SOUND FINANCIAL, INC.
2008 EQUITY INCENTIVE PLAN

NON-QUALIFIED STOCK OPTION AWARD AGREEMENT

NQSO No.
_______________                                                                                  Grant
Date: _______________

This Non-Qualified Stock Option Award (“NQSO”) is granted by Sound Financial,
Inc. (“Company”) to [Name] (“Option Holder”) in accordance with the terms of
this Non-Qualified Stock Option Award Agreement (“Agreement”) and subject to the
provisions of the Sound Financial, Inc. 2008 Equity Incentive Plan, as amended
from time to time (“Plan”).  The Plan is incorporated herein by reference.

1.  
NQSO Award.  The Company grants to Option Holder NQSOs to purchase
[Number] Shares at an Exercise Price of $[Number] per Share.  These NQSOs are
subject to forfeiture and to limits on transferability until they vest, as
provided in Sections 5 and 6 of this Agreement and in Article V of the Plan.

 
2.  
Vesting Dates:  The NQSOs shall vest as follows, subject to earlier vesting in
the event of a termination of Service as provided in Section 6:

 
Vesting Date
NQSOs for
Number of Shares Vesting
[Over at least 5 years beginning
one year from the Grant Date.]
[20% or less in each annual
installment]

3.  
Exercise:  The Option Holder (or in the case of the death of the Option Holder,
the designated legal representative or heir of the Option Holder) may exercise
the NQSOs during the Exercise Period by giving written notice to the Secretary
of the Company in the form required by the Committee (“Exercise Notice”).  The
Exercise Notice must specify the number of Shares to be purchased, which shall
be at least 100 unless fewer shares remain unexercised.  The exercise date is
the date the Exercise Notice is received by the Company.  The Exercise Period
commences on the Vesting Date and expires at 5:00 p.m., Seattle, Washington
time, on the date 10 years after the Grant Date, subject to earlier expiration
in the event of a termination of Service as provided in Section 6.  Any NQSOs
not exercised as of the close of business on the last day of the Exercise Period
shall be cancelled without consideration at that time.

 
The Exercise Notice shall be accompanied by payment in full of the Exercise
Price for the Shares being purchased.  Payment shall be made: (a) in cash, which
may be in the form of a check, money order, cashier's check or certified check,
payable to the Company, or (b) by delivering Shares of the Company already owned
by the Option Holder having a Fair Market Value on the exercise date equal to
the aggregate Exercise Price to be paid, or (c) a combination of cash and such
Shares.
 
 

 
 
4.  
Related Awards:  These NQSOs [are not related to any other Award under the
Plan.] or [are related to stock appreciation rights granted on the Grant Date
and designated SAR Nos. ___.  To the extent any of the related stock
appreciation rights is exercised, the NQSOs shall terminate with respect to the
same number of Shares.]

 
5.  
Transferability.  The Option Holder may not sell, assign, transfer, pledge or
otherwise encumber any NQSOs, except in the event of the Option Holder’s death,
by will or by the laws of descent and distribution or pursuant to a Qualified
Domestic Relations Order.  The Committee, in its sole and absolute discretion,
may allow the Option Holder to transfer one or more NQSOs to the Option Holder’s
Family Members, as provided in the Plan.

 
6.  
Termination of Service.  If the Option Holder terminates Service for any reason
other than in connection with a Change in Control or the death or Disability of
the Option Holder, any NQSOs that have not vested as of the date of that
termination shall be forfeited to the Company, and the Exercise Period shall
expire three months after that termination of Service, except in the case of a
Termination for Cause, when it shall expire immediately.  If the Option Holder’s
Service terminates on account of the Option Holder’s death or Disability, the
Vesting Date for all NQSOs that have not vested or been forfeited shall be
accelerated to the date of that termination of Service, and the Exercise Period
shall expire one year after that termination of Service.

 
7.  
Effect of Change in Control.  Upon a Change in Control, the Vesting Date for all
NQSOs that have not vested or been forfeited shall be accelerated to the date of
the earliest event constituting a Change in Control.  [May be modified at
Committee’s election for 280G planning purposes for executive officers or
directors holding 1% or more of the Company’s outstanding stock.]

 
8.  
Option Holder’s Rights.  The NQSOs awarded hereby do not entitle the Option
Holder to any rights of a shareholder of the Company.

