CHANGE OF CONTROL
                              EMPLOYMENT AGREEMENT

            AGREEMENT by and between State Bancorp, Inc., a New York corporation
(the "Company") and Richard W. Merzbacher (the "Executive"), dated as of the
24th day of September, 1997.

            The Board of Directors of the Company (the "Board"), has determined
that it is in the best interests of the Company and its shareholders to assure
that the Company will have the continued dedication of the Executive,
notwithstanding the possibility, threat or occurrence of a Change of Control (as
defined below) of the Company. The Board believes it is imperative to diminish
the inevitable distraction of the Executive by virtue of the personal
uncertainties and risks created by a pending or threatened Change of Control and
to encourage the Executive's full attention and dedication to the Company
currently and in the event of any threatened or pending Change of Control, and
to provide the Executive with compensation and benefits arrangements upon a
Change of Control which ensure that the compensation and benefits expectations
of the Executive will be satisfied and which are competitive with those of other
corporations. Therefore, in order
<PAGE>

to accomplish these objectives, the Board has caused the Company to enter into
this Agreement.

            NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:

            1. Certain Definitions. (a) The "Effective Date" shall mean the
first date during the Change of Control Period (as defined in Section 1(b)) on
which a Change of Control (as defined in Section 2) occurs. Anything in this
Agreement to the contrary notwithstanding, if a Change of Control occurs and if
the Executive's employment with the Company is terminated prior to the date on
which the Change of Control occurs, and if it is reasonably demonstrated by the
Executive that such termination of employment (i) was at the request of a third
party who has taken steps reasonably calculated to effect a Change of Control or
(ii) otherwise arose in connection with or anticipation of a Change of Control,
then for all purposes of this Agreement the "Effective Date" shall mean the date
immediately prior to the date of such termination of employment.

            (b) The "Change of Control Period" shall mean the period commencing
on the date hereof and ending on the third anniversary of the date hereof;
provided, however, that commencing on the date one year after the date hereof,
and on each annual anniversary of
<PAGE>

such date (such date and each annual anniversary thereof shall be hereinafter
referred to as the "Renewal Date"), unless previously terminated, the Change of
Control Period shall be automatically extended so as to terminate three years
from such Renewal Date, unless at least 60 days prior to the Renewal Date the
Company shall give notice to the Executive that the Change of Control Period
shall not be so extended.

            2. Change of Control. For the purpose of this Agreement, a "Change
of Control" shall mean:

            (a) The acquisition by any individual, entity or group (within the
      meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of
      1934, as amended (the "Exchange Act")) (a "Person") of beneficial
      ownership (within the meaning of Rule 13d-3 promulgated under the Exchange
      Act) of 20% or more of either (i) the then outstanding shares of common
      stock of the Company (the "Outstanding Company Common Stock") or (ii) the
      combined voting power of the then outstanding voting securities of the
      Company entitled to vote generally in the election of directors (the
      "Outstanding Company Voting Securities"); provided, however, that for
      purposes of this subsection (a), the following acquisitions shall not
      constitute a Change of Control: (i) any acquisition directly from the
      Company, (ii) any acquisition by the Company, (iii) any acquisition by any
      employee benefit plan (or related trust) sponsored or maintained by the
      Company or any corporation controlled by the Company or (iv) any
      acquisition pursuant to a transaction which complies with clauses (i),
      (ii) and (iii) of subsection (c) of this Section 2; or

            (b) Individuals who, as of the date hereof, constitute the Board
      (the "Incumbent Board") cease for any reason to constitute at least a
      majority of the Board; provided, however, that any individual becoming a
      director subsequent to the date
<PAGE>

      hereof whose election, or nomination for election by the Company's
      shareholders, was approved by a vote of at least a majority of the
      directors then comprising the Incumbent Board shall be considered as
      though such individual were a member of the Incumbent Board, but
      excluding, for this purpose, any such individual whose initial assumption
      of office occurs as a result of an actual or threatened election contest
      with respect to the election or removal of directors or other actual or
      threatened solicitation of proxies or consents by or on behalf of a Person
      other than the Board; or

