FIRST ESSEX BANCORP INC
EXHIBIT 10.17
<DOCUMENT>
<TYPE>EX-10.17
<SEQUENCE>4
<FILENAME>a2042582zex-10_17.txt
<DESCRIPTION>EXHIBIT 10.17
<TEXT>

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                                                                  EXHIBIT 10.17

                   SUPPLEMENTAL EXECUTIVE RETIREMENT AGREEMENT


         This Agreement, made and entered into as of the 1st day of January,
2000 by and among FIRST ESSEX BANK, FSB, a federal savings bank, with its main
office in Lawrence, Massachusetts (the "BANK"), FIRST ESSEX BANCORP, INC., a
Delaware corporation (the "HOLDING COMPANY") and the parent company of the Bank
(the Bank and the Holding Company shall be hereinafter collectively referred to
as the "EMPLOYERS"), and Brian W. Thompson of Amherst, Massachusetts (the
"EXECUTIVE").

                                   WITNESSETH.

         WHEREAS, the Executive is a valuable, key employee of each of the
Employers, serving each of them as their President and Chief Operating Officer;
and

         WHEREAS, because of the Executive's experience, knowledge of the
affairs of the Employers, and reputation and contacts in the banking industry,
the Holding Company deems the Executive's continued employment with the
Employers important for its future growth; and

         WHEREAS, it is the desire of the Holding Company and in its best
interest that the Executive's services with the Employers be retained; and

         WHEREAS, in order to induce the Executive to continue in the employ of
the Employers, the Holding Company has entered into this Agreement to provide
him with certain benefits in accordance with the terms and conditions
hereinafter set forth; and

         WHEREAS, the Holding Company desires to establish a trust (as defined
in Section 1.22, the "TRUST") and to contribute to the Trust certain assets that
shall be held therein, subject to the terms of the Trust, until such time as
benefits have been paid to the Executive and his beneficiaries as specified
herein;

         NOW, THEREFORE, in consideration of services performed in the past and
to be performed in the future as well as of the mutual promises and covenants
herein contained, it is agreed as follows:

PART 1. DEFINITIONS.

             1.1. ACCRUAL-BASED BENEFIT shall mean an amount equal to the
aggregate of all amounts accrued by the Bank or the Holding Company (gross of
any corporate deductions) between the date of this Agreement and the end of the
fiscal year in which the Executive's employment terminates for the cost of the
benefits payable under this Agreement.

             1.2. ACCRUED BENEFIT shall mean the Executive's Normal Retirement
Benefit calculated on the basis of the Final Average Compensation as of the date
on which the Executive's employment with the Employers terminates, multiplied by
the Accrued Percentage.

             1.3. ACCRUED PERCENTAGE. The Accrued Percentage shall not exceed
100% and shall be determined as follows:


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                    (a) The Accrued Percentage shall be 100% if:

                            (1) The Executive terminates his employment with the
                  Employers for Good Reason (as such term is defined in Section
                  1.14); or

                            (2) The Employers terminate the Executive's
                  employment with the Employers for any reason whatsoever other
                  than for "Cause" (as such term is defined in, and in
                  accordance with the procedures set forth in, Section 2.5); or

                            (3) The Executive terminates his employment with
                  Employers at or after the Normal Retirement Date (as such term
                  is defined in Section 1.17); or

                            (4) A Terminating Event (as such term is defined in
                  Section 1.21) occurs within three years of a Change in Control
                  (as such term is defined in Section 1.9).

                    (b) Upon termination for "Cause" the Accrued Percentage
shall be zero;

                    (c) If the Executive resigns from his position as an officer
or employee of the Holding Company without Good Reason prior to the date which
is the second anniversary of the date of this Agreement, the Accrued Percentage
shall be zero; and

                    (d) In all other cases, the Accrued Percentage shall be
determined by deducting from 100% a percentage determined by multiplying (x)
1/13 times (y) the number of whole and partial years between the date on which
the Executive's employment with the Employers or their successor in interest
terminated and the Normal Retirement Date.

             1.4. ACTUARIAL EQUIVALENT shall mean a benefit of equivalent
current value to the benefit which could otherwise have been provided to the
Executive, computed on the basis of the discount rates, mortality tables and
other assumptions then being used by SBERA in determining the actuarial
equivalent of payments being made by SBERA to its Retirement Plan beneficiaries.

