EMPLOYMENT AGREEMENT
 
THIS EMPLOYMENT AGREEMENT (“Agreement”) is made and effective as of this 1st day
of November 2009 by and between Sound Community Bank (hereinafter referred to as
the “Bank”) and Matthew Deines (the “Employee”).
 
WHEREAS, the Employee is currently serving as Executive Vice President / Chief
Financial Officer of the Bank; and
 
WHEREAS, the Board of Directors believes it is in the best interests of the Bank
to enter into this Agreement with the Employee in order to assure continuity of
management of the Bank; and
 
WHEREAS, the Board of Directors has approved and authorized the execution of
this Agreement with the Employee to take effect as stated in Section 2 hereof;
 
NOW, THEREFORE, in consideration of the foregoing and of the respective
covenants and agreements of the parties herein, it is AGREED as follows:
 
1.
Definitions

 
    (a)           The term “Code” means the Internal Revenue Code of 1986, as
amended, or any successor code thereto.
 
    (b)           The term “Commencement Date” means the effective date of this
Agreement as first above written.
 
    (c)           The term “Date of Termination” means the earlier of (l) the
date upon which the Bank gives notice to the Employee of the termination of the
Employee’s employment with the Bank or (2) the date upon which the Employee
ceases to serve as an employee of the Bank.
 
    (d) The term “Involuntary Termination” means the Bank’s termination of the
employment of Employee without the Employee’s express written consent, and shall
include a material diminution of or interference with the Employee’s duties,
responsibilities and benefits as Executive Vice President / Chief Financial
Officer of the Bank, including (without limitation) any of the following
actions, unless consented to in writing by the Employee: (1) a change in the
principal workplace of the Employee to a location outside of a 35 mile radius
from the Bank’s headquarters office as of the date hereof, (2) a material
demotion of the Employee; (3) a material reduction in the number or seniority of
other Bank personnel reporting to the Employee or a material reduction in the
frequency with which, or in the nature of the matters with respect to which,
such personnel are to report to the Employee, other than as part of a Bank- wide
reduction in staff; (4) a material adverse change in the Employee’s salary,
perquisites, benefits, contingent benefits or vacation, other than as part of an
overall program applied uniformly and with equitable effect to all members of
the senior management of the Bank; and (5) a material permanent increase in the
required hours of work or the workload of the Employee. The term “Involuntary
Termination” does not include Termination for Cause or termination of employment
due to retirement, death, disability or suspension or temporary or permanent
prohibition from participation in the conduct of the Bank’s affairs under
Section 8 of the Federal Deposit Insurance Act (“FDIA”).
 
    (e)           The term “Section 409A” means Section 409A of the Code and the
regulations and guidance of general applicability issued thereunder.
 

 
 
 
 

    (f)           The terms “Termination for Cause” and “Terminated for Cause”
mean termination of the employment of the Employee because of the Employee’s
personal dishonesty, incompetence, willful misconduct, breach of a 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. No act or failure to act by the Employee shall be
considered willful unless the Employee acted or failed to act with an absence of
good faith and without a reasonable belief that his action or failure to act was
in the best interest of the Bank.  The Employee shall not be deemed to have been
Terminated for Cause unless and until there shall have been delivered to the
Employee a copy of a resolution, duly adopted by the affirmative vote of not
less than a majority of the entire membership of the Board of Directors at a
meeting of the Board called and held for such purpose (after reasonable notice
to the Employee and an opportunity for the Employee, together with the
Employee’s counsel, to be heard before the Board), stating that in the good
faith opinion of the Board the Employee has engaged in conduct described in the
preceding sentence and specifying the particulars thereof in detail. The
opportunity of the Employee to be heard before the Board shall not affect the
right of the Employee to mediation and arbitration as set forth in Sections 19
and 20.
 

2.           Term; Termination of Prior Employment Agreement. The term of this
Agreement shall be a period of two years commencing on the Commencement Date,
subject to earlier termination as provided herein. Beginning on the first
anniversary of the Commencement Date, and on each anniversary thereafter, the
term of this Agreement shall be extended for a period of one year in addition to
the then remaining term, provided that (1) the Bank has not given notice to the
Employee in writing at least 180 days prior to such anniversary that the term of
this Agreement shall not be extended further; and (2) prior to such anniversary,
the Board of Directors of the Bank explicitly reviews and approves the extension
in connection with its annual performance review of the Employee. Reference
herein to the term of this Agreement shall refer to both such initial term and
such extended terms.

