Exhibit 10.31

                           EARLY RETIREMENT AGREEMENT

       This Early Retirement Agreement (hereinafter "Agreement") dated the 2nd
day of April, 2002, is made by and among JEROME J. WHALEN (hereinafter "WHALEN")
and THE FIRST NATIONAL BANK OF LITCHFIELD, its parent FIRST LITCHFIELD FINANCIAL
CORPORATION, their subsidiary and affiliated entities, and all of their
respective past, present and future directors, officers, administrators, agents,
servants, representatives, employees, and any person acting through or in
concert with any of them (hereinafter collectively the "BANK"), in light of the
following circumstances:

       WHEREAS, WHALEN is employed as President and CEO of The First National
Bank of Litchfield and President of First Litchfield Financial Corporation, and
serves as a director of both entities; and

        WHEREAS, in connection with his proposed retirement, WHALEN and the BANK
now wish to compromise and finally settle on an amicable basis any and all
potential claims related to his employment at the BANK or his separation
therefrom;

        NOW, THEREFORE, in consideration of the mutual promises and covenants
contained herein, WHALEN and the BANK, acting of their own free will, hereby
agree as follows:

         1. (a) WHALEN will continue to serve as President, and the BANK will
continue to pay WHALEN his regular gross weekly salary at the annual rate of One
Hundred Ninety-Five Thousand One Hundred Thirty-Eight and 16/100 Dollars
($195,138.16) less all applicable deductions required by law and/or described in
this Agreement, through his separation date of May 1, 2002 or such later date as
the BANK and WHALEN mutually agree upon, but in no event beyond June 30, 2002 as
set out in Section 1(b) below. The foregoing payments shall coincide with the
BANK's regular payroll payment dates. The BANK shall also continue to provide to
WHALEN such fringe benefits as he is entitled as an employee of the BANK up to

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<PAGE>

his separation date as determined under Section 1(b) below. During this period,
WHALEN shall remain a member of the BANK's board of directors of the First
National Bank of Litchfield, but shall not participate in the process leading to
the selection of his successor or in any board governance issues. WHALEN shall
participate in all operating issues. WHALEN will not be renominated a director
of First Litchfield Financial Corporation, and his term will expire on May 22,
2002 or the date of his separation from employment, as determined under Section
1(b) below, whichever shall first occur.

                  (b) WHALEN agrees to and hereby does resign from any position
he may hold as an officer, director or employee of the BANK effective May 1,
2002 or such later date as the BANK and WHALEN mutually agree upon, but in no
event shall WHALEN's separation from employment and all directorships be later
than June 30, 2002. WHALEN agrees not to seek employment with the BANK at any
time thereafter.

                  (c) The BANK will pay WHALEN a severance benefit equal to his
regular gross weekly salary at the annual rate of One Hundred Ninety-Five
Thousand One Hundred Thirty-Eight and 16/100 Dollars ($195,138.16) less all
applicable deductions required by law and/or described in this Agreement, for
the period beginning immediately after his separation date as determined under
Section 1(b) above, and continuing until June 30, 2003 (hereinafter the
"severance period"). Such severance payments shall be paid to WHALEN in weekly
installments, such installments to coincide with the BANK's regular payroll
payment dates occurring after WHALEN's separation from employment.

                  (d) During the severance period, the BANK shall continue to
provide to WHALEN and his spouse the same group health and dental insurance
benefits that it provided on the effective date of this Agreement. During the
severance period WHALEN shall continue to timely pay to the BANK any and all
contributions, co-payments or other payments for such group health and dental
insurance benefits at the same rate as may be required of active employees in
executive positions. At the expiration of the severance period, the BANK shall
provide such notice of access to continuation of benefits as is required by

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<PAGE>

COBRA or other applicable law. Insurance carrier(s) permitting, WHALEN and his
spouse shall be permitted to remain on the BANK's group health insurance plan at
COBRA rates until WHALEN reaches age sixty-five (65), provided WHALEN pays the
full cost thereof after June 30, 2003. The BANK will use commercially reasonable
efforts to obtain the continuation of benefits described in the preceding
sentence, but does not guarantee the success of these efforts.

                  (e) The parties agree that WHALEN's Supplemental Employee
Retirement Plan (hereinafter "SERP") benefits include (i) WHALEN's 401k
contributions and other miscellaneous non-taxable compensation together totaling
approximately Ten Thousand and 00/100 Dollars ($10,000.00) per year, and (ii)
WHALEN's five (5) year average earnings for SERP purposes to include WHALEN's
earnings from the BANK for the period from July 1, 1997 through June 30, 2002.
WHALEN hereby elects to receive his SERP benefits during early retirement, and
to receive SERP benefits in a lump sum in lieu of a life annuity or other
periodic payment, and the Bank hereby consents to the same. The parties further
agree that WHALEN's SERP lump sum Benefit shall be in the amount of Two Hundred
Ten Thousand and 00/100 Dollars ($210,000.00), which shall be paid by the BANK
to WHALEN on January 15, 2003.