             1.5. ACTUARIALLY EQUIVALENT FORM OF PAYMENT. In lieu of the form of
payment otherwise provided in this Agreement, upon request the Executive (or, if
applicable, his Beneficiary) may obtain an Actuarially Equivalent form of
payment; provided that such form is a permitted form of benefit under the SBERA
Pension Plan. Acceptable forms of payment presently include:

                  o        Lump Sum (but only with the permission of the Board)

                  o        Life Annuity

                  o        Joint and 50% Survivor Annuity or Joint and 100%
                           Survivor Annuity

The Executive shall have the right upon becoming a party to this Agreement to
elect the form of payment in which his Supplemental Benefit is to be paid. In
any Calendar Year prior to the year in which amounts become payable hereunder,
and at least six months prior to the Executive's termination of employment, the
Executive may change the form of payment he has elected.

             1.6. ANNUAL ANNUITY EQUIVALENT for a 401(k) plan shall be equal to
the annual benefit payable from a single life annuity on the Executive's life
from a company holding at least an AA rating from Moody's, Standard & Poor's or
an equivalent rating service. For purposes of this

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section, the amount available to invest in said annuity shall be assumed to be
the total of the employer's matching contributions to the 401(k) on the
Executive's behalf, calculated as all amounts actually contributed by the
employer as matching contributions to the 401(k) plus earnings.

             1.7. BENEFICIARY shall mean the person or persons designated by the
Executive in accordance with Section 2.6(b) hereof to receive benefits under
this Agreement after the death of the Executive.

             1.8. CALENDAR YEAR. Any reference to "CALENDAR YEAR" shall mean a
calendar year from January 1 to December 31.

             1.9. CHANGE IN CONTROL shall have the meaning set forth in the
Special Termination Agreement as such Agreement is in effect on the date hereof.

             1.10. COMPENSATION shall mean all compensation reported on the
Executive's Form W-2 (Wages, tips, other compensation box) for a Calendar Year,
including, but not limited to, any bonuses actually paid by the Employers to the
Executive during the Calendar Year, but adding thereto any amount which is
contributed by the Employers on the Executive's behalf pursuant to a salary
reduction agreement and which is not includable in the Executive's gross income
under section 125, 402(e)(3), 402(h), or 403(b) of the Internal Revenue Code of
1986, as amended ("CODE"), and excluding therefrom any taxable employee benefits
of any kind (e.g., reimbursements of moving and relocation expenses, insurance
premiums, automobile, health, medical, and dental expenses, the cost of
group-term life insurance, compensation arising from the exercise of a
nonqualified stock option or from a stock grant, and any fringe benefit which is
not excluded from gross income under Section 132 of the Code).

             1.11. EFFECTIVE DATE. The Effective Date of this Agreement shall be
January 1, 2000.

             1.12. EMPLOYMENT AGREEMENT shall mean that certain Employment
Agreement dated as of December 16, 1999 by and between the Executive and the
Holding Company, as in effect on the date hereof.

             1.13. FINAL AVERAGE COMPENSATION shall mean the average of the
Compensation of the Executive for the two Calendar Years during his final ten
Calendar Years of employment with the Holding Company or any predecessor entity
during which his Compensation was the highest.

             1.14. GOOD REASON. Good Reason shall mean any of the following:

                    (a) the failure of the Board of Directors of either of the
Employers to continue the Executive as President and Chief Operating Officer of
the Employers;

                    (b) any failure by the Employers to timely pay the amounts
or provide the benefits described in the Employment Agreement or this Agreement,
other than an isolated failure not occurring in bad faith and which is remedied
promptly after receipt of written notice thereof given by Executive;

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                    (c) any reduction in the Executive's base salary or any
material reduction in other benefits in effect for the Executive on the date
hereof;

                    (d) a material breach by the Employers of any of the
provisions of the Employment Agreement or this Agreement which failure or breach
shall have continued for thirty (30) days after written notice from the
Executive to the Employers specifying the nature of such failure or breach; and

                    (e) the failure of either Employer to obtain satisfactory
agreement from any successor to assume and agree to perform this Agreement.

