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                                                                    EXHIBIT 10.1






                                  July 20, 1999



Merrill W. Sherman
671 Neck Road
Tiverton, Rhode Island 02878

Re:      Amendment to Executive Employment Agreement

Dear Merrill:

         Reference is made to that certain letter agreement by and between Bank
Rhode Island (the "Bank") and you dated January 30, 1998 (the "Letter
Agreement") pursuant to which the Bank agreed to employ you in the position of
President and Chief Executive Officer of the Bank upon the terms and conditions
set forth therein. The Bank and you hereby agree that the Letter Agreement shall
be amended as set forth herein.

         A. The Bank and you hereby agree that PART 3 of the Letter Agreement
shall be amended in its entirety as follows:

PART 3.  CHANGE IN CONTROL

         3.1 PURPOSE. In order to allow you to consider the prospect of a Change
in Control (as defined in Section 3.2) in an objective manner and in
consideration of the services rendered and to be rendered by you to the Bank,
the Bank is willing to provide, subject to the terms of this Letter Agreement,
certain severance benefits to protect you from the consequences of a Terminating
Event (as defined in Section 3.4) occurring subsequent to a Change in Control.

         3.2 CHANGE IN CONTROL. A "Change in Control" will be deemed to have
occurred if: (i) the Bank effectuates a Takeover Transaction; or (ii) the Bank
commences substantive negotiations with a third party with respect to a Takeover
Transaction and within twelve (12) months of the commencement of such
negotiations, enters into a definitive agreement with respect to a Takeover
Transaction with any party with which negotiations were originally commenced; or
(iii) any election of directors of the Bank (or, if the Bank reorganizes into a
holding company structure, directors of the holding company) occurs (whether by
the directors then in office or by the shareholders at a meeting or by written
consent) where a majority of the directors in office following such election are
individuals who were not nominated by a vote of two-thirds of the members of the
board of directors immediately preceding such election; or (iv) the Bank
effectuates a complete liquidation of the Bank or a sale or disposition of all
or substantially all of its assets. You understand and agree that a
reorganization in which the Bank reorganizes into a holding company structure,
or any similar reorganization, will not constitute a Change in Control for
purposes of this agreement or for any other purpose; provided, however,



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Merrill W. Sherman
July 20, 1999
Page 2


that any such transaction may constitute a Change in Control if accomplished in
connection with a Takeover Transaction.

         3.3      TAKEOVER TRANSACTION.  A "Takeover Transaction" shall mean:

                  (a) The acquisition of voting securities of the Bank by any
         individual, entity or group (within the meaning of Section 13(d)(3) or
         14(d)(2) of the Securities Exchange Act of 1934, as amended (the
         "Exchange Act")), other than by the Bank or its subsidiaries or any
         employee benefit plan (or related trust) of the Bank or its
         subsidiaries, which theretofore did not beneficially own (within the
         meaning of Rule 13d-3 promulgated under the Exchange Act), securities
         representing 30% or more of the voting power of all outstanding shares
         of voting securities of the Bank, if such acquisition results in such
         individual, entity or group owning securities representing more than
         30% of the voting power of all outstanding voting securities of the
         Bank; provided, that any acquisition by a corporation with respect to
         which, following such acquisition, more than 50% of the then
         outstanding shares of voting securities of such corporation, is then
         beneficially owned, directly or indirectly, by all or substantially all
         of the individuals and entities who were the beneficial owners of the
         voting securities of the Bank outstanding immediately prior to such
         acquisition in substantially the same proportion as their ownership,
         immediately prior to such acquisition, of the outstanding voting
         securities of the Bank, shall not constitute a Change in Control; or

                  (b) The issuance of additional shares of common stock of the
         Bank in a single transaction or a series of related transactions if the
         individuals and entities who were the beneficial owners of the
         outstanding voting securities of the Bank immediately prior to such
         issuance do not, following such issuance, beneficially own, directly or
         indirectly, securities representing more than 50% of the voting power
         of all then outstanding voting securities of the Bank; or

                  (c) Consummation by the Bank of (i) a reorganization, merger
         or consolidation, in each case, with respect to which all or
         substantially all of the individuals and entities who were the
         beneficial owners of the voting securities of the Bank immediately
         prior to such reorganization, merger or consolidation do not, following
         such reorganization, merger or consolidation, beneficially own,
         directly or indirectly, securities representing more than 50% of the
         voting power of then outstanding voting securities of the corporation
         resulting from such a reorganization, merger or consolidation or (ii)
         the sale, exchange or other disposition (in one transaction or a series
         of related transactions) of all or substantially all of the assets of
         the Bank (on a consolidated basis) to a party which is not controlled
         by or under common control with the Bank.

         For purposes of this Section 3.3, "voting power" means ordinary voting
power for the election of directors.


