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                                                                    Exhibit 10.1

                                   EMPLOYMENT AGREEMENT

         This AGREEMENT (the "Agreement") is made as of September 30, 1997 (the
"Effective Date"), by and between Northway Financial, Inc., a New Hampshire
chartered corporation ("Northway"), The Berlin City Bank, a New Hampshire
chartered bank and wholly owned subsidiary of Northway with its principal
offices located in Berlin, New Hampshire (Northway and The Berlin City Bank
shall hereinafter collectively be referred to as the "Employer"), and William J.
Woodward (the "Executive"). In consideration of the mutual covenants contained
in this Agreement, the Employer and the Executive agree as follows:

         1. Employment. The Employer agrees to employ the Executive and the
Executive agrees to be employed by the Employer on the terms and conditions set
forth in this Agreement.

         2. Capacity. The Executive shall serve the Employer as Chairman,
President and Chief Executive Officer, subject to election by the Board of
Directors of Northway or The Berlin City Bank, as the case may be (the "Board of
Directors"), and as a member of the Board of Directors, subject to election by
the shareholders of the Employer. The Executive shall also serve the Employer in
such other or additional offices as the Executive may be requested to serve by
the Board of Directors. In such capacity or capacities, the Executive shall
perform such services and duties in connection with the business, affairs and
operations of the Employer as may be assigned or delegated to the Executive from
time to time by or under the authority of the Board of Directors.

         3. Term. Subject to the provisions of Section 6, the term of employment
pursuant to this Agreement (the "Term") shall be for three (3) years from the
Effective Date and shall be renewed automatically for periods of one (1) year
commencing at the first anniversary of the Effective Date and on each subsequent
anniversary thereafter, unless either the Executive or the Employer gives
written notice to the other not less than sixty (60) days prior to the date of
any such anniversary of such party's election not to extend the Term.

         4. Compensation and Benefits. The regular compensation and benefits
payable to the Executive under this Agreement shall be as follows:

                  (a) Salary. For all services rendered by the Executive under
         this Agreement, the Employer shall pay the Executive a salary (the
         "Salary") at an annual rate consistent with the letter agreement, dated
         March 14, 1997, by and between Fletcher W. Adams and William J.
         Woodward and attached hereto as Exhibit A, subject to increase from
         time to time in the discretion of the Board of Directors. The Salary
         shall be payable in periodic installments in accordance with the
         Employer's usual practice for its senior executives.

                  (b) Bonus or Similar Incentive Programs. The Executive shall
         be entitled to participate in any incentive or bonus program
         established by the Board of Directors with such terms as may be
         established in the sole discretion of the Board of Directors; or

                  (c) Regular Benefits. The Executive shall also be entitled to
         participate in any employee benefit plans, medical insurance plans,
         life insurance plans, disability income plans, retirement plans,
         vacation plans, expense reimbursement plans and other benefit plans
         which the Employer may from time to time have in effect for all or most
         of its senior executives. Such participation shall be subject to the
         terms of the applicable plan documents, generally applicable policies
         of the Employer, applicable law and the discretion of the Board of
         Directors or any administrative or other committee provided for in or
         contemplated by any such plan. Nothing contained in this Agreement
         shall be construed to create any obligation on the part of the Employer
         to establish any such plan or to maintain the effectiveness of any such
         plan which may be in effect from time to time.

                  (d) Taxation of Payments and Benefits. The Employer shall
         undertake to make deductions, withholdings and tax reports with respect
         to payments and benefits under this Agreement to the extent that it
         reasonably and in good faith believes that it is required to make such
         deductions, withholdings and tax reports. Payments under this Agreement
         shall be in amounts net of any such deductions or withholdings. Nothing
         in this Agreement shall be construed to require the Employer to make
         any payments to compensate the Executive for any adverse tax effect
         associated with any payments or benefits or for any deduction or
         withholding from any payment or benefit.

                  (e) Exclusivity of Salary and Benefits. Unless approved by the
         Board of Directors, the Executive shall not be entitled to any payments
         or benefits other than those provided under this Agreement.