            (c) Consummation by the Company of a reorganization, merger or
      consolidation or sale or other disposition of all or substantially all of
      the assets of the Company or the acquisition of assets of another entity
      (a "Business Combination"), in each case, unless, following such Business
      Combination, (i) all or substantially all of the individuals and entities
      who were the beneficial owners, respectively, of the Outstanding Company
      Common Stock and Outstanding Company Voting Securities immediately prior
      to such Business Combination beneficially own, directly or indirectly,
      more than 60% of, respectively, the then outstanding shares of common
      stock and the combined voting power of the then outstanding voting
      securities entitled to vote generally in the election of directors, as the
      case may be, of the corporation resulting from such Business Combination
      (including, without limitation, a corporation which as a result of such
      transaction owns the Company or all or substantially all of the Company's
      assets either directly or through one or more subsidiaries) in
      substantially the same proportions as their ownership, immediately prior
      to such Business Combination of the Outstanding Company Common Stock and
      Outstanding Company Voting Securities, as the case may be, (ii) no Person
      (excluding any employee benefit plan (or related trust) of the Company or
      such corporation resulting from such Business Combination) beneficially
      owns, directly or indirectly, 20% or more of, respectively, the then
      outstanding shares of common stock of the corporation resulting from such
      Business Combination or the combined voting power of the then outstanding
      voting securities of such corporation except to the extent that such
      ownership existed prior to the Business Combination and (iii) at least a
      majority of the members of the board of directors of the corporation
      resulting from such Business Combination were members of the Incumbent
      Board at the time of the execution of
<PAGE>

      the initial agreement, or of the action of the Board, providing for such
      Business Combination; or

            (d) Approval by the shareholders of the Company of a complete
      liquidation or dissolution of the Company.

            3. Employment Period. The Company hereby agrees to continue the
Executive in its employ, and the Executive hereby agrees to remain in the employ
of the Company subject to the terms and conditions of this Agreement, for the
period commencing on the Effective Date and ending on the third anniversary of
such date (the "Employment Period").

            4. Terms of Employment. (a) Position and Duties. (i) During the
Employment Period, (A) the Executive's position (including status, offices,
titles and reporting requirements), authority, duties and responsibilities shall
be at least commensurate in all material respects with the most significant of
those held, exercised and assigned to the Executive at any time during the
120-day period immediately preceding the Effective Date and (B) the Executive's
services shall be performed at the location where the Executive was employed
immediately preceding the Effective Date or any office or location less than 10
miles from such location.
<PAGE>

                  (ii) During the Employment Period, and excluding any periods
of vacation and sick leave to which the Executive is entitled, the Executive
agrees to devote reasonable attention and time during normal business hours to
the business and affairs of the Company and, to the extent necessary to
discharge the responsibilities assigned to the Executive hereunder, to use the
Executive's reasonable best efforts to perform faithfully and efficiently such
responsibilities. During the Employment Period it shall not be a violation of
this Agreement for the Executive to (A) serve on corporate, civic or charitable
boards or committees, (B) deliver lectures, fulfill speaking engagements or
teach at educational institutions and (C) manage personal investments, so long
as such activities do not significantly interfere with the performance of the
Executive's responsibilities as an employee of the Company in accordance with
this Agreement. It is expressly understood and agreed that to the extent that
any such activities have been conducted by the Executive prior to the Effective
Date, the continued conduct of such activities (or the conduct of activities
similar in nature and scope thereto) subsequent to the Effective Date shall not
thereafter be deemed to interfere with the performance of the Executive's
responsibilities to the Company.
<PAGE>

            (b) Compensation. (i) Base Salary. During the Employment Period, the
Executive shall receive an annual base salary ("Annual Base Salary"), which
shall be paid at a monthly rate, at least equal to twelve times the highest
monthly base salary paid or payable, including any base salary which has been
earned but deferred, to the Executive by the Company and its affiliated
companies in respect of the twelve-month period immediately preceding the month
in which the Effective Date occurs. During the Employment Period, the Annual
Base Salary shall be reviewed no more than 12 months after the last salary
increase awarded to the Executive prior to the Effective Date and thereafter at
least annually. Any increase in Annual Base Salary shall not serve to limit or
reduce any other obligation to the Executive under this Agreement. Annual Base
Salary shall not be reduced after any such increase and the term Annual Base
Salary as utilized in this Agreement shall refer to Annual Base Salary as so
increased. As used in this Agreement, the term "affiliated companies" shall
include any company controlled by, controlling or under common control with the
Company.
<PAGE>

                  (ii) Annual Bonus. In addition to Annual Base Salary, the
Executive shall be awarded, for each fiscal year ending during the Employment
Period, an annual bonus (the "Annual Bonus") in cash at least equal to the
Executive's highest bonus for the last three full fiscal years prior to the
Effective Date (annualized in the event that the Executive was not employed by
the Company for the whole of such fiscal year) (the "Recent Annual Bonus"). Each
such Annual Bonus shall be paid no later than the end of the third month of the
fiscal year next following the fiscal year for which the Annual Bonus is
awarded, unless the Executive shall elect to defer the receipt of such Annual
Bonus.