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Merrill W. Sherman
July 20, 1999
Page 3


         3.4      TERMINATING EVENT.  A "Terminating Event" means either

         (a) Termination by the Bank of your employment with the Bank for any
reason other than (i) your death or disability or (ii) for "Cause" (as such term
is defined in Section 3.5 hereof); or

         (b) Your resignation as an employee of the Bank, other than for reasons
of disability, following (i) a significant reduction in the nature or scope of
your duties, responsibilities, authority and powers from the duties,
responsibilities, authority and powers exercised by you immediately prior to the
Change in Control; or (ii) any requirement by the Bank or of any person in
control of the Bank that the location at which you perform the principal duties
for the Bank be outside a radius of 50 miles from the location at which you
performed such duties immediately prior to the Change in Control; or (iii)
failure of the Bank to renew your employment on terms not less favorable than
those existing immediately prior to such nonrenewal, other than a reduction of
fringe benefits required by law or applicable to all employees generally; or
(iv) the failure of you and any successor of the Bank to mutually agree in
writing for any reason, upon terms and conditions of employment with you within
ninety (90) days following a Change in Control; or

         (c) Your resignation as an employee of the Bank or any successor of the
Bank following a Takeover Transaction, other than for reasons of disability, and
notwithstanding that you did not exercise any rights you may have had under
Section 3.4(b) to resign and receive the benefits provided under the provisions
of PART 3 of this Agreement, provided that such resignation occurs during the
ninety (90) day period which ends on the first anniversary of the Takeover
Transaction.

         3.5 TERMINATION FOR "CAUSE" DEFINED. For purposes of this Letter
Agreement, termination for Cause, as determined by the Board shall include
termination by reason of any of the following:

         (a)      Continuing any arrangement, holding any position or engaging
                  in any activities that conflict with the interest of, or that
                  interfere with your duties owed to, the Bank, after ten (10)
                  days prior written notice by the Bank to you of the same;

         (b)      Conviction of embezzlement or other crimes against the Bank;

         (c)      Deliberate misappropriation of the Bank's funds;

         (d)      Material violation of written policies of the Bank or material
                  breach of any of your obligations under the terms of this
                  Letter Agreement, which continues after ten (10) days prior
                  written notice by the Bank to you of the same; and

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Merrill W. Sherman
July 20, 1999
Page 4

         (e)      Refusal to perform assigned duties when such refusal is not
                  justified or excused either by the terms of this Letter
                  Agreement or by actions taken by the Bank in violation of this
                  Letter Agreement; provided, however, that if you should
                  dispute Bank's determination that it has caused you to
                  terminate your employment, or if you assert that this act or
                  omission was caused by actions taken by Bank in violation of
                  this Letter Agreement, the dispute will be governed by Section
                  4.7 hereof.

         3.6 PAYMENT IN CONNECTION WITH TERMINATING EVENT. If a Terminating
Event occurs within one (1) year after a Change in Control (which one year
period shall be calculated from the effective date of the Takeover Transaction
if the Terminating Event occurs after a Takeover Transaction), the Bank will pay
to you an amount (the "Severance Payment") equal to 2.99 times the sum of (a)
your annual base salary in effect at the time of the Change in Control and (b)
an amount equal to the average executive cash bonus earned by you with respect
to the two (2) full fiscal years immediately preceding the Change in Control,
which Severance Payment shall be payable in one lump sum within 30 days of the
date of termination of your employment, or if such Change in Control is governed
by clause (ii) of Section 3.2 and the Terminating Event occurs prior to entering
into a definitive agreement, upon the entering into of a definitive agreement by
the Bank. In addition, the Bank shall continue to pay for all medical and life
insurance coverage provided on the date of the Terminating Event for the
twenty-four month period commencing on the effective date of the Terminating
Event, you shall continue to have the use of the automobile provided to you
under Section 1.4(b) of the Letter Agreement for such 24-month period and,
notwithstanding any provision of any option agreement governing any Options, any
Options shall be exercisable for the periods specified in Section 2.1 hereof. No
Severance Payment will be made to you under PART 3 if your employment with the
Bank terminates for any reason prior to a Change in Control, or if your
employment with the Bank terminates after a Change in Control but such
termination or resignation is not a Terminating Event. In addition, no Severance
Payment will be made to you under this Letter Agreement with respect to a
Terminating Event which occurs more than one year after a Change in Control
(which one year period shall be calculated from the effective date of the
Takeover Transaction if the Terminating Event occurs after a Takeover
Transaction).

         3.7 APPLICABILITY OF CHANGE IN CONTROL PROVISIONS. (a) If there is a
Change in Control while this Letter Agreement is in effect and while you remain
actively employed by the Bank, the provisions of PART 3 shall apply and shall
continue to apply for a one-year period following the Change in Control (which
one-year period shall be calculated from the effective date of a Takeover
Transaction if a Terminating Event occurs after the Takeover Transaction), and
the provisions of PART 3 shall continue to apply regardless of whether this
Letter Agreement is terminated until all the obligations of the Bank hereunder
have been fulfilled and all benefits provided hereunder have been paid.

