EMPLOYMENT AGREEMENT



                                 by and between



                            U.S.B. HOLDING CO., INC.
                                UNION STATE BANK



                                       and



                               STEVEN T. SABATINI





                           ---------------------------

                           Made and Entered Into As of

                                November 16, 1998

                           ---------------------------
<PAGE>

                              EMPLOYMENT AGREEMENT

      This Employment Agreement ("Agreement") is made and entered into as of
November 16, 1998 by and between U.S.B. HOLDING CO., INC., a publicly held
business corporation organized and operating under the laws of the State of
Delaware (the "Company") and Union State Bank (the "Bank"), both having an
office at 100 Dutch Hill Road, Orangeburg, New York 10962 and STEVEN T.
SABATINI, an individual residing at 21 Indian Hill Road, Warwick, New York 10990
("Mr. Sabatini").

                                   WITNESSETH:

      WHEREAS, Mr. Sabatini currently serves the Company and the Bank in the
capacity of Senior Executive Vice President, Chief Financial Officer and
Assistant Secretary; and

      WHEREAS, the Company and the Bank desire to assure for themselves the
continued availability of Mr. Sabatini's services and the ability of Mr.
Sabatini to perform such services; and

      WHEREAS, Mr. Sabatini is willing to continue to serve the Company and the
Bank on the terms and conditions hereinafter set forth;

      NOW, THEREFORE, in consideration of the premises and the mutual covenants
and conditions hereinafter set forth, the Company and the Bank and Mr. Sabatini
hereby agree as follows:

      Section 1. Employment

      The Company and the Bank agree to continue to employ Mr. Sabatini in the
capacities stated above, and Mr. Sabatini hereby agrees to such continued
employment, during the period and upon the terms and conditions set forth in
this Agreement.

      Section 2. Employment Period; Remaining Unexpired Employment Period

      (a) The terms and conditions of this Agreement shall be and remain in
effect during the period of employment established under this Section 2
("Employment Period"). The Employment Period shall be for a term of three years
beginning on the date of this Agreement and ending on the third anniversary date
of this Agreement (an "Anniversary Date"), plus such extensions, if any, as are
provided for in this Agreement or otherwise agreed to by the Boards of Directors
of the Company and the Bank (collectively, the "Boards").

      (b) Nothing in this Agreement shall be deemed to prohibit the Company
and/or the Bank at any time from terminating Mr. Sabatini's employment during
the Employment Period with or without notice for any reason; provided, however,
that the relative rights and obligations of the Company and the Bank and Mr.
Sabatini in the event of any such termination shall be determined under this
Agreement.


                                  Page 1 of 15
<PAGE>

      Section 3. Duties

      Mr. Sabatini shall serve as Senior Executive Vice President, Chief
Financial Officer and Assistant Secretary of the Company and the Bank, having
such power, authority and responsibility and performing such duties as are
prescribed by or under the By-Laws of the Company or the Bank and as are
customarily associated with such position. Mr. Sabatini shall devote his full
business time and attention (other than during weekends, holidays, approved
vacation periods, and periods of illness or approved leaves of absence) to the
business and affairs of the Company and the Bank and shall use his best efforts
to advance the interests of the Company and the Bank.

      Section 4. Cash Compensation

      In consideration for the services to be rendered by Mr. Sabatini
hereunder, the Company and the Bank shall together pay to him a salary at an
initial annual rate of ONE HUNDRED SIXTY THOUSAND DOLLARS ($160,000), payable in
approximately equal installments in accordance with the Company's and Bank's
customary payroll practices for senior officers. On each Anniversary Date
occurring during the Employment Period, Mr. Sabatini's annual rate of salary
shall be reviewed and increased as determined by the Chairman of the Board,
President and Chief Executive Officer of the Company and/or the Bank. In
addition to salary, Mr. Sabatini may receive other cash compensation from the
Company or the Bank for services hereunder at such times, in such amounts and on
such terms and conditions as determined by the Chairman of the Board, President
and Chief Executive Officer of the Company and/or the Bank from time to time.

      The Company and the Bank agree to pay to Mr. Sabatini a minimum annual
bonus of 1.0 percent, or a percent as otherwise provided on mutual agreement
between the parties, to be computed based upon the net profits realized by the
consolidated earnings of the Company and the Bank and their affiliates in
accordance with the Executive Compensation Plan which has been adopted by the
Board.

      Mr. Sabatini shall be granted stock options by the Company of no less than
36,300 shares each year during the term of this Agreement under the Company's
Employee Stock Option Plans as may be established by the Company, such stock
options to be adjusted for stock dividends and stock splits after the date of
this Agreement by the Company during the term of this Agreement. Upon the
exercise of options with existing owned stock, additional options to purchase
stock will be issued to Mr. Sabatini in an amount equivalent to such Company
stock utilized in the exercise. In addition, if Mr. Sabatini sells existing
owned stock or stock acquired as a result of such exercise of options to pay
income taxes as a result of the exercise of options or sells stock acquired upon
exercise of options ("cashless exercise"), Mr. Sabatini shall be awarded new
options to purchase Company stock equivalent to the number of shares of Company
stock sold under the circumstances described in this sentence.