                  (iii) Incentive, Savings and Retirement Plans. During the
Employment Period, the Executive shall be entitled to participate in all
incentive, savings and retirement plans, practices, policies and programs
applicable generally to other peer executives of the Company and its affiliated
companies, but in no event shall such plans, practices, policies and programs
provide the Executive with incentive opportunities (measured with respect to
both regular and special incentive opportunities, to the extent, if any, that
such distinction is applicable), savings opportunities and retirement benefit
opportunities, in each case, less favorable, in the aggregate, than the most
favorable of those provided by the
<PAGE>

Company and its affiliated companies for the Executive under such plans,
practices, policies and programs as in effect at any time during the 120-day
period immediately preceding the Effective Date or if more favorable to the
Executive, those provided generally at any time after the Effective Date to
other peer executives of the Company and its affiliated companies.

                  (iv) Welfare Benefit Plans. During the Employment Period, the
Executive and/or the Executive's family, as the case may be, shall be eligible
for participation in and shall receive all benefits under welfare benefit plans,
practices, policies and programs provided by the Company and its affiliated
companies (including, without limitation, medical, prescription, dental,
disability, salary continuance, employee life, group life, accidental death and
travel accident insurance plans and programs) to the extent applicable generally
to other peer executives of the Company and its affiliated companies, but in no
event shall such plans, practices, policies and programs provide the Executive
with benefits which are less favorable, in the aggregate, than the most
favorable of such plans, practices, policies and programs in effect for the
Executive at any time during the 120-day period immediately
<PAGE>

preceding the Effective Date or, if more favorable to the Executive, those
provided generally at any time after the Effective Date to other peer executives
of the Company and its affiliated companies.

                  (v) Expenses. During the Employment Period, the Executive
shall be entitled to receive prompt reimbursement for all reasonable expenses
incurred by the Executive in accordance with the most favorable policies,
practices and procedures of the Company and its affiliated companies in effect
for the Executive at any time during the 120-day period immediately preceding
the Effective Date or, if more favorable to the Executive, as in effect
generally at any time thereafter with respect to other peer executives of the
Company and its affiliated companies.

                  (vi) Fringe Benefits. During the Employment Period, the
Executive shall be entitled to fringe benefits, including, without limitation,
tax and financial planning services, payment of club dues, and, if applicable,
use of an automobile and payment of related expenses, in accordance with the
most favorable plans, practices, programs and policies of the Company and its
affiliated companies in effect for the Executive at any time during the 120-day
period immediately preceding the Effective Date or, if more favorable to the
Executive, as in effect generally at any time
<PAGE>

thereafter with respect to other peer executives of the Company and its
affiliated companies.

                  (vii) Office and Support Staff. During the Employment Period,
the Executive shall be entitled to an office or offices of a size and with
furnishings and other appointments, and to exclusive personal secretarial and
other assistance, at least equal to the most favorable of the foregoing provided
to the Executive by the Company and its affiliated companies at any time during
the 120-day period immediately preceding the Effective Date or, if more
favorable to the Executive, as provided generally at any time thereafter with
respect to other peer executives of the Company and its affiliated companies.

                  (viii) Vacation. During the Employment Period, the Executive
shall be entitled to paid vacation in accordance with the most favorable plans,
policies, programs and practices of the Company and its affiliated companies as
in effect for the Executive at any time during the 120-day period immediately
preceding the Effective Date or, if more favorable to the Executive, as in
effect generally at any time thereafter with respect to other peer executives of
the Company and its affiliated companies.
<PAGE>

                  (ix) On the Effective Date, all stock options previously
granted to the Executive shall become fully vested and immediately exercisable
and all restrictions on shares of restricted stock previously awarded to the
Executive shall immediately lapse.

            5. Termination of Employment. (a) Death or Disability. The
Executive's employment shall terminate automatically upon the Executive's death
during the Employment Period. If the Company determines in good faith that the
Disability of the Executive has occurred during the Employment Period (pursuant
to the definition of Disability set forth below), it may give to the Executive
written notice in accordance with Section 12(b) of this Agreement of its
intention to terminate the Executive's employment. In such event, the
Executive's employment with the Company shall terminate effective on the 30th
day after receipt of such notice by the Executive (the "Disability Effective
Date"), provided that, within the 30 days after such receipt, the Executive
shall not have returned to full-time performance of the Executive's duties. For
purposes of this Agreement, "Disability" shall mean the absence of the Executive
from the Executive's duties with the Company on a full-time basis for 180
consecutive business days as a result of incapacity due to mental or physical
illness which is determined to be total and permanent by a physician selected by
the Company or
<PAGE>

its insurers and acceptable to the Executive or the Executive's legal
representative.

            (b) Cause. The Company may terminate the Executive's employment
during the Employment Period for Cause. For purposes of this Agreement, "Cause"
shall mean:

                  (i) fraud, misappropriation or intentional material damage to
      the property or business of the Company, or

                  (ii) commission of a felony as determined by a court of
      competent jurisdiction, whose determination is final and non-appealable.