         (b) The provisions of PART 3 shall terminate upon the earliest of (i)
the termination by the Bank of your employment for any reason prior to a Change
in Control, (ii) the termination


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Merrill W. Sherman
July 20, 1999
Page 5


of your employment by the Bank after a Change in Control because of death or
disability or for Cause, (iii) your resignation or termination of employment
with the Bank for any reason other than Good Reason prior to a Change in
Control, and (iv) your resignation or termination of employment after a Change
in Control for any reason other than the occurrence of any of the events
enumerated in Section 3.4 of this Letter Agreement.

         3.8 EXCISE TAX EQUALIZATION PAYMENT. In the event that you become
entitled to a Severance Payment or any other payment or benefit under this
Letter Agreement, or under any other agreement with or plan of the Bank (in the
aggregate, the "Total Payments"), and if any of the Total Payments will be
subject to the tax (the "Excise Tax") imposed by Section 4999 of the Code (or
any similar tax that may hereafter be imposed), then the Bank shall pay to you
in cash an additional amount (the "Gross-Up Payment") such that the net amount
retained by you after deduction of any Excise Tax upon the Total Payments and
any Federal, state and local income tax and Excise Tax upon the Gross-Up Payment
provided for by this Section 3.8 (including FICA and FUTA), shall be equal to
the Total Payments. Such payment shall be made by the Bank to you as soon as
practical following the effective date of the Terminating Event, but in no event
beyond thirty (30) days from such date.

         3.9 TAX COMPUTATION. For purposes of determining whether any of the
Total Payments will be subject to the Excise Tax and the amounts of such Excise
Tax:

         (a) Any other payments or benefits received or to be received by you in
connection with a Change in Control of the Bank or your termination of
employment (whether pursuant to the terms of this Letter Agreement or any other
plan, arrangement, or agreement with the Bank, or with any person (which shall
have the meaning set forth in Section 3(a)(9) of the Exchange Act, including a
"group" as defined in Section 13(d) therein) whose actions result in a Change in
Control of the Bank or any person affiliated with the Bank or such persons)
shall be treated as "parachute payments" within the meaning of Section
280G(b)(1) of the Code, and all "excess parachute payments" within the meaning
of Section 280G(b)(1) shall be treated as subject to the Excise Tax, unless in
the opinion of tax counsel as supported by the Bank's independent auditors and
acceptable to you, such other payments or benefits (in whole or in part) do not
constitute parachute payments, or unless such excess parachute payments (in
whole or in part) represent reasonable compensation for services actually
rendered within the meaning of Section 280G(b)(4) of the Code in excess of the
base amount within the meaning of Section 280G (b)(3) of the Code, or are
otherwise not subject to the Excise Tax;

         (b) The amount of the Total Payments which shall be treated as subject
to the Excise Tax shall be equal to the lesser of: (i) the total amount of the
Total Payments; or (ii) the amount of excess parachute payments within the
meaning of Section 280G(b)(1) (after applying clause (a) above); and

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Merrill W. Sherman
July 20, 1999
Page 6


         (c) The value of any noncash benefits or any deferred payment or
benefit shall be determined by the Bank's independent auditors in accordance
with the principles of Sections 280G(d)(3) and (4) of the Code.

         For purposes of determining the amount of the Gross-Up Payment, you
shall be deemed to pay Federal income taxes at the highest marginal rate of
Federal income taxation in the calendar year in which the Gross-Up Payment is to
be made, and state and local income taxes at the highest marginal rate of
taxation in the state and locality of your residence on the effective date of
the Terminating Event, net of the maximum reduction in Federal income taxes
which could be obtained from deduction of such state and local taxes.

         3.10 SUBSEQUENT RECALCULATION. In the event the Internal Revenue
Service adjusts the computation of the Bank under Section 3.9 herein so that you
did not receive the greatest net benefit, the Bank shall reimburse you for the
full amount necessary to make you whole, plus a market rate of interest, as
determined by the Compensation Committee of the Board.

         3.11 DISPUTE RESOLUTION. If any dispute between the Bank and you as to
any of the amounts to be determined under Sections 3.8 or 3.9, or the method of
calculating such amounts, cannot be resolved by you and the Bank, either the
Bank or you after giving three (3) days written notice to the other, may refer
the dispute to a partner in the Boston, Massachusetts office of a firm of
independent certified public accountants selected jointly by you and the Bank.
The determination of such partner as to the amount to be determined under
Section 3.8 and 3.9 and the method of calculating such amounts shall be final
and binding on both you and the Bank. The Bank shall bear the costs of any such
determination.