         5. Extent of Service. During the Executive's employment under this
Agreement, the Executive shall, subject to the direction and supervision of the
Board of Directors, devote the Executive's, best efforts and business judgment,
skill and knowledge to the advancement of the Employer's interests and to the
discharge of the Executive's duties and responsibilities under this Agreement.
The Executive shall not engage in any other business activity, except as may be
approved by the Board of Directors; provided that nothing in this Agreement
shall be construed as preventing the Executive from:

                  (a) investing the Executive's assets in any company or other
         entity in a manner not prohibited by Section 7(d) and in such form or
         manner as shall not require any material activities on the Executive's
         part in connection with the operations or affairs of the companies or
         other entities in which such investments are made; or

                  (b) engaging in religious, charitable or other community or
         non-profit activities that do not impair the Executive's ability to
         fulfill the Executive's duties and responsibilities under this
         Agreement; or

                  (c) continuing to advise and consult regularly the activities
         of Vaillancourt & Woodward, Inc. in his current positions with the
         same, provided that such advice and consultation does not unreasonably
         interfere with the performance of the Executive's duties hereunder.

         6. Termination and Termination Benefits. Notwithstanding the provisions
of Section 3, the Executive's employment under this Agreement shall terminate
under the following circumstances set forth in this Section 6.

                  (a) Termination by the Employer for Cause. The Executive's
         employment under this Agreement may be terminated for cause without
         further liability on the part of the Employer effective immediately
         upon a two-thirds (2/3) vote of the Board of Directors and written
         notice to the Executive. Only the following shall constitute "cause"
         for such termination:

                           (i) dishonest statements or acts of the Executive
                  with respect to the business of the Employer or any affiliate
                  of the Employer;

                           (ii) the commission by or indictment of the Executive
                  for (A) a felony or (B) any misdemeanor involving moral
                  turpitude, deceit, dishonesty or fraud ("indictment," for
                  these purposes, meaning an indictment, probable cause hearing
                  or any other procedure pursuant to which an initial
                  determination of probable or reasonable cause with respect to
                  such offense is made);

                           (iii) material failure to perform to the reasonable
                  satisfaction of the Board of Directors a substantial portion
                  of the Executive's duties and responsibilities assigned or
                  delegated under this Agreement, which failure continues, in
                  the reasonable judgment of the Board of Directors, for sixty
                  (60) days after written notice given to the Executive by the
                  Board of Directors;

                           (iv) gross negligence, willful misconduct or
                  insubordination of the Executive with respect to the Employer
                  or any affiliate of the Employer; or

                           (v) material breach by the Executive of any of the
                  Executive's obligations under this Agreement.

                  (b) Termination by the Executive. The Executive's employment
         under this Agreement may be terminated by the Executive by written
         notice to the Board of Directors at least thirty (30) days prior to
         such termination.

                  (c) Termination by the Employer Without Cause. Subject to the
         payment of Termination Benefits pursuant to Section 6(d), the
         Executive's employment under this Agreement may be terminated by the
         Employer without cause upon written notice to the Executive by a
         two-thirds (2/3) vote of the Board of Directors.

                  (d) Certain Termination Benefits. Unless otherwise
         specifically provided in this Agreement or otherwise required by law,
         all compensation and benefits payable to the Executive under this
         Agreement shall terminate on the date of termination of the Executive's
         employment under this Agreement. Notwithstanding the foregoing, in the
         event of termination of the Executive's employment with the Employer
         pursuant to Section 6(c) above, the Employer shall provide to the
         Executive the following termination benefits ("Termination Benefits"):

                           (i) continuation of the Executive's Salary at the
                  rate then in effect pursuant to Section 4(a); and

                           (ii) continuation of group health plan benefits to
                  the extent authorized by and consistent with 29 U.S.C. ss.
                  1161 et seq. (commonly known as "COBRA"), with the cost of the
                  regular premium for such benefits shared in the same relative
                  proportion by the Employer and the Executive as in effect on
                  the date of termination.