                  (f) The BANK acknowledges that WHALEN is the owner of a life
insurance policy in the amount of Two Hundred Thousand and 00/100 Dollars
($200,000.00). Effective July 1, 2002, and thereafter, he shall be responsible
for any premiums or other costs related to said policy. The BANK represents and
warrants that it has paid all premiums on the policy through June 30, 2002. The
BANK shall retain all rights under a separate life insurance policy maintained
for the purpose of funding the SERP referred to in Section 1(e).

                  (g) Upon his separation date, the BANK shall transfer to
WHALEN title to the 1999 Buick automobile that the BANK owns and which WHALEN
currently uses for business purposes. Upon such transfer WHALEN shall thereafter

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<PAGE>

be fully liable for all insurance, taxes, registration fees and any and all
other costs associated with its ownership.

                  (h) Regarding certain stock options owned by WHALEN, the BANK
is in the process of amending the underlying plan to permit eligible employees
to exercise their options within twelve (12) months after early retirement
(defined as age 59.5 or later) and the BANK will use its best efforts to obtain
shareholder approval of such amendment at the next shareholder meeting, to be
held on May 22, 2002, so that WHALEN will be covered by such amendment, if
approved.

                  (i) The BANK will refrain from contesting any claim for
Unemployment Compensation Benefits that WHALEN may file based on the reasons for
his separation from employment. Upon the request of any interested party, the
BANK may provide a copy of this agreement to the appropriate division of the
Connecticut State Labor Department.

                  (j) WHALEN shall be entitled to the vested benefits of the
BANK's Long-Term Incentive Plan as set forth in Section 2.3(iv) of the Executive
Incentive Retirement Agreement (termination without cause), including vesting of
any benefits that accrue prior to his separation date, determined in accordance
with Section 1(b) above. As of this date, such vested benefits total
Twenty-Three Thousand Six Hundred and Eleven and 96/100 Dollars ($23,611.96).
The benefit will be paid in a lump sum by June 30, 2002.

                  (k) The BANK shall issue a W-2 Form and/or a 1099 MISC Form to
WHALEN in connection with the various payments, benefits, transfers and other
consideration described here in Section 1 or as otherwise required in light of
the terms of this Agreement.

         2. With exception of the payments, benefits, transfers and other
consideration described in Section 1 of this Agreement WHALEN expressly
acknowledges that he is not entitled to any other payments, benefits, paid
leave, transfers or compensation, in any form for any reason, from the BANK.

                                       4
<PAGE>


         3. WHALEN acknowledges that he would not be entitled to all of the
payments, benefits, transfers and other consideration described in Section 1 of
this Agreement if he did not enter into this Agreement. The BANK acknowledges
that WHALEN would not otherwise release the potential claims hereinafter set
forth but for his receipt of such payments, benefits, transfers and other
consideration.

       4. (a) For and in consideration of the payments, benefits, transfers and
other consideration described in this Agreement, WHALEN, for himself and for his
heirs, executors, administrators, successors and assigns knowingly releases and
forever discharges the BANK from any and all claims, demands, obligations,
damages, liabilities and causes of action, in law or in equity, known or
unknown, including, but not limited to claims and causes of action for wrongful
discharge, tort, defamation, breach of any contract whether express or implied,
misrepresentation, breach of the duty of good faith and fair dealing, the
negligent or intentional infliction of emotional distress, and causes of action
and claims under the Connecticut Workers' Compensation Act, Conn. Gen.
Stat.ss.ss.31-275 et. seq., Title VII of the Civil Rights Act of 1964, 42
U.S.C.ss.ss.2000e et. seq., the Civil Rights Act of 1991, 42 U.S.C.ss.ss.1981,
et. seq., Section 1983 of the Civil Rights Act, 42 U.S.C.ss.1983, the
Connecticut Discriminatory Practices Act, Conn. Gen. Stat.ss.ss.46a-58 et. seq.,
the Americans with Disabilities Act, 42 U.S.C.ss.ss.12101 et. seq., the Age
Discrimination in Employment Act, 29 U.S.C.ss.ss.621 et. seq., the Employee
Retirement Income Security Act, 29 U.S.C.ss.ss.1132, et seq., the Family and
Medical Leave Act of 1993, 29 U.S.C.ss.ss.2601 et seq., the Connecticut Family
and Medical Leave Act, Conn. Gen. Stat.ss.ss.31-51kk, et seq., the Fair Credit
Reporting Act, 15 U.S.C.ss.ss.1681, et seq., the Connecticut Whistle Blowers'
Act, Conn. Gen. Stat.ss.31-51m, the provisions of the Connecticut General
Statutes concerning the payment of wages (Conn. Gen. Stat.ss.ss.31-58 et seq.
and Conn. Gen. Stat.ss.ss.31-70 et seq.), the Fair Labor Standards Act, 29
U.S.C.ss.ss.201 et seq., and all other federal, state and local laws, ordinances
or regulations, which WHALEN now has or ever had against the BANK, for any
losses, injuries or damages (including but not limited to back pay,


