EXHIBIT 2

                  Definitive Agreement and Plan of Merger dated
                    March 14, 1997 by and among Pemi Bancorp, Inc.,
              Pemigewasset National Bank, The Berlin City Bank and
                            Northway Financial, Inc.



                                      -4-


<PAGE>



                         ===============================

                          AGREEMENT AND PLAN OF MERGER

                                  By and Among

                              THE BERLIN CITY BANK,

                            NORTHWAY FINANCIAL, INC.,

                           PEMIGEWASSET NATIONAL BANK

                                       and

                               PEMI BANCORP, INC.

                           Dated as of March 14, 1997

                         ===============================


<PAGE>


                                TABLE OF CONTENTS

ARTICLE I                                                                 Page

         THE MERGER..........................................................1
         1.01       The Merger...............................................1
         1.02       Plan of Merger...........................................1
         1.03       Effective Time...........................................2
         1.04       Effect of the Merger.....................................2
         1.05       Conversion of Company Common Stock.......................2
         1.06       Rights With Respect to Objecting Shares..................3
         1.07       Articles of Incorporation................................4
         1.08       By-Laws..................................................4
         1.09       Directors and Officers of the Surviving Corporation......4
         1.10       Articles; By-Laws; Directors; Officers of Purchaser......4
         1.11       Articles; Bylaws; Directors; Officers of the Bank........5
         1.12       Tax Consequences.........................................5
         1.13       Voting Agreements........................................5
         1.14       Trading Listing..........................................5
         1.15       Additional Actions.......................................5
         1.16       Possible Alternative Structure...........................6

ARTICLE II

         EXCHANGE OF SHARES..................................................6
         2.01       Parent to Make Shares Available..........................6
         2.02       Exchange of Shares.......................................6

ARTICLE III

         REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND
         THE BANK............................................................9
         3.01       Corporate Organization...................................9
         3.02       Capitalization..........................................10
         3.03       Authority; No Violation.................................11
         3.04       Consents and Approvals..................................12
         3.05       Loan Portfolio; Reports.................................12
         3.06       Financial Statements....................................14
         3.07       Broker's Fees...........................................16
         3.08       Absence of Certain Changes or Events....................16
         3.09       Legal Proceedings.......................................17

                                       (i)

<PAGE>
                                                                          Page

         3.10       Taxes and Tax Returns...................................18
         3.11       Employee Benefit Plans..................................19
         3.12       SEC Reports.............................................21
         3.13       Company Information.....................................21
         3.14       Compliance with Applicable Law..........................21
         3.15       Certain Contracts.......................................22
         3.16       Agreements with Regulatory Agencies.....................23
         3.17       Investment Securities...................................23
         3.18       Environmental Matters...................................23
         3.19       Properties..............................................25
         3.20       Administration of Fiduciary Accounts....................26
         3.21       Insurance...............................................26
         3.22       Transactions with Certain Persons.......................27
         3.23       State Takeover Laws.....................................27
         3.24       Disclosure..............................................27
         3.25       Regulatory Approvals....................................27
         3.26       Labor Matters...........................................28
         3.27       Intellectual Property...................................28
         3.28       Ownership of Purchaser Common Stock; 
                      Affiliates and Associates.............................28

ARTICLE IV

         REPRESENTATIONS AND WARRANTIES OF PURCHASER........................28
         4.01       Corporate Organization..................................28
         4.02       Capitalization..........................................29
         4.03       Authority; No Violation.................................30
         4.04       Consents and Approvals..................................31
         4.05       Loan Portfolio; Reports.................................31
         4.06       Financial Statements....................................33
         4.07       Broker's Fees...........................................34
         4.08       Absence of Certain Changes or Events....................34
         4.09       Legal Proceedings.......................................35
         4.10       FDIC Reports............................................35
         4.11       Parent and Purchaser Information........................35
         4.12       Compliance with Applicable Law..........................36
         4.13       Agreements with Regulatory Agencies.....................36
         4.14       Regulatory Approvals....................................36
         4.15       Taxes and Tax Returns...................................36
         4.16       Insurance...............................................38
         4.17       Disclosure..............................................38

                                      (ii)

<PAGE>



                                                                          Page

         4.18       Employee Benefit Plans..................................38
         4.19       Certain Contracts.......................................40
         4.20       Investment Securities...................................41
         4.21       Environmental Matters...................................41
         4.22       Properties..............................................43
         4.23       Administration of Fiduciary Accounts....................44
         4.24       Transactions with Certain Persons.......................44
         4.25       State Takeover Laws.....................................44
         4.26       Labor Matters...........................................44
         4.27       Intellectual Property...................................45
         4.28       Ownership of the Company Common Stock; 
                      Affiliates and Associates.............................45

ARTICLE V

         COVENANTS RELATING TO CONDUCT OF BUSINESS..........................45
         5.01       Covenants of the Company and the Bank...................45
         5.02       No Solicitation.........................................48
         5.03       Covenants of Purchaser and Parent.......................49
         5.04       Minimum Shareholders' Equity; 
                      Allowance for Loan Losses.............................51

ARTICLE VI

         ADDITIONAL AGREEMENTS..............................................52
         6.01       Regulatory Matters......................................52
         6.02       Securities Laws Matters.................................53
         6.03       Shareholder Meetings....................................53
         6.04       Access to Information...................................54
         6.05       Legal Conditions to Merger..............................55
         6.06       Restrictions on Sale of Parent Common Stock.............55
         6.07       Employee Matters........................................56
         6.08       Subsequent Interim and Annual Financial Statements......56
         6.09       Additional Agreements...................................56
         6.10       Disclosure Supplements..................................56
         6.11       Current Information.....................................56
         6.12       Parent..................................................57
         6.13       No Inconsistent Actions.................................57

ARTICLE VII

         CONDITIONS PRECEDENT...............................................57

                                      (iii)

<PAGE>



                                                                           Page



         7.01       Conditions to Each Party's Obligation 
                      to Effect the Merger...................................57
                    (a)    Shareholder Approval..............................57
                    (b)    Regulatory Approvals..............................58
                    (c)    Securities Laws Matters...........................58
                    (d)    No Injunctions or Restraints; Illegality..........58
         7.02       Conditions to Obligations of Purchaser and Parent........58
                    (a)    Representations and Warranties....................58
                    (b)    Performance of Obligations of the Company 
                             and the Bank....................................59
                    (c)    No Burdensome Condition...........................59
                    (d)    Consents Under Agreements.........................59
                    (e)    Tax Opinion.......................................59
                    (f)    Accountant's Letter...............................59
                    (g)    Legal Opinion.....................................60
                    (h)    Opinion of Financial Adviser......................60
                    (i)    Cash Consideration................................60
         7.03       Conditions to Obligations of the Company.................60
                    (a)    Representations and Warranties....................60
                    (b)    Performance of Obligations of 
                             Purchaser and Parent............................60
                    (c)    No Burdensome Condition...........................60
                    (d)    Tax Opinion.......................................61
                    (e)    Accountant's Letter...............................61
                    (f)    Legal Opinion.....................................61
                    (g)    Opinion of Financial Advisor......................61

ARTICLE VIII

         TERMINATION AND AMENDMENT...........................................61
         8.01       Termination..............................................61
         8.02       Effect of Termination....................................63
         8.03       Expenses; Termination Fee................................63
         8.04       Amendment................................................64
         8.05       Extension; Waiver........................................65

ARTICLE IX                                                                 

         GENERAL PROVISIONS..................................................65
         9.01       Closing..................................................65
         9.02       Non-Survival of Representations, 
                      Warranties and Agreements..............................65
         9.03       Notices..................................................65
         9.04       Interpretation...........................................66

                                      (iv)

<PAGE>
                                                                           Page

         9.05       Counterparts.............................................66
         9.06       Entire Agreement.........................................66
         9.07       Governing Law............................................67
         9.08       Enforcement of Agreement.................................67
         9.09       Severability.............................................67
         9.10       Publicity................................................67
         9.11       Assignment...............................................67


                                       (v)

<PAGE>
                          AGREEMENT AND PLAN OF MERGER


         AGREEMENT AND PLAN OF MERGER,  dated as of March 14, 1997, by and among
The Berlin City Bank, a New Hampshire  chartered  commercial bank ("Purchaser"),
Northway Financial,  Inc., a New Hampshire chartered corporation wholly owned by
Purchaser  ("Parent"),  Pemigewasset  National  Bank,  a national  bank with its
principal  office in New Hampshire  (the "Bank") and Pemi  Bancorp,  Inc., a New
Hampshire chartered corporation (the "Company").


         WHEREAS,   the  Boards  of  Directors  of  Purchaser  and  Parent  have
determined  that it is in the best interests of their  respective  companies and
their  shareholders for Purchaser to become a wholly owned subsidiary of Parent,
in  a  transaction   (the  "Holding  Company   Reorganization")   in  which  the
shareholders of Purchaser will receive 16 shares of the common stock,  par value
$1.00 per share,  of Parent ("Parent Common Stock") for each share of the common
stock, par value $5.00 per share, of Purchaser  ("Purchaser  Common Stock") (the
ratio of the number of shares of Parent  Common  Stock  received in exchange for
each share of  Purchaser  Common Stock shall be  hereinafter  referred to as the
"Holding Company Exchange Ratio").

         WHEREAS, the Boards of Directors of Purchaser,  Parent, the Company and
the Bank have  determined  that it is in the best interests of their  respective
companies  and  their  shareholders  to  consummate  the  business   combination
transaction  provided for herein in which the Company will, subject to the terms
and  conditions  set forth  herein,  merge with and into Parent  (the  "Merger")
immediately following the Holding Company Reorganization; and

         NOW,   THEREFORE,   in   consideration   of   the   mutual   covenants,
representations, warranties and agreements contained herein, and intending to be
legally bound hereby, the parties agree as follows:


                                    ARTICLE I

                                   THE MERGER

         1.01 THE MERGER. Subject to the terms and conditions of this Agreement,
in  accordance  with  the  New  Hampshire  Revised  Statutes  Annotated,  at the
Effective Time (as hereinafter  defined),  the Company shall merge with and into
Parent.  Parent shall become the surviving  corporation  (hereinafter  sometimes
called the  "Surviving  Corporation")  in the  Merger,  and shall  continue  its
corporate  existence  under the laws of the State of New Hampshire.  The name of
the Surviving Corporation shall be Northway Financial, Inc. Upon consummation of
the Merger, the separate corporate existence of the Company shall terminate.

         1.02 PLAN OF MERGER.  This Agreement shall  constitute a plan of merger
for purposes of the New Hampshire Business Corporation Act.


        
<PAGE>

         1.03  EFFECTIVE  TIME.  As  promptly  as  practicable  after all of the
conditions   set  forth  in  Article  VII  shall  have  been  satisfied  or,  if
permissible,  waived by the  party  entitled  to the  benefit  of the same,  the
Company and Parent shall duly execute and file articles of merger (the "Articles
of Merger") with the Secretary of State of New Hampshire  (the  "Secretary")  in
accordance  with  Section  293-A:11.05  of the New  Hampshire  Revised  Statutes
Annotated  (the "New  Hampshire  Business  Corporation  Act").  The Merger shall
become  effective  on the date  (the  "Effective  Date")  and at such  time (the
"Effective  Time") as the Articles of Merger are filed with the  Secretary or at
such later date and time as is specified in the Articles of Merger.

         1.04 EFFECT OF THE MERGER.  At the  Effective  Time,  the effect of the
Merger shall be as provided  herein and as set forth in Section  293-A.11:06  of
the New Hampshire  Business  Corporation Act. Without limiting the generality of
the foregoing,  and subject  thereto,  at the Effective  Time, all the property,
rights,  privileges,  powers and franchises of the Company and Parent shall vest
in  the  Surviving  Corporation,   and  all  debts,  liabilities,   obligations,
restrictions, disabilities and duties of the Company and Parent shall become the
debts, liabilities,  obligations,  restrictions,  disabilities and duties of the
Surviving Corporation.

         1.05 CONVERSION OF COMPANY COMMON STOCK.

              (a) At the Effective Time, subject to Section 2.02(c) hereof, each
share of the common  stock,  par value  $1.00 per  share,  of the  Company  (the
"Company  Common  Stock")  issued  and  outstanding  immediately  prior  to  the
Effective  Time  (other  than (i)  shares of  Company  Common  Stock held in the
Company's treasury or directly or indirectly by Parent,  Purchaser,  the Company
or the Bank (except for Trust  Account  Shares and DPC Shares (as such terms are
defined in Section  1.05(b)  hereof) and (ii) Objecting  Shares (as such term is
defined in Section 1.06 hereof))  shall, by virtue of this Agreement and without
any action on the part of the holder thereof, be converted into and exchangeable
for 1.0419 shares of Parent  Common Stock rounded to the nearest ten  thousandth
of a share, it being understood that the foregoing  Exchange Ratio is applicable
only after  giving  effect to the  Holding  Company  Reorganization.  All of the
shares of Company  Common Stock  converted  into Parent Common Stock pursuant to
this  Article I shall no  longer  be  outstanding  and  shall  automatically  be
canceled and shall cease to exist, and each  certificate  (each a "Certificate")
previously representing any such shares of Company Common Stock shall thereafter
represent  the right to receive (i) the number of whole shares of Parent  Common
Stock and (ii)  cash in lieu of  fractional  shares  into  which  the  shares of
Company  Common  Stock  represented  by such  Certificate  have  been  converted
pursuant  to this  Section  1.05(a)  and Section  2.02(c)  hereof  (the  "Merger
Consideration").  Certificates  previously representing shares of Company Common
Stock shall be exchanged for  certificates  representing  whole shares of Parent
Common  Stock and cash in lieu of  fractional  shares  issued  in  consideration
therefor upon the surrender of such Certificates in accordance with Section 2.02
hereof,  without any interest thereon.  If prior to the Effective Time Purchaser
or Parent  should  split or combine its common  stock,  or pay a special cash or
stock  dividend  or other  distribution  in such  common  stock  other  than the
exchange  of stock  contemplated  to occur as a result  of the  Holding  Company
Reorganization  which is  already  reflected  in the  Exchange  Ratio,  then the
Exchange  Ratio  shall  be   appropriately   adjusted  to  reflect  such  split,
combination, dividend or distribution.

                                        2

<PAGE>
              (b) At the Effective Time, all shares of Company Common Stock that
are owned by the  Company as  treasury  stock and all  shares of Company  Common
Stock that are owned directly or indirectly by Parent, Purchaser, the Company or
the Bank  (other  than (i)  shares of Company  Common  Stock  held  directly  or
indirectly in trust accounts, managed accounts and the like or otherwise held in
a fiduciary  capacity  that are  beneficially  owned by third  parties (any such
shares, and shares of Parent Common Stock which are similarly held, whether held
directly  or  indirectly  by Parent or the  Company,  as the case may be,  being
referred  to herein as "Trust  Account  Shares")  and (ii) any shares of Company
Common Stock held by Parent,  Purchaser, the Company or the Bank in respect of a
debt previously  contracted (any such shares of Company Common Stock, and shares
of Parent  Common  Stock which are  similarly  held,  whether  held  directly or
indirectly by Parent or the Company,  being referred to herein as "DPC Shares"))
shall be  canceled  and  shall  cease to exist  and no stock of  Parent or other
consideration  shall be  delivered  in exchange  therefor.  All shares of Parent
Common Stock that are owned by the Company or the Bank (other than Trust Account
Shares and DPC Shares) shall become treasury stock of Parent.

         1.06 RIGHTS WITH RESPECT TO OBJECTING SHARES.

              (a) Notwithstanding anything in this Agreement to the contrary and
unless otherwise provided by applicable law, shares of Company Common Stock that
are issued and outstanding  immediately prior to the Effective Time and that are
owned by shareholders who have properly  exercised and perfected their rights of
appraisal within the meaning of Chapter  293-A:13 of the New Hampshire  Business
Corporation Act (the "Objecting Shares"),  shall not be converted into the right
to receive the Merger  Consideration,  unless and until such shareholders  shall
have failed to perfect or shall have  effectively  withdrawn or lost their right
of appraisal and payment under  applicable  law. If any such  shareholder  shall
have failed to perfect or shall have effectively withdrawn or lost such right of
appraisal,  each share of Company  Common Stock held by such  shareholder  shall
thereupon be deemed to have been  converted into the right to receive and become
exchangeable  for, at the Effective Time, the Merger  Consideration  pursuant to
Section 1.05(a) hereof.

              (b) The  Company  shall give  Purchaser  (i) prompt  notice of any
demands for appraisal received by the Company,  withdrawals of such demands, and
any other instruments served in connection with such demands pursuant to the New
Hampshire  Business  Corporation  Act and  received  by the Company and (ii) the
opportunity to participate  with the Company in all negotiations and proceedings
with  respect  to  demands  for  appraisal  under  the  New  Hampshire  Business
Corporation Act consistent with the obligations of the Company  thereunder.  The
Company shall not, except with the prior written consent of Purchaser,  (x) make
any payment  with respect to any demands for  appraisal,  (y) offer to settle or
settle any such  demands,  or (z) waive any failure to timely  deliver a written
demand for appraisal in accordance with the New Hampshire  Business  Corporation
Act.

         1.07  ARTICLES  OF  INCORPORATION.  Unless  otherwise  agreed to by the
parties  prior to the  Effective  Time,  at and after the  Effective  Time,  the
Articles of  Incorporation  of the  Surviving  Corporation  shall be in the form
appended  hereto as EXHIBIT I, until  thereafter  amended as provided by law and
such  Articles of  Incorporation.  The parties  have agreed that the Articles of


                                        3

<PAGE>




Incorporation  of  the  Surviving   Corporation  shall  require  any  merger  or
consolidation  involving the Bank within three years after the Effective Time to
be  approved  by a  vote  of  two-thirds  of  the  directors  of  the  Surviving
Corporation  and shall  further  provide that this  provision of the Articles of
Incorporation  cannot  be  amended  except  by a  vote  of  two-thirds  of  such
directors.  To effect the foregoing,  Purchaser agrees that immediately prior to
the Effective  Time,  Purchaser  will file with the New  Hampshire  Secretary of
State Amended and Restated  Articles of  Incorporation  of Parent to conform the
Articles of Incorporation of Parent to Exhibit I.

         1.08 BY-LAWS.  Unless  otherwise  agreed to by the parties prior to the
Effective  Time, at and after the Effective  Time,  the By-Laws of the Surviving
Corporation  shall be  substantially  in the form appended hereto as EXHIBIT II,
until  thereafter  amended as provided by law, the Articles of  Incorporation of
the Surviving Corporation and such Bylaws.

         1.09  DIRECTORS  AND OFFICERS OF THE SURVIVING  CORPORATION.  As of the
Effective  Time,  the board of  directors  of the  Surviving  Corporation  shall
consist of ten members, of whom four will be designated, after consultation with
the Purchaser and prior to the Effective Time, in writing by the Company and six
of whom will be designated, after consultation with the Company and prior to the
Effective Time, in writing by Purchaser.  The Company shall designate in writing
prior to the Effective Time two of its Board designees to serve a one-year term,
one of its  Board  designees  to  serve a  two-year  term  and one of its  Board
designees to serve a three-year  term on the  surviving  Corporation's  board of
directors.  Purchaser shall designate in writing prior to the Effective Time two
of its Board  designees to serve a one-year term, two of its Board  designees to
serve two-year terms and two of its Board designees to serve three-year terms on
the  Surviving  Corporation's  board  of  directors.  Each of the  directors  so
designated  shall hold office in accordance  with the Articles of  Incorporation
and By-Laws of the Surviving  Corporation until their respective  successors are
duly elected or appointed and qualified.  The Surviving  Corporation shall enter
into employment agreements with William J. Woodward, who will serve as Chairman,
President and Chief Executive Officer of the Surviving Corporation, and Fletcher
W. Adams, who will serve as Vice Chairman of the Surviving  Corporation,  in the
forms attached as EXHIBITS III AND IV,  respectively.  The board of directors of
the  Surviving  Corporation  shall  elect the other  officers  of the  Surviving
Corporation.

         1.10 ARTICLES; BY-LAWS; DIRECTORS;  OFFICERS OF PURCHASER. The Articles
of Agreement and By-Laws of Purchaser  shall  continue as in effect  immediately
prior to the  Effective  Time  except to the  extent  amended to  implement  the
provisions  of this Section  1.10.  The  directors  and officers of Purchaser in
office  immediately prior to the Effective Time shall continue to hold office in
accordance  with the Articles of Agreement  and By-Laws of the  Purchaser  until
their  respective  successors  are duly elected or appointed and  qualified.  In
addition,  the Bank may nominate two members of the Bank's Board of Directors to
join the Board of  Directors of  Purchaser,  each for a one-year  term,  to hold
office in  accordance  with the Articles of Agreement  and By-Laws of Purchaser,
until their respective successors are duly elected or appointed and qualified.

         1.11 ARTICLES; BYLAWS; DIRECTORS; OFFICERS OF THE BANK. The Articles of
Association  and  By-laws of the Bank shall  continue  as in effect  immediately
prior to the  Effective  Time,  except to the extent  amended to  implement  the

                                       4

<PAGE>

provisions  of this  Section  1.11.  The  directors  and officers of the Bank in
office  immediately  prior to the Effective Time shall hold office in accordance
with the Articles of Association and By-laws of the Bank, until their respective
successors are duly elected or appointed and qualified.  In addition,  Purchaser
may nominate two members of Purchaser's  Board of Directors to join the Board of
Directors  of the Bank,  each for a one-year  term to hold office in  accordance
with the Articles of Association and By-laws of the Bank, until their respective
successors are duly elected or appointed and qualified.

         1.12 TAX CONSEQUENCES.  It is intended that the Merger shall constitute
a reorganization within the meaning of Section 368(a) of the Code, and that this
Agreement  shall  constitute  a "plan of  reorganization"  for the  purposes  of
Section 368 of the Code.

         1.13 VOTING AGREEMENTS.  As of the date of this Agreement,  each of the
Company and Purchaser shall have delivered Voting Agreements executed by each of
the Company's and Purchaser's  directors in the form appended hereto as EXHIBITS
V AND VI, respectively.

         1.14  TRADING  LISTING.  Purchaser  and Parent shall obtain a favorable
trading  listing on the National  Association  of Securities  Dealers  Automated
Quotation  National Market System  ("NASDAQ/NMS") or the American Stock Exchange
for the Parent Common Stock at or before the Effective Time.

         1.15  ADDITIONAL  ACTIONS.  If, at any time after the  Effective  Time,
Surviving  Corporation shall consider or be advised that any further assignments
or  assurances  in law or any other acts are necessary or desirable (a) to vest,
perfect or confirm, of record or otherwise,  in Surviving Corporation,  title to
and  possession  of any  property  or right  of the  Company  acquired  or to be
acquired by reason of, or as a result of, the Merger,  or (b) otherwise to carry
out the  purposes of this  Agreement,  the Company and its proper  officers  and
directors  shall  be  deemed  to  have  granted  to  Surviving   Corporation  an
irrevocable  power of attorney  to execute  and  deliver all such proper  deeds,
assignments  and  assurances  in law and to do all acts  necessary  or proper to
vest,  perfect or confirm title to and  possession of such property or rights in
Surviving Corporation and otherwise to carry out the purposes of this Agreement;
and the  proper  officers  and  directors  of  Surviving  Corporation  are fully
authorized  in the name of the  Company  or  otherwise  to take any and all such
action.

         1.16  POSSIBLE   ALTERNATIVE   STRUCTURE.   Notwithstanding  any  other
provision  of  this  Agreement  to the  contrary,  to the  extent  necessary  or
appropriate  to  assure  fulfillment  of  the  intentions  of the  parties  that
Purchaser or an affiliate of Purchaser acquire a 100% ownership  interest in the
Company and, indirectly,  the Bank and to minimize any adverse tax or accounting
treatment,  Purchaser, Parent, the Company and the Bank may jointly elect, at or
prior to the Effective  Time, to substitute an alternative  structure in lieu of
the structure  described herein to accomplish the  aforementioned  intentions of
the parties.



                                        5

<PAGE>


                                   ARTICLE II

                               EXCHANGE OF SHARES

         2.01 PARENT TO MAKE SHARES  AVAILABLE.  At least one business day prior
to the Effective  Time,  Parent shall  deposit,  or shall cause to be deposited,
with The  First  National  Bank of Boston or such  other  bank or trust  company
selected  by Parent and  reasonably  acceptable  to the Company  (the  "Exchange
Agent"),  for the  benefit  of the  holders of  Certificates,  for  exchange  in
accordance with this Article II, certificates  representing the shares of Parent
Common  Stock  and the  cash  in  lieu  of  fractional  shares  (such  cash  and
certificates  for shares of Parent Common Stock,  together with any dividends or
distributions  with  respect  thereto,  being  hereinafter  referred  to as  the
"Exchange  Fund") to be issued  pursuant  to Section  1.05 and paid  pursuant to
Section 2.02(a) in exchange for outstanding shares of Company Common Stock.

         2.02 EXCHANGE OF SHARES.

              (a) As soon as  practicable  after the Effective  Time,  and in no
event later than three business days  thereafter,  the Exchange Agent shall mail
to each  holder of record of a  Certificate  or  Certificates  a form  letter of
transmittal  (which shall specify that delivery  shall be effected,  and risk of
loss and  title to the  Certificates  shall  pass,  only  upon  delivery  of the
Certificates  to the Exchange Agent) and  instructions  for use in effecting the
surrender of the  Certificates  in exchange for  certificates  representing  the
shares of Parent  Common  Stock and the cash in lieu of  fractional  shares into
which the shares of Company  Common Stock  represented  by such  Certificate  or
Certificates shall have been converted  pursuant to this Agreement.  The Company
shall  have  the  right  to  review  both  the  letter  of  transmittal  and the
instructions  three days prior to its mailing.  Upon  surrender of a Certificate
for exchange and  cancellation to the Exchange Agent,  together with such letter
of transmittal, duly executed, the holder of such Certificates shall be entitled
to receive in exchange  therefor (x) a certificate  representing  that number of
whole shares of Parent Common Stock to which such holder of Company Common Stock
shall have become  entitled  pursuant to the  provisions of Article I hereof and
(y) a check  representing  the amount of cash in lieu of fractional  shares,  if
any,  which such  holder has the right to receive in respect of the  Certificate
surrendered  pursuant to the provisions of this Article II, and the  Certificate
so surrendered shall forthwith be canceled.  No interest will be paid or accrued
on the cash in lieu of fractional shares, unpaid dividends and distributions, if
any, payable to holders of Certificates.

              (b) After the Effective  Time,  there shall be no transfers on the
stock  transfer books of the Company of the shares of Company Common Stock which
were issued and outstanding  immediately  prior to the Effective Time. If, after
the  Effective  Time,  Certificates  representing  such shares are presented for
transfer  to the  Exchange  Agent,  they shall be  canceled  and  exchanged  for
certificates  representing  shares of Parent  Common  Stock as  provided in this
Article II.

              (c) Notwithstanding  anything to the contrary contained herein, no
certificates  or scrip  representing  fractional  shares of Parent  Common Stock
shall be issued upon the surrender for exchange of Certificates,  no dividend or

                                       6

<PAGE>

distribution  with  respect to Parent  Common  Stock shall be payable on or with
respect to any fractional  share,  and such fractional share interests shall not
entitle the owner thereof to vote or to any other rights of a shareholder of the
Company.  In lieu of the issuance of any such fractional share, Parent shall pay
to each former  shareholder  of the Company who  otherwise  would be entitled to
receive a fractional  share of Parent Common Stock, an amount in cash determined
by  multiplying  (i) $26.875 by (ii) the  fraction  of a share of Parent  Common
Stock to which such holder would  otherwise  be entitled to receive  pursuant to
Section 1.05 hereof, it being understood that the foregoing  computation  method
is applicable only after giving effect to the Holding Company Reorganization.

              (d) Any portion of the Exchange Fund that remains unclaimed by the
shareholders  of the Company for twelve months after the Effective Time shall be
transferred to the Surviving  Corporation.  Any  shareholders of the Company who
have not theretofore complied with this Article II shall thereafter look only to
the  Surviving  Corporation  for payment of their shares of Parent Common Stock,
cash in lieu of fractional  shares and unpaid dividends and distributions on the
Parent Common Stock deliverable in respect of each share of Company Common Stock
such shareholder  holds as determined  pursuant to this Agreement,  in each case
without  any  interest  thereon.  Notwithstanding  the  foregoing,  none  of the
Surviving Corporation,  Purchaser,  the Company, the Bank, the Exchange Agent or
any  other  person  shall be liable to any  former  holder of shares of  Company
Common Stock for any amount properly  delivered to a public official pursuant to
applicable abandoned property, escheat or similar laws.

              (e) In the event any Certificate  shall have been lost,  stolen or
destroyed,  upon the making of an affidavit of that fact by the person  claiming
such Certificate to be lost, stolen or destroyed and, if required by Parent, the
posting  by such  person  of a bond in such  amount  as  Parent  may  direct  as
indemnity  against  any claim that may be made  against it with  respect to such
Certificate,  the Exchange Agent will issue in exchange for such lost, stolen or
destroyed  Certificate,  the shares of Parent  Common  Stock and cash in lieu of
fractional shares deliverable in respect thereof pursuant to this Agreement.




                                        7

<PAGE>




                                   ARTICLE III

           REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE BANK

         Each of the  Company  and the Bank hereby  represents  and  warrants to
Purchaser and Parent as follows:

         3.01 CORPORATE ORGANIZATION.

              (a) The Company is a corporation duly organized,  validly existing
and in good standing under the laws of the State of New  Hampshire.  The Company
has the corporate  power and authority to own or lease all of its properties and
assets and to carry on its  business as it is now being  conducted,  and is duly
licensed or qualified to do business in each jurisdiction in which the nature of
the business  conducted by it or the character or location of the properties and
assets owned or leased by it makes such  licensing or  qualification  necessary,
except  where  the  failure  to be so  licensed  or  qualified  would not have a
Material  Adverse  Effect (as defined below) on the Company or the Bank. As used
in this Agreement,  the term "Material  Adverse  Effect" means,  with respect to
Purchaser,  Parent (or the Surviving Corporation),  the Bank, or the Company, as
the case may be, any change or effect that is, or in the judgment of the parties
hereto,  would  be  materially  adverse  to the  business,  properties,  assets,
liabilities,  financial  condition,  results of operations of such party and its
subsidiaries taken as a whole. As used in this Agreement,  the word "Subsidiary"
means any corporation,  partnership or other organization,  whether incorporated
or  unincorporated,  which is or was consolidated with such party (or with which
such party is or was consolidated) for financial reporting purposes. The Company
is duly  registered as a bank holding company under the Bank Holding Company Act
of 1956, as amended (the "BHC Act"). The Articles of  Incorporation  and By-Laws
of the Company, copies of which have previously been delivered to Purchaser, are
true and complete  copies of such  documents as in effect as of the date of this
Agreement.

              (b) The Bank is a national bank duly organized,  validly  existing
and in good standing under the laws of the United States of America. The deposit
accounts of the Bank are insured by the Federal  Deposit  Insurance  Corporation
(the "FDIC") through the Bank Insurance Fund (the "BIF"),  to the fullest extent
permitted  by law,  and all  premiums  and  assessments  required in  connection
therewith have been paid by the Bank. The Company's sole Subsidiary is the Bank.
The Bank has the power and authority to own or lease all of its  properties  and
assets and to carry on its  business as it is now being  conducted,  and is duly
licensed or qualified to do business in each jurisdiction in which the nature of
the business  conducted by it or the character or the location of the properties
and  assets  owned  or  leased  by it  makes  such  licensing  or  qualification
necessary,  except  where the  failure to be so licensed  or  qualified,  either
individually  or in the aggregate,  would not have a Material  Adverse Effect on
the Bank. The Articles of Association  and By-laws of the Bank,  copies of which
have  previously  been  delivered to Purchaser,  are true,  complete and correct
copies of such documents as in effect as of the date of this Agreement.

              (c) The Company has no direct or indirect  Subsidiaries other than
the Bank and the Bank has no direct or  indirect  Subsidiaries.  Other  than the

                                       8

<PAGE>

Company's ownership of the Bank, neither the Company nor the Bank owns, controls
or holds with the power to vote, directly or indirectly of record,  beneficially
or  otherwise,  any  capital  stock or any equity or  ownership  interest in any
corporation,  partnership, association, joint venture or other entity, except as
set forth in Section 3.01 of the Company Disclosure Schedule and except for less
than five  percent  of any  equity  security  registered  under  the  Securities
Exchange Act of 1934, as amended (the "Exchange Act").

              (d) The minute  books of each of the Company and the Bank  contain
true,  accurate and complete records of all meetings and other corporate actions
held or taken since January 1, 1992 of their respective  shareholders and boards
of directors (including committees of their respective boards of directors).

         3.02 CAPITALIZATION.

              (a) The  authorized  capital  stock  of the  Company  consists  of
2,000,000  shares of Company  Common  Stock.  As of the date of this  Agreement,
there are (x) 751,901 shares of Company Common Stock issued and  outstanding and
61,500 shares of Company Common Stock held in the Company's treasury, and (y) no
shares of Company  Common  Stock  reserved  for  issuance  upon the  exercise of
outstanding stock options or otherwise. All of the issued and outstanding shares
of Company  Common Stock have been duly  authorized  and validly  issued and are
fully  paid,  nonassessable  and  free of  preemptive  rights  with no  personal
liability  attaching to the ownership thereof.  The Company does not have and is
not  bound  by  any  outstanding   subscriptions,   options,   warrants,  calls,
commitments or agreements of any character  calling for the purchase or issuance
of any  shares of  Company  Common  Stock or any other  equity  security  of the
Company  or any  securities  representing  the right to  purchase  or  otherwise
receive any shares of Company Common Stock,  or any other equity security of the
Company.  No options are  outstanding  to purchase  shares of the Company Common
Stock.

              (b) The Company's  sole  Subsidiary is the Bank. All of the issued
and  outstanding  shares of capital  stock of the Bank and all of such shares of
capital stock or interests are duly  authorized and validly issued and are fully
paid,  nonassessable,  except as  provided  in the  National  Bank Act,  with no
personal liability  attaching to the ownership  thereof.  The Bank does not have
and is not bound by any outstanding  subscriptions,  options,  warrants,  calls,
commitments or agreements of any character  calling for the purchase or issuance
of any shares of capital  stock or any other equity  security of the Bank or any
securities representing the right to purchase or otherwise receive any shares of
capital stock or any other equity  security of the Bank. At the Effective  Time,
there  will not be any  outstanding  subscriptions,  options,  warrants,  calls,
commitments or agreements of any character by which the Company or the Bank will
be bound calling for the purchase or issuance of any shares of the capital stock
of the Company or the Bank.

              (c) Except as  contemplated  herein,  there are no  agreements  or
understandings, with respect to the voting of any shares of Company Common Stock
or the common  stock of the Bank or which  restrict the transfer of such shares,
to which the Company or the Bank is a party, and to the knowledge of the Company

                                       9

<PAGE>

and the  Bank,  there  are no such  agreements  or  understandings  to which the
Company or the Bank is not a party with respect to the voting of any such shares
or which restrict the transfer of such shares.

         3.03 AUTHORITY; NO VIOLATION.

              (a) The  Company  and the Bank each has full  corporate  power and
authority  to  execute  and  deliver  this   Agreement  and  to  consummate  the
transactions  contemplated  hereby. The execution and delivery of this Agreement
and the  consummation  by the Company of the  transactions  contemplated by this
Agreement have been duly and validly  approved by the Board of Directors of each
of the Company and the Bank.  The Board of Directors of the Company has directed
that this Agreement and the transactions contemplated hereby be submitted to the
Company's  shareholders  for approval at a meeting of such  shareholders and has
voted to recommend to their  shareholders  approval  thereof and, except for the
adoption of this Agreement by the requisite vote of the Company's  shareholders,
no  other  corporate  proceedings  on the  part of the  Company  or the Bank are
necessary  to  approve  this  Agreement  and  to  consummate  the   transactions
contemplated  hereby.  This  Agreement  has been duly and validly  executed  and
delivered  by  each  of  the  Company  and  the  Bank  and   (assuming  the  due
authorization,  execution  and delivery by Parent and  Purchaser)  constitutes a
valid and binding  obligation  of each of the Company and the Bank,  enforceable
against the Company and the Bank in accordance with its terms.

              (b) Neither the execution  and delivery of this  Agreement by each
of the Company and the Bank, nor the consummation by the Company or the Bank, as
the case may be, of the transactions  contemplated hereby, nor compliance by the
Company  or the  Bank  with  any of the  terms or  provisions  hereof,  will (i)
violate, conflict with or result in a breach of any provision of the Articles of
Incorporation  or  By-Laws of the  Company or the  Articles  of  Association  or
By-laws of the Bank,  as the case may be (ii)  assuming  that the  consents  and
approvals referred to in Section 3.04 hereof are duly obtained,  (x) violate any
statute,  code, ordinance,  rule, regulation,  judgment,  order, writ, decree or
injunction  applicable  to the  Company,  the  Bank or any of  their  respective
properties or assets,  or (y) violate,  conflict with, result in a breach of any
provisions  of or the loss of any benefit  under,  constitute  a default (or any
event,  which, with notice or lapse of time, or both would constitute a default)
under,  result in the  termination of or a right of termination or  cancellation
under,  accelerate the performance required by, or result in the creation of any
lien,  pledge,  security  interest,  charge or other encumbrance upon any of the
respective  properties  or assets of the  Company  or the Bank  under any of the
terms, conditions or provisions of any note, bond, mortgage,  indenture, deed of
trust, license,  lease, agreement or other instrument or obligation to which the
Company  or the Bank is a party,  or by  which  they or any of their  respective
properties or assets may be bound or affected, except (in the case of clause (y)
above) for such  violations,  conflicts,  breaches  or  defaults  which,  either
individually or in the aggregate will not have a Material  Adverse Effect on the
Company or the Bank.

         3.04 CONSENTS AND APPROVALS.  Except for (a) the filing of applications
with the Board of Governors of the Federal Reserve System (the "Federal  Reserve
Board") under the BHC Act and approval of such  applications,  (b) the filing of
an  application  with the FDIC under the Bank  Merger Act and  approval  of such

                                       10

<PAGE>

application,   (c)  filings  with  the  New  Hampshire  Bank  Commissioner  (the
"Commissioner") and the New Hampshire Board of Trust Company  Incorporation (the
"BTCI") (the "State Banking Approvals"),  (d) the filing with the Securities and
Exchange Commission (the "SEC") of a proxy statement in definitive form relating
to the meeting of the Company's shareholders (the "Company Shareholder Meeting")
and the meeting of the  Purchaser's  shareholders  (the  "Purchaser  Shareholder
Meeting")   (collectively,   the  Company   Shareholder  Meeting  and  Purchaser
Shareholder  Meeting shall be referred to as the  "Shareholder  Meetings") to be
held in connection with this Agreement and the transactions  contemplated hereby
(the "Proxy Statement"),  which Proxy Statement shall be part of and included in
a Registration  Statement on Form S-4 (the "Registration  Statement") filed with
the SEC by Parent to  register  the shares of Parent  Common  Stock to be issued
pursuant to the terms of this  Agreement,  (e) the approval of this Agreement by
the requisite vote of the shareholders of the Company,  Purchaser and Parent and
the Board of Directors of Parent,  (f) the filing of the Articles of Merger with
the Secretary pursuant to the New Hampshire  Business  Corporation Act, (g) such
filings,  authorizations or approvals as may be set forth in Section 3.04 of the
Company Disclosure Schedule,  and (h) such filings and approvals as are required
to be made or obtained under the securities or "Blue Sky" laws of various states
in  connection  with the issuance of shares of Parent  Common Stock  pursuant to
this Agreement, no consents or approvals of or filings or registrations with any
court,  administrative  agency or commission or other governmental  authority or
instrumentality  (each a  "Governmental  Entity")  or with any  third  party are
necessary in  connection  with the execution and delivery by the Company and the
Bank  of this  Agreement  and  the  consummation  of the  Merger  and the  other
transactions  contemplated  hereby,  except  where the  failure  to obtain  such
consents  or  approvals,  or to make such  filings or  registrations,  would not
prevent the Company or the Bank from  performing  their  respective  obligations
under this Agreement.

         3.05 LOAN PORTFOLIO; REPORTS.

              (a) Except as set forth in Section 3.05 of the Company  Disclosure
Schedule  hereto,  all of the mortgage loans having a principal amount in excess
of  $50,000  (each a  "Company  Loan")  reflected  as  assets  on the  Company's
consolidated  balance sheet included in the financial  statements for the fiscal
year ended  December  31,  1996 or made or  acquired by the Company and the Bank
since  December 31, 1996,  were validly and legally made,  constitute  valid and
binding  agreements of the borrower  enforceable in accordance  with their terms
(subject to bankruptcy, insolvency, reorganization,  moratorium and similar laws
affecting the rights and remedies of creditors generally, and general principles
of equity),  are properly  perfected,  represent  valid  mortgages on properties
described  therein,  are saleable in the ordinary  course of the Bank's business
and no amount thereof is subject to any defenses  which may be asserted  against
the Company or the Bank.  Neither the Company nor the Bank has entered  into any
agreement  which will  result in a future  waiver or  negation  of any  material
rights or remedies  presently  available  against the borrower or guarantor,  if
any,  on any such  Company  Loan.  Except  as set forth in  Section  3.05 of the
Company Disclosure Schedule,  each mortgage securing a Company Loan has been and
is evidenced by  documentation  of the types  customarily  employed by the Bank,
which are in compliance in all material  respects with federal and state banking
laws and regulations and prudent banking standards,  and complete copies thereof
have  been  maintained  by the Bank in  accordance  with  such  requirement  and
practices.  Except with respect to participation loans described in Section 3.05
of the Company Disclosure Schedule,  the Bank owns and holds the entire interest
in all  mortgages  free  and  clear of all  liens,  claims,  equities,  options,

                                       11

<PAGE>

security interests, charges, encumbrances or restrictions of any kind or nature,
and no person has any interest therein.

