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                                                                    Exhibit 10.6

                              EMPLOYMENT AGREEMENT

         This AGREEMENT (the "Agreement") is made as of August 31, 1998 (the
"Effective Date"), by and between Northway Financial, Inc. ("Northway"), a New
Hampshire chartered corporation and its subsidiary, Pemigewasset National Bank
("PNB") (collectively referred to as the "Employer") and Paul M. Ferguson (the
"Executive"). The Employer may, in its discretion, administer and discharge any
of its obligations through Northway, PNB, or both entities. 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 as Executive Vice
         President and Chief Operating Officer of PNB ("EVP/COO"), subject to
         election by the Boards of Directors of both Northway and PNB (the
         "Boards 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 of PNB (the "CEO") or the Chairman
         of Northway (the "Chairman"). 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 Chairman. Notwithstanding the foregoing, after the
         Executive becomes Chief Executive Officer of PNB pursuant to Section 4
         below, all references to "CEO" in this Agreement shall thereafter mean
         the Chairman of PNB.

                  3. Term. Subject to the provisions of Section 7, 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.

                  4. Promotions. Subject to the Executive's satisfactory
         performance on a continuing basis, as determined in the discretion of
         the Employer, and further subject to the approval of the Boards of
         Directors, the Executive shall be promoted to the following positions
         in the following time frames: (a) the Executive shall be promoted to
         the position of President and Chief Operating Officer of PNB in May,
         1999; and (b) when PNB's current President and Chief Executive Officer,
         Fletcher Adams, retires, the Executive shall be promoted to the
         position of President and Chief Executive Officer of PNB. The Employer
         states that as of the date of execution of this Agreement, Mr. Adams
         has stated an intention to retire in the year 2000.

                  5. 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 an
                  initial salary (the "Salary") at an annual rate of $117,500,
                  subject to such increases in conjunction with the promotions
                  described above in Section 4 that the Employer, in its
                  judgment, determines to be appropriate based upon the
                  accompanying changes in the Executive's responsibilities, and
                  further subject to any other increases that the Employer may,
                  in its discretion, determine to be appropriate from time to
                  time. 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 Northway Board of Directors to
                  include the Executive's position, with such terms as may be
                  established in the sole discretion of the Boards 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 in effect and generally
                  applicable to the senior executives of PNB. 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 Boards 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) Temporary Housing Allowance. The Employer
                           shall pay to the Executive a monthly Temporary
                           Housing Allowance effective for the lesser of (A)
                           such period following the Effective Date until the
                           Executive obtains, by purchase or lease, a permanent
                           residence in the Plymouth, New Hampshire area; or (B)
                           six (6) months following the Effective Date. The
                           Temporary Housing Allowance for any month shall equal
                           the lesser of (Y) Seven Hundred Dollars ($700); or
                           (Z) the Executive's monthly rental or mortgage
                           payment plus the cost of electricity for a Plymouth,
                           New Hampshire area residence for such month.

                                    b) Relocation Allowance. In lieu of any
                           relocation cost reimbursement other than the
                           Temporary Housing Allowance, the Employer shall pay
                           to the Executive a relocation allowance to cover all
                           of the costs that the Executive may incur in
                           connection with the transition from his current
                           residence in Mount Vernon, New Hampshire to a
                           permanent residence in the Plymouth, New Hampshire
                           area. The Relocation Allowance shall be in the amount
                           of up to Twenty Thousand Dollars ($20,000) to be paid
                           as follows: (A) Ten Thousand Dollars ($10,000)
                           promptly after the Effective Date; and (B) Ten
                           Thousand Dollars ($10,000) promptly after the
                           Executive obtains, by purchase or lease, a permanent
                           residence in the Plymouth, New Hampshire area,
                           provided that such relocation occurs not later than
                           six (6) months after the Effective Date. Such amounts
                           may be used for purposes related to the relocation as
                           determined in the Executive's discretion.

                           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 Boards of Directors, the Executive shall not
                  be entitled to any payments or benefits other than those
                  provided under this Agreement.

                  6. 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 Chairman, 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 Chairman; 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 8(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.

                  7. 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 7.

                           (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 majority vote of either
                  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 Northway,
                           PNB, or any affiliate of either of them;


                                    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 either 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 that is taking
                           such action, for sixty (60) days after written notice
                           given to the Executive by such 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.