      The foregoing salary shall be in addition to the monthly Board fees
presently paid to Mr. Sabatini or as hereafter provided by the Boards or any
Board of Directors of an affiliate of the Company or the Bank.

      Mr. Sabatini, at his option, shall be allowed to defer any portion of his
cash compensation in accordance with any plan approved by the Company or the
Bank.


                                  Page 2 of 15
<PAGE>

      Section 5. Insurance

      If Mr. Sabatini should become disabled during the term of this Agreement,
the Company and the Bank will compensate Mr. Sabatini for the difference between
any disability insurance, the premiums for which are paid by the Company and the
Bank, and Mr. Sabatini's full salary for the balance of the term of this
Agreement and thereafter for a period of six months after the termination of
this Agreement. Full fringe benefits will continue through the earlier of (i)
the balance of the term of this Agreement or (ii) the period of Mr. Sabatini's
disability.

      In accordance with the foregoing, the Company and/or the Bank will
maintain and pay the premiums for the following life insurance policy on the
life of Mr. Sabatini: Universal Life Policy No. 00122102 of Security Mutual Life
Insurance Company in the amount of $1,000,000. The beneficiaries under the
foregoing policy of insurance shall be designated by Mr. Sabatini.

      Section 6. Employee Benefit Plans and Programs

      During the Employment Period, Mr. Sabatini shall be treated as an employee
of the Company and the Bank and shall be entitled to participate in and receive
benefits under any and all qualified or non-qualified retirement, pension,
savings, profit-sharing or stock bonus plans, any and all group life, health
(including hospitalization, medical and major medical), dental, accident and
long-term disability insurance plans, and any other employee benefit and
compensation plans (including but not limited to, any incentive compensation
plans or programs, stock option and appreciation rights plans and restricted
stock plans) as may from time to time be maintained by, or cover employees of,
the Company or the Bank, in accordance with the terms and conditions of such
employee benefit plans and programs and compensation plans and programs which
are consistent with the Company's and the Bank's customary practices.

      Section 7. Indemnification and Insurance

      (a) During the Employment Period and for a period of six (6) years
thereafter, the Company or the Bank shall cause Mr. Sabatini to be covered by
and named as an insured under any policy or contract of insurance obtained by it
to insure its directors and officers against personal liability for acts or
omissions in connection with service as an officer or director of the Company or
the Bank or service in other capacities at the request of the Company or the
Bank. The coverage provided to Mr. Sabatini pursuant to this Section 7 shall be
of the same scope and on the same terms and conditions as the coverage (if any)
provided to other officers or directors of the Company and the Bank.

      (b) To the maximum extent permitted under applicable law, during the
Employment Period and for a period of six (6) years thereafter, the Company and
the Bank shall indemnify Mr. Sabatini against and hold him harmless from any
costs, liabilities, losses and expenses to the fullest extent and on the most
favorable terms and conditions that similar indemnification is offered to any
director or officer of the Company, the Bank or any subsidiary or affiliate
thereof.

      Section 8. Outside Activities

      Mr. Sabatini may serve as a member of a board of directors of such
business, community and


                                  Page 3 of 15
<PAGE>

charitable organizations as he may disclose to and as may be approved by the
Chairman of the Board, President and Chief Executive Officer of the Company
and/or the Bank, which approval shall not be unreasonably withheld; provided,
however, that such service shall not materially interfere with the performance
of his duties under this Agreement. Mr. Sabatini may also engage in personal
business and investment activities which do not materially interfere with the
performance of his duties hereunder; provided, however, that such activities are
not prohibited under any code of conduct or investment or securities trading
policy established by the Company and/or Bank and generally applicable to all
similarly situated executives. Mr. Sabatini may also serve as an officer or
director of any subsidiary of the Company or the Bank. If Mr. Sabatini is
discharged or suspended, or is subject to any regulatory prohibition or
restriction with respect to participation in the affairs of the Company or the
Bank, he shall continue to perform services for the Company and the Bank in
accordance with this Agreement but shall not directly or indirectly provide
services to or participate in the affairs of the Company and the Bank in a
manner inconsistent with the terms of such discharge or suspension or any
applicable regulatory order.