              (b) Except as disclosed in Section 3.05 of the Company  Disclosure
Schedule,  all of the Company Loans  originated  and presently  held and, to the
best  knowledge of the Company and the Bank after  reasonable  due diligence and
inquiry,  all of the Company Loans  purchased and presently  held by the Company
(if  any)  and the  Bank  were  solicited,  originated  and  exist  in  material
compliance  with all applicable  loan policies and procedures of the Company (if
applicable)  and the Bank  and  comply  with  all  applicable  laws,  rules  and
regulations, including, but not limited to, applicable usury statutes, the Truth
in Lending  Act, the Equal Credit  Opportunity  Act, the Real Estate  Settlement
Procedures  Act,  and other  applicable  consumer  protection  statutes  and the
regulations thereunder.

              (c) Except as disclosed in Section 3.05 of the Company  Disclosure
Schedule,  all Company Loans  purchased or originated by the Company or the Bank
and subsequently sold have been sold without recourse to the Company or the Bank
and without any liability under any yield maintenance or similar obligation.

              (d) Except as set forth in Section 3.05 of the Company  Disclosure
Schedule, to the best knowledge of the Company and the Bank after reasonable due
diligence  and  inquiry,  neither  the  Company  nor the  Bank is a party to any
written or oral loan agreement, note or borrowing arrangement (including without
limitation,  leases,  credit  enhancements,   commitments  and  interest-bearing
assets)  under  the  terms  of  which  the  obligor  is,  as of the date of this
Agreement,  over 30 days  delinquent  in payment of  principal or interest or in
default  under  any  other  material  provision.  Section  3.05  of the  Company
Disclosure  Schedule sets forth (x) all of the Company Loans  presently  held by
the Company (if any) and the Bank that prior to the date of this  Agreement have
been  classified  by any bank  examiner or loan  reviewer  (whether  regulatory,
internal,  or  independent  contractor)  as "Other Loans  Specially  Mentioned,"
"Special   Mention,"    "Substandard,"    "Doubtful,"   "Loss,"    "Classified,"
"Criticized,"  "Credit Risk Assets," "Concerned Loans," "Watch List" or words of
similar import,  together with the aggregate principal amount of and accrued and
unpaid  interest on each such  Company  Loan and the  identity  of the  borrower
thereunder,  and (y) by category of Company  Loan (i.e.,  commercial,  consumer,
etc.), all of the other Company Loans presently held by the Company (if any) and
the Bank  that  prior to the date of this  Agreement  were  classified  as such,
together with the aggregate  principal amount of and accrued and unpaid interest
on such Company Loans by category.

              (e) The  Company and the Bank each has timely  filed all  reports,
registrations and statements,  together with any amendments  required to be made
with respect  thereto,  that it was required to file since  January 1, 1992 with
(i)  the  Federal  Reserve  Board,  (ii)  the  FDIC,  (iii)  the  Office  of the
Comptroller  of the Currency (the "OCC"),  (iv) the  Commissioner  and any other
state banking or other state regulatory authority (each a "State Regulator") and
(v)  any  self-regulatory   organization   ((i)-(v)   collectively  referred  to
hereinafter  as  "Regulatory  Agencies"),  and all other reports and  statements

                                       12

<PAGE>

required to be filed by it since January 1, 1992,  including without limitation,
any report or  statement  required to be filed  pursuant  to the laws,  rules or
regulations of the United States,  the Federal Reserve Board, the FDIC, the OCC,
the Commissioner,  any State Regulator or any self-regulatory organization,  and
has paid all fees and  assessments  due and  payable  in  connection  therewith.
Except for normal  examinations  conducted by a Regulatory Agency in the regular
course of the  business of the Company and the Bank,  no  Regulatory  Agency has
initiated any  proceeding  or, to the best knowledge of the Company or the Bank,
investigation  into the business or operations of the Company and the Bank since
January 1, 1992. There is no violation, criticism or exception by any Regulatory
Agency with respect to any report or statement  relating to any  examination  of
the Company or the Bank that (x) has not been addressed by the Bank in a written
response  to the  Regulatory  Agency,  (y) has been  addressed  by the Bank in a
written response to the Regulatory  Agency,  which response has been objected to
by the Regulatory Agency, or (z) is expected to result in any supervisory action
by such Regulatory Agency.

         3.06 FINANCIAL STATEMENTS.

              (a) The Company has  previously  delivered to Purchaser  copies of
the  audited  consolidated  balance  sheets  of the  Company  and the Bank as of
December 31 for the fiscal  years 1995 and 1996,  and the  related  consolidated
statements  of income,  changes in  shareholders'  equity and cash flows for the
fiscal  years 1994  through  1996,  inclusive,  to be included in the  Company's
Annual  Report on Form 10-K for the fiscal  year ended  December  31, 1996 to be
filed with the SEC under the  Securities  Exchange Act of 1934,  as amended (the
"Exchange Act"). The December 31, 1996 consolidated balance sheet of the Company
(including the related notes,  where applicable) fairly presents in all material
respects the consolidated  financial  position of the Company and the Bank as of
the date thereof, and the other financial statements referred to in this Section
3.06  (including  the related  notes,  where  applicable)  fairly present in all
material  respects,  and the  financial  statements  referred to in Section 6.08
hereof will fairly present (subject, in the case of the unaudited statements, to
recurring  audit  adjustments  normal  in nature  and  amount)  in all  material
respects,   the  results  of  the   consolidated   operations   and  changes  in
shareholders' equity and consolidated  financial position of the Company and the
Bank for the respective fiscal periods or as of the respective dates therein set
forth  and  each  of  such  statements   (including  the  related  notes,  where
applicable) has been, and the financial  statements  referred to in Section 6.08
hereof will be,  prepared  in  accordance  with  generally  accepted  accounting
principles ("GAAP") consistently applied during the periods involved,  except as
indicated  in the notes  thereto  or, in the case of  unaudited  statements,  as
permitted by Form 10-Q.  Without  limiting the generality of the foregoing,  (x)
the allowance for possible loan losses  included in the  consolidated  financial
statements  of the Company to be included in its Form 10-K for the period  ended
December  31,  1996 was  determined  in  accordance  with GAAP to be adequate to
provide for losses  relating to or inherent in the loan and lease  portfolios of
the Company and the Bank  (including  without  limitation  commitments to extend
credit),  and  (y)  the  other  real  estate  owned  ("OREO")  included  in  the
consolidated  financial  statements of the Company included in its Form 10-K for
the period  ended  December 31, 1996 was carried net of reserves at the lower of
cost  or  market  value  based  on  current  independent  appraisals  and net of
estimated disposal costs. Such reserves for possible loan losses comply with all
loan loss  reserve  guidelines  utilized  by the  Company  and the  Bank,  which
guidelines have been acceptable to all regulatory  agencies having  jurisdiction
with respect thereto.


                                       13

<PAGE>

              (b) The Bank has  furnished to Purchaser all Call Reports filed by
it with the FDIC with respect to any period subsequent to the year ended January
1,  1992,  and  except as set forth in Section  3.06 of the  Company  Disclosure
Schedule,  such Call  Reports do, and such Call  Reports  filed with  respect to
periods  ending  after  December  31, 1996 will,  fairly  present the  financial
position of the Bank as of its date, and the other financial statements included
therein  do,  and will,  fairly  present  the  results  of  operations  or other
information  about the Bank included  therein for the periods or as of the dates
therein set forth, subject to the notes thereto, in each case in accordance with
the  requirements  of the Federal  Financial  Institutions  Examination  Council
("FFIEC"),  and do, or will,  reflect all of the Bank's assets,  liabilities and
accruals  and all of its items of income  and  expense in  accordance  with such
standards consistently applied during the periods involved.

              (c) The books and  records of the  Company and the Bank have been,
and are being,  maintained in accordance  with  applicable  legal and accounting
requirements,  reflect only actual transactions and reflect all of their assets,
liabilities  and  accruals  and all of their  items of  income  and  expense  in
accordance with GAAP. All accounting  ledgers and other books and records of the
Company and the Bank are located at the principal  office of the Company and the
Bank,  respectively,  are true,  complete  and correct,  and present  fairly the
financial condition,  results of operations and changes in financial position of
the Company and the Bank as of the date and for the periods indicated.

              (d) Except for liabilities incurred since December 31, 1996 in the
ordinary course of business  consistent with past practice,  neither the Company
nor the  Bank  has any  liabilities  or  obligations  of any  nature  whatsoever
(whether  absolute,  accrued,  contingent or otherwise) which are not adequately
reserved or reflected  on the  consolidated  balance  sheet of the Company to be
included in its Form 10-K for the period  ending  December 31, 1996,  except for
liabilities or  obligations  which in the aggregate do not exceed  $20,000,  and
there do not exist any circumstances  that, to the best knowledge of the Company
and the Bank,  could reasonably be expected to result in any such liabilities or
obligations.

         3.07 BROKER'S FEES.  Neither the Company nor the Bank, nor any of their
respective officers or directors,  has employed any broker or finder or incurred
any liability for any broker's fees,  commissions or finder's fees in connection
with any of the  transactions  contemplated by this  Agreement,  except that the
Company has engaged,  and will pay a fee or commission to HAS  Associates,  Inc.
(the  "Investment  Banker") in accordance  with the terms of a letter  agreement
dated December 6, 1996 between the Investment Banker and the Company, a true and
complete copy of which has heretofore  been furnished to Purchaser.  The Company
has previously received the opinion of the Investment Banker to the effect that,
as of the date of such opinion,  the Merger  Consideration to be received by the
shareholders of the Company pursuant to the Merger is fair to such  shareholders
from a  financial  point  of view,  and such  opinion  has not been  amended  or
rescinded as of the date of this Agreement.

         3.08 ABSENCE OF CERTAIN  CHANGES OR EVENTS.  Except as may be set forth
in Section 3.08 of the Company Disclosure Schedule, since December 31, 1996:


                                       14

<PAGE>

              (a) there has not been any Material  Adverse Effect on the Company
or the Bank and, to the best  knowledge of the Company and the Bank,  no fact or
condition  exists which will, or is reasonably  likely to, cause such a Material
Adverse  Effect on the  Company  or the Bank in the  future,  including  without
limitation any material loss of deposits or material decline in the value of the
assets held in the portfolios of the Company or the Bank;

              (b) the  Company  and the Bank have  carried  on their  respective
businesses  in  the  ordinary  and  usual  course  consistent  with  their  past
practices;

              (c)  neither  the  Company  nor  the  Bank  has (i)  incurred  any
obligations or liabilities,  whether absolute,  accrued, contingent or otherwise
(including  without  limiting the  generality of the  foregoing,  liabilities as
guarantor  under any  guarantees  or  liabilities  for taxes),  other than those
obligations  and liabilities (x) incurred in the ordinary course of its business
consistent  with  past  practice,  or  (y)  incurred  under  the  contracts  and
commitments  referred to in Section 3.15 hereof;  (ii)  mortgaged,  pledged,  or
subjected  to any lien or lease any of its assets,  tangible or  intangible,  or
permitted  or  suffered  any such  asset to be  subjected  to any lien or lease,
except in the ordinary  course of business  consistent  with past  practice;  or
(iii)  acquired  or disposed of any assets or  properties,  or entered  into any
contract  for any such  acquisition  or  disposition,  except  acquisitions  and
dispositions in the ordinary course of business consistent with past practice;

              (d) neither the Company nor the Bank has  declared,  paid,  or set
apart any sum or property for any special dividend or other distribution or paid
or transferred any funds or property to the  shareholders of the Company,  other
than the Company's  regular  semi-annual  dividend to the extent permitted to be
paid pursuant to Section 5.01(a) hereof, or, directly or indirectly, redeemed or
otherwise acquired any of its capital stock;

              (e) except for normal  employee  raises  consistent  with its past
practices,  neither the Company nor the Bank has increased the wages,  salaries,
compensation,  pensions,  or other fringe benefits or perquisites payable to any
executive officer,  employee or director from the amount thereof in effect as of
December 31, 1996 (which amounts have been  previously  disclosed to Purchaser),
granted any severance or termination  pay,  entered into any contract to make or
grant any  severance or  termination  pay, or paid any bonus other than year-end
bonuses  for fiscal  1996 as listed in Section  3.08 of the  Company  Disclosure
Schedule;

              (f) neither the Company nor the Bank has  forgiven or canceled any
indebtedness  or  contractual  obligation  other than in the ordinary  course of
business;

              (g)  neither  the  Company  nor the  Bank  has  entered  into  any
transaction other than in the ordinary course of business;

              (h) neither the Company nor the Bank has suffered any strike, work
stoppage, slowdown, or other labor disturbance;


                                       15

<PAGE>




              (i) neither the Company nor the Bank has entered into any lease of
real or personal property, except in the ordinary course of business;

              (j) there has not been any change in any of the accounting methods
or practices or the loan  policies or  procedures  of the Company or the Bank or
any change in the value at which  assets  are  carried  on the  consolidated  or
unconsolidated balance sheets of the Company or the Bank other than changes that
are reflected in their respective balance sheets or income statements; and

              (k) there has not been any notice or  indication  of the intention
of any person or entity to terminate any material  agreement with the Company or
the Bank or any notice or indication  from any material  depositor,  customer or
supplier of the  Company or the Bank of any  intention  to cease doing  business
with, materially change the price or other terms on which business is transacted
with or materially reduce the business transacted with the Company or the Bank.

         3.09  LEGAL  PROCEEDINGS.  Except as set forth in  Section  3.09 of the
Company  Disclosure  Schedule,  there are no pending or to the best knowledge of
the Company and the Bank, threatened,  legal, administrative,  arbitral or other
proceedings, claims, actions or governmental or regulatory investigations of any
nature  against or affecting the Company or the Bank or any property or asset of
the  Company  or the Bank,  before  any  court,  arbitrator  or  administrative,
governmental or regulatory authority or body, domestic or foreign,  which would,
either  individually or in the aggregate,  have a Material Adverse Effect and no
facts or circumstances  have come to the Company's or the Bank's attention which
have  caused  either of them to  believe  that a claim,  action,  proceeding  or
investigation  against or affecting the Company or the Bank could  reasonably be
expected to occur.  Neither the Company nor the Bank,  nor any property or asset
of the Company or the Bank, is subject to any order, writ, judgment, injunction,
decree,  determination  or award which restricts its ability to conduct business
in any area in which it presently  does  business or has or could  reasonably be
expected to have,  either  individually or in the aggregate,  a Material Adverse
Effect.

         3.10 TAXES AND TAX RETURNS.

              (a) The Company  and the Bank each has duly filed in correct  form
all  federal,  state,  county  and local  information  returns  and tax  returns
required  to be filed by it on or prior to the date  hereof  (all  such  returns
being true and complete in all material respects) and has duly paid,  discharged
or made  provisions  for the  payment  of all  material  Taxes  (as  hereinafter
defined) and other  governmental  charges which have been incurred or are due or
claimed to be due from it by federal,  state, county or local taxing authorities
on or prior to the date  hereof  (including  without  limitation,  if and to the
extent  applicable,  those due in respect of its properties,  income,  business,
capital stock, deposits,  franchises,  licenses, sales and payrolls, and any net
worth tax), other than Taxes or other charges that are not yet delinquent or are
being contested in good faith and have not been finally determined.  The amounts
set up as reserves for Taxes on the  consolidated  balance  sheet of the Company
and the Bank to be  included  in its  Annual  Report on Form 10-K for the period
ended  December  31,  1996 and in the Bank's  Call  Report for the period  ended
December 31, 1996 are reasonably  sufficient in the aggregate for the payment of
all unpaid  federal,  state,  county and local Taxes  (including any interest or
penalties  thereon),  whether or not disputed,  accrued or  applicable,  for the
period ended  December 31, 1996 and all prior  periods  covered by such returns,

                                       16

<PAGE>

and for  which  the  Company  or the  Bank is  liable  in its  own  right  or as
transferee  of  the  assets  of,  or  successor  to,  any  corporation,  person,
association,  partnership, joint venture or other entity. The federal income tax
returns of the Company and the Bank have not in the five years prior to the date
of this Agreement,  been examined by the Internal Revenue Service ("IRS"). State
of New  Hampshire  tax returns of the Company and the Bank have not, in the five
years prior to the date of this  Agreement,  been examined by the  Department of
Revenue of the State of New Hampshire.  There are no disputes  pending or claims
asserted  for Taxes or  assessments  upon the  Company or the Bank,  nor has the
Company  or the Bank been  requested  to give any  currently  effective  waivers
extending the statutory period of limitation  applicable to any federal,  state,
county or local income tax return for any period.  In  addition,  (a) proper and
accurate  amounts  have been  withheld  by the  Company  and the Bank from their
employees  for  all  prior  periods  in  compliance  with  the  tax  withholding
provisions of applicable  federal,  state,  county and local laws;  (b) federal,
state,  county and local returns which are accurate and complete have been filed
by the  Company and the Bank for all  periods  for which  returns  were due with
respect to income tax withholding,  Social Security and unemployment  taxes; and
(c) the amounts  shown on such  returns to be due and payable  have been paid in
full or  adequate  provision  therefor  has been  included by the Company in its
consolidated  financial  statements  to be included in its Annual Report on Form
10-K for the period ended December 31, 1996.

              (b) No property  of the  Company or the Bank is property  that the
Company or the Bank is or will be  required  to treat as being  owned by another
person pursuant to the provisions of Section  168(f)(8) of the Internal  Revenue
Code (as in effect  prior to its  amendment by the Tax Reform Act of 1986) or is
"tax-exempt  use property"  within the meaning of Section 168(h) of the Internal
Revenue Code of 1986, as amended (the "Code").  Neither the Company nor the Bank
has been required to include in income any adjustment pursuant to Section 481 of
the Code by reason of a voluntary  change in accounting  method initiated by the
Company  or the  Bank,  and the  IRS has not  initiated  or  proposed  any  such
adjustment or change in accounting method. Neither the Company nor the Bank is a
party to any agreement,  contract or arrangement that would,  individually or in
the aggregate, upon consummation of the transactions contemplated hereby, result
in the payment of an "excess  parachute  payment"  within the meaning of Section
280G of the Code or that would  result in payments  that would be  nondeductible
pursuant  to Section  162(m) of the Code.  Neither  the Company nor the Bank has
taken or will take any action  which would  result in a recapture  of all or any
portion  of  their  respective  tax  bad  debt  reserves.  

              (c) As used in this Agreement, the term "Taxes" means all federal,
state,  county, local and foreign income,  excise,  gross receipts,  ad valorem,
profits, gains, property, sales, transfer, use, payroll, employment,  severance,
withholding, duties, intangibles,  franchise and other taxes, charges, levies or
like  assessments,  including  any net  worth  tax,  or  other  tax of any  kind
whatsoever  together  with  all  penalties  and  additions  to tax and  interest
thereon.

         3.11 EMPLOYEE BENEFIT PLANS.

              (a) Section 3.11 of the Company  Disclosure  Schedule sets forth a
true and complete list of all Plans  maintained or contributed to by the Company
or the Bank during the three years  preceding this  Agreement.  The term "Plans"

                                       17

<PAGE>

for purposes of this Article III means all employee benefit plans,  arrangements
or agreements  that are maintained or contributed to, or that were maintained or
contributed  to at any time  during the three years  preceding  the date of this
Agreement, by the Company, the Bank or by any trade or business,  whether or not
incorporated  (an "ERISA  Affiliate"),  all of which  together  with the Company
would be deemed a "single  employer"  within the meaning of Section  4001 of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA").

              (b) The Company has  heretofore  delivered to  Purchaser  true and
complete  copies of each of the Plans and all related  documents,  including but
not limited to (i) all required  Forms 5500 and all related  schedules  for such
Plans (if applicable) for each of the last two years,  (ii) the actuarial report
for such Plan (if applicable) for each of the last two years, and (iii) the most
recent determination letter from the IRS (if applicable) for such Plan.

              (c) (i) Except as may be provided  in Section  3.11 of the Company
Disclosure Schedule and footnote 10 of the Consolidated  Financial Statements of
the Company for the period ending  December 31, 1996, each of the Plans has been
operated and administered in all material respects in accordance with applicable
laws,  including  but not limited to ERISA and the Code,  (ii) each of the Plans
intended to be "qualified"  within the meaning of Section 401(a) of the Code has
been  maintained  so as to qualify from the  effective  date of such Plan to the
Effective Time,  (iii) with respect to each Plan which is subject to Title IV of
ERISA, the present value of "benefit liabilities" (within the meaning of Section
4001(a)(16)  of ERISA)  under such Plan,  based upon the  actuarial  assumptions
currently  used by the Plan for IRS funding  purposes  did not, as of its latest
valuation  date,  exceed  the then  current  value of the  assets  of such  Plan
allocable to such accrued benefits,  and there has been no "accumulated  funding
deficiency" (whether or not waived),  (iv) no Plan provides benefits,  including
without  limitation  death,  medical or other benefits (whether or not insured),
with  respect to current or former  employees  of the  Company,  the Bank or any
ERISA Affiliate beyond their retirement or other  termination of service,  other
than (u) coverage  mandated by applicable law, (v) life insurance death benefits
payable in the event of the death of a covered employee, (w) disability benefits
payable to disabled former employees,  (x) death benefits or retirement benefits
under any  "employee  pension  plan," as that term is defined in Section 3(2) of
ERISA, (y) deferred compensation benefits accrued as liabilities on the books of
the Company or the Bank or any ERISA  Affiliate or (z) benefits the full cost of
which is borne by the current or former employee (or his beneficiary),  (v) with
respect to each Plan subject to Title IV of ERISA,  no liability  under Title IV
of ERISA has been incurred by the Company,  the Bank or any ERISA Affiliate that
has not been  satisfied in full,  no condition  exists that  presents a material
risk to the  Company,  the Bank or any ERISA  Affiliate  of incurring a material
liability  to or on  account  of such  Plan,  and there has been no  "reportable
event"  (within  the  meaning  of  Section  4043 of  ERISA  and the  regulations
thereunder),  (vi) neither the Company, nor the Bank nor any ERISA Affiliate has
ever maintained or contributed to a  "multiemployer  pension plan," as such term
is defined in Section 3(37) of ERISA,  (vii) all  contributions or other amounts
payable by the Company or the Bank as of the Effective Time with respect to each
Plan in  respect  of  current  or prior  plan years have been paid or accrued in
accordance  with GAAP and Section 412 of the Code,  (viii)  neither the Company,
the Bank nor any ERISA Affiliate has engaged in a transaction in connection with
which the Company,  the Bank or any ERISA  Affiliate has any material  liability
for either a civil penalty  assessed  pursuant to Section 409 or 502(i) of ERISA


                                       18


<PAGE>

or a tax imposed pursuant to Section 4975 or 4976 of the Code, (ix) consummation
of the transactions contemplated hereby will not cause any amounts payable under
any of the Plans to fail to be deductible  for federal income tax purposes under
Sections  280G or 162(m) of the Code,  (x) there are no pending  or, to the best
knowledge of the Company or the Bank,  threatened or  anticipated  claims (other
than routine  claims for  benefits) by, on behalf of or against any of the Plans
or any trusts related thereto.

              (d) With  respect to any Plan that is a welfare  plan  (within the
meaning of Section 3(1) of ERISA) (i) no such Plan is funded  through a "welfare
benefit  fund," as such term is defined in Section  419(a) of the Code, and (ii)
each  such  Plan  complies  in  all  material   respects  with  the   applicable
requirements of Section 4980B(f) of the Code, Part 6 of Subtitle B of Title I of
ERISA and any applicable state continuation coverage requirements ("COBRA").

              (e) Except as prohibited by law  (including  Section  411(d)(6) of
the Code), each Plan may be amended,  terminated,  modified or otherwise revised
by the Company,  its  Subsidiaries  or its ERISA  Affiliates as of the Effective
Time to eliminate,  without material effect, any and all future benefit accruals
under any Plan (except claims incurred under any welfare plan).

         3.12 SEC REPORTS.  The Company has previously delivered to Purchaser an
accurate and complete copy of each (a) final registration statement, prospectus,
report,  schedule and definitive  proxy statement filed since January 1, 1992 by
the Company with the SEC pursuant to the Exchange Act or the  Securities  Act of
1933, as amended (the "Securities  Act")  (collectively,  the "SEC Reports") and
(b)  communication  mailed by the Company to its  shareholders  since January 1,
1992, and no such SEC Reports or  communications  contained any untrue statement
of a material  fact or omitted to state any material  fact required to be stated
therein or necessary in order to make the  statements  therein,  in light of the
circumstances  in which they were made, not  misleading.  The Company has timely
filed all SEC Reports and other  documents  required to be filed by it under the
Securities Act and the Exchange Act, and as of their  respective  dates, all SEC
Reports  complied with all of the rules and  regulations of the SEC with respect
thereto.  As of their respective dates, no such SEC Reports contained any untrue
statement of a material  fact or omitted to state any material  fact required to
be stated therein or necessary in order to make the statements therein, in light
of the  circumstances  in which they were made, not misleading.  The Company has
made  available to  Purchaser  true and complete  copies of all  amendments  and
modifications  to  all  agreements,   documents  and  other   instruments  which
previously had been filed with the SEC by the Company and which are currently in
effect.

         3.13 COMPANY  INFORMATION.  The information supplied by the Company and
the Bank contained in the Proxy Statement to be sent to the  shareholders of the
Company and Purchaser in connection  with the  Shareholder  Meetings,  or in any
other document filed with any other  regulatory  agency in connection  herewith,
will not contain,  on the date of mailing of the Proxy Statement and on the date
of the Shareholder Meetings,  any untrue statement of a material fact or omit to
state a material  fact  required to be stated  therein or  necessary in order to
make the statements  therein,  in light of the  circumstances  in which they are
made,  not false or  misleading  or  necessary  to correct any  statement in any
earlier  communication  with  respect to the  solicitation  of  proxies  for the

                                       19

<PAGE>

Shareholders'  Meeting  which shall have become false or  misleading.  The Proxy
Statement  will  comply in all  material  respects  with the  provisions  of the
Exchange  Act and the  rules  and  regulations  thereunder  and  the  rules  and
regulations of the OCC or SEC with respect thereto.

         3.14 COMPLIANCE WITH APPLICABLE LAW. The Company and the Bank each hold
all material licenses,  franchises, permits and authorizations necessary for the
lawful  conduct of their  respective  businesses  under and pursuant to all, and
have complied  with and are not in conflict  with, or in default or violation of
any (a) statute, code, ordinance, law, rule, regulation,  order, writ, judgment,
injunction or decree,  published  policies and  guidelines  of any  Governmental
Entity,  applicable to the Company or the Bank or by which any property or asset
of the Company or the Bank is bound or affected or (b) any note, bond, mortgage,
indenture, deed of trust, contract, agreement, lease, license, permit, franchise
or other instrument or obligation to which the Company or the Bank is a party or
by which the Company or the Bank or any  property or asset of the Company or the
Bank is bound  or  affected,  except  for any  such  non-compliance,  conflicts,
defaults or violations that would not, individually or in the aggregate,  have a
Material  Adverse Effect;  and neither the Company nor the Bank knows of, or has
received  notice  of,  any  material  violations  of any of the  above.  Without
limiting the generality of the  foregoing,  neither the Company nor the Bank has
been advised of the  existence of any facts or  circumstances  which would cause
the Bank to be deemed not to be in  satisfactory  compliance  with the Community
Reinvestment  Act  of  1977,  as  amended  (the  "CRA"),   and  the  regulations
promulgated thereunder.

         3.15 CERTAIN CONTRACTS.

              (a) Except as set forth in Section 3.15 of the Company  Disclosure
Schedule  and in the SEC  Reports  filed  prior to the  date of this  Agreement,
neither  the  Company  nor the  Bank is a party  to or  bound  by any  contract,
arrangement,  commitment or  understanding  (whether  written or oral): (i) with
respect to the employment of any director,  officer or employee, or with respect
to the employment of any consultant which cannot be terminated with a payment of
less  than  $5,000,  (ii)  which,  upon  the  consummation  of the  transactions
contemplated by this Agreement, will result in any payment (whether of severance
pay or  otherwise)  becoming  due from the Company or the Bank to any officer or
employee  thereof,  (iii)  which is a  material  contract  (as  defined  in Item
601(b)(10) of Regulation S-K of the SEC) to be performed  after the date of this
Agreement  that  has not been  filed or  incorporated  by  reference  in the SEC
Reports,  (iv) which is a consulting or other  agreement  (including  agreements
entered into in the ordinary course and data  processing,  software  programming
and licensing  contracts) not terminable on 90 days or less notice involving the
payment of less than $10,000 per annum,  (v) which  restricts the conduct of any
line of business  by the  Company or the Bank,  (vi) with or to a labor union or
guild (including any collective bargaining  agreement),  or (vii) (including any
stock option plan,  stock  appreciation  rights plan,  restricted  stock plan or
stock  purchase  plan) any of the  benefits of which will be  increased,  or the
vesting of the benefits of which will be  accelerated,  by the occurrence of any
of the transactions  contemplated by this Agreement,  or the value of any of the
benefits  of which will be  calculated  on the basis of any of the  transactions
contemplated  by  this  Agreement.  The  Company  has  previously  delivered  to

                                       20

<PAGE>

Purchaser true and complete  copies of all  employment,  consulting and deferred
compensation  agreements  which are in writing  and to which the  Company or the
Bank is a party. Each contract, arrangement,  commitment or understanding of the
type described in this Section,  whether or not set forth in Section 3.15 of the
Company Disclosure Schedule, is referred to herein as a "Company Contract".

              (b) (i) Each Company Contract is legal, valid and binding upon the
Company or the Bank, as the case may be, assuming due authorization of the other
party or parties thereto, and in full force and effect, (ii) the Company and the
Bank each has in all material respects performed all obligations  required to be
performed by it to date under each such Company Contract,  and (iii) no event or
condition  exists which  constitutes  or, after notice or lapse of time or both,
would  constitute,  a default  on the part of the  Company or the Bank under any
such Company Contract.

         3.16 AGREEMENTS WITH REGULATORY  AGENCIES.  Neither the Company nor the
Bank is subject to any  cease-and-desist or other order issued by, or is a party
to any written  agreement,  consent  agreement or memorandum  of  understanding,
commitment letter or similar undertaking (each a "Regulatory  Agreement"),  with
any Regulatory Agency or other Governmental Entity that restricts the conduct of
its business or that relates to its capital adequacy, its credit policies or its
management,  nor has the  Company or the Bank been  notified  by any  Regulatory
Agency or other Governmental Entity that it is considering issuing or requesting
any  Regulatory  Agreement.  Neither  the Company nor the Bank is a party to any
agreement or arrangement  entered into in connection with the  consummation of a
federally assisted acquisition of a depository institution pursuant to which the
Company  or  the  Bank  is  entitled   to  receive   financial   assistance   or
indemnification from any governmental agency.

         3.17 INVESTMENT  SECURITIES.  Section 3.17(a) of the Company Disclosure
Schedule  sets forth the book value as of December  31,  1996 of the  investment
securities,  mortgage  backed  securities  and  securities  held for sale by the
Company and the Bank.  Section 3.17(b) of the Company  Disclosure  Schedule sets
forth the names of all the joint  ventures  in which the Company or the Bank has
an investment  (whether or not such joint ventures  remain  active).  Except for
pledges  to  secure  public  and trust  deposits,  Federal  Reserve  borrowings,
repurchase   agreements  and  reverse  repurchase  agreements  entered  into  in
arms'-length transactions pursuant to normal commercial terms and conditions and
other  pledges  required  by  law,  none  of the  investments  reflected  in the
consolidated  balance  sheets of the  Company and the Bank to be included in its
Annual Report on Form 10-K for the period ended  December 31, 1996,  and none of
the investments  made by the Bank since December 31, 1996, (i) is subject to any
restriction (contractual,  statutory or otherwise) that would impair the ability
of the entity holding such  investment  freely to dispose of such  investment at
any  time,  or (ii) has  suffered  or  incurred  any  extraordinary  loss nor is
management  of the  Company  or the Bank  aware of any event  (or  events in the
aggregate)  which may occur in the future that could  reasonably  be expected to
result in such an extraordinary loss.

         3.18 ENVIRONMENTAL MATTERS.

              (a) Each of the Company and the Bank and, to the best knowledge of
the Company and the Bank,  their  Participation  Facilities and Loan  Properties
(each as hereinafter  defined),  are, and have been, in material compliance with

                                       21

<PAGE>

all applicable environmental laws and with all rules, regulations, standards and
requirements of the United States  Environmental  Protection  Agency (the "EPA")
and of state and local agencies with  jurisdiction  over pollution or protection
of the environment.

              (b) There is no suit, claim,  action or proceeding  pending or, to
the  best  knowledge  of  the  Company  or  the  Bank,  threatened,  before  any
Governmental  Entity or other  forum in which the  Company or the Bank or any of
their  Participation   Facilities  has  been  or,  with  respect  to  threatened
proceedings,  may be, named as a  defendant,  responsible  party or  potentially
responsible party (i) for alleged noncompliance  (including by any predecessor),
with any environmental  law, rule,  regulation,  standard or requirement or (ii)
relating to the release  into or presence  in the  Environment  (as  hereinafter
defined)  of any  Hazardous  Materials  (as  hereinafter  defined)  or  Oil  (as
hereinafter  defined) whether or not occurring at or on a site owned,  leased or
operated by the Company or the Bank or any of their Participation Facilities.

              (c) To the best knowledge of the Company or the Bank,  there is no
suit, claim,  action or proceeding pending or threatened before any Governmental
Entity or other forum in which any Loan  Property of the Company or the Bank has
been or, with respect to threatened  proceedings,  may be, named as a defendant,
responsible party or potentially responsible party (i) for alleged noncompliance
(including by any predecessor)  with any  environmental  law, rule,  regulation,
standard or  requirement or (ii) relating to the release into or presence in the
Environment of any Hazardous Material or Oil whether or not occurring at or on a
site owned, leased or operated by a Loan Property of the Company or the Bank.

              (d)  Neither  the  Company,  nor  the  Bank,  nor  to  their  best
knowledge,  any of  their  Participation  Facilities  or  Loan  Properties,  has
received  any  notice  regarding  a matter  on which a suit,  claim,  action  or
proceeding  as  described  in  subsection  (b) or (c) of this Section 3.18 could
reasonably be based. No facts or circumstances have come to the Company's or the
Bank's  attention  which have  caused  either to believe  that a material  suit,
claim,  action or  proceeding  as  described  in  subsection  (b) or (c) of this
Section 3.18 could reasonably be expected to occur.

              (e) During the period of (i) the Company's or the Bank's ownership
or operation of any of their respective current  properties,  (ii) the Company's
or the Bank's  participation  in the  management  of any of their  Participation
Facilities,  or (iii) the  Company's or any of the Bank's  holding of a security
interest in any of their Loan Properties,  there has been no release or presence
in the Environment of Hazardous  Material or Oil in, on, under or affecting such
property or, to the best knowledge of the Company or the Bank such Participation
Facility or Loan  Property.  To the best  knowledge  of the Company and the Bank
prior to the period of (x) the Company's or the Bank's ownership or operation of
any of their respective  current  properties or any previously owned or operated
properties,  (y) the Company's or the Bank's  participation in the management of
any of  their  Participation  Facilities,  or (z) the  Company's  or the  Bank's
holding  of a  security  interest  in any of its Loan  Properties,  there was no
release or  presence in the  Environment  of  Hazardous  Material or Oil in, on,
under or affecting any such property, Participation Facility or Loan Property.


                                       22

<PAGE>




              (f) The following  definitions  apply for purposes of this Section
3.18:  (i) "Loan  Property"  means any property in which the Company or the Bank
holds a security interest,  and, where required by the context,  said term means
the owner or operator of such property; (ii) "Participation  Facility" means any
facility in which the Company or the Bank  participates  or has  participated in
the management and, where required by the context,  said term means the owner or
operator of such  property;  (iii)  "Hazardous  Material"  means any  pollutant,
contaminant,  or  hazardous  substance  or  hazardous  material as defined in or
pursuant  to  the  Comprehensive  Environmental  Response,   Compensation,   and
Liability Act, 42 U.S.C. ss. 9601 ET SEQ., or any other federal, state, or local
environmental law, regulation, or requirement; (iv) "Oil" means oil or petroleum
of any kind or origin or in any form,  as defined in or  pursuant to the Federal
Clean Water Act, 33 U.S.C.  ss. 1251 et seq., or any other  federal,  state,  or
local environmental law, regulation, or requirement; and (v) "Environment" means
any soil, surface waters, groundwaters,  stream sediments, surface or subsurface
strata, and ambient air, and any other environmental medium.

         3.19 PROPERTIES.

              (a) Section  3.19 of the Company  Disclosure  Schedule  contains a
true,  complete and correct  list and a brief  description  (including  carrying
value) of all real properties,  including  properties acquired by foreclosure or
deed in lieu thereof, owned or leased to the Company and the Bank. Except as set
forth in Section 3.19 of the Company  Disclosure  Schedule,  the Company and the
Bank each has good and  marketable  title to all the real property and all other
property  owned by it and  included  in the  consolidated  balance  sheet of the
Company  and the Bank for the period  ended  December  31,  1996,  and owns such
property subject to no encumbrances,  liens,  mortgages,  security  interests or
pledges,  except such  encumbrances,  liens,  mortgages,  security interests and
pledges that do not have a Material Adverse Effect on the Company or the Bank or
which do not and will not  interfere  with the use of the  property as currently
used or  contemplated  to be used by the Company or the Bank,  or the conduct of
the business of the Company or the Bank.

              (b) Neither the  Company nor the Bank has  received  any notice of
violation of any applicable  zoning or  environmental  regulation,  ordinance or
other law,  order,  regulation or requirement  relating to its operations or its
properties  and to the  knowledge of the Company and the Bank,  there is no such
violation  of a  material  nature.  Except as set forth in  Section  3.19 to the
Company Disclosure Schedule, all buildings and structures used by the Company or
the Bank conform in all material respects with all applicable ordinances,  codes
and regulations,  or are not required to conform due to  grandfathering  clauses
contained in such  ordinances,  codes or regulations,  except to the extent such
noncompliance  does  not and  will not have a  Material  Adverse  Effect  on the
Company or the Bank and which does not or will not interfere with the use of any
property  as  currently  used or  contemplated  to be used by the Company or the
Bank, or the conduct of the business of the Company or the Bank.

              (c) Section  3.19 to the Company  Disclosure  Schedule  contains a
true,  complete and correct list of all leases  pursuant to which the Company or
the Bank lease any real or personal property, either as lessee or as lessor (the
"Company  Leases").  Assuming  due  authorization  of the other party of parties

                                       23

<PAGE>

thereto,  each of the Company  Leases is valid and binding on the Company or the
Bank, as the case may be, and valid and binding on and  enforceable  against all
other  respective  parties to such leases in  accordance  with their  respective
terms (subject to bankruptcy, insolvency, reorganization, moratorium and similar
laws  affecting  the rights and  remedies  of  creditors  generally  and general
principles  of equity).  There are not under such  Company  Leases any  existing
breaches,  defaults,  events of  default by the  Company or the Bank,  or events
which with notice  and/or lapse of time would  constitute  a breach,  default or
event of default by the  Company  or the Bank,  nor has the  Company or the Bank
received  notice of, or made a claim with  respect  to, any breach or default by
any other  party to such  Company  Leases.  The  Company and the Bank each enjoy
quiet and peaceful  possession of all such leased  properties  occupied by it as
lessee.

              (d) All of the real properties,  leasehold  improvements and items
of equipment and other material personal property owned,  leased, or licensed by
the Company or the Bank, or in which any of those parties hold an interest,  are
in good maintenance,  repair,  and operating  condition,  ordinary wear and tear
excepted,  are  adequate  for the  purposes  for which they are now being or are
anticipated to be used, and are free from any material defects.

         3.20 ADMINISTRATION OF FIDUCIARY ACCOUNTS.  Each of the Company and the
Bank has  properly  administered  all accounts for which it acts as a fiduciary,
including  but not limited to accounts for which it serves as a trustee,  agent,
custodian, personal representative, guardian, conservator or investment advisor,
in accordance with the terms of the governing  documents and applicable law. The
accountings for each such fiduciary  account are true and correct and accurately
reflect the assets of such fiduciary account. Neither the Company, nor the Bank,
nor,  to the best  knowledge  of the  Company  and the  Bank,  their  respective
officers,  directors or employees has committed any breach of trust with respect
to any fiduciary account.

         3.21  INSURANCE.  The Company has made  available to Purchaser true and
complete  copies of all  material  policies of  insurance of the Company and the
Bank currently in effect.  All of the policies relating to insurance  maintained
by the  Company or the Bank with  respect  to its  material  properties  and the
conduct of its  business in any  material  respect (or any  comparable  policies
entered into as a replacement therefor) are in full force and effect and neither
the Company nor the Bank has  received any notice of  cancellation  with respect
thereto.  All life  insurance  policies  on the lives of any of the  current and
former  officers of the Company or the Bank which are  maintained by the Company
or the Bank or which  are  otherwise  included  as  assets  on the  books of the
Company  or the Bank (i) are,  or will at the  Effective  Time be,  owned by the
Company or the Bank,  free and clear of any claims  thereon by the  officers  or
members of their families, except with respect to the death benefits thereunder,
as to which the  Company  and the Bank each  agrees  that  there  will not be an
amendment prior to the Effective Time without the consent of Purchaser, and (ii)
are accounted for properly as assets on the books of the Company or the Bank, as
the case may be, in accordance  with GAAP.  Neither the Company nor the Bank has
any material  liability for unpaid premiums or premium  adjustments not properly
reflected on the Company's  consolidated  financial  statements contained in the
SEC Reports. Each of the Company and the Bank has been and is adequately insured
with respect to its property and the conduct of its business in such amounts and
against  such  risks as are  substantially  similar  in kind and  amount to that
customarily carried by parties similarly situated who own properties and engaged
in  businesses  substantially  similar  to that  of the  Company  and  the  Bank

                                       24

<PAGE>

(including without limitation  liability  insurance and blanket bond insurance).
All claims under any policy or bond have been duly and timely filed.