                                       5
<PAGE>

front pay, liquidated, compensatory or punitive damages, attorneys' fees and
litigation costs), resulting from and/or arising out of or in any way connected
with WHALEN's employment by the BANK or his separation from such employment;
provided, however, that the release described in this section 4 shall not apply
to any claim or cause of action (a) which arises after the execution of this
Agreement by WHALEN; (b) which seeks to enforce any of WHALEN's rights or
remedies set forth in this Agreement; or (c) which may not be waived or released
as a matter of law.


       5. The parties agree that they will not publish, publicize or
disseminate, or cause to be published, publicized or disseminated, in any
manner, the terms or contents of this Agreement to any third person, including
but not limited to any current or former BANK employee, except WHALEN's
attorney, spouse, tax preparer and financial planner, and except the BANK's
auditors, directors, and attorney, or as permitted by Section 1(i), or as
otherwise required either to effectuate the terms of this Agreement or to comply
with the BANK's disclosure obligations pursuant to applicable law.

       6. WHALEN and the BANK further understand and agree that this Agreement
does not constitute any admission by either party that it is in any way liable
to the other party or that either party harmed or damaged the other party or
violated any rights the other party may have or in any respect treated the other
party unfairly or unlawfully.

       7. (a) WHALEN recognizes and agrees that in the course of his employment
with the BANK he has been exposed to confidential information concerning the
BANK including but not limited to existing and contemplated products, trade
secrets, formulas, compilations, business and financial methods or practices,
strategic plans, pricing, marketing, merchandising and selling techniques and
information, customer lists, supplier lists and confidential information
relating to policies and/or business strategies (hereinafter referred to as
"Confidential Information"). WHALEN agrees that all such Confidential
Information is and shall forever remain the sole property of the BANK. WHALEN
shall keep all such Confidential Information strictly confidential, and he shall
not disclose to any third party in any manner, either directly or indirectly,

                                       6
<PAGE>

any of such Confidential Information at any time for any purpose. Further,
WHALEN shall not use in any manner, either directly or indirectly, any of such
Confidential Information for his own benefit or for the benefit of any third
party, or for any other purpose at any time.

       (b) WHALEN acknowledges and agrees that, for a twelve-month period (the
"Non-Compete Period") following his separation date as determined by Section
1(b) above, without the prior written consent of the BANK, WHALEN may not
directly or indirectly be employed by or provide services of any kind to any
other bank that maintains one or more offices in Litchfield County, Connecticut.
Furthermore, during the Non-Compete period, WHALEN acknowledges and agrees that
he will not directly or indirectly solicit or recruit any of the BANK's
employees to leave employment with the BANK. WHALEN also acknowledges and agrees
that during the Non-Compete period he will not directly or indirectly solicit or
service any client or customer or prospective client or customer of the BANK to
become a client or customer of any other bank that maintains one or more offices
in Litchfield County, Connecticut. The parties acknowledge and agree that
Section 7(b) shall be the only noncompetition and non-solicitation provision
applicable to WHALEN, and all such other prior provisions (including those
contained in the SERP) are superseded and replaced by this Section 7(b).

                  (c) WHALEN understands and agrees that violation by him of any
portion of this Section 7 may cause the BANK to suffer immediate, substantial
and irreparable injury, and will be a sufficient basis to award injunctive
relief and monetary damages to the BANK without affecting the remainder of this
Agreement.

       8. The BANK and WHALEN expressly acknowledge that they will not make any
claim or demand and each of them hereby waives any rights any of them may now
have or may hereafter have or claim to have, based upon any alleged oral
alteration, amendment, modification or any other alleged change in this

                                       7
<PAGE>

Agreement; that the validity, effect and operation of this Agreement shall be
determined by the laws of the State of Connecticut; and that there is no oral
understanding or agreement between them that is not recited herein.