         2. The Bank and you further agree that Section 4.7 of PART 4 of the
Letter Agreement shall be amended in its entirety to read as follows:

         4.7 BINDING EFFECT. This Letter Agreement is binding upon and will
enure to the benefit of the parties hereto and their respective heirs,
administrators, executors, successors and assigns. The Bank will require any
successor (whether direct or indirect, by purchase, merger, consolidation or
otherwise) to all or substantially all of the business and/or assets of the Bank
to assume expressly and perform the Letter Agreement. Failure of the Bank to
obtain such assumption and agreement prior to the effectiveness of any such
succession shall be a breach of the Letter Agreement and shall entitle you to
compensation from the Bank in the same amount and on the same terms as you would
be entitled to hereunder following a Terminating Event, except that for purposes
of implementing the foregoing, the date on which any such succession becomes
effective shall be deemed the date on which you become entitled to such
compensation from the Bank. As used in the Letter Agreement, "Bank" shall mean
the Bank, as hereinbefore defined and any successor to its business and/or
assets as aforesaid which assumes and agrees to perform the Letter Agreement by
operation of law, or otherwise.

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Merrill W. Sherman
July 20, 1999
Page 7


         3. The Bank and you further agree that PART 4 of the Letter Agreement
be amended by the addition of the following Section 4.9.

         4.9 INDEMNIFICATION. The Bank hereby covenants and agrees to indemnify
you and hold you harmless fully, completely, and absolutely against and in
respect to any and all actions, suits, proceedings, claims, demands, judgments,
costs, expenses (including attorney's fees), losses, and damages resulting from
your good faith performance of your duties and obligations under the terms of
the Letter Agreement.

         4. The Bank and you further agree that Section 1.10 of PART 1 of the
Letter Agreement shall be amended in its entirety to read as follows:

         1.10 TERMINATION AND SURVIVAL. The provisions of PART 1 of the Letter
Agreement shall terminate on the Contract Expiration Date. The provisions of
PART 2, PART 3 and PART 4, as amended hereby, shall survive the termination of
PART 1 and shall remain in full force and effect and shall continue to be
enforceable in accordance with their terms notwithstanding any termination of
PART 1. The provision of PART 2, PART 3 and Section 4.1, 4.2, 4.4, 4.6, 4.8 and
4.9 of the Letter Agreement, as amended hereby, shall remain in full force and
effect and shall continue to be enforceable in accordance with their terms
beyond the termination of employment.

         Except as amended hereby the terms and provisions of the Letter
Agreement are ratified approved and confirmed.

         If the foregoing correctly sets forth our understanding, please sign
this letter and the enclosed counterpart hereof in the space below and return to
the undersigned the counterpart copy that you have signed.

                                Sincerely yours,

                                BANK RHODE ISLAND

                                By:  /s/ Malcolm G. Chace
                                   ----------------------
                                   Malcolm G. Chace
                                   Chairman of the Board

The foregoing correctly sets forth our agreement.

/s/ Merrill W. Sherman
----------------------
Merrill W. Sherman

   7/21/99
--------------
Date



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                                January 30, 1998



Merrill W. Sherman
88 Williams Street
Providence, Rhode Island 02906

Dear Merrill:

         Bank Rhode Island (the "Bank") agrees to employ you in the position of
President and Chief Executive Officer of the Bank upon the following terms and
conditions.

PART 1.  EMPLOYMENT; DUTIES, ETC.

         1.1 RESPONSIBILITIES AND AUTHORITY. In your capacity as President and
Chief Executive Officer with the Bank, you will have the duties,
responsibilities, authorities and powers normally incident to such office. At
all times, however, your activities and authority will be subject to
supervision, control and direction by the Board of Directors of the Bank (the
"Board") or by the Executive Committee of the Board, and you agree to carry out
such duties and responsibilities as any of them may from time to time reasonably
assign to you. You shall report from time to time or routinely, upon request, to
the Board as to the current status of any of your assigned duties and
responsibilities.

         1.2 COMPENSATION. Your base salary will be at the rate of $230,000 per
year, payable on a bi-weekly basis, or at such higher rate as shall be
determined from time to time by the Board. In addition, you will be entitled to
receive payments under any incentive compensation or bonus program which the
Board may establish for its employees and/or senior executives (as in effect
from time to time), in such amounts as are provided by such programs, provided,
however, that any incentive compensation or bonus arrangement shall provide a
bonus opportunity of no less than 50% of your base salary.

         1.3 EMPLOYEE BENEFITS. As a full-time employee of the Bank, you will be
eligible to participate in any and all employee benefit plans generally
available to full-time employees, including non-contributory plans and, at your
option, contributory plans.

         1.4 CERTAIN SPECIFIC EMPLOYEE BENEFITS.

         (a) GRANT OF STOCK OPTIONS. You will receive stock options to purchase
shares of the Bank's common stock in such number and at an exercise price and
such other terms as the Compensation Committee of the Board may determine, in
its sole discretion. Any such options will become exercisable on a schedule no
less favorable then the following: 25% on the grant date and an additional 25%
on each of the first through third anniversaries of the grant date, with such
vesting to accelerate on a Change in Control (as defined in Section 3.2).

         (B) AUTOMOBILE. The Bank shall provide to you an automobile for your
use.

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Merrill W. Sherman
January 30, 1998
Page 9


         1.5 VACATION. You will be entitled to six weeks of vacation during each
year of your employment, such vacation to be taken in accordance with the Bank's
customary vacation policies and at such times and intervals as are mutually
agreed upon by you and the Bank. You will be entitled to holiday time and sick
leave in accordance with the then existing policies of the Bank, as in effect
from time to time.