         3.22  TRANSACTIONS  WITH CERTAIN  PERSONS.  Neither the Company nor the
Bank  has  any  outstanding  loan,   deposit  or  other  relationship  or  other
transaction  with any officer,  director or  greater-than-5%  shareholder of the
Company or the Bank or any  "associate"  (as  defined  in Rule  14a-1  under the
Exchange  Act of any such officer or  director)  affiliates  (as defined in Rule
144(a)(1) of the  Securities  Act) of any such officer,  director or shareholder
(individually,  an "Interested Person"), other than deposit or loan transactions
in the  ordinary  course of  business on terms  substantially  the same as those
prevailing  at the time for  comparable  transactions  with other,  unaffiliated
persons,  and which did not and do not involve any unusual  risk  (including  of
non-collectibility)  or other  features  unfavorable to the Company or the Bank.
Section  3.22  of  the  Company  Disclosure  Schedule  hereto  contains  a  full
description of all outstanding loans by the Company or the Bank to an Interested
Person which, either individually or in the aggregate,  have current outstanding
balances of $5,000 or more  (including  in the  outstanding  balance all amounts
which the Company or the Bank is  obligated to advance but not  including  loans
secured by cash  collateral).  All deposit  relationships  of the Company or the
Bank with an Interested Person with aggregate  balances in excess of $10,000 are
fully described in Section 3.22 of the Company  Disclosure  Schedule.  Except as
otherwise set forth in Section 3.22 of the Company Disclosure Schedule,  neither
the Company  nor the Bank has entered  into any  contractual  or other  business
relationship with any Interested Person.

         3.23  STATE  TAKEOVER  LAWS.  The  transactions  contemplated  by  this
Agreement are not subject to any applicable state takeover laws in effect on the
date  hereof.  The Board of  Directors  of the Company  has taken all  necessary
action prior to the date of this  Agreement in  connection  with the approval of
the execution, delivery and performance of this Agreement, any purchase or other
transaction  respecting the Company Common Stock provided for herein or therein,
and the other transactions  contemplated  hereby and thereby,  including without
limitation  approval  by the  affirmative  vote of at  least  two-thirds  of the
members of the Board of Directors of the Company who are not affiliated  with or
shareholders  of Purchaser or Parent.  Based upon the approval of this Agreement
by greater than two-thirds of the Company's directors who are neither affiliated
with nor shareholders of Purchaser,  the Company's  Articles of Incorporation do
not require  more than a majority of the holders of the Company  Common Stock to
approve the Merger as currently structured.

         3.24  DISCLOSURE.  No  representation  or  warranty  contained  in this
Agreement, and no statement contained in any certificate,  list or other writing
furnished to Purchaser  pursuant to the provisions  hereof,  contains any untrue
statement  of a material  fact or omits to state a material  fact  necessary  in
order to make the statements herein or therein, in light of the circumstances in
which they are made, not misleading.  No information  material to the Merger and
which is necessary to make the  representations  and warranties herein contained
not misleading,  has been withheld from, or has not been delivered in writing to
Purchaser.

         3.25 REGULATORY  APPROVALS.  Neither the Company nor the Bank is, as of
the date hereof, aware of any reason why the regulatory approvals required to be


                                       25

<PAGE>

obtained  by the  Company  or the Bank to  consummate  the  Merger  would not be
satisfied  within  the time  frame  customary  for  transactions  of the  nature
contemplated thereby.

         3.26. LABOR MATTERS. Neither the Company nor the Bank is a party to any
collective  bargaining  or other  labor  union or  guild  contract.  There is no
pending or, to the best  knowledge of the Company,  threatened,  labor  dispute,
strike or work stoppage against the Company or the Bank which may interfere with
the  respective  business  activities  of the  Company or the Bank.  Neither the
Company nor the Bank, nor, their respective  representatives  or employees,  has
committed  any unfair labor  practices in  connection  with the operation of the
respective businesses of the Company or the Bank, and there is no pending or, to
the best knowledge of the Company or the Bank,  threatened,  charge or complaint
against the Company or the Bank by the  National  Labor  Relations  Board or any
comparable state agency.

         3.27.  INTELLECTUAL  PROPERTY.  The  Company  and the Bank each owns or
possesses valid and binding  licenses and other rights to use without payment of
any material  amount all material  patents,  copyrights,  trade  secrets,  trade
names,  service marks and  trademarks  used in its  businesses,  PROVIDED,  that
neither the Company nor the Bank claims to have sole or  exclusive  right to use
all of the trade names and service marks used by it; neither the Company nor the
Bank has received any notice of conflict  with respect  thereto that asserts the
right of others.  The Company and the Bank each has  performed  in all  material
respects  all the  obligations  required to be  performed by them and are not in
default under any contract, agreement, arrangement or commitment relating to any
of the foregoing.

         3.28 OWNERSHIP OF PURCHASER  COMMON STOCK;  AFFILIATES AND  ASSOCIATES.
Neither the Company nor the Bank,  nor to the best  knowledge of the Company and
the Bank, any of their affiliates or associates (as such terms are defined under
the Exchange Act), (i) beneficially  own,  directly or indirectly,  or (ii) is a
party  to any  agreement,  arrangement  or  understanding  for  the  purpose  of
acquiring,  holding, voting or disposing of, in each case, any shares of capital
stock of Purchaser (other than Trust Account Shares and DPC Shares). Neither the
Company, nor the Bank nor any of their directors,  officers,  or employees is an
"affiliate" or an "associate" of Parent.



                                   ARTICLE IV

                   REPRESENTATIONS AND WARRANTIES OF PURCHASER

         Purchaser hereby represents and warrants to the Company as follows:

         4.01 Corporate Organization.

              (a) Parent, on the date it becomes a party to this Agreement, will
be a corporation duly organized, validly existing and in good standing under the
laws of the State of New  Hampshire.  Parent,  on the date it becomes a party to
the Agreement,  will have the corporate  power and authority to own or lease all
of its  properties  and assets and to carry on its  business  as it will then be

                                       26

<PAGE>

conducted,  and  will be duly  licensed  or  qualified  to do  business  in each
jurisdiction  in  which  the  nature  of  the  business  conducted  by it or the
character or location of the  properties  and assets owned or leased by it makes
such  licensing or  qualification  necessary,  except where the failure to be so
licensed or qualified would not have a Material Adverse Effect on Parent.  Prior
to the Effective  Time, the Parent will have received  approval to become a bank
holding  company  under the BHC Act and such  approval  will be effective at the
Effective Time. The Articles of  Incorporation  and By-Laws of Parent will be in
the forms attached to this Agreement as EXHIBITS I AND II.

              (b)  Purchaser  is  a  commercial  bank  duly  organized,  validly
existing and in good standing under the laws of the State of New Hampshire.  The
deposit  accounts of  Purchaser  are insured by the FDIC  through the BIF to the
fullest extent  permitted by law, and all premiums and  assessments  required in
connection  therewith  have been paid by Purchaser.  Purchaser has the corporate
power and  authority  to own or lease all of its  properties  and  assets and to
carry on its  business  as it is now being  conducted,  and is duly  licensed or
qualified  to do  business  in each  jurisdiction  in which  the  nature  of the
business  conducted  by it or the  character or location of the  properties  and
assets owned or leased by it makes such  licensing or  qualification  necessary,
except where the failure to be so licensed or qualified,  either individually or
in the aggregate,  would not have a Material  Adverse  Effect on Purchaser.  The
Articles of Agreement and By-Laws of Purchaser,  copies of which have previously
been  delivered to the Company,  are true,  complete and correct  copies of such
documents  as in  effect  as of the  date of this  Agreement.  Purchaser  has no
Subsidiaries other than Parent.

              (c) Purchaser has no direct or indirect Subsidiaries.  Parent will
have no direct or indirect  subsidiaries  other than  Purchaser at the Effective
Time  and will be the sole  shareholder  of  Purchaser  at the  Effective  Time.
Purchaser  does not own,  control  or hold with the power to vote,  directly  or
indirectly of record, beneficially or otherwise, any capital stock or any equity
or  ownership  interest  in any  corporation,  partnership,  association,  joint
venture  or other  entity,  except  for less than  five  percent  of any  equity
security registered under the Exchange Act.

              (d) The minute  books of  Purchaser  contain  true,  complete  and
accurate records of all meetings and other corporate actions held or taken since
January 1, 1992 of its shareholders and board of directors (including committees
thereof).

         4.02 CAPITALIZATION.

              (a) The  authorized  capital  stock of  Parent  consists  of 1,000
shares of Parent Common Stock. The shares of Parent Common Stock to be issued in
exchange for shares of the Company Common Stock upon  consummation of the Merger
will have been duly  authorized and when issued in accordance  with the terms of
this Agreement, will be validly issued and fully paid, nonassessable and free of
preemptive rights, with no personal liability attaching to the ownership thereof
and will be identical in all  material  respects to the shares of Parent  Common
Stock to be issued and outstanding  immediately prior to the Merger. Parent does
not have and is not be bound by any  subscriptions,  options,  warrants,  calls,
commitments or agreements of any character  calling for the purchase or issuance
of any shares of Parent  Common Stock or any other equity  security of Parent or
any  securities  representing  the right to  purchase or  otherwise  receive any

                                       27

<PAGE>

shares of Parent Common Stock or any other equity security of Parent, other than
as  provided  for  in  this  Agreement  or  pursuant  to  the  Holding   Company
Reorganization.

              (b) Except as  contemplated  herein,  there are no  agreements  or
understandings,  with respect to the voting of any shares of Parent Common Stock
or the common stock of Purchaser or which  restrict the transfer of such shares,
to which  Parent or  Purchaser  is a party,  and to the  knowledge of Parent and
Purchaser,  there are no such  agreements or  understandings  to which Parent or
Purchaser  is not a party with respect to the voting of any such shares or which
restrict the transfer of such shares.

         4.03 AUTHORITY; NO VIOLATION.

              (a)  Purchaser  and  Parent  each has  full  corporate  power  and
authority  to  execute  and  deliver  this   Agreement  and  to  consummate  the
transactions  contemplated  hereby. The execution and delivery of this Agreement
by Purchaser and the  consummation  by Purchaser and Parent of the  transactions
contemplated  hereby  have  been  duly  and  validly  approved  by the  Board of
Directors of  Purchaser  and Parent.  The Board of  Directors  of Purchaser  has
directed  that  this  Agreement  and the  transactions  contemplated  hereby  be
submitted  to  Purchaser's  shareholders  for  approval  at a  meeting  of  such
shareholders and has voted to recommend that its shareholders  approve and adopt
this Agreement and the  transactions  contemplated  thereby and,  except for the
adoption of this Agreement by the requisite vote of Purchaser's shareholders, no
other corporate  proceedings on the part of Purchaser or Parent are necessary to
consummate the transactions  contemplated  hereby.  This Agreement has been duly
and validly executed and delivered by Purchaser and Parent and (assuming the due
authorization, execution and delivery by the Company and the Bank) constitutes a
valid and binding  obligation of  Purchaser,  enforceable  against  Purchaser in
accordance with its terms.

              (b) Neither the execution  and delivery of this  Agreement by each
of Purchaser and Parent,  nor the consummation by either Purchaser or Parent, as
the case may be, of the  transactions  contemplated  hereby,  nor  compliance by
either Purchaser or Parent with any of the terms or provisions hereof,  will (i)
violate, conflict with or result in a breach of any provision of the Articles of
Incorporation  or By-Laws of Parent,  the  Articles of  Agreement  or By-Laws of
Purchaser,  or the  articles  of  incorporation,  by-laws or  similar  governing
documents of any of the Subsidiaries,  as the case may be, or (ii) assuming that
the consents and approvals  referred to in Section 4.04 are duly  obtained,  (x)
violate any statute, code, ordinance,  rule, regulation,  judgment, order, writ,
decree or injunction applicable to Parent,  Purchaser or any of the Subsidiaries
or any of their respective properties or assets, or (y) violate,  conflict with,
result  in a  breach  of any  provisions  of or the loss of any  benefit  under,
constitute a default (or any event which, with notice or lapse of time, or both,
would  constitute a default)  under,  result in the termination of or a right of
termination or cancellation  under,  accelerate the performance  required by, or
result in the creation of any lien, pledge,  security interest,  charge or other
encumbrance  upon any of the  respective  properties  or  assets  of  Parent  or
Purchaser  under any of the terms,  conditions or provisions of any note,  bond,
mortgage,   indenture,  deed  of  trust,  license,  lease,  agreement  or  other
instrument or  obligation  to which Parent or Purchaser is a party,  or by which

                                       28

<PAGE>

they or any of their  respective  properties or assets may be bound or affected,
except  (in the  case of  clause  (y)  above)  for such  violations,  conflicts,
breaches or defaults which,  either  individually or in the aggregate,  will not
have a Material Adverse Effect on Parent or Purchaser.

         4.04 CONSENTS AND APPROVALS.  Except for (a) the filing of applications
and notices, as applicable, with (i) the Federal Reserve Board under the BHC Act
(ii) the FDIC under the Bank Merger Act,  (iii) the  Commissioner,  and (iv) the
BTCI,  and the consent and approval of such  applications  and notices,  (b) the
filing with the SEC and the FDIC of the Registration Statement, (c) the approval
of this  Agreement by the  requisite  vote of the  shareholders  of Parent,  the
Company and  Purchaser  and the board of directors of Parent,  (d) the filing of
the Articles of Merger with the  Secretary to effect the Merger  pursuant to the
New Hampshire  Business  Corporation  Act, (e) such filings and approvals as are
required  to be made or  obtained  under the  securities  or "Blue  Sky" laws of
various states in connection  with the issuance of shares of Parent Common Stock
pursuant to this Agreement, and (f) such filings, authorizations or approvals as
may be set  forth in  Section  4.04 of the  Purchaser  Disclosure  Schedule,  no
consents  or  approvals  of or filings or  registrations  with any  Governmental
Entity or with any third party are  necessary in  connection  with the execution
and delivery by Purchaser and Parent of this Agreement and the  consummation  by
Parent of the  Merger and the other  transactions  contemplated  hereby,  except
where the failure to obtain such consents or approvals,  or to make such filings
or  registrations,  would not prevent Parent or Purchaser from performing  their
respective obligations under this Agreement.

         4.05 LOAN PORTFOLIO; REPORTS.

              (a)  Except  as  set  forth  in  Section  4.05  of  the  Purchaser
Disclosure  Schedule hereto, all of the mortgage loans having a principal amount
in  excess  of  $50,000  (each  a  "Purchaser  Loan")  reflected  as  assets  on
Purchaser's  consolidated balance sheet included in the financial statements for
the fiscal year ended  December  31, 1996 or made or  acquired by  Purchaser  or
Parent since December 31, 1996, were validly and legally made,  constitute valid
and binding  agreements of the borrower  enforceable  in  accordance  with their
terms (subject to bankruptcy, insolvency, reorganization, moratorium and similar
laws  affecting  the rights and  remedies of  creditors  generally,  and general
principles of equity),  are properly  perfected,  represent  valid  mortgages on
properties described therein, are saleable in the ordinary course of Purchaser's
business and no amount  thereof is subject to any defenses which may be asserted
against  Purchaser or Parent.  Neither Purchaser nor Parent has entered into any
agreement  which will  result in a future  waiver or  negation  of any  material
rights or remedies  presently  available  against the borrower or guarantor,  if
any,  on any such  Purchaser  Loan.  Except as set forth in Section  4.05 of the
Purchaser Disclosure Schedule,  each mortgage securing a Purchaser Loan has been
and  is  evidenced  by  documentation  of  the  types  customarily  employed  by
Purchaser,  which are in  compliance  in all material  respects with federal and
state banking laws and regulations and prudent banking  standards,  and complete
copies  thereof  have been  maintained  by  Purchaser  in  accordance  with such
requirement and practices.  Except with respect to participation loans described
in Section 4.05 of the Purchaser Disclosure  Schedule,  Purchaser owns and holds
the  entire  interest  in all  mortgages  free and clear of all  liens,  claims,
equities, options, security interests,  charges, encumbrances or restrictions of
any kind or nature, and no person has any interest therein.

                                       29

<PAGE>

              (b)  Except  as  disclosed  in  Section  4.05  of  the   Purchaser
Disclosure  Schedule,  all of the Purchaser Loans  originated and presently held
and, to the best knowledge of Purchaser or Parent after reasonable due diligence
and inquiry,  all of the Purchaser  Loans purchased and presently held by Parent
(if any)  and  Purchaser  were  solicited,  originated  and  exist  in  material
compliance  with all  applicable  loan  policies  and  procedures  of Parent (if
applicable)  and  Purchaser  and  comply  with all  applicable  laws,  rules and
regulations, including, but not limited to, applicable usury statutes, the Truth
in Lending  Act, the Equal Credit  Opportunity  Act, the Real Estate  Settlement
Procedures  Act,  and other  applicable  consumer  protection  statutes  and the
regulations thereunder.

              (c)  Except  as  disclosed  in  Section  4.05  of  the   Purchaser
Disclosure Schedule, all Purchaser Loans purchased or originated by Purchaser or
Parent and  subsequently  sold have been sold  without  recourse to Purchaser or
Parent  and  without  any  liability  under any  yield  maintenance  or  similar
obligation.

              (d)  Except  as  set  forth  in  Section  4.05  of  the  Purchaser
Disclosure  Schedule,  to the best  knowledge  of  Purchaser  and  Parent  after
reasonable due diligence and inquiry, neither Purchaser nor Parent is a party to
any written or oral loan  agreement,  note or borrowing  arrangement  (including
without   limitation,    leases,    credit    enhancements,    commitments   and
interest-bearing assets) under the terms of which the obligor is, as of the date
of this  Agreement,  over 30 days delinquent in payment of principal or interest
or in default under any other material provision.  Section 4.05 of the Purchaser
Disclosure  Schedule sets forth (x) all of the Purchaser Loans presently held by
Parent (if any) and Purchaser that prior to the date of this Agreement have been
classified by any bank examiner or loan reviewer (whether regulatory,  internal,
or  independent  contractor)  as "Other  Loans  Specially  Mentioned,"  "Special
Mention," "Substandard," "Doubtful," "Loss," "Classified," "Criticized," "Credit
Risk  Assets,"  "Concerned  Loans,"  "Watch  List" or words of  similar  import,
together with the aggregate  principal amount of and accrued and unpaid interest
on each such Purchaser Loan and the identity of the borrower thereunder, and (y)
by category of Purchaser Loan (i.e.,  commercial,  consumer,  etc.),  all of the
other Purchaser Loans presently held by Parent (if any) and Purchaser that prior
to the  date of this  Agreement  were  classified  as  such,  together  with the
aggregate  principal amount of and accrued and unpaid interest on such Purchaser
Loans by category.

              (e)  Purchaser  has timely  filed all reports,  registrations  and
statements,  together  with any  amendments  required  to be made  with  respect
thereto,  that it was required to file since January 1, 1992 with the Regulatory
Agencies,  and all other  reports  and  statements  required to be filed by them
since January 1, 1992,  including  without  limitation,  any report or statement
required to be filed  pursuant to the laws,  rules or  regulations of the United
States, the FDIC, the Commissioner,  any State Regulator or any  self-regulatory
organization,  and  has  paid  all  fees  and  assessments  due and  payable  in
connection therewith.  Except for normal examinations  conducted by a Regulatory
Agency in the regular course of the business of Purchaser,  no Regulatory Agency
has  initiated  any   proceeding   or,  to  the  best  knowledge  of  Purchaser,
investigation  into the business or  operations  of Purchaser  since  January 1,
1992.  There is no violation,  criticism or exception by any  Regulatory  Agency
with respect to any report or statement relating to any examination of Purchaser
that (x) has not been  addressed  by  Purchaser  in a  written  response  to the
Regulatory  Agency, (y) has been addressed by Purchaser in a written response to

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<PAGE>

the  Regulatory  Agency,  which  response has been objected to by the Regulatory
Agency or (z) is expected to result in any supervisory action by such Regulatory
Agency.

         4.06 FINANCIAL STATEMENTS.

              (a) Purchaser has  previously  delivered to the Company  copies of
the audited  balance  sheets of Purchaser as of December 31 for the fiscal years
1995 and 1996 and the  related  consolidated  statements  of income,  changes in
shareholders'  equity  and cash flows for the fiscal  years 1994  through  1996,
inclusive,  to be included in the Purchaser's  Annual Report on Form F-2 for the
fiscal year ended December 31, 1996 to be filed with the FDIC under the Exchange
Act. The December 31, 1996  balance  sheet of Purchaser  (including  the related
notes,  where applicable) fairly presents in all material respects the financial
position of Purchaser as of the date thereof, and the other financial statements
referred to in this Section 4.06 (including the related notes, where applicable)
fairly present in all material respects and the financial statements referred to
in  Section  6.08  hereof  will  fairly  present  (subject,  in the  case of the
unaudited  statements,  to  recurring  audit  adjustments  normal in nature  and
amount) in all material respects, the results of the consolidated operations and
changes in  shareholders'  equity and  financial  position of Purchaser  for the
respective  fiscal periods or as of the  respective  dates therein set forth and
each of such statements (including the related notes, where applicable) has been
and the  financial  statements  referred  to in  Section  6.08  hereof  will be,
prepared  in  accordance  with GAAP  consistently  applied  during  the  periods
involved,  except as indicated in the notes thereto, or in the case of unaudited
statements,  as permitted by Form F-2.  Without  limiting the  generality of the
foregoing,  (x) the allowance for possible loan losses included in the financial
statements  of the Purchaser to be included in its Form F-2 for the period ended
December  31,  1996 was  determined  in  accordance  with GAAP to be adequate to
provide for losses  relating to or inherent in the loan and lease  portfolios of
Purchaser  (including without limitation  commitments to extend credit), and (y)
the other real estate owned  ("OREO")  included in the  financial  statements of
Purchaser  included in its Form F-2 for the period  ended  December 31, 1996 was
carried net of  reserves  at the lower of cost or market  value based on current
independent  appraisals and net of estimated  disposal costs.  Such reserves for
possible  loan losses comply with all loan loss reserve  guidelines  utilized by
Purchaser,  which  guidelines  have been  acceptable to all regulatory  agencies
having jurisdiction with respect thereto.

              (b)  Purchaser has furnished to the Company all Call Reports filed
by it with the FDIC with  respect  to any  period  subsequent  to the year ended
January  1,  1992,  and  except as set forth in  Section  4.06 of the  Purchaser
Disclosure  Schedule,  such Call  Reports do, and such Call  Reports  filed with
respect to periods  ending  after  December  31, 1996 will,  fairly  present the
financial  position  of  Purchaser  as of its  date,  and  the  other  financial
statements  included  therein  do,  and will,  fairly  present  the  results  of
operations or other information Purchaser included therein for the periods or as
of the dates therein set forth,  subject to the notes  thereto,  in each case in
accordance with the requirements of the FFIEC,  and do, or will,  reflect all of
Purchaser's assets,  liabilities and accruals and all of its items of income and
expense  in  accordance  with such  standards  consistently  applied  during the
periods involved.


                                       31

<PAGE>

              (c) The books and records of Purchaser  have been,  and are being,
maintained in accordance  with  applicable  legal and  accounting  requirements,
reflect only actual  transactions  and reflect all of their assets,  liabilities
and  accruals  and all of their items of income and expense in  accordance  with
GAAP.  All  accounting  ledgers  and other books and  records of  Purchaser  are
located at the principal  office of Purchaser,  are true,  complete and correct,
and present fairly the financial condition, results of operations and changes in
financial position of Purchaser as of the date and for the periods indicated.

              (d) Except for liabilities incurred since December 31, 1996 in the
ordinary  course of business  consistent  with past  practice,  Purchaser has no
liabilities or obligations of any nature whatsoever (whether absolute,  accrued,
contingent or otherwise)  which are not adequately  reserved or reflected on the
balance  sheet of Purchaser to be included in its Form F-2 for the period ending
December 31, 1996,  except for liabilities or obligations which in the aggregate
do not exceed  $20,000,  and there do not exist any  circumstances  that, to the
best knowledge of Purchaser,  could reasonably be expected to result in any such
liabilities or obligations.

         4.07  BROKER'S  FEES.  Neither  Purchaser,  nor any of its  officers or
directors,  has employed any broker or finder or incurred any  liability for any
broker's  fee,  commission  or  finder's  fee  in  connection  with  any  of the
transactions  contemplated  by this Agreement  other than fees paid to Northeast
Capital &  Advisory,  Inc.  ("NECA")  in  accordance  with the terms of a letter
agreement  dated  February  10,  1997  between  NECA and  Purchaser,  a true and
complete copy of which has heretofore  been furnished to the Company.  Purchaser
has  previously  received the opinion of NECA to the effect that, as of the date
of such opinion,  the Exchange Ratio is fair to Purchaser's  shareholders from a
financial  point of view,  and such opinion has not been amended or rescinded as
of the date of this Agreement.

         4.08 ABSENCE OF CERTAIN  CHANGES OR EVENTS.  Except as may be set forth
in Section 4.08 of the Purchaser Disclosure  Schedule,  since December 31, 1996,
there has not been any Material  Adverse  Effect on  Purchaser  and, to the best
knowledge of Purchaser, no fact or condition exists which will, or is reasonably
likely to, cause such a Material Adverse Effect on Purchaser in the future.

         4.09  LEGAL  PROCEEDINGS.  Except as set forth in  Section  4.09 of the
Purchaser Disclosure Schedule, Purchaser is not a party to any, and there are no
pending  or,  to  the  best  of  Purchaser's   knowledge,   threatened,   legal,
administrative,  arbitral or other proceedings,  claims, actions or governmental
or regulatory investigations of any nature against or affecting Purchaser or any
property or asset of Purchaser,  before any court, arbitrator or administrative,
governmental or regulatory authority or body, domestic or foreign,  which would,
either  individually or in the aggregate,  have a Material Adverse Effect and no
facts or circumstances  have come to Purchaser's  attention which have caused it
to  believe  that a  claim,  action,  proceeding  or  investigation  against  or
affecting  Purchaser could reasonably be expected to occur.  Neither  Purchaser,
nor any property or asset of Purchaser, is subject to any order, writ, judgment,
injunction,  decree,  determination  or award  which  restricts  its  ability to
conduct business in any area in which it presently does business or has or could
reasonably  be expected to have,  either  individually  or in the  aggregate,  a
Material Adverse Effect.


                                       32

<PAGE>




         4.10 FDIC REPORTS. Purchaser has previously delivered to the Company an
accurate and complete copy of each (a) final registration statement, prospectus,
report,  schedule and definitive  proxy statement filed since January 1, 1992 by
Purchaser  with the FDIC  pursuant to the  Exchange  Act or the  Securities  Act
(collectively,  the "FDIC Reports") and (b) communication mailed by Purchaser to
its   shareholders   since  January  1,  1992,  and  no  such  FDIC  Reports  or
communications  contained any untrue  statement of a material fact or omitted to
state any material fact  required to be stated  therein or necessary in order to
make the statements  therein,  in light of the  circumstances in which they were
made,  not  misleading.  Purchaser  has timely  filed all FDIC Reports and other
documents  required to be filed by it under the  Securities Act and the Exchange
Act, and as of their respective dates, all FDIC Reports complied with all of the
rules and regulations of the FDIC with respect  thereto.  As of their respective
dates, no such FDIC Reports contained any untrue statement of a material fact or
omitted to state any material fact required to be stated therein or necessary in
order to make the statements  therein,  in light of the  circumstances  in which
they were made, not misleading. Purchaser has made available to the Company true
and complete copies of all amendments and  modifications  not filed by Purchaser
with the FDIC to all agreements, documents and other instruments that previously
had been filed with the FDIC by Purchaser and are currently in effect.

         4.11 PARENT AND  PURCHASER  INFORMATION.  The  information  supplied by
Purchaser  and  Parent  relating  to  Purchaser  and  Parent  contained  in  the
Registration  Statement  and  Prospectus  and Proxy  Statement to be sent to the
shareholders  of the Company and  Purchaser in connection  with the  Shareholder
Meetings,  or in any other  document filed with any other  regulatory  agency in
connection  herewith,  will not  contain,  on the date of  mailing  of the Proxy
Statement and on the date of the Shareholder Meetings, any untrue statement of a
material fact or omit to state a material fact required to be stated  therein or
necessary in order to make the statements therein, in light of the circumstances
in which they are made, not false or misleading.  The Registration Statement and
Prospectus  and Proxy  Statement  will comply in all material  respects with the
provisions of the Exchange Act and the rules and regulations  thereunder and the
rules and regulations of the FDIC or SEC with respect thereto.

         4.12  COMPLIANCE  WITH  APPLICABLE  LAW.  Parent and Purchaser hold all
material  licenses,  franchises,  permits and  authorizations  necessary for the
lawful conduct of their  businesses under and pursuant to all, and have complied
with and are not in  conflict  with,  or in default  or  violation  of any,  (a)
statute,  code,  ordinance,  law,  rule,  regulation,   order,  writ,  judgment,
injunction or decree,  published  policies and  guidelines  of any  Governmental
Entity,  applicable  to Purchaser or Parent or by which any property or asset of
Purchaser  or  Parent is bound or  affected  or (b) any  note,  bond,  mortgage,
indenture, deed of trust, contract, agreement, lease, license, permit, franchise
or other  instrument or obligation to which Purchaser or Parent is a party or by
which  Purchaser  or Parent or any  property or asset of  Purchaser or Parent is
bound or affected,  except for any such non-compliance,  conflicts,  defaults or
violations  that would not,  individually  or in the aggregate,  have a Material
Adverse  Effect;  and neither  Purchaser  nor Parent  knows of, or has  received
notice of, any material  violations  of any of the above.  Without  limiting the

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<PAGE>

generality of the foregoing, the Purchaser has not been advised of the existence
of any facts or  circumstances  which would cause the Purchaser to be deemed not
to be in satisfactory  compliance with the CRA, and the regulations  promulgated
thereunder.

         4.13 AGREEMENTS WITH REGULATORY  AGENCIES.  Purchaser is not subject to
any  cease-and-desist  or other  order  issued by, or is a party to any  written
agreement,  consent agreement or memorandum of understanding,  commitment letter
or similar undertaking,  with any Regulatory Agency or other Governmental Entity
that  restricts  the  conduct of its  business  or that  relates to its  capital
adequacy, its credit policies or its management, nor has Purchaser been notified
by any  Regulatory  Agency or other  Governmental  Entity that it is considering
issuing or requesting any Regulatory Agreement.  Purchaser is not a party to any
agreement or arrangement  entered into in connection with the  consummation of a
federally  assisted  acquisition of a depository  institution  pursuant to which
Purchaser is entitled to receive financial  assistance or  indemnification  from
any governmental agency.

         4.14  REGULATORY  APPROVALS.  Purchaser  is not, as of the date hereof,
aware of any reason why the regulatory  approvals  required to be obtained by it
or Parent to consummate the Merger would not be satisfied  within the time frame
customary for transactions of the nature contemplated thereby.

         4.15 TAXES AND TAX RETURNS.

              (a) Purchaser  has duly filed in correct form all federal,  state,
county and local information  returns and tax returns required to be filed by it
on or prior to the date hereof (all such returns  being true and complete in all
material  respects)  and has duly paid,  discharged or made  provisions  for the
payment of all material Taxes (as  hereinafter  defined) and other  governmental
charges  which  have been  incurred  or are due or  claimed to be due from it by
federal,  state,  county  or local  taxing  authorities  on or prior to the date
hereof (including without limitation, if and to the extent applicable, those due
in  respect  of its  properties,  income,  business,  capital  stock,  deposits,
franchises,  licenses,  sales and payrolls, any net worth tax), other than Taxes
or other  charges  that are not yet  delinquent  or are being  contested in good
faith and have not been finally  determined.  The amounts set up as reserves for
Taxes on the  consolidated  balance  sheet of  Purchaser  to be  included in its
Annual  Report  on Form  F-2 for the  period  ended  December  31,  1996  and in
Purchaser's  Call Report for the period ended  December 31, 1996 are  reasonably
sufficient in the aggregate for the payment of all unpaid federal, state, county
and local Taxes  (including any interest or penalties  thereon),  whether or not
disputed,  accrued or applicable, for the period ended December 31, 1996 and all
prior periods covered by such returns,  and for which Purchaser is liable in its
own right or as transferee  of the assets of, or successor to, any  corporation,
person,  association,  partnership,  joint venture or other entity.  The federal
income tax returns of Purchaser have not in the five (5) years prior to the date
of this Agreement,  been examined by the Internal Revenue Service ("IRS"). State
of New Hampshire tax returns of Purchaser  have not, in the five (5) years prior
to the date of this Agreement, been examined by the Department of Revenue of the
State of New  Hampshire.  There are no disputes  pending or claims  asserted for
Taxes or assessments  upon  Purchaser,  nor has Purchaser been requested to give
any waivers  extending  the  statutory  period of  limitation  applicable to any
federal,  state,  county or local income tax return for any period. In addition,
(a) proper and accurate  amounts have been  withheld by the  Purchaser  from its
employees  for  all  prior  periods  in  compliance  with  the  tax  withholding

                                       34

<PAGE>

provisions of applicable  federal,  state,  county and local laws;  (b) federal,
state,  county and local returns which are accurate and complete have been filed
by the  Purchaser  for all periods for which  returns  were due with  respect to
income tax  withholding,  Social Security and  unemployment  taxes;  and (c) the
amounts  shown on such  returns to be due and payable  have been paid in full or
adequate   provision  therefor  has  been  included  by  the  Purchaser  in  its
consolidated  financial  statements  to be included in its Annual Report on Form
F-2 for the period ended December 31, 1996.

              (b) No property of Purchaser is property that Purchaser is or will
be required to treat as being owned by another person pursuant to the provisions
of Section  168(f)(8)  of the  Internal  Revenue Code (as in effect prior to its
amendment by the Tax Reform Act of 1986) or is "tax-exempt use property"  within
the meaning of Section  168(h) of the Internal  Revenue Code of 1986, as amended
(the  "Code").  Purchaser  has not  been  required  to  include  in  income  any
adjustment  pursuant to Section 481 of the Code by reason of a voluntary  change
in accounting  method  initiated by Purchaser,  and the IRS has not initiated or
proposed any such adjustment or change in accounting method.  Purchaser is not a
party to any agreement,  contract or arrangement that would,  individually or in
the aggregate, upon consummation of the transactions contemplated hereby, result
in the payment of an "excess  parachute  payment"  within the meaning of Section
280G of the Code or that could  result in payments  that would be  nondeductible
pursuant to Section  162(m) of the Code.  Purchaser  has not taken nor will take
any action  which  would  result in a  recapture  of all or any portion of their
respective tax bad debt reserves.

              (c) As used in this Agreement, the term "Taxes" means all federal,
state,  county, local and foreign income,  excise,  gross receipts,  ad valorem,
profits, gains, property, sales, transfer, use, payroll, employment,  severance,
withholding, duties, intangibles,  franchise and other taxes, charges, levies or
like  assessments,  including  any net  worth  tax,  or  other  tax of any  kind
whatsoever  together  with  all  penalties  and  additions  to tax and  interest
thereon.

         4.16  INSURANCE.  Purchaser has made  available to the Company true and
complete copies of all material policies of insurance of Purchaser  currently in
effect.  All of the policies relating to insurance  maintained by Purchaser with
respect  to its  material  properties  and the  conduct of its  business  in any
material  respect (or any  comparable  policies  entered  into as a  replacement
therefor) are in full force and effect and Purchaser has not received any notice
of cancellation with respect thereto.  All life insurance  policies on the lives
of any of the current and former  officers of Purchaser  which are maintained by
Purchaser  or which are  otherwise  included as assets on the books of Purchaser
(i) are, or will at the Effective Time be, owned by Purchaser, free and clear of
any claims  thereon by the  officers or members of their  families,  except with
respect to the death  benefits  thereunder,  as to which  Purchaser  agrees that
there will not be an amendment  prior to the Effective  Time without the consent
of the Company,  and (ii) are  accounted  for properly as assets on the books of
Purchaser,  as the case may be, in accordance with GAAP. Purchaser does not have
any material  liability for unpaid premiums or premium  adjustments not properly
reflected on Purchaser's consolidated financial statements contained in the FDIC
Reports.  Purchaser  has been and is  adequately  insured  with  respect  to its




                                       35

<PAGE>




property  and the conduct of its business in such amounts and against such risks
as are substantially  similar in kind and amount to that customarily  carried by
parties  similarly  situated  who  own  properties  and  engaged  in  businesses
substantially  similar  to  that  of  Purchaser  (including  without  limitation
liability insurance and blanket bond insurance).  All claims under any policy or
bond have been duly and timely filed.

         4.17  DISCLOSURE.  No  representation  or  warranty  contained  in this
Agreement, and no statement contained in any certificate,  list or other writing
furnished to the Company pursuant to the provisions hereof,  contains any untrue
statement  of a material  fact or omits to state a material  fact  necessary  in
order to make the statements herein or therein, in light of the circumstances in
which they are made, not misleading.  No information  material to the Merger and
which is necessary to make the  representations  and warranties herein contained
not misleading,  has been withheld from, or has not been delivered in writing to
the Company.

         4.18 EMPLOYEE BENEFIT PLANS.

              (a) Section 4.18 of the Purchaser Disclosure Schedule sets forth a
true and complete list of all Plans maintained or contributed to by Purchaser or
Parent during the three years  preceding  this  Agreement.  The term "Plans" for
purposes of this Article IV means all employee  benefit plans,  arrangements  or
agreements  that are  maintained or contributed  to, or that were  maintained or
contributed  to at any time  during the three years  preceding  the date of this
Agreement,  by Purchaser  or Parent or by any trade or business,  whether or not
incorporated (an "ERISA Affiliate"),  all of which together with Purchaser would
be deemed a "single employer" within the meaning of Section 4001 of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA").

              (b)  Purchaser  has  heretofore  delivered to the Company true and
complete  copies of each of the Plans and all related  documents,  including but
not limited to (i) all required  Forms 5500 and all related  schedules  for such
Plans (if applicable) for each of the last two years,  (ii) the actuarial report
for such Plan (if applicable) for each of the last two years, and (iii) the most
recent determination letter from the IRS (if applicable) for such Plan.

              (c) (i) Each of the Plans has been  operated and  administered  in
all material  respects in accordance  with  applicable  laws,  including but not
limited to ERISA and the Code, (ii) each of the Plans intended to be "qualified"
within the meaning of Section  401(a) of the Code has been  maintained  so as to
qualify from the effective date of such Plan to the Effective  Time,  (iii) with
respect to each Plan which is subject to Title IV of ERISA, the present value of
"benefit liabilities" (within the meaning of Section 4001(a)(16) of ERISA) under
such Plan, based upon the actuarial  assumptions  currently used by the Plan for
IRS funding purposes,  did not, as of its latest valuation date, exceed the then
current value of the assets of such Plan allocable to such accrued benefits, and
there has been no "accumulated funding deficiency" (whether or not waived), (iv)
no Plan provides benefits,  including without limitation death, medical or other
benefits  (whether or not insured),  with respect to current or former employees
of Purchaser or Parent or any ERISA Affiliate  beyond their  retirement or other
termination of service,  other than (u) coverage mandated by applicable law, (v)
life  insurance  death  benefits  payable in the event of the death of a covered




                                       36

<PAGE>




employee,  (w) disability  benefits  payable to disabled former  employees,  (x)
death benefits or retirement benefits under any "employee pension plan," as that
term is defined in Section  3(2) of ERISA,  (y) deferred  compensation  benefits
accrued  as  liabilities  on the  books of  Purchaser  or  Parent  or any  ERISA
Affiliate  or (z)  benefits  the full cost of which is borne by the  current  or
former employee (or his  beneficiary),  (v) with respect to each Plan subject to
Title IV of ERISA,  no  liability  under Title IV of ERISA has been  incurred by
Purchaser or Parent or any ERISA  Affiliate that has not been satisfied in full,
no condition  exists that presents a material risk to Purchaser or Parent or any
ERISA Affiliate of incurring a material liability to or on account of such Plan,
and there has been no "reportable  event" (within the meaning of Section 4043 of
ERISA and the regulations thereunder), (vi) neither Purchaser nor Parent nor any
ERISA Affiliate has ever maintained or contributed to a  "multiemployer  pension
plan,"  as  such  term  is  defined  in  Section  3(37)  of  ERISA,   (vii)  all
contributions  or  other  amounts  payable  by  Purchaser  or  Parent  as of the
Effective  Time with  respect  to each Plan in  respect of current or prior plan
years have been paid or accrued in  accordance  with GAAP and Section 412 of the
Code,  (viii) neither Purchaser or Parent nor any ERISA Affiliate has engaged in
a  transaction  in  connection  with  which  Purchaser  or  Parent  or any ERISA
Affiliate  has any  material  liability  for  either  a civil  penalty  assessed
pursuant to Section 409 or 502(i) of ERISA or a tax imposed  pursuant to Section
4975 or 4976 of the Code,  (ix)  consummation of the  transactions  contemplated
hereby will not cause any amounts  payable  under any of the Plans to fail to be
deductible  for federal income tax purposes under Sections 280G or 162(m) of the
Code, (x) there are no pending or, to the best knowledge of Purchaser or Parent,
threatened or anticipated claims (other than routine claims for benefits) by, on
behalf of or against any of the Plans or any trusts related thereto.