      Section 9. Working Facilities and Expenses

      Mr. Sabatini's principal place of employment shall be at the Company's and
the Bank's executive offices at the address first above written, or at such
other location at which the Company or the Bank shall maintain its principal
executive offices, or at such other location as the Company and the Bank and Mr.
Sabatini may mutually agree upon. The Company or the Bank shall provide Mr.
Sabatini at his principal place of employment with a private office, secretarial
services, an automobile, and other support services and facilities suitable to
his position with the Company and the Bank and necessary or appropriate in
connection with the performance of his assigned duties under this Agreement. The
Company or the Bank shall provide to Mr. Sabatini for his exclusive use an
automobile owned or leased by the Company or the Bank appropriate to his
position, to be used in the performance of his duties hereunder, including
commuting to and from his personal residence. The Company or the Bank shall
reimburse Mr. Sabatini for his ordinary and necessary business expenses,
including, without limitation, all expenses associated with his business use of
the aforementioned automobile, fees for memberships in such clubs and
organizations as Mr. Sabatini and the Company or the Bank shall mutually agree
are necessary and appropriate for business purposes, and his travel and
entertainment expenses incurred in connection with the performance of his duties
under this Agreement, in each case upon presentation to the Company or the Bank
of an itemized account of such expenses in such form as the Company or the Bank
may reasonably require.

      The Company and the Bank shall specifically pay the annual membership fees
of one Country Club membership for Mr. Sabatini.

      Section 10. Vacation

      Mr. Sabatini shall be entitled annually to vacation time of five (5) weeks
in total and two (2) personal days, or any additional vacation and personal time
agreed to by the parties or permitted by Company or Bank policy.

      Section 11. Termination of Employment; Severance Benefits

      (a) Mr. Sabatini shall be entitled to the severance benefits described
herein in the event


                                  Page 4 of 15
<PAGE>

that his employment with the Company or the Bank terminates during the
Employment Period under any of the following circumstances:

      (i) Mr. Sabatini's voluntary resignation from employment with the Company
      and the Bank within ninety (90) days following:

            (A) the failure of the Boards to appoint or re-appoint or elect or
      re-elect Mr. Sabatini to the office of Senior Executive Vice President,
      Chief Financial Officer and Assistant Secretary (or a more senior office)
      of the Company and the Bank;

            (B) the expiration of a thirty (30) day period following the date on
      which Mr. Sabatini gives written notice to the Company and/or the Bank of
      its material failure, whether by amendment of the Company's or the Bank's
      Organization Certificate or By-laws, action of the Boards or the Company's
      or the Bank's stockholders or otherwise, to vest in Mr. Sabatini the
      functions, duties, or responsibilities prescribed in Section 3 of this
      Agreement, unless, during such thirty (30) day period, the Company and/or
      the Bank cures such failure in a manner determined by Mr. Sabatini and the
      Boards to be satisfactory; or

            (C) the expiration of a thirty (30) day period following the date on
      which Mr. Sabatini gives written notice to the Company and/or the Bank of
      its material breach of any term, condition or covenant contained in this
      Agreement (including, without limitation any reduction of Mr. Sabatini's
      rate of base salary in effect from time to time and any change in the
      terms and conditions of any compensation or benefit program in which Mr.
      Sabatini participates which, either individually or together with other
      changes, has a material adverse effect on the aggregate value of his total
      compensation package), unless, during such thirty (30) day period, the
      Company and/or the Bank cures such failure in a manner determined by Mr.
      Sabatini and the Boards to be satisfactory; or

      (ii) Mr. Sabatini's death; or

      (iii) subject to the provisions of Section 12, the termination of Mr.
      Sabatini's employment with the Company or the Bank for any other reason
      not described in Section 11(a).

      (b) Upon the termination of Mr. Sabatini's employment with the Company
and/or the Bank under circumstances described in Section 11(a) of this
Agreement, the Company or the Bank shall pay and provide to Mr. Sabatini (or, in
the event of his death, to his estate):

      (i) his earned but unpaid compensation (including, without limitation, all
      items which constitute wages under Section 190.1 of the New York Labor Law
      and the payment of which is not otherwise provided for under this Section
      11(b)) as of the date of the termination of his employment with the
      Company and the Bank, such payment to be made at the time and in the
      manner prescribed by law applicable to the payment of wages but in no
      event later than thirty (30) days after termination of employment;

      (ii) the benefits, if any, to which he is entitled as a former employee
      under the employee benefit plans and programs and compensation plans and
      programs maintained for the benefit


                                  Page 5 of 15
<PAGE>

      of the Company's and the Bank's officers and employees;

      (iii) continued group life, health (including hospitalization, medical and
      major medical and the insurance provided under Section 5), dental,
      accident and long term disability insurance benefits, in addition to that
      provided pursuant to Section 11(b)(ii), and after taking into account the
      coverage provided by any subsequent employer, if and to the extent
      necessary to provide for Mr. Sabatini, for the Remaining Unexpired
      Employment Period, coverage equivalent to the coverage to which he would
      have been entitled under such plans (as in effect on the date of his
      termination of employment, or, if his termination of employment occurs
      after a Change of Control, on the date of such Change of Control,
      whichever benefits are greater), if he had continued working for the
      Company and the Bank during the Remaining Unexpired Employment Period at
      the highest annual rate of compensation achieved during that portion of
      the Employment Period which is prior to Mr. Sabatini's termination of
      employment with the Company or the Bank;

