<PAGE>
 
                                WEST ESSEX BANK
                              EMPLOYMENT AGREEMENT

     This AGREEMENT is made and entered into this 17th day of February, 1999, by
and among West Essex Bank (the "Bank"), a federally-chartered stock savings
institution, with its principal administrative office at 417 Bloomfield Avenue,
Caldwell, New Jersey, West Essex Bancorp, Inc., a federally-chartered
corporation and holding company for the Bank ("Holding Company") and Leopold W.
Montanaro ("Executive").

     WHEREAS, the Bank wishes to continue to assure itself of the services of
Executive for the period provided in this Agreement; and

     WHEREAS, Executive is willing to serve in the employ of the Bank on a full-
time basis for said period.

     NOW, THEREFORE, in consideration of the mutual covenants herein contained,
and upon the other terms and conditions hereinafter provided, the parties hereby
agree as follows:

1.   POSITION AND RESPONSIBILITIES.

     During the period of his employment hereunder, Executive shall be nominated
and elected and or appointed to serve as Chief Executive Officer and President
of the Bank. Executive shall render administrative and management services to
the Bank such as are customarily performed by persons situated in a similar
executive capacity. During said period, Executive also agrees to serve, if
elected, as an officer and director of any subsidiary or affiliate of the Bank.

2.   TERMS AND DUTIES.

     (a) The period of Executive's employment under this Agreement shall be
deemed to have commenced as of the date first above written and shall continue
for a period of thirty-six (36) full calendar months thereafter. Commencing on
the first anniversary date of this Agreement, and continuing at each anniversary
date thereafter, the Board of Directors of the Bank ("Board"), may extend the
Agreement an additional year such that the remaining term of the Agreement shall
be three (3) years unless the Executive elects not to extend the term of this
Agreement by giving notice in accordance with Section 9 of the Agreement. The
Board will review the Executive's performance annually for purposes of
determining, whether to extend the Agreement, and the rationale and the results
thereof shall be included in the minutes of the Board's meeting. The Board shall
give notice to the Executive as soon as possible after such review as to whether
the Agreement is to be extended.

     (b) During the period of Executive's employment hereunder, except for
periods of absence occasioned by illness, reasonable vacation periods, and
reasonable leaves of absence, Executive shall devote substantially all his
business time, attention, skill, and efforts to the faithful performance of his
duties hereunder including activities and services related to the organization,
operation and management of the Bank and which activities may include
<PAGE>
 
participation in community and civic organizations; provided, however, that,
with the approval of the Board, as evidenced by a resolution of such Board, from
time to time, Executive may serve, or continue to serve, on the boards of
directors of, and hold any other offices or positions in, companies or
organizations, which, in such Board's judgment, will not present any conflict of
interest with the Bank, or materially affect the performance of Executive's
duties pursuant to this Agreement.

     (c) Notwithstanding anything herein contained to the contrary, Executive's
employment with the Bank may be terminated by the Bank or the Executive during
the term of this Agreement, subject to the terms and condition of this
Agreement.

3.   COMPENSATION AND REIMBURSEMENT.

     (a) The Executive shall be entitled to a salary from the Bank of not less
than $275,000 per year ("Base Salary").  Base Salary shall include any amounts
of compensation deferred by Executive under any tax-qualified retirement or
welfare benefit plan or any other deferred compensation arrangement maintained
by the Bank.  Executive's Base Salary shall be payable in accordance with the
Bank's normal payroll practices.  During the period of this Agreement,
Executive's Base Salary shall be reviewed at least annually; the first such
review will be made no later than one year from the date of this Agreement. Such
review shall be conducted by the Board or a Committee designated by the Board,
and the Board or the Committee of the Board may increase Executive's Base
Salary. The increased Base Salary shall become the "Base Salary" for purposes of
the Agreement.  In addition to the Base Salary provided in this Section 3(a),
Executive shall be entitled to incentive compensation and bonuses as provided in
any plan of the Bank in which Executive is eligible to participate.