       9. Except as provided otherwise in this Agreement, if any of the
provisions, terms or clauses of this Agreement are declared illegal,
unenforceable or ineffective in a legal forum or by operation of law, those
provisions, terms and clauses shall be deemed severable, such that all other
provisions, terms and clauses of this Agreement shall remain valid and binding
upon both parties, except that the Bank's obligation to provide the payments,
benefits, transfers and other consideration referenced in Sections 1(c), 1(d),
1(e), and 1(g) are contingent upon the validity and enforceability of the
release set forth in Section 4 in its entirety, and on compliance by WHALEN with
the provisions of Section 7(b) above, and WHALEN's obligations under Section 7
are conditioned upon compliance by the BANK with the provisions of Section 1(c),
1(d), 1(e), and 1(g).

       10. WHALEN affirmatively states that he has been advised of his right to
consult with an attorney in order to consider the provisions of this Agreement,
and, specifically with reference to his release of any and all claims under the
Age Discrimination in Employment Act, 29 U.S.C. ss.ss.621 et. seq., that he was
afforded up to twenty-one (21) days to consult with an attorney and to consider
this Agreement, and that if he signs the Agreement prior to the expiration of
such twenty-one (21) days, he does so voluntarily and of his own free will.

       11. (a) Should either party commence or prosecute any action or
proceeding contrary to the provisions of this Agreement, such party agrees to
indemnify the other party for all costs, including court costs and reasonable
attorneys' fees, incurred by the other party in the defense of such action or in
establishing or maintaining the application or validity of this Agreement or the
provisions thereof, to the extent allowed by applicable law.

       (b) Except as otherwise prohibited by any applicable state, federal or
local law, the BANK agrees to indemnify WHALEN for all costs, including court
costs and reasonable attorneys' fees incurred by WHALEN in the defense of any
action against him arising out of acts or omissions undertaken by WHALEN in good

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<PAGE>

faith and in the exercise of reasonable business judgment in his capacity as
President of the BANK up to his separation date as determined under Section 1(b)
above. Additionally, for a period of six (6) years from the retirement date, the
BANK shall afford WHALEN the same indemnification rights and the same insurance
coverage, if any, that the BANK provides to its other officers and directors
during such period.

       12. The BANK represents and warrants to WHALEN that the BANK is not
directly or indirectly engaged in discussions or negotiations involving a
merger, consolidation, sale, or other transfer of the BANK, and that no such
discussions or negotiations are contemplated as of the date of this Agreement.
Regarding the Executive Change of Control Agreement dated July 1, 1997,
currently in effect and expiring by its terms on June 1, 2002, and attached to
this Agreement as Exhibit A and expressly made part of this Agreement, the BANK
and WHALEN hereby agree that should a Change in Control (as defined in that
Agreement) occur before June 1, 2002, WHALEN shall receive all compensation and
all other benefits set forth in the Change of Control Agreement. Such
compensation and benefits shall be paid to WHALEN within five (5) days of the
date of the Change in Control, and no other triggering event (including no
termination and no reassignment) is necessary for such payments to WHALEN. Upon
payment of such compensation and benefits to WHALEN, the Bank shall not be
obligated to provide the payments, benefits, and other consideration set forth
in Section 1(c), 1(d) and 1(g). This section shall be deemed to be an amendment
pursuant to Section 8 of the Change in Control Agreement.

       13. WHALEN shall have up to twenty-one (21) days to decide whether or not
to enter into this Agreement. If he elects to do so and executes this Agreement
within such twenty-one (21) day period, this Agreement shall not become
effective or enforceable until seven (7) days following its execution by WHALEN.
Prior to the end of this seven (7) day period, WHALEN may revoke his assent to
this Agreement.

       14. BANK and WHALEN affirmatively state that they have a full
understanding of the contents of the Agreement and the effects thereof, that
each has been represented by competent counsel, and that they have executed the

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<PAGE>

same voluntarily and of their own free will, without any coercion.

       15. Neither party may assign its rights or delegate its duties under this
Agreement without the prior written consent of the other party, and any attempt
to so assign or delegate without such consent shall be void. This Agreement
shall be binding upon, and inure to the benefit of, the heirs, legal
representatives, successors, and permitted assigns of the parties. [Remainder of
page left intentionally blank.]


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<PAGE>


IN WITNESS WHEREOF, the aforementioned parties, intending to be legally bound
hereby, have executed this Agreement.