              (d) With  respect to any Plan that is a welfare  plan  (within the
meaning of Section 3(1) of ERISA) (i) no such Plan is funded  through a "welfare
benefit  fund," as such term is defined in Section  419(a) of the Code, and (ii)
each  such  Plan  complies  in  all  material   respects  with  the   applicable
requirements of Section 4980B(f) of the Code, Part 6 of Subtitle B of Title I of
ERISA and any applicable state continuation coverage requirements ("COBRA").

              (e) Except as prohibited by law  (including  Section  411(d)(6) of
the Code), each Plan may be amended,  terminated,  modified or otherwise revised
by Purchaser,  its Subsidiaries or its ERISA Affiliates as of the Effective Time
to eliminate, without material effect, any and all future benefit accruals under
any Plan (except claims incurred under any welfare plan).

         4.19 CERTAIN CONTRACTS.

              (a)  Except  as  set  forth  in  Section  4.19  of  the  Purchaser
Disclosure  Schedule  and in the FDIC  Reports  filed  prior to the date of this
Agreement,  neither Purchaser nor Parent is a party to or bound by any contract,
arrangement,  commitment or  understanding  (whether  written or oral): (i) with
respect to the employment of any director,  officer or employee, or with respect
to the employment of any consultant which cannot be terminated with a payment of
less  than  $5,000,  (ii)  which,  upon  the  consummation  of the  transactions
contemplated by this Agreement, will result in any payment (whether of severance
pay or  otherwise)  becoming  due from  Purchaser  or Parent to any  officer  or
employee  thereof,  (iii)  which is a  material  contract  (as  defined  in Item
601(b)(10) of Regulation S-K of the SEC) to be performed  after the date of this




                                       37

<PAGE>




Agreement  that has not been  filed or  incorporated  by  reference  in the FDIC
Reports,  (iv) which is a consulting or other  agreement  (including  agreements
entered into in the ordinary course and data  processing,  software  programming
and licensing  contracts) not terminable on 90 days or less notice involving the
payment of less than $10,000 per annum,  (v) which  restricts the conduct of any
line of business by Purchaser or Parent,  (vi) with or to a labor union or guild
(including any collective bargaining  agreement),  or (vii) (including any stock
option plan,  stock  appreciation  rights plan,  restricted  stock plan or stock
purchase plan) any of the benefits of which will be increased, or the vesting of
the  benefits  of which will be  accelerated,  by the  occurrence  of any of the
transactions contemplated by this Agreement, or the value of any of the benefits
of which will be calculated on the basis of any of the transactions contemplated
by this  Agreement.  Purchaser has previously  delivered to the Company true and
complete  copies  of  all  employment,   consulting  and  deferred  compensation
agreements  which are in writing  and to which  Purchaser  or Parent is a party.
Each contract, arrangement, commitment or understanding of the type described in
this Section,  whether or not set forth in Section 4.19 of Purchaser  Disclosure
Schedule, is referred to herein as a "Purchaser Contract".

              (b) (i) Each Purchaser  Contract is legal,  valid and binding upon
Purchaser or Parent, as the case may be, assuming due authorization of the other
party or parties thereto, and in full force and effect, (ii) Purchaser or Parent
each has in all  material  respects  performed  all  obligations  required to be
performed by it to date under each such Purchaser  Contract,  and (iii) no event
or condition exists which constitutes or, after notice or lapse of time or both,
would  constitute,  a default on the part of  Purchaser or Parent under any such
Purchaser Contract.

         4.20 INVESTMENT  SECURITIES.  Section  4.20(a) of Purchaser  Disclosure
Schedule  sets forth the book value as of December  31,  1996 of the  investment
securities, mortgage backed securities and securities held for sale by Purchaser
or Parent. Section 4.20(b) of Purchaser or Parent Disclosure Schedule sets forth
the  names  of all the  joint  ventures  in which  Purchaser  or  Parent  has an
investment  (whether  or not such  joint  ventures  remain  active).  Except for
pledges  to  secure  public  and trust  deposits,  Federal  Reserve  borrowings,
repurchase   agreements  and  reverse  repurchase  agreements  entered  into  in
arms'-length transactions pursuant to normal commercial terms and conditions and
other  pledges  required  by  law,  none  of the  investments  reflected  in the
consolidated  balance sheets of Purchaser to be included in its Annual Report on
Form F-2 for the period ended  December 31,  1996,  and none of the  investments
made by Purchaser  since  December 31, 1996,  (i) is subject to any  restriction
(contractual,  statutory  or  otherwise)  that would  impair the  ability of the
entity holding such investment freely to dispose of such investment at any time,
or (ii) has suffered or incurred any  extraordinary  loss nor is  management  of
Purchaser  or Parent aware of any event (or events in the  aggregate)  which may
occur in the  future  that could  reasonably  be  expected  to result in such an
extraordinary loss.

         4.21 ENVIRONMENTAL MATTERS.

              (a) Each of  Purchaser  or Parent  and, to the best  knowledge  of
Purchaser or Parent, their Participation Facilities and Loan Properties (each as
hereinafter  defined),  are,  and have been,  in  material  compliance  with all



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applicable  environmental  laws and with all rules,  regulations,  standards and
requirements of the United States  Environmental  Protection  Agency (the "EPA")
and of state and local agencies with  jurisdiction  over pollution or protection
of the environment.

              (b) There is no suit, claim,  action or proceeding  pending or, to
the best knowledge of Purchaser or Parent,  threatened,  before any Governmental
Entity or other forum in which Purchaser or Parent or any of their Participation
Facilities has been or, with respect to threatened proceedings, may be, named as
a defendant,  responsible party or potentially responsible party (i) for alleged
noncompliance (including by any predecessor),  with any environmental law, rule,
regulation,  standard or  requirement  or (ii)  relating to the release  into or
presence in the Environment (as hereinafter  defined) of any Hazardous Materials
(as  hereinafter  defined)  or  Oil  (as  hereinafter  defined)  whether  or not
occurring  at or on a site owned,  leased or operated by  Purchaser or Parent or
any of their Participation Facilities.

              (c) To the best  knowledge  of  Purchaser  or Parent,  there is no
suit, claim,  action or proceeding pending or threatened before any Governmental
Entity or other forum in which any Loan Property of Purchaser or Parent has been
or,  with  respect to  threatened  proceedings,  may be,  named as a  defendant,
responsible party or potentially responsible party (i) for alleged noncompliance
(including by any predecessor)  with any  environmental  law, rule,  regulation,
standard or  requirement or (ii) relating to the release into or presence in the
Environment of any Hazardous Material or Oil whether or not occurring at or on a
site owned, leased or operated by a Loan Property of Purchaser or Parent.

              (d) Neither  Purchaser,  nor Parent,  nor to their best knowledge,
any of their  Participation  Facilities  or Loan  Properties,  has  received any
notice  regarding  a matter  on which a suit,  claim,  action or  proceeding  as
described in  subsection  (b) or (c) of this Section  4.21 could  reasonably  be
based. No facts or circumstances  have come to Purchaser's or Parent's attention
which have  caused  either to believe  that a material  suit,  claim,  action or
proceeding  as  described  in  subsection  (b) or (c) of this Section 4.21 could
reasonably be expected to occur.

              (e) During the period of (i) Purchaser's or Parent's  ownership or
operation of any of their  respective  current  properties,  (ii) Purchaser's or
Parent's   participation  in  the  management  of  any  of  their  Participation
Facilities,  or (iii)  Purchaser's or Parent's holding of a security interest in
any of their  Loan  Properties,  there has been no release  or  presence  in the
Environment  of  Hazardous  Material  or Oil in,  on,  under or  affecting  such
property or, to the best  knowledge  of  Purchaser or Parent such  Participation
Facility or Loan  Property.  To the best knowledge of Purchaser and Parent prior
to the period of (x)  Purchaser's  or Parent's  ownership or operation of any of
their  respective  current  properties  or  any  previously  owned  or  operated
properties,  (y) Purchaser's or Parent's  participation in the management of any
of their Participation  Facilities,  or (z) Purchaser's or Parent's holding of a
security  interest  in any of its  Loan  Properties,  there  was no  release  or
presence  in the  Environment  of  Hazardous  Material  or Oil in, on,  under or
affecting any such property, Participation Facility or Loan Property.

              (f) The following  definitions  apply for purposes of this Section
4.21: (i) "Loan  Property" means any property in which Purchaser or Parent holds
a security  interest,  and, where  required by the context,  said term means the

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<PAGE>

owner or operator of such  property;  (ii)  "Participation  Facility"  means any
facility in which Purchaser or Parent  participates  or has  participated in the
management  and,  where  required by the  context,  said term means the owner or
operator of such  property;  (iii)  "Hazardous  Material"  means any  pollutant,
contaminant,  or  hazardous  substance  or  hazardous  material as defined in or
pursuant  to  the  Comprehensive  Environmental  Response,   Compensation,   and
Liability Act, 42 U.S.C. ss. 9601 et seq., or any other federal, state, or local
environmental law, regulation, or requirement; (iv) "Oil" means oil or petroleum
of any kind or origin or in any form,  as defined in or  pursuant to the Federal
Clean Water Act, 33 U.S.C.  ss. 1251 et seq., or any other  federal,  state,  or
local environmental law, regulation, or requirement; and (v) "Environment" means
any soil, surface waters, groundwaters,  stream sediments, surface or subsurface
strata, and ambient air, and any other environmental medium.

         4.22 PROPERTIES.

              (a) Section 4.22 of the Purchaser  Disclosure  Schedule contains a
true,  complete and correct  list and a brief  description  (including  carrying
value) of all real properties,  including  properties acquired by foreclosure or
deed in lieu  thereof,  owned or leased to Purchaser  and Parent.  Except as set
forth in Section 4.22 of Purchaser  Disclosure  Schedule,  Purchaser  and Parent
each has good and  marketable  title  to all the  real  property  and all  other
property owned by it and included in the consolidated balance sheet of Purchaser
for the period ended  December 31, 1996,  and owns such  property  subject to no
encumbrances,  liens,  mortgages,  security  interests  or pledges,  except such
encumbrances,  liens, mortgages, security interests and pledges that do not have
a Material  Adverse  Effect on  Purchaser or Parent or which do not and will not
interfere with the use of the property as currently used or  contemplated  to be
used by  Purchaser  or Parent,  or the conduct of the  business of  Purchaser or
Parent.

              (b)  Neither  Purchaser  nor  Parent  has  received  any notice of
violation of any applicable  zoning or  environmental  regulation,  ordinance or
other law,  order,  regulation or requirement  relating to its operations or its
properties  and to the  knowledge  of  Purchaser  and  Parent,  there is no such
violation  of a  material  nature.  Except as set forth in  Section  4.22 to the
Purchaser Disclosure Schedule, all buildings and structures used by Purchaser or
Parent conform in all material  respects with all applicable  ordinances,  codes
and regulations,  or are not required to conform due to  grandfathering  clauses
contained in such  ordinances,  codes or regulations,  except to the extent such
noncompliance  does not and will not have a Material Adverse Effect on Purchaser
or Parent and which does not or will not interfere  with the use of any property
as currently  used or  contemplated  to be used by  Purchaser or Parent,  or the
conduct of the business of Purchaser or Parent.

              (c) Section 4.22 to the Purchaser  Disclosure  Schedule contains a
true,  complete  and correct list of all leases  pursuant to which  Purchaser or
Parent lease any real or personal  property,  either as lessee or as lessor (the
"Purchaser  Leases").  Assuming due  authorization of the other party of parties
thereto,  each of the  Purchaser  Leases is valid and  binding on  Purchaser  or
Parent, as the case may be, and valid and binding on and enforceable against all
other  respective  parties to such leases in  accordance  with their  respective
terms (subject to bankruptcy, insolvency, reorganization, moratorium and similar



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<PAGE>




laws  affecting  the rights and  remedies  of  creditors  generally  and general
principles of equity).  There are not under such  Purchaser  Leases any existing
breaches,  defaults,  events of default by Purchaser or Parent,  or events which
with notice and/or lapse of time would constitute a breach,  default or event of
default by Purchaser or Parent,  nor has Purchaser or Parent received notice of,
or made a claim with  respect  to,  any breach or default by any other  party to
such  Purchaser  Leases.  Purchaser  and Parent  each enjoy  quiet and  peaceful
possession of all such leased properties occupied by it as lessee.

              (d) All of the real properties,  leasehold  improvements and items
of equipment and other material personal property owned,  leased, or licensed by
Purchaser or Parent,  or in which any of those parties hold an interest,  are in
good  maintenance,  repair,  and  operating  condition,  ordinary  wear and tear
excepted,  are  adequate  for the  purposes  for which they are now being or are
anticipated to be used, and are free from any material defects.

         4.23 ADMINISTRATION OF FIDUCIARY ACCOUNTS. Each of Purchaser and Parent
has  properly  administered  all  accounts  for  which  it acts as a  fiduciary,
including  but not limited to accounts for which it serves as a trustee,  agent,
custodian, personal representative, guardian, conservator or investment advisor,
in accordance with the terms of the governing  documents and applicable law. The
accountings for each such fiduciary  account are true and correct and accurately
reflect the assets of such fiduciary account.  Neither Purchaser, nor Parent, to
the best knowledge of Purchaser and Parent, their respective officers, directors
or employees  has  committed  any breach of trust with respect to any  fiduciary
account.

         4.24  TRANSACTIONS  WITH CERTAIN PERSONS.  Neither Purchaser nor Parent
has any outstanding  loan,  deposit or other  relationship or other  transaction
with any officer, director or greater-than-5% shareholder of Purchaser or Parent
or any  "associate" (as defined in Rule 14a-1 under the Exchange Act of any such
officer or director)  affiliates (as defined in Rule 144(a)(1) of the Securities
Act) of any such officer, director or shareholder (individually,  an "Interested
Person"),  other than deposit or loan  transactions  in the  ordinary  course of
business on terms  substantially  the same as those  prevailing  at the time for
comparable transactions with other,  unaffiliated persons, and which did not and
do not involve any  unusual  risk  (including  of  non-collectibility)  or other
features  unfavorable  to  Purchaser or Parent.  Section  4.24 of the  Purchaser
Disclosure  Schedule hereto contains a full description of all outstanding loans
by Purchaser or Parent to an Interested Person which,  either individually or in
the aggregate, have current outstanding balances of $5,000 or more (including in
the  outstanding  balance all amounts which  Purchaser or Parent is obligated to
advance  but not  including  loans  secured  by cash  collateral).  All  deposit
relationships  of Purchaser or Parent with an Interested  Person with  aggregate
balances  in excess  of  $10,000  are fully  described  in  Section  4.24 of the
Purchaser Disclosure Schedule.  Except as otherwise set forth in Section 4.24 of
the Purchaser Disclosure Schedule, neither Purchaser nor Parent has entered into
any contractual or other business relationship with any Interested Person.

         4.25  STATE  TAKEOVER  LAWS.  The  transactions  contemplated  by  this
Agreement are not subject to any applicable state takeover laws in effect on the
date hereof.  The Board of Directors of Purchaser has taken all necessary action
prior to the date of this  Agreement  in  connection  with the  approval  of the



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<PAGE>




execution,  delivery and  performance of this  Agreement,  any purchase or other
transaction  respecting  Purchaser  Common Stock provided for herein or therein,
and the other transactions  contemplated  hereby and thereby,  including without
limitation  approval by a majority of the Continuing  Directors of Purchaser (as
such term is defined in the  Amended  and  Restated  Articles  of  Agreement  of
Purchaser).

         4.26.  LABOR  MATTERS.  Neither  Purchaser nor Parent is a party to any
collective  bargaining  or other  labor  union or  guild  contract.  There is no
pending or, to the best  knowledge  of  Purchaser,  threatened,  labor  dispute,
strike or work stoppage against Purchaser or Parent which may interfere with the
respective  business  activities of Purchaser or Parent.  Neither  Purchaser nor
Parent,  nor, their respective  representatives or employees,  has committed any
unfair  labor  practices in  connection  with the  operation  of the  respective
businesses  of  Purchaser  or Parent,  and there is no  pending  or, to the best
knowledge  of  Purchaser  or Parent,  threatened,  charge or  complaint  against
Purchaser  or Parent by the National  Labor  Relations  Board or any  comparable
state agency.

         4.27.  INTELLECTUAL  PROPERTY.   Purchaser  and  Parent  each  owns  or
possesses valid and binding  licenses and other rights to use without payment of
any material  amount all material  patents,  copyrights,  trade  secrets,  trade
names,  service marks and  trademarks  used in its  businesses,  provided,  that
neither  Purchaser nor Parent claims to have sole or exclusive  right to use all
of the trade names and service  marks used by it;  neither  Purchaser nor Parent
has received any notice of conflict with respect  thereto that asserts the right
of others.  Purchaser and Parent each has performed in all material respects all
the  obligations  required to be performed by them and are not in default  under
any  contract,  agreement,  arrangement  or  commitment  relating  to any of the
foregoing.

         4.28 OWNERSHIP OF THE COMPANY COMMON STOCK;  AFFILIATES AND ASSOCIATES.
Neither  Purchaser,  nor Parent,  nor any of their  affiliates or associates (as
such terms are defined under the Exchange Act), (i) beneficially  own,  directly
or indirectly, or (ii) is a party to any agreement, arrangement or understanding
for the purpose of acquiring, holding, voting or disposing of, in each case, any
shares of capital  stock of the Company or the Bank  (other  than Trust  Account
Shares  and DPC  Shares).  Neither  Purchaser,  nor  Parent,  nor  any of  their
directors,  officers,  or employees is an  "affiliate"  or an "associate" of the
Company.


                                    ARTICLE V

                    COVENANTS RELATING TO CONDUCT OF BUSINESS

         5.01 COVENANTS OF THE COMPANY AND THE BANK.  During the period from the
date of this  Agreement  and  continuing  until the  Effective  Time,  except as
expressly  contemplated or permitted by this Agreement or with the prior written
consent of Purchaser,  the Company and the Bank shall carry on their  respective
businesses in the ordinary course consistent with past practice and with prudent
banking practice.  The Company and the Bank each will use all reasonable efforts
to (x)  preserve  its  business  organization,  (y) keep  available  the present
services of its employees and (z) preserve for itself and Purchaser the goodwill
of the  customers  of the  Company  and the Bank and others  with whom  business



                                       42

<PAGE>




relationships  exist.  Without  limiting the  generality of the  foregoing,  and
except as set forth in Section  5.01 of the  Company  Disclosure  Schedule or as
otherwise  contemplated  by  this  Agreement  or  consented  to  in  writing  by
Purchaser,  whose consent shall not be unreasonably withheld or delayed, neither
the Company nor the Bank shall:

                  (a)   declare  or  pay  any   dividends   on,  or  make  other
distributions  in respect of, any of its capital stock,  except that the Company
may pay its regular  semi-annual cash dividend of up to $0.15 per share in June,
1997 and up to $0.29 in  December,  1997 if the Closing has not yet  occurred by
the respective date on which such dividend is payable;

                  (b) (i) split, combine or reclassify any shares of its capital
stock or issue or authorize or propose the issuance of any other  securities  in
respect of, in lieu of or in substitution for shares of its capital stock except
upon the  exercise  or  fulfillment  of rights  or  options  issued or  existing
pursuant to employee benefit plans, programs or arrangements,  all to the extent
outstanding and in existence on the date of this Agreement,  or (ii) repurchase,
redeem or otherwise  acquire (except for the acquisition of Trust Account Shares
and DPC Shares as such terms are defined in Section 1.05(b) hereof),  any shares
of the capital stock of the Company or the Bank, or any  securities  convertible
into or  exercisable  for any shares of the capital  stock of the Company or the
Bank;

                  (c)  issue,  deliver or sell,  or  authorize  or  propose  the
issuance, delivery or sale of, any shares of its capital stock or any securities
convertible  into or  exercisable  for,  or any  rights,  warrants or options to
acquire, any such shares, or enter into any agreement with respect to any of the
foregoing;

                  (d)  amend  its  Articles  of  Incorporation  or  Articles  of
Association,  as the case may be,  or  By-Laws,  or  elect  or  appoint  any new
directors;

                  (e) enter into any real property  lease for a term longer than
one year, or extend the term of any lease currently in effect;

                  (f)  make  any  capital  expenditures  in  excess  of  $10,000
individually, or $50,000 in the aggregate;

                  (g) enter into any new line of business  or offer  deposit and
loan pricing which is materially  different  relative to its  competitors in the
local market;

                  (h) acquire or agree to acquire,  by merging or  consolidating
with, or by purchasing a substantial equity interest in or a substantial portion
of the assets  of, or by any other  manner,  any  business  or any  corporation,
partnership,  association or other business  organization or division thereof or
otherwise  acquire  any  assets,  other than in  connection  with  foreclosures,
settlements in lieu of foreclosure  or troubled loan or debt  restructurings  in
the ordinary  course of business,  which would be material to the Company or the
Bank;

                                       43

<PAGE>

                  (i) take any action that is intended or would result in any of
its representations and warranties set forth in this Agreement being or becoming
untrue in any material  respect,  or in any of the  conditions to the Merger set
forth in Article VII not being satisfied,  or in a violation of any provision of
this Agreement, except, in every case, as may be required by applicable law;

                  (j) change its methods of accounting in effect at December 31,
1996, except as required by changes in GAAP or regulatory  accounting principles
as concurred to by the Company's independent auditors;

                  (k) (i) except as  required by  applicable  law or to maintain
qualification  pursuant to the Code,  (x) adopt,  amend,  renew or terminate any
Plan or any  agreement,  arrangement,  plan or policy between the Company or the
Bank and one or more of its current or former  directors,  officers or employees
or (y) except for normal increases in the ordinary course of business consistent
with past practice,  increase in any manner the  compensation or fringe benefits
of any director, officer or employee or pay any benefit not required by any plan
or agreement as in effect as of the date hereof (including,  without limitation,
the granting of stock options,  stock  appreciation  rights,  restricted  stock,
restricted  stock  units or  performance  units or  shares)  or (ii)  except  as
contemplated by Section 1.09 hereof, enter into, modify or renew any employment,
severance  or other  agreement  with any  director,  officer or  employee of the
Company or the Bank, or  establish,  adopt,  enter into or amend any  collective
bargaining,   bonus,  profit  sharing,  thrift,   compensation,   stock  option,
restricted  stock,  pension,  retirement,  deferred  compensation,   employment,
termination,  severance  or  other  plan,  agreement,  trust,  fund,  policy  or
arrangement providing for any benefit to any director, officer or employee;

                  (l)  take  or  cause  to  be  taken  any  action  which  would
disqualify the Merger as a "pooling of interests"  for accounting  purposes or a
tax free reorganization under Section 368 of the Code;

                  (m) other than in the ordinary  course of business  consistent
with  past  practice,   incur  any  indebtedness  for  borrowed  money,  assume,
guarantee,  endorse or otherwise as an accommodation  become responsible for the
obligations of any other individual, corporation or other entity;

                  (n) file any  application  to open,  relocate or terminate the
operations  of any  banking or other  office or  facility  except for the branch
facility to be opened in the Plymouth Regional High School;

                  (o) make any equity  investment  or commitment to make such an
investment in real estate or in any real estate development project,  other than
in connection with foreclosures,  settlements in lieu of foreclosure or troubled
loan or debt restructurings in the ordinary course of business;

                  (p) sell, lease, encumber,  assign or otherwise dispose of, or
agree to sell,  lease,  encumber,  assign or  otherwise  dispose  of, any of its
material  assets,  properties  or other rights or agreements or purchase or sell
any loans in bulk;


                                       44

<PAGE>




                  (q)  foreclose  upon or take  deed or title to any  commercial
real estate without first  conducting a Phase I environmental  assessment of the
property;  or  foreclosure  upon such  commercial  real  estate if such  Phase I
environmental assessment indicates the presence of hazardous material in amounts
which, if such foreclosure were to occur,  would be reasonably  likely to result
in a Material Adverse Effect on the Company or the Bank;

                  (r) make any tax election or settle or compromise any material
Federal, state, local or foreign tax liability;

                  (s)  pay,  discharge  or  satisfy  any  claim,   liability  or
obligation,  other than the payment, discharge or satisfaction,  in the ordinary
course of business and consistent with past practice,  of liabilities  reflected
or reserved  against in the balance sheet for the fiscal year ended December 31,
1996, or subsequently incurred in the ordinary course of business and consistent
with past practice;

                  (t) sell any securities in its investment portfolio, except in
the ordinary course of business;

                  (u)  change  its loan  policies  or  procedures  in  effect at
December 31, 1996;

                  (v) enter into or renew, amend or terminate, or give notice of
a proposed renewal, amendment or termination of make any commitment with respect
to, (i) any contract,  agreement or lease for office space,  operations space or
branch space to which the Company or the Bank is a party or by which the Company
or the Bank or their respective properties is bound; (ii) any lease, contract or
agreement  other than in the ordinary  course of business  consistent  with past
practices;  (iii)  regardless of whether  consistent  with past  practices,  any
lease, contract, agreement or commitment involving an aggregate payment by or to
the  Company  or the Bank of more than  $25,000  or having a term of one year or
more from the time of execution;

                  (w) make any loan other than in accordance  with the Company's
or the Bank's loan and credit policies and the Company's or the Bank's customary
terms,  conditions  and  standards,  and in accordance  with  applicable law and
consistent with prudent banking practices;

                  (x) waive any  material  right,  whether  in equity or at law,
that it has with respect to any loan,  except in the ordinary course of business
consistent with prudent banking practices;

                  (y) agree to do any of the foregoing.

         5.02 NO SOLICITATION.

                   (a)  Neither  the  Company  nor the  Bank  nor  any of  their
directors,  officers, employees,  representatives,  agents and advisors or other
persons  controlled  by the  Company  or the Bank  shall,  except to the  extent
required by applicable law relating to fiduciary obligations of directors,  upon
advice of counsel,  solicit or hold discussions or negotiations  with, or assist


                                       45

<PAGE>




or provide  any  information  to,  any  person,  entity,  or group  (other  than
Purchaser)  concerning any merger,  disposition of a significant  portion of its
assets, or acquisition of a significant  portion of its capital stock or similar
transactions  involving  the  Company  or the Bank.  Nothing  contained  in this
Section  shall  prohibit the Company or its Board of  Directors  from taking and
disclosing  to the  Company's  shareholders  a position with respect to a tender
offer by a third party pursuant to Rules 14d-9 and 14e-2  promulgated  under the
Exchange  Act or making  such other  disclosure  to the  Company's  shareholders
which,  in the  judgment  of the Board of  Directors,  based  upon the advice of
counsel,  may be  required  under  applicable  law.  The Company  will  promptly
communicate to Purchaser the terms of any proposal, discussion,  negotiation, or
inquiry  relating to a merger or  disposition  of a  significant  portion of its
capital stock or similar  transaction  involving the Company or the Bank and the
identity of the party making such proposal or inquiry, which it may receive with
respect to any such transaction.

                   (b) Neither  Purchaser nor Parent nor any of their directors,
officers,  employees,  representatives,  agents and  advisors  or other  persons
controlled by the Purchaser  shall,  except to the extent required by applicable
law  relating to fiduciary  obligations  of  directors,  upon advice of counsel,
solicit or hold  discussions  or  negotiations  with,  or assist or provide  any
information to, any person, entity, or group (other than Company) concerning any
merger,  disposition of a significant portion of its assets, or acquisition of a
significant portion of its capital stock or similar  transactions  involving the
Purchaser or the Bank.  Nothing  contained in this  Section  shall  prohibit the
Purchaser  or  its  Board  of  Directors  from  taking  and  disclosing  to  the
Purchaser's  shareholders  a position  with respect to a tender offer by a third
party  pursuant to Rules 14d-9 and 14e-2  promulgated  under the Exchange Act or
making such other  disclosure  to the  Purchaser's  shareholders  which,  in the
judgment of the Board of  Directors,  based upon the advice of  counsel,  may be
required under  applicable  law. The Purchaser will promptly  communicate to the
Company the terms of any proposal, discussion,  negotiation, or inquiry relating
to a merger or  disposition  of a  significant  portion of its capital  stock or
similar transaction involving the Purchaser and the identity of the party making
such  proposal  or  inquiry,  which  it may  receive  with  respect  to any such
transaction.

         5.03 COVENANTS OF PURCHASER AND PARENT. During the period from the date
of this Agreement and continuing  until the Effective Time,  except as expressly
contemplated or permitted by this Agreement or with the prior written consent of
the Company,  Purchaser and Parent shall carry on its respective business in the
ordinary course consistent with past practice and with prudent banking practice.
Purchaser will use all reasonable  efforts to (x) preserve its present  business
organizations  intact,  (y) keep available the present services of its employees
and (z)  preserve  for itself and the Company the  goodwill of the  customers of
Purchaser and others with whom business  relationships  exist.  Without limiting
the generality of the foregoing,  and except as set forth in Section 5.03 of the
Purchaser Disclosure Schedule or as otherwise  contemplated by this Agreement or
consented to in writing by the Company,  whose consent shall not be unreasonably
withheld or delayed, neither Purchaser nor Parent shall:

                   (a)  declare  or  pay  any   dividends   on,  or  make  other
distributions  in  respect  of,  any  of  its  capital  stock,  except  for  the
declaration  and payment of regular  cash  dividends in such amount as Purchaser
may determine, provided, however, that the Dividend Payout Ratio (as hereinafter

                                       46

<PAGE>




defined) of Purchaser  in any fiscal year shall not exceed the  Dividend  Payout
Ratio of the Company in its 1996 fiscal year. With respect to either party,  the
"Dividend  Payout  Ratio"  for any  fiscal  year  shall  mean  the  ratio of the
aggregate  cash  dividends  paid to such party's  shareholders  during such year
divided by such party's total net income for the same fiscal year.

              (b) (i) split,  combine or  reclassify  any shares of its  capital
stock or issue or authorize or propose the issuance of any other  securities  in
respect of, in lieu of or in substitution for shares of its capital stock except
upon the  exercise  or  fulfillment  of rights  or  options  issued or  existing
pursuant to employee benefit plans, programs or arrangements,  all to the extent
outstanding and in existence on the date of this Agreement,  or (ii) repurchase,
redeem or otherwise  acquire (except for the acquisition of Trust Account Shares
and DPC Shares as such terms are defined in Section 1.05(b) hereof),  any shares
of the  capital  stock  of  Purchaser,  or any  securities  convertible  into or
exercisable  for any shares of the  capital  stock of the  Purchaser,  PROVIDED,
HOWEVER,   that   Purchaser  is   permitted   to  effect  the  Holding   Company
Reorganization  which will involve an exchange of stock in  accordance  with the
Holding Company Exchange Ratio.

              (c) issue,  deliver or sell, or authorize or propose the issuance,
delivery  or  sale  of,  any  shares  of its  capital  stock  or any  securities
convertible  into or  exercisable  for,  or any  rights,  warrants or options to
acquire, any such shares, or enter into any agreement with respect to any of the
foregoing;

              (d) amend its  Articles  of  Incorporation  or  By-Laws  except as
required to comply with Sections 1.07 and 1.08 hereof;

              (e) acquire or agree to acquire, by merging or consolidating with,
or by purchasing a substantial  equity  interest in or a substantial  portion of
the  assets  of,  or by any  other  manner,  any  business  or any  corporation,
partnership,  association or other business  organization or division thereof or
otherwise  acquire  any  assets,  other than in  connection  with  foreclosures,
settlements in lieu of foreclosure  or troubled loan or debt  restructurings  in
the ordinary course of business, which would be material to the Purchaser;

              (f) take any action that is intended or would result in any of its
representations  and warranties  set forth in this  Agreement  being or becoming
untrue in any material  respect,  or in any of the  conditions to the Merger set
forth in Article VII not being satisfied,  or in a violation of any provision of
this Agreement, except, in every case, as may be required by applicable law;

              (g) change its methods of  accounting  in effect at  December  31,
1996, except as required by changes in GAAP or regulatory  accounting principles
as concurred to by Purchaser's independent auditors;

              (h) (i)  except  as  required  by  applicable  law or to  maintain
qualification  pursuant to the Code,  (x) adopt,  amend,  renew or terminate any
Plan or any agreement,  arrangement,  plan or policy between Purchaser or Parent
and one or more of its current or former directors, officers or employees or (y)
except for normal  increases in the ordinary course of business  consistent with


                                       47

<PAGE>




past practice, increase in any manner the compensation or fringe benefits of any
director,  officer or employee  or pay any  benefit not  required by any plan or
agreement as in effect as of the date hereof (including, without limitation, the
granting  of  stock  options,  stock  appreciation  rights,   restricted  stock,
restricted  stock  units or  performance  units or  shares)  or (ii)  except  as
contemplated by Section 1.09 hereof, enter into, modify or renew any employment,
severance or other agreement with any director, officer or employee of Purchaser
or Parent, or establish,  adopt, enter into or amend any collective  bargaining,
bonus, profit sharing,  thrift,  compensation,  stock option,  restricted stock,
pension, retirement, deferred compensation,  employment,  termination, severance
or other plan,  agreement,  trust, fund, policy or arrangement providing for any
benefit to any director, officer or employee;

              (i) take or cause to be taken any action  which  would  disqualify
the Merger as a "pooling of  interests"  for  accounting  purposes or a tax free
reorganization under Section 368 of the Code;

              (j) foreclose  upon or take deed or title to any  commercial  real
estate  without  first  conducting  a Phase I  environmental  assessment  of the
property;  or  foreclosure  upon such  commercial  real  estate if such  Phase I
environmental assessment indicates the presence of hazardous material in amounts
which, if such foreclosure were to occur,  would be reasonably  likely to result
in a Material Adverse Effect on Purchaser or Parent;

              (k) make any loan other than in  accordance  with  Purchaser's  or
Parent's loan and credit policies and Purchaser's or Parent's  customary  terms,
conditions and standards,  and in accordance  with applicable law and consistent
with prudent banking practices;

              (l) waive any material right, whether in equity or at law, that it
has with  respect  to any  loan,  except  in the  ordinary  course  of  business
consistent with prudent banking practices;

              (m) agree to do any of the foregoing.

         5.04 MINIMUM  SHAREHOLDERS'  EQUITY;  Allowance for Loan Losses. At the
Effective  Time,  the  Company  shall  have  consolidated  shareholders'  equity
(exclusive of unrealized  investment losses) at least equal to that reflected in
the Company's audited financial  statements for the year ended December 31, 1996
and (ii) an  allowance  for loan and lease  losses at least equal to 95% of that
reflected  in the  Company's  audited  financial  statements  for the year ended
December 31, 1996. At the Effective Time,  Purchaser shall have (i) consolidated
shareholders' equity (exclusive of unrealized  investment losses) at least equal
to that reflected in Purchaser's audited financial statements for the year ended
December 31, 1996 and (ii) an allowance for loan and lease losses at least equal
to 95% of that reflected in  Purchaser's  audited  financial  statements for the
year ended December 31, 1996 less $500,000.



                                       48

<PAGE>




                                   ARTICLE VI

                              ADDITIONAL AGREEMENTS

         6.01     REGULATORY MATTERS.

                  (a) The parties hereto shall cooperate with each other and use
all reasonable efforts promptly to prepare and file all necessary documentation,
to effect all  applications,  notices,  petitions and filings,  and to obtain as
promptly as practicable all permits,  consents,  approvals and authorizations of
all third parties and Governmental  Entities which are necessary or advisable to
consummate the transactions  contemplated by this Agreement  (including  without
limitation the Merger). The Company and Purchaser shall have the right to review
in advance,  and to the extent  practicable each will consult with the other on,
in each case subject to applicable laws relating to the exchange of information,
all the information relating to the Company, the Bank or Purchaser,  as the case
may be, which appear in any filing made with or written materials  submitted to,
any third party or any  Governmental  Entity in connection with the transactions
contemplated by this Agreement.  In exercising the foregoing right,  each of the
parties hereto shall act reasonably and as promptly as practicable.  The parties
hereto  agree  that they  will  consult  with each  other  with  respect  to the
obtaining of all permits,  consents,  approvals and  authorizations of all third
parties and  Governmental  Entities  necessary or advisable  to  consummate  the
transactions  contemplated  by this Agreement and each party will keep the other
apprised of the status of matters  relating to  completion  of the  transactions
contemplated herein.

                  (b) Purchaser and the Company (or the Bank as the case may be)
shall,  upon  request,  furnish  each  other  with  all  information  concerning
themselves, their respective directors, officers and shareholders and such other
matters as may be reasonably necessary or advisable in connection with the Proxy
Statement, the Registration Statement or any other statement,  filing, notice or
application made by or on behalf of Purchaser,  Parent,  the Company or the Bank
to any  Governmental  Entity  in  connection  with  the  Merger  and  the  other
transactions contemplated hereby.

                  (c) Purchaser and the Company (or the Bank as the case may be)
shall promptly furnish each other with copies of written communications received
by Purchaser, the Company or the Bank, as the case may be, from, or delivered by
any of the foregoing to, any Governmental  Entity in respect of the transactions
contemplated hereby.

         6.02     SECURITIES LAWS MATTERS.

                  (a) As soon as practicable  after the date hereof,  Parent and
the Company shall file the Registration  Statement, in which the Proxy Statement
will be included as part of the prospectus,  with the SEC and the FDIC under the
Exchange Act and applicable  FDIC  regulations.  Parent,  Purchaser and the Bank
shall use all reasonable  efforts to have the Registration  Statement cleared by
the SEC and the FDIC as promptly as practicable after such filing.


                                       49

<PAGE>




                  (b) Parent,  Purchaser  and the Company shall  cooperate  with
each other in the  preparation  of the  Registration  Statement,  and each shall
notify  the other of the  receipt of any  comments  of the SEC and the FDIC with
respect to the  Registration  Statement  and of any  requests by the SEC and the
FDIC for any amendment or supplement  thereto or for additional  information and
shall provide to the other parties promptly copies of all correspondence between
the party or any  representative or agent of the party and the FDIC or SEC. Each
party shall review the Registration  Statement prior to its being filed with the
SEC and the  FDIC  and  shall  review  all  amendments  and  supplements  to the
Registration  Statement and all responses to requests for additional information
and replies to comments prior to their being filed with, or sent to, the SEC and
the FDIC. The parties agree to use all reasonable  efforts,  after  consultation
with each other, to respond promptly to all such comments of and requests by the
SEC and the FDIC.

                  (c)  Purchaser   will  advise  the  Company,   promptly  after
Purchaser receives notice thereof,  of the time when the Registration  Statement
has  become  effective  or any  supplement  or  amendment  has been filed or the
issuance of any stop order or the suspension of the  qualification of the Parent
Common  Stock for offering or sale in any  jurisdiction,  or the  initiation  or
threat or any proceeding for any such purpose.

                  (d) Purchaser  and the Company  shall each use all  reasonable
efforts to obtain,  prior to the effective date of the  Registration  Statement,
all necessary state securities laws or "blue sky" permits and approvals required
in connection with the issuance of Parent Common Stock in the Merger.

                  (e)  Purchaser  and the  Company  further  agree to cause  the
Registration Statement and all required amendments and supplements thereto to be
mailed to their  respective  shareholders  entitled  to vote at the  Shareholder
Meetings at the earliest practicable time.

         6.03  SHAREHOLDER  MEETINGS.  In order to  consummate  the Merger,  the
Company and Purchaser  shall take all steps  necessary to duly call, give notice
of, convene and hold their respective Shareholder Meeting as soon as practicable
for  the  purpose  of  voting  upon  the  approval  of  this  Agreement  and the
transactions  contemplated hereby and shall use all reasonable efforts to obtain
such approval and adoption.  The Company and Purchaser each shall, through their
respective  Board of Directors,  except to the extent  legally  required for the
discharge of the fiduciary  duties of such Board under applicable law as advised
in writing by its independent counsel,  recommend to their shareholders approval
of this  Agreement and the  transactions  contemplated  hereby.  The Company and
Purchaser shall coordinate and cooperate with respect to the foregoing matters.

         6.04     ACCESS TO INFORMATION.

                  (a) Upon  reasonable  notice and  subject to  applicable  laws
relating to the exchange of  information,  the parties shall afford each other's
officers, employees, counsel, accountants, agents, advisors and other authorized
representatives, access, during normal business hours during the period prior to
the Effective Time, to all its  properties,  books,  contracts,  commitments and
records and, during such period, make available to the other party (i) a copy of


                                       50

<PAGE>




each  report,  schedule,  registration  statement  and other  document  filed or
received  by it during  such  period  pursuant  to the  requirements  of Federal
securities  laws or  Federal  or state  banking  laws  (other  than  reports  or
documents  which are not permitted to be disclosed under  applicable  law), (ii)
copies  of  all  periodic  reports  to  senior  management,   including  without
limitation,  reports on non-performing loans and other asset quality matters and
all materials  furnished to the respective boards of directors relating to asset
quality  generally,  and (iii) all other  information  concerning  its business,
properties, assets and personnel as either party may reasonably request.

                  (b) No party  shall be  required  to  provide  access to or to
disclose  information  where such  access or  disclosure  would  jeopardize  the
attorney-client  privilege of the  institution  in possession or control of such
information or contravene any law, rule, regulation,  order,  judgment,  decree,
fiduciary  duty or  binding  agreement  entered  into  prior to the date of this
Agreement.  The  parties  hereto  will make  appropriate  substitute  disclosure
arrangements  under  circumstances  in which the  restrictions  of the preceding
sentence apply.