     (b) The Executive shall be entitled to participate in employee benefit
plans, arrangements and perquisites substantially equivalent to those in which
Executive was participating or otherwise deriving benefit from immediately prior
to the beginning of the term of this Agreement, including the payment for (i)
the use of an automobile and payment for automobile insurance and any costs
associated with its operation and maintenance, (ii) membership to a country club
and the expenses and assessments associated therewith and (iii) attendance to
national and state conventions and educational conferences and the expenses
associated therewith for the Executive and his spouse, and the Bank will not,
without Executive's prior written consent, make any changes in such plans,
arrangements or perquisites which would materially adversely affect Executive's
rights or benefits thereunder except to the extent that such changes would
affect all of the Bank's employees. Without limiting the generality of the
foregoing provisions of this Subsection (b), Executive shall be entitled to
participate in or receive benefits under all plans relating to stock options,
restricted stock awards, stock purchases, pension, thrift, supplemental
retirement, profit-sharing, employee stock ownership, group life insurance,
medical and other health and welfare coverage, education, cash or stock bonuses
that are now or hereafter made available by the Bank in the future to its senior
executives and key management employees, subject to and on a basis consistent
with the terms, conditions and overall administration of such plans and
arrangements.  Nothing paid to the Executive under any 

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such plan or arrangement will be deemed to be in lieu of other compensation to
which the Executive is entitled under this Agreement.

     (c) This Bank shall pay or reimburse Executive for all reasonable travel
and other reasonable expenses incurred by Executive performing his obligations
under this Agreement and may provide such additional compensation in such form
and such amounts as the Board may from time to time determine.

4.   PAYMENTS TO EXECUTIVE UPON AN EVENT OF TERMINATION.

     (a) Upon the occurrence of an Event of Termination (as herein defined)
during the Executive's term of employment under this Agreement, the provisions
of this Section shall apply. As used in this Agreement, an "Event of
Termination" shall mean and include any one or more of the following: (i) the
termination by the Bank of Executive's full-time employment hereunder for any
reason other than a Change in Control, as defined in Section 5(a) hereof,
Termination for Cause, as defined in Section 8 hereof, retirement in accordance
with the Bank's pension plan or Disability as defined in Section 7; (ii)
Executive's resignation from the Bank's employ, in the manner set forth below,
upon any (A) failure to elect or appoint Executive as President and Chief
Executive Officer of the Bank unless consented to by the Executive, (B) material
changes in Executive's functions, duties or responsibilities, which would cause
Executive's position to become one of lesser responsibility, importance or scope
from the position and attributes described in Section 1, above, unless consented
to by the Executive, (C) relocation of Executive's principal place of employment
by more than 50 miles from its location at the effective date of this Agreement,
unless consented to by the Executive, (D) material reduction in the benefits and
perquisites to the Executive from those being provided as of the effective date
of this Agreement, unless consented to by the Executive, (E) liquidation or
dissolution of the Bank or in the event of any governmental confiscation of the
net worth of the Bank, or (F) breach of this Agreement by the Bank. Upon the
occurrence of any event described in clauses (A), (B), (C), (D) or (F), above,
Executive shall have the right to elect to terminate his employment under this
Agreement by resignation upon not less than sixty (60) days prior written notice
given within six full calendar months after the event giving rise to said right
to elect.