         The Termination Benefits set forth in (i) and (ii) above shall continue
         effective until the expiration of the Term; provided that in the event
         that the Executive commences any employment or self-employment during
         the period during which the Executive is entitled to receive
         Termination Benefits (the "Termination Benefits Period"), the remaining
         amount of Salary due pursuant to Section 6(d)(i) for the period from
         the commencement of such employment (other than in connection with the
         activities of Vaillancourt & Woodward, Inc.) or self-employment to the
         end of the Termination Benefits Period shall be reduced by one-half of
         the salary the Executive receives from such employment or
         self-employment and, if the Executive receives benefits from such
         employment or self-employment comparable to those benefits provided by
         the Employer, the payments provided under Section 6(d)(ii) shall cease
         effective as of the date of commencement of such employment or
         self-employment. The Employer's liability for Salary continuation
         pursuant to Section 6(d)(i) shall be reduced by the amount of any
         severance pay due or otherwise paid to the Executive pursuant to any
         severance pay plan or stay bonus plan of the Employer. Notwithstanding
         the foregoing, nothing in this Section 6(d) shall be construed to
         affect the Executive's right to receive COBRA continuation entirely at
         the Executive's own cost to the extent that the Executive may continue
         to be entitled to COBRA continuation after the Executive's right to
         cost sharing under Section 6(d)(ii) ceases. The Executive shall be
         obligated to give prompt notice of the date of commencement of any
         employment or self-employment during the Termination Benefits Period
         and shall respond promptly to any reasonable inquiries concerning any
         employment or self-employment in which the Executive engages during the
         Termination Benefits Period.

                  (e) Disability. If the Executive shall be disabled so as to be
         unable to perform the essential functions of the Executive's then
         existing position or positions under this Agreement with or without
         reasonable accommodation, the Board of Directors of Northway by a
         two-thirds (2/3) vote may remove the Executive from any
         responsibilities and/or reassign the Executive to another position with
         the Employer for the remainder of the Term or during the period of such
         disability. Notwithstanding any such removal or reassignment, the
         Executive shall continue to receive the Executive's full Salary (less
         any disability pay or sick pay benefits to which the Executive may be
         entitled under the Employer's policies) and benefits under Section 4 of
         this Agreement (except to the extent that the Executive may be
         ineligible for one or more such benefits under applicable plan terms)
         for a period of time equal to the lesser of (i) one (1) year; or (ii)
         the remainder of the Term. If any question shall arise as to whether
         during any period the Executive is disabled so as to be unable to
         perform the essential functions of the Executive's then existing
         position or positions with or without reasonable accommodation, the
         Executive may, and at the request of the Employer shall, submit to the
         Employer a certification in reasonable detail by a physician selected
         by the Employer to whom the Executive or the Executive's guardian has
         no reasonable objection as to whether the Executive is so disabled or
         how long such disability is expected to continue, and such
         certification shall for the purposes of this Agreement be conclusive of
         the issue. The Executive shall cooperate with any reasonable request of
         the physician in connection with such certification. If such question
         shall arise and the Executive shall fail to submit such certification,
         the Employer's determination of such issue shall be binding on the
         Executive. Nothing in this Section 6(e) shall be construed to waive the
         Executive's rights, if any, under existing law including, without
         limitation, the Family and Medical Leave Act of 1993, 29 U.S.C. ss.2601
         et seq. and the Americans with Disabilities Act, 42 U.S.C. ss.12101 et
         seq.

                  (f) Termination Following a Change of Control. If there is a
         Change of Control, as defined in Section 6(f)(i) below, during the
         Term, the provisions of this Section 6(f) shall apply and shall
         continue to apply throughout the remainder of the term of this
         Agreement. If, within eighteen (18) months following a Change of
         Control, the Executive's employment is terminated by the Employer or
         the Executive following the occurrence of any of the events listed in
         Section 6(f)(ii) below or if the Executive's employment is terminated
         without cause (in accordance with Section 6(c) above), in lieu of any
         payments under Section 6(d) above, the Employer shall pay to the
         Executive (or the Executive's estate, if applicable) a lump sum amount
         equal to 2.99 times the Executive's "base amount" within the meaning of
         Section 280G(b)(3) of the Internal Revenue Code of 1986, as amended
         (the "Code").

                           (i) Change of Control shall mean the occurrence of
                  one or more of the following events:

                                    (A) any "person" (as such term is used in
                           Sections 13(d) and 14(d)(2) of the Securities
                           Exchange Act of 1934, as amended (the "Exchange
                           Act")) becomes a "beneficial owner" (as such term is
                           defined in Rule 13d-3 promulgated under the Exchange
                           Act) (other than the Employer, any trustee or other
                           fiduciary holding securities under an employee
                           benefit plan of the Employer, or any corporation
                           owned, directly or indirectly, by the stockholders of
                           the Employer, in substantially the same proportions
                           as their ownership of stock of Northway), directly or
                           indirectly, of securities of Northway, representing
                           fifty percent (50%) or more of the combined voting
                           power of Northway's then outstanding securities; or