In addition, "GOOD REASON" shall include the following events but only if they
shall occur within three years following a "CHANGE IN CONTROL":

                    (f) there occurs any material change to the Executive's
function, duties, or responsibilities in effect on the date hereof or as set
forth in this Agreement, which change would cause the Executive's position to
become one of lesser responsibility, importance, or scope from the position and
attributes thereof in effect on the date hereof or as set forth in the
Employment Agreement;

                    (g) the failure by the Employers to continue to provide the
Executive with benefits substantially similar to those available to the
Executive under any of the life insurance, medical, health and accident, or
disability plans or any other material benefit plans in which the Executive was
participating at the time of the Change in Control, or the taking of any action
by the Employers which would directly or indirectly materially reduce any of
such benefits, or the failure by the Employers to provide the Executive with the
number of paid vacation days to which the Executive is entitled on the basis of
years of service with the Employers in accordance with the Employers' normal
vacation policy in effect at the time of the Change in Control;

                    (h) the relocation of the Employers' offices at which the
Executive is principally employed immediately prior to the date of the Change in
Control to a location more than 25 miles from Andover, Massachusetts, or either
Employers' requiring the Executive to be based anywhere other than the
Employers' offices at such location;

                    (i) a reasonable determination by the Executive that, as a
result of a Change in Control, he is unable to exercise the responsibilities,
authorities, powers, functions or duties exercised by the Executive immediately
prior to such Change in Control; or

                    (j) A reasonable determination by the Executive that, as a
result of a Change in Control, his working conditions have significantly
worsened.

             1.15. NORMAL RETIREMENT AGE. Normal Retirement Age shall mean the
date on which the Executive attains age sixty-two (62).

             1.16. NORMAL RETIREMENT BENEFIT shall mean a single life annuity
payable (as provided hereinafter in this Section 1.16) as an annual supplemental
retirement benefit ("SUPPLEMENTAL BENEFIT"). The amount of such Supplemental
Benefit shall be calculated by (x) multiplying (i) 65% times (ii) the
Executive's Final Average Compensation and by (y) subtracting from such result
the following: (i) one half of the annual amount payable (before earnings

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reductions) to the Executive as a primary social security retirement benefit at
age 62, (ii) the annual pension payable to the Executive (excluding any pension
payable to the Executive that is attributable to the Executive's own
contributions) from defined benefit pension plans of the Employers or any
Previous Employer (as defined in Section 1.18) at his Normal Retirement Date, as
if such pension were paid as a single-life annuity, and (iii) the Annual Annuity
Equivalent (computed as of the Normal Retirement Date) for any defined
contribution plans (including 401(k) plans) maintained by either Employer or any
Previous Employer during the Executive's employment. The Normal Retirement
Benefit shall be an annual benefit in an amount equal to the Supplemental
Benefit payable in equal monthly installments commencing on the Normal
Retirement Date and continuing for the Executive's life.

             1.17. NORMAL RETIREMENT DATE shall mean the later to occur of (a)
the date upon which the Executive attains the Normal Retirement Age and (b) the
date on which the Executive ceases to be actively employed as an executive
officer by the Holding Company.

             1.18. PREVIOUS EMPLOYER shall mean Shawmut Bank and its
predecessors in interest, as well as any entities acquired thereby.

             1.19. SBERA means the Savings Banks Employees Retirement
Association.

             1.20. SPECIAL TERMINATION AGREEMENT shall mean that certain Special
Termination Agreement by and between the Executive and the Holding Company dated
as of December 30, 1996, as amended December 16, 1999.

             1.21. TERMINATING EVENT. A "TERMINATING EVENT" shall mean any of
the following:

                    (a) Termination by either of the Employers of the employment
of the Executive with either or both of the Employers for any reason other than
(i) death or (ii) for Cause (as such term is defined in Section 2.5), or

                    (b) Resignation of the Executive, with Good Reason, from the
employ of either of the Employers, while the Executive is not receiving payments
or benefits from either of the Employers by reason of the Executive's
disability.

             1.22. TRUST AND TRUSTEE. Trustee shall mean the trustee to be
appointed under that certain Trust Agreement ("TRUST") under the First Essex
Bancorp Supplemental Executive Retirement Plan to be entered into by the Holding
Company.

PART 2. BENEFITS.

             2.1. TERMINATION OF SERVICE AT NORMAL RETIREMENT DATE. If the
Executive terminates service as an employee of the Employers (other than for
"CAUSE") on or after the Normal Retirement Date, he shall receive a Normal
Retirement Benefit. He shall commence to receive such Normal Retirement Benefit
at the later to occur of (x) his Normal Retirement Age and (y) the date on which
his employment terminates.