For purposes of this provision, no act or failure to act, on the part of the
Executive, shall be considered "intentional" unless it is done, or omitted to be
done, by the Executive in bad faith or without reasonable belief that the
Executive's action or omission was in the best interests of the Company. Any
act, or failure to act, based upon authority given pursuant to a resolution duly
adopted by the Board or upon the instructions of the Chief Executive Officer or
a senior officer of the Company or based upon the advice of counsel for the
Company shall be conclusively presumed to be done, or omitted to be done, by the
Executive in good faith and in the best interests of the Company. The
<PAGE>

cessation of employment of the Executive shall not be deemed to be for Cause
unless and until there shall have been delivered to the Executive a copy of a
resolution duly adopted by the affirmative vote of not less than three-quarters
of the entire membership of the Board at a meeting of the Board called and held
for such purpose (after reasonable notice is provided to the Executive and the
Executive is given an opportunity, together with counsel, to be heard before the
Board), finding that, in the good faith opinion of the Board, the Executive is
guilty of the conduct described in subparagraph (i) or (ii) above, and
specifying the particulars thereof in detail.

            (c) Good Reason. The Executive's employment may be terminated by the
Executive for Good Reason. For purposes of this Agreement, "Good Reason" shall
mean:

                  (i) without the express written consent of the Executive, the
      assignment to the Executive of any duties inconsistent in any respect with
      the Executive's position (including status, offices, titles and reporting
      requirements), authority, duties or responsibilities as contemplated by
      Section 4(a) of this Agreement, or any other action by the Company which
      results in a diminution in such position, authority, duties or
      responsibilities, excluding for this purpose an isolated, insubstantial
      and inadvertent action not taken in bad faith and which is remedied by the
      Company promptly after receipt of notice thereof given by the Executive;

                  (ii) any failure by the Company to comply with any of the
      provisions of Section 4(b) of this Agreement, other than an isolated,
      insubstantial and inadvertent failure not occurring
<PAGE>

      in bad faith and which is remedied by the Company promptly after receipt
      of notice thereof given by the Executive;

                  (iii) without the express written consent of the Executive,
      the Company's requiring the Executive to be based at any office or
      location other than as provided in Section 4(a)(i)(B) hereof or the
      Company's requiring the Executive to travel on Company business to a
      substantially greater extent than required during the one-year period
      prior to the Effective Date;

                  (iv) any purported termination by the Company of the
      Executive's employment otherwise than as expressly permitted by this
      Agreement; or

                  (v) any failure by the Company to comply with and satisfy
      Section 11(c) of this Agreement.

For purposes of this Section 5(c), any good faith determination of "Good Reason"
made by the Executive shall be conclusive. Anything in this Agreement to the
contrary notwithstanding, a termination by the Executive for any reason during
the 30-day period immediately following the first anniversary of the Effective
Date shall be deemed to be a termination for Good Reason for all purposes of
this Agreement.

            (d) Notice of Termination. Any termination by the Company for Cause,
or by the Executive for Good Reason, shall be communicated by Notice of
Termination to the other party hereto given in accordance with Section 12(b) of
this Agreement. For
<PAGE>

purposes of this Agreement, a "Notice of Termination" means a written notice
which (i) indicates the specific termination provision in this Agreement relied
upon, (ii) to the extent applicable, sets forth in reasonable detail the facts
and circumstances claimed to provide a basis for termination of the Executive's
employment under the provision so indicated and (iii) if the Date of Termination
(as defined below) is other than the date of receipt of such notice, specifies
the termination date (which date shall be not more than thirty days after the
giving of such notice). The failure by the Executive or the Company to set forth
in the Notice of Termination any fact or circumstance which contributes to a
showing of Good Reason or Cause shall not waive any right of the Executive or
the Company, respectively, hereunder or preclude the Executive or the Company,
respectively, from asserting such fact or circumstance in enforcing the
Executive's or the Company's rights hereunder.

            (e) Date of Termination. "Date of Termination" means (i) if the
Executive's employment is terminated by the Company for Cause, or by the
Executive for Good Reason, the date of receipt of the Notice of Termination or
any later date specified therein, as the case may be, (ii) if the Executive's
employment is terminated by the Company other than for Cause or Disability, the
date on
<PAGE>

which the Company notifies the Executive of such termination and (iii) if the
Executive's employment is terminated by reason of death or Disability, the date
of death of the Executive or the Disability Effective Date, as the case may be.