         1.6 REIMBURSEMENT OF EXPENSES. You will be reimbursed by the Bank for
reasonable business expenses incurred by you incident to your employment upon
presentation of appropriate vouchers, receipts, and other supporting documents
required by the Bank.

         1.7 DUTY TO PERFORM SERVICES. So long as you are employed by the Bank,
you agree to devote your full business and productive time, skill, and energy
diligently, loyally, effectively, and to the best of your ability to the
rendering of services to the Bank, and will exert your best efforts in the
rendering of such services. This provision will not prohibit you from

         (a) making passive investments;

         (b) serving on the board of directors of any company, subject to the
provisions of Section 4.2 below and provided that you will not render any
material services with respect to the operations or affairs of any such company;
or

         (c) engaging in religious, charitable or other community or non-profit
activities which do not impair your ability to fulfill your duties and
responsibilities to the Bank.

You agree that in the rendering of all services to the Bank and in all aspects
of your employment, in connection with your duties as President and Chief
Executive Officer, you will comply with all directives, policies, standards, and
regulations from time to time established by the Bank or by applicable law.

         1.8 DEATH OR DISABILITY.

         (A) DEATH. In the event of your death during the term of your
employment under this Letter Agreement, the Bank shall immediately pay to your
designated beneficiary any salary accrued but unpaid as of the date of your
death. Upon payment of the aforementioned sums, the Bank's obligations to make
further salary payments shall terminate. This provision shall not be construed
to negate any rights you may have to death benefits under any employee benefit
or welfare plan of the Bank in which you may from time to time be a participant
or under any other written agreement with the Bank which specifically provides
for such benefits.

         (B) DISABILITY. In the event of your "disability" (as defined below)
during the term of your employment under this Letter Agreement, the Bank shall
continue to pay you your base salary (reduced by any benefits you are entitled
to receive under any state or federal disability insurance program, such as
Rhode Island temporary disability insurance or federal social security) for a
period of one year from the date of "disability". For purposes of this Letter
Agreement, "disability" shall mean a determination

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Merrill W. Sherman
January 30, 1998
Page 10


by the Board that you are unable for any reason, either physical or mental, to
perform the duties required of you hereunder.

         1.9 TERM OF EMPLOYMENT. The term of your employment by the Bank under
this Letter Agreement shall continue, unless sooner terminated pursuant to the
provisions of this Agreement, for a period of three years from the date hereof
(the "Initial Term") and shall be automatically extended for each successive one
year period thereafter (each, a "Successive Term") unless either party shall
have given written notice to the other of such party's election not to extend
the term of this Letter Agreement within ninety (90) calendar days prior to the
end of the Initial Term or any Successive Term. The last day of such term, as it
may be extended from time to time, is herein sometimes referred to as the
"Contract Expiration Date".

         1.10 TERMINATION AND SURVIVAL. The provisions of PART 1 of this Letter
Agreement shall terminate on the Contract Expiration Date. The provisions of
PART 2, PART 3 and PART 4 shall survive the termination of PART 1 and shall
remain in full force and effect and shall continue to be enforceable in
accordance with their terms notwithstanding any termination of PART 1. The
provisions of PART 2, PART 3 and Sections 4.1, 4.2, 4.4, 4.6 and 4.8 hereof
shall remain in full force and effect and shall continue to be enforceable in
accordance with their terms beyond the termination of employment.

PART 2.  SEVERANCE

         2.1 SEVERANCE BENEFIT. In the event of a termination of your employment
by the Bank without Cause (as such term is defined in Section 3.5) at any time,
whether before or after the Contract Expiration Date; or in the event of the
expiration of the term of your employment without extension of such Contract
Expiration Date; or in the event of termination of your employment by you for
Good Reason, the Bank will pay to you within 30 days of the date of such
termination or expiration, in lump sum, a severance payment equal to two (2)
times your annual base salary then in effect (the "Severance Benefit"). In
addition, the Bank shall continue to pay for all medical and life insurance
coverage provided on the date of termination for the twenty-four month period
commencing on the date of termination of your employment and notwithstanding any
provision of any option agreement governing options to purchase common stock of
the Bank granted to you ("Options"), any such Options which are exercisable by
you on the date of your termination shall not terminate until the earlier of (i)
the date of expiration of such Option or (ii) three (3) years after the date of
termination. Any Severance Benefit paid under this Section 2.1 shall be credited
against any amounts due you as a result of a Change in Control. Notwithstanding
anything herein to the contrary, the Bank shall have no obligation to pay the
Severance Benefit to you in the event your employment is terminated with Cause
by the Bank or voluntarily by you without Good Reason.