                                    (B) persons who, as of the Effective Date,
                           constituted Northway's Board of Directors (the
                           "Incumbent Board") cease for any reason including,
                           without limitation, as a result of a tender offer,
                           proxy contest, merger or similar transaction, to
                           constitute at least a majority of Northway's Board of
                           Directors, provided that any person becoming a
                           director of Northway subsequent to the Effective Date
                           whose election was approved by at least a majority of
                           the directors then comprising the Incumbent Board
                           shall, for purposes of this Section 6(f), be
                           considered a member of the Incumbent Board; or

                                    (C) the stockholders of Northway approve a
                           merger or consolidation of Northway with any other
                           corporation or other entity, other than (1) a merger
                           or consolidation which would result in the voting
                           securities of Northway outstanding immediately prior
                           thereto continuing to represent (either by remaining
                           outstanding or by being converted into voting
                           securities of the surviving entity) more than fifty
                           percent (50%) of the combined voting power of the
                           voting securities of Northway or such surviving
                           entity outstanding immediately after such merger or
                           consolidation or (2) a merger or consolidation
                           effected to implement a recapitalization of Northway
                           (or similar transaction) in which no "person" (as
                           hereinabove defined) acquires more than fifty percent
                           (50%) of the combined voting power of Northway's then
                           outstanding securities; or

                                    (D) the stockholders of Northway approve a
                           plan of complete liquidation of Northway or an
                           agreement for the sale or disposition by Northway of
                           all or substantially all of Northway's assets.

                           (ii) The events referred to in Section 6(f) above
                  shall be as follows:

                                    (A) a reduction of the Executive's salary
                           other than a reduction that (1) is based on the
                           Employer's financial performance or (2) is similar to
                           the reduction made to the salaries provided to all or
                           most other senior executives of the Employer; or

                                    (B) a significant change in the Executive's
                           responsibilities and/or duties which constitutes,
                           when compared to the Executive's responsibilities
                           and/or duties before the Change of Control, a
                           demotion; or

                                    (C) a material loss of title or office; or

                                    (D) the relocation of the offices at which
                           the Executive is principally employed as of the
                           Change of Control to a location more than fifty (50)
                           miles from such offices, which relocation is not
                           approved by the Executive.

                           (iii) The Executive shall provide the Employer with
                  reasonable notice and an opportunity to cure any of the events
                  listed in Section 6(f)(ii) and shall not be entitled to
                  compensation pursuant to this Section 6(f) unless the Employer
                  fails to cure within a reasonable period; and

                           (iv) It is the intention of the Executive and of the
                  Employer that no payments by the Employer to or for the
                  benefit of the Executive under this Agreement or any other
                  agreement or plan, if any, pursuant to which the Executive is
                  entitled to receive payments or benefits shall be
                  nondeductible to the Employer by reason of the operation of
                  Section 280G of the Code relating to parachute payments or any
                  like statutory or regulatory provision. Accordingly, and
                  notwithstanding any other provision of this Agreement or any
                  such agreement or plan, if by reason of the operation of said
                  Section 280G or any like statutory or regulatory provision,
                  any such payments exceed the amount which can be deducted by
                  the Employer, such payments shall be reduced to the maximum
                  amount which can be deducted by the Employer. To the extent
                  that payments exceeding such maximum deductible amount have
                  been made to or for the benefit of the Executive, such excess
                  payments shall be refunded to the Employer with interest
                  thereon at the applicable Federal rate determined under
                  Section 1274(d) of the Code, compounded annually, or at such
                  other rate as may be required in order that no such payments
                  shall be nondeductible to the Employer by reason of the
                  operation of said Section 280G or any like statutory or
                  regulatory provision. To the extent that there is more than
                  one method of reducing the payments to bring them within the
                  limitations of said Section 280G or any like statutory or
                  regulatory provision, the Executive shall determine which
                  method shall be followed, provided that if the Executive fails
                  to make such determination within forty-five (45) days after
                  the Employer has given notice of the need for such reduction,
                  the Employer may determine the method of such reduction in its
                  sole discretion.