             2.2. TERMINATION OF SERVICE BEFORE NORMAL RETIREMENT AGE. If the
Executive's service as an employee of the Employers terminates (other than by
reason of death or for "Cause",

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as such term is defined in Section 2.5) before his Normal Retirement Date, he
shall be entitled to receive his Accrued Benefit (it being understood that his
Accrued Benefit will be zero under certain circumstances if the Executive
resigns before the date which is the second anniversary of the Effective Date of
this Agreement). He shall commence to receive such Accrued Benefit at his Normal
Retirement Age or, if he so elects and the Board consents, he may commence to
receive the Actuarial Equivalent of such Accrued Benefit at an earlier date. In
the event that the Executive requests permission to commence receiving the
Actuarial Equivalent of his Accrued Benefit before his Normal Retirement Age and
the Board refuses to grant permission for such early commencement of payments,
the Executive may request the Board to reconsider its decision. If the Board has
not agreed to permit such early payment by a date which is thirty days after the
request for reconsideration was made, the Executive shall have the right to
receive upon written application to the Holding Company the Actuarial Equivalent
of such Accrued Benefit, less a penalty of 7%. If the Executive begins to
receive his Accrued Benefit prior to attaining his Normal Retirement Age, the
benefit shall be the Actuarial Equivalent of the benefit that would have been
payable if the benefit had been paid at the Executive's Normal Retirement Age.

             2.3. DISABILITY.

                    (a) In the event that the Executive shall become "disabled"
(as defined below) while in the employ of the Holding Company and prior to his
Normal Retirement Date, he shall become vested in his Accrued Benefit, computed
at the time of the Executive's disability with an Accrued Percentage of 100%. He
shall commence to receive such Accrued Benefit at his Normal Retirement Age or,
if he so elects and the Board consents, he may commence to receive the Actuarial
Equivalent of such Accrued Benefit at an earlier date. In the event that the
Executive requests permission to commence receiving the Actuarial Equivalent of
the Accrued Benefit before his Normal Retirement Age and the Board refuses to
grant permission for such early commencement of payments, the Executive may
request the Board to reconsider its decision. If the Board has not agreed to
permit such early payment by a date which is 15 days after the request for
reconsideration was made, the Executive shall have the right to receive upon
written application to the Holding Company the Actuarial Equivalent of the
Accrued Benefit, less a penalty of 7%. Payments under this Section 2.3 shall be
in addition to any payments otherwise payable to the Executive as a result of
disability under any other plans or agreements in effect from time to time.

                    (b) The Executive shall be considered to be "DISABLED" when
he is no longer capable of performing the material aspects of his employment
duties for the Holding Company as a result of physical and/or mental impairment.
The Executive shall be considered to be no longer "disabled" at such time as he
returns to work in a position with responsibilities comparable to those inherent
in the position in which he was employed on the date he became "disabled."

                    (c) If the Executive recovers from his disability and
returns to the employ of the Holding Company, his disability benefit shall
terminate and upon his subsequent termination of service as an employee of the
Bank or Holding Company he shall be entitled to such retirement or termination
benefits as he would otherwise have been entitled to if he had been employed by
the Bank or Holding Company throughout his period of disability, as
appropriately adjusted to reflect any benefits previously paid under this
Section 2.3. For purposes of the accrual of benefits under this Agreement, time
spent on disability shall be deemed to be time spent as an employee of the Bank
or Holding Company.

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                    (d) In the event there is disagreement as to whether the
provisions of this Section 2.3 are applicable, the Holding Company and the
Executive (or his personal representative) each shall select a physician. If the
physicians are in disagreement, they shall select a third physician. A majority
opinion of the three physicians as to disability shall be binding on all the
parties hereto. The parties agree that the Holding Company will, regardless of
the outcome of this procedure, reimburse the Executive (or his surviving spouse
or Beneficiary, as the case may be) for the reasonable and necessary fees and
costs directly attributable to such procedure.

             2.4. NO BENEFITS UPON DISCHARGE FOR CAUSE. Should the Executive be
discharged for Cause in accordance with the procedures set forth in Section 2.5
at any time (before or after his Normal Retirement Age), all Benefits under Part
2 of this Agreement shall be forfeited. If a dispute arises as to discharge for
"Cause", such dispute shall be resolved by arbitration as set forth in Section
3.10 of this Agreement.

             2.5. DISCHARGE FOR CAUSE.

                    (a) CAUSE. Termination for "Cause" shall mean

                           (1) committing fraud, misappropriation or
                  embezzlement in the performance of duties as an employee of
                  the Bank or the Holding Company;

                           (2) conviction of a felony involving a crime of moral
                  turpitude; or

                           (3) willfully engaging in violations of material
                  banking regulations.