                  (c) All information (the "Confidential Information") furnished
by one  party  (the  "Providing  Party")  to the other  party or its  directors,
officers,   employees,   counsel,   accountants,   agents,   and  advisors  (the
"Representatives") (the "Receiving Party") shall be treated as the sole property
of the Providing  Party and, if this Agreement  terminates,  the Receiving Party
shall return to the  Providing  Party or destroy all such  written  Confidential
Information.  The Receiving  Party shall,  and shall use  reasonable  efforts to
cause  its   Representatives   to,  keep   confidential  all  such  Confidential
Information,  and shall not directly or indirectly use such  information for any
competitive or commercial  purpose.  Confidential  Information shall not include
information which (i) was already in the possession of the Receiving Party prior
to receipt from the Providing Party, provided that such information is not known
by  the  Receiving  Party  or  its  Representatives  to be  subject  to  another
confidentiality  agreement with or other  obligation of secrecy to the Providing
Party; (ii) becomes generally  available to the public other than as a result of
a disclosure by the Receiving  Party;  (iii) becomes  available to the Receiving
Party on a  non-confidential  basis from a source other than the Providing Party
or its Representatives,  provided that such source is not known by the Receiving
Party to be bound by a  confidentiality  agreement  with or other  obligation of
secrecy to the  Providing  Party;  (iv) has been approved for release by written
authorization  of the  Providing  Party;  or (v)  has  been  publicly  disclosed
pursuant to a requirement of a government agency or of law.

         6.05 LEGAL CONDITIONS TO MERGER. Each of Parent, Purchaser, the Company
and the Bank shall use all reasonable efforts (a) to take, or cause to be taken,
all actions  necessary,  proper or advisable to comply  promptly  with all legal
requirements  which may be imposed on such party with respect to the Merger and,
subject to the  conditions  set forth in Article VII hereof,  to consummate  the
transactions  contemplated by this Agreement and (b) to obtain (and to cooperate
with the other party to obtain) any  consent,  authorization,  order or approval
of, or any exemption by, any Governmental Entity and any other third party which
is  required to be  obtained  by Parent,  Purchaser,  the Company or the Bank in
connection  with the  Merger  and the other  transactions  contemplated  by this
Agreement;  provided,  however,  that (1) neither Parent nor Purchaser  shall be
obligated  to take any action  pursuant to the  foregoing  if the taking of such
action or such  compliance  or the  obtaining  of such  consent,  authorization,


                                       51

<PAGE>




order, approval or exemption is likely, in the reasonable opinion of Purchaser's
Board of  Directors,  to  result in the  imposition  of a  Purchaser  Burdensome
Condition (as defined in Section 7.02(c) hereof) and (2) neither the Company nor
the Bank shall be obligated to take any action  pursuant to the foregoing if the
taking of the  action  or such  compliance  or the  obtaining  of such  consent,
authorization, order, approval or exemption is likely, in the reasonable opinion
of the Company's  Board of Directors,  to result in the  imposition of a Company
Burdensome Condition.

         6.06     RESTRICTIONS ON SALE OF PARENT COMMON STOCK.

                  (a) Each of  Parent  and the  Bank  shall  use all  reasonable
efforts to cause each  director,  executive  officer and other  person who is an
"affiliate"  (for purposes of Rule 145 under the Securities Act and for purposes
of  qualifying  the Merger for "pooling of interests"  accounting  treatment) of
such party to deliver to the other party hereto,  as soon as  practicable  after
the date of this Agreement,  and prior to the date of the Shareholders Meetings,
written  agreements  in the  forms  attached  hereto as  Exhibits  VII and VIII,
providing that such person will not sell, pledge,  transfer or otherwise dispose
of any shares of Parent  Common  Stock,  Purchaser  Common  Stock or the Company
Common Stock held by such  "affiliate"  and, in the case of the  "affiliates" of
the  Company,  the  shares  of  Parent  Common  Stock  to be  received  by  such
"affiliate" in the Merger:  (1) otherwise than in compliance with the applicable
provisions of the Securities Act and the rules and regulations  thereunder;  and
(2) unless the parties  shall have agreed that it will be  impossible  to obtain
pooling treatment for the Merger,  during the period commencing 30 days prior to
the  Merger  and  ending at the time of the  publication  of  financial  results
covering at least 30 days of combined operations of Parent and the Company.

                  (b)  Parent  shall use all  reasonable  efforts  to publish no
later than  twenty-five (25) days after the end of the first calendar quarter in
which there are at least  thirty (30) days of post- Merger  combined  operations
(which calendar  quarter may be the calendar quarter in which the Effective Time
occurs),  combined  sales  and net  income  figures  as  contemplated  by and in
accordance with the terms of SEC Accounting Series Release No. 135.

         6.07 EMPLOYEE  MATTERS.  All employees of the Bank immediately prior to
the  Effective  Time (the  "Current  Employees")  shall be employees of the Bank
immediately  after the Effective Time. All Current  Employees shall receive such
compensation  and  benefits as provided by the Bank  immediately  preceding  the
Effective Time.

         6.08 SUBSEQUENT  INTERIM AND ANNUAL  FINANCIAL  STATEMENTS.  As soon as
reasonably available,  but in no event later than March 31, 1997, Purchaser will
deliver  to the  Company  and  the  Company  will  deliver  to  Purchaser  their
respective  Annual  Reports  on Form  F-2 and  10-K for the  fiscal  year  ended
December  31,  1996,  as filed  with the FDIC and SEC,  respectively,  under the
Exchange Act. As soon as reasonably available, but in no event more than 45 days
after the end of each fiscal  quarter  ending after the date of this  Agreement,
Purchaser  will deliver to the Company and the Company will deliver to Purchaser
their respective  Quarterly Reports on Form F-4 and 10-Q, as filed with the FDIC
and SEC under the Exchange Act.


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<PAGE>




         6.09  ADDITIONAL  AGREEMENTS.  In case at any time after the  Effective
Time any further  action is  necessary  or desirable to carry out the purpose of
this  Agreement  or to vest the  Surviving  Corporation  with full  title to all
properties,  assets, rights, approvals,  immunities and franchises of any of the
parties to the Merger,  the proper  officers and directors of each party to this
Agreement shall take all such necessary action as may be reasonably requested by
Parent or Purchaser.

         6.10 DISCLOSURE  SUPPLEMENTS.  From time to time prior to the Effective
Time,  each party will  promptly  supplement or amend the  Disclosure  Schedules
delivered in  connection  with the  execution  of this  Agreement to reflect any
matter  which,  if existing,  occurring or known at the date of this  Agreement,
would  have  been  required  to be set  forth or  described  in such  Disclosure
Schedules or which is necessary to correct any  information  in such  Disclosure
Schedules which has been rendered inaccurate thereby. No supplement or amendment
to  such  Disclosure  Schedules  shall  have  any  effect  for the  purposes  of
determining  satisfaction  of the  conditions  set forth in Sections  7.02(a) or
7.03(a)  hereof,  as the  case  may be,  or the  compliance  by the  Company  or
Purchaser,  as the  case may be,  with the  respective  covenants  set  forth in
Sections 5.01 and 5.03 hereof.

         6.11     CURRENT INFORMATION.

                  (a) During the period from the date of this  Agreement  to the
Effective  Time, each of the Company and Purchaser will cause one or more of its
designated  representatives  to be available to confer on a regular and frequent
basis (not less than bi-weekly) with  representatives of the other and to report
the general status of their ongoing operations.  Without limiting the generality
of the foregoing,  each such party will provide monthly reports on the status of
loans made,  the  investment  portfolio  including  all  purchases  and sales of
securities  and  other  assets,  the  type  and mix of  products  and  services,
personnel  matters,  problem  loan  management,  reserve  adequacy,  results  of
operations,  and any other data  reasonably  requested by the other party.  Each
such party will  promptly  notify the other party of any material  change in the
normal course of its business and of any governmental complaints, investigations
or hearings or the institution of significant litigation involving them or their
subsidiaries or properties and will keep the other party reasonably  informed of
such events.

                  (b) To the extent  not  covered by  paragraph  (a) above,  the
Company shall give prompt notice to Purchaser,  and Purchaser  shall give prompt
notice to the Company,  of (i) the  occurrence  or  non-occurrence  of any event
which  would be  reasonably  likely  to cause  any  representation  or  warranty
contained in this  Agreement to be untrue or inaccurate in any material  respect
and (ii) any failure of  Purchaser  or the Company or the Bank,  as the case may
be, to comply  with or  satisfy  any  covenant,  condition  or  agreement  to be
complied with or satisfied by it under this Agreement;  PROVIDED,  HOWEVER, that
the  delivery of any notice  pursuant to this  paragraph  (b) shall not limit or
otherwise  affect the remedies  available  hereunder to the party receiving such
notice.

         6.12 PARENT.  Purchaser shall (a) cause the organization of Parent, (b)
cause Parent to execute a copy of this  Agreement and deliver such executed copy
to each of Purchaser  and the Company and (c) cause Parent to take all necessary
action to complete the transactions contemplated hereby subject to the terms and
conditions hereof.


                                       53

<PAGE>




         6.13 NO  INCONSISTENT  ACTIONS.  Prior to the Effective  Time, no party
will:  (i) enter into any  transaction  or make any agreement or commitment  and
will use  reasonable  efforts  not to permit  any event to  occur,  which  could
reasonably be anticipated to result in (x) a denial of the regulatory  approvals
referred  to in  Section  7.01(b)  or (y) the  imposition  of any  condition  or
requirement  that would  materially  adversely  affect the  economic or business
benefits to the Surviving  Corporation of the transactions  contemplated by this
Agreement;  or (ii) adopt by plan or  arrangement,  or take or cause to be taken
any action, that would adversely affect holders of the Company Common Stock in a
disproportionate  manner after the Effective Time. Without limiting the scope of
the immediately  preceding  sentence,  no party hereto shall take or cause to be
taken any  action,  either  before  or after  the  Effective  Time,  that  would
disqualify the Merger as a "reorganization" within the meaning of Section 368(a)
of the Code or that  would  disqualify  the Merger for  "pooling  of  interests"
accounting treatment.


                                   ARTICLE VII

                              CONDITIONS PRECEDENT

         7.01  CONDITIONS TO EACH PARTY'S  OBLIGATION TO EFFECT THE MERGER.  The
respective obligation of each party to effect the Merger shall be subject to the
satisfaction at or prior to the Effective Time of the following conditions:

                  (a) SHAREHOLDER APPROVAL.  This Agreement and the transactions
contemplated hereby shall have been approved and adopted by the affirmative vote
of the  shareholders  of the Company and Purchaser to the extent required by New
Hampshire law and the respective charters of the Company and Purchaser.

                  (b)   REGULATORY    APPROVALS.    All   necessary   approvals,
authorizations and consents of all Governmental  Entities required to consummate
the   transactions   contemplated   hereby   (including   the  Holding   Company
Reorganization  and Merger)  shall have been  obtained  and shall remain in full
force and effect and all statutory waiting periods in respect thereof shall have
expired or been  terminated  (all such  approvals and the expiration of all such
waiting   periods  being  referred  to  herein  as  the  "Requisite   Regulatory
Approvals").  For purposes of this  Agreement,  the term  "Requisite  Regulatory
Approvals"  shall mean: (i) a final order or orders of the Federal Reserve Board
approving or authorizing the organization of Parent and Parent's  acquisition of
all of the  outstanding  stock of  Purchaser  prior to the Merger,  approving or
authorizing the Merger, and granting any other necessary  approvals with respect
to the transactions  contemplated by this Agreement,  and (ii), if necessary,  a
final order of the Bank Commissioner or the Board of Trust Company Incorporation
approving  or   authorizing  or  waiving   jurisdiction   with  respect  to  the
organization of Parent and Parent's  acquisition of all of the outstanding stock
of Purchaser prior to the Merger and with respect to the Merger.

                  (c) SECURITIES LAWS MATTERS. The Registration  Statement shall
have become  effective under the Securities Act and no stop order suspending the
effectiveness  of the  Registration  Statement  shall  have been  issued  and no


                                       54

<PAGE>




proceedings  for that purpose shall have been initiated or threatened by the SEC
or any other regulatory authority.  Parent and Purchaser shall have received all
necessary state securities laws and "blue sky" permits and other  authorizations
required in  connection  with the issuance of Parent Common Stock in the Holding
Company  Reorganization  and the Merger.  The Parent  Common Stock issued in the
Merger shall be approved  for listing on the  NASDAQ/NMS  or the American  Stock
Exchange.

                  (d)  NO  INJUNCTIONS  OR  RESTRAINTS;  ILLEGALITY.  No  order,
injunction or decree issued by any court or agency of competent  jurisdiction or
other  legal   restraint  or  prohibition  (an   "Injunction")   preventing  the
consummation  of the Merger,  or any of the other  transactions  contemplated by
this  Agreement  shall  be  in  effect  and  no  proceeding   initiated  by  any
Governmental  Entity seeking an injunction shall be pending.  No statute,  rule,
regulation,  order,  injunction  or decree  shall  have been  enacted,  entered,
promulgated or enforced by any Governmental Entity which prohibits, restricts or
makes  illegal  consummation  of the  Merger,  or any of the other  transactions
contemplated by this Agreement.

         7.02 CONDITIONS TO OBLIGATIONS OF PURCHASER AND PARENT.  The obligation
of Purchaser and Parent to effect the Merger is also subject to the satisfaction
or waiver by  Purchaser  and  Parent  at or prior to the  Effective  Time of the
following conditions:

                  (a)  REPRESENTATIONS  AND WARRANTIES.  The representations and
warranties of the Company and the Bank set forth in this Agreement shall be true
and  correct  in all  material  respects  as of the date of this  Agreement  and
(except to the extent such representations and warranties speak as of an earlier
date) as of the Closing  Date as though made on and as of the Closing  Date,  it
being understood that such  representations and warranties shall be deemed to be
true and correct in all material respects unless the failure or failures of such
representations  and  warranties  to be so true and  correct  represent,  either
individually or in the aggregate,  a Material  Adverse Effect on the Company and
the Bank taken as a whole;  provided,  however, that for purposes of determining
satisfaction  of this  condition,  no effect shall be given to any  exception in
such  representations and warranties relating to materiality or the knowledge of
the  Company or Bank.  Purchaser  shall have  received a  certificate  signed on
behalf of the Company and the Bank by their respective Chief Executive  Officers
and Chief Financial Officers to the foregoing effect.

                  (b)  PERFORMANCE  OF  OBLIGATIONS OF THE COMPANY AND THE BANK.
The Company and the Bank shall have each performed in all material  respects all
obligations required to be performed by them under this Agreement at or prior to
the Closing  Date,  and Purchaser  shall have  received a certificate  signed on
behalf of the Company and the Bank by their respective Chief Executive  Officers
and Chief Financial Officers to such effect.

                  (c) NO BURDENSOME CONDITION.  None of the Requisite Regulatory
Approvals  shall  impose any term,  condition  or  restriction  upon  Purchaser,
Parent,  or  the  Surviving  Corporation  that  in  the  reasonable  opinion  of
Purchaser's  Board of Directors  would (i) require the expenditure of $1,000,000
or more,  (ii)  result in a delay of the  Closing by six  months or more,  (iii)
require the  divestiture of any of the deposits of any party,  (iv) restrict the
payment of  dividends by any party in any manner below  historical  levels,  (v)
subject any party to a higher minimum capital requirement

                                       55

<PAGE>




than is imposed by applicable law or (vi) require any party to raise  additional
capital (a "Purchaser Burdensome Condition").

                  (d) CONSENTS UNDER AGREEMENTS. The consent, approval or waiver
of each person  (other  than the  Governmental  Entities  referred to in Section
7.01(b))  whose  consent or  approval  shall be  required in order to permit the
succession  by  the  Surviving  Corporation  pursuant  to  the  Merger,  to  any
obligation,  right or  interest  of the  Company  or the Bank  under any loan or
credit agreement, note, mortgage,  indenture,  lease, license or other agreement
or instrument shall have been obtained.

                  (e) TAX  OPINION.  Parent  shall have  received the opinion of
Goodwin,  Procter & Hoar, LLP subject to customary conditions and qualifications
(including  reliance,  in part, on  representations  of Parent,  Purchaser,  the
Company  and the Bank,  and  assumptions  concerning,  among other  things,  the
actions of  shareholders),  to the effect  that the Merger  will be treated  for
federal income tax purposes as a tax-free  reorganization  qualifying  under the
provisions of Section 368(a) of the Code.

                  (f) ACCOUNTANT'S  LETTER.  The Company shall have caused to be
delivered to Purchaser letters from Shatswell McLeod & Co.,  independent  public
accountants  with  respect  to  the  Company,   dated  the  date  on  which  the
Registration  Statement or last amendment  thereto shall become  effective,  and
dated the date of the Closing,  and addressed to Parent and Purchaser,  covering
such matters as Parent and Purchaser  shall  reasonably  request with respect to
facts concerning the Company's financial condition.

                  (g) LEGAL  OPINION.  Parent shall have received the opinion of
Cranmore,  FitzGerald & Meaney,  counsel to the Company, dated the Closing Date,
in a form that is customary for transactions of this type.

                  (h) OPINION OF FINANCIAL  ADVISER.  Parent shall have received
an opinion, dated as of the date of the Proxy Statement, from NECA to the effect
that as of the  date  thereof  the  Exchange  Ratio is fair to  shareholders  of
Purchaser from a financial point of view.

                  (i) CASH CONSIDERATION. The amount of cash consideration to be
paid the  shareholders of the Company in the Merger as a percentage of the total
consideration  to be paid to the  shareholders  of the Company  shall not exceed
35%.

         7.03  CONDITIONS TO OBLIGATIONS OF THE COMPANY.  The obligations of the
Company and the Bank to effect the Merger is also subject to the satisfaction or
waiver  by the  Company  and the Bank at or prior to the  Effective  Time of the
following conditions:

                  (a)  REPRESENTATIONS  AND WARRANTIES.  The representations and
warranties of Purchaser and Parent set forth in this Agreement shall be true and
correct in all material respects as of the date of this Agreement and (except to
the extent such  representations  and warranties speak as of an earlier date) as
of the Closing Date as though made on and as of the Closing Date, it being

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<PAGE>

understood that such  representations  and warranties shall be deemed to be true
and  correct in all  material  respects  unless the  failure or failures of such
representations  and  warranties  to be so true and  correct  represent,  either
individually  or in the aggregate,  a Material  Adverse Effect on the Parent and
Purchaser taken as a whole; provided,  however, that for purposes of determining
satisfaction  of this  condition,  no effect shall be given to any  exception in
such  representations and warranties relating to materiality or the knowledge of
Parent or Purchaser.  The Company  shall have  received a certificate  signed on
behalf of Purchaser and Parent by their respective Chief Executive  Officers and
Chief Financial Officers to the foregoing effect.

                  (b)  PERFORMANCE  OF  OBLIGATIONS  OF  PURCHASER  AND  PARENT.
Purchaser  and Parent shall have each  performed  in all  material  respects all
obligations required to be performed by them under this Agreement at or prior to
the Closing Date,  and the Company  shall have received a certificate  signed on
behalf of Parent and Purchaser by their respective Chief Executive  Officers and
Chief Financial Officers to such effect.

                  (c) NO BURDENSOME CONDITION.  None of the Requisite Regulatory
Approvals  shall impose any term,  condition or restriction  upon the Company or
the Bank that in the  reasonable  opinion of the  Company's  Board of  Directors
would (i) require the  expenditure of $1,000,000 or more, (ii) result in a delay
of the Closing by six months or more,  (iii) require the  divestiture  of any of
the deposits of any party,  (iv)  restrict the payment of dividends by any party
in any manner below historical levels, (v) subject any party to a higher minimum
capital  requirement than is imposed by applicable law or (vi) require any party
to raise additional capital (a "Company Burdensome Condition").

                  (d) TAX OPINION.  The Company  shall have received the opinion
of  Cranmore,   FitzGerald  &  Meaney,   subject  to  customary  conditions  and
qualifications  (including  reliance,  in part, on representations of Parent and
the Company,  and  assumptions  concerning,  among other things,  the actions of
shareholders),  to the effect that the Merger will be treated for federal income
tax purposes as a tax-free  reorganization  qualifying  under the  provisions of
Section 368(a) of the Code.

                  (e)  ACCOUNTANT'S  LETTER.  Purchaser  shall have caused to be
delivered to the Company letters from Shatswell McLeod & Co., independent public
accountants with respect to Purchaser,  dated the date on which the Registration
Statement or last amendment thereto shall become  effective,  and dated the date
of the  Closing,  and  addressed  to the Company and  Purchaser,  covering  such
matters as the Company and Purchaser  shall  reasonably  request with respect to
facts concerning Purchaser's financial condition.

                  (f) LEGAL OPINION. The Company shall have received the opinion
of  Goodwin,  Procter & Hoar LLP,  counsel  to Parent and  Purchaser,  dated the
Closing Date, in a form that is customary for transactions of this type.

                  (g)  OPINION OF  FINANCIAL  ADVISOR.  The  Company  shall have
received  an  opinion,  dated as of the date of the  Proxy  Statement,  from HAS
Associates, Inc. to the effect that as of the

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<PAGE>




date thereof the Merger  Consideration to be received by the shareholders of the
Company  pursuant  to the Merger is fair to such  shareholders  from a financial
point of view.


                                  ARTICLE VIII

                            TERMINATION AND AMENDMENT

         8.01 TERMINATION. This Agreement may be terminated at any time prior to
the Effective Time, whether before or after approval of the matters presented in
connection with the Merger by the shareholders of the Company:

                  (a) by  mutual  consent  of  Purchaser  and the  Company  in a
written instrument, if the Board of Directors of each so determines by a vote of
a majority of the members of its entire Board;

                  (b) by either  Purchaser or the Company upon written notice to
the  other  party  (i)  ninety  days  after  the date on which  any  request  or
application  for a regulatory  approval  required to consummate the Merger shall
have  been  denied  or  withdrawn  at  the  request  or  recommendation  of  the
Governmental Entity which must grant such requisite regulatory approval,  unless
within the ninety day period  following such denial or withdrawal a petition for
rehearing  or  an  amended  application  has  been  filed  with  the  applicable
Governmental Entity,  PROVIDED,  HOWEVER,  that no party shall have the right to
terminate this Agreement  pursuant to this Section  8.01(b)(i) if such denial or
request or  recommendation  for  withdrawal  shall be due to the  failure of the
party  seeking to terminate  this  Agreement to perform or observe the covenants
and  agreements  of such  party set forth  herein,  or (ii) if any  Governmental
Entity of competent  jurisdiction shall have issued a final  nonappealable order
enjoining or otherwise  prohibiting the  consummation of any of the transactions
contemplated by this Agreement;

                  (c) by either Purchaser or the Company if the Merger shall not
have been consummated on or before February 15, 1998,  unless the failure of the
Closing to occur by such date shall be due to the  failure of the party  seeking
to terminate  this  Agreement to perform or observe in any material  respect the
covenants and agreements of such party set forth herein;

                  (d) by either  Purchaser  or the Company  (PROVIDED,  that the
terminating  party  shall not be in  material  breach of any of its  obligations
under  Section  6.03) if any approval of the  shareholders  of the  Purchaser or
Company required for the consummation of the Merger shall not have been obtained
by reason of the failure to obtain the  required  vote at a duly held meeting of
shareholders or at any adjournment or postponement thereof;

                  (e) by either  Purchaser  or the Company  (PROVIDED,  that the
terminating  party  is not  then  in  material  breach  of  any  representation,
warranty, covenant or other agreement contained herein) if there shall have been
a material breach of any of the  representations or warranties set forth in this
Agreement  on the part of the other  party,  which  breach  is not cured  within
forty-five days

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<PAGE>




following  written notice to the party committing such breach,  or which breach,
by its nature, cannot be cured prior to the Closing;

                  (f) by either  Purchaser  or the Company  (PROVIDED,  that the
terminating  party  is not  then  in  material  breach  of  any  representation,
warranty, covenant or other agreement contained herein) if there shall have been
a  material  breach  of any of the  covenants  or  agreements  set forth in this
Agreement on the part of the other party, which breach shall not have been cured
within  forty-five  days  following  receipt by the  breaching  party of written
notice of such breach from the other party hereto; or

                  (g) by  Purchaser,  if the Board of  Directors  of the Company
does not publicly  recommend,  as required by Section 6.03 hereof,  in the Proxy
Statement that the Company's  shareholders approve and adopt this Agreement,  or
if after recommending in the Proxy Statement that shareholders approve and adopt
this  Agreement,  the Board of  Directors of the Company  shall have  withdrawn,
modified or amended such  recommendation  in any respect  materially  adverse to
Purchaser; or

                  (h) by the  Company,  if the Board of  Directors  of Purchaser
does not publicly  recommend,  as required by Section 6.03 hereof,  in the Proxy
Statement that Purchaser's  shareholders approve and adopt this Agreement, or if
after  recommending in the Proxy Statement that  shareholders  approve and adopt
this  Agreement,  the Board of  Directors  of  Purchaser  shall have  withdrawn,
modified or amended such recommendation in any respect materially adverse to the
Company.

         8.02     EFFECT OF TERMINATION.

                  In the  event  of  termination  of this  Agreement  by  either
Purchaser  or the Company as  provided in Section  8.01,  this  Agreement  shall
forthwith become void and have no effect except Sections 6.04(c) and 8.03, shall
survive  any  termination  of this  Agreement,  and  there  shall be no  further
obligation  on the part of Parent,  Purchaser,  the  Company,  the Bank or their
respective   officers  or  directors  except  for  the  obligations  under  such
provisions.   Notwithstanding   anything  to  the  contrary  contained  in  this
Agreement,  no party  shall be  relieved or  released  from any  liabilities  or
damages arising out of its willful breach of any provision of this Agreement.

         8.03     EXPENSES; TERMINATION FEE.

                  (a)  Whether or not the Merger is  consummated,  all costs and
expenses  incurred  in  connection  with  this  Agreement  and the  transactions
contemplated hereby shall be paid by the party incurring such expense; PROVIDED,
HOWEVER,  that the  costs  and  expenses  of  printing  and  mailing  the  Proxy
Statement,  and  all  filing  and  other  fees  paid  to the  SEC  or any  other
Governmental  Entity in  connection  with the Merger and the other  transactions
contemplated  hereby,  shall be shared evenly by the Company and Purchaser;  and
provided further that nothing contained herein shall limit either party's rights
under Sections 8.03(b) and (c) hereof.


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<PAGE>




                  (b) In order to induce  Purchaser to enter into this Agreement
and to reimburse  Purchaser  for  incurring  the costs and  expenses  related to
entering into this Agreement and consummating  the transactions  contemplated by
this Agreement,  the Company will make a cash payment to Purchaser of $2,500,000
as liquidated damages if and only if:

                  (i)  Purchaser  has  terminated  this  Agreement  pursuant  to
         Sections  8.01(e)  or  8.01(f)  and the  breach of the  representation,
         warranty,  covenant or agreement  was caused by the action,  failure to
         take action or an occurrence which is within the control of the Company
         or the Bank; or

                  (ii)  Purchaser  has  terminated  this  Agreement  pursuant to
         Section  8.01(g),  and (x) at the time of such  termination  any person
         other  than  Purchaser,  Parent  or  any  subsidiary  or  affiliate  of
         Purchaser or Parent,  shall have made a bona fide proposal to the Bank,
         the Company or its shareholders to engage in an Acquisition Transaction
         by public announcement or written communication,  or (y) at the time of
         or within six months of any such  termination,  the Company  shall have
         entered into an agreement to engage in an Acquisition  Transaction with
         any person  other than  Purchaser,  Parent or any  subsidiary  or other
         affiliate  of  Purchaser  or Parent,  or the Board of  Directors of the
         Company shall have approved an  Acquisition  Transaction or recommended
         that the  shareholders  of the Company approve or adopt any Acquisition
         Transaction  with  any  person  other  than  Purchaser,  Parent  or any
         subsidiary or other affiliate of Purchaser or Parent.

         For purposes of this Agreement,  "Acquisition  Transaction"  shall mean
(i) a merger, consolidation or other similar transaction with the Company or the
Bank, (ii) any sale, lease or other  disposition of 25% or more of the assets of
the Company and the Bank, taken as a whole, in a single transaction or series of
transaction,  or (iii)  any  tender  or  exchange  offer  for 25% or more of the
outstanding  shares of the Company  Common Stock or the Bank Common Stock or the
economic value of equity interests therein.

                  (c) In  order  to  induce  the  Company  to  enter  into  this
Agreement  and to  reimburse  the Company for  incurring  the costs and expenses
related to  entering  into this  Agreement  and  consummating  the  transactions
contemplated  by this  Agreement,  Purchaser  shall  make a cash  payment to the
Company of $2,500,000 as liquidated damages if and only if:

                  (i) The  Company has  terminated  this  Agreement  pursuant to
         Sections  8.01(e)  or  8.01(f)  and the  breach of the  representation,
         warranty,  covenant or agreement  was caused by the action,  failure to
         take  action  or an  occurrence  which is  within  the  control  of the
         Purchaser or Parent; or

                  (ii) The Company has  terminated  this  Agreement  pursuant to
         Section  8.01(h),  and (x) at the time of such  termination  any person
         other  than  Purchaser,  Parent  or  any  subsidiary  or  affiliate  of
         Purchaser  or  Parent,  shall  have  made a bona fide  proposal  to the
         Parent,  Purchaser  or its  shareholders  to engage  in an  Acquisition
         Transaction by public announcement or written communication,  or (y) at
         the time of or within six months of any such termination,

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<PAGE>




         Purchaser  shall  have  entered  into  an  agreement  to  engage  in an
         Acquisition  Transaction  with any person other than the  Company,  the
         Bank or any  subsidiary or other  affiliate of the Company or the Bank,
         or  the  Board  of  Directors  of  Purchaser  shall  have  approved  an
         Acquisition   Transaction  or  recommended  that  the  shareholders  of
         Purchaser approve or adopt any Acquisition  Transaction with any person
         other than the Company,  the Bank or any subsidiary or other  affiliate
         of the Company or the Bank.

         8.04  AMENDMENT.  Subject  to  compliance  with  applicable  law,  this
Agreement may be amended by the parties hereto, by action taken or authorized by
their  respective  Boards of Directors,  at any time before or after approval of
the matters  presented  in  connection  with the Merger by the  shareholders  of
Purchaser  and the  Company.  This  Agreement  may not be  amended  except by an
instrument in writing signed on behalf of each of the parties hereto.

         8.05  EXTENSION;  WAIVER.  At any time prior to the Effective Time, the
parties  hereto,  by action taken or  authorized  by their  respective  Board of
Directors,  may,  to the  extent  legally  allowed,  (a) extend the time for the
performance of any of the obligations or other acts of the other parties hereto,
(b) waive any  inaccuracies  in the  representations  and  warranties  contained
herein or in any document  delivered  pursuant  hereto and (c) waive  compliance
with any of the agreements or conditions  contained herein. Any agreement on the
part of a party  hereto to any such  extension  or waiver shall be valid only if
set forth in a written  instrument  signed  on  behalf of such  party,  but such
extension or waiver  shall not operate as a waiver of, or estoppel  with respect
to, any subsequent or other failure.


                                   ARTICLE IX

                               GENERAL PROVISIONS

         9.01 CLOSING.  Subject to the terms and  conditions of this  Agreement,
the closing of the Merger (the "Closing") will take place at Goodwin,  Procter &
Hoar LLP,  Exchange  Place,  Boston,  MA 02109,  at 10:00  a.m.  on a date to be
specified by Purchaser and satisfactory to the Company,  which shall be not more
than five business days after the  satisfaction  of the  conditions set forth in
Article VII hereof or at such other date,  time and place as is mutually  agreed
upon by the Company and Purchaser. The date on which such Closing takes place is
referred to herein as the "Closing  Date".  Purchaser  shall provide the Company
written  notice of the date  specified  by it as the Closing Date at least three
business days prior to such date.

         9.02 NON-SURVIVAL OF REPRESENTATIONS,  WARRANTIES AND AGREEMENTS.  None
of the representations,  warranties,  covenants and agreements in this Agreement
or in any  instrument  delivered  pursuant to this  Agreement  shall survive the
Effective Time,  except for those covenants and agreements  contained herein and
therein which by their terms apply in whole or in part after the Effective Time.


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<PAGE>




         9.03 NOTICES. All notices and other  communications  hereunder shall be
in writing and shall be deemed given if delivered  personally,  telecopies (with
confirmation  from  recipient),  mailed by registered or certified  mail (return
receipt  requested) or delivered by an express courier (with  confirmation  from
recipient) to the parties at the  following  addresses (or at such other address
for a party as shall be specified by like notice):

                  (a)      if to Parent or Purchaser, to:

                           The Berlin City Bank
                           9 Main Street
                           Berlin, New Hampshire 03570
                           Attn: William J. Woodward


                                    with a copy to:

                           William Pratt Mayer, Esq.
                           Margaret B. Crockett, Esq.
                           Goodwin, Procter & Hoar LLP
                           Exchange Place
                           Boston, Massachusetts  02109

                  (b)      if to the Company or the Bank, to:

                           Pemi Bancorp, Inc.
                           287 Highland Street, P. O. Box 29
                           Plymouth, New Hampshire 03264-0029
                           Attn: Fletcher W. Adams

                                    with a copy to:

                           J.J. Cranmore, Esq.
                           Cranmore, FitzGerald & Meaney
                           49 Wethersfield Avenue
                           Hartford, Connecticut, 06114-1102

         9.04  INTERPRETATION.  When a reference  is made in this  Agreement  to
Sections,  Exhibits or  Schedules,  such  reference  shall be to a Section of or
Exhibit or Schedule to this Agreement unless otherwise  indicated.  The table of
contents and headings  contained in this  Agreement are for  reference  purposes
only and  shall not  affect in any way the  meaning  or  interpretation  of this
Agreement.  Whenever the words "include,"  "includes" or "including" are used in
this  Agreement,  they  shall be deemed  to be  followed  by the words  "without
limitation."  The phrases  "the date of this  Agreement,"  "the date hereof" and
terms of similar import, unless the context otherwise requires,  shall be deemed
to be March 14, 1997.

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<PAGE>




         9.05 COUNTERPARTS.  This Agreement may be executed in counterparts, all
of which  shall  be  considered  one and the same  agreement  and  shall  become
effective  when  counterparts  have  been  signed  by  each of the  parties  and
delivered to the other parties,  it being  understood  that all parties need not
sign the same counterpart.

         9.06 ENTIRE AGREEMENT.  This Agreement (including the documents and the
instruments  referred to herein) constitutes the entire agreement and supersedes
all prior  agreements  and  understandings,  both  written  and oral,  among the
parties   with   respect  to  the  subject   matter   hereof   except  that  the
Confidentiality  Agreement among the Company, the Bank and Purchaser dated as of
November 20, 1996, as amended, shall remain in full force and effect.

         9.07 GOVERNING  LAW. This Agreement  shall be governed and construed in
accordance  with the laws of the State of New  Hampshire,  without regard to any
applicable conflicts of law.

         9.08   ENFORCEMENT   OF  AGREEMENT.   The  parties  hereto  agree  that
irreparable  damage  would occur in the event that the  provisions  contained in
Section  6.04(c) of this  Agreement  were not performed in  accordance  with its
specific  terms or was otherwise  breached.  It is  accordingly  agreed that the
parties shall be entitled to an injunction or injunctions to prevent breaches of
Section  6.04(c) of this  Agreement  and to enforce  specifically  the terms and
provisions  thereof  in any  court of the  United  States  or any  state  having
jurisdiction,  this  being in  addition  to any other  remedy to which  they are
entitled at law or in equity.

         9.09  SEVERABILITY.  Any term or provision of this  Agreement  which is
invalid or unenforceable in any jurisdiction shall, as to that jurisdiction,  be
ineffective  to the  extent  of  such  invalidity  or  unenforceability  without
rendering  invalid or  unenforceable  the remaining terms and provisions of this
Agreement or affecting  the  validity or  enforceability  of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of this
Agreement is deemed to be so broad as to be  unenforceable,  the provision shall
be interpreted to be only so broad as is enforceable.

         9.10 PUBLICITY. Except as otherwise required by law or the rules of the
National  Association  of Securities  Dealers,  so long as this  Agreement is in
effect,  neither  Purchaser  nor the Company  shall,  or shall permit any of its
Subsidiaries  to, issue or cause the  publication  of any press release or other
public  announcement  with  respect to, or otherwise  make any public  statement
concerning,  the transactions contemplated by this Agreement without the consent
of the other party, which consent shall not be unreasonably withheld.

         9.11  ASSIGNMENT.  Neither  this  Agreement  nor  any  of  the  rights,
interests  or  obligations  hereunder  shall be  assigned  by any of the parties
hereto  (whether by operation  of law or  otherwise)  without the prior  written
consent of the other parties.  Subject to the preceding sentence, this Agreement
will be binding upon,  inure to the benefit of and be enforceable by the parties
and their  respective  successors  and assigns.  Except as  otherwise  expressly
provided  herein,  this  Agreement  (including  the  documents  and  instruments
referred to herein) is not  intended  to confer  upon any person  other than the
parties hereto any rights or remedies hereunder.

                                       63

<PAGE>


         IN WITNESS WHEREOF,  Purchaser,  Parent,  the Company and the Bank have
caused this Agreement to be executed by their respective officers thereunto duly
authorized as of the date first above written.

                                        THE BERLIN CITY BANK


Attest:                                 By /s/ William J. Woodward
                                           ------------------------------------
                                             Title:    Chairman, President and
                                                       Chief Executive Officer
By /s/ Mary E. Durgin
   ---------------------------------
     Title: Assistant Vice President
                                        NORTHWAY FINANCIAL, INC.


Attest:                                 By /s/ William J. Woodward
                                           ------------------------------------
                                            Title:     President and
                                                       Chief Executive Officer
By /s/ Mary E. Durgin
   ---------------------------------
    Title: Assistant Vice President

                                        PEMI BANCORP, INC.


Attest:                                 By /s/ Fletcher W. Adams
                                           ------------------------------------
                                            Title:     President and
                                                       Chief Executive Officer
By /s/ Mary E. Durgin
   ---------------------------------
     Title: Assistant Vice President

                                        PEMIGEWASSET NATIONAL BANK


Attest:                                 By /s/ Fletcher W. Adams
                                           ------------------------------------
                                            Title:     President and
                                                       Chief Executive Officer
By /s/ Mary E. Durgin
   ---------------------------------
     Title: Assistant Vice President



356904.c10

                                       64


<PAGE>

                                                                       EXHIBIT I

                                     FORM OF
                              AMENDED AND RESTATED
                            ARTICLES OF INCORPORATION
                                       OF
                            NORTHWAY FINANCIAL, INC.

THE BERLIN CITY BANK, ACTING BY ITS DULY AUTHORIZED REPRESENTATIVE,  AND AS SOLE
STOCKHOLDER OF A CORPORATION UNDER THE NEW HAMPSHIRE  BUSINESS  CORPORATION ACT,
ADOPTS THE FOLLOWING  AMENDED AND RESTATED  ARTICLES OF  INCORPORATION  FOR SUCH
CORPORATION:

         FIRST:  The name of the corporation is Northway Financial, Inc.

         SECOND:  The period of its duration is perpetual.

         THIRD:  The  corporation  is  empowered  to transact any and all lawful
business  for  which  corporations  may be  incorporated  under RSA  293-A.  The
principal purpose or purposes for which the corporation is organized are:

         1. Generally  conducting the business and carrying on the activities of
a bank holding  company,  as defined in the Bank Holding Company Act of 1956, as
amended.

         2.  Acquiring  an  interest  in or  control  of banks,  savings  banks,
financial institutions, and other corporations or associations of every kind and
description  through  ownership  of stock;  acquiring  such  stock by  purchase,
exchange for its own securities, or otherwise; and exercising all of the rights,
powers and privileges of such stock.

         FOURTH:

         SECTION 1. NUMBER OF SHARES.  The aggregate  number of shares which the
corporation shall have authority to issue is _________________  shares of Common
Stock,  par value $1.00 per share,  and _________ shares of Preferred Stock, par
value $_____ per share.

         As set forth in this  Article  Fourth,  the Board of  Directors  or any
authorized  committee  thereof is authorized  from time to time to establish and
designate  one or more  series of  Preferred  Stock,  to fix and  determine  the
variations  in the  relative  rights and  preferences  as between the  different
series of Preferred  Stock in the manner  hereinafter  set forth in this Article
Fourth,  and to fix or alter the number of shares comprising any such series and
the designation thereof to the extent permitted by law.

         The number of authorized  shares of the class of Preferred Stock may be
increased or decreased (but not below the number of shares  outstanding)  by the
affirmative  vote of the holders of a majority of the Common  Stock  entitled to
vote, without a vote of the holders of the Preferred

                                        1

<PAGE>

Stock,  pursuant to the  resolution  or  resolutions  establishing  the class of
Preferred Stock or Amended and Restated Articles of Incorporation,  as it may be
amended from time to time.

         SECTION 2. GENERAL.

         The   designations,   powers,   preferences  and  rights  of,  and  the
qualifications,  limitations,  and  restrictions  upon,  each class or series of
stock shall be determined in accordance with, or as set forth below in, Sections
3, 4, and 5 of this Article Fourth.

         SECTION 3. COMMON STOCK.