      (iv) within thirty (30) days following his termination of employment with
      the Company and/or the Bank, a lump sum payment, in an amount equal to the
      present value of the salary that Mr. Sabatini would have earned if he had
      continued working for the Company and the Bank for one year at the highest
      annual rate of salary achieved during that portion of the Employment
      Period which is prior to Mr. Sabatini's termination of employment with the
      Company and the Bank, where such present value is to be determined using a
      discount rate equal to the applicable short-term federal rate prescribed
      under Section 1274(d) of the Internal Revenue Code of 1986 ("Code"),
      compounded using the compounding period corresponding to the Company's and
      the Bank's regular payroll periods for its officers, such lump sum to be
      paid in lieu of all other payments of salary provided for under this
      Agreement in respect of the period following any such termination. At the
      option of Mr. Sabatini, such payments may be made in equal monthly
      installments over a period of not less than three years, nor more than
      five years, in which case such payments will not be discounted;

      (v) within thirty (30) days following his termination of employment with
      the Company and/or the Bank, a lump sum payment in an amount equal to the
      present value of the additional employer contributions to which he would
      have been entitled under any and all qualified and non-qualified defined
      contribution plans maintained by, or covering employees of, the Company
      and the Bank, if he were 100% vested thereunder and had continued working
      for the Company and the Bank, during the Remaining Unexpired Employment
      Period at the highest annual rate of compensation achieved during that
      portion of the Employment Period which is prior to Mr. Sabatini's
      termination of employment with the Company or the Bank, and making the
      maximum amount of employee contributions, if any, required under such plan
      or plans, such present value to be determined on the basis of a discount
      rate, compounded using the compounding period that corresponds to the
      frequency with which employer contributions are made to the relevant plan,
      equal to the applicable PBGC Rate. At the option of Mr. Sabatini, such
      payments may be made in equal monthly installments over a period of not
      less than three, nor more than five years, in which case such payments
      will not be discounted;

      (vi) the payment that would have been made to Mr. Sabatini under any cash
      bonus or


                                  Page 6 of 15
<PAGE>

      long-term or short-term cash incentive compensation plan maintained by, or
      covering employees of, the Company or the Bank, if he had continued
      working for the Company or the Bank during the Remaining Unexpired
      Employment Period and had earned the maximum bonus or incentive award in
      each calendar year that ends during the Remaining Unexpired Employment
      Period, such payments to be equal to the product of:

            (A) the maximum percentage rate at which an award was ever available
      to Mr. Sabatini under such incentive compensation plan, multiplied by

            (B) net income of the Company for the most recent fiscal year which
      is prior to Mr. Sabatini's termination of employment with the Company;

      such payments to be made in a lump sum payment in an amount equal to the
      present value of such payments as if made in accordance with Company's
      and/or Bank's Executive Bonus Plan, where such present value is to be
      determined using a discount rate equal to the applicable short-term
      federal rate prescribed under Section 1274(d) of the Code, within thirty
      (30) days following Mr. Sabatini's termination of employment. At the
      option of Mr. Sabatini, such payments may be made in equal monthly
      installments over a period of not less than three, nor more than five
      years, in which case such payments will not be discounted;

      (vii) at the election of the Company and the Bank made within thirty (30)
      days following his termination of employment with the Company and the
      Bank, upon the surrender of stock options or stock appreciation rights
      issued to Mr. Sabatini under any stock option and appreciation rights plan
      or program maintained by, or covering employees of, the Company and the
      Bank, a lump sum payment in an amount equal to the product of:

            (A) the excess of (i) the fair market value of a share of stock of
      the same class as the stock subject to the option or appreciation right,
      determined as of the date of termination of employment, over (ii) the
      exercise price per share for such option or appreciation right, as
      specified in or under the relevant plan or program; multiplied by

            (B) the number of shares with respect to which options or
      appreciation rights are being surrendered.

      For purposes of this Section 11(b)(vii) and for purposes of determining
      Mr. Sabatini's right following his termination of employment with the
      Company or Bank to exercise any options or appreciation rights not
      surrendered pursuant hereto, Mr. Sabatini shall be deemed fully vested in
      all options and appreciation rights under any stock option or appreciation
      rights plan or program maintained by, or covering employees of the Company
      or Bank, even if he is not vested under such plan or program, and shall
      have a period of three months from the date of termination of employment
      to exercise such stock options or appreciation rights.