3.           Employment.  The Employee is employed as Executive Vice President /
Chief Financial Officer of the Bank. As such, the Employee shall render
administrative and management services as are customarily performed by persons
situated in similar executive capacities, and shall have such other powers and
duties of an officer of the Bank as the Board of Directors may prescribe from
time to time. The Employee also shall render services to any holding company of
the Bank or any subsidiary of the Bank or its holding companies as requested
from time to time consistent with his executive position.

The Employee shall devote his full business time and attention to his employment
under this Agreement to the extent necessary to discharge his responsibilities
hereunder.  The Employee may (i) serve on corporate or charitable boards or
committees, and (ii) manage personal investments, so long as such activities do
not interfere materially with performance of his responsibilities hereunder.

4.
Compensation

 
    (a)   Salary The Bank agrees to pay the Employee during the term of this
Agreement, not less frequently than monthly, the salary established by the Board
of Directors, which shall be

 
 
 
 
 

 
at least $ 144,025.92 annually. The amount of the Employee’s salary shall be
reviewed by the Board of Directors or the Compensation Committee of the Bank’s
immediate holding company (as required) , beginning not later than the first
anniversary of the Commencement Date. Adjustments in salary or other
compensation shall not limit or reduce any other obligation of the Bank under
this Agreement. The Employee’s salary in effect from time to time during the
term of this Agreement shall not thereafter be reduced.
 
    (b)           Bonuses. The Employee shall be entitled to participate in an
equitable manner with all other executive officers of the Bank in bonuses as
authorized and declared by the Board of Directors or the Compensation Committee
of the Bank’s immediate holding company (as required) to its executive
employees. No other compensation provided for in this Agreement shall be deemed
a substitute for the Employee’s right to participate in such bonuses when and as
declared. Any bonus shall be paid not later than two months after the year in
which the Employee obtains a legally binding right to the bonus.  If the bonus
cannot be paid by that date, then it shall be paid on the next following April
15, or such other date during the year as permitted under Section 409A.
 
    (c)           Expenses  The Employee shall be entitled to receive prompt
reimbursement for all reasonable expenses incurred by the Employee in performing
services under this Agreement in accordance with the policies and procedures
applicable to the executive officers of the Bank, provided that the Employee
accounts for such expenses as required under such policies and procedures.
 
5.
Benefits

 
    (a)           Participation in Retirement and Employee Benefit Plans. The
Employee shall be entitled to participate in all plans relating to pension,
thrift, profit-sharing, group life insurance, medical and dental coverage,
education, cash bonuses, and other retirement or employee benefits or
combinations thereof in which the Bank’s full time employees and executive
officers generally participate.
 
    (b)           Sick Leave and Fringe Benefits.  In the event of termination
of this Agreement due to the Employee’s disability or death, the Bank shall pay
the Employee (or his 1egal successors) the amount of his accrued but unused sick
leave. The Employee shall be eligible to participate in, and receive benefits
under the Bank’s sick leave plan and any other fringe benefit plans that are or
may become applicable to the Bank’s executive officers.
 
6.           Vacations; Leave.  The Employee shall be entitled to annual paid
vacation in accordance with the policies established by the Board of Directors
for executive employees and to voluntary leave of absence, with or without pay,
from time to time at such times and upon such conditions as the Board of
Directors may determine in its discretion.
 
7.           Termination of Employment The Board of Directors may terminate the
Employee’s employment at any time, but, except in the case of Termination for
Cause, termination of employment shall not prejudice the Employee’s right to
compensation or other benefits under this Agreement.
 