         2.2 "GOOD REASON" DEFINED. For purposes of this Letter Agreement, "Good
Reason" shall mean and include any of the following without your prior written
consent:

         (i) a significant reduction in the nature or scope of your duties,
responsibilities, authority and powers from the duties, responsibilities,
authority and powers exercised by you on the date hereof;

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Merrill W. Sherman
January 30, 1998
Page 11


         (ii) any requirement by the Bank or any person in control of the Bank
that the location at which you perform the principal duties for the Bank be
outside a radius of 50 miles from the location at which you performed such
duties as of the date hereof; or

         (iii) failure of the Bank to renew this Letter Agreement or enter into
a new employment agreement with you on terms not less favorable than those
existing immediately prior to such nonrenewal, other than a reduction of fringe
benefits required by law or applicable to all employees generally,

provided, however, that Good Reason shall not be deemed to have occurred unless
prior to your termination of employment for Good Reason, you shall give not less
than 30 days written notice to the Bank of your intent to terminate for Good
Reason stating the basis of the Good Reason sufficient to permit the Bank to
alleviate the basis of such Good Reason prior to termination, and the Bank has
not done so within such 30 day period, and further provided, that your
continuing to work in the absence of entering into a new employment agreement
shall be without prejudice to your right to claim termination for Good Reason,
absent written agreement between you and the Bank to the contrary.

PART 3.  CHANGE IN CONTROL

         3.1 PURPOSE. In order to allow you to consider the prospect of a Change
in Control (as defined in Section 3.2) in an objective manner and in
consideration of the services rendered and to be rendered by you to the Bank,
the Bank is willing to provide, subject to the terms of this Letter Agreement,
certain severance benefits to protect you from the consequences of a Terminating
Event (as defined in Section 3.4) occurring subsequent to a Change in Control.

         3.2 CHANGE IN CONTROL. A "Change in Control" will be deemed to have
occurred if: (1) the Bank effectuates a Takeover Transaction; or (2) the Bank
commences substantive negotiations with a third party with respect to a Takeover
Transaction if within twelve (12) months of the commencement of such
negotiations, enters into a definitive agreement with respect to a Takeover
Transaction with any party with which negotiations were originally commenced; or
(3) any election of directors of the Bank (or, if the Bank reorganizes into a
holding company structure, directors of the holding company) (whether by the
directors then in office or by the stockholders at a meeting or by written
consent) where a majority of the directors in office following such election are
individuals who were not nominated by a vote of two-thirds of the members of the
board of directors immediately preceding such election; or (4) the Bank
effectuates a complete liquidation of the Bank or a sale or disposition of all
or substantially all of its assets. You understand and agree that a
reorganization in which the Bank reorganizes into a holding company structure,
or any similar reorganization, will not constitute a Change in Control for
purposes of this agreement or for any other purpose; provided, however, that any
such transaction may constitute a Change in Control if accomplished in
connection with a Takeover Transaction.

         3.3 TAKEOVER TRANSACTION. A "Takeover Transaction" shall mean a (i)
merger or consolidation of the Bank with, or an acquisition of the Bank or all
or substantially all of its assets by, any other bank or corporation, other than
a merger, consolidation or acquisition in which the individuals

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Merrill W. Sherman
January 30, 1998
Page 12


who were members of the Board of Directors of the Bank immediately prior to such
merger or consolidation continue to constitute a majority of the Board of
Directors of the surviving bank (or, in the case of an acquisition involving a
holding company, constitute a majority of the Board of Directors of the holding
company) for a period of not less than twelve (12) months following the closing
of such transaction, or (ii) when any person or entity or group of persons or
entities (other than any trustee or other fiduciary holding securities under an
employee benefit plan of Bank) either related or acting in concert becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Securities Exchange Act
of 1934, as amended) of securities of the Bank representing more than thirty
percent (30%) of the total number of votes that may be cast for the election of
directors of the Bank, other than a person who was already a 30% beneficial
owner as of the date on which your employment with Bank commences.

         3.4 TERMINATING EVENT.  A "Terminating Event" means either

         (a) Termination by the Bank of your employment with the Bank for any
reason other than (i) your death or disability or (ii) for "Cause" (as such term
is defined in Section 3.5 hereof); or

         (b) Your resignation as an employee of the Bank, other than for reasons
of disability, following (i) a significant reduction in the nature or scope of
your duties, responsibilities, authority and powers from the duties,
responsibilities, authority and powers exercised by you immediately prior to the
Change in Control; or (ii) any requirement by the Bank or of any person in
control of the Bank that the location at which you perform the principal duties
for the Bank be outside a radius of 50 miles from the location at which you
performed such duties immediately prior to the Change in Control; or (iii)
failure of the Bank to renew your employment on terms not less favorable than
those existing immediately prior to such nonrenewal, other than a reduction of
fringe benefits required by law or applicable to all employees generally; or
(iv) the failure of you and any successor of the Bank to mutually agree in
writing for any reason, upon terms and conditions of employment with you within
ninety (90) days following a Change in Control.