     (b) Upon the occurrence of an Event of Termination, on the Date of
Termination, the Bank shall be obligated to pay Executive, or, in the event of
his subsequent death, his beneficiary or beneficiaries, or his estate, as the
case may be a sum equal to: (i) the Base Salary and bonuses in accordance with
Section 3(a) of this Agreement, that would have been paid to Executive for the
remaining term of this Agreement had the Event of Termination not occurred; and
(ii) all benefits that would have been provided to Executive for the remaining
term of this Agreement had an Event of Termination not occurred, provided,
                                                                 -------- 
however, that any payments pursuant to this subsection shall not, in the
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aggregate, exceed three times Executive's Average Annual Compensation for the
five most recent taxable years that Executive has been employed by the Bank or
such lesser number of years in the event that Executive shall have been employed
by the Bank for less than five years ("Average Annual Compensation").  Average
Annual Compensation shall include all taxable income paid by the Bank or Holding
Company including 


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but not limited to Base Salary, commissions and bonuses, as well as
contributions on behalf of Executive to any pension and profit sharing plan,
director or committee fees and fringe benefits paid or to be paid to the
Executive in any such year and any payment of expense items without
accountability or business purpose or that do not meet the Internal Revenue
Service requirements for deductibility by the Bank. In the event that the Bank
is not in compliance with its minimum capital requirements or if such payments
would cause the Bank's capital to be reduced below its minimum capital
requirements, such payments shall be deferred to the extent required by
applicable law until such time as the Bank is in capital compliance. At the
election of the Executive, which election is to be made prior to the Executive's
Date of Termination, such payments shall be made in a lump sum or paid monthly
during the remaining term of this Agreement following the Executive's
termination. In the event that no lump sum election is made, payment to the
Executive will be made on a monthly basis during the remaining term of this
Agreement. Such payments shall not be reduced in the event the Executive obtains
other employment following termination of employment unless the Executive's
other employment constitutes a breach of Section 11 of this Agreement. In such
event the Bank shall be entitled to seek any remedies available to it for breach
of this Agreement.

     (c) Upon the occurrence of an Event of Termination, the Bank will cause to
be continued life, medical, dental and long-term disability coverage
substantially identical to the coverage maintained by the Bank for Executive
prior to his termination at no premium cost to the Executive. Such coverage
shall cease upon the expiration of the remaining term of this Agreement. Any
bond outstanding for country club membership shall be transferred without
payment therefore by the Executive and the Bank shall pay the annual membership
dues and assessments for the remaining term of this Agreement.

5.   CHANGE IN CONTROL.

     (a) For purposes of this Agreement, a "Change in Control" of the Bank or
Holding Company shall mean an event of a nature that: (A) would be required to
be reported in response to Item 1 of the Current Report on Form 8-K, as in
effect on the date hereof, pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 (the "Exchange Act"); (B) results in a Change in Control of
the Bank or the Holding Company within the meaning of the Home Owners' Loan Act
of 1933, as amended, the Federal Deposit Insurance Act, and the Rules and
Regulations promulgated by the Office of Thrift Supervision (or its successor
agency), as in effect on the date hereof (provided that in applying the
definition of a change in control as set forth under the rules and regulations
of the OTS, the Board shall substitute its judgment for that of the OTS); or (C)
without limitation such a Change in Control shall be deemed to have occurred at
such time as (a) any "person" (as the term is used in Sections 13(d) and 14(d)
of the Exchange Act) is or becomes the "beneficial owner" (as defined in Rule
13d-3 under the Exchange Act), directly or indirectly, of voting securities of
the Bank or the Holding Company representing 20% or more of the Bank's or the
Holding Company's outstanding voting securities or right to acquire such
securities except for any voting securities of the Bank purchased by the Holding
Company and any voting securities purchased by any of the Bank's or the Holding
Company's employee benefit plans; or (b) individuals who constitute the Board of
the Bank or the Holding Company on the date of 


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the Conversion (the "Incumbent Board") cease for any reason to constitute at
least a majority thereof, provided that any person becoming a director
subsequent to the date of the Conversion or Reorganization whose election was
approved by a vote of at least three-quarters of the directors comprising the
Incumbent Board, or whose nomination for election by the Bank's or the Holding
Company's stockholders was approved by the same Nominating Committee serving
under an Incumbent Board, shall be, for purposes of this clause (b), considered
as though he were a member of the Incumbent Board; or (c) a plan of
reorganization, merger, consolidation, sale of all or substantially all the
assets of the Bank or the Holding Company or similar transaction occurs in which
the Bank or the Holding Company is not the resulting entity, provided however,
that such an event listed above will be deemed to have occurred or to have been
effectuated upon the receipt of all required regulatory approvals not including
the lapse of any statutory waiting periods.