         7. Confidential Information, Noncompetition and Cooperation.

                  (a) Confidential Information. As used in this Agreement,
         "Confidential Information" means information belonging to the Employer
         which is of value to the Employer in the course of conducting its
         business and the disclosure of which could result in a competitive or
         other disadvantage to the Employer. Confidential Information includes,
         without limitation, financial information, reports, and forecasts;
         inventions, improvements and other intellectual property; trade
         secrets; know-how; designs, processes or formulae; software; market or
         sales information or plans; customer lists; and business plans,
         prospects and opportunities (such as possible acquisitions or
         dispositions of businesses or facilities) which have been discussed or
         considered by the management of the Employer. Confidential Information
         includes information developed by the Executive in the course of the
         Executive's employment by the Employer, as well as other information to
         which the Executive may have access in connection with the Executive's
         employment. Confidential Information also includes the confidential
         information of others with which the Employer has a business
         relationship. Notwithstanding the foregoing, Confidential Information
         does not include information in the public domain, unless due to breach
         of the Executive's duties under Section 7(b).

                  (b) Confidentiality. The Executive understands and agrees that
         the Executive's employment creates a relationship of confidence and
         trust between the Executive and the Employer with respect to all
         Confidential Information. At all times, both during the Executive's
         employment with the Employer and after its termination, the Executive
         will keep in confidence and trust all such Confidential Information,
         and will not use or disclose any such Confidential Information without
         the written consent of the Employer, except as may be necessary in the
         ordinary course of performing the Executive's duties to the Employer.

                  (c) Documents, Records, etc. All documents, records, data,
         apparatus, equipment and other physical property, whether or not
         pertaining to Confidential Information, which are furnished to the
         Executive by the Employer or are produced by the Executive in
         connection with the Executive's employment will be and remain the sole
         property of the Employer. The Executive will return to the Employer all
         such materials and property as and when requested by the Employer. In
         any event, the Executive will return all such materials and property
         immediately upon termination of the Executive's employment for any
         reason. The Executive will not retain with the Executive any such
         material or property or any copies thereof after such termination.

                  (d) Noncompetition and Nonsolicitation. During the Term and
         for one (1) year thereafter (or during the Termination Benefits Period,
         if longer), the Executive (i) will not, directly or indirectly, whether
         as owner, partner, shareholder, consultant, agent, employee,
         co-venturer or otherwise, engage, participate, assist or invest in any
         Competing Business (as hereinafter defined); (ii) will refrain from
         directly or indirectly employing, attempting to employ, recruiting or
         otherwise soliciting, inducing or influencing any person to leave
         employment with the Employer (other than terminations of employment of
         subordinate employees undertaken in the course of the Executive's
         employment with the Employer); and (iii) will refrain from soliciting
         or encouraging any customer or supplier to terminate or otherwise
         modify adversely its business relationship with the Employer; provided,
         however, that the foregoing one-year restriction shall not apply in the
         event the Executive's employment under this Agreement is terminated
         pursuant to Section 6(c) hereof. The Executive understands that the
         restrictions set forth in this Section 7(d) are intended to protect the
         Employer's interest in its Confidential Information and established
         employee, customer and supplier relationships and goodwill, and agrees
         that such restrictions are reasonable and appropriate for this purpose.
         For purposes of this Agreement, the term "Competing Business" shall
         mean a business (other than Vaillancourt & Woodward, Inc.) conducted
         anywhere in the State of New Hampshire which is competitive with any
         business which the Employer or any of its affiliates conducts or
         proposes to conduct at any time during the employment of the Executive.
         Notwithstanding the foregoing, the Executive may own up to one percent
         (1%) of the outstanding stock of a publicly held corporation which
         constitutes or is affiliated with a Competing Business.

                  (e) Third-Party Agreements and Rights. The Executive hereby
         confirms that the Executive is not bound by the terms of any agreement
         with any previous employer or other party which restricts in any way
         the Executive's use or disclosure of information or the Executive's
         engagement in any business. The Executive represents to the Employer
         that the Executive's execution of this Agreement, the Executive's
         employment with the Employer and the performance of the Executive's
         proposed duties for the Employer will not violate any obligations the
         Executive may have to any such previous employer or other party. In the
         Executive's work for the Employer, the Executive will not disclose or
         make use of any information in violation of any agreements with or
         rights of any such previous employer or other party, and the Executive
         will not bring to the premises of the Employer any copies or other
         tangible embodiments of non-public information belonging to or obtained
         from any such previous employment or other party.

