FINANCIAL INSTITUTION EXECUTIVE'S AGREEMENT

 

               FINANCIAL INSTITUTION EXECUTIVE'S AGREEMENT

 

                                    Agreement

 

     AGREEMENT   made this 8th day of December 2005, by and between SOUND FEDERAL

SAVINGS,   which has its principal office at 1311 Mamaroneck   Avenue,   Suite 190,

White Plains,   New York   (hereinafter   referred to as the "Bank") and RICHARD P.

McSTRAVICK (hereinafter referred to as the "Employee").   Any reference herein to

"Company" shall mean Sound Federal Bancorp, Inc., a Delaware corporation, or any

successor thereto.

 

                                   Witnesseth:

 

     WHEREAS,   the Employee is President and Chief Executive Officer of the Bank

and has   developed   an intimate and   thorough   knowledge of the Bank's   business

methods and operations; and

 

     WHEREAS,   the retention of the Employee's services for and on behalf of the

Bank is of material   importance to the preservation and enhancement of the value

of the Bank's business; and

 

     WHEREAS,   the Employee is presently employed under an employment   agreement

entered   into on December   31,   1997,   amended,   on January 20, 1999 (the "Prior

Agreement"); and

 

     WHEREAS,   the   Bank   and   the   Employer   desires   to   further   revise   such

employment   agreement to bring the Prior   Agreement into compliance with Section

409A of the Internal Revenue Code (the "Code").

 

     NOW, THEREFORE,   in consideration of the mutual covenants set forth in this

Agreement, the Bank and the Employee agree as follows:

 

     Section 1. Employment   Term. The Bank employs the Employee as President and

Chief Executive   Officer and the Employee   accepts this employment and agrees to

render   services   to the Bank on the   terms   and   conditions   set   forth in this

Agreement.   Commencing on January 1, 2006 (the   "Anniversary   Date" of the Prior

Agreement),   and continuing at each Anniversary   Date thereafter,   the Agreement

shall renew for an additional   year such that the remaining   term shall be three

(3) years unless   written notice is provided to Executive at least ten (10) days

and not more than sixty (60) days prior to any such   Anniversary   Date, that his

employment   shall   cease at the end of   thirty-six   (36) months   following   such

Anniversary   Date.   Prior to each notice   period for   non-renewal,   the Board of

Directors   ("Board")   of the   Bank   will   conduct   a   comprehensive   performance

evaluation   and review of the Executive for purposes of   determining   whether to

extend the Agreement,   and the results   thereof shall be included in the minutes

of the Board's meeting.

 

     Section 2. Duties.   The Employee shall perform   executive   services for the

Bank as may be   consistent   with the   Employee's   title,   along with those other

duties that may be assigned   from time to time by the Bank's Board of Directors.

During this Agreement's term, the Employee's full business time and best efforts

shall be devoted to the affairs   and   business   of the Bank,   as is   customarily

required for the position of President and Chief Executive Officer. The services

of the Employee shall be rendered   principally in White Plains, New York but the

Employee   shall do any   traveling   and render   services at such other present or

future offices on behalf of the Bank as may be reasonably required.

 

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     Section   3.   Restricted    Activities.    The   Employee   agrees   that   during

employment,   except with the express   consent of the Bank's Board of   Directors,

the Employee will not, directly or indirectly,   engage or participate in, become

a director of, or render advisory or other services for, or in connection   with,

or   become   interested   in,   or   make   any   financial   investment   in any   firm,

corporation,   business   entity   or   business   enterprise   competitive   with   any

business   of the   Bank;   provided,   however,   that   the   Employee   shall   not be

precluded or prohibited from owning passive investments,   including   investments

in the securities of other financial institutions, so long as ownership does not

require the Employee to devote   substantial time to management or control of the

other business or activities in which the Employee has invested.

 

     Section 4. Remedies. The Employee agrees and acknowledges that by virtue of

this employment,   the Employee will obtain and maintain an intimate knowledge of

the   Bank's    activities   and   affairs,    including    trade   secrets   and   other

confidential   matters. As a result, and also because of the special,   unique and

extraordinary   services that the Employee is capable of performing   for the Bank

or one of its   competitors,   the   Employee   recognizes   that the   services to be

rendered   are of a   character   giving them a peculiar   value,   the loss of which

cannot be   adequately   or reasonably   compensated   for by damages.   The Employee

agrees that if the Employee   fails to render to the Bank the services   required,

the Bank shall be entitled to immediate   injunctive or other equitable relief to

restrain the Employee,   in addition to any other   remedies to which the Bank may

be entitled under law.