                           (b) Termination by the Executive. The Executive's
                  employment under this Agreement may be terminated by the
                  Executive by written notice to the CEO or the Chairman 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 7(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 either 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 7(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 5(a);
                           and

                                    (ii) 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 7(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
                           7(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 7(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 7(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
                           7(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, either
                  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 5 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 7(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.

                           (f) Termination Following a Change of Control. If
                  there is a Change of Control, as defined in Section 7(f)(i)
                  below, during the Term, the provisions of this Section 7(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 7(f)(ii)
                  below or the Executive's employment is terminated without
                  cause (in accordance with Section 7(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 7(f) shall not be construed to require
                  the provision of any additional pay or benefits to the
                  Executive.

                                    (i) 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 Northway, any trustee or other
                                    fiduciary holding securities under an
                                    employee benefit plan of Northway, or any
                                    corporation owned, directly or indirectly,
                                    by the stockholders of Northway, 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

                                         (2) 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 7(f), be considered
                                    a member of the Incumbent Board; or

                                         (3) 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

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

                                    (ii) The events referred to in Section 7(f)
                           above shall be as follows:

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

                                    (iii) The Executive shall provide Northway
                           with reasonable notice and an opportunity to cure any
                           of the events listed in Section 7(f)(ii) and shall
                           not be entitled to compensation pursuant to this
                           Section 7(f) unless Northway fails to cure within a
                           reasonable period; and

                                    (iv) It is the intention of the Executive
                           and of Northway that no payments by Northway 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 Northway 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 Northway, such
                           payments shall be reduced to the maximum amount which
                           can be deducted by Northway. 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
                           Northway 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 Northway 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 Northway has given notice of the need for such
                           reduction, Northway may determine the method of such
                           reduction in its sole discretion.

                  8. 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 8(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 Northway or PNB (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 Northway or
                  PNB; provided, however, that the restrictions set forth in the
                  foregoing sentence shall not apply in the event that the
                  Executive's employment under this Agreement is terminated
                  pursuant to Section 7(c) ("Termination by the Employer Without
                  Cause"). The Executive understands that the restrictions set
                  forth in this Section 8(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 Northway, PNB, or any of the
                  affiliates of either of them 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. Notwithstanding the foregoing, in the
                  event that the Executive becomes entitled to Termination
                  Benefits pursuant to Section 7(f) ("Termination Following a
                  Change of Control"), this Section 8(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.

                           (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 8(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 8, and that in any event money
                  damages would be an inadequate remedy for any such breach.
                  Accordingly, subject to Section 9 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.

                  9. 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 9 shall be specifically enforceable.
         Notwithstanding the foregoing, this Section 9 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 9.

                  10. Consent to Jurisdiction. To the extent that any court
         action is permitted consistent with or to enforce Section 9 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.

                  11. 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.

                  12. 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.

                  13. 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.

                  14. 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.

                  15. 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 Boards 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.

                  16. 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.

                  17. 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.

                  18. 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.

                  19. Legal and Regulatory Limitations. All Termination Benefits
         and all other obligations of the Employer to the Executive referred to
         above in this Agreement are subject to any applicable legal or
         regulatory limitations or approvals applicable to Northway and/or any
         subsidiary of Northway, including, without implication of limitation,
         PNB.
<PAGE>

         IN WITNESS WHEREOF, this Agreement has been executed as a sealed
instrument by Northway and PNB, each by an authorized officer, and by the
Executive, as of the Effective Date.

                                                   NORTHWAY FINANCIAL, INC.
Attest:
                                                   By:   /S/ William J. Woodward
                                                         -----------------------
                                                   Name: William J. Woodward
                                                   Title: President and CEO
By:   /S/ Joe N. Rozek                          
      ------------------
Name: Joe N. Rozek
Title: Assistant to the Office of the
Chairman of the Board
                                                   PEMIGEWASSET NATIONAL BANK

                                                   By:   /S/ Fletcher W. Adams  
                                                         ---------------------
                                                   Name: Fletcher W. Adams
                                                   Title: President and CEO

                                                   EXECUTIVE

                                                   /S/ Paul M. Ferguson
                                                   ---------------------------
                                                   Paul M. Ferguson