For purposes of this provision, no act or failure to act, on the part of the
Executive, shall be considered "willful" unless it is done, or omitted to be
done, by the Executive in bad faith or without reasonable belief that the
Executive's action or omission was in the best interests of the Holding Company.
Any act, or failure to act, based upon authority given pursuant to a resolution
duly adopted by the Board or upon the instructions of the Chief Executive
Officer (if Executive is not the Chief Executive Officer) or a senior officer of
the Holding Company or based upon the advice of counsel for the Holding Company
shall be conclusively presumed to be done, or omitted to be done, by the
Executive in good faith and in the best interests of the Holding Company.
Notwithstanding the foregoing, the Executive shall not be deemed to have been
discharged for "Cause" unless and until there shall have been delivered to him a
copy of a certification by the Clerk of the Holding Company that two-thirds of
the entire Board of Directors of the Holding Company found in good faith that
the Executive was guilty of conduct which is deemed to be Cause as defined in
this Section 2.5 and specifying the particulars thereof, after reasonable notice
to the Executive setting forth in reasonable detail the nature of such Cause and
an opportunity for him together with his counsel, to be heard before the Board
in accordance with the provisions of Section 2.5(b).

                    (b) BOARD TERMINATION PROCEDURE. In each case, in
determining Cause the alleged acts or omissions of the Executive shall be
measured against standards prevailing in the Holding Company industry generally
and the ultimate existence of Cause must be confirmed by not less than
two-thirds of the Board as a meeting prior to any termination therefor;
provided, however, that it shall be the Holding Company's burden to prove the
alleged facts and omissions and the prevailing nature of the standards the
Holding Company shall have alleged are violated by

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such acts and/or omissions of the Executive. In the event of such a confirmation
by two-thirds or more of the Board, the Holding Company shall notify the
Executive that the Holding Company intends to terminate the Executive's
employment for Cause under this Section 2.5 (the "CONFIRMATION NOTICE"). The
Confirmation Notice shall specify the acts or omissions upon the basis of which
the Board has confirmed the existence of Cause and must be delivered to the
Executive within ninety (90) days after a majority of the Board (excluding, if
applicable, the Executive) has actual knowledge of the events giving rise to
such purported termination. If the Executive notifies the Holding Company in
writing (the "OPPORTUNITY NOTICE") within thirty (30) days after the Executive
has received the Confirmation Notice, the Executive (together with counsel)
shall be provided one opportunity to meet with the Board (or a sufficient quorum
thereof) to discuss such acts or omissions. Such meeting shall take place at the
principal offices of the Holding Company or such other location as agreed to by
the Executive and the Holding Company. During the period commencing on the date
the Holding Company receives the Opportunity Notice and ending on the date next
succeeding the date on which such meeting between the Board (or a sufficient
quorum thereof) and the Executive is scheduled to occur and not withstanding
anything to the contrary in this Agreement, the Executive shall be suspended
from employment with the Holding Company (with pay to the extent not prohibited
by applicable law) and the Board may, during such suspension period, reasonably
limit the Executive's access to the principal offices of the Holding Company or
any of its assets. If the Board properly sets the date of such meeting and if
the Board (or a sufficient quorum thereof) attends such meeting and in good
faith does not rescind its confirmation of Cause at such meeting or if the
Executive fails to attend such meeting for any reason, the Executive's
employment by the Holding Company shall, immediately upon the closing of such
meeting and the delivery to the Executive of the Notice of Termination, be
terminated for Cause. If the Executive does not respond in writing to the
Confirmation Notice in the manner and within the time period specified in this
Section 2.5(b), the Executive's employment with the Holding Company shall, on
the thirty-first day after the receipt by the Executive of the Confirmation
Notice, be terminated for Cause under this Section 2.5.

             2.6. DEATH.

                    (a) DEATH BENEFIT. If (i) the Executive dies prior to the
termination of his employment with the Employers or (ii) the Executive's
employment with the Employers has been terminated by reason of his having become
disabled and he subsequently dies prior to reaching the age of 65 without having
received any Benefits under Part 2 of this Agreement, then a death benefit shall
be payable to the Executive's Beneficiary commencing not later than sixty days
following the death of the Executive. The death benefit shall be a lump sum
equal to the Accrual-Based Benefit, or the Actuarial Equivalent thereof as
provided in Section 1.5). No Death Benefit will be payable to the Executive's
Beneficiary upon the death of the Executive after commencement of benefits
hereunder, unless an optional form of payment providing for such payment is in
effect under Section 1.5. Benefits paid under this Section 3.1 shall be in lieu
of any other benefit otherwise payable under this Agreement.