            6. Obligations of the Company upon Termination. (a) Good Reason;
Other Than for Cause, Death or Disability. If, during the Employment Period, the
Company shall terminate the Executive's employment other than for Cause or
Disability or the Executive shall terminate employment for Good Reason:

                  (i) the Company shall pay to the Executive in a lump sum in
      cash within 30 days after the Date of Termination the aggregate of the
      following amounts:

                        A. the sum of (1) the Executive's Annual Base Salary
            through the Date of Termination to the extent not theretofore paid,
            (2) the product of (x) the higher of (I) the Recent Annual Bonus and
            (II) the Annual Bonus paid or payable, including any bonus or
            portion thereof which has been earned but deferred (and annualized
            for any fiscal year consisting of less than twelve full months or
            during which the Executive was employed for less than twelve full
            months), for the most recently completed fiscal year during the
            Employment Period, if any (such higher amount being referred to as
            the "Highest Annual Bonus") and (y) a fraction, the numerator of
            which is the number of days in the current fiscal year through the
            Date of Termination, and the denominator of which is 365 and (3) any
            compensation previously deferred by the Executive (together with any
            accrued interest or earnings thereon) and any accrued vacation pay,
            in each case to the extent
<PAGE>

            not theretofore paid (the sum of the amounts described in clauses
            (1), (2), and (3) shall be hereinafter referred to as the "Accrued
            Obligations"); and

                        B. the amount equal to the product of (1) 3 and (2) the
            sum of (x) the Executive's Annual Base Salary and (y) the Highest
            Annual Bonus; and

                        C. a lump sum in cash equal to the sum of (A) the
            Company contributions to the Employee Stock Ownership Plan (the
            "ESOP") that would have been made on behalf of the Executive during
            the three year period following the Date of Termination if the
            Executive's employment had continued during such period, assuming
            Company contributions to the ESOP of a percentage of annual gross
            compensation equal to the average percentage of annual gross
            compensation contributed to the ESOP during the three-year period
            prior to the Date of Termination, and (B) the amount that would have
            been credited during the three year period following the Date of
            Termination to the Executive's "Deferred Compensation Account" under
            Section 4(a) of the Deferred Compensation Agreement by and between
            State Bank of Long Island and the Executive, dated as of April 1,
            1994, if the Executive's employment had continued during such
            period, assuming Company contributions to the ESOP of a percentage
            of annual gross compensation equal to the average percentage of
            annual gross compensation contributed to the ESOP during the
            three-year period prior to the Date of Termination; and

                 (ii) for three years after the Executive's Date of Termination,
      or such longer period as may be provided by the terms of the appropriate
      plan, program, practice or policy, the Company shall continue benefits to
      the Executive and/or the Executive's family at least equal to those which
      would have been provided to them in accordance with the plans, programs,
      practices and policies described in Section 4(b)(iv) of this Agreement if
      the Executive's employment had not been terminated or, if more favorable
      to the Executive, as in effect generally at any time thereafter with
      respect to other peer executives of the Company and its affiliated
      companies and their families, provided, however, that if the Executive
      becomes reemployed with another employer and is eligible to receive
      medical or other welfare benefits under another employer-provided plan,
      the medical and other welfare benefits described herein shall
<PAGE>

      be secondary to those provided under such other plan during such
      applicable period of eligibility, and for purposes of determining
      eligibility (but not the time of commencement of benefits) of the
      Executive for retiree benefits pursuant to such plans, practices, programs
      and policies, the Executive shall be considered to have remained employed
      until three years after the Date of Termination and to have retired on the
      last day of such period;

                  (iii) without limiting the generality of clause (ii) above,
      the Company shall provide the Executive with coverage under the Company's
      group life insurance as then in effect, or equivalent benefits, at no cost
      to the Executive, for three years following the Date of Termination at a
      level determined on the basis of three times the Executive's Annual Base
      Salary, and the Executive's participation in the Company's
      Hospital/Medical/Surgical insurance plan shall be continued on the same
      basis as prior to the Date of Termination, or equivalent benefits shall be
      provided by the Company, at no direct cost to the Executive for a period
      of three years from the Date of Termination;

                  (iv) the Company shall, at its sole expense as incurred,
      provide the Executive with outplacement services the scope and provider of
      which shall be selected by the Executive in the Executive's sole
      discretion;

                  (v) the Executive shall be entitled to full time use for a
      period of three years after the Date of Termination of an automobile of
      his selection comparable in all respects to the automobile furnished to
      the Executive by the Company for his use during the 120-day period prior
      to the termination of his employment and shall receive an automobile
      allowance of $3,600.00 per annum for a period of three years following the
      Date of Termination; and

                  (vi) to the extent not theretofore paid or provided, the
      Company shall timely pay or provide to the Executive any other amounts or
      benefits required to be paid or provided or which the Executive is
      eligible to receive under any plan, program, policy or practice or
      contract or agreement of the
<PAGE>

      Company and its affiliated companies (such other amounts and benefits
      shall be hereinafter referred to as the "Other Benefits").