     (b) If any of the events described in Section 5(a) hereof constituting a
Change in Control have occurred or the Board has determined that a Change in
Control has occurred, Executive shall be entitled to the benefits provided in
paragraphs (c) and (d) of this Section 5 upon his subsequent termination of
employment at any time during the term of this Agreement due to: (1) Executive's
dismissal; or (2) voluntary resignation following any demotion, loss of title,
office or significant authority or responsibility, reduction in any compensation
or benefits or relocation of his principal place of employment by more than 50
miles from its location immediately prior to the Change in Control, unless such
termination is because of his death or Termination for Cause.

     (c) Upon the Executive's entitlement to benefits pursuant to Section 5(b),
the Bank shall pay Executive, or in the event of his subsequent death following
such termination, his beneficiary or beneficiaries, or his estate, as the case
may be, as severance pay or liquidated damages, or both, a sum equal to three
(3) times Executive's "Average Annual Compensation" (as defined herein) for the
five (5) most recent taxable years that Executive has been employed by the Bank
or such number of years the Executive has been employed by the Bank if less than
five. At the election of the Executive, which election is to be made prior to a
Change in Control, such payment may be made in a lump sum as of the Executive's
Date of Termination. In the event that no election is made, payment to the
Executive will be made on a monthly basis during the remaining term of the
Agreement. Such payments shall not be reduced in the event Executive obtains
other employment following termination of employment.

     (d) Upon the Executive's entitlement to benefits pursuant to Section 5(b),
the Bank will cause to be continued life, medical, dental and long-term
disability coverage substantially equivalent to the coverage maintained by the
Bank for Executive at no premium cost to Executive prior to his severance. Such
coverage and payments shall cease upon the expiration of thirty-six (36) months.


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6.   CHANGE IN CONTROL RELATED PROVISIONS

     Notwithstanding the paragraphs of Section 5, in no event shall the
aggregate payments or benefits to be made or afforded to Executive, under said
paragraphs (the "Termination Benefits") constitute an "excess parachute payment"
under Section 280G of the Code or any successor thereto, and in order to avoid
such a result, Termination Benefits will be reduced, if necessary to an amount
(the "Non-Triggering Amount"), the value of which is one dollar ($1.00) less
than an amount equal to three (3) times Executive's "base amount", as determined
in accordance with said Section 280G. The allocation of the reduction required
hereby among the Termination Benefits provided by the paragraphs of Section 5
shall be determined by the Executive.

7.   TERMINATION FOR DISABILITY

     (a) If, as a result of Executive's permanent incapacity due to injury or
sickness, such incapacity being determined by a doctor selected by the Bank and
the Executive, he shall have been absent from his duties with the Bank on a
full-time basis for six (6) consecutive months, and within thirty (30) days
after written notice of potential termination is given he shall not have
returned to the full-time performance of his duties, the Bank may terminate
Executive's employment for "Disability."

     (b) The Bank will pay Executive, as disability pay, an amount equal to one
hundred percent (100%) of Executive's bi-weekly rate of Base Salary on the
effective date of such termination, on a bi-weekly basis. These disability
payments shall commence on the effective date of Executive's termination and
will end on the earlier of (i) the date Executive returns to the full-time
employment of the Bank in the same capacity as he was employed prior to his
termination for Disability and pursuant to an employment agreement between
Executive and the Bank; (ii) Executive's death; or (iii) the Executive reaching
age 65. Notwithstanding any other provisions to the contrary, any amounts due
under this subsection (b) shall first be reduced by any benefits payable to the
Executive under a disability insurance policy provided by the Bank or any
amounts the Bank pays to Executive in the event he returns on a part-time basis
or in a capacity other than that held immediately prior to being terminated for
Disability.