                    (b) BENEFICIARY DESIGNATION PROCEDURE. The Executive may
designate one or more Beneficiaries to receive specified percentages of any
death benefit payments to be paid hereunder. The Executive shall designate any
such Beneficiaries in writing and shall submit such writing to the Treasurer of
the Holding Company. Only designated Beneficiaries alive at the Executive's
death shall be entitled to share in the benefit payments. Absent a contrary
specification by the Executive in writing submitted to the Treasurer of the
Holding Company,

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each Beneficiary alive at the Executive's death (or, in the case of the
Beneficiary's death after the Executive's death, the Beneficiary's estate) shall
share equally in death benefit payments. If no designated Beneficiary is alive
at the Executive's death, his surviving spouse shall be entitled to all death
benefit payments. If the Executive dies leaving neither a designated Beneficiary
nor a surviving spouse, his estate shall be entitled to any death benefit
payments except to the extent specifically provided in this Section 2.6.

PART 3. ADDITIONAL PROVISIONS.

             3.1. RABBI TRUST. Upon a Change in Control, the Holding Company
shall, as soon as possible, but in no event later than 30 days following the
Change in Control, make an irrevocable contribution to the Trust in an amount
that is sufficient, as determined by an actuary appointed by the Trustee, to pay
the Executive or his Beneficiary the full benefits to which he or she would be
entitled pursuant to the terms of this Agreement as of the date on which the
Change in Control occurred assuming that (x) the Accrued Percentage was 100%,
(y) a Terminating Event had occurred with respect to the Executive as of the
date of the Change in Control, and (z) the Board had agreed to pay such benefits
to the Executive or his Beneficiary, on an Actuarial Equivalent basis, as of the
date of the Change in Control. Within the same time period following a Change in
Control, the Holding Company shall make a further irrevocable contribution to
the Trust in an amount sufficient to pay for the Trustee's fees and for
actuarial, accounting, legal and other professional or administrative services
necessary to implement the terms of this Agreement following a Change in
Control. Such amount shall be determined by the Trustee's estimate of its fees
(as provided in the Trust Agreement) and by estimates obtained by the Trustee
from the independent actuaries, accountants, lawyers and other appropriate
professional and administrative personnel who provided such services to the
Trust or the Holding Company immediately before the Change in Control.

             3.2. ALIENABILITY AND ASSIGNMENT PROHIBITION. Neither the
Executive, his surviving spouse nor any other Beneficiary under this Agreement
shall have any power or right to transfer, assign, anticipate, hypothecate,
mortgage, commute, modify or otherwise encumber in advance any of the benefits
payable hereunder nor shall any of said benefits be subject to seizure for the
payment of any debts, judgments, alimony or separate maintenance owed by the
Executive or his Beneficiary, nor be transferable by operation of law in the
event of bankruptcy, insolvency or otherwise. In the event the Executive or any
Beneficiary attempts assignment, commutation, hypothecation, transfer or
disposal of the benefits hereunder, the Holding Company's liabilities shall
forthwith cease and terminate.

             3.3. BINDING OBLIGATION OF HOLDING COMPANY AND ANY SUCCESSOR IN
INTEREST. This Agreement shall bind the Executive and the Holding Company, their
heirs, successors, personal representatives and assigns. The Holding Company
expressly agrees that it shall not merge or consolidate into or with another
entity or sell substantially all of its assets to another bank, firm or person
until such entity, firm or person expressly agrees, in writing, to assume and
discharge the duties and obligations of the Holding Company under this
Agreement.

             3.4. AMENDMENT. During the lifetime of the Executive, this
Agreement may be amended only with the mutual written assent of the Executive
and the Holding Company.


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             3.5. GENERAL. The benefits provided by the Holding Company to the
Executive pursuant to this Agreement are in the nature of a fringe benefit and
shall in no event be construed to affect or limit the Executive's current or
prospective salary increases, cash bonuses or profit-sharing distributions or
credits or his right to participate in or be covered by any qualified or
non-qualified pension, profit-sharing, group, bonus or other supplemental
compensation or fringe benefit plan.