                  (f) Litigation and Regulatory Cooperation. During and after
         the Executive's employment, the Executive shall cooperate fully with
         the Employer in the defense or prosecution of any claims or actions now
         in existence or which may be brought in the future against or on behalf
         of the Employer which relate to events or occurrences that transpired
         while the Executive was employed by the Employer. The Executive's full
         cooperation in connection with such claims or actions shall include,
         but not be limited to, being available to meet with counsel to prepare
         for discovery or trial and to act as a witness on behalf of the
         Employer at mutually convenient times. During and after the Executive's
         employment, the Executive also shall cooperate fully with the Employer
         in connection with any investigation or review of any federal, state or
         local regulatory authority as any such investigation or review relates
         to events or occurrences that transpired while the Executive was
         employed by the Employer. The Employer shall reimburse the Executive
         for any reasonable out-of-pocket expenses incurred in connection with
         the Executive's performance of obligations pursuant to this Section
         7(f).

                  (g) Injunction. The Executive agrees that it would be
         difficult to measure any damages caused to the Employer which might
         result from any breach by the Executive of the promises set forth in
         this Section 7, and that in any event money damages would be an
         inadequate remedy for any such breach. Accordingly, subject to Section
         8 of this Agreement, the Executive agrees that if the Executive
         breaches, or proposes to breach, any portion of this Agreement, the
         Employer shall be entitled, in addition to all other remedies that it
         may have, to an injunction or other appropriate equitable relief to
         restrain any such breach without showing or proving any actual damage
         to the Employer.

         8. Arbitration of Disputes. Any controversy or claim arising out of or
relating to this Agreement or the breach thereof or otherwise arising out of the
Executive's employment or the termination of that employment (including, without
limitation, any claims of unlawful employment discrimination whether based on
age or otherwise) shall, to the fullest extent permitted by law, be settled by
arbitration in any forum and form agreed upon by the parties or, in the absence
of such an agreement, under the auspices of the American Arbitration Association
("AAA") in Boston, Massachusetts in accordance with the Employment Dispute
Resolution Rules of the AAA, including, but not limited to, the rules and
procedures applicable to the selection of arbitrators, except that the
arbitrator shall apply the law as established by decisions of the U.S. Supreme
Court, the Court of Appeals for the First Circuit and the U.S. District Court
for the District of New Hampshire in deciding the merits of claims and defenses
under federal law or any state or federal anti-discrimination law, and any
awards to the Executive for violation of any anti-discrimination law shall not
exceed the maximum award to which the Executive could be entitled under the
applicable (or most analogous) federal anti-discrimination or civil rights laws.
In the event that any person or entity other than the Executive or the Employer
may be a party with regard to any such controversy or claim, such controversy or
claim shall be submitted to arbitration subject to such other person or entity's
agreement. Judgment upon the award rendered by the arbitrator may be entered in
any court having jurisdiction thereof. This Section 8 shall be specifically
enforceable. Notwithstanding the foregoing, this Section 8 shall not preclude
either party from pursuing a court action for the sole purpose of obtaining a
temporary restraining order or a preliminary injunction in circumstances in
which such relief is appropriate; provided that any other relief shall be
pursued through an arbitration proceeding pursuant to this Section 8.

         9. Consent to Jurisdiction. To the extent that any court action is
permitted consistent with or to enforce Section 8 of this Agreement, the parties
hereby consent to the jurisdiction of the Superior Court of the State of New
Hampshire and the United States District Court for the District of New
Hampshire. Accordingly, with respect to any such court action, the Executive (a)
submits to the personal jurisdiction of such courts; (b) consents to service of
process; and (c) waives any other requirement (whether imposed by statute, rule
of court, or otherwise) with respect to personal jurisdiction or service of
process.

         10. Integration. This Agreement constitutes the entire agreement
between the parties with respect to the subject matter hereof and supersedes all
prior agreements between the parties with respect to any related subject matter.

         11. Assignment; Successors and Assigns, etc. Neither the Employer nor
the Executive may make any assignment of this Agreement or any interest herein,
by operation of law or otherwise, without the prior written consent of the other
party; provided that the Employer may assign its rights under this Agreement
without the consent of the Executive in the event that the Employer shall effect
a reorganization, consolidate with or merge into any other corporation,
partnership, organization or other entity, or transfer all or substantially all
of its properties or assets to any other corporation, partnership, organization
or other entity. This Agreement shall inure to the benefit of and be binding
upon the Employer and the Executive, their respective successors, executors,
administrators, heirs and permitted assigns.