     (c) The Bank will cause to be continued life, medical, dental and
disability coverage substantially identical to the coverage maintained by the
Bank for Executive prior to his termination for Disability. Disability coverage
under this subsection (c) and payments shall cease upon the earlier of (i) the
date Executive returns to the full-time employment of the Bank in a position
qualifying him for benefits comparable to those received immediately prior to
his Disability; (ii) the Executive's death; or (iii) the Executive reaching the
age of 65.

     (d) Notwithstanding the foregoing, there will be no reduction in the
compensation otherwise payable to Executive during any period which Executive is
incapable of performing his duties hereunder by reason of temporary disability.



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8.   TERMINATION FOR CAUSE.

     The term "Termination for Cause" shall mean termination because of the
Executive's personal dishonesty, incompetence, willful misconduct, any breach of
fiduciary duty involving personal profit, intentional failure to perform stated
duties, willful violation of any law, rule, or regulation (other than traffic
violations or similar offenses) or final cease-and-desist order, or material
breach of any provision of this Agreement. In determining incompetence, the acts
or omissions shall be measured against standards generally prevailing in the
savings institutions industry. Notwithstanding the foregoing, Executive shall
not be deemed to have been Terminated for Cause unless and until there shall
have been delivered to him a Notice of Termination that shall include a copy of
a resolution duly adopted by the affirmative vote of not less than a majority of
the members of the Board at a meeting of the Board called and held for that
purpose (after reasonable notice to Executive and an opportunity for him,
together with counsel, to be heard before the Board), finding that in the good
faith opinion of the Board, Executive was guilty of conduct justifying
Termination for Cause and specifying the reasons thereof in detail. The
Executive shall not have the right to receive compensation or other benefits for
any period after Termination for Cause.

9.   NOTICE.

     (a) Any purported termination by the Bank or by Executive shall be
communicated by Notice of Termination to the other party hereto. For purposes of
this Agreement, a "Notice of Termination" shall mean a written notice which
shall indicate the specific termination provision in this Agreement relied upon
and shall set forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination of Executive's employment under the provision so
indicated.

     (b) "Date of Termination" shall mean (A) if Executive's employment is
terminated for Disability, thirty (30) days after a Notice of Termination is
given (provided that he shall not have returned to the performance of his duties
on a full-time basis during such thirty (30) day period), and (B) if his
employment is terminated for any other reason, the date specified in the Notice
of Termination (which, in the case of Termination for Cause, shall not be less
than thirty days from the date such Notice of Termination is given).

     (c) If, within thirty (30) days after any Notice of Termination is given,
the party receiving such Notice of Termination notifies the other party that a
dispute exists concerning the termination, except upon the occurrence of a
Change in Control and voluntary termination by the Executive in which case the
Date of Termination shall be the date specified in the Notice, the Date of
Termination shall be the date on which the dispute is finally determined, either
by mutual written agreement of the parties or, by a binding arbitration award,
and provided further that the Date of Termination shall be extended by a notice
of dispute only if such notice is given in good faith and the party giving such
notice pursues the resolution of such dispute with reasonable diligence and
solely in accordance with Section 20 of this agreement. Notwithstanding the
pendency of any such dispute, in the event Executive is terminated for reasons
other than 

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Termination for Cause, the Bank will continue to pay Executive his full
compensation in effect when the notice giving rise to the dispute was given
(including, but not limited to, Base Salary) and continue him as a participant
in all compensation, benefit and insurance plans in which he was participating
when the notice of dispute was given, until the earlier of: (1) the resolution
of the dispute in accordance with this Agreement; or (2) the expiration of the
remaining term of this Agreement as determined as of the Date of Termination.
Amounts paid under this Section are in addition to all other amounts due under
this Agreement and shall not be offset against or reduce any other amounts due
under this Agreement.