             3.6. HEADINGS. Headings and subheadings in this Agreement are
inserted for reference and convenience only and shall not be deemed a part of
this Agreement.

             3.7. APPLICABLE LAW. This Agreement shall be governed by, and
construed and enforced in accordance with, the substantive laws of The
Commonwealth of Massachusetts without regard to its principles of conflicts of
laws.

             3.8. NAMED FIDUCIARY AND PLAN ADMINISTRATOR. The "NAMED FIDUCIARY
AND PLAN ADMINISTRATOR" of this plan shall be First Essex Bancorp until its
removal by the Board. As Named Fiduciary and Plan Administrator, the Holding
Company shall be responsible for the management, control and administration of
the benefits to be provided under this Agreement. The Named Fiduciary may
delegate to others certain aspects of the management and operation
responsibilities of the plan including the employment of advisors and the
delegation of ministerial duties to qualified individuals.

             3.9. CLAIMS PROCEDURE.

                    (a) In the event a dispute arises over benefits under this
Agreement and benefits are not paid to the Executive (or to his Beneficiary in
the case of the Executive's death) and such claimants feel they are entitled to
receive such benefits, then a written claim must be made to the Plan
Administrator named above within sixty (60) days from the date payments are
refused. The Plan Administrator shall review the written claim and if the claim
is denied, in whole or in part, they shall provide in writing within sixty (60)
days of receipt of such claim their specific reasons for such denial, reference
to the provisions of this Agreement upon which the denial is based and any
additional material or information necessary to perfect the claim. Such written
notice shall further indicate the additional steps to be taken by claimants if a
further review of the claim denial is desired. A claim shall be deemed to have
been denied if the Plan Administrator fails to take any action within the
aforesaid ninety-day period.

                    (b) If claimants desire a second review they shall notify
the Plan Administrator in writing within ninety (90) days of the first claim
denial. Claimants may review this Agreement or any documents relating thereto
and submit any written issues and comments they may feel appropriate. In its
sole discretion, the Plan Administrator shall then review the second claim and
provide a written decision within sixty (60) days of receipt of such claim. This
decision shall likewise state the specific reasons for the decision and shall
include reference to specific provisions of this Agreement upon which the
decision is based.

             3.10. ARBITRATION. Any controversy or claim arising out of or
relating to the Agreement, or the breach thereof, or any failure to agree where
agreement of the parties is necessary pursuant hereto, including the
determination of the scope of this agreement to arbitrate, shall be resolved by
the following procedures:

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                    (a) The parties agree to submit any dispute to final and
binding arbitration administered by the American Arbitration Association (the
"AAA"), pursuant to the Commercial Arbitration Rules of the AAA as in effect at
the time of submission. The arbitration shall be held in Boston, Massachusetts
before a single neutral, independent, and impartial arbitrator (the
"ARBITRATOR").

                    (b) Unless the parties have agreed upon the selection of the
Arbitrator before then, the AAA shall appoint the Arbitrator within thirty (30)
days after the submission to AAA for binding arbitration. The arbitration
hearings shall commence within fifteen (15) days after the selection of the
Arbitrator. Each party shall be limited to two pre-hearing depositions each
lasting no longer than two (2) hours. The parties shall exchange documents to be
used at the hearing no later than ten (10) days prior to the hearing date. Each
party shall have no longer than three (3) hours to present its position, and the
entire proceedings before the Arbitrator shall be on no more than two (2)
hearing days within a two week period. The award shall be made no more than ten
(10) days following the close of the proceeding. The Arbitrator's award shall
not include consequential, exemplary, or punitive damages. The Arbitrator's
award shall be a final and binding determination of the dispute and shall be
fully enforceable in any court of competent jurisdiction. Except in a proceeding
to enforce the results of the arbitration, neither party nor the Arbitrator may
disclose the existence, content, or results of any arbitration hereunder without
the prior written consent of both parties.

             3.11. ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement between the parties pertaining to its subject matter and supersedes
all prior and contemporaneous agreements, understandings, negotiations, prior
draft agreements, and discussions of the parties, whether oral or written.