    (a) Involuntary Termination In the event of Involuntary Termination, (1) the
Bank shall pay to the Employee during the remaining term of this Agreement the
Employee’s salary at the

 
 
 
 

annual rate in effect immediately prior to the Date of Termination, payable in
such manner and at such times as such salary would have been payable to the
Employee if he had continued to be employed under this Agreement, and (2) the
Bank shall continue to provide to the Employee during the remaining term of this
Agreement the same group health benefits and other group insurance and group
retirement benefits as he would have received if he had continued to be employed
under this Agreement, to the extent that the Bank can do so under the terms of
applicable plans as are maintained by the Bank for the benefit of its executive
officers from time to time during the remaining term of this Agreement. No
payment shall be made under this Section 7(a) unless the Employee termination of
employment qualifies as a “Separation from Service” (as that phrase is defined
in Section 409A taking into account all rules and presumptions provided for in
the Section 409A regulations).  If the Employee is a “Specified Employee” (as
defined in Section 409A) at the time of his Separation from Service, then
payments under this Section 7(a) which are not considered paid on account of an
involuntary separation from service (as defined in Treasury Regulation Section
1.409A-1(b)(9)(iii)), and as such constitute deferred compensation under Section
409A, shall not be paid until the 185th day following the Employee Separation
from Service, or his earlier death (the “Delayed Distribution Date”).  Any
payments deferred on account of the preceding sentence shall be accumulated
without interest and paid with the first payment that is payable in accordance
with the preceding sentence and Section 409A.  To the extent permitted by
Section 409A, amounts payable under this Section 7(a) which are considered
deferred compensation shall be treated as payable after amounts which are not
considered deferred compensation (i.e., which are considered payable on account
of an involuntary separation from service as herein defined herein).
 
(b)           Termination for Cause.  In the event of Termination for Cause, the
Bank shall pay the Employee the Employee’s salary through the Date of
Termination, and the Bank shall have no further obligation to the Employee under
this Agreement.
 
(c)           Voluntary Termination.  The Employee’s employment may be
voluntarily terminated by the Employee at any time upon 180 days’ written notice
to the Bank or such shorter period as may be agreed upon between the Employee
and the Board of Directors of the Bank. In the event of such voluntary
termination, the Bank shall be obligated to continue to pay to the Employee the
Employee’s salary and benefits only through the Date of Termination, at the time
such payments are due, and the Bank shall have no further obligation to the
Employee under this Agreement.
 
(d)           Death; Disability.  In the event of the death of the Employee
while employed under this Agreement and prior to any termination of employment,
the Employee’s estate, or such person as the Employee may have previously
designated in writing, shall be entitled to receive from the Bank the salary of
the Employee through the last day of the calendar month in which the Employee
died. If the Employee becomes disabled as defined in the Bank’s then current
disability plan, if any, or if the Employee is otherwise unable to serve as
Executive Vice President / Chief Financial Officer of the Bank shall be entitled
to terminate this Agreement except for its obligation to provide disability
insurance under Section 5(b) during the portion of the term of this Agreement
that would remain but for such termination, the Employee shall be entitled to
receive benefits at least equivalent to those under the group and other
disability income benefits of the type, if any, then provided by the Bank for
executive officers generally.
 
(e)           Temporary Suspension or Prohibition.  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)(l) of the FDIA, 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 obligations under this Agreement were
suspended and (ii) reinstate in whole or in part any of its obligations which
were suspended.
 
(f)           Permanent Suspension or Prohibition.  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 FDIA, 12
U.S.C. § 1818(e)(4) and (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.
 
(g)           Default of the Bank.  If the Bank is in default (as defined in
Section 3(x)(1) of the FDIA), all obligations under this Agreement shall
terminate as of the date of default, but this provision shall not affect any
vested rights of the contracting parties.
 
(h)           Termination by Regulators.  All obligations under this Agreement
shall be terminated, except to the extent it is determined that continuation of
this Agreement is necessary for the continued operation of the Bank: (1) by the
Director of the Office of Thrift Supervision (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 FDIA; or (2) 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 that have already vested, however, shall not be affected by any
such action.
 
8.           Non Competition, Non-Disclosure and Non-Solicitation.  Employment
with the Bank as an executive officer provides Employee with access to
proprietary business information and many of the Bank’s employees.  Therefore
the Employee and the Bank have agreed to the following provisions respecting the
Employee’s protection of the Bank after his employment relationship with the
Bank is terminated for any reason.
 
(a)           During the term of this Agreement and during any period of time
thereafter during which the Employee receives any payments provided for under
this Agreement, the Employee shall not, directly or indirectly, own, manage,
operate or control, or participate in the ownership, management, operation or
control of, or be employed or retained by or connected in any manner with, any
financial institution or other organization that competes with the Bank in its
market area established as of the Date of Termination and shall not divert a
business opportunity of the Bank to any such competing financial institution or
other organization.
 