10.  POST-TERMINATION OBLIGATIONS.

     All payments and benefits to Executive under this Agreement shall be
subject to Executive's compliance with this Section 10 for one (1) full year
after the earlier of the expiration of this Agreement or termination of
Executive's employment with the Bank. Executive shall, upon reasonable notice,
furnish such information and assistance to the Bank as may reasonably be
required by the Bank in connection with any litigation in which it or any of its
subsidiaries or affiliates is, or may become, a party.

11.  NON-COMPETITION AND NON-DISCLOSURE.

     (a) Upon any termination of Executive's employment hereunder pursuant to an
Event of Termination as provided in Section 4 hereof, Executive agrees not to
compete with the Bank for a period of one (1) year following such termination in
any city, town or county in which the Bank has an office or has filed an
application for regulatory approval to establish an office, determined as of the
effective date of such termination except as otherwise agreed to pursuant to a
resolution duly adopted by the Board. Executive agrees that during such period
and within said cities, towns and counties, Executive shall not work in an
executive capacity for any financial institution whose business materially
competes with the depository, lending or other business activities of the Bank.
The parties hereto, recognizing that irreparable injury will result to the Bank,
its business and property in the event of Executive's breach of this Subsection
11 (a) agree that in the event of any such breach by Executive, the Bank will be
entitled, in addition to any other remedies and damages available, to an
injunction to restrain the violation hereof by Executive, Executive's partners,
agents, servants, employers, employees and all persons acting for or with
Executive. Nothing herein will be construed as prohibiting the Bank from
pursuing any other remedies available to the Bank for such breach or threatened
breach, including the recovery of damages from Executive.

     (b) Executive recognizes and acknowledges that the knowledge of the
business activities and plans for business activities of the Bank and affiliates
thereof, as it may exist from time to time, is a valuable, special and unique
asset of the business of the Bank. Executive will not, following the term of his
employment, disclose any knowledge of the past, present, planned or considered
business activities of the Bank or affiliates thereof to any person, firm,
corporation, or other entity for any reason or purpose whatsoever except as
authorized by the Board. Notwithstanding the foregoing, Executive may disclose
any knowledge of banking, financial 


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and/or economic principles, concepts or ideas which are not solely and
exclusively derived from the business plans and activities of the Bank. Further,
Executive may disclose information regarding the business activities of the Bank
to the Office of Thrift Supervision and the Federal Deposit Insurance
Corporation pursuant to formal regulatory requests. In the event of a breach or
threatened breach by the Executive of the provisions of this Section 11, the
Bank will be entitled to an injunction restraining Executive from disclosing, in
whole or in part, the knowledge of the past, present, planned or considered
business activities of the Bank or affiliates thereof, or from rendering any
services to any person, firm, corporation, other entity to whom such knowledge,
in whole or in part, has been disclosed or is threatened to be disclosed.
Nothing herein will be construed as prohibiting the Bank from pursuing any other
remedies available to the Bank for such breach or threatened breach, including
the recovery of damages from Executive.


12.  SOURCE OF PAYMENTS.

     (a) All payments provided in this Agreement shall be timely paid in cash or
check from the general funds of the Bank.  The Holding Company however,
unconditionally guarantees payment and provision of all amounts and benefits due
hereunder to Executive and, if such amounts and benefits due from the Bank are
not timely paid or provided by the Bank, such amounts and benefits shall be paid
or provided by the Holding Company.

     (b) Notwithstanding any provision herein to the contrary, to the extent
that payments and benefits, as provided by this Agreement, are paid to or
received by Executive under the Employment Agreement dated February 2, 1999,
between Executive and the Holding Company, such compensation payments and
benefits paid by the Holding Company will be subtracted from any amounts due
simultaneously to Executive under similar provisions of this Agreement. Payments
pursuant to this Agreement and the Holding Company Agreement shall be allocated
in proportion to the services rendered and time expended on such activities by
Executive as determined by the Holding Company and the Bank on a quarterly
basis.