      (viii) at the election of the Company or the Bank made within thirty (30)
      days following Mr. Sabatini's termination of employment with the Company
      and the Bank, upon the surrender of any shares awarded to Mr. Sabatini
      under any restricted stock plan maintained by, or covering employees of,
      the Company and the Bank, a lump sum payment in an amount equal to the
      product of:


                                  Page 7 of 15
<PAGE>

            (A) the fair market value of a share of stock of the same class of
      stock granted under such plan, determined as of the date of Mr. Sabatini
      termination of employment; multiplied by

            (B) the number of shares which are being surrendered.

      For purposes of this Section 11(b)(viii) and for purposes of determining
      Mr. Sabatini's right following his termination of employment with the
      Company and the Bank to any stock not surrendered pursuant hereto, Mr.
      Sabatini shall be deemed fully vested in all shares awarded under any
      restricted stock plan maintained by, or covering employees of, the Company
      and the Bank, even if he is not vested under such plan;

      (ix) the title to the car then currently provided to Mr. Sabatini shall be
      transferred to Mr. Sabatini.

The Company and the Bank and Mr. Sabatini hereby stipulate that the damages
which may be incurred by Mr. Sabatini following any such termination of
employment are not capable of accurate measurement as of the date first above
written and that the payments and benefits contemplated by this Section 11(b)
constitute reasonable damages under the circumstances and shall be payable
without any requirement of proof of actual damage and without regard to Mr.
Sabatini's efforts, if any, to mitigate damages. The Company and the Bank and
Mr. Sabatini further agree that the Company and the Bank may condition the
payments and benefits (if any) due under Sections 11(b)(iii), (iv), (v), (vi),
and (vii) on the receipt of Mr. Sabatini's resignation from any and all
positions which he holds as an officer, director or committee member with
respect to the Company, the Bank or any subsidiary or affiliate of either of
them.

      Section 12. Termination without Additional Company/Bank Liability

      (a) In the event that Mr. Sabatini employment with the Company and the
Bank shall terminate during the Employment Period on account of:

      (i) the discharge of Mr. Sabatini for "cause," which, for purposes of this
      Agreement shall mean: (A) Mr. Sabatini intentionally engages in dishonest
      conduct in connection with his performance of services for the Company or
      the Bank resulting in his conviction of a felony; (B) Mr. Sabatini is
      convicted of, or pleads guilty or nolo contendere to, a felony or any
      crime involving moral turpitude; (C) Mr. Sabatini willfully fails or
      refuses to perform his duties under this Agreement and fails to cure such
      breach within sixty (60) days following written notice thereof from the
      Company or the Bank; (D) Mr. Sabatini breaches his fiduciary duties to the
      Company or the Bank for personal profit; or (E) Mr. Sabatini's willful
      breach or violation of any law, rule or regulation (other than traffic
      violations or similar offenses), or final cease and desist order in
      connection with his performance of services for the Company or the Bank;

      (ii) Mr. Sabatini's voluntary resignation from employment with the Company
      and the Bank for reasons other than those specified in Section 11(a); or

      (iii) a determination that Mr. Sabatini is eligible for long-term
      disability benefits under


                                  Page 8 of 15
<PAGE>

      the Company's or Bank's long-term disability insurance program or, if
      there is no such program, under the federal Social Security Act;

then the Company and the Bank shall have no further obligations under this
Agreement, other than the payment to Mr Sabatini (or, in the event of his death,
to his estate) of his earned but unpaid salary as of the date of the termination
of his employment, and the provision of such other benefits, if any, to which he
is entitled as a former employee under the employee benefit plans and programs
and compensation plans and programs maintained by, or covering employees of, the
Company or the Bank.

      (b) For purposes of Section 12(a)(i)(A) or (B), no act or failure to act,
on the part of Mr. Sabatini, shall be considered "willful" unless it is done, or
omitted to be done, by Mr. Sabatini in bad faith or without reasonable belief
that Mr. Sabatini's action or omission was in the best interests of the Company
or the Bank. Any act, or failure to act, based upon authority given pursuant to
a resolution duly adopted by the Boards or based upon the written advice of
counsel for the Company or the Bank shall be conclusively presumed to be done,
or omitted to be done, by Mr. Sabatini in good faith and in the best interests
of the Company or the Bank. The cessation of employment by Mr. Sabatini shall
not be deemed to be for "cause" within the meaning of Section 12(a)(i) unless
and until there shall have been delivered to Mr. Sabatini a copy of a resolution
duly adopted by the affirmative vote of three-fourths of the non-employee
members of the Boards at a meeting of the Boards called and held for such
purpose (after reasonable notice is provided to Mr. Sabatini and Mr. Sabatini is
given an opportunity, together with counsel, to be heard before the Boards),
finding that, in the good faith opinion of the Boards, Mr. Sabatini is guilty of
the conduct described in Section 12(a)(i) above, and specifying the particulars
thereof in detail.