(b)           During the term of the Employee’s employment hereunder and for two
years thereafter, the Employee shall not, except as may be required to perform
his duties hereunder or as required by law, disclose to others or use, whether
directly or indirectly, any Confidential Information. “Confidential Information”
means information about the Bank and the Bank’s clients and customers that is
not available to the general public and was or shall be learned by the Employee
in the course of his employment by the Bank, including without limitation any
data, formulae, information, proprietary knowledge, trade secrets, and credit
reports and analyses
 

 
 
 
 

owned, developed and used in the course of the business of the Bank, including
client and customer lists and information related thereto; and all papers,
resumes, records and other documents (and all copies thereof) containing such
Confidential Information. The Employee acknowledges that such Confidential
Information is specialized, unique in nature and of great value to the Bank. The
Employee agrees that upon the expiration of the Employee’s term of employment
hereunder or in the event the Employee’s employment hereunder is terminated
prior thereto for any reason whatsoever, the Employee will promptly deliver to
the Bank all documents (and all copies thereof) containing any Confidential
Information.
 
(c)           Upon the expiration of the term of the Employee’s employment
hereunder or in the event the Employee’s employment hereunder terminates prior
thereto for any reason whatsoever, the Employee shall not, for a period of one
year after the occurrence of such event, for himself, or as the agent of, on
behalf of, or in conjunction with, any person or entity, solicit or attempt to
solicit, whether directly or indirectly: (i) any employee of the Bank to
terminate such employee’s employment relationship with the Bank; or (ii) any
savings and loan, banking or similar business from any person or entity that is
or was a client, employee, or customer of the Bank and had dealt with the
Employee or any other employee of the Bank under the supervision of the
Employee.
 
(d)           The provisions of this Section 8 shall not prevent the Employee
from purchasing, solely for investment, not more than 5 percent of any financial
institution’s stock or other securities which are traded on any national or
regional securities exchange or are actively traded in the over-the-counter
market and registered under Section 12(g) of the Securities Exchange Act of
1934.
 
(e)           The provisions of this Paragraph 8 shall survive the termination
of the Employee’s employment hereunder whether by expiration of the term thereof
or otherwise.
 
9.
Certain Reduction of Payments by the Bank.

 
(a)           Notwithstanding any other provision of this Agreement, if the
value and amounts of benefits under this Agreement, together with any other
amounts and the value of benefits received or to be received by the Employee in
connection with a change in control would cause any amount to be nondeductible
for federal income tax purposes pursuant to Section 280G of the Code, then
amounts and benefits under this Agreement shall be reduced (not less than zero)
to the extent necessary so as to maximize amounts and the value of benefits to
the Employee without causing any amount to become nondeductible pursuant to or
by reason of such Section 280G. The Employee shall determine the allocation of
such reduction among payments and benefits to the Employee.
 
(b)           Any payments made to the Employee pursuant to this Agreement, or
otherwise, are subject to and conditioned upon their compliance with 12 U.S.C.
1828(k) and any regulations promulgated thereunder.
 
10.           No Mitigation.  The Employee shall not be required to mitigate the
amount of any salary or other payment or benefit provided for in this Agreement
by seeking other employment or otherwise, nor shall the amount of any payment or
benefit provided for in this Agreement be reduced by any compensation earned by
the Employee as the result of employment by another employer, by retirement
benefits after the Date of Termination or otherwise.
 

 
 
 
 

11.           Attorneys Fees.  In the event the Bank exercises its right of
Termination for Cause, but it is determined by a court of competent
jurisdiction, by an arbitrator pursuant to Section or a mediator under Section
19 that cause did not exist for such termination, or if in any event it is
determined by any such court arbitrator or mediator that the Bank has failed to
make timely payment of any amounts owed to the Employee under this Agreement,
the Employee shall be entitled to reimbursement for all reasonable costs,
including attorneys’ fees, incurred in challenging such termination or
collecting such amounts. Such reimbursement shall be in addition to all rights
to which the Employee is otherwise entitled under this Agreement.
 