 

     Section 5. Compensation.   The Bank will compensate and pay the Employee for

the Employee's   services during this   Agreement's   term a minimum base salary of

Two Hundred Sixty- Five Thousand Dollars ($265,000) for the year ending December

31, 2006.   Subsequent annual salary in amounts determined by the Bank's Board of

Directors from year to year shall be memorialized by a duly executed Addendum to

be appended hereto.

 

     Section 6.   Vacation.   The Employee shall be entitled to a vacation of four

(4) weeks per calendar year,   arranged to coordinate with the Employee's duties.

If for any reason the Employee's   full   entitlement is not taken in any calendar

year,   the unused portion   thereof shall be lost or deemed waived.   The Employee

shall also be entitled to observe holidays on which the Bank is closed.

 

     Section 7.   Benefits.   The Employee shall be entitled to participate in any

Bank plan relating to pension,   profit sharing,   or other   retirement   benefits,

along with any medical,   dental,   and life insurance   coverage or   reimbursement

plans that the Bank may adopt for its employees. The Employee shall be permitted

to participate in the Bank's medical,   dental,   and life insurance   coverage and

reimbursement   plans to the extent that such plans exist and as constituted from

time   to   time   until   the   Employee's   death;   provided,   however,   that if the

employment   of the Employee is   terminated by the Employee for "good reason" (as

defined in Section   11(g) hereof) or by the Bank other than for "just cause" (as

defined in Section 11(a) hereof) prior to the   attainment of age 70, he shall be

entitled   to   participate   in such plans until age 70, to the same extent as set

forth in Section 11(l) hereof

 

     Section   8.   Disability.   (a) If the   Employee   shall   become   disabled   or

incapacitated to the extent that the Employee is unable to perform the duties of

President and Chief   Executive   Officer,   the Employee shall continue to receive

 

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the following   percentages of compensation,   exclusive of any benefits which may

be in   effect   for Bank   employees   under   this   Agreement's   Section   7 for the

following   periods of the Employee's   disability:   100 percent for the first six

(6) months, and 60 percent thereafter for this Agreement's   remaining term. Upon

returning   to   active   service   on   a   full-time    basis,   the   Employee's   full

compensation   shall be reinstated on a "go forward"   basis.   Should the Employee

return to active employment on other than a full-time basis, then the Employee's

compensation   for the remainder of the then existing term of employment,   as set

forth in Section   5,   shall be   reduced   on such   terms as the   Bank's   Board of

Directors shall determine.

 

     (b) There shall be deducted   from the amounts   paid to the   Employee   under

this Section   during any period of disability   any amounts   actually paid to the

Employee pursuant to any disability   insurance,   workers'   compensation or other

similar   program that the Bank has   instituted or may institute on behalf of its

employees   for the   purpose   of   compensating   the   Employee   for a   disability,

including   those   payable   under   disability   insurance   policies   covering   the

Employee issued by Commercial Union Insurance Company or any successor issuer(s)

or   policies,   but the Bank shall   continue   the   program of   reimbursement   and

payment of premiums as previously conducted.

 

     (c) For purposes of this Agreement,   and except to the extent prohibited by

Code Section 409A, the Employee shall be deemed disabled or incapacitated if the

Employee,   due to physical or mental illness, shall have been absent from duties

with the Bank on a full-time   basis for thirty (30) days provided,   that, if the

Employee shall not agree with a determination   to terminate the Employee because

of disability or   incapacity,   the question of the   Employee's   ability shall be

submitted to an impartial   and reputable   physician   selected by the parties and

such physician's determination regarding disability or incapacity shall be final

and binding.

 

     Section 9. Stock Options.   During this Agreement's   term, the Employee will

be entitled to   participate   in and   receive the   benefits of any stock   option,

profit sharing, or other plans,   benefits, and privileges given to employees and

executives of the Bank or its   subsidiaries   and   affiliates   that may come into

existence   to the   extent   commensurate   with the   Employee's   then   duties   and

responsibilities,   as fixed by the Bank's Board of Directors or any Committee of

the Board or of the Bank   selected   for this   purpose;   and,   to the   extent the

Employee is otherwise   eligible and qualifies,   to so participate in and receive

these   benefits   or   privileges.   The Bank   shall not make any   changes in these

plans,   benefits or privileges that would adversely affect the Employee's rights

or benefits   unless the change   occurs   pursuant to a program   applicable to all

Bank executive officers and does not result in a proportionately greater adverse

change in the rights of or benefits to the   Employee as compared   with any other

Bank   executive   officer.   Nothing   paid   to the   Employee   under   any   plan   or

arrangement   presently in effect or made available in the future shall be deemed

to be in lieu of the salary payable to the Employee pursuant to Section 5.