         3.5 TERMINATION FOR "CAUSE" DEFINED. For purposes of this Letter
Agreement, termination for Cause, as determined by the Board shall include
termination by reason of any of the following:

         (a) Continuing any arrangement, holding any position or engaging in any
             activities that conflict with the interest of, or that interfere
             with your duties owed to, the Bank, after ten (10) days prior
             written notice by the Bank to you of the same;

         (b) Conviction of embezzlement or other crimes against the Bank;

         (c) Deliberate misappropriation of the Bank's funds;

         (d) Material violation of written policies of the Bank or material
             breach of any of your obligations under the terms of this Letter
             Agreement, which continues after ten (10) days prior written notice
             by the Bank to you of the same; and

<PAGE>   13

Merrill W. Sherman
January 30, 1998
Page 13


         (e) Refusal to perform assigned duties when such refusal is not
             justified or excused either by the terms of this Letter Agreement
             or by actions taken by the Bank in violation of this Letter
             Agreement; provided, however, that if you should dispute Bank's
             determination that it has caused you to terminate your employment,
             or if you assert that this act or omission was caused by actions
             taken by Bank in violation of this Letter Agreement, the dispute
             will be governed by Section 4.7 hereof.

         3.6 PAYMENT IN CONNECTION WITH TERMINATING EVENT. If a Terminating
Event occurs within one (1) year after a Change in Control (which one year
period shall be calculated from the effective date of the Takeover Transaction
if the Terminating Event occurs after a Takeover Transaction), the Bank will pay
to you an amount (the "Severance Payment") equal to 2.99 times the sum of (a)
your annual base salary in effect at the time of the Change in Control and (b)
an amount equal to the average executive cash bonus paid to you with respect to
the two (2) full fiscal years (or the executive cash bonus paid with respect to
1997 if the Terminating Event occurs prior to January 1, 1999) immediately
preceding the Change in Control, which Severance Payment shall be payable in one
lump sum within 30 days of the date of termination of your employment, or if
such Change in Control is governed by clause (2) of Section 3.2 and the
Terminating Event occurs prior to entering into a definitive agreement, upon the
entering into of a definitive agreement by the Bank. In addition, any Options
shall be exercisable for the periods specified in Section 2.1 hereof. No
Severance Payment will be made to you under PART 3 if your employment with the
Bank terminates for any reason prior to a Change in Control, or if your
employment with the Bank terminates after a Change in Control but such
termination or resignation is not a Terminating Event. In addition, no Severance
Payment will be made to you under this Letter Agreement with respect to a
Terminating Event which occurs more than one year after a Change in Control
(which one-year period shall be calculated from the. effective date of the
Takeover Transaction if the Terminating Event occurs after a Takeover
Transaction).

         3.7 APPLICABILITY OF CHANGE IN CONTROL PROVISIONS. (a) If there is a
Change in Control while this Letter Agreement is in effect and while you remain
actively employed by the Bank, the provisions of PART 3 shall apply and shall
continue to apply for a one-year period following the Change in Control (which
one-year period shall be calculated from the effective date of a Takeover
Transaction if a Terminating Event occurs after the Takeover Transaction), and
the provisions of PART 3 shall continue to apply regardless of whether this
Letter Agreement is terminated.

         (b) The provisions of PART 3 shall terminate upon the earliest of (i)
the termination by the Bank of your employment for any reason prior to a Change
in Control, (ii) the termination of your employment by the Bank after a Change
in Control because of death or disability or for Cause, (iii) your resignation
or termination of employment with the Bank for any reason other than Good Reason
prior to a Change in Control, and (iv) your resignation or termination of
employment after a Change in Control for any reason other than the occurrence of
any of the events enumerated in Section 3.4 of this Letter Agreement.

         3.8 LIMITATION ON BENEFITS. (a) It is the intention of the parties that
no payments by the Bank to or for your benefit under this Letter Agreement or
any other agreement or plan pursuant to which you are entitled to receive
payments or benefits shall be non-deductible to the Bank by reason of

<PAGE>   14

Merrill W. Sherman
January 30, 1998
Page 14


the operation of Section 280G of the Internal Revenue Code of 1986, as amended
(the "Code"), relating to parachute payments. Accordingly, and notwithstanding
any other provision of this Letter Agreement or any such agreement or plan, if
by reason of the operation of said Section 280G, any such payments exceed the
amount which can be deducted by the Bank, such payments shall be reduced to the
maximum amount which can be deducted by the Bank. To the extent that payments
exceeding such maximum deductible amount have been made to you or your
beneficiary, you or your beneficiary shall refund such excess payments to the
Bank 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 non-deductible to the Bank
by reason of the operation of said Section 280G. To the extent that there is
more than one method of reducing the payments to bring them within the
limitations of said Section 280G, you shall determine which method shall be
followed, provided that if you fail to make such determination within forty-five
(45) days after the Bank has sent you written notice of the need for such
reduction, the Bank may determine the method of such reduction in its sole
discretion.