12.   No Assignments.
 
    (a)           This Agreement is personal to each of the parties hereto, and
neither party may assign or delegate any of its rights or obligations hereunder
without first obtaining the written consent of the other party; provided,
however, that the Bank shall require any successor or assign (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Bank, by an assumption
agreement in form and substance satisfactory to the Employee, 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 or
assignment had taken place. Failure of the Bank to obtain such an assumption
agreement prior to the effectiveness of any such succession or assignment shall
be a breach of this Agreement and shall entitle the Employee to compensation
from the Bank in the same amount and on the same terms as the compensation
pursuant to Section 7(a) hereof.  For purposes of implementing the provisions of
this Section 11(a), the date on which any such succession becomes effective
shall be deemed the Date of Termination.
 
    (b)           This Agreement and all rights of the Employee hereunder shall
inure to the benefit of and be enforceable by the Employee’s personal and legal
representatives, executors, administrators, successors, heirs, distributees,
devisees and legatees. If the Employee should die while any amounts would still
be payable to the Employee hereunder if the Employee had continued to live, all
such amounts, unless otherwise provided herein, shall be paid in accordance with
the terms of this Agreement to the Employee’s devisee, legatee or other designee
or if there is no such designee, to the Employee’s estate.
 
13.            Notice.  For the purposes of this Agreement, notices and all
other communications provided for in the Agreement shall be in writing and shall
be deemed to have been duly given when personally delivered or sent by certified
mail, return receipt requested, postage prepaid, to the Bank at its home office,
to the attention of the Board of Directors with a copy to the Secretary of the
Bank, or, if to the Employee, to such home or other address as the Employee has
most recently provided in writing to the Bank.

 
14.           Applicability of Section 409A of the Code.  This Agreement is
intended to comply with Section 409A, and its provisions shall be interpreted to
satisfy the requirements of Section 409A.

 
15.            Amendments.  No amendments or additions to this Agreement shall
be binding unless in writing and signed by both parties, except as herein
otherwise provided.
 

 
 
 
 

16.           Headings.  The headings used in this Agreement are included solely
for convenience and shall not affect, or be used in connection with, the
interpretation of this Agreement.

 
17.           Severability.  The provisions of this Agreement shall be deemed
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability of the other provisions hereof

 
18.            Governing.  Law This Agreement shall be governed by the laws of
the United States to the extent applicable and otherwise by the laws of the
State of Washington.

 
19.           Equitable and Other Judicial Relief.  In the event of an actual or
threatened breach by the Employee of any of the provisions of Section 8, the
Bank shall be entitled to equitable relief in the form of an injunction from a
court of competent jurisdiction and such other equitable and legal relief as
such court deems appropriate under the circumstances.  The parties agree that
the Bank shall not be required to post any bond in connection with the grant or
issuance of an injunction (preliminary, temporary and/or permanent) by a court
of competent jurisdiction, and if a bond is nevertheless required, the parties
agree that it shall be in a nominal amount.  The parties further agree that in
the event of a breach by the Employee of any of the provisions of Section 8, the
Bank will suffer irreparable damage and its remedy at law against the Employee
is inadequate to compensate it for such damage.

20.           Mediation. In the event any dispute between the parties arises
under this agreement and the parties are unable to settle the dispute between
themselves, the parties shall on the written request of either party attempt to
resolve the dispute through a formal mediation within 90 days of the
request.  If parties cannot agree on a mediator and the place of mediation the
mediation shall be administered by the American Arbitration Association in
Seattle Washington.  There shall be no pre-mediation discovery unless mutually
agreed upon by the parties.

21.           Arbitration. In the event a dispute is not resolved via mediation
under Section 19 the dispute shall, on the written demand of either party, be
resolved by binding arbitration in accordance with the rules of the American
Arbitration Association then in effect, except that any dispute relating to the
enforcement of any of the provisions of Section 8 by the Bank shall not be
subject to binding arbitration. Judgment may be entered on the arbitrator’s
award in any court having jurisdiction.

 

 

 

 

 

 

 
 
 
 

 
IN WITNESS WHEREOF, the parties have executed this Agreement effective as of the
day and year first above written.
 
THIS AGREEMENT CONTAINS A BINDING ARBITRATION PROVISION WHICH MAY BE ENFORCED BY
THE PARTIES.

   
SOUND COMMUNITY BANK
         
/s/ Laura Lee Stewart                                     
   
By: Laura Lee Stewart
   
Its: President and Chief Executive Officer
         
EMPLOYEE
               
/s/ Matthew Deines                                       
   
Matthew Deines