employer or use for his own benefit any such information that has
been designated as confidential by Employer or understood by Employee to be
confidential without specific written authorization by Employer. Employee
further agrees not to use any such confidential information or trade secrets in
competing with Employer at any time during or after his employment by Employer.

     8.   Covenants by Employee Not to Compete With Employer

          (a)  Upon termination of Employee's employment by Employer for any
reason (other than a termination pursuant to Sections 5.1 or 5.2 of this
Agreement), Employee covenants and agrees that he will not at any time during
the period of one (1) year from and after such termination directly or
indirectly in any manner or under any circumstances or conditions whatsoever be
or become interested, as an individual, partner, principal, agent, clerk,
employee, stockholder, officer, director, trustee, or in any other capacity
whatsoever, except as a nominal owner of stock of a public corporation, in any
other business similar to the business of Employer or in any way in competition
with the business of Employer within any of the City of New Britain and the
Towns of Berlin, Meriden, Newington, Rocky Hill, Southington and Plainville, all
in the State of Connecticut.

     For purposes of this section (a), "Employer" shall be limited to the
People's Savings Bank of New Britain, and the "business of Employer" shall be
limited to its business as a Connecticut savings bank, and any other lines of
business developed or entered into by it, its holding company Peoples Savings
Financial Corp., or any subsidiary of the foregoing, during the term of this
Agreement, but shall not include lines of business of any successor or
affiliated corporation in which Employee is not directly involved.

     (b)  Employee hereby acknowledges that his services are unique and
extraordinary, and are not readily replaceable, and hereby expressly agrees that
Employer in enforcing the covenants contained in this Section, in addition to
any other remedies provided for herein or otherwise available 
<PAGE>
 
at law, shall be entitled in any court of equity having jurisdiction to an
injunction restraining him in the event of a breach, actual or threatened, of
the agreements and covenants contained in this Paragraph.

     (c)  The parties hereto believe that the restrictive covenants of this
Section are reasonable. However, if at any time it shall be determined by any
court of competent jurisdiction that this Section or any portion of it, as
written, is unenforceable because the restrictions are unreasonable, the parties
hereto agree that such portions as shall have been determined to be unreasonably
restrictive shall thereupon be deemed so amended as to make such restrictions
reasonable in the determination of such court, and said covenants, as so
modified, shall be enforceable between the parties to the same extent as if such
amendments had been made prior to the date of any alleged breach of said
covenants.

     9.   Termination Upon Change of Control.

     Notwithstanding anything contained herein to the contrary, this Agreement
shall terminate and be of no further force and effect upon the payment in full
to Employee of the "Severance Amount" as provided for in the Change in Control
Agreement.

     10.  Notices.

     All notices under this Agreement shall be in writing and shall be deemed
effective when delivered in person to Employee or to the Secretary of Employer,
or if mailed, postage prepaid, registered or certified mail, addressed, in the
case of Employee, to his last known address as carried on the personnel records
of Employer, and, in the case of Employer, to the corporate headquarters,
attention of the Secretary, or to such other address as the party to be notified
may specify by notice to the other party.

     11.  Successors and Assigns

     The rights and obligations of Employer under this Agreement shall inure to
the benefit of and shall be binding upon the successors and assigns of Employer,
including, without limitation, any corporation, individual or other person or
entity which may acquire all or substantially all of the assets and business of
Employer, or of any division of Employer for which Employee has primary
management responsibility, or with or into which Employer may be consolidated or
merged or any surviving corporation in any merger involving Employer. All
references in this Agreement to Employer shall be deemed to include all such
successors and assigns and, upon the occurrence of any event giving rise to any
Person becoming a successor or assign bound hereunder by the Agreement, Employer
shall be thereby relieved of any further obligation or liability under this
Agreement, except for any amounts due and payable to Employee under the
provisions hereof immediately prior to the occurrence of such event.

     12.  Arbitration.

     Any dispute which may arise between the parties hereto shall be submitted
to binding arbitration in accordance with the Rules of the American Arbitration
Association; provided that any such dispute shall first be submitted to
Employer's Board of Directors in an effort to resolve such dispute without
resort to arbitration. In any dispute which is submitted to arbitration, the
attorney's fees of the prevailing party shall be paid by the other party.