                                               JEROME J. WHALEN

                                               /s/ Jerome J. Whalen
                                               -----------------------
                                               Jerome J. Whalen

STATE OF CONNECTICUT     )
                         :    ss: Litchfield  Date:   4/2/02
COUNTY OF LITCHFIELD     )

        Personally appeared JEROME J. WHALEN, Signer of the foregoing
Instrument, and acknowledged the same to be her free act and deed before me.


                                               /s/ Dana Dibrino
                                               ---------------------------------
                                               Dana Dibrino
                                               Notary Public/Commissioner of the
                                               Superior Court



                                               THE FIRST NATIONAL BANK OF
                                               LITCHFIELD


                                          By:  /s/ Ernest W. Clock
                                               ---------------------------------
                                               Ernest W. Clock
                                               Its Chairman of the Board

STATE OF CONNECTICUT     )
                         :    ss: Litchfield  Date:  April 3, 2002
COUNTY OF LITCHFIELD     )

        Personally appeared Ernest W. Clock, Chairman of the Board (title) of
THE FIRST NATIONAL BANK OF LITCHFIELD, Signer of the foregoing Instrument, and
acknowledged the same to be his/her free act and deed on behalf of the THE FIRST
NATIONAL BANK OF LITCHFIELD.


                                               /s/ Susan E. Vaill
                                               ---------------------------------
                                               Susan E. Vaill
                                               Notary Public/Commissioner of
                                               the Superior Court





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<PAGE>





                                               FIRST LITCHFIELD FINANCIAL
                                               CORPORATION


                                          By:  /s/ Ernest W. Clock
                                               ---------------------------------
                                               Ernest W. Clock
                                                Its Chairman of the Board

STATE OF CONNECTICUT     )
                         :    ss:  Litchfield Date:  April 3, 2002
COUNTY OF LITCHFIELD     )


        Personally appeared Ernest W. Clock, Chairman of the Board (title) of
FIRST LITCHFIELD FINANCIAL CORPORATION, Signer of the foregoing Instrument, and
acknowledged the same to be his/her free act and deed on behalf of the FIRST
LITCHFIELD FINANCIAL CORPORATION.


                                                   /s/ Susan E. Vaill
                                                   -----------------------------
                                                   Susan E. Vaill
                                                   Notary Public/Commissioner of
                                                   the Superior Court




                                       12


<PAGE>


                                   Schedule A



                      THE FIRST NATIONAL BANK OF LITCHFIELD
                     FIRST LITCHFIELD FINANCIAL CORPORATION

                      EXECUTIVE CHANGE IN CONTROL AGREEMENT

                 NOT TO BE CONSTRUED AS AN EMPLOYMENT AGREEMENT

                                 August 6, 1997


<PAGE>


                      EXECUTIVE CHANGE IN CONTROL AGREEMENT
                 NOT TO BE CONSTRUED AS AN EMPLOYMENT AGREEMENT

                      THE FIRST NATIONAL BANK OF LITCHFIELD
                     FIRST LITCHFIELD FINANCIAL CORPORATION
                                 13 North Street
                             Litchfield, Connecticut


     WHEREAS,  The First National Bank of Litchfield (the "Bank") and its parent
bank holding  company,  First  Litchfield  Financial  Corporation  (the "Holding
Company"), wish to continue to employ Jerome J. Whalen ("Employee") as President
of  the  Bank.  The  Bank  and  the  Holding   Company  expect  that  Employee's
contributions  and knowledge will continue to be of  significant  benefit to the
future growth and success of the Bank;

     WHEREAS,  the  Boards  of  Directors  of the Bank and the  Holding  Company
recognize  that a change in control of the Bank and/or the  Holding  Company may
occur and that the threat of such change in control may create  uncertainty  and
may result in the  distraction or departure of key personnel to the detriment of
the Bank and Holding Company and their stockholders;

     WHEREAS,  the Boards have determined that appropriate steps should be taken
to reinforce and  encourage  the  continued  dedication of members of the Bank's
management,  including  Employee,  to  their  assigned  duties  in the  face  of
potential circumstances involving the possibility of such a change in control;

     NOW  THEREFORE,  in  addition  to one  dollar  ($1.00)  and other  good and
valuable  consideration  paid by the Bank to  Employee  and in  order to  induce
Employee  to  continue  employment  with  the Bank and to  continue  to  perform
Employee's  duties in a manner which is in the best  interests of the Bank,  the
Bank and Holding Company hereby agree to provide  Employee with certain benefits
in the event his employment with the Bank terminates or is reassigned subsequent
to a Change in Control (as defined in Section 2 hereof) under the  circumstances
described below.