         Subject to all of the rights,  powers, and preferences of the Preferred
Stock,  and  except as  provided  by law or in this  Article  Fourth  (or in any
certificate of designation of any series of Preferred  Stock) or by the Board of
Directors or any authorized committee thereof pursuant to this Article Fourth:

                  (a) the holders of the Common  Stock shall have the  exclusive
right to vote for the election of directors and on all other  matters  requiring
shareholder action, each share being entitled to one vote;

                  (b)  dividends  may be  declared  and  paid or set  apart  for
payment  upon the  Common  Stock out of any  assets or funds of the  Corporation
legally available for the payment of dividends, but only when and as declared by
the Board of Directors or any authorized committee thereof; and

                  (c)   upon   the   voluntary   or   involuntary   liquidation,
dissolution, or winding up of the Corporation, the net assets of the Corporation
shall be  distributed  pro rata to the holders of the Common Stock in accordance
with their respective rights and interests.

         SECTION 4. PREFERRED STOCK.

         Subject to any limitations prescribed by law, the Board of Directors or
any  authorized  committee  thereof is expressly  authorized  to provide for the
issuance of shares of Preferred  Stock in one or more series of such stock,  and
by filing  articles  of  amendment  to these  Amended and  Restated  Articles of
Incorporation  pursuant  to  applicable  law of the State of New  Hampshire,  to
establish  or change  from time to time the number of shares to be  included  in
each such series,  and to fix the designations,  powers, and preferences and the
relative, participating, optional, or other special rights of the shares of each
series and any qualifications, limitations, and restrictions thereof. Any action
by the Board of Directors or any authorized committee thereof under this SECTION
4 of Article  Fourth  shall  require the  affirmative  vote of a majority of the
directors  then in office or a majority  of the members of such  committee.  The
Board of Directors or any authorized  committee  thereof shall have the right to
determine  or fix one or more of the  following  with  respect to each series of
Preferred Stock to the extent permitted by law:

                                        2

<PAGE>



                  (a) The  distinctive  serial  designation  and the  number  of
shares constituting such series;

                  (b) The  dividend  rates or the amount of dividends to be paid
on the shares of such series,  whether dividends shall be cumulative and, if so,
from which  date or dates,  the  payment  date or dates for  dividends,  and the
participating and other rights, if any, with respect to dividends;

                  (c) The voting powers,  full or limited, if any, of the shares
of such series;

                  (d) Whether the shares of such series shall be redeemable and,
if so, the price or prices at which, and the terms and conditions on which, such
shares may be redeemed;

                  (e) The  amount or  amounts  payable  upon the  shares of such
series  and any  preferences  applicable  thereto in the event of  voluntary  or
involuntary liquidation, dissolution, or winding up of the Corporation;

                  (f) Whether the shares of such series shall be entitled to the
benefit  of a sinking  or  retirement  fund to be  applied  to the  purchase  or
redemption of such shares,  and if so entitled,  the amount of such fund and the
manner of its  application,  including  the price or prices at which such shares
may be redeemed or purchased through the application of such fund;

                  (g)  Whether the shares of such  series  shall be  convertible
into, or exchangeable  for, shares of any other class or classes or of any other
series of the same or any other  class or  classes  of stock of the  Corporation
and, if so convertible or exchangeable,  the conversion price or prices,  or the
rate or rates of exchange,  and the adjustments  thereof,  if any, at which such
conversion or exchange may be made,  and any other terms and  conditions of such
conversion or exchange;

                  (h) The price or other  consideration  for which the shares of
such series shall be issued;

                  (i) Whether the shares of such  series  which are  redeemed or
converted  shall have the status of authorized but unissued  shares of Preferred
Stock (or series  thereof)  and whether such shares may be reissued as shares of
the same or any other class or series of stock; and

                  (j) Such other powers,  preferences,  rights,  qualifications,
limitations,  and  restrictions  thereof  as  the  Board  of  Directors  or  any
authorized committee thereof may deem advisable.

                  FIFTH:  The  capital  stock will be sold or  offered  for sale
within the meaning of RSA 421-B. (New Hampshire Securities Act).

         SIXTH: None of the shares of the Corporation shall carry any preemptive
or preferential  rights of subscription  with respect to any shares of any class
or series of capital stock of the  Corporation  or any warrants to purchase such


                                        3

<PAGE>


shares or  securities  convertible  into such  shares,  whether now or hereafter
authorized. Any and all capital stock or other securities of the Corporation now
or  hereafter  authorized  or  created  may be  issued by action of the Board of
Directors,  without the necessity of any shareholder  approval, to such persons,
for such lawful  consideration,  and on such terms as the Board of Directors may
determine.

         SEVENTH:

         SECTION 1.  INTERNAL AFFAIRS OF THE CORPORATION.

         (a) POWERS OF DIRECTORS.  All corporate powers shall be exercised by or
under the authority of, and the business and affairs of the Corporation shall be
managed  under the  direction  of, the Board of  Directors,  except as otherwise
provided by the Amended and Restated  Articles of  Incorporation  or required by
law.

         (b) ELECTION OF DIRECTORS. Election of directors need not be by written
ballot unless the By-laws of the Corporation shall so provide. There shall be no
cumulative voting for directors or otherwise.

         (c) TERMS OF  DIRECTORS.  The  directors,  other  than those who may be
elected  by the  holders of any series of  Preferred  Stock of the  Corporation,
shall be  classified,  with  respect to the term for which they  severally  hold
office, into three classes,  as nearly equal in number as possible.  The initial
Class I Directors of the Corporation shall be [INSERT NAMES];  the initial Class
II Directors of the Corporation  shall be [INSERT NAMES];  and the initial Class
III Directors of the Corporation  shall be [INSERT  NAMES].  The initial Class I
Directors  shall serve for a term expiring at the annual meeting of shareholders
to be held in 1998;  the  initial  Class II  Directors  shall  serve  for a term
expiring  at the annual  meeting  of  shareholders  to be held in 1999;  and the
initial  Class III  Directors  shall  serve for a term  expiring  at the  annual
meeting  of  shareholders  to be  held  in  2000.  At  each  annual  meeting  of
shareholders,  the successor or successors of the class of directors  whose term
expires at that  meeting  shall be elected  by a  plurality  of the votes of the
shares present in person or represented by proxy at such meeting and entitled to
vote on the election of directors,  and shall hold office for a term expiring at
the annual meeting of shareholders  held in the third year following the year of
their  election.  The  directors  elected to each class shall hold office  until
their  successors  are duly elected and qualified or until their earlier  death,
disqualification, resignation, or removal.

         Notwithstanding the foregoing,  whenever, pursuant to the provisions of
Article  Fourth of these  Amended and Restated  Articles of  Incorporation,  the
holders  of any one or more  series of  Preferred  Stock  shall  have the right,
voting  separately as a series or together with holders of other such series, to
elect directors at an annual or special meeting of  shareholders,  the election,
term of office,  filling of vacancies,  and other features of such directorships
shall be  governed  by the  terms of these  Amended  and  Restated  Articles  of
Incorporation  and any  amendments  applicable  thereto,  and such  directors so
elected shall not be divided into classes pursuant to this Section 3.

         During any period  when the  holders of any series of  Preferred  Stock
have the right to elect  additional  directors as provided for or fixed pursuant
to the provisions of Article Fourth hereof,  then upon  commencement and for the
duration of the period during which such right continues: (a) the then otherwise


                                        4

<PAGE>


total authorized number of directors of the Corporation  shall  automatically be
increased  by such  specified  number  of  directors,  and the  holders  of such
Preferred Stock shall be entitled to elect the additional  directors so provided
for or fixed pursuant to said provisions,  and (b) each such additional director
shall serve until such  director's  successor  shall have been duly  elected and
qualified,  or until  such  director's  right  to hold  such  office  terminates
pursuant  to  said  provisions,   whichever  occurs  earlier,  subject  to  such
director's earlier death,  disqualification,  resignation, or removal. Except as
otherwise  provided by the Board of Directors in the  resolution or  resolutions
establishing such series,  whenever the holders of any series of Preferred Stock
having  such right to elect  additional  directors  are  divested  of such right
pursuant  to the  provisions  of such  stock,  the  terms of  office of all such
additional  directors  elected by the holders of such stock,  or elected to fill
any  vacancies  resulting  from the  death,  resignation,  disqualification,  or
removal of such additional  directors,  shall forthwith  terminate and the total
and  authorized  number  of  directors  of  the  Corporation  shall  be  reduced
accordingly.

         (d) VACANCIES. For a period of three years following the effective date
of these Amended and Restated Articles of Incorporation,  subject to the rights,
if any, of the holders of any series of Preferred  Stock to elect  directors and
to fill vacancies in the Board of Directors relating thereto: (i) any vacancy in
the Board of  Directors  occurring as a result of an increase in the size of the
Board of Directors or the death, resignation,  disqualification, or removal of a
director  nominated  by Pemi  Bancorp,  Inc.  pursuant  to  Section  1.09 of the
Agreement  and Plan of  Merger  by and  among The  Berlin  City  Bank,  Northway
Financial,  Inc.,  Pemigewasset National Bank and Pemi Bancorp, Inc. dated as of
March 14, 1997 shall be filled solely by the  affirmative  vote of two-thirds of
the remaining  directors then in office, even if less than a quorum of the Board
of Directors,  and (ii) all other  vacancies in the Board of Directors  shall be
filled solely by the affirmative  vote of a majority of the remaining  directors
then  in  office,  even  if  less  than a  quorum  of the  Board  of  Directors.
Thereafter,  subject  to the  rights,  if any,  of the  holders of any series of
Preferred  Stock  to  elect  directors  and to fill  vacancies  on the  Board of
Directors  relating  thereto,  any and all  vacancies in the Board of Directors,
however occurring,  including,  without limitation,  by reason of an increase in
size of the Board of Directors, or the death, resignation,  disqualification, or
removal  of a  director,  shall be filled  solely by the  affirmative  vote of a
majority of the remaining  directors then in office,  even if less than a quorum
of the  Board  of  Directors.  Any  director  appointed  to  fill a  vacancy  in
accordance with the preceding provisions of this Section shall hold office until
the next annual  meeting of  shareholders  and until such  director's  successor
shall have been duly elected and  qualified  or until his or her earlier  death,
disqualification,  resignation or removal. Subject to the rights, if any, of the
holders of any series of Preferred Stock to elect directors,  when the number of
directors is increased or decreased,  the Board of Directors shall determine the
class or classes to which the increased or decreased  number of directors  shall
be apportioned;  PROVIDED,  HOWEVER, that no decrease in the number of directors
shall shorten the term of any incumbent  director.  In the event of a vacancy in
the Board of Directors, the remaining directors, except as otherwise provided by
law, may exercise the powers of the full Board of Directors until the vacancy is
filled.  The affirmative  vote of two-thirds of the directors of the Corporation
shall be required to amend or repeal or adopt any provision in  contravention of
or  inconsistent  with clause (i) of this Subsection (d) of SECTION 2 of Article
Seventh.

         (e) REMOVAL.  Subject to the rights, if any, of any series of Preferred
Stock to elect directors and to remove any director whom the holders of any such
stock  have the right to elect,  any  director  (including  persons  elected  by

                                        5

<PAGE>



directors  to fill  vacancies  on the Board of  Directors)  may be removed  from
office (a) only with cause and (b) only by the  affirmative  vote of the holders
of  two-thirds  of the shares then entitled to vote at an election of directors.
At least 30 days prior to any  meeting of  stockholders  at which it is proposed
that any  director  be removed  from  office,  written  notice of such  proposed
removal  shall be sent to the director  whose  removal will be considered at the
meeting.  For purposes of this SECTION 1 of Article Seventh of these Amended and
Restated Articles of Incorporation,  "cause," with respect to the removal of any
director shall mean only (i) conviction of a felony, (ii) declaration of unsound
mind by order of court,  (iii) gross dereliction of duty, (iv) commission of any
action  involving  moral  turpitude,  or  (v)  commission  of  an  action  which
constitutes  intentional misconduct or a knowing violation of law if such action
in either event results both in an improper  substantial  personal benefit and a
material injury to the Corporation.

         SECTION 2. VOTING FOR BUSINESS COMBINATIONS

         (a) Neither the Corporation nor any subsidiary of which the Corporation
owns at least a majority of the equity  securities  ordinarily  entitled to vote
for the  election of  directors  ("SUBSIDIARY"),  shall be a party to any of the
transactions  specified  herein (a  "BUSINESS  COMBINATION")  or enter  into any
agreement providing for any Business Combination unless the conditions specified
in (b), (c) and (d) below shall have been satisfied:

                  (i)      any  merger  or  consolidation  (whether  in a single
                           transaction  or a  series  of  related  transactions)
                           other   than  a  merger  or   consolidation   of  the
                           Corporation  and any of its  Subsidiaries or a merger
                           or   consolidation   of  any   Subsidiaries   of  the
                           Corporation; or

                  (ii)     any  sale, lease, exchange, transfer, or distribution
                           of all or substantially all or a  substantial portion
                           of  the  property or assets of the Corporation or any
                           of its Subsidiaries, including its goodwill; or

                  (iii)    the  issuance  of any  securities,  or of any  rights
                           warrants or options to acquire any  securities of the
                           Corporation  or  any  of  its  Subsidiaries,  to  any
                           shareholders  other than by stock  dividend  declared
                           and paid to all  shareholders  of the  Corporation or
                           pursuant to an  employee  stock  ownership  plan or a
                           stock option plan established by the Corporation; or

                  (iv)     any  reclassification of the stock of the Corporation
                           or any of its Subsidiaries or any recapitalization or
                           other transaction  (other than a redemption of stock)
                           which has the  effect,  directly  or  indirectly,  of
                           increasing  the  proportionate  share of stock of the
                           Corporation  or any of its  Subsidiaries  held by any
                           person; or

                  (v)      the   adoption  of  any  plan  or  proposal  for  (i)
                           dissolution  of the  Corporation  or  any  Subsidiary
                           thereof or (ii) any partial or  complete  liquidation
                           of the Corporation or any Subsidiary thereof.
 

                                        6
<PAGE>

         (b) The vote of the  holders of at least  eighty  percent  (80%) of the
outstanding  shares  entitled  to vote for the  election of  directors  shall be
required  to  approve  or  authorize  any  Business  Combination  to  which  the
Corporation  or any  Subsidiary  is a party unless the aggregate of the cash and
fair  market  value of the  consideration  to be paid to all the  holders of the
Common Stock of the  Corporation  in  connection  with the Business  Combination
(when adjusted for stock splits, stock dividends, reclassification of shares, or
otherwise) shall be equal to the highest price per share paid by the other party
or parties to the Business  Combination (the "ACQUIRING PARTY") in acquiring any
of the Corporation's Common Stock; PROVIDED,  HOWEVER, that the consideration to
be paid to the holders of the Common  Stock of the  Corporation  shall be in the
same form as that paid by the  Acquiring  Party in  acquiring  the shares of the
Common  Stock  held by it  except  to the  extent  that any  shareholder  of the
Corporation shall otherwise agree.

         (c) Subject to the provisions in (b) above,  the vote of the holders of
at least  seventy-five  percent (75%) of the outstanding shares entitled to vote
for the  election of  directors  shall be required to approve or  authorize  any
Business  Combination  to which the  Corporation  or any  Subsidiary  is a party
unless the Business  Combination shall have been approved by at least two-thirds
(2/3) of the  directors  of the  Corporation  who are not  affiliated  with,  or
shareholders  of, the Acquiring  Party, in which case the vote of the holders of
at least a majority of the outstanding  shares entitled to vote for the election
of  directors   shall  be  required  to  approve  or  authorize   such  Business
Combination.

In connection  with the exercise of its judgment in  determining  what is in the
best interests of the  Corporation  and of the  shareholders,  when evaluating a
Business  Combination  or a  proposal  by  another  person or  persons to make a
Business  Combination or a tender or exchange offer, the Board of Directors may,
in addition to  considering  the adequacy of the amount to be paid in connection
with any such  transaction,  consider all of the following factors and any other
factors  which it deems  relevant:  (i) the social and  economic  effects of the
transaction on the Corporation and its subsidiaries, employees, depositors, loan
and other customers,  creditors,  and other elements of the communities in which
the Corporation and its Subsidiaries  operate or are located;  (ii) the business
and  financial   condition  and  earnings  prospects  of  the  Acquiring  Party,
including,  but not  limited  to,  debt  service  and other  existing  financial
obligations,  financial  obligations  to be  incurred  in  connection  with  the
Business  Combination,  and other likely financial  obligations of the Acquiring
Party,  and the possible  effect of such conditions upon the Corporation and its
Subsidiaries  and the other elements of the communities in which the Corporation
and its  subsidiaries  operate  or are  located;  and (iii) the  experience  and
integrity of the Acquiring Party and its management.

         (d) In the event  that all of the  conditions  set forth in (b) and (c)
above are met, the  Corporation  or any  Subsidiary  may enter into any Business
Combination under the terms and conditions specified in the NHBCA.

         (e) The  affirmative  vote of the  holders of at least  eighty  percent
(80%) of all of the shares of the Corporation  entitled to vote for the election
of directors shall be required to amend or repeal,  or to adopt any provision in
contravention  of or inconsistent  with Subsections (a) through (e) of SECTION 2
of Article  Seventh,  notwithstanding  the fact that a lesser  percentage may be
specified by law.


                                        7

<PAGE>





         (f) For a period of three years  following the effective  date of these
Amended  and  Restated  Articles  of  Incorporation,  the  affirmative  vote  of
two-thirds of the directors of the  Corporation  shall be required to approve or
authorize a merger or consolidation  involving  Pemigewasset  National Bank. The
affirmative  vote of  two-thirds of the  directors of the  Corporation  shall be
required  to amend or repeal,  or adopt any  provision  in  contravention  of or
inconsistent  with  this  Subsection  (f)  of  SECTION  2  of  Article  Seventh,
notwithstanding the fact that a lesser percentage may be specified by law.

         Section 3.  Amendment of Amended and Restated Articles of Incorporation

         The Corporation reserves the right to amend or repeal these Amended and
Restated Articles of Incorporation in the manner now or hereafter  prescribed by
statute and these Amended and Restated Articles of Incorporation, and all rights
conferred  upon  shareholders  herein are granted  subject to this  reservation.
Except  as  otherwise  provided  in  these  Amended  and  Restated  Articles  of
Incorporation,  no amendment or repeal of these Amended and Restated Articles of
Incorporation  shall be made  unless the same is first  approved by the Board of
Directors  pursuant  to a  resolution  adopted  by the  Board  of  Directors  in
accordance  with  Section  293-A.10.03  of the NHBCA,  and  except as  otherwise
provided by law, thereafter  approved by the shareholders.  Whenever any vote of
the  holders of voting  stock is required  to amend or repeal any  provision  of
these  Amended and Restated  Articles of  Incorporation,  and in addition to any
other vote of the holders of voting stock that is required by these  Amended and
Restated Articles of Incorporation or by law, the affirmative vote of a majority
of the outstanding  shares entitled to vote on such amendment or repeal, and the
affirmative vote of a majority of the outstanding  shares of each class entitled
to vote thereon as a class,  shall be required to amend or repeal any  provision
of these Amended and Restated Articles of Incorporation; PROVIDED, HOWEVER, that
the  affirmative  vote of not less than  two-thirds  of the  outstanding  shares
entitled to vote on such amendment or repeal,  and the  affirmative  vote of not
less than  two-thirds of the  outstanding  shares of each class entitled to vote
thereon as a class,  shall be required to amend or repeal any of the  provisions
of  Article  Seventh,  Sections  1, 2, 3, or 5 of  these  Amended  and  Restated
Articles of Incorporation.

                         SECTION 4. AMENDMENT OF BY-LAWS

         (a) AMENDMENT BY DIRECTORS.  Except as otherwise provided by law or the
By-laws,  the By-laws of the Corporation may be amended or repealed by the Board
of  Directors by the  affirmative  vote of a majority of the  directors  then in
office.

         (b) AMENDMENT BY  SHAREHOLDERS.  The By-laws of the  Corporation may be
amended or repealed at any annual meeting of shareholders, or special meeting of
shareholders  called  for  such  purpose,  by the  affirmative  vote of at least
two-thirds  of the  shares  present  in person or  represented  by proxy at such
meeting and entitled to vote on such amendment or repeal,  voting  together as a
single class; PROVIDED,  HOWEVER, that if the Board of Directors recommends that
shareholders  approve such amendment or repeal at such meeting of  shareholders,
such amendment or repeal shall only require the affirmative vote of the majority
of the shares  present in person or  represented  by proxy at such  meeting  and
entitled to vote on such amendment or repeal, voting together as a single class.

                                       8


<PAGE>

         SECTION 5. LIABILITY LIMITATIONS FOR OFFICERS AND DIRECTORS.  No person
who serves the  Corporation  as a director or an officer shall have any personal
liability  to the  Corporation  or its  shareholders  for money  damages for any
action  taken,  or any failure to take any action,  as a director or an officer,
except liability for:

         (a) The amount of a  financial  benefit  received  by such  director or
officer to which he is not entitled;

         (b)  An  intentional  infliction  of  harm  on the  Corporation  or its
shareholders;

         (c)      A violation of Section 293-A.8.33; or

         (d)      An intentional violation of criminal law.

         If the NHBCA is amended after the  effective  date of these Amended and
Restated  Articles  of  Incorporation  to  authorize  corporate  action  further
eliminating  or limiting the personal  liability of directors or officers,  then
the liability of a director or officer of the Corporation shall be eliminated or
limited to the fullest extent permitted by the NHBCA. Any repeal or modification
of this  Section 5 of Article  Seventh by the  shareholders  of the  Corporation
shall be prospective  only, and shall not adversely affect any limitation on the
personal  liability  of a director  or officer  of the  Corporation  for acts or
omissions occurring prior to the effective date of such repeal or modification.

         EIGHTH:   Any  action   required  or  permitted  to  be  taken  by  the
shareholders of the Corporation at any annual or special meeting of shareholders
of the  Corporation  must be effected at a duly called annual or special meeting
of  shareholders  and may not be taken  or  effected  by a  written  consent  of
shareholders in lieu thereof.


                                                       
     NINTH:  The address of the initial registered office of the corporation is

------------------------------------------------------------------------------
---------------------------------------------------------------------------.

         TENTH:  The  number of  directors  constituting  the  initial  board of
directors  of the  corporation  is ______  and the names  and  addresses  of the
persons  who are to serve  as  directors  until  the  first  annual  meeting  of
shareholders or until their successors are elected and shall qualify are:

                  Name                               Address








DATED: ___________, 1997

                                       9

<PAGE>

                              THE BERLIN CITY BANK


                              --------------------------------
                              William J. Woodward
                              Chairman, President and
                              Chief Executive Officer




358278.c7

  
                                     10


<PAGE>



                                                                 EXHIBIT II

                                     FORM OF
                                     BY-LAWS

                                       OF

                            NORTHWAY FINANCIAL, INC.



                                    ARTICLE I

                                  SHAREHOLDERS

         SECTION 1. ANNUAL MEETING.  The annual meeting of shareholders shall be
held at the hour,  date and place  within or without the United  States which is
fixed by the majority of the Board of Directors,  the Chairman of the Board,  if
one is elected, or the President, which time, date and place may subsequently be
changed at any time by vote of the Board of Directors.  If no annual meeting has
been held for a period of thirteen  months after the  Corporation's  last annual
meeting of shareholders, a special meeting in lieu thereof may be held, and such
special meeting shall have, for the purposes of these By-laws or otherwise,  all
the force and effect of an annual meeting.  Any and all references  hereafter in
these  By-laws to an annual  meeting or annual  meetings also shall be deemed to
refer to any special meeting(s) in lieu thereof.

         SECTION 2. MATTERS TO BE CONSIDERED AT ANNUAL  MEETINGS.  At any annual
meeting of  shareholders  or any  special  meeting in lieu of annual  meeting of
shareholders (the "ANNUAL MEETING"),  only such business shall be conducted, and
only such  proposals  shall be acted upon, as shall have been  properly  brought
before such Annual  Meeting.  To be  considered  as properly  brought  before an
Annual  Meeting,  business must be: (a) specified in the notice of meeting,  (b)
otherwise  properly  brought  before the meeting by, or at the direction of, the
Board of Directors,  or (c) otherwise properly brought before the meeting by any
holder of record  (both as of the time  notice of such  proposal is given by the
shareholder  as set forth below and as of the record date for the Annual Meeting
in question) of any shares of capital stock of the Corporation  entitled to vote
at such Annual  Meeting who  complies  with the  requirements  set forth in this
SECTION 2.

         In addition to any other  applicable  requirements,  for business to be
properly  brought  before an Annual  Meeting by a  shareholder  of record of any
shares  of  capital  stock  entitled  to  vote  at  such  Annual  Meeting,  such
shareholder  shall:  (i) give timely notice as required by this SECTION 2 to the
Secretary  of the  Corporation  and (ii) be present at such  meeting,  either in
person or by a  representative.  For the first Annual Meeting following the date
the Corporation becomes a reporting company under Section 13(a) or Section 15(d)
of the  Securities  Exchange Act of 1934,  as amended (the  "EXCHANGE  ACT"),  a
shareholder's  notice shall be timely if delivered to, or mailed to and received
by, the Corporation at its principal  executive  office not later than the close
of business on the later of (x) the 75th day prior to the scheduled date of such
Annual  Meeting  or  (y)  the  15th  day  following  the  day  on  which  public
announcement  of  the  date  of  such  Annual  Meeting  is  first  made  by  the
Corporation. For all subsequent Annual Meetings, a shareholder's notice shall be
timely if delivered  to, or mailed to and received  by, the  Corporation  at its
principal executive office not less than 75 days nor more than 120 days prior to

                                       1



<PAGE>

the  anniversary   date  of  the  immediately   preceding  Annual  Meeting  (the
"ANNIVERSARY DATE"); provided,  however, that in the event the Annual Meeting is
scheduled to be held on a date more than 30 days before the Anniversary  Date or
more than 60 days after the Anniversary  Date, a  shareholder's  notice shall be
timely if delivered  to, or mailed to and received  by, the  Corporation  at its
principal  executive office not later than the close of business on the later of
(1) the 75th day prior to the scheduled  date of such Annual  Meeting or (2) the
15th day  following  the day on which  public  announcement  of the date of such
Annual Meeting is first made by the Corporation.

         For purposes of these By-laws,  "public  announcement"  shall mean: (a)
disclosure in a press release reported by the Dow Jones News Service, Associated
Press, or comparable national news service, (b) a report or other document filed
publicly  with  the  Securities  and  Exchange  Commission  (including,  without
limitation,  a Form  8-K),  or (c) a letter or report  sent to  shareholders  of
record of the Corporation at the time of the mailing of such letter or report.

         A  shareholder's  notice  to the  Secretary  shall set forth as to each
matter proposed to be brought before an Annual Meeting:  (i) a brief description
of the business the shareholder  desires to bring before such Annual Meeting and
the reasons for conducting such business at such Annual  Meeting,  (ii) the name
and address,  as they appear on the  Corporation's  stock transfer books, of the
shareholder proposing such business, (iii) the class and number of shares of the
Corporation's capital stock beneficially owned by the shareholder proposing such
business,  (iv) the names and addresses of the beneficial owners, if any, of any
capital stock of the Corporation  registered in such  shareholder's name on such
books,  and the class and number of shares of the  Corporation's  capital  stock
beneficially  owned by such  beneficial  owners,  (v) the names and addresses of
other shareholders  known by the shareholder  proposing such business to support
such proposal,  and the class and number of shares of the Corporation's  capital
stock  beneficially  owned by such  other  shareholders,  and (vi) any  material
interest of the shareholder proposing to bring such business before such meeting
(or any  other  shareholders  known  to be  supporting  such  proposal)  in such
proposal.

         If the Board of Directors or a designated  committee thereof determines
that any  shareholder  proposal was not made in a timely  fashion in  accordance
with the  provisions  of this  SECTION 2 or that the  information  provided in a
shareholder's  notice  does not  satisfy the  information  requirements  of this
SECTION 2 in any material  respect,  such  proposal  shall not be presented  for
action at the Annual Meeting in question.  If neither the Board of Directors nor
such  committee  makes a  determination  as to the  validity of any  shareholder
proposal  in the manner set forth  above,  the  presiding  officer of the Annual
Meeting shall determine whether the shareholder  proposal was made in accordance
with the terms of this SECTION 2. If the presiding  officer  determines that any
shareholder  proposal was not made in a timely  fashion in  accordance  with the
provisions of this SECTION 2 or that the information provided in a shareholder's
notice does not satisfy the  information  requirements  of this SECTION 2 in any
material respect,  such proposal shall not be presented for action at the Annual
Meeting in question. If the Board of Directors,  a designated committee thereof,
or the presiding  officer  determines  that a  shareholder  proposal was made in
accordance with the requirements of this SECTION 2, the presiding  officer shall
so declare at the Annual  Meeting and ballots  shall be provided  for use at the
meeting with respect to such proposal.
 
                                      2


<PAGE>

         Notwithstanding the foregoing  provisions of this By-law, a shareholder
shall also comply with all applicable  requirements of the Exchange Act, and the
rules and  regulations  thereunder with respect to the matters set forth in this
Section 2, and nothing in this SECTION 2 shall be deemed to affect any rights of
shareholders  to request  inclusion  of  proposals  in the  Corporation's  proxy
statement pursuant to Rule 14a-8 under the Exchange Act.

         SECTION 3. SPECIAL  MEETINGS.  Except as otherwise  required by law and
subject to the rights,  if any, of the holders of any series of Preferred Stock,
special  meetings of the  shareholders  of the Corporation may be called only by
the Board of Directors pursuant to a resolution approved by the affirmative vote
of a majority  of the  directors  then in office,  or upon  delivery  of written
demand therefor to the Secretary describing the purpose or purposes for which it
is to be held by the  holders of not less than ten  percent  (10%) of the shares
entitled to vote at the meeting.

         SECTION 4. MATTERS TO BE  CONSIDERED AT SPECIAL  MEETINGS.  No business
other than  specified  in the call for the meeting  shall be  transacted  at any
special meeting of the shareholders.

         SECTION 5. Notice of Meetings;  Adjournments.  A written notice of each
Annual Meeting stating the hour, date, and place of such Annual Meeting shall be
given by the Secretary or an Assistant  Secretary (or other person authorized by
these  By-laws or by law) not less than 10 days nor more than 60 days before the
Annual  Meeting,  to  each  shareholder  entitled  to vote  thereat  and to each
shareholder  who,  by  law  or  under  the  Articles  of  Incorporation  of  the
Corporation (as the same may hereafter be amended and/or restated, the "ARTICLES
OF  INCORPORATION")  or under these  By-laws,  is entitled  to such  notice,  by
delivering  such notice to him or by mailing it, postage  prepaid,  addressed to
such  shareholder  at the  address  of such  shareholder  as it  appears  on the
Corporation's  stock transfer books. Such notice shall be deemed to be delivered
when hand delivered to such address or deposited in the mail so addressed,  with
postage prepaid.

         Notice of all special  meetings of  shareholders  shall be given in the
same manner as provided for Annual  Meetings,  except that the written notice of
all special  meetings  shall state the purpose or purposes for which the meeting
has been called.

         Notice of an Annual Meeting or special meeting of shareholders need not
be given to a  shareholder  if a written  waiver  of notice is signed  before or
after such  meeting by such  shareholder  or if such  shareholder  attends  such
meeting,  unless such attendance was for the express purpose of objecting at the
beginning of the meeting to the transaction of any business  because the meeting
was not lawfully  called or convened.  Neither the business to be transacted at,
nor the purpose of, any Annual Meeting or special meeting of  shareholders  need
be specified in any written waiver of notice.
       
         The Board of  Directors  may  postpone and  reschedule  any  previously
scheduled  Annual Meeting or special meeting of shareholders and any record date
with respect  thereto,  regardless of whether any notice or public  announcement
with respect to any such meeting has been sent or made  pursuant to SECTION 2 of
this Article I or SECTION 3 of Article II hereof or otherwise. In no event shall
the public announcement of an adjournment,  postponement, or rescheduling of any
previously scheduled meeting of shareholders  commence a new time period for the
giving of a  shareholder's  notice under SECTION 2 of Article I and SECTION 3 of
Article II of these By-laws.

                                       3


<PAGE>

         When any meeting is  convened,  the  presiding  officer may adjourn the
meeting if (a) no quorum is present for the  transaction  of  business,  (b) the
Board of Directors  determines  that  adjournment is necessary or appropriate to
enable  the  shareholders  to  consider  fully  information  which  the Board of
Directors  determines  has not been made  sufficiently  or timely  available  to
shareholders,  or (c) the Board of  Directors  determines  that  adjournment  is
otherwise in the best interests of the  Corporation.  When any Annual Meeting or
special meeting of  shareholders  is adjourned to another hour,  date, or place,
notice need not be given of the adjourned  meeting other than an announcement at
the meeting at which the  adjournment  is taken of the hour,  date, and place to
which the meeting is adjourned;  PROVIDED,  HOWEVER,  that if the adjournment is
for more than 120 days,  or if after the  adjournment a new record date is fixed
for the adjourned  meeting,  notice of the  adjourned  meeting shall be given to
each shareholder of record entitled to vote thereat and each shareholder who, by
law or under the Articles of Incorporation or these By-laws, is entitled to such
notice.

         SECTION 6. QUORUM.  A majority of the shares entitled to vote,  present
in person or represented by proxy,  shall  constitute a quorum at any meeting of
shareholders.  If less than a quorum is  present at a  meeting,  the  holders of
voting stock  representing a majority of the voting power present at the meeting
or the  presiding  officer may adjourn  the meeting  from time to time,  and the
meeting may be held as adjourned  without further notice,  except as provided in
SECTION 5 of this  Article  I. At such  adjourned  meeting  at which a quorum is
present,  any business may be transacted which might have been transacted at the
meeting as originally  noticed.  The shareholders  present at a duly constituted
meeting may continue to transact business until adjournment, notwithstanding the
withdrawal of enough shareholders to leave less than a quorum.

         SECTION 7.  VOTING AND  PROXIES.  Shareholders  shall have one vote for
each share of stock  entitled to vote owned by them of record  according  to the
books of the Corporation, unless otherwise provided by law or by the Articles of
Incorporation.  Shareholders  may vote either in person or by written proxy, but
no proxy shall be voted or acted upon after eleven months from its date,  unless
the proxy  expressly  provides for a longer period.  Proxies shall be filed with
the  Secretary of the meeting  before being voted.  Except as otherwise  limited
therein or as  otherwise  provided  by law,  proxies  shall  entitle the persons
authorized  thereby to vote at any  adjournment of such meeting,  but they shall
not be valid after final adjournment of such meeting. The Corporation, if acting
in good faith,  may accept a proxy with respect to stock held in the name of two
or more persons if executed by or on behalf of any one of them.

         SECTION 8.  ACTION AT  MEETING.  When a quorum is  present,  any matter
before any meeting of shareholders  shall be decided by the affirmative  vote of
the majority of shares present in person or represented by proxy at such meeting
and entitled to vote on such  matter,  except where a larger vote is required by
law, by the amended and restated Articles of Incorporation, or by these By-laws.
Any election by shareholders  shall be determined by a plurality of the votes of
the shares present in person or represented by proxy at the meeting and entitled
to vote on the election of directors,  except where a larger vote is required by
law, by the Articles of  Incorporation,  or by these  By-laws.  The  Corporation
shall not  directly or  indirectly  vote any shares of its own stock;  PROVIDED,
HOWEVER,  that the  Corporation  may vote  shares  which it holds in a fiduciary
capacity to the extent permitted by law.
 
                                      4


<PAGE>

         SECTION 9. SHAREHOLDER  LISTS. The Secretary or an Assistant  Secretary
(or the Corporation's transfer agent or other person authorized by these By-laws
or by law) shall prepare and make available for inspection,  within two business
days after  notice of the Annual  Meeting or special  meeting for which the list
was prepared and continuing  through such Annual Meeting or special  meeting,  a
complete list of the shareholders  entitled to vote at the meeting,  arranged in
alphabetical order and by voting group and class and series, if applicable,  and
showing the address of each  shareholder and the number of shares  registered in
the name of each shareholder.  Such list shall be open to the examination of any
shareholder, or such shareholder's agent or attorney, for any purpose germane to
the meeting,  during ordinary business hours,  upon written demand,  either at a
place  within the city where the  meeting is to be held,  which  place  shall be
specified in the notice of the meeting,  or, if not so  specified,  at the place
where the meeting is to be held. The list shall also be produced and kept at the
hour,  date, and place of the meeting during the whole time thereof,  and may be
inspected by any shareholder,  and any such shareholder's agent or attorney, who
is present.

         SECTION 10.  PRESIDING  OFFICER.  The Chairman of the Board,  if one is
elected,  or if not elected or in his or her absence,  the Vice-Chairman,  shall
preside at all Annual  Meetings or special  meetings of  shareholders  and shall
have the power, among other things, to adjourn such meeting at any time and from
time to time,  subject  to  SECTIONS  5 and 6 of this  Article  I. The  order of
business and all other  matters of procedure at any meeting of the  shareholders
shall be determined by the presiding officer.

         SECTION  11.  VOTING  PROCEDURES  AND  INSPECTORS  OF  ELECTIONS.   The
Corporation  shall,  in advance of any meeting of  shareholders,  appoint one or
more  inspectors to act at the meeting and make a written  report  thereof.  The
Corporation may designate one or more persons as alternate inspectors to replace
any inspector who fails to act. If no inspector or alternate is able to act at a
meeting  of  shareholders,  the  presiding  officer  shall  appoint  one or more
inspectors  to act at the  meeting.  Any  inspector  may,  but need  not,  be an
officer, employee, or agent of the Corporation.  Each inspector, before entering
upon the discharge of his or her duties,  shall take and sign an oath faithfully
to execute the duties of inspector with strict impartiality and according to the
best of his or her  ability.  The  inspectors  shall  perform such duties as are
required by the New Hampshire Business  Corporation Act, as amended from time to
time (the  "NHBCA"),  including  the  counting  of all votes  and  ballots.  The
inspectors  may  appoint  or retain  other  persons  or  entities  to assist the
inspectors in the  performance  of the duties of the  inspectors.  The presiding
officer may review all  determinations  made by the inspectors,  and in so doing
the presiding officer shall be entitled to exercise his or her sole judgment and
discretion  and he or she shall not be bound by any  determinations  made by the
inspectors.  All  determinations  by the  inspectors  and,  if  applicable,  the
presiding officer,  shall be subject to further review by any court of competent
jurisdiction.


                                   ARTICLE II

                                   DIRECTORS

                                       5
 


<PAGE>

         SECTION 1. POWERS.  All corporate powers shall be exercised by or under
the  authority  of, and the  business  and affairs of the  Corporation  shall be
managed  under the  direction  of, the Board of  Directors,  except as otherwise
provided by the Articles of Incorporation or required by law.

         SECTION 2. NUMBER AND TERMS.  At the effective  date of these  By-laws,
the number of directors of the Corporation shall be ten. Thereafter,  the number
of  directors  of the  Corporation  shall be no less than eight and no more than
thirteen.  The  exact  number  of  directors  within  the  minimum  and  maximum
limitations specified in the preceding sentence shall be fixed from time to time
during the three year period  following the  effective  date of these By-laws by
the Board pursuant to a resolution  adopted by two-thirds of the entire Board of
Directors and  thereafter by a majority of the entire Board.  No decrease in the
number  of  directors  constituting  the  Board  shall  shorten  the term of any
incumbent  director.  The affirmative vote of two-thirds of the directors of the
Corporation  shall be  required  to amend or repeal or adopt  any  provision  in
contravention  of or inconsistent  with the required  directors' vote to fix the
number of directors during the three-year period following the effective date of
these By-laws as set forth in the third sentence of this SECTION 2.

         SECTION 3. DIRECTOR NOMINATIONS. Nominations of candidates for election
as directors of the  Corporation  at any Annual Meeting may be made only (a) by,
or at the  direction  of, a  [majority]  of the Board of Directors or (b) by any
holder of record (both as of the time notice of such  nomination is given by the
shareholder  as set forth below and as of the record date for the Annual Meeting
in question) of any shares of the capital stock of the  Corporation  entitled to
vote at such Annual  Meeting who complies  with the timing,  informational,  and
other requirements set forth in this SECTION 3. Any shareholder who has complied
with the timing, informational, and other requirements set forth in this SECTION
3 and who seeks to make such a nomination,  or his, her, or its  representative,
must be present in person at the  Annual  Meeting.  Only  persons  nominated  in
accordance with the procedures set forth in this SECTION 3 shall be eligible for
election as directors at an Annual Meeting.

         Nominations,  other  than those  made by, or at the  direction  of, the
Board of  Directors,  shall be made  pursuant to timely notice in writing to the
Secretary  of the  Corporation  as set  forth in this  SECTION  3. For the first
Annual Meeting  following the date the Corporation  becomes a reporting  company
under Section 13(a) or Section 15(d) of the Exchange Act, a shareholder's notice
shall be timely if delivered  to, or mailed to and received by, the  Corporation
at its  principal  executive  office not later than the close of business on the
later of (i) the 75th day prior to the scheduled  date of such Annual Meeting or
(ii) the 15th day following the day on which public  announcement of the date of
such Annual Meeting is first made by the Corporation.  For all subsequent Annual
Meetings,  a shareholder's  notice shall be timely if delivered to, or mailed to
and received by, the Corporation at its principal executive office not less than
75 days nor more than 120 days prior to the Anniversary Date; PROVIDED, HOWEVER,
that in the event the Annual Meeting is scheduled to be held on a date more than
30 days before the  Anniversary  Date or more than 60 days after the Anniversary
Date, a  shareholder's  notice  shall be timely if  delivered  to, or mailed and
received by, the  Corporation at its principal  executive  office not later than
the close of  business  on the later of (x) the 75th day prior to the  scheduled
date of such  Annual  Meeting  or (y) the  15th day  following  the day on which
public  announcement  of the date of such  Annual  Meeting  is first made by the
Corporation.