      Section 13. Termination Upon or Following a Change of Control

      (a) A change of control of the Company or the Bank ("Change of Control")
shall be deemed to have occurred upon the happening of any of the following
events:

      (i) approval by the stockholders of the Company or the Bank of a
      transaction that would result in the reorganization, merger or
      consolidation of the Company or the Bank, respectively, with one or more
      other persons, other than a transaction following which:

            (A) at least 51% of the equity ownership interests of the entity
      resulting from such transaction are beneficially owned (within the meaning
      of Rule 13d-3 promulgated under the Exchange Act) in substantially the
      same relative proportions by persons who, immediately prior to such
      transaction, beneficially owned (within the meaning of Rule 13d-3
      promulgated under the Exchange Act) at least 51% of the outstanding equity
      ownership interests in the Company or the Bank; and

            (B) at least 51% of the securities entitled to vote generally in the
      election of directors of the entity resulting from such transaction are
      beneficially owned (within the meaning of Rule 13d-3 promulgated under the
      Exchange Act) in substantially the same relative proportions by persons
      who, immediately prior to such transaction. beneficially owned (within the
      meaning of Rule 13d-3 promulgated under the Exchange Act) at least 51% of
      the securities entitled to vote generally in the election of directors of
      the Company or the


                                  Page 9 of 15
<PAGE>

      Bank;

      (ii) the acquisition of all or substantially all of the assets of the
      Company or the Bank or beneficial ownership (within the meaning of Rule
      13d-3 promulgated under the Exchange Act) of 20% or more of the
      outstanding securities of the Company or the Bank entitled to vote
      generally in the election of directors by any person or by any persons
      acting in concert, or approval by the stockholders of the Company or the
      Bank of any transaction which would result in such an acquisition;

      (iii) a complete liquidation or dissolution of the Company or the Bank, or
      approval by the stockholders of the Company or the Bank of a plan for such
      liquidation or dissolution;

      (iv) the occurrence of any event if, immediately following such event, at
      least 50% of the members of the board of directors of the Company or the
      Bank do not belong to any of the following groups:

            (A) individuals who were members of the board of directors of the
      Company or the Bank on the date of this Agreement; or

            (B) individuals who first became members of the board of directors
      of the Company or the Bank after the date of this Agreement either:

                  (I) upon election to serve as a member of the board of
            directors of the Company or the Bank by affirmative vote of
            three-quarters of the members of such board, in office at the time
            of such first election; or

                  (II) upon election by the stockholders to serve as a member of
            the board of directors of the Company or the Bank, but only if
            nominated for election by affirmative vote of three-quarters of the
            members of the board of directors of the Company or the Bank, or of
            a nominating committee thereof, in office at the time of such first
            nomination;

      provided, however, that such individual's election or nomination did not
      result from an actual or threatened election contest (within the meaning
      of Rule 14a-11 of Regulation 14A promulgated under the Exchange Act) or
      other actual or threatened solicitation of proxies or consents (within the
      meaning of Rule 14a-11 of Regulation 14A promulgated under the Exchange
      Act) other than by or on behalf of the Board of the Company or the Bank.

In no event, however, shall a Change of Control be deemed to have occurred as a
result of any acquisition of securities or assets of the Company, the Bank, or a
subsidiary of either of them, by the Company, the Bank, or a subsidiary of
either of them, or by any employee benefit plan maintained by any of them. For
purposes of this Section 13(a), the term "person" shall have the meaning
assigned to it under Sections 13(d)(3) or 14(d)(2) of the Exchange Act.

      (b) In the event of a Change of Control, Mr. Sabatini shall be entitled to
the payments and benefits contemplated by Section 11(b), provided, however, that
with respect to any such benefits or payments to be made thereunder, the
benefits or payments contemplated by Section 11(b)


                                 Page 10 of 15
<PAGE>

will be calculated as if the remaining Unexpired Employment Period is equal to
three years, in the event of his termination of employment with the Company or
the Bank under any of the circumstances described in Section 11(a) of this
Agreement or under any of the following circumstances:

      (i) resignation, voluntary or otherwise, by Mr. Sabatini at any time
      during the Employment Period following his demotion, loss of title, office
      or significant authority or responsibility, or following any reduction in
      any element of his package of compensation and benefits;

      (ii) resignation, voluntary or otherwise, by Mr. Sabatini at any time
      during the Employment Period following any relocation of his principal
      place of employment or any change in working conditions at such principal
      place of employment which Mr. Sabatini, in his reasonable discretion,
      determines to be embarrassing, derogatory or otherwise adverse;

      (iii) resignation, voluntary or otherwise, by Mr. Sabatini at any time
      during the Employment Period following the failure of any successor to the
      Company or the Bank in the Change of Control to include Mr. Sabatini in
      any compensation or benefit program maintained by it or covering any of
      its executive officers, unless Mr. Sabatini is already covered by a
      substantially similar plan of the Company which is at least as favorable
      to him; or

      (iv) resignation, voluntary or otherwise, for any other reason whatsoever
      following the effective date of the Change of Control.

