<PAGE>

                                                                    Exhibit 10.5

                              EMPLOYMENT AGREEMENT

         This AGREEMENT (the "Agreement") is made as of November 12, 1997 (the
"Effective Date"), by and between Northway Financial, Inc., a New Hampshire
chartered corporation (the "Employer") and Donald R. Hatt (the "Executive"). In
consideration of the mutual covenants contained in this Agreement, the Employer
and the Executive agree as follows:

                  A. 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. For the purposes of complying
         with and administering its compensation obligations under this
         Agreement, the Employer may, at its option, engage its subsidiary, The
         Berlin City Bank (the "Bank"), to serve, for such period as the
         Employer determines to be necessary, as a joint employer of the
         Executive under this Agreement and the Executive accepts any such
         employment by the Bank.

                  B. Capacity. The Executive shall serve the Employer as Senior
         Executive Vice President/Chief Operating Officer, subject to election
         by the Board of Directors of the Employer (the "Board of Directors").
         The Executive shall also serve the Employer in such other or additional
         offices as the Executive may be requested to serve by the Chief
         Executive Officer (the "CEO") or 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 CEO or the Board of Directors.

                  C. Term. Subject to the provisions of Section 6, the term of
         employment pursuant to this Agreement (the "Term") shall be for two (2)
         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.

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

                           1. 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 of $150,000, 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.

                           2. Bonus or Similar Incentive Programs. The Executive
                  shall be entitled to participate in any incentive or bonus
                  program established by the Board of Directors to include the
                  Executive's position, with such terms as may be established in
                  the sole discretion of the Board of Directors.

                           3. 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; provided that until a package of benefit plans is
                  established by the Employer, the Executive shall be entitled
                  to participate in benefit plans in effect for all or most of
                  the senior executives of the Bank. 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.

                           4. Relocation Costs. To reduce the Executive's
                  expense associated with relocation, the Employer shall provide
                  the following to the Executive:

                                    a) Duplicate Residence Allowance. The
                           Employer shall pay to the Executive a Duplicate
                           Residence Allowance effective for the lesser of (A)
                           such period as the Executive maintains residences in
                           both North Carolina and northern New Hampshire; or
                           (B) nine (9) months. The Duplicate Residence
                           Allowance for any month shall equal the lesser of (Y)
                           One Thousand Dollars ($1,000); or (Z) the Executive's
                           monthly rental or mortgage payment plus the cost of
                           electricity for a northern New Hampshire residence
                           for such month.

                                    b) Relocation Allowance. In lieu of any
                           relocation cost reimbursement other than the
                           Duplicate Residence Allowance, the Employer shall pay
                           to the Executive (A) Fifteen Thousand Dollars
                           ($15,000) promptly after the execution of this
                           Agreement; and (B) Fifteen Thousand Dollars ($15,000)
                           upon the Executive's relocation to a permanent
                           residence in northern New Hampshire.

                           5. 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.

                           6. 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.

                  E. Extent of Service. During the Executive's employment under
         this Agreement, the Executive shall, subject to the direction and
         supervision of the CEO or 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 CEO or the Board of Directors; provided that
         nothing in this Agreement shall be construed as preventing the
         Executive from:

                           1. 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

                           2. 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.

                  F. 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.

                           1. 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 majority vote of the
                  Board of Directors and written notice to the Executive. Only
                  the following shall constitute "cause" for such termination:

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

                                    b) 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);

                                    c) 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;

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

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

                           2. 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 or the
                  CEO at least thirty (30) days prior to such termination.

                           3. 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 majority vote of the Board of Directors.

                           4. 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"):

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

                                    b) continuation of group health plan
                           benefits to the extent authorized by and consistent
                           with 29 U.S.C. Section 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 or
self-employment to the end of the Termination Benefits Period shall be reduced
by one-half of the salary or other cash compensation the Executive receives from
such employment or self-employment attributable to services performed during the
Termination Benefits Period 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.

         1. 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 by a majority 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. Section 2601 et seq. and the Americans with Disabilities Act, 42 U.S.C.
Section 12101 et seq.

         2. 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. If (1) 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 the Executive's employment is terminated without
cause (in accordance with Section 6(c) above); and (2) such termination occurs
both within twelve (12) months following a Change of Control and during the
Term, then the Employer shall provide the Executive (or the Executive's estate,
if applicable) with Termination Benefits for two (2) years from the date of
termination of the Executive's employment. To the extent that Termination
Benefits would otherwise be due to the Executive, this Section 6(f) shall not be
construed to require the provision of any additional pay or benefits to the
Executive.

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

                           (1) 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 the Employer), directly or indirectly, of securities of the
                  Employer, representing fifty percent (50%) or more of the
                  combined voting power of the Employer's then outstanding
                  securities; or

                           (2) persons who, as of the Effective Date,
                  constituted the Employer's Board of Directors (the AIncumbent
                  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 the
                  Employer's Board of Directors, provided that any person
                  becoming a director of the Employer 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

                           (3) the stockholders of the Employer approve a merger
                  or consolidation of the Employer with any other corporation or
                  other entity, other than (1) a merger or consolidation which
                  would result in the voting securities of the Employer
                  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 the Employer or such surviving entity
                  outstanding immediately after such merger or consolidation or
                  (2) a merger or consolidation effected to implement a
                  recapitalization of the Employer (or similar transaction) in
                  which no "person" (as hereinabove defined) acquires more than
                  fifty percent (50%) of the combined voting power of the
                  Employer's then outstanding securities; or

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

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

                           (5) 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

                           (6) 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.

                                    a) 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

                                    b) 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.

                  G. Confidential Information, Noncompetition and Cooperation.

                           1. 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).

                           2. 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.

                           3. 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.

                           4. 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 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 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. Nowithstanding the foregoing, in
                  the event that the Executive becomes entitled to Termination
                  Benefits pursuant to Section 6(f) ("Termination Following a
                  Change of Control"), this Section 7(d) shall not apply to the
                  Executive with respect to the Executive's activities during
                  any period following the termination of the Executive's
                  employment.

                           5. 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.

                           6. 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).

                           7. 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.

                  H. 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. 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.

                  I. 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.

                  J. 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.

                  K. 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.

                  L. 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.

                  M. 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.

                  N. 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
         or the CEO, and shall be effective on the date of delivery in person or
         by courier or three (3) days after the date mailed.

                  O. 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.

                  P. 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.

                  Q. 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.
<PAGE>

         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/ William J. Woodward
                                                         -----------------------
By:   /S/ Joe N. Rozek                             Name: William J. Woodward
      -------------------                          Title: President and CEO
Name: Joe N. Rozek
Title: Assistant to the Office of the
Chairman of the Board

                                                   EMPLOYEE

                                                   /S/ Donald R. Hatt
                                                   -------------------
                                                   Donald R. Hatt