     1. Term of Agreement;  Employment Status.  This Agreement shall take effect
when signed by all parties and shall  remain in full force and effect until June
1, 2002.  All employees of Bank and Holding  Company,  including  Employee,  are
employees at will. The terms of this  Agreement,  therefore,  do not and are not
intended to create either an express and/or implied  contract of employment with
the Bank and/or the Holding  Company.  This Agreement  simply  provides  certain
potential  benefits  to  Employee  in the event that a Change in Control  occurs
prior to June 1, 2002 as hereinafter defined.


<PAGE>


                                       -2-


     2. Change in Control.  No benefits shall be payable  hereunder unless prior
to June 1, 2002 there  shall  have been a Change in Control as set forth  below,
and  thereafter  within  twenty-four  (24)  months  of such  Change  in  Control
Employee's  employment with the Bank and/or its successor terminates or Employee
is  reassigned  in  accordance  with  Section 3,  below.  For  purposes  of this
Agreement, a "Change in Control" shall mean any of the following:

          (a) The  acquisition  of fifty  percent  (50%) or more of any class of
     equity  securities of the Holding Company by any person (or persons working
     in concert) or entity after the date hereof;

          (b) The  acquisition  of fifty  percent  (50%) or more of any class of
     equity  securities  of the Bank by any person or entity  other than Holding
     Company;

          (c) A merger, consolidation or reorganization to which the Bank or the
     Holding Company is a party,  if, as a result thereof,  individuals who were
     directors  of  the  Bank  or  Holding  Company,   immediately  before  such
     transaction  shall cease to constitute a majority of the Board of Directors
     of the surviving entity;

          (d) A sale of all or  substantially  all of the  assets of the Bank or
     the Holding Company to another party;

          (e) The assumption of all or substantially  all of the deposits of the
     Bank by another party other than the Federal Deposit Insurance Corporation;
     or

          (f) During any twenty-four  (24) month period,  individuals who at the
     beginning of such period  constitute the Board of Directors of the Bank and
     the Holding Company,  cease for any reason (other than death or disability)
     to  constitute  at least a  majority  thereof  unless the  election  or the
     nomination  for  election  by  the   stockholders   of  the  Bank  and  the
     stockholders  of Holding  Company,  respectively,  of each new director was
     approved by a vote of at least a majority of the  directors  of the Bank or
     of Holding  Company as applicable,  then still in office who were directors
     of the Bank or the Holding Company, as applicable,  at the beginning of the
     period.

     3. Termination  Following Change in Control. If any of the events described
in  Section 2 hereof  constituting  a Change in  Control  shall  have  occurred,
Employee  shall be entitled to the benefits  provided for in Section 4(a) hereof
upon the  termination or  reassignment  of his employment as a senior  executive
officer of the Bank and/or its  successor  as provided in this Section 3, within
twenty-four  (24) months after such event,  unless such employment is terminated
or   reassigned:   (i)  by  any   regulatory   authority   (acting  with  proper
jurisdiction);  or (ii) by the Board of Directors for cause; or (iii) because of
Employee's  death,  retirement or disability.  Such benefits shall be reduced by
the amount of any severance paid to Employee by the Bank or its successor.


<PAGE>


                                       -3-


          (a) Retirement; Disability.

               (i)  Termination  of  employment  by the Bank based on retirement
          shall mean the mandatory  termination of employment in accordance with
          the  retirement  policy of the Bank,  including  (at  Employee's  sole
          election  and as set forth in  writing)  early  retirement,  generally
          applicable  to  its  salaried  employees  or in  accordance  with  any
          retirement  arrangement   established  with  Employee's  consent  with
          respect to Employee.

               (ii)  Termination  of  employment by the Bank based on disability
          shall mean termination because of inability, as a result of incapacity
          due to physical or mental illness, to perform the services required as
          an employee for a period aggregating six (6) months or more within any
          twelve (12) month  period,  or because  Employee  becomes or is deemed
          disabled under any applicable policy providing disability insurance.

     (b) Notice of Termination. The Bank agrees that in the event of termination
it will promptly  furnish  Employee with a written  Notice of  Termination.  Any
purported  termination  of Employee shall be  communicated  by written Notice of
Termination  to  the  Bank.  For  purposes  of  this  Agreement,  a  "Notice  of
Termination"  shall mean a notice which shall  include the specific  termination
provision in this Agreement relied upon and shall set forth in reasonable detail
the facts and  circumstances  claimed  to  provide  a basis for  termination  of
Employee's employment under the provision so indicated.