      Section 14. Tax Indemnification

      (a) This Section 14 shall apply if Mr. Sabatini's employment is terminated
upon or following (i) a Change of Control (as defined in Section 13 of this
Agreement); or (ii) a change "in the ownership or effective control" of the
Company or the Bank or "in the ownership of a substantial portion of the assets"
of the Company or the Bank within the meaning of Section 280G of the Code. If
this Section 14 applies, then, if for any taxable year, Mr. Sabatini shall be
liable for the payment of an excise tax under Section 4999 of the Code with
respect to any payment in the nature of compensation made by the Company, the
Bank or any direct or indirect subsidiary or affiliate of the Company or the
Bank to (or for the benefit of) Mr. Sabatini, the Company or the Bank shall pay
to Mr. Sabatini an amount equal to X determined under the following formula:

      X =               E x P
           --------------------------------
           1-[(FI x (1-SLI)) + SLI + E + M]

      where

      E =   the rate at which the excise tax is assessed under Section 4999 of
            the Code;

      P =   the amount with respect to which such excise tax is assessed,
            determined without regard to this Section 14;


                                 Page 11 of 15
<PAGE>

      FI =  the highest marginal rate of income tax applicable to Mr. Sabatini
            under the Code for the taxable year in question;

      SLI = the sum of the highest marginal rates of income tax applicable to
            Mr. Sabatini under all applicable state and local laws for the
            taxable year in question; and

      M =   the highest marginal rate of Medicare tax applicable to Mr. Sabatini
            under the Code for the taxable year in question.

With respect to any payment in the nature of compensation that is made to (or
for the benefit of) Mr. Sabatini under the terms of this Agreement, or
otherwise, and on which an excise tax under Section 4999 of the Code will be
assessed, the payment determined under this Section 14(a) shall be made to Mr.
Sabatini on the earlier of (i) the date the Company, the Bank or any direct or
indirect subsidiary or affiliate of the Company or the Bank is required to
withhold such tax, or (ii) the date the tax is required to be paid by Mr.
Sabatini.

      (b) Notwithstanding anything in this Section 14 to the contrary, in the
event that Mr. Sabatini's liability for the excise tax under Section 4999 of the
Code for a taxable year is subsequently determined to be different than the
amount determined by the formula (X + P) x E, where X, P and E have the meanings
provided in Section 14(a), Mr. Sabatini, the Company or the Bank, as the case
may be, shall pay to the other party at the time that the amount of such excise
tax is finally determined, an appropriate amount, plus interest, such that the
payment made under Section 14(a), when increased by the amount of the payment
made to Mr. Sabatini under this Section 14(b) by the Company or the Bank, or
when reduced by the amount of the payment made to the Company or the Bank under
the Section 14(b) by Mr. Sabatini, equals the amount that should have properly
been paid to Mr. Sabatini under Section 14(a). The interest paid under this
Section 14(b) shall be determined at the rate provided under Section
1274(b)(2)(B) of the Code. To confirm that the proper amount, if any, was paid
to Mr. Sabatini under this Section 14, Mr. Sabatini shall furnish to the Company
a copy of each tax return which reflects a liability for an excise tax payment
made by the Company or the Bank, at least 20 days before the date on which such
return is required to be filed with the Internal Revenue Service.

      Section 15. Confidentiality

      Unless he obtains the prior written consent of the Company or the Bank,
Mr. Sabatini shall keep confidential and shall refrain from using for the
benefit of himself, or any person or entity other than the Company or the Bank
or any entity which is a subsidiary of the Company or the Bank or of which the
Company is a subsidiary, any material document or information obtained from the
Company or the Bank, or from its parent or subsidiaries, in the course of his
employment with any of them concerning their properties, operations or business
(unless such document or information is readily ascertainable from public or
published information or trade sources or has otherwise been made available to
the public through no fault of his own) until the same ceases to be material (or
becomes so ascertainable or available); provided, however, that nothing in this
Section 15 shall prevent Mr. Sabatini, with or without the Company's or Bank's
consent, from participating in or disclosing documents or information in
connection with any judicial or administrative investigation, inquiry or
proceeding to the extent that such participation or disclosure is required under
applicable law.