 

     Section 10.   Expenses.   The Bank shall   reimburse the Employee or otherwise

provide   for or pay for all   reasonable   expenses   incurred   by the   Employee in

furtherance of, or in connection with, the Bank's business,   including,   but not

by way of   limitation,   automobile   and   traveling   expenses and all   reasonable

entertainment   expenses   whether   incurred at the   Employee's   residence,   while

traveling, or otherwise, subject to reasonable limitations as may be established

by the Bank's Board of Directors,   provided these expenses are deductible by the

Bank for federal   income   taxation   purposes.   If these expenses are paid in the

first instance by the Employee, the Bank will reimburse the Employee.

 

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     Section   11.   Termination.   (a) (1)   The   Bank's   Board   of   Directors   may

terminate the   Employee's   employment at any time,   but any   termination   by the

Bank's   Board of   Directors   other than   termination   for just cause,   shall not

prejudice the   Employee's   right to   compensation   or other   benefits   under the

Agreement.   The Employee   shall have no right to receive   compensation   or other

benefits for any period after   termination for just cause.   Termination for just

cause shall include termination   because of the Employee's personal   dishonesty,

incompetence,   willful   misconduct,   breach of fiduciary duty involving personal

profit,   intentional failure to perform stated duties,   willful violation of any

law, rule, or regulation (other than traffic   violations or similar offenses) or

final   cease-and-desist   order,   or   material   breach of any   provision   of this

Agreement.

 

     (2) If   the   Employee   is   suspended   and/or   temporarily   prohibited   from

participating   in the   conduct of the Bank's   affairs by a notice   served   under

section   8(e)(3)   or (g)(1) of the   Federal   Deposit   Insurance   Act (12   U.S.C.

1818(e)(3)   and (g)(1)) the Bank's   obligations   under this   Agreement   shall be

suspended as of the date of service unless stayed by appropriate proceedings. If

the charges in the notice are dismissed,   the Bank may in its discretion (i) pay

the   Employee   all or part   of the   compensation   withheld   while   its   contract

obligations   were   suspended and (ii) reinstate (in whole or in part) any of its

obligations which were suspended.

 

     (3)   If   the   Employee   is   removed   and/or   permanently    prohibited   from

participating   in the   conduct of the Bank's   affairs by an order   issued   under

section   8(e)(4)   or (g)(1) of the   Federal   Deposit   Insurance   Act (12   U.S.C.

1818(e)(4) or (g)(1)),   all   obligations of the Bank under this Agreement   shall

terminate   as of the   effective   date of the   order,   but   vested   rights of the

contracting parties shall not be affected.

 

     (4) If the Bank is in default (as defined in section 3(x)(l) of the Federal

Deposit   Insurance Act), all obligations under this Agreement shall terminate as

of the date of default,   but this   paragraph   (b)(4) shall not affect any vested

rights of the contracting parties.

 

     (5) All obligations under this Agreement shall be terminated, except to the

extent   determined   that   continuation   of this   Agreement is necessary   for the

continued operation of the Bank:

 

          (i) by the   Director or his or her   designee,   at the time the Federal

     Deposit   Insurance    Corporation    enters   into   an   agreement   to   provide

     assistance   to or on behalf of the Bank under the   authority   contained   in

     section 13(c) of the Federal Deposit Insurance Act; or

 

          (ii) by the Director or his or her designee,   at the time the Director

     or his or her designee   approves a supervisory   merger to resolve   problems

     related   to   operation   of the Bank or when the Bank is   determined   by the

     Director to be in an unsafe or unsound condition.

 

Any rights of the parties hereto that have already vested, however, shall not be

affected by such action.

 

     (b) In the event   employment   is   terminated   for just   cause   pursuant   to

Section   11(a),   the   Employee   shall   have no   right to   compensation   or other

benefits   for   any   period   after   the   termination   date.   If the   Employee   is

terminated   by the Bank other than for just cause   pursuant to Section 11(a) the

Employee's   right to   compensation   and other   benefits shall be as set forth in

Section 11(k).   If employment is terminated   for just cause,   the Employee shall

have the right, at the Employee's   sole option,   to appear at the next scheduled

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