 
9.  
Delivery of Shares to Option Holder.  Promptly after receipt of an Exercise
Notice and full payment of the Exercise Price for the Shares being acquired, the
Company shall issue and deliver to the Option Holder (or other person validly
exercising the NQSO) a certificate or certificates representing the Shares of
Common Stock being purchased, registered in the name of the Option Holder (or
such other person), or, upon request, in the name of the Option Holder (or such
other person) and in the name of another person in such form of joint ownership
as requested by the Option Holder (or such other person) pursuant to applicable
state law.  The Company’s obligation to deliver a stock certificate for Shares
purchased in the exercise of an NQSO can be conditioned upon the receipt of a
representation of investment intent from the Option Holder (or the Option
Holder’s Beneficiary) in such form as the Committee requires.  The Company shall
not be required to deliver stock certificates for Shares purchased prior to: (a)
the listing of those Shares on the Nasdaq; or (b) the completion of any
registration or qualification of those Shares required under applicable law.

 
 
NQSO-2

 
 
 
10.  
Adjustments in Shares.  In the event of any recapitalization, stock split,
reorganization, merger, consolidation, spin-off, combination, exchange of
securities, stock dividend, special or recurring dividend or distribution,
liquidation, dissolution or other similar corporate transaction or event, the
Committee, in its sole discretion, may adjust the number of Shares or class of
securities of the Company covered by the NQSOs or the Exercise Price of the
NQSOs.  The Option Holder agrees to execute any documents required by the
Committee in connection with an adjustment under this Section 10.

 
11.  
Tax Withholding.  The Company shall have the right to require the Option Holder
to pay to the Company the amount of any tax that the Company is required to
withhold with respect to such Shares, or in lieu thereof, to retain or sell
without notice, a sufficient number of Shares to cover the minimum amount
required to be withheld.  The Company shall have the right to deduct from all
dividends paid with respect to the Shares the amount of any taxes that the
Company is required to withhold with respect to such dividend payments.

 
12.  
Plan and Committee Decisions are Controlling.  This Agreement, the award of
NQSOs to the Option Holder and the issuance of Shares upon the exercise of the
NQSOs are subject in all respects to the provisions of the Plan, which are
controlling.  Capitalized terms herein not defined in this Agreement shall have
the meaning ascribed to them in the Plan.  All decisions, determinations and
interpretations by Committee respecting the Plan, this Agreement, the award of
NQSOs or the issuance of Shares upon the exercise of the NQSOs shall be binding
and conclusive upon the Option Holder, any Beneficiary of the Option Holder or
the legal representative thereof.

 
13.  
Option Holder’s Employment.  Nothing in this Agreement shall limit the right of
the Company or any of its Affiliates to terminate the Option Holder’s service or
employment as a director, officer or employee, or otherwise impose upon the
Company or any of its Affiliates any obligation to employ or accept the services
or employment of the Option Holder.

 
14.  
Amendment.  The Committee may waive any conditions of or rights of the Company
or modify or amend the terms of this Agreement; provided, however, that the
Committee may not amend, alter, suspend, discontinue or terminate any provision
of this Agreement if such action may adversely affect the Option Holder without
the Option Holder’s written consent.  To the extent permitted by applicable laws
and regulations, the Committee shall have the authority, in its sole discretion,
to accelerate the vesting of the Shares or remove any other restrictions imposed
on the Option Holder with respect to the Shares, whenever the Committee may
determine that such action is appropriate by reason of any unusual or
nonrecurring events affecting the Company, any Affiliate or their financial
statements or any changes in applicable laws, regulations or accounting
principles.

 
15.  
Option Holder Acceptance.  The Option Holder shall signify acceptance of the
terms and conditions of this Agreement and acknowledge receipt of a copy of the
Plan by signing in the space provided below and returning the signed copy to the
Company.

 

NQSO-3

 
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
as of the date first above written.
 
 

   
SOUND FINANCIAL, INC.
                     
By ________________________________
   
Its  ________________________________
                     
ACCEPTED BY OPTION HOLDER
   
___________________________________
   
(Signature)
         
___________________________________
   
(Print Name)
         
___________________________________
   
(Street Address)
   
___________________________________
   
(City, State & Zip Code)

 
Beneficiary Designation:
 
The Option Holder designates the following Beneficiary to receive the Shares
upon Option Holder’s death:
 

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NQSO-4