                                 Page 12 of 15
<PAGE>

      Section 16. No Effect on Employee Benefit Plans or Programs

      The termination of Mr. Sabatini's employment during the term of this
Agreement or thereafter, whether by the Company or the Bank or by Mr. Sabatini,
shall have no effect on the rights and obligations of the parties hereto under
the Company's or Bank's qualified or non-qualified retirement, pension, savings,
thrift, profit-sharing or stock bonus plans, group life, health (including
hospitalization, medical and major medical), dental, accident and long term
disability insurance plans or such other employee benefit plans or programs, or
compensation plans or programs, as may be maintained by, or cover employees of,
the Company or the Bank from time to time.

      Section 17. Successors and Assigns

      This Agreement will inure to the benefit of and be binding upon Mr.
Sabatini, his legal representatives and testate or intestate distributees, and
the Company and the Bank, and its successors and assigns, including any
successor by merger or consolidation or a statutory receiver or any other person
or firm or corporation to which all or substantially all of the assets and
business of the Company or the Bank may be sold or otherwise transferred.
Failure of the Company and the Bank to obtain from any successor its express
written assumption of the Company's and the Bank's obligations hereunder at
least sixty (60) days in advance of the scheduled effective date of any such
succession shall be deemed a material breach of this Agreement.

      Section 18. Notices

      Any communication required or permitted to be given under this Agreement,
including any notice, direction, designation, consent, instruction objection or
waiver, shall be in writing and shall be deemed to have been given at such time
as it is delivered personally, or five (5) days after mailing if mailed, postage
prepaid, by registered or certified mail, return receipt requested, addressed to
such party at the address listed below or at such other address as one such
party may by written notice specify to the other party:

      If to Mr. Sabatini:

             Mr. Steven T. Sabatini
             21 Indian Hill Road
             Warwick, New York 10990

      If to the Company or the Bank:

             U.S.B. Holding Co., Inc.
             Union State Bank
             100 Dutch Hill Road
             Orangeburg, New York 10962

             Attention: Corporate Secretary


                                 Page 13 of 15
<PAGE>

      Section 19. Severability

      A determination that any provision of this Agreement is invalid or
unenforceable shall not affect the validity or enforceability of any other
provision hereof.

      Section 20. Waiver

      Failure to insist upon strict compliance with any of the terms, covenants
or conditions hereof shall not be deemed a waiver of such term, covenant, or
condition. A waiver of any provision of this Agreement must be made in writing,
designated as a waiver, and signed by the party against whom its enforcement is
sought. Any waiver or relinquishment of any right or power hereunder at any one
or more times shall not be deemed a waiver or relinquishment of such right or
power at any other time or times.

      Section 21. Counterparts

      This Agreement may be executed in two (2) or more counterparts, each of
which shall be deemed an original, and all of which shall constitute one and the
same Agreement.

      Section 22. Governing Law

      This Agreement shall be governed by and construed and enforced in
accordance with the federal laws of the United States and, to the extent that
federal law is inapplicable, in accordance with the laws of the State of New
York applicable to contracts entered into and to be performed entirely within
the State of New York.

      Section 23. Headings and Construction

      The headings of sections in this Agreement are for the convenience of
reference only and are not intended to qualify the meaning of any section. Any
reference to a section number shall refer to a section of this Agreement unless
otherwise stated.

      Section 24. Entire Agreement; Modifications

      This instrument contains the entire agreement of the parties relating to
the subject matter hereof, and supersedes in its entirety any and all prior
agreements, understandings or representations relating to the subject matter
hereof. No modifications of this Agreement shall be valid unless made in writing
and signed by the parties hereto.

      Section 25. Non-duplication

      In the event that Mr. Sabatini performs services for the Company, the Bank
or an other direct or indirect subsidiary of the Company or the Bank, any
compensation or benefits provided to Mr. Sabatini by such other employer shall
be applied to offset the obligations of the Company and the Bank hereunder, it
being intended that this Agreement set forth the aggregate compensation and
benefits payable to Mr. Sabatini for all services to the Company, the Bank, and
all of its direct or indirect subsidiaries.


                                 Page 14 of 15
<PAGE>

      In Witness Whereof, the Company and the Bank have caused this Agreement to
be executed by their duly authorized officers and Mr. Sabatini has hereunto set
his hand, all as of the day and year first above written.


                                                     /s/ Steven T. Sabatini
                                              ----------------------------------
                                                      STEVEN T. SABATINI


ATTEST:                                       U.S.B. HOLDING CO., INC.


By /s/ [Illegible]                            By /s/ Thomas E. Hales
  --------------------------------              --------------------------------
            Secretary                           Name:  THOMAS E. HALES
                                                Title: CHAIRMAN, PRESIDENT & CEO


                                              UNION STATE BANK


By /s/ [Illegible]                            By /s/ Thomas E. Hales
  --------------------------------              --------------------------------
            Secretary                           Name:  THOMAS E. HALES
                                                Title: CHAIRMAN, PRESIDENT & CEO


                                 Page 15 of 15