13.  EFFECT ON PRIOR AGREEMENTS AND EXISTING BENEFITS PLANS.

     This Agreement contains the entire understanding between the parties
hereto, except that this Agreement shall not affect or operate to reduce any
benefit or compensation inuring to the Executive of a kind elsewhere provided.
No provision of this Agreement shall be interpreted to mean that Executive is
subject to receiving fewer benefits than those available to him without
reference to this Agreement.

14.  NO ATTACHMENT.

     (a) Except as required by law, no right to receive payments under this
Agreement shall be subject to anticipation, commutation, alienation, sale,
assignment, encumbrance, charge, pledge, or hypothecation, or to execution,
attachment, levy, or similar process or assignment by 


                                       9
<PAGE>
 
operation of law, and any attempt, voluntary or involuntary, to affect any such
action shall be null, void, and of no effect.

     (b) This Agreement shall be binding upon, and inure to the benefit of,
Executive and the Bank and their respective successors and assigns.

15.  MODIFICATION AND WAIVER.

     (a) This Agreement may not be modified or amended except by an instrument
in writing signed by the parties hereto.

     (b) No term or condition of this Agreement shall be deemed to have been
waived, nor shall there be any estoppel against the enforcement of any provision
of this Agreement, except by written instrument of the party charged with such
waiver or estoppel. No such written waiver shall be deemed a continuing waiver
unless specifically stated therein, and each such waiver shall operate only as
to the specific term or condition waived and shall not constitute a waiver of
such term or condition for the future as to any act other than that specifically
waived.

16.  REQUIRED PROVISIONS.

     (a) The Bank may terminate the Executive's employment at any time, but any
termination by the Bank, other than Termination for Cause, shall not prejudice
Executive's right to compensation or other benefits under this Agreement.
Executive shall not have the right to receive compensation or other benefits for
any period after Termination for Cause as defined in Section 8 herein above.

     (b) If the Executive is suspended from office and/or temporarily prohibited
from participating in the conduct of the Bank's affairs by a notice served under
Section 8(e)(3) or 8(g)(1) of the Federal Deposit Insurance Act, 12 U.S.C.
(S)1818(e)(3) or (g)(1), the Bank's obligations under this contract shall be
suspended as of the date of service, unless stayed by appropriate proceedings.
If the charges in the notice are dismissed, the Bank may in its discretion (i)
pay the Executive all or part of the compensation withheld while their contract
obligations were suspended and (ii) reinstate (in whole or in part) any of the
obligations which were suspended.

     In the event Executive is suspended and/or temporarily prohibited from
participating in the conduct of the Bank's affairs by a notice described in
Section 16(b) hereof (the "Notice") during the term of this Agreement and a
Change in Control, as defined herein, occurs, the Bank will assume its
obligation to pay and Executive will be entitled to receive all of the
termination benefits provided for under Section 5 of this Agreement upon the
Bank's receipt of a dismissal of charges in the Notice.

     (c) If the Executive is removed and/or permanently prohibited from
participating in the conduct of the Bank's affairs by an order issued under
Section 8(e)(4) (12 U.S.C. (S)1818(e)(4) 


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<PAGE>
 
or 8(g)(1)) of the Federal Deposit Insurance Act (12 U.S.C. (S)1818(e)(4) or
(g)(1)), all obligations of the Bank under this contract shall terminate as of
the effective date of the order, but vested rights of the contracting parties
shall not be affected.

     (d) If the Bank is in default (as defined in Section 3(x)(1) (12 U.S.C.
(S)1813(x)(1)) of the Federal Deposit Insurance Act) all obligations of the Bank
under this contract shall terminate as of the date of default, but this
paragraph shall not affect any vested rights of the contracting parties.