            (b) Death. If the Executive's employment is terminated by reason of
the Executive's death during the Employment Period, this Agreement shall
terminate without further obligations to the Executive's legal representatives
under this Agreement, other than for payment of Accrued Obligations and the
timely payment or provision of Other Benefits. Accrued Obligations shall be paid
to the Executive's estate or beneficiary, as applicable, in a lump sum in cash
within 30 days of the Date of Termination. With respect to the provision of
Other Benefits, the term Other Benefits as utilized in this Section 6(b) shall
include, without limitation, and the Executive's estate and/or beneficiaries
shall be entitled to receive, benefits at least equal to the most favorable
benefits provided by the Company and affiliated companies to the estates and
beneficiaries of peer executives of the Company and such affiliated companies
under such plans, programs, practices and policies relating to death benefits,
if any, as in effect with respect to other peer executives and their
beneficiaries at any time during the 120-day period immediately preceding the
Effective Date or, if more favorable to the Executive's estate and/or the
Executive's beneficiaries, as in effect on the date of the Executive's death
<PAGE>

with respect to other peer executives of the Company and its affiliated
companies and their beneficiaries.

            (c) Disability. If the Executive's employment is terminated by
reason of the Executive's Disability during the Employment Period, this
Agreement shall terminate without further obligations to the Executive, other
than for payment of Accrued Obligations and the timely payment or provision of
Other Benefits. Accrued Obligations shall be paid to the Executive in a lump sum
in cash within 30 days of the Date of Termination. With respect to the provision
of Other Benefits, the term Other Benefits as utilized in this Section 6(c)
shall include, and the Executive shall be entitled after the Disability
Effective Date to receive, disability and other benefits at least equal to the
most favorable of those generally provided by the Company and its affiliated
companies to disabled executives and/or their families in accordance with such
plans, programs, practices and policies relating to disability, if any, as in
effect generally with respect to other peer executives and their families at any
time during the 120-day period immediately preceding the Effective Date or, if
more favorable to the Executive and/or the Executive's family, as in
<PAGE>

effect at any time thereafter generally with respect to other peer executives of
the Company and its affiliated companies and their families.

            (d) Cause; Other than for Good Reason. If the Executive's employment
shall be terminated for Cause during the Employment Period, this Agreement shall
terminate without further obligations to the Executive other than the obligation
to pay to the Executive (x) the Annual Base Salary through the Date of
Termination, (y) the amount of any compensation previously deferred by the
Executive, and (z) Other Benefits, in each case to the extent theretofore
unpaid. If the Executive voluntarily terminates employment during the Employment
Period, excluding a termination for Good Reason, this Agreement shall terminate
without further obligations to the Executive, other than for Accrued Obligations
and the timely payment or provision of Other Benefits. In such case, all Accrued
Obligations shall be paid to the Executive in a lump sum in cash within 30 days
of the Date of Termination.

            7. Non-exclusivity of Rights. Nothing in this Agreement shall
prevent or limit the Executive's continuing or future participation in any plan,
program, policy or practice provided by the Company or any of its affiliated
companies and for which the Executive may qualify, nor, subject to Section
12(f), shall
<PAGE>

anything herein limit or otherwise affect such rights as the Executive may have
under any contract or agreement with the Company or any of its affiliated
companies. Amounts which are vested benefits or which the Executive is otherwise
entitled to receive under any plan, policy, practice or program of or any
contract or agreement with the Company or any of its affiliated companies at or
subsequent to the Date of Termination shall be payable in accordance with such
plan, policy, practice or program or contract or agreement except as explicitly
modified by this Agreement.

            8. Full Settlement; Legal Fees. The Company's obligation to make the
payments provided for in this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any set-off, counterclaim, recoupment,
defense or other claim, right or action which the Company may have against the
Executive or others. In no event shall the Executive be obligated to seek other
employment or take any other action by way of mitigation of the amounts payable
to the Executive under any of the provisions of this Agreement and except as
specifically provided in Section 6(a)(ii), such amounts shall not be reduced
whether or not the Executive obtains other employment. The Company agrees to pay
as
<PAGE>

incurred, to the full extent permitted by law, all legal fees and expenses which
the Executive may reasonably incur as a result of any contest (regardless of the
outcome thereof) by the Company, the Executive or others of the validity or
enforceability of, or liability or entitlement under, any provision of this
Agreement or any guarantee of performance thereof (whether such contest is
between the Company and the Executive or between either of them and any third
party, and including as a result of any contest by the Executive about the
amount of any payment pursuant to this Agreement), plus in each case interest on
any delayed payment at the applicable Federal rate provided for in Section
7872(f)(2)(A) of the Internal Revenue Code of 1986, as amended (the "Code").