                                       6


<PAGE>

         A  shareholder's  notice  to the  Secretary  shall set forth as to each
person whom the shareholder  proposes to nominate for election or re-election as
a director:  (1) the name, age, business address,  and residence address of such
person, (2) the principal occupation or employment of such person, (3) the class
and number of shares of the  Corporation's  capital stock which are beneficially
owned by such person on the date of such shareholder notice, and (4) the consent
of each nominee to serve as a director if elected. A shareholder's notice to the
Secretary shall further set forth as to the shareholder  giving such notice: (a)
the name and address,  as they appear on the Corporation's stock transfer books,
of such shareholder and of the beneficial  owners (if any) of the  Corporation's
capital stock registered in such  shareholder's name and the name and address of
other  shareholders  known by such shareholder to be supporting such nominee(s),
(b) the class and number of shares of the Corporation's  capital stock which are
held of record,  beneficially owned, or represented by proxy by such shareholder
and by any other  shareholders  known by such  shareholder to be supporting such
nominee(s)  on the record date for the Annual  Meeting in question (if such date
shall  then  have  been  made  publicly  available)  and on  the  date  of  such
shareholder's   notice,   and  (c)  a  description   of  all   arrangements   or
understandings between such shareholder and each nominee and any other person or
persons  (naming  such person or persons)  pursuant to which the  nomination  or
nominations are to be made by such shareholder.

         If the Board of Directors or a designated  committee thereof determines
that any  shareholder  nomination  was not made in accordance  with the terms of
this SECTION 3 or that the information  provided in a shareholder's  notice does
not satisfy the  informational  requirements  of this  SECTION 3 in any material
respect,  then such nomination  shall not be considered at the Annual Meeting in
question.  If  neither  the  Board  of  Directors  nor  such  committee  makes a
determination  as to  whether  a  nomination  was  made in  accordance  with the
provisions of this SECTION 3, the presiding  officer of the Annual Meeting shall
determine  whether a nomination was made in accordance with such provisions.  If
the presiding officer determines that any shareholder nomination was not made in
accordance with the terms of this SECTION 3 or that the information  provided in
a shareholder's  notice does not satisfy the informational  requirements of this
SECTION 3 in any material respect,  then such nomination shall not be considered
at the Annual  Meeting in  question.  If the Board of  Directors,  a  designated
committee  thereof,  or the presiding  officer  determines that a nomination was
made in accordance with the terms of this SECTION 3, the presiding officer shall
so declare at the Annual  Meeting and ballots  shall be provided  for use at the
meeting with respect to such nominee.

         Notwithstanding  anything to the  contrary in the second  paragraph  of
this  SECTION 3, in the event that the number of  directors to be elected to the
Board of Directors  of the  Corporation  is  increased  pursuant to SECTION 2 of
Article II and there is no public  announcement by the Corporation naming all of
the nominees  for  director or  specifying  the size of the  increased  Board of
Directors at least 75 days prior to the Anniversary Date, a shareholder's notice
required  by this  SECTION  3 shall  also be  considered  timely,  but only with
respect to nominees  for any new  positions  created by such  increase,  if such
notice shall be delivered to, or mailed to and received by, the  Corporation  at
its principal  executive office not later than the close of business on the 15th
day  following  the day on which such public  announcement  is first made by the
Corporation.

         No person  shall be elected by the  shareholders  as a director  of the
Corporation unless nominated in accordance with the procedures set forth in this
Section.  Election  of  directors  at an Annual  Meeting  need not be by written
ballot,  unless  otherwise  provided  by the Board of  Directors,  or  presiding
officer at such  Annual  Meeting.  If written  ballots  are to be used,  ballots
bearing  the names of all the persons who have been  nominated  for  election as
directors at the Annual  Meeting in accordance  with the procedures set forth in
this Section shall be provided for use at the Annual Meeting.

                                       7


<PAGE>

         SECTION 4.  QUALIFICATION.  No director need be a resident of the State
of New Hampshire,  but directors must own qualifying  shares of the  Corporation
with a fair market value at the time of such director's election of $5,000.

         SECTION  5.  VACANCIES.  For a period  of  three  years  following  the
effective date of these By-laws of the  Corporation,  subject to the rights,  if
any, of the holders of any series of Preferred  Stock to elect  directors and to
fill vacancies in the Board of Directors  relating  thereto:  (i) any vacancy in
the Board of  Directors  occurring as a result of an increase in the size of the
Board of Directors or the death, resignation,  disqualification, or removal of a
director  nominated  by Pemi  Bancorp,  Inc.  pursuant  to  Section  1.09 of the
Agreement  and Plan of  Merger,  by and among The  Berlin  City  Bank,  Northway
Financial,  Inc., Pemigewasset National Bank and Pemi Bancorp, Inc., dated as of
March 14, 1997,  shall be filled solely by the affirmative vote of two-thirds of
the remaining  directors then in office, even if less than a quorum of the Board
of Directors,  and (ii) all other  vacancies in the Board of Directors  shall be
filled solely by the affirmative  vote of a majority of the remaining  directors
then  in  office,  even  if  less  than a  quorum  of the  Board  of  Directors.
Thereafter,  subject  to the  rights,  if any,  of the  holders of any series of
Preferred  Stock  to  elect  directors  and to fill  vacancies  on the  Board of
Directors  relating  thereto,  any and all  vacancies in the Board of Directors,
however occurring,  including,  without limitation,  by reason of an increase in
size of the Board of Directors, or the death, resignation,  disqualification, or
removal  of a  director,  shall be filled  solely by the  affirmative  vote of a
majority of the remaining  directors then in office,  even if less than a quorum
of the  Board  of  Directors.  Any  director  appointed  to  fill a  vacancy  in
accordance with the preceding provisions of this Section shall hold office until
the next Annual Meeting and until such director's successor shall have been duly
elected  and  qualified  or until his or her  earlier  death,  disqualification,
resignation,  or removal.  Subject to the rights,  if any, of the holders of any
series of Preferred  Stock to elect  directors,  when the number of directors is
increased or  decreased,  the Board of Directors  shall  determine  the class or
classes  to which  the  increased  or  decreased  number of  directors  shall be
apportioned;  PROVIDED,  HOWEVER,  that no decrease  in the number of  directors
shall shorten the term of any incumbent  director.  In the event of a vacancy in
the Board of Directors, the remaining directors, except as otherwise provided by
law, may exercise the powers of the full Board of Directors until the vacancy is
filled.  The affirmative  vote of two-thirds of the directors of the Corporation
shall be required to amend or repeal or adopt any provision in  contravention or
inconsistent  with clause (i) of the first sentence of this SECTION 5 of Article
II.

         SECTION 6. REMOVAL.  Directors may be removed from office in the manner
provided in the Articles of Incorporation.

         SECTION 7.  RESIGNATION.  A  director  may resign at any time by giving
written notice to the Chairman of the Board,  if one is elected,  the President,
or the  Secretary.  A resignation  shall be effective  upon receipt,  unless the
resignation otherwise provides.

                                       8


<PAGE>

         SECTION 8. REGULAR MEETINGS. The regular annual meeting of the Board of
Directors  shall be held,  without notice other than this SECTION 8, on the same
date and at the same place as the  Annual  Meeting  following  the close of such
meeting of shareholders. Other regular meetings of the Board of Directors may be
held at such hour,  date,  and place as the Board of Directors may by resolution
from time to time determine without notice other than such resolution.

         SECTION 9. SPECIAL MEETINGS. Special meetings of the Board of Directors
may be called,  orally or in writing,  by or at the request of a majority of the
directors,  the Chairman of the Board, if one is elected, or the President.  The
person  calling any such special  meeting of the Board of Directors  may fix the
hour, date, and place thereof.

         SECTION 10. NOTICE OF MEETINGS.  Notice of the hour, date, and place of
all special  meetings of the Board of Directors  shall be given to each director
by the Secretary or an Assistant  Secretary,  or in case of the death,  absence,
incapacity,  or refusal of such persons, by the Chairman of the Board, if one is
elected,  or the President or such other  officer  designated by the Chairman of
the Board, if one is elected, or the President. Notice of any special meeting of
the Board of Directors shall be given to each director in person,  by telephone,
or by facsimile, telex, telecopy,  telegram, or other written form of electronic
communication, sent to his or her business or home address, at least 24 hours in
advance of the meeting,  or by written  notice  mailed to his or her business or
home address, at least 48 hours in advance of the meeting.  Such notice shall be
deemed  to be  delivered  when  hand  delivered  to such  address,  read to such
director by telephone,  deposited in the mail so addressed, with postage thereon
prepaid if mailed, dispatched or transmitted if faxed, telexed or telecopied, or
when delivered to the telegraph company if sent by telegram.

         When any Board of  Directors  meeting,  either  regular or special,  is
adjourned for 30 days or more, notice of the adjourned meeting shall be given as
in the case of an original meeting. It shall not be necessary to give any notice
of the hour, date, or place of any meeting adjourned for less than 30 days or of
the business to be transacted thereat, other than an announcement at the meeting
at which such  adjournment  is taken of the hour,  date,  and place to which the
meeting is adjourned.

         A  written  waiver  of notice  signed  before  or after a meeting  by a
director  and  filed  with the  records  of the  meeting  shall be  deemed to be
equivalent to notice of the meeting.  The  attendance of a director at a meeting
shall  constitute  a waiver of notice of such  meeting,  except where a director
attends a meeting for the express  purpose of objecting at the  beginning of the
meeting or promptly upon his or her arrival to the  transaction  of any business
because such meeting is not lawfully  called or convened and does not thereafter
vote for or assent to action taken at the meeting.  Except as otherwise required
by law,  by the  Articles of  Incorporation,  or by these  By-laws,  neither the
business  to be  transacted  at, nor the purpose of, any meeting of the Board of
Directors need be specified in the notice or waiver of notice of such meeting.

         SECTION  11.  QUORUM.  At any  meeting  of the  Board of  Directors,  a
majority  of the  directors  then in office  shall  constitute  a quorum for the
transaction  of business,  but if less than a quorum is present at a meeting,  a
majority of the directors present may adjourn the meeting from time to time, and
the meeting may be held as adjourned without further notice,  except as provided
in SECTION 10 of this Article II. Any business which might have been  transacted
at the meeting as originally noticed may be transacted at such adjourned meeting
at which a quorum is present.

                                       9


<PAGE>

         SECTION 12. ACTION AT MEETING. At any meeting of the Board of Directors
at which a quorum is present,  a majority of the directors  present may take any
action on behalf of the Board of Directors, unless otherwise required by law, by
the Articles of Incorporation, or by these By-laws.

         SECTION 13. ACTION BY CONSENT.  Any action  required or permitted to be
taken at any meeting of the Board of Directors may be taken without a meeting if
all members of the Board of Directors  unanimously  consent  thereto in writing.
Such action shall be evidenced by one or more written  consents  describing  the
action  taken,  signed by each  director,  and  filed  with the  records  of the
meetings of the Board of  Directors  and shall be treated for all  purposes as a
vote at a meeting of the Board of Directors.

         SECTION 14.  MANNER OF  PARTICIPATION.  Directors  may  participate  in
meetings of the Board of Directors by means of  conference  telephone or similar
communications  equipment by means of which all directors  participating  in the
meeting  can hear each  other,  and  participation  in a meeting  in  accordance
herewith  shall  constitute  presence in person at such  meeting for purposes of
these By-laws.

         SECTION 15. COMMITTEES.  The Board of Directors,  by vote of a majority
of the  directors  then  in  office,  may  elect  from  its  number  one or more
committees,   including,   without  limitation,   an  Executive   Committee,   a
Compensation Committee,  and an Audit Committee,  each of which must contain two
or more members, and may delegate thereto some or all of its powers except those
which by law, by the Articles of  Incorporation,  or by these By-laws may not be
delegated.  Except as the Board of Directors may otherwise  determine,  any such
committee may make rules for the conduct of its business,  but unless  otherwise
provided by the Board of  Directors  or in such  rules,  its  business  shall be
conducted so far as possible in the same manner as is provided by these  By-laws
for the Board of  Directors.  All  members  of such  committees  shall hold such
offices at the pleasure of the Board of  Directors.  The Board of Directors  may
abolish any such  committee  at any time.  Any  committee  to which the Board of
Directors  delegates  any of its  powers or duties  shall  keep  records  of its
meetings  and shall  report its action to the Board of  Directors.  The Board of
Directors shall have power to rescind any action of any committee, to the extent
permitted by law, but no such rescission shall have retroactive effect.

         SECTION 16.  COMPENSATION  OF DIRECTORS.  Directors  shall receive such
compensation  for their  services  as shall be  determined  by a majority of the
Board of Directors  provided that  directors who are serving the  Corporation as
employees  and who  receive  compensation  for their  services as such shall not
receive any salary or other  compensation for their services as directors of the
Corporation.


                                   ARTICLE III

                                    OFFICERS

                                       10
  



<PAGE>

         SECTION 1.  ENUMERATION.  The officers of the Corporation shall consist
of a Chairman, a Vice-Chairman,  a President, a Treasurer, a Secretary, and such
other  officers,  including,  without  limitation,  a  Chairman  of the Board of
Directors, a Chief Executive Officer, and one or more Vice Presidents (including
Executive Vice Presidents or Senior Vice Presidents), Assistant Vice Presidents,
Assistant Treasurers,  and Assistant Secretaries,  as the Board of Directors may
determine.

         SECTION 2.  ELECTION.  At the  regular  annual  meeting of the Board of
Directors  following the Annual Meeting of shareholders,  the Board of Directors
shall elect the President, the Treasurer, and the Secretary.  Other officers may
be elected by the Board of Directors at such regular annual meeting of the Board
of Directors or at any other regular or special meeting.

         SECTION  3.  QUALIFICATION.  No  officer  need  be a  shareholder  or a
director.  Any person may occupy more than one office of the  Corporation at any
time. Any officer may be required by the Board of Directors to give bond for the
faithful  performance of his or her duties in such amount and with such sureties
as the Board of Directors may determine.

         SECTION 4.  TENURE.  Except as  otherwise  provided by the  Articles of
Incorporation or by these By-laws, each of the officers of the Corporation shall
hold office until the regular annual meeting of the Board of Directors following
the next  Annual  Meeting  of  shareholders  and until his or her  successor  is
elected  and  qualified  or until his or her  earlier  death,  disqualification,
resignation, or removal.

         SECTION  5.  RESIGNATION.  Any  officer  may  resign  at  any  time  by
delivering his or her written  resignation to the  Corporation  addressed to the
President or the Secretary, and such resignation shall be effective upon receipt
unless it is specified to be effective at some other time or upon the  happening
of some other event.

         SECTION 6. REMOVAL.  Except as otherwise  provided by law, the Board of
Directors  may  remove  any  officer  at any time with or  without  cause by the
affirmative vote of two-thirds of the directors then in office.

         SECTION  7.  ABSENCE  OR  DISABILITY.  In the event of the  absence  or
disability of any officer,  the Board of Directors may designate another officer
to act temporarily in place of such absent or disabled officer.

         SECTION 8.  VACANCIES.  Any vacancy in any office may be filled for the
unexpired portion of the term by the Board of Directors.

         SECTION 9. PRESIDENT.  The President shall, subject to the direction of
the  Board  of  Directors,   have  general   supervision   and  control  of  the
Corporation's  business.  The President shall have such other powers and perform
such other duties as the Board of Directors may from time to time designate.

         SECTION 10. CHAIRMAN OF THE BOARD. The Chairman of the Board, if one is
elected, shall preside, when present, at all meetings of the shareholders and of
the Board of  Directors.  The Chairman of the Board shall have such other powers
and shall  perform such other duties as the Board of Directors  may from time to
time designate.

                                       11


<PAGE>

         SECTION 11. VICE-CHAIRMAN OF THE BOARD. The Vice-Chairman of the Board,
if one is  elected,  shall,  in the  absence  of the  Chairman,  preside  at all
meetings of the shareholders and the Board of Directors. The Vice-Chairman shall
perform the duties and have the powers of the  President or the Chief  Executive
Officer  if he or she is absent  and  shall  have such  other  powers  and shall
perform  such  other  duties  as the  Board of  Directors  may from time to time
designate.   The  affirmative  vote  of  two-thirds  of  the  directors  of  the
Corporation  shall be  required  to amend or repeal or adopt  any  provision  in
contravention  of or  inconsistent  with this  Section 11 during the  three-year
period following the effective date of these By-laws.

         SECTION 12. CHIEF EXECUTIVE OFFICER.  The Chief Executive  Officer,  if
one is  elected,  shall have such  powers and shall  perform  such duties as the
Board of Directors may from time to time designate.

         SECTION 13. VICE  PRESIDENTS  AND ASSISTANT VICE  PRESIDENTS.  Any Vice
President  (including any Executive Vice President or Senior Vice President) and
any  Assistant  Vice  President  shall have such powers and shall  perform  such
duties as the Board of Directors or the Chief Executive Officer may from time to
time designate.

         SECTION 14.  TREASURER AND ASSISTANT  TREASURERS.  The Treasurer shall,
subject to the  direction of the Board of  Directors  and except as the Board of
Directors or the Chief  Executive  Officer may otherwise  provide,  have general
charge of the financial  affairs of the  Corporation  and shall cause to be kept
accurate  books of  account.  The  Treasurer  shall  have  custody of all funds,
securities, and valuable documents of the Corporation. He or she shall have such
other duties and powers as may be  designated  from time to time by the Board of
Directors or the Chief Executive Officer.

         Any Assistant  Treasurer shall have such powers and perform such duties
as the Board of Directors or the Chief  Executive  Officer may from time to time
designate.

         SECTION 15.  SECRETARY AND ASSISTANT  SECRETARIES.  The Secretary shall
record all the proceedings of the meetings of the  shareholders and the Board of
Directors (including committees of the Board) in books kept for that purpose. In
his or her absence from any such meeting,  a temporary  secretary  chosen at the
meeting shall record the proceedings thereof. The Secretary shall have charge of
the stock ledger (which may, however,  be kept by any transfer or other agent of
the  Corporation).  The  Secretary  shall  have  custody  of  the  seal  of  the
Corporation,  if any, and the Secretary,  or an Assistant Secretary,  shall have
authority to affix it to any instrument  requiring it, and, when so affixed, the
seal may be attested by his or her signature or that of an Assistant  Secretary.
The Secretary  shall have such other duties and powers as may be designated from
time to time by the Board of Directors or the Chief  Executive  Officer.  In the
absence of the Secretary,  any Assistant Secretary may perform his or her duties
and responsibilities.

                                       12


<PAGE>

         Any Assistant  Secretary shall have such powers and perform such duties
as the Board of Directors or the Chief  Executive  Officer may from time to time
designate.

         SECTION 16.  OTHER POWERS AND DUTIES.  Subject to these  By-laws and to
such limitations as the Board of Directors may from time to time prescribe,  the
officers of the Corporation  shall each have such powers and duties as generally
pertain to their respective  offices,  as well as such powers and duties as from
time to time may be conferred  by the Board of Directors or the Chief  Executive
Officer.


                                   ARTICLE IV

                                  CAPITAL STOCK

         SECTION 1. CERTIFICATES OF STOCK. Each shareholder shall be entitled to
a certificate  of the capital stock of the  Corporation in such form as may from
time to time be prescribed by the Board of Directors.  Such certificate shall be
signed  by the  Chairman  of the Board of  Directors,  the  President  or a Vice
President,  and by the Treasurer or an Assistant Treasurer,  or the Secretary or
an  Assistant  Secretary.  The  Corporation  seal  and  the  signatures  by  the
Corporation's  officers, the transfer agent, or the registrar may be facsimiles.
In case any  officer,  transfer  agent,  or  registrar  who has  signed or whose
facsimile  signature has been placed on such certificate shall have ceased to be
such officer, transfer agent, or registrar before such certificate is issued, it
may be issued by the Corporation  with the same effect as if he or she were such
officer,  transfer  agent,  or  registrar  at  the  time  of  its  issue.  Every
certificate for shares of stock which are subject to any restriction on transfer
and every  certificate  issued when the  Corporation is authorized to issue more
than one class or series of stock shall contain such legend with respect thereto
as is required by law.

         SECTION 2.  TRANSFERS.  Subject to any  restrictions  on  transfer  and
unless  otherwise  provided  by the Board of  Directors,  shares of stock may be
transferred  only  on the  books  of the  Corporation  by the  surrender  to the
Corporation  or its  transfer  agent  of the  certificate  theretofore  properly
endorsed or  accompanied by a written  assignment or power of attorney  properly
executed,  with transfer stamps (if necessary)  affixed,  and with such proof of
the  authenticity  of signature  as the  Corporation  or its transfer  agent may
reasonably require.

         SECTION 3. RECORD HOLDERS.  Except as may otherwise be required by law,
by the Articles of Incorporation,  or by these By-laws, the Corporation shall be
entitled to treat the record  holder of stock as shown on its books as the owner
of such stock for all purposes, including the payment of dividends and the right
to vote with respect  thereto,  regardless  of any  transfer,  pledge,  or other
disposition of such stock,  until the shares have been  transferred on the books
of the Corporation in accordance with the requirements of these By-laws.

         It shall be the duty of each  shareholder to notify the  Corporation of
his or her post office address and any changes thereto.

                                       13


<PAGE>

         SECTION 4. RECORD DATE. In order that the Corporation may determine the
shareholders  entitled to notice of or to vote at any meeting of shareholders or
any adjournment  thereof or entitled to receive payment of any dividend or other
distribution  or allotment of any rights,  or entitled to exercise any rights in
respect of any  change,  conversion,  or exchange of stock or for the purpose of
any other lawful  action,  the Board of Directors  may fix a record date,  which
record  date shall not  precede  the date upon which the  resolution  fixing the
record date is adopted by the Board of  Directors,  and which  record date shall
not be more than  seventy  days  prior to such  meeting or other  action.  If no
record date is fixed: (i) the record date for determining  shareholders entitled
to notice of or to vote at a meeting  of  shareholders  shall be at the close of
business  on the day next  preceding  the day on which  notice is given,  or, if
notice is waived,  at the close of business on the day next preceding the day on
which the meeting is held and (ii) the record date for determining  shareholders
for any other  purpose shall be at the close of business on the day on which the
Board of Directors adopts the resolution relating thereto.

         SECTION 5.  REPLACEMENT OF  CERTIFICATES.  In case of the alleged loss,
destruction,  or mutilation of a certificate of stock,  a duplicate  certificate
may be issued in place  thereof,  upon such terms as the Board of Directors  may
prescribe.


                                    ARTICLE V

                                 INDEMNIFICATION

         SECTION 1.  DEFINITIONS.  For purposes of this Article:

         (a)  "Director"  means  an  individual  who is or was on the  Board  of
Directors  of the  Corporation  or an  individual  who,  while a director of the
Corporation,  is or was  serving at the  Corporation's  request  as a  director,
officer,  partner,  trustee,  employee,  or agent of another foreign or domestic
corporation, partnership, joint venture, trust, employee, benefit plan, or other
enterprise;

         (b) "Disinterested  Director" means, with respect to each Proceeding in
respect  of  which  indemnification  is  sought  hereunder,  a  Director  of the
Corporation who is not and was not a Party to such Proceeding;

         (c) "Expenses" means all reasonable attorneys' fees,  retainers,  court
costs,  transcript costs, fees of expert witnesses,  private investigators,  and
professional advisors (including, without limitation, accountants and investment
bankers), travel expenses,  duplicating costs, printing and binding costs, costs
of preparation of demonstrative  evidence and other courtroom  presentation aids
and devices,  costs incurred in connection with document  review,  organization,
imaging, and computerization, telephone charges, postage, delivery service fees,
and all other disbursements, costs, or expenses of the type customarily incurred
in connection  with  prosecuting,  defending,  preparing to prosecute or defend,
investigating,  being or  preparing to be a witness in,  settling,  or otherwise
participating in, a Proceeding;

                                       14


<PAGE>

         (d)  "Liability"  means the  obligation to pay a judgment,  settlement,
penalty,  fine,  including  an excise tax  assessed  with respect to an employee
benefit plan, or reasonable Expenses incurred in connection with a Proceeding;

         (e)  "Non-Officer  Employee"  means  an  individual  who  is or  was an
employee of the Corporation but who is not or was not a Director or Officer,  or
an individual who, while a Non-Officer  Employee of the  Corporation,  is or was
serving at the Corporation's request as a director,  officer,  partner, trustee,
employee,  or agent of another  foreign or  domestic  corporation,  partnership,
joint venture, trust, employee, benefit plan, or other enterprise;

         (f) "Party" includes any individual who was, is, or is threatened to be
made a named defendant or respondent in a Proceeding.

         (g)  "Proceeding"  means any threatened,  pending or completed  action,
suit,   arbitration,    alternate   dispute   resolution   mechanism,   inquiry,
investigation,  administrative  hearing,  or other  proceeding,  whether  civil,
criminal,  administrative,  arbitrative,  or investigative and whether formal or
informal;

         (h) "Officer"  means an individual who is or was appointed by the Board
of Directors of the  Corporation  or an individual  who, while an Officer of the
Corporation,  is or was  serving at the  Corporation's  request  as a  director,
officer,  partner,  trustee,  employee,  or agent of another foreign or domestic
corporation, partnership, joint venture, trust, employee, benefit plan, or other
enterprise;

         SECTION 2.  INDEMNIFICATION  OF DIRECTORS AND OFFICERS.  Subject to the
operation  of Section 4 of this Article V, each  Director  and Officer  shall be
indemnified  and  held  harmless  by  the  Corporation  to  the  fullest  extent
authorized by the NHBCA, as the same exists or may hereafter be amended (but, in
the case of any such amendment,  only to the extent that such amendment  permits
the  Corporation  to  provide  broader  indemnification  rights  than  such  law
permitted the  Corporation to provide prior to such  amendment)  against any and
all Expenses and Liabilities that are incurred by such Director or Officer or on
such  Director or Officer's  behalf in  connection  with any  Proceeding  or any
claim, issue, or matter therein, which such Director or Officer is a Party to or
participant  in by reason of such Director or Officer's  status as a Director or
Officer,  if such  Director or Officer  acted in good faith and in a manner such
Director  or Officer  reasonably  believed to be in, or not opposed to, the best
interests of the Corporation and, with respect to any criminal  proceeding,  had
no reasonable  cause to believe his or her conduct was  unlawful.  The rights of
indemnification  provided by this  SECTION 2 shall  continue as to a Director or
Officer  after he or she has ceased to be a Director  or Officer and shall inure
to the  benefit of his or her heirs,  executors,  administrators,  and  personal
representatives.  Notwithstanding the foregoing, the Corporation shall indemnify
any Director or Officer seeking  indemnification in connection with a Proceeding
initiated by such Director or Officer only if such  Proceeding was authorized by
the Board of Directors of the Corporation.

         SECTION 3.  INDEMNIFICATION  OF NON-OFFICER  EMPLOYEES.  Subject to the
operation of Section 4 of this Article V, each Non-Officer  Employee may, in the
discretion of the Board of Directors of the  Corporation,  be indemnified by the
Corporation to the fullest extent authorized by the NHBCA, as the same exists or
may hereafter be amended,  against any or all Expenses and Liabilities  that are

                                       15



<PAGE>

incurred by such Non-Officer  Employee or on such Non-Officer  Employee's behalf
in connection with any Proceeding, or any claim, issue, or matter therein, which
such  Non-Officer  Employee  is a Party to or  participant  in by reason of such
Non-Officer  Employee's  status as a Non-Employee  Officer,  if such Non-Officer
Employee  acted  in  good  faith  and  in a  manner  such  Non-Officer  Employee
reasonably  believed  to be in, or not  opposed  to, the best  interests  of the
Corporation  and,  with respect to any criminal  proceeding,  had no  reasonable
cause to believe his or her conduct was unlawful.  The rights of indemnification
provided by this SECTION 3 shall continue as to a Non-Officer  Employee after he
or she has ceased to be a Non-Officer Employee and shall inure to the benefit of
his or her  heirs,  personal  representatives,  executors,  and  administrators.
Notwithstanding  the foregoing,  the  Corporation  may indemnify any Non-Officer
Employee seeking  indemnification  in connection with a Proceeding  initiated by
such Non-Officer Employee only if such Proceeding was authorized by the Board of
Directors of the Corporation.

         SECTION 4. GOOD FAITH.  Unless ordered by a court,  no  indemnification
shall be provided pursuant to this Article V to a Director,  to an Officer or to
a Non-Officer  Employee  unless a  determination  shall have been made that such
person acted in good faith and in a manner such person reasonably believed to be
in, or not opposed to, the best interests of the  Corporation  and, with respect
to any criminal  Proceeding,  such person had no reasonable cause to believe his
or her conduct was unlawful.  Such determination shall be made by (a) a majority
vote of the Disinterested Directors, even though less than a quorum of the Board
of Directors, (b) if there are no such Disinterested Directors, or if a majority
of Disinterested  Directors so direct, by independent legal counsel in a written
opinion,  or (c) by the  shareholders  of the  Corporation  provided that shares
owned by or voted  under the  control  of  Directors  who are not  Disinterested
Directors may not be voted in the determination.

         SECTION  5.  ADVANCEMENT  OF  EXPENSES  TO  DIRECTORS  PRIOR  TO  FINAL
DISPOSITION. The Corporation shall advance all Expenses incurred by or on behalf
of any Director in  connection  with any  Proceeding  in which such  Director is
involved by reason of such Director's status as a Director within ten days after
the  receipt  by the  Corporation  of a written  statement  from  such  Director
requesting such advance or advances from time to time, whether prior to or after
final  disposition  of such  Proceeding.  Such  statement  or  statements  shall
reasonably evidence the Expenses incurred by such Director and shall be preceded
or accompanied by (i) a written affirmation of such Director's good faith belief
that such Director has met the standard of conduct set forth in SECTION 2 above,
and (ii) a written  undertaking  by or on behalf of such  Director  to repay any
Expenses so advanced if it shall  ultimately be determined that such Director is
not entitled to be indemnified against such Expenses.

         SECTION  6.   ADVANCEMENT  OF  EXPENSES  TO  OFFICERS  AND  NON-OFFICER
EMPLOYEES PRIOR TO FINAL DISPOSITION.  The Corporation may, in the discretion of
the Board of Directors of the Corporation,  advance any or all Expenses incurred
by or on behalf of any Officer or  Non-Officer  Employee in connection  with any
Proceeding in which such Officer or  Non-Officer  Employee is involved by reason
of such Officer or  Non-Officer  Employee's  status as an Officer or Non-Officer
Employee upon the receipt by the  Corporation of a statement or statements  from
such Officer or Non-Officer  Employee  requesting  such advance or advances from
time to time,  whether prior to or after final  disposition of such  Proceeding.
Such statement or statements shall reasonably  evidence the Expenses incurred by

                                       16



<PAGE>

such Officer or Non-Officer Employee and shall be preceded or accompanied by (i)
a written  affirmation of such Officer's or  Non-Officer  Employee's  good faith
belief that he or she has met the  standard of conduct set forth in SECTION 2 or
SECTION 3, hereof,  as the case may be, and (ii) a written  undertaking by or on
behalf of such Officer or Non-Officer Employee to repay any Expenses so advanced
if it shall  ultimately be determined that such Officer or Non-Officer  Employee
is not entitled to be indemnified against such Expenses.

         SECTION 7. CONTRACTUAL  NATURE OF RIGHTS.  The foregoing  provisions of
this Article V shall be deemed to be a contract between the Corporation and each
Director and Officer who serves in such  capacity at any time while this Article
V is in effect,  and any  repeal or  modification  thereof  shall not affect any
rights or  obligations  then existing with respect to any state of facts then or
theretofore  existing or any Proceeding  theretofore or thereafter brought based
in whole or in part upon any such state of facts. If a claim for indemnification
or  advancement  of Expenses  hereunder  by a Director or Officer is not paid in
full by the Corporation within (a) 60 days after the Corporation's  receipt of a
written  claim for  indemnification,  or (b) in the case of a Director,  10 days
after the  Corporation's  receipt of  documentation of Expenses and the required
undertaking,  such  Director  or Officer may at any time  thereafter  bring suit
against  the  Corporation  to  recover  the unpaid  amount of the claim,  and if
successful in whole or in part,  such Director or Officer shall also be entitled
to be  paid  the  expenses  of  prosecuting  such  claim.  The  failure  of  the
Corporation  (including  its  Board  of  Directors  or  any  committee  thereof,
independent legal counsel,  or shareholders) to make a determination  concerning
the  permissibility  of such  indemnification  or,  in the  case of a  Director,
advancement  of  Expenses,  under  this  Article V shall not be a defense to the
action  and  shall  not  create  a  presumption  that  such  indemnification  or
advancement is not permissible.

         SECTION 8. NON-EXCLUSIVITY OF RIGHTS. The rights to indemnification and
advancement  of Expenses  set forth in this  Article V shall not be exclusive of
any other right which any Director, Officer, or Non-Officer Employee may have or
hereafter acquire under any statute,  provision of the Corporation's Articles of
Incorporation,  or  these  By-laws,  or  pursuant  to  any  agreement,  vote  of
shareholders or Disinterested Directors or otherwise.

         SECTION 9. INSURANCE.  The Corporation may maintain  insurance,  at its
expense, to protect itself and any Director,  Officer,  or Non-Officer  Employee
against  any  liability  of any  character  asserted  against or incurred by the
Corporation or any such Director,  Officer, or Non-Officer  Employee, or arising
out of any such  person's  status  as such  Director,  Officer,  or  Non-Officer
Employee,  whether or not the Corporation would have the power to indemnify such
person against such liability  under the NHBCA or the provisions of this Article
V.

                                   ARTICLE VI

                            MISCELLANEOUS PROVISIONS

         SECTION 1. FISCAL YEAR. Except as otherwise  determined by the Board of
Directors,  the  fiscal  year of the  Corporation  shall  end on the last day of
December of each year.

         SECTION 2. SEAL.  The Board of Directors  shall have power to adopt and
alter the seal of the Corporation.


                                       17

<PAGE>





         SECTION 3.  EXECUTION OF  INSTRUMENTS.  All deeds,  leases,  transfers,
contracts,  bonds,  notes,  and  other  obligations  to be  entered  into by the
Corporation in the ordinary course of its business  without  director action may
be executed on behalf of the Corporation by the Chairman of the Board, if one is
elected,  the  President,  or the Treasurer or any other officer,  employee,  or
agent of the  Corporation  as the Board of Directors or Executive  Committee may
authorize.

         SECTION  4.  VOTING  OF  SECURITIES.  Unless  the  Board  of  Directors
otherwise provides, the Chairman of the Board, if one is elected, the President,
or the Treasurer may waive notice of and act on behalf of this  Corporation,  or
appoint  another  person or persons to act as proxy or attorney in fact for this
Corporation with or without discretionary power and/or power of substitution, at
any  meeting  of  shareholders  or  shareholders  of any  other  corporation  or
organization, any of whose securities are held by this Corporation.

         SECTION  5.  RESIDENT  AGENT.  The  Board of  Directors  may  appoint a
resident agent upon whom legal process may be served in any action or proceeding
against the Corporation.

         SECTION 6. CORPORATE  RECORDS.  The original or attested  copies of the
Articles  of  Incorporation,  By-laws,  and  records  of  all  meetings  of  the
incorporators,  shareholders,  and the Board of Directors and the stock transfer
books,  which  shall  contain  the  names  of  all  shareholders,  their  record
addresses,  and the amount of stock held by each,  may be kept outside the State
of New Hampshire and shall be kept at the  principal  office of the  Corporation
and at such other place or places as may be designated  from time to time by the
Board of Directors.

         SECTION 7.  AMENDMENT OF BY-LAWS.

         (a)  AMENDMENT  BY  DIRECTORS.  Except as provided  otherwise by law or
elsewhere  in these  By-laws,  these  By-laws  may be amended or repealed by the
Board of Directors by the  affirmative  vote of a majority of the directors then
in office.

         (b) AMENDMENT BY SHAREHOLDERS. These By-laws may be amended or repealed
at any Annual Meeting of shareholders, or special meeting of shareholders called
for such purpose,  by the affirmative  vote of at least two-thirds of the shares
present in person or  represented  by proxy at such meeting and entitled to vote
on such  amendment  or repeal,  voting  together  as a single  class;  provided,
however,  that if the Board of Directors  recommends that  shareholders  approve
such  amendment or repeal at such  meeting of  shareholders,  such  amendment or
repeal  shall only  require the  affirmative  vote of the majority of the shares
present in person or  represented  by proxy at such meeting and entitled to vote
on such amendment or repeal, voting together as a single class.


Adopted ________ ___, 1997 and effective as of ________ ___, 1997.


358352.c7

                                       18

<PAGE>

                                                                     EXHIBIT III


                                     FORM OF
                              EMPLOYMENT AGREEMENT


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

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

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

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

         4.  COMPENSATION  AND BENEFITS.  The regular  compensation and benefits
payable to the Executive under this Agreement shall be as follows:

             (a) SALARY.  For all services  rendered by the Executive under this
         Agreement, the Employer shall pay the Executive a salary (the "Salary")
         at the annual rate of  ________________________Dollars  ($___), subject
         to  increase  from  time to  time in the  discretion  of the  Board  of
         Directors.  The Salary  shall be payable in  periodic  installments  in
         accordance   with  the   Employer's   usual  practice  for  its  senior
         executives.

             (b) BONUS OR SIMILAR  INCENTIVE  PROGRAMS.  The Executive  shall be
         entitled to participate  in any incentive or bonus program  established
         by the Board of Directors  with such terms as may be established in the
         sole discretion of the Board of Directors; or


                                       1

<PAGE>


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

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

             (e)  EXCLUSIVITY  OF SALARY AND  BENEFITS.  Unless  approved by the
         Board of Directors, the Executive shall not be entitled to any payments
         or benefits other than those provided under this Agreement.

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

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

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

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


                                       2

<PAGE>

         6. TERMINATION AND TERMINATION BENEFITS. Notwithstanding the provisions
of Section 3, the  Executive's  employment  under this Agreement shall terminate
under the following circumstances set forth in this Section 6.

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

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

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

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

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

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

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

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

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


                                       3

<PAGE>

             Employer  shall provide to the Executive the following  termination
             benefits ("Termination Benefits"):

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

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

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

                 (e) DISABILITY.  If the Executive shall be disabled so as to be
             unable to perform the essential  functions of the Executive's  then
             existing position or positions under this Agreement with or without
             reasonable  accommodation,  the Board of Directors of Northway by a
             two-thirds   (2/3)  vote  may  remove   the   Executive   from  any
             responsibilities  and/or reassign the Executive to another position
             with the  Employer  for the  remainder  of the Term or  during  the
             period of such  disability.  Notwithstanding  any such  removal  or
             reassignment,   the  Executive   shall   continue  to  receive  the

                                       4

<PAGE>

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

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

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

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

                                       5

<PAGE>

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

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

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

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

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

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

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

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

                                       6

<PAGE>

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

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

             7. CONFIDENTIAL INFORMATION, NONCOMPETITION AND COOPERATION.

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

                                       7

<PAGE>

             the public domain,  unless due to breach of the Executive's  duties
             under Section 7(b).

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

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

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

                                       8

<PAGE>

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

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

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

         8. ARBITRATION OF DISPUTES.  Any controversy or claim arising out of or
relating to this Agreement or the breach thereof or otherwise arising out of the
Executive's employment or the termination of that employment (including, without
limitation,  any claims of unlawful employment  discrimination  whether based on
age or otherwise)  shall, to the fullest extent  permitted by law, be settled by
arbitration  in any forum and form agreed upon by the parties or, in the absence
of such an agreement, under the auspices of the American Arbitration Association
("AAA") in Boston,  Massachusetts  in  accordance  with the  Employment  Dispute
Resolution  Rules of the AAA,  including,  but not  limited  to,  the  rules and

                                       9

<PAGE>

procedures  applicable  to  the  selection  of  arbitrators,   except  that  the
arbitrator  shall apply the law as established by decisions of the U.S.  Supreme
Court,  the Court of Appeals for the First Circuit and the U.S.  District  Court
for the District of New  Hampshire in deciding the merits of claims and defenses
under  federal  law or any state or  federal  anti-discrimination  law,  and any
awards to the Executive for violation of any  anti-discrimination  law shall not
exceed the maximum  award to which the  Executive  could be  entitled  under the
applicable (or most analogous) federal anti-discrimination or civil rights laws.
In the event that any person or entity other than the  Executive or the Employer
may be a party with regard to any such controversy or claim, such controversy or
claim shall be submitted to arbitration subject to such other person or entity's
agreement.  Judgment upon the award rendered by the arbitrator may be entered in
any court having  jurisdiction  thereof.  This  Section 8 shall be  specifically
enforceable.  Notwithstanding  the foregoing,  this Section 8 shall not preclude
either  party from  pursuing a court  action for the sole purpose of obtaining a
temporary  restraining  order or a preliminary  injunction in  circumstances  in
which  such  relief is  appropriate;  PROVIDED  THAT any other  relief  shall be
pursued through an arbitration proceeding pursuant to this Section 8.