     (e) All obligations of the Bank under this contract shall be terminated,
except to the extent determined that continuation of the contract is necessary
for the continued operation of the association, (i) by the Director or his or
her designee at the time the Federal Deposit Insurance Corporation enters into
an agreement to provide assistance to or on behalf of the association under the
authority contained in section 13(c) of the Federal Deposit Insurance Act, or
(ii) by the Director or his or her designee at the time the Director or his or
her designee approves a supervisory merger to resolve problems related to the
operation of the association or when the association is determined by the
Director to be in an unsafe or unsound condition. Any rights of the parties that
have already vested, however, shall not be affected by such action.

     (f) Any payments made to the Executive pursuant to this Agreement, or
otherwise, are subject to and conditioned upon compliance with 12 U.S.C.
(S)1828(k) and 12 C.F.R. (S) 545.121 and any rules and regulations promulgated
thereunder.

17.  REINSTATEMENT OF BENEFITS UNDER SECTION 16(b).

     In the event Executive is suspended and/or temporarily prohibited from
participating in the conduct of the Bank's affairs by a notice described in
Section 16(b) hereof (the "Notice") during the term of this Agreement and a
Change in Control, as defined herein, occurs, the Bank will assume its
obligation to pay and Executive will be entitled to receive all of the
termination benefits provided for under Section 5 of this Agreement upon the
Bank's receipt of a dismissal of charges in the Notice.

18.  SEVERABILITY.

     If, for any reason, any provision of this Agreement, or any part of any
provision, is held invalid, such invalidity shall not affect any other provision
of this Agreement or any part of such provision not held so invalid, and each
such other provision and part thereof shall to the full extent consistent with
law continue in full force and effect.

19.  HEADINGS FOR REFERENCE ONLY.

     The headings of sections and paragraphs herein are included solely for
convenience of reference and shall not control the meaning or interpretation of
any of the provisions of this Agreement.


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<PAGE>
 
20.  GOVERNING LAW.

     This Agreement shall be governed by the laws of the State of New Jersey but
only to the extent not superseded by Federal law.

21.  ARBITRATION.

     Any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by arbitration, conducted before a panel
of three arbitrators sitting in a location selected by the employee within fifty
(50) miles from the location of the Bank, in accordance with the rules of the
American Arbitration Association then in effect. Judgment may be entered on the
arbitrator's award in any court having jurisdiction; provided, however, that
Executive shall be entitled to seek specific performance of his right to be paid
until the Date of Termination during the pendency of any dispute or controversy
arising under or in connection with this Agreement.

     In the event any dispute or controversy arising under or in connection with
Executive's termination is resolved in favor of the Executive, whether by
judgment, arbitration or settlement, Executive shall be entitled to the payment
of all back pay, including salary, bonuses and any other cash compensation,
fringe benefits and any compensation and benefits due Executive under this
Agreement.

22.  PAYMENT OF LEGAL FEES.

     In the event any action is instituted by the Executive or the Bank
including under Section 21 of this Agreement all reasonable legal fees and
expenses shall be paid and reimbursed by the party who is not successful on the
merits as determined by a legal judgment, settlement or arbitration award.

23.  INDEMNIFICATION.

     The Bank shall provide Executive (including his heirs, executors and
administrators) with coverage under a standard directors' and officers'
liability insurance policy at its expense and shall indemnify Executive (and his
heirs, executors and administrators) to the fullest extent permitted under
Federal law against all expenses and liabilities reasonably incurred by him in
connection with or arising out of any action, suit or proceeding in which he may
be involved by reason of his having been a director or officer of the Bank
(whether or not he continues to be a director or officer at the time of
incurring such expenses or liabilities), such expenses and liabilities to
include, but not be limited to, judgments, court costs and attorneys' fees and
the cost of reasonable settlements.


                                      12
<PAGE>
 
24.  SUCCESSOR TO THE BANK.

     The Bank shall require any successor or assignee, whether direct or
indirect, by purchase, merger, consolidation or otherwise, to all or
substantially all the