            9. Certain Additional Payments by the Company.

            (a) Anything in this Agreement to the contrary notwithstanding, in
the event it shall be determined that any payment or distribution by the Company
to or for the benefit of the Executive (whether paid or payable or distributed
or distributable pursuant to the terms of this Agreement or otherwise, but
determined without regard to any additional payments required under this Section
9) (a "Payment") would be subject to the excise tax imposed by Section 4999 of
the Code or any corresponding provisions of state or local tax laws, or any
interest or penalties are
<PAGE>

incurred by the Executive with respect to such excise tax (such excise tax,
together with any such interest and penalties, are hereinafter collectively
referred to as the "Excise Tax"), then the Executive shall be entitled to
receive an additional payment (a "Gross-Up Payment") in an amount such that
after payment by the Executive of all taxes (including any interest or penalties
imposed with respect to such taxes), including, without limitation, any income
taxes (and any interest and penalties imposed with respect thereto) and Excise
Tax imposed upon the Gross-Up Payment, the Executive retains an amount of the
Gross-Up Payment equal to the Excise Tax imposed upon the Payments.

            (b) Subject to the provisions of Section 9(c), all determinations
required to be made under this Section 9, including whether and when a Gross-Up
Payment is required and the amount of such Gross-Up Payment and the assumptions
to be utilized in arriving at such determination, shall be made by Deloitte and
Touche LLP or such other certified public accounting firm as may be designated
by the Executive (the "Accounting Firm"), which shall provide detailed
supporting calculations both to the Company and the Executive within 15 business
days of the receipt of notice from
<PAGE>

the Executive that there has been a Payment, or such earlier time as is
requested by the Company. In the event that the Accounting Firm is serving as
accountant or auditor for the individual, entity or group effecting the Change
of Control, the Executive shall appoint another nationally recognized accounting
firm to make the determinations required hereunder (which accounting firm shall
then be referred to as the Accounting Firm hereunder). All fees and expenses of
the Accounting Firm shall be borne solely by the Company. Any Gross-Up Payment,
as determined pursuant to this Section 9, shall be paid by the Company to the
Executive within five days of the receipt of the Accounting Firm's
determination. Any determination by the Accounting Firm shall be binding upon
the Company and the Executive. As a result of the uncertainty in the application
of Section 4999 of the Code at the time of the initial determination by the
Accounting Firm hereunder, it is possible that Gross-Up Payments which will not
have been made by the Company should have been made ("Underpayment"), consistent
with the calculations required to be made hereunder. In the event that the
Company exhausts its remedies pursuant to Section 9(c) and the Executive
thereafter is required to make a payment of any Excise Tax, the Accounting Firm
shall determine the amount of the Underpayment that has occurred and any such
Underpayment shall be
<PAGE>

promptly paid by the Company to or for the benefit of the Executive.

            (c) The Executive shall notify the Company in writing of any claim
by the Internal Revenue Service that, if successful, would require the payment
by the Company of the Gross-Up Payment. Such notification shall be given as soon
as practicable but no later than ten business days after the Executive is
informed in writing of such claim and shall apprise the Company of the nature of
such claim and the date on which such claim is requested to be paid. The
Executive shall not pay such claim prior to the expiration of the 30-day period
following the date on which the Executive gives such notice to the Company (or
such shorter period ending on the date that any payment of taxes with respect to
such claim is due). If the Company notifies the Executive in writing prior to
the expiration of such period that it desires to contest such claim, the
Executive shall:

                  (i) give the Company any information reasonably requested by
            the Company relating to such claim,

                  (ii) take such action in connection with contesting such claim
            as the Company shall reasonably request in writing from time to
            time, including, without limitation,
<PAGE>

            accepting legal representation with respect to such claim by an
            attorney reasonably selected by the Company,

                  (iii) cooperate with the Company in good faith in order
            effectively to contest such claim, and

                  (iv) permit the Company to participate in any proceedings
            relating to such claim;

provided, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold the Executive harmless, on an
after-tax basis, for any Excise Tax or income tax (including interest and
penalties with respect thereto) imposed as a result of such representation and
payment of costs and expenses. Without limitation on the foregoing provisions of
this Section 9(c), the Company shall control all proceedings taken in connection
with such contest and, at its sole option, may pursue or forgo any and all
administrative appeals, proceedings, hearings and conferences with the taxing
authority in respect of such claim and may, at its sole option, either direct
the Executive to pay the tax claimed and sue for a refund or contest the claim
in any permissible manner, and the Executive agrees to prosecute such contest to
a determination before any administrative tribunal, in a court of initial
jurisdiction and in one or more appellate courts, as the Company shall
determine; provided, however, that if the Company directs the Executive to pay
such claim and sue for a
<PAGE>

refund, the Company shall advance the amount of such payment to the Executive,
on an interest-free basis and shall indemnify and hold the Executive harmless,
on an after-tax basis, from any Excise Tax or income tax (including interest or
penalties with respect thereto) imposed with respect to such advance or with
respect to any imputed income with respect to such advance; and further provided
that any extension of the statute of limitations relating to payment of taxes
for the taxable year of the Executive with respect to which such contested
amount is claimed to be due is limited solely to such contested amount.
Furthermore, the Company's control of the contest shall be limited to issues
with respect to which a Gross-Up Payment would be payable hereunder and the
Executive shall be entitled to settle or contest, as the case may be, any other
issue raised by the Internal Revenue Service or any other taxing authority.