     (c) Date of Termination. "Date of Termination" shall mean the date on which
a Notice of Termination  is given;  provided that, if within five (5) days after
any  Notice  of  Termination  is  given,  the  party  receiving  such  Notice of
Termination  notifies  the other  party  that a dispute  exists  concerning  the
termination,  the Date of Termination  shall be the date on which the dispute is
finally  determined,  either by mutual  written  agreement of the parties,  by a
binding and final arbitration award or by a final judgment, order or decree of a
court of competent  jurisdiction  (the time for appeal  therefrom having expired
and no appeal having been perfected).

     (d) Reassignment.  Reassignment shall mean a reduction in base salary or an
involuntary  reassignment of Employee's  duties,  responsibilities,  or benefits
inconsistent  with  those  of a  senior  executive  officer  of a  bank  or  the
involuntary  relocation of Employee's primary duties and  responsibilities to an
office or location greater than fifty (50) miles from Litchfield, Connecticut or
action  which  results  in  a  significant  worsening  of  the  Employee's  work
conditions  (including,  but not limited to, a significant  change in employment
duties, responsibilities, required hours or otherwise).


<PAGE>


                                       -4-

     4. Compensation Upon Termination or Reassignment.


          (a) If, within  twenty-four (24) months after a Change in Control,  as
     defined in Section 2 hereof,  shall have  occurred,  Employee's  employment
     with the Bank  terminates  or is reassigned as defined in Section 3 (except
     by an agency  acting with proper  jurisdiction,  or by a board of directors
     for cause or as a result of death, retirement or disability), then the Bank
     and/or its successor shall pay Employee within five (5) days after the Date
     of Termination an amount equal to the sum of:

               (i) Two (2) years of Employee's  annual  compensation  based upon
          the most recent  aggregate  base salary paid to Employee in the twelve
          (12)  month  period   immediately   preceding   his   termination   or
          reassignment less amounts previously paid to Employee from the date of
          Change in Control; plus

               (ii) Reasonable legal fees and expenses incurred by Employee as a
          result of such  termination or  reassignment  (including all such fees
          and  expenses,  if any,  incurred in  contesting or disputing any such
          termination  or  reassignment  or in seeking to obtain or enforce  any
          right or benefit provided for by this Agreement).

     (b)  Employee  shall not be required to mitigate  the amount of any payment
provided for in this Section 4 by seeking other  employment  or  otherwise,  nor
shall the amount of any payment provided for in this Section 4 be reduced by any
compensation  earned by Employee as the result of employment by another employer
after the Date of Termination or Reassignment, or otherwise.

     (c) It is the intention of the parties to this  Agreement  that no payments
by the  Bank  to or  for  Employee's  benefit  under  this  Agreement  shall  be
non-deductible  to the Bank by reason of the  operation  of Section  280G of the
Internal Revenue Code. Accordingly,  notwithstanding any other provision hereof,
if by reason of the operation of said Section 280G of the Internal Revenue Code,
any such  payments  exceed the amount  which can be  deducted  by the Bank,  the
amount of such payments shall be reduced to the maximum which can be deducted by
the Bank.  To the extent  that  payments  in excess of the  amount  which can be
deducted by the Bank have been made to and for Employee's benefit, they shall be
refunded with interest at the applicable  rate provided under Section 1274(d) of
the  Internal  Revenue  Code,  or at such other rate as may be required in order
that no such  payment  to or for  Employee's  benefit  shall  be  non-deductible
pursuant  to Section  280G of the  Internal  Revenue  Code.  Any  payments  made
hereunder  which are not deductible by the Bank as a result of losses which have
been carried  forward by the Bank for Federal tax purposes shall not be deemed a
non-deductible amount for purposes of this Section 4(c).


<PAGE>


                                       -5-

     5. Continuation of Insurance Benefits.

     Notwithstanding any other provision in this Agreement to the contrary,  the
Bank and/or its successor shall maintain in full force and effect for Employee's
continued  benefit,  for the two (2) year  period  beginning  upon a  Change  in
Control,  all life  insurance,  medical,  health  and  accident  and  disability
policies, plans, programs or arrangements which were in effect immediately prior
to the Change in Control.