         12. Enforceability. If any portion or provision of this Agreement
(including, without limitation, any portion or provision of any section of this
Agreement) shall to any extent be declared illegal or unenforceable by a court
of competent jurisdiction, then the remainder of this Agreement, or the
application of such portion or provision in circumstances other than those as to
which it is so declared illegal or unenforceable, shall not be affected thereby,
and each portion and provision of this Agreement shall be valid and enforceable
to the fullest extent permitted by law.

         13. Waiver. No waiver of any provision hereof shall be effective unless
made in writing and signed by the waiving party. The failure of any party to
require the performance of any term or obligation of this Agreement, or the
waiver by any party of any breach of this Agreement, shall not prevent any
subsequent enforcement of such term or obligation or be deemed a waiver of any
subsequent breach.

         14. Notices. Any notices, requests, demands and other communications
provided for by this Agreement shall be sufficient if in writing and delivered
in person or sent by a nationally recognized overnight courier service or by
registered or certified mail, postage prepaid, return receipt requested, to the
Executive at the last address the Executive has filed in writing with the
Employer or, in the case of the Employer, at its main offices, attention of the
Board of Directors, and shall be effective on the date of delivery in person or
by courier or three (3) days after the date mailed.

         15. Amendment. This Agreement may be amended or modified only by a
written instrument signed by the Executive and by a duly authorized
representative of the Employer.

         16. Governing Law. This is a New Hampshire contract and shall be
construed under and be governed in all respects by the laws of the State of New
Hampshire, without giving effect to the conflict of laws principles of such
State.

         17. Counterparts. This Agreement may be executed in any number of
counterparts, each of which when so executed and delivered shall be taken to be
an original; but such counterparts shall together constitute one and the same
document.



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                     CONFIDENTIAL AND NOT FOR DISTRIBUTION
                              FOR CLIENT USE ONLY

                                   MEMORANDUM

TO:   TA Associates, Inc.

FROM: John LeClaire, John Egan, Kevin Dennis and Jeff Hadden
      GPH Private Equity/Emerging Companies Group

RE:   Leveraged Recaps

DATE: March 24, 1998

                   -----------------------------------------

         Many of our recent private equity transactions have involved leveraged
recap transaction structures. This memorandum summarizes the principles that
have emerged as the guidelines for structuring these transactions. It is
envisioned that we will supplement these guidelines as appropriate based on
future transaction experience.1

ANALYTICAL FRAMEWORK

         Leveraged recap accounting is related to the SEC's rules for so called
"push-down" accounting (SAB Topic 5J). These rules require that an acquiror
"push-down" purchase accounting to the financial statements of its target when
the acquiror purchases "substantially all" of the target's stock in a purchase
transaction. This results in a new basis in the target's assets, the elimination
of the target's retained earnings, and in most cases the addition of goodwill to
the target's books. This goodwill reduces the target's future reported earnings
for GAAP purposes. Conversely, leveraged recap accounting will apply, and
goodwill on the target's balance sheet will be avoided, when pre-transaction
stockholders continue to maintain a significant interest following the
transaction as "substantial investors."

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         IN WITNESS WHEREOF, this Agreement has been executed as a sealed
instrument by the Employer, by its duly authorized officer, and by the
Executive, as of the Effective Date.

                                             NORTHWAY FINANCIAL, INC.
Attest:

By: /s/ David J. O'Connor                    By:  /s/ Fletcher W. Adams
    -------------------------------               ---------------------------
Name:   David J. O'Connor                    Name:    Fletcher W. Adams
Title:  Executive Vice President             Title:   Vice Chairman
        and Chief Financial Officer

                                             THE BERLIN CITY BANK
Attest:

By: /s/ David J. O'Connor                    By:  /s/ William J. Woodward
    -------------------------------               ---------------------------
Name:   David J. O'Connor                    Name:    William J. Woodward
Title:  Executive Vice President             Title:   President and Chief
        and Chief Financial Officer                   Executive Officer


                                             EMPLOYEE

                                             /s/ William J. Woodward
                                             ---------------------------
                                                 William J. Woodward