         (b) If any dispute between the Bank and you as to any of the amounts to
be determined under Section 3.8(a), or the method of calculating such amounts,
cannot be resolved by you and the Bank, either the Bank or you after giving
three (3) days written notice to the other, may refer the dispute to a partner
in the Boston, Massachusetts office of a firm of independent certified public
accountants selected jointly by you and the Bank. The determination of such
partner as to the amount to be determined under Section 3.8(a) and the method of
calculating such amounts shall be final and binding on both you and the Bank.
The Bank shall bear the costs of any such determination.

PART 4.  MISCELLANEOUS

         4.1 CONFIDENTIAL INFORMATION. Unless you first secure the Bank's
consent, you will not disclose or use, at any time either during or subsequent
to your employment by the Bank, except as required by your duties to the Bank,
any secret or confidential information of the Bank of which you become informed
during your employment, whether or not developed by you. The term "confidential
information" includes, without limitation, financial information, business
plans, prospects, and opportunities (such as lending relationships, financial
product developments, or possible acquisitions or dispositions of business or
facilities) which have been discussed or considered by the Bank's management,
but does not include any information which has become part of the public domain
by means other than your non-observance of your obligations hereunder.

         4.2 NON-COMPETITION. During your employment by the Bank hereunder, and
during a period of one year following the date of termination of your employment
with the Bank for any reason, you will not, directly or indirectly whether as
partner, consultant, agent, employee, co-venturer, greater than 2% owner, or
otherwise, or through any Person (as hereafter defined),

         (a) attempt to recruit any employee of the Bank, assist in such hiring
by any other Person, or encourage any such employee to terminate his or her
relationship with the Bank, or

<PAGE>   15

Merrill W. Sherman
January 30, 1998
Page 15


         (b) encourage any customer of the Bank to conduct with any other Person
any business or activity which such customer conducts or could conduct with the
Bank.

For purposes of this Section 4.2, the term "Person" shall mean an individual, a
corporation, an association, a partnership, an estate, a trust and any other
entity or organization.

         4.3 NO CONFLICTING OBLIGATIONS. The Bank, in entering into this Letter
Agreement, understands, and you hereby represent, that you are not under any
obligation to any former employer or any person, firm or corporation that would
prevent, limit or impair, in any way, the performance by you of your duties as
an employee of the Bank.

         4.4 ETHICAL BEHAVIOR. Upon termination by the Bank of your employment
for any reason, you shall act at all times in an ethical manner with regard to,
and during the one-year period following the date of such termination, shall
take no action which directly or indirectly has or could reasonably be expected
to have the effect of terminating or otherwise adversely affecting the
relationship of the Bank with any employees of, or others with business or
advantageous relationships with, the Bank or any of its affiliates.

         4.5 WITHHOLDING. All payments made by the Bank under this Letter
Agreement will be net of any tax or other amounts required to be withheld by the
Bank under applicable law.

         4.6 LEGAL FEES. Upon submission of appropriate statements or
documentation, the Bank agrees to reimburse you for reasonable legal fees
actually incurred by you in connection with the negotiation, review and
enforcement of the terms of this Letter Agreement, provided, however, that the
Bank shall not be obligated to reimburse you for any legal fees or expenses
incurred by you in connection with the Bank's enforcement of the terms of this
Letter Agreement or in connection with any arbitration or litigation in which
the Bank is the prevailing party.

         4.7 BINDING EFFECT. This Letter Agreement is binding upon and will
enure to the benefit of the parties hereto and their respective heirs,
administrators, executors, successors and assigns.

         4.8 ARBITRATION OF DISPUTES. Any dispute, controversy or claim arising
out of or relating to this Letter Agreement or the breach or performance hereof
will be settled by arbitration in accordance with the laws of the State of Rhode
Island by an arbitrator mutually agreed upon by you and the Bank. If an
arbitrator cannot be agreed upon, you and the Bank shall each choose an
arbitrator, and these two together shall select a third arbitrator. If the first
two arbitrators cannot agree on the appointment of a third arbitrator, then the
third arbitrator will be appointed by the American Arbitration Association in
Providence, Rhode Island. Such arbitration will be conducted in the City of
Providence in accordance with the Commercial Arbitration Rules of the American
Arbitration Association, except with respect to the selection of arbitrators
which shall be as provided in this Section 4.8. Judgment upon the award rendered
by the arbitrators may be entered in any court having jurisdiction thereof.

<PAGE>   16

Merrill W. Sherman
January 30, 1998
Page 16


         If the foregoing correctly sets forth our understanding, please sign
this letter and the enclosed counterpart hereof in the space below and return to
the undersigned the counterpart copy that you have signed.

         We are happy that you are joining the management team of the Bank, and
we look forward to a mutually beneficial relationship.

                                Sincerely yours,

                                BANK RHODE ISLAND


                                By: /s/ Malcolm G. Chace
                                   -----------------------
                                   Malcolm G. Chace
                                   Chairman of the Board

The foregoing correctly sets forth our agreement.

/s/ Merrill W. Sherman
----------------------
Merrill W. Sherman

   1/30/98
------------
Date