             3.12. INTERPRETATION. Unless otherwise indicated or the context
otherwise requires, throughout this Agreement, references to Sections or
Exhibits refer to Sections of or Exhibits to this Agreement. References to
Sections include subsections, which are part of the related Section (e.g., a
section numbered "Section 5.5.1" would be part of "Section 5.5" and references
to "Section 5.5" would also refer to material contained in the subsection
described as "Section 5.5.1"). The recitals hereto constitute an integral part
of this Agreement. The headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement. Whenever the words "include", "includes" or "including" are used
in this Agreement, they shall be deemed to be followed by the words "without
limitation". The phrases "the date of this Agreement", "the date hereof" and
terms of similar import, unless the context otherwise requires, shall be deemed
to refer to the date set forth in the Preamble to this Agreement.

             3.13. EMPLOYMENT. No provision of this Agreement shall be deemed to
restrict or limit any existing employment agreement by and between the Holding
Company and the Executive, nor shall any conditions herein create specific
employment rights to the Executive nor limit the right of the Holding Company to
discharge the Executive with or without Cause. In a similar fashion, no
provision shall limit the Executive's rights to voluntarily terminate his
employment at any time. The benefits provided by this Agreement are not part of
any salary reduction plan or any arrangement deferring a bonus or salary
increase. The Executive has no option to take any current payment or bonus in
lieu of these benefits.

                                       11

<PAGE>

             3.14. NON-COMPETE. In the event that the Executive's employment is
terminated for any reason prior to a Change in Control (as defined in the
Employment Agreement) and the Executive is entitled to receive benefits pursuant
to this Agreement, then during the period from the date of the termination of
the Executive's full-time employment with the Employers until all of the
benefits to which the Executive is entitled under the Agreement have been paid,
the Executive shall not directly or indirectly, whether as owner, partner,
shareholder, consultant, agent, employee, co-venturer, or otherwise, or through
any individual, corporation, association, partnership, estate, trust, or any
other entity or organization, compete in the Bank's market area (defined as all
cities and towns in which the Bank or an affiliate has an office or a branch on
the date of termination and all areas within a ten mile radius of each such
office and branch) with the banking or any other business conducted by the
Employers during the course of his employment, nor will he attempt to hire any
employee of the Employers, assist in such hiring by any other person or entity,
encourage any such employee to terminate his or her relationship with the
Employers, or solicit or encourage any customer of the Employers to terminate
his relationship with the Employers or to conduct with any other person or
entity any business or activity which such customer conducts or could conduct
with the Employers. For purposes of this Section 3.14, the Executive shall not
be deemed to be competing with the Employers if he is employed outside of the
Employers' market area for a bank or a corporation which has its headquarters
outside of the Employers' market area, even if such bank or corporation has a
branch or office in the Employers' market area.

             3.15. COMMUNICATIONS. All notices and other communications
hereunder shall be in writing and shall given by hand, sent by facsimile
transmission with confirmation of receipt requested, sent via a reputable
overnight courier service with confirmation of receipt requested, or mailed by
registered or certified mail (postage prepaid and return receipt requested) to
the parties at the their respective addresses set forth below (or at such other
address for a party as shall be specified by like notice), and shall be deemed
given on the date on which delivered by hand or otherwise on the date of receipt
as confirmed:







                                       12


<PAGE>

                            To the Employers:

                                   First Essex Bancorp, Inc.
                                   71 Main Street
                                   Post Office Box 2070
                                   Andover, Massachusetts 01810
                                   Attention: Chairman

                            To the Executive:

                                   Brian W. Thompson
                                   ___________________________
                                   ___________________________
                                   ___________________________


         IN WITNESS WHEREOF, the parties have executed this Agreement as an
instrument under seal, as of the date first written above.

                                          FIRST ESSEX BANCORP, INC.


                                          By:
                                             ----------------------------------
                                               Title



                                          FIRST ESSEX BANK, FSB


                                          By:
                                             ----------------------------------
                                               Title


                                           ------------------------------------
                                            Brian W. Thompson





                                       13
<PAGE>


                          BENEFICIARY DESIGNATION FORM


PRIMARY DESIGNATION:

Name                                        Relationship

_____________________________________       _________________________
_____________________________________       _________________________
_____________________________________       _________________________


CONTINGENT DESIGNATION:

_____________________________________       _________________________
_____________________________________       _________________________
_____________________________________       _________________________


FORM OF PAYMENT

                  ?        Lump Sum (but only with the permission of the Board)
                  ?        Life Annuity
                  ?        Joint and 50% Survivor Annuity
                  ?        Joint and 100% Survivor Annuity


_____________________________________       _________________________
Brian W. Thompson                           Date











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</TEXT>
</DOCUMENT>