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

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

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

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

                                       10

<PAGE>

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

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

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

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

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

         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: _________________________
--------------------
Title

                                           THE BERLIN CITY BANK

Attest:
                                           By:_________________________

--------------------
Title

                                       11

<PAGE>

Attest:
                                            By:_________________________
                                                William J. Woodward
--------------------
Title


363734.c5

                                       12

<PAGE>

                                                                      EXHIBIT IV


                                    FORM OF
                              EMPLOYMENT AGREEMENT


         This AGREEMENT (the  "Agreement")  is made as of , 1997 (the "Effective
Date"),  by and between  Northway  Financial,  Inc., a New  Hampshire  chartered
corporation ("Northway"), Pemigewasset National Bank, a national bank and wholly
owned  subsidiary of Northway with its principal office located in New Hampshire
(Northway and  Pemigewasset  National  Bank shall  hereinafter  collectively  be
referred to as the  "Employer"),  and  Fletcher W. Adams (the  "Executive").  In
consideration of the mutual covenants contained in this Agreement,  the Employer
and the Executive agree as follows:

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

         2.  CAPACITY.  The Executive  shall serve Northway as Vice Chairman and
Pemigewasset  National Bank as President and Chief Executive  Officer subject to
election by the Board of Directors of Northway or Pemigewasset National Bank, as
the case may be (the  "Board  of  Directors"),  and as a member  of the Board of
Directors,  subject to election by the shareholders of Northway and Pemigewasset
National Bank respectively.  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 Northway or the Board of Directors.  In such capacity
or  capacities,  the  Executive  shall  perform  such  services  and duties from
Employer's  Plymouth,  New  Hampshire  office 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 Chief  Executive
Officer of Northway or the Board of Directors.

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

         4.  COMPENSATION  AND BENEFITS.  The regular  compensation and benefits
payable to the Executive under this Agreement shall be as follows:

             (a) SALARY.  For all services  rendered by the Executive under this
         Agreement, the Employer shall pay the Executive a salary (the "Salary")
         at the  annual  rate  of  ________________________Dollars  ($________),
         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.

                                       1

<PAGE>

             (b) BONUS OR SIMILAR  INCENTIVE  PROGRAMS.  The Executive  shall be
         entitled to participate  in any incentive or bonus program  established
         by the Board of Directors  with such terms as may be established in the
         sole discretion of the Board of Directors.

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

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

             (e)  EXCLUSIVITY  OF SALARY AND  BENEFITS.  Unless  approved by the
         Board of Directors, the Executive shall not be entitled to any payments
         or benefits other than those provided under this Agreement.

         5.  EXTENT OF SERVICE.  During the  Executive's  employment  under this
Agreement,  the Executive shall, subject to the direction and supervision of the
Chief  Executive  Officer  of  Northway  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 Board of
Directors;  PROVIDED  THAT  nothing  in this  Agreement  shall be  construed  as
preventing the Executive from:

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

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

                                       2

<PAGE>

         6. TERMINATION AND TERMINATION BENEFITS. Notwithstanding the provisions
of Section 3, the  Executive's  employment  under this Agreement shall terminate
under the following circumstances set forth in this Section 6.

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

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

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

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

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

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

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

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

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

                                       3

<PAGE>

             Employer  shall provide to the Executive the following  termination
             benefits ("Termination Benefits"):

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

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

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

                 (e) DISABILITY.  If the Executive shall be disabled so as to be
             unable to perform the essential  functions of the Executive's  then
             existing position or positions under this Agreement with or without
             reasonable  accommodation,  the Board of Directors of Northway by a
             two-thirds   (2/3)  vote  may  remove   the   Executive   from  any
             responsibilities  and/or reassign the Executive to another position
             with the  Employer  for the  remainder  of the Term or  during  the
             period of such  disability.  Notwithstanding  any such  removal  or
             reassignment,   the  Executive   shall   continue  to  receive  the
             Executive's  full  Salary  (less  any  disability  pay or sick  pay

                                       4

<PAGE>

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

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

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

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

                                       5

<PAGE>

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

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

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

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

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

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

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

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

                                       6

<PAGE>

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

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

         7.    CONFIDENTIAL INFORMATION, NONCOMPETITION AND COOPERATION.

                 (a)  CONFIDENTIAL  INFORMATION.  As  used  in  this  Agreement,
         "Confidential  Information" means information belonging to the Employer
         which is of value to the  Employer  in the  course  of  conducting  its
         business and the  disclosure of which could result in a competitive  or
         other disadvantage to the Employer.  Confidential Information includes,
         without  limitation,  financial  information,  reports,  and forecasts;
         inventions,   improvements  and  other  intellectual  property;   trade
         secrets; know-how; designs, processes or formulae;  software; market or
         sales  information  or  plans;  customer  lists;  and  business  plans,
         prospects  and   opportunities   (such  as  possible   acquisitions  or
         dispositions of businesses or facilities)  which have been discussed or
         considered by the management of the Employer.  Confidential Information
         includes  information  developed by the  Executive in the course of the
         Executive's employment by the Employer, as well as other information to
         which the Executive may have access in connection  with the Executive's
         employment.  Confidential  Information  also includes the  confidential
         information   of  others  with  which  the   Employer  has  a  business
         relationship.  Notwithstanding the foregoing,  Confidential Information

                                       7

<PAGE>

         does not include information in the public domain, unless due to breach
         of the Executive's duties under Section 7(b).

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

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

                 (d) NONCOMPETITION AND NONSOLICITATION. During the Term and for
         one (1) year thereafter (or during the Termination  Benefits Period, if
         longer), the Executive (i) will not, directly or indirectly, whether as
         owner, partner, shareholder,  consultant, agent, employee,  co-venturer
         or otherwise,  engage,  participate,  assist or invest in any Competing
         Business (as hereinafter  defined);  (ii) will refrain from directly or
         indirectly  employing,  attempting  to employ,  recruiting or otherwise
         soliciting, inducing or influencing any person to leave employment with
         the Employer  (other than  terminations  of employment  of  subordinate
         employees  undertaken in the course of the Executive's  employment with
         the  Employer);  and (iii) will refrain from  soliciting or encouraging
         any customer or supplier to terminate or otherwise modify adversely its
         business  relationship with the Employer;  PROVIDED,  HOWEVER, that the
         foregoing  one-year  restriction  shall  not  apply  in the  event  the
         Executive's  employment under this Agreement is terminated  pursuant to
         Section 6(c) hereof.  The Executive  understands  that the restrictions
         set forth in this Section  7(d) are intended to protect the  Employer's
         interest in its  Confidential  Information  and  established  employee,
         customer and supplier  relationships and goodwill, and agrees that such
         restrictions  are  reasonable  and  appropriate  for this purpose.  For
         purposes of this Agreement,  the term "Competing Business" shall mean a
         business  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.

                                       8

<PAGE>

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

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

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

         8. ARBITRATION OF DISPUTES.  Any controversy or claim arising out of or
relating to this Agreement or the breach thereof or otherwise arising out of the
Executive's employment or the termination of that employment (including, without
limitation,  any claims of unlawful employment  discrimination  whether based on
age or otherwise)  shall, to the fullest extent  permitted by law, be settled by
arbitration  in any forum and form agreed upon by the parties or, in the absence
of such an agreement, under the auspices of the American Arbitration Association
("AAA") in Boston,  Massachusetts  in  accordance  with the  Employment  Dispute

                                       9

<PAGE>

Resolution  Rules of the AAA,  including,  but not  limited  to,  the  rules and
procedures  applicable  to  the  selection  of  arbitrators,   except  that  the
arbitrator  shall apply the law as established by decisions of the U.S.  Supreme
Court,  the Court of Appeals for the First Circuit and the U.S.  District  Court
for the District of New  Hampshire in deciding the merits of claims and defenses
under  federal  law or any state or  federal  anti-discrimination  law,  and any
awards to the Executive for violation of any  anti-discrimination  law shall not
exceed the maximum  award to which the  Executive  could be  entitled  under the
applicable (or most analogous) federal anti-discrimination or civil rights laws.
In the event that any person or entity other than the  Executive or the Employer
may be a party with regard to any such controversy or claim, such controversy or
claim shall be submitted to arbitration subject to such other person or entity's
agreement.  Judgment upon the award rendered by the arbitrator may be entered in
any court having  jurisdiction  thereof.  This  Section 8 shall be  specifically
enforceable.  Notwithstanding  the foregoing,  this Section 8 shall not preclude
either  party from  pursuing a court  action for the sole purpose of obtaining a
temporary  restraining  order or a preliminary  injunction in  circumstances  in
which  such  relief is  appropriate;  PROVIDED  THAT any other  relief  shall be
pursued through an arbitration proceeding pursuant to this Section 8.

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

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

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

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

                                       10

<PAGE>

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

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

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

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

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

         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:----------------------------

--------------------
Title
                                           PEMIGEWASSET NATIONAL BANK

Attest:
                                           By:----------------------------

--------------------
Title

                                       11

<PAGE>

                                              ----------------------------
Attest:                                             Fletcher W. Adams


--------------------
Title





364205.c5

                                       12

<PAGE>


                                                                       EXHIBIT V

                                     FORM OF
                                VOTING AGREEMENT

                                                            Date: March __, 1997


The Berlin City Bank and
Northway Financial, Inc.
9 Main Street
Berlin, New Hampshire 03570-0009

Ladies and Gentlemen:

         The undersigned (the  "Stockholder")  beneficially owns and has sole or
shared  voting power with  respect to the number of shares of the common  stock,
par value $1.00 per share (the "Shares"), of Pemi Bancorp, Inc., a New Hampshire
chartered corporation (the "Company"), indicated opposite the Stockholder's name
on SCHEDULE 1 attached hereto.

         Simultaneously with the execution of this letter agreement,  The Berlin
City Bank  ("Purchaser"),  Northway  Financial,  Inc., a New Hampshire chartered
corporation wholly owned by Purchaser  ("Parent"),  the Company and Pemigewasset
National Bank, a national bank and  wholly-owned  subsidiary of the Company (the
"Bank"),  are  entering  into an  Agreement  and  Plan of  Merger  (the  "Merger
Agreement") providing,  among other things, for the merger (the "Merger") of the
Company with and into Parent,  which,  as of a date  immediately  preceding  the
Merger,  will own all of the  issued and  outstanding  stock of  Purchaser.  The
undersigned  understands  that  Purchaser  has  undertaken  and will continue to
undertake  substantial expenses in connection with the negotiation and execution
of the Merger Agreement and the subsequent  actions  necessary to consummate the
Merger and the other transactions contemplated by the Merger Agreement.

         In consideration of, and as a condition to,  Purchaser's  entering into
the Merger  Agreement,  and in consideration of the expenses  incurred and to be
incurred by Purchaser in connection  therewith,  the  Stockholder  and Purchaser
agree as follows:

         1. AGREEMENT TO VOTE IN FAVOR OF MERGER. The Stockholder (a) shall vote
or cause to be voted all of the Shares that such  Stockholder  shall be entitled
to so vote,  whether such Shares are  beneficially  owned by such Stockholder on
the date of this letter agreement or are subsequently  acquired,  at the special
or any  other  meeting  of the  Company's  stockholders  to be  called  and held
following the date hereof,  in favor of the approval of the Merger Agreement and
the  Merger  and (b) shall  vote or cause to be voted all such  Shares,  at such
special meeting or any other meeting of the Company's stockholders following the
date hereof, against the approval of any other agreement providing for a merger,
acquisition,  consolidation,  sale of a  material  amount  of  assets  or  other

                                       1

<PAGE>

business  combination of the Company or the Bank with any person or entity other
than Purchaser or an affiliate of Purchaser;  except,  in the case of either (a)
or  (b),  to the  extent  required  by  applicable  law  relating  to  fiduciary
obligations of directors upon advice of counsel.

         2. RESTRICTIONS ON SALE OR OTHER DISPOSITION OF SHARES. The Stockholder
will not sell,  assign,  transfer or otherwise  dispose of  (including,  without
limitation,  by the  creation of a Lien (as defined in  paragraph 3 below)),  or
permit to be sold,  assigned,  transferred or otherwise  disposed of, any Shares
owned by the Stockholder, whether such Shares are held by the Stockholder on the
date of this letter agreement or are subsequently acquired, except (a) transfers
by will or by operation of law, in which case this letter  agreement  shall bind
the transferee,  (b) transfers pursuant to any pledge agreement,  subject to the
pledgee  agreeing in writing to be bound by the terms of this letter  agreement,
(c) transfers in connection with estate planning purposes,  including  transfers
to relatives,  trusts and  charitable  organizations,  subject to the transferee
agreeing  in  writing  to be bound by the terms of this  letter  agreement,  (d)
transfers  to any other  stockholder  of the Company who has  executed a copy of
this letter  agreement  on the date  hereof  with  respect to some or all of the
Shares held by such  stockholder,  and (e) as Purchaser may  otherwise  agree in
writing in its sole discretion. Purchaser shall have the option to elect to have
any existing  certificates  representing Shares subject to this letter agreement
canceled and reissued bearing the following legend:

         "THIS  CERTIFICATE,  AND THE SHARES  REPRESENTED  HEREBY, ARE
         SUBJECT TO CERTAIN VOTING AND TRANSFER RESTRICTIONS CONTAINED
         IN A VOTING AGREEMENT BY AND BETWEEN THE BERLIN CITY BANK AND
         NORTHWAY  FINANCIAL,  INC. AND THE BENEFICIAL  OWNER OF THESE
         SHARES AND MAY BE TRANSFERRED  ONLY IN COMPLIANCE  THEREWITH.
         COPIES OF THE  ABOVE-REFERENCED  AGREEMENT ARE ON FILE AT THE
         OFFICES OF PEMI BANCORP, INC."

         3. REPRESENTATIONS. The Stockholder represents that the Stockholder has
the complete and unrestricted  power and the unqualified right to enter into and
perform the terms of this letter agreement.  The Stockholder  further represents
that this  letter  agreement  constitutes  a valid and  binding  agreement  with
respect to the  Stockholder,  enforceable  against the Stockholder in accordance
with its terms.  Except as set forth on SCHEDULE 1, the  Stockholder  represents
that the Stockholder  beneficially owns the number of Shares indicated  opposite
such Stockholder's name on said SCHEDULE 1, free and clear of any liens, claims,
charges or other encumbrances or restrictions of any kind whatsoever  ("Liens"),
and has sole or shared, and otherwise unrestricted, voting power with respect to
such Shares.

         4.  TERM.   Notwithstanding   anything  herein  to  the  contrary,  the
agreements  contained  herein  shall  remain in full force and effect  until the
earlier of (i) the  consummation  of the Merger or (ii) the  termination  of the
Merger Agreement in accordance with Article VIII thereof.

         5. EQUITABLE REMEDIES. The Stockholder has signed this letter agreement
intending to be bound thereby. The Stockholder expressly agrees that this letter

                                       2

<PAGE>

agreement  shall  be   specifically   enforceable  in  any  court  of  competent
jurisdiction  in accordance with its terms against the  Stockholder.  All of the
covenants and  agreements  contained in this letter  agreement  shall be binding
upon,  and inure to the benefit of, the respective  parties and their  permitted
successors,   assigns,   heirs,   executors,   administrators  and  other  legal
representatives, as the case may be.

         6. MISCELLANEOUS.  This letter agreement may be executed in one or more
counterparts, each of which will be deemed an original but all of which together
shall constitute one and the same  instrument.  No waivers of any breach of this
letter agreement  extended by Purchaser to the Stockholder shall be construed as
a waiver of any  rights or  remedies  of  Purchaser  with  respect  to any other
stockholder of the Company who has executed a copy of this letter agreement with
respect to Shares held by such  stockholder  or with  respect to any  subsequent
breach of the  Stockholder or any other such  stockholder  of the Company.  This
letter  agreement  is deemed to be  signed as a sealed  instrument  and is to be
governed by the laws of the State of New Hampshire, without giving effect to the
principles  of  conflicts of laws  thereof.  If any  provision  hereof is deemed
unenforceable,  the  enforceability  of the other provisions hereof shall not be
affected.

         Please confirm our agreement by signing a copy of this letter.

                                           Very truly yours,




                                                     ------------------------
                                                     Name:




AGREED TO AND ACCEPTED
AS OF MARCH ____, 1997

THE BERLIN CITY BANK AND
NORTHWAY FINANCIAL, INC.



By:---------------------------------------
     William J. Woodward
     Chairman, President and Chief Executive Officer



357775.c5

                                       3

<PAGE>





                                   Schedule 1


================================================================================
       Name of             Number of Shares                    Shares
     Stockholder          Beneficially Owned              Subject to Pledge
--------------------------------------------------------------------------------

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

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

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

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

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

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

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

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

================================================================================




357775.c5


                                       4
<PAGE>

                                                                      EXHIBIT IV

                                    FORM OF
                                VOTING AGREEMENT

                                                                  March __, 1997


Pemi Bancorp, Inc.
51 Highland Street
Plymouth, New Hampshire 03264-0029

Ladies and Gentlemen:

         The undersigned (the  "Stockholder")  beneficially owns and has sole or
shared  voting power with  respect to the number of shares of the common  stock,
par value  $5.00 per share  (the  "Shares"),  of The  Berlin  City  Bank,  a New
Hampshire  chartered  commercial bank (the "Purchaser"),  indicated opposite the
Stockholder's name on SCHEDULE 1 attached hereto.

         Simultaneously with the execution of this letter agreement,  Purchaser,
Northway Financial,  Inc., a New Hampshire chartered corporation wholly owned by
Purchaser  ("Parent"),  Pemi Bancorp,  Inc.  (the  "Company")  and  Pemigewasset
National Bank, a national bank and  wholly-owned  subsidiary of the Company (the
"Bank")  are  entering  into an  Agreement  and  Plan  of  Merger  (the  "Merger
Agreement") providing,  among other things, for the merger (the "Merger") of the
Company with and into Parent,  which,  as of a date  immediately  preceding  the
Merger,  will own all of the  issued and  outstanding  stock of  Purchaser.  The
undersigned  understands  that the Company has  undertaken  and will continue to
undertake  substantial expenses in connection with the negotiation and execution
of the Merger Agreement and the subsequent  actions  necessary to consummate the
Merger and the other transactions contemplated by the Merger Agreement.

         In consideration of, and as a condition to, the Company's entering into
the Merger  Agreement,  and in consideration of the expenses  incurred and to be
incurred by the Company in connection therewith, the Stockholder and the Company
agree as follows:

         1. AGREEMENT TO VOTE IN FAVOR OF MERGER. The Stockholder (a) shall vote
or cause to be voted all of the Shares that such  Stockholder  shall be entitled
to so vote,  whether such Shares are  beneficially  owned by such Stockholder on
the date of this letter agreement or are subsequently  acquired,  at the special
or any other meeting of Purchaser's stockholders to be called and held following
the date hereof, in favor of the approval of the Merger Agreement and the Merger
and (b) shall vote or cause to be voted all such Shares, at such special meeting
or any other  meeting of  Purchaser's  stockholders  following  the date hereof,
against the approval of any other agreement providing for a merger, acquisition,
consolidation, sale of a material amount of assets or other business combination
of  Purchaser  or Parent with any person or entity other than the Company or the
Bank;  except,  in the case of either  (a) or (b),  to the  extent  required  by
applicable  law relating to fiduciary  obligations  of directors  upon advice of
counsel.

                                       1

<PAGE>

         2. RESTRICTIONS ON SALE OR OTHER DISPOSITION OF SHARES. The Stockholder
will not sell,  assign,  transfer or otherwise  dispose of  (including,  without
limitation,  by the  creation of a Lien (as defined in  paragraph 3 below)),  or
permit to be sold,  assigned,  transferred or otherwise  disposed of, any Shares
owned by the Stockholder, whether such Shares are held by the Stockholder on the
date of this letter agreement or are subsequently acquired, except (a) transfers
by will or by operation of law, in which case this letter  agreement  shall bind
the transferee,  (b) transfers pursuant to any pledge agreement,  subject to the
pledgee  agreeing in writing to be bound by the terms of this letter  agreement,
(c) transfers in connection with estate planning purposes,  including  transfers
to relatives,  trusts and  charitable  organizations,  subject to the transferee
agreeing  in  writing  to be bound by the terms of this  letter  agreement,  (d)
transfers to any other  stockholder of Purchaser who has executed a copy of this
letter  agreement  on the date hereof with  respect to some or all of the Shares
held by such stockholder,  and (e) as the Company may otherwise agree in writing
in its sole  discretion.  The Company shall have the option to elect to have any
existing  certificates  representing  Shares  subject to this  letter  agreement
canceled and reissued bearing the following legend:

         "THIS  CERTIFICATE,  AND THE SHARES  REPRESENTED  HEREBY, ARE
         SUBJECT TO CERTAIN VOTING AND TRANSFER RESTRICTIONS CONTAINED
         IN A VOTING  AGREEMENT BY AND BETWEEN THE PEMI BANCORP,  INC.
         AND  THE  BENEFICIAL   OWNER  OF  THESE  SHARES  AND  MAY  BE
         TRANSFERRED  ONLY  IN  COMPLIANCE  THEREWITH.  COPIES  OF THE
         ABOVE-REFERENCED  AGREEMENT ARE ON FILE AT THE OFFICES OF THE
         BERLIN CITY BANK."

         3. REPRESENTATIONS. The Stockholder represents that the Stockholder has
the complete and unrestricted  power and the unqualified right to enter into and
perform the terms of this letter agreement.  The Stockholder  further represents
that this  letter  agreement  constitutes  a valid and  binding  agreement  with
respect to the  Stockholder,  enforceable  against the Stockholder in accordance
with its terms.  Except as set forth on SCHEDULE 1, the  Stockholder  represents
that the Stockholder  beneficially owns the number of Shares indicated  opposite
such Stockholder's name on said SCHEDULE 1, free and clear of any liens, claims,
charges or other encumbrances or restrictions of any kind whatsoever  ("Liens"),
and has sole or shared, and otherwise unrestricted, voting power with respect to
such Shares.

         4.  TERM.   Notwithstanding   anything  herein  to  the  contrary,  the
agreements  contained  herein  shall  remain in full force and effect  until the
earlier of (i) the  consummation  of the Merger or (ii) the  termination  of the
Merger Agreement in accordance with Article VIII thereof.

         5. EQUITABLE REMEDIES. The Stockholder has signed this letter agreement
intending to be bound thereby. The Stockholder expressly agrees that this letter
agreement  shall  be   specifically   enforceable  in  any  court  of  competent
jurisdiction  in accordance with its terms against the  Stockholder.  All of the
covenants and  agreements  contained in this letter  agreement  shall be binding
upon,  and inure to the benefit of, the respective  parties and their  permitted
successors,   assigns,   heirs,   executors,   administrators  and  other  legal
representatives, as the case may be.

                                       2

<PAGE>

         6. MISCELLANEOUS.  This letter agreement may be executed in one or more
counterparts, each of which will be deemed an original but all of which together
shall constitute one and the same  instrument.  No waivers of any breach of this
letter agreement  extended by the Company to the Stockholder  shall be construed
as a waiver of any rights or remedies of the Company  with  respect to any other
stockholder  of Purchaser who has executed a copy of this letter  agreement with
respect to Shares held by such  stockholder  or with  respect to any  subsequent
breach of the  Stockholder  or any other such  stockholder  of  Purchaser.  This
letter  agreement  is deemed to be  signed as a sealed  instrument  and is to be
governed by the laws of the State of New Hampshire, without giving effect to the
principles  of  conflicts of laws  thereof.  If any  provision  hereof is deemed
unenforceable,  the  enforceability  of the other provisions hereof shall not be
affected.

         Please confirm our agreement by signing a copy of this letter.

                                            Very truly yours,




                                           -----------------------------
                                           Name:




AGREED TO AND ACCEPTED
AS OF MARCH ____, 1997

PEMI BANCORP, INC.



By:-----------------------------------------
     Fletcher W. Adams
     Chairman, President and Chief Executive Officer



363767.c4

                                       3

<PAGE>





                                                    
                                   Schedule 1


================================================================================
       Name of             Number of Shares                    Shares
     Stockholder          Beneficially Owned              Subject to Pledge
--------------------------------------------------------------------------------

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

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

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

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

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

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

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

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

================================================================================






363767.c4

                                       4

<PAGE>



The Berlin City Bank and
Northway Financial, Inc.
March __, 1997
Page 1

                                                                     EXHIBIT VII

                                     FORM OF
                         RULE 145 REPRESENTATION LETTER


                                 March __, 1997


The Berlin City Bank and
Northway Financial, Inc.
9 Main Street
Berlin, New Hampshire 03570-0009

Ladies and Gentlemen:

         I have been advised that I might be considered to be an  "affiliate" of
The Berlin City Bank for purposes of  paragraphs  (c) and (d) of Rule 145 of the
Securities and Exchange Commission (the "SEC") under the Securities Act of 1933,
as amended  (the  "Act"),  and for  purposes of  generally  accepted  accounting
principles as such term relates to pooling of interests accounting treatment for
certain business combinations under generally accepted accounting principles and
the  interpretations  of the SEC or its staff,  including,  without  limitation,
Section 201.01 of the SEC's Codification of Financial Reporting Policies and the
SEC's Staff  Accounting  Bulletin No. 65.  Neither my entering  into this letter
agreement,  nor anything  contained  herein,  shall be deemed an admission on my
part that I am such an "affiliate".

         The  Berlin  City  Bank,  a New  Hampshire  chartered  commercial  bank
("Purchaser"),  Northway Financial,  Inc., a New Hampshire chartered corporation
wholly owned by Purchaser,  ("Parent"),  Pemi Bancorp,  Inc. (the "Company") and
Pemigewasset  National Bank, a national bank and wholly-owned  subsidiary of the
Company (the "Bank"),  have entered into an Agreement and Plan of Merger,  dated
on or about the date hereof (the "Merger Agreement"),  providing for among other
things,  the merger (the "Merger") of the Company with and into Parent which, as
of a date  immediately  preceding  the  Merger,  will own all of the  issued and
outstanding stock of Purchaser.  Upon consummation of the merger contemplated by
the Merger Agreement (the "Merger"),  I will receive shares of common stock, par
value $1.00 per share,  of Parent ("Parent Common Stock") in exchange for all of
my shares of common stock,  par value $5.00 per share, of Purchaser  ("Purchaser
Common  Stock").  This  agreement  is  hereinafter  referred  to as the  "Letter
Agreement".

         A. I represent and warrant to, and agree with, Parent as follows:

             1. I have read this Letter  Agreement and the Merger  Agreement and
 have discussed their  requirements  and other  applicable  limitations  upon my

                                       1

<PAGE>

 ability to sell,  pledge,  transfer or otherwise dispose of shares of Purchaser
 Common Stock and Parent Common Stock, to the extent I felt  necessary,  with my
 counsel or counsel for Purchaser.

             2. I hereby  agree that (a)  without the  consent of  Purchaser  if
 prior to the Effective Date of the Merger, or (b) without the consent of Parent
 if  subsequent  to the  Effective  Date of the  Merger,  (i) I will not sell or
 otherwise  reduce my risk  relative  to any shares of  Purchaser  Common  Stock
 during the period of thirty days prior to the effective date of the Merger, and
 (ii) I will not sell or  otherwise  reduce my risk  relative  to any  shares of
 Parent Common Stock until  financial  results  covering at least thirty days of
 combined  operations  have been  published  following the effective date of the
 Merger.

             3. I shall not make any  offer,  sale,  pledge,  transfer  or other
 disposition  in  violation of the Act or the rules and  regulations  of the SEC
 thereunder  of the  shares of Parent  Common  Stock I receive  pursuant  to the
 Merger.

         I agree that, if I desire to dispose of any shares of Purchaser  Common
Stock  owned by me after  the date of this  Letter  Agreement  and  prior to the
expiration of a two-year  period  following the effective date of the Merger,  I
will affirmatively inquire of Purchaser through its counsel,  Goodwin, Procter &
Hoar LLP, if prior to the effective date of the Merger, whether I may so dispose
of said shares of Purchaser  Common Stock,  or counsel for Parent  following the
effective  date of Merger  whether I may so dispose  of shares of Parent  Common
Stock,  without  violating the  requirements  of this Letter  Agreement.  I will
dispose of said shares only if such  inquiry is answered in the  affirmative  by
the written response of said counsel.

         B. I understand and agree that:

             1. I have been  advised  that any  issuance of the shares of Parent
Common Stock to me pursuant to the Merger will have been registered with the SEC
and will be listed for trading on the NASDAQ/NMS or American Stock  Exchange.  I
have also been  advised,  however,  that,  because  I may be an  "affiliate"  of
Purchaser  at  the  time  the  Merger  will  be  submitted  for a  vote  of  the
stockholders  of the Purchaser and because any  subsequent  disposition  of such
shares  by me has not been  registered  under the Act,  I must hold such  shares
until and unless (i) such  disposition of such shares is subject to an effective
registration  statement  under  the Act,  (ii) a sale of such  shares is made in
conformity  with the  provisions  of Rule  145(d)  under the Act, or (iii) in an
opinion of counsel,  in form and substance  reasonably  satisfactory  to Parent,
some other  exemption  from  registration  is available with respect to any such
proposed disposition of such shares.

                                       2

<PAGE>

             2. Stop transfer  instructions will be given to the transfer agents
of Parent and  Purchaser  with respect to the shares of Parent  Common Stock and
Purchaser Common Stock in connection with the restrictions set forth herein, and
there will be placed on the  certificate  representing  shares of Parent  Common
Stock I  receive  pursuant  to the  Merger,  or any  certificates  delivered  in
substitution therefor, a legend stating in substance:

             The  shares  represented  by  this  certificate  were  issued  in a
             transaction  to which  Rule 145  under the  Securities  Act of 1933
             applies.  The shares  represented by this  certificate  may only be
             transferred  in accordance  with the terms of an agreement  between
             the registered  holder hereof and The Berlin City Bank and Northway
             Financial,  Inc.,  a copy  of  which  agreement  is on  file at the
             principal offices of The Berlin City Bank.

             3. Unless a transfer of my shares of Parent  Common Stock is a sale
made in conformity  with the provisions of Rule 145(d),  or made pursuant to any
effective registration statement under the Act, Parent reserves the right to put
an appropriate legend an the certificates issued to my transferee.

         C. By countersigning  this Letter Agreement,  Parent (a) represents and
warrants  that  prior to the  effective  date of the  Merger it has or will have
filed,  and (b) agrees that from and after the  effective  date of the Merger it
will file, on a timely basis, all reports  (referred to in paragraph (c) of Rule
144 under the Act)  required  to be filed by Parent  pursuant  to  Section 13 or
Section  15(d),  as  applicable,  of the  Securities  Exchange  Act of 1934,  as
amended,  in each case to the extent  necessary in order to permit me to dispose
of any Parent Common Stock issued in the Merger pursuant to Rule 145(d).

         It is understood and agreed that this Letter  Agreement shall terminate
and be of no  further  force and effect if the Merger  Agreement  is  terminated
pursuant to Article VIII  thereof,  It is also  understood  and agreed that this
Letter  Agreement  shall terminate and be of no further force and effect and the
stop transfer  instructions  set forth in Paragraph  B.2.  above shall be lifted
forthwith at the later of (i) such time as financial  results  covering at least
thirty days of combined  operations  following the effective  date of the Merger
have been published,  or (ii) delivery by the undersigned to Parent of a copy of
a  letter  from the  staff of the SEC,  or an  opinion  of  counsel  in form and
substance  reasonably  satisfactory  to  Parent,  or other  evidence  reasonably
satisfactory  to Parent,  to the effect  that a transfer  of my shares of Parent
Common Stock will not violate the Act or any of the rules and regulations of the

                                       3

<PAGE>

SEC,  or (iii) the  passage  of two (2) years  after the  effective  date of the
Merger (unless I am advised that I am an "affiliate" of Parent at such time). In
addition, it is understood and agreed that the legend set forth in Paragraph B.2
above  shall  be  removed   forthwith  from  the   certificate  or  certificates
representing  my shares of Parent  Common  Stock if I shall  have  delivered  to
Parent a copy of a letter from the staff of the SEC or, an opinion of counsel in
form  and  substance  reasonably  satisfactory  to  Parent,  or  other  evidence
satisfactory  to Parent  that a  transfer  of my shares of Parent  Common  Stock
represented by such certificate or certificates  will be pursuant to a sale made
in  conformity  with the  provisions  of Rule  145(d),  or made  pursuant  to an
effective registration  statement under the Act. Additionally,  it is understood
and agreed that,  in any event,  on surrender  of any  certificates  bearing the
legend  set  forth  in  Paragraph  B.2  above,  Parent  shall  issue  substitute
certificates  without the legend upon my (or a transferees)  request made at any
time after the  expiration of two years from the  effective  date of the Merger,
unless counsel for Parent advises me or my transferee in writing that the person
so requesting is an  "affiliate"  of Parent  (within the meaning of Rule 144) at
the time of such request.

         This   Letter   Agreement   shall  be  binding   on  my  heirs,   legal
representatives and successors.

                                Very truly yours,


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


Accepted as of________ _____, 1997

THE BERLIN CITY BANK AND
NORTHWAY FINANCIAL, INC.


By:________________________________
     William J. Woodward
   Chairman, President and
   Chief Executive Officer

368262.c3

                                       4

<PAGE>




                                                                    EXHIBIT VIII

                                    FORM OF
                         RULE 145 REPRESENTATION LETTER


                                 March __, 1997



The Berlin City Bank and
Northway Financial, Inc.
9 Main Street
Berlin, New Hampshire 03570-0009

Ladies and Gentlemen:

         I have been advised that I might be considered to be an  "affiliate" of
Pemi Bancorp,  Inc. (the  "Company")  for purposes of paragraphs  (c) and (d) of
Rule 145 of the  Securities  and  Exchange  Commission  (the  "SEC")  under  the
Securities  Act of 1933,  as amended (the "Act"),  and for purposes of generally
accepted  accounting  principles  as such term  relates to pooling of  interests
accounting treatment for certain business  combinations under generally accepted
accounting  principles  and  the  interpretations  of  the  SEC  or  its  staff,
including,  without  limitation,  Section  201.01 of the SEC's  Codification  of
Financial  Reporting  Policies and the SEC's Staff  Accounting  Bulletin No. 65.
Neither my entering into this letter agreement,  nor anything  contained herein,
shall be deemed an admission on my part that I am such an "affiliate".

         The  Berlin  City  Bank,  a New  Hampshire  chartered  commercial  bank
("Purchaser"),  Northway Financial,  Inc., a New Hampshire chartered corporation
wholly owned by Purchaser,  ("Parent"),  the Company and  Pemigewasset  National
Bank, a national  bank and  wholly-owned  subsidiary of the Company (the "Bank")
have entered into an  Agreement  and Plan of Merger,  dated on or about the date
hereof (the "Merger  Agreement"),  providing for among other things,  the merger
(the  "Merger")  of  the  Company  with  and  into  Parent  which,  as of a date
immediately  preceding  the Merger,  will own all of the issued and  outstanding
stock of Purchaser.  Upon consummation of the merger  contemplated by the Merger
Agreement (the "Merger"), I will receive shares of common stock, par value $1.00
per share, of Parent ("Parent Common Stock") in exchange for all of my shares of
common  stock,  par value  $1.00 per  share,  of the  Company  ("Company  Common
Stock"). This agreement is hereinafter referred to as the "Letter Agreement".

         A. I represent and warrant to, and agree with, Parent as follows:

             1. I have read this Letter  Agreement and the Merger  Agreement and
have discussed  their  requirements  and other  applicable  limitations  upon my

                                       1

<PAGE>

ability to sell,  pledge,  transfer  or  otherwise  dispose of shares of Company
Common Stock and Parent Common Stock,  to the extent I felt  necessary,  with my
counsel or counsel for the Company.

             2. I hereby  agree that (a)  without  the consent of the Company if
prior to the Effective Date of the Merger,  or (b) without the consent of Parent
if  subsequent  to the  Effective  Date of the  Merger,  (i) I will  not sell or
otherwise  reduce my risk relative to any shares of Company  Common Stock during
the period of thirty days prior to the effective date of the Merger,  and (ii) I
will not sell or  otherwise  reduce  my risk  relative  to any  shares of Parent
Common Stock until financial  results  covering at least thirty days of combined
operations have been published following the effective date of the Merger.

             3. I shall not make any  offer,  sale,  pledge,  transfer  or other
disposition  in  violation  of the Act or the rules and  regulations  of the SEC
thereunder  of the  shares of Parent  Common  Stock I  receive  pursuant  to the
Merger.

         I agree  that,  if I desire to dispose of any shares of Company  Common
Stock  owned by me after  the date of this  Letter  Agreement  and  prior to the
expiration of a two-year  period  following the effective date of the Merger,  I
will  affirmatively  inquire  of the  Company  through  its  counsel,  Cranmore,
Fitzgerald & Meaney, if prior to the effective date of the Merger, whether I may
so  dispose of said  shares of  Company  Common  Stock,  or  counsel  for Parent
following  the  effective  date of Merger  whether I may so dispose of shares of
Parent  Common  Stock,   without  violating  the  requirements  of  this  Letter
Agreement. I will dispose of said shares only if such inquiry is answered in the
affirmative by the written response of said counsel.

         B. I understand and agree that:

                  1. I have been  advised  that any  issuance  of the  shares of
Parent Common Stock to me pursuant to the Merger will have been  registered with
the SEC and will be listed  for  trading on the  NASDAQ/NMS  or  American  Stock
Exchange.  I  have  also  been  advised,  however,  that,  because  I may  be an
"affiliate"  of the Company at the time the Merger will be submitted  for a vote
of the  stockholders  of the Company and because any  subsequent  disposition of
such shares by me has not been registered under the Act, I must hold such shares
until and unless (i) such  disposition of such shares is subject to an effective
registration  statement  under  the Act,  (ii) a sale of such  shares is made in
conformity  with the  provisions  of Rule  145(d)  under the Act, or (iii) in an
opinion of counsel,  in form and substance  reasonably  satisfactory  to Parent,
some other  exemption  from  registration  is available with respect to any such
proposed disposition of such shares.

                                       2

<PAGE>

                  2. Stop  transfer  instructions  will be given to the transfer
agents of Parent and the  Company  with  respect to the shares of Parent  Common
Stock and Company  Common Stock in connection  with the  restrictions  set forth
herein,  and  there  will be placed on the  certificate  representing  shares of
Parent  Common  Stock I receive  pursuant  to the  Merger,  or any  certificates
delivered in substitution therefor, a legend stating in substance:

         The shares represented by this certificate were issued in a transaction
         to which Rule 145 under the Securities Act of 1933 applies.  The shares
         represented by this  certificate  may only be transferred in accordance
         with the terms of an agreement between the registered holder hereof and
         The Berlin  City Bank and  Northway  Financial,  Inc.,  a copy of which
         agreement is on file at the principal offices of The Berlin City Bank.

                  3. Unless a transfer of my shares of Parent  Common Stock is a
sale made in conformity with the provisions of Rule 145(d),  or made pursuant to
any effective registration statement under the Act, Parent reserves the right to
put an appropriate legend an the certificates issued to my transferee.

         C. By countersigning  this Letter Agreement,  Parent (a) represents and
warrants  that  prior to the  effective  date of the  Merger it has or will have
filed,  and (b) agrees that from and after the  effective  date of the Merger it
will file, on a timely basis, all reports  (referred to in paragraph (c) of Rule
144 under the Act)  required  to be filed by Parent  pursuant  to  Section 13 or
Section  15(d),  as  applicable,  of the  Securities  Exchange  Act of 1934,  as
amended,  in each case to the extent  necessary in order to permit me to dispose
of any Parent Common Stock issued in the Merger pursuant to Rule 145(d).




The Berlin City Bank and
Northway Financial, Inc.
March __, 1997
Page 1

         It is understood and agreed that this Letter  Agreement shall terminate
and be of no  further  force and effect if the Merger  Agreement  is  terminated
pursuant to Article VIII  thereof,  It is also  understood  and agreed that this
Letter  Agreement  shall terminate and be of no further force and effect and the
stop transfer  instructions  set forth in Paragraph  B.2.  above shall be lifted
forthwith at the later of (i) such time as financial  results  covering at least
thirty days of combined  operations  following the effective  date of the Merger
have been published,  or (ii) delivery by the undersigned to Parent of a copy of
a  letter  from the  staff of the SEC,  or an  opinion  of  counsel  in form and
substance  reasonably  satisfactory  to  Parent,  or other  evidence  reasonably

                                       3

<PAGE>

satisfactory  to Parent,  to the effect  that a transfer  of my shares of Parent
Common Stock will not violate the Act or any of the rules and regulations of the
SEC,  or (iii) the  passage  of two (2) years  after the  effective  date of the
Merger (unless I am advised that I am an "affiliate" of Parent at such time). In
addition, it is understood and agreed that the legend set forth in Paragraph B.2
above  shall  be  removed   forthwith  from  the   certificate  or  certificates
representing  my shares of Parent  Common  Stock if I shall  have  delivered  to
Parent a copy of a letter from the staff of the SEC or, an opinion of counsel in
form  and  substance  reasonably  satisfactory  to  Parent,  or  other  evidence
satisfactory  to Parent  that a  transfer  of my shares of Parent  Common  Stock
represented by such certificate or certificates  will be pursuant to a sale made
in  conformity  with the  provisions  of Rule  145(d),  or made  pursuant  to an
effective registration  statement under the Act. Additionally,  it is understood
and agreed that,  in any event,  on surrender  of any  certificates  bearing the
legend  set  forth  in  Paragraph  B.2  above,  Parent  shall  issue  substitute
certificates  without the legend upon my (or a transferees)  request made at any
time after the  expiration of two years from the  effective  date of the Merger,
unless counsel for Parent advises me or my transferee in writing that the person
so requesting is an  "affiliate"  of Parent  (within the meaning of Rule 144) at
the time of such request.

         This   Letter   Agreement   shall  be  binding   on  my  heirs,   legal
representatives and successors.

                                         Very truly yours,


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


Accepted as of      , 1997

THE BERLIN CITY BANK AND
NORTHWAY FINANCIAL, INC.


By:_________________________________

   Chairman, President and
     Chief Executive Officer

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