     6. Successors; Binding Agreement.

          (a) The  Bank and the  Holding  Company  will  require  any  successor
     (whether   direct  or  indirect,   by  purchase,   merger,   consolidation,
     acquisition  of assets or assumption of liabilities or otherwise) to all or
     substantially  all of the business  and/or  assets  and/or  deposits of the
     Bank, by agreement, to expressly assume and agree to perform this Agreement
     in the same  manner and to the same  extent that the Bank would be required
     to perform it if no such  succession  had taken place.  Failure of the Bank
     and/or Holding Company to obtain such agreement prior to the  effectiveness
     of any such  succession  shall  be a breach  of this  Agreement  and  shall
     entitle  Employee to  compensation  from the Bank in the same amount and on
     the same terms as he would be entitled to hereunder if his  employment  had
     terminated as a result of a  Termination  or  Reassignment,  as provided in
     Section 3 hereof,  after a Change in Control,  except that for  purposes of
     implementing the foregoing,  the date on which any such succession  becomes
     effective  shall  be  deemed  the  Date  of  Termination.  As  used in this
     Agreement,  "Bank"  shall  mean the Bank as  hereinbefore  defined  and any
     successor  to the  business,  assets  and/or  deposits as  aforesaid  which
     executes and delivers the agreement provided for in this Section 6 or which
     otherwise  becomes bound by all the terms and  provisions of this Agreement
     by operation of law.

          (b) This Agreement shall inure to the benefit of and be enforceable by
     Employee's personal or legal  representatives,  executors,  administrators,
     successors, heirs, distributees,  devisees and legatees. If Employee should
     die after any  rights to  receive  the  amounts  contemplated  hereby  have
     accrued  to  Employee  but before  such  amounts  have been paid,  all such
     amounts, unless otherwise provided herein, shall be paid in accordance with
     the terms of this  Agreement to his devisee,  legatee or other designee or,
     if there be no such designee, to his estate.

     7.  Notices.  All notices  and other  communications  provided  for in this
Agreement  shall be in writing  and shall be deemed to have been duly given when
delivered or mailed by United States registered mail, return receipt  requested,
postage  prepaid,  addressed to the respective  addresses set forth on the first
page of this  Agreement,  provided  that all notices to the Bank and the Holding
Company  shall be  directed  to the  attention  of the Board  with a copy to the
Chairman  of the Board of the Bank and the  Chairman of the Board of the Holding
Company or to such other address as either party may have furnished to the other
in writing in accordance herewith, except that notice of change of address shall
be effective only upon receipt.


<PAGE>


                                       -6-

     8. Miscellaneous. No provision of this Agreement may be modified, waived or
discharged unless such waiver, modification or discharge is agreed to in writing
and signed by Employee and such other officer as may be specifically  designated
by the Board.  No waiver by either party hereto at any time of any breach by the
other or failure to comply with any condition or provision of this  Agreement to
be  performed  by such  other  party  shall be  deemed a waiver  of  similar  or
dissimilar  provisions  or  conditions at the same or at any prior or subsequent
time. No agreements or representations,  oral or otherwise,  express or implied,
with respect to the subject  matter  hereof have been made by either party which
are not expressly  set forth in this  Agreement.  The validity,  interpretation,
construction  and performance of this Agreement shall be governed by the laws of
the State of Connecticut and of the United States of America.

     9. Validity.  The invalidity or  unenforceability  of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement, which shall remain in full force and effect.

     10. Counterparts.  This Agreement may be executed in several  counterparts,
each of which shall be deemed to be an original but all of which  together  will
constitute one and the same instrument.

     11. Arbitration.  Any dispute or controversy arising under or in connection
with this Agreement  shall be settled  exclusively by arbitration in Litchfield,
Connecticut,   in  accordance  with  the  rules  of  the  American   Arbitration
Association then in effect.  Notwithstanding the pendency of any such dispute or
controversy,  the Bank will pay  Employee  promptly an amount  equal to his full
scheduled  compensation in effect when the notice giving rise to the dispute was
given (including, but not limited to, base salary) and provide Employee with all
scheduled   compensation,   benefits  and  insurance   plans  in  which  he  was
participating  when the notice  giving rise to the dispute was given,  until the
dispute is finally  resolved in accordance  with Section 3 hereof.  Amounts paid
under  this  Section  11 are in  addition  to all other  amounts  due under this
Agreement and shall not be offset  against or reduce any other amounts due under
this Agreement.  Judgment may be entered on the arbitrator's  award in any court
having jurisdiction;  provided, however, that Employee shall be entitled to seek
specific  performance  of his  right to be paid  until  the Date of  Termination
during the pendency of any dispute or controversy arising under or in connection
with this Agreement.


<PAGE>


                                       -7-

     Agreed to this 6th day of  August,  1997 by and among  Employee,  The First
National Bank of Litchfield, and First Litchfield Financial Corporation.

                              THE FIRST NATIONAL BANK OF
                              LITCHFIELD

                              By:    /s/ Ernest W. Clock
                                     ----------------------------------------
                              Its:       Chairman
                                         Duly Authorized

                              EMPLOYEE

                              Signature: /s/ Jerome J. Whalen
                                         ------------------------------------
                                         Printed Name: Jerome J. Whalen