            (d) If, after the receipt by the Executive of an amount advanced by
the Company pursuant to Section 9(c), the Executive becomes entitled to receive
any refund with respect to such claim, the Executive shall (subject to the
Company's complying with the requirements of Section 9(c)) promptly pay to the
Company the
<PAGE>

amount of such refund (together with any interest paid or credited thereon after
taxes applicable thereto). If, after the receipt by the Executive of an amount
advanced by the Company pursuant to Section 9(c), a determination is made that
the Executive shall not be entitled to any refund with respect to such claim and
the Company does not notify the Executive in writing of its intent to contest
such denial of refund prior to the expiration of 30 days after such
determination, then such advance shall be forgiven and shall not be required to
be repaid and the amount of such advance shall offset, to the extent thereof,
the amount of Gross-Up Payment required to be paid.

            10. Confidential Information. The Executive shall hold in a
fiduciary capacity for the benefit of the Company all secret or confidential
information, knowledge or data relating to the Company or any of its affiliated
companies, and their respective businesses, which shall have been obtained by
the Executive during the Executive's employment by the Company or any of its
affiliated companies and which shall not be or become public knowledge (other
than by acts by the Executive or representatives of the Executive in violation
of this Agreement). After termination of the Executive's employment with the
Company, the Executive shall not, without the prior written consent of the
Company or as may
<PAGE>

otherwise be required by law or legal process, communicate or divulge any such
information, knowledge or data to anyone other than the Company and those
designated by it. In no event shall an asserted violation of the provisions of
this Section 10 constitute a basis for deferring or withholding any amounts
otherwise payable to the Executive under this Agreement.

            11. Successors. (a) This Agreement is personal to the Executive and
without the prior written consent of the Company shall not be assignable by the
Executive otherwise than by will or the laws of descent and distribution. This
Agreement shall inure to the benefit of and be enforceable by the Executive's
legal representatives.

            (b) This Agreement shall inure to the benefit of and be binding upon
the Company and its successors and assigns.

            (c) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to assume
expressly and agree to perform this Agreement in the same manner and to the same
extent that the
<PAGE>

Company would be required to perform it if no such succession had taken place.
As used in this Agreement, "Company" shall mean the Company as hereinbefore
defined and any successor to its business and/or assets as aforesaid which
assumes and agrees to perform this Agreement by operation of law, or otherwise.

            12. Miscellaneous. (a) This Agreement shall be governed by and
construed in accordance with the laws of the State of New York, without
reference to principles of conflict of laws. The captions of this Agreement are
not part of the provisions hereof and shall have no force or effect. This
Agreement may not be amended or modified otherwise than by a written agreement
executed by the parties hereto or their respective successors and legal
representatives.

            (b) All notices and other communications hereunder shall be in
writing and shall be given by hand delivery to the other party or by registered
or certified mail, return receipt requested, postage prepaid, addressed as
follows:

            If to the Executive:

                 Richard W. Merzbacher
                 75 Fairview Road
                 Farmingdale, New York  11735

            If to the Company:
<PAGE>

                 State Bancorp, Inc.
                 Two Jericho Plaza
                 Jericho, New York  11753

                 Attention:  General Counsel

or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.

            (c) The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement.

            (d) The Company may withhold from any amounts payable under this
Agreement such Federal, state, local or foreign taxes as shall be required to be
withheld pursuant to any applicable law or regulation.

            (e) The Executive's or the Company's failure to insist upon strict
compliance with any provision hereof or any other provision of this Agreement or
the failure to assert any right the Executive or the Company may have hereunder,
including, without limitation, the right of the Executive to terminate
employment for
<PAGE>

Good Reason pursuant to Section 5(c)(i)-(v) of this Agreement, shall not be
deemed to be a waiver of such provision or right or any other provision or right
of this Agreement.

            (f) The Executive and the Company acknowledge that, except as may
otherwise be provided under any other written agreement between the Executive
and the Company, the employment of the Executive by the Company is "at will"
and, prior to the Effective Date, the Executive's employment may be terminated
by either the Executive or the Company at any time prior to the Effective Date,
in which case the Executive shall have no further rights under this Agreement.
From and after the Effective Date this Agreement shall supersede any other
agreement between the parties with respect to the subject matter hereof.

            IN WITNESS WHEREOF, the Executive has hereunto set the Executive's
hand and, pursuant to the authorization from its Board of Directors, the Company
has caused this Agreement to be executed in its name on its behalf, all as of
the day and year first above written.



                                          --------------------------------------
                                          Richard W. Merzbacher


                                          STATE BANCORP, INC.



                                          By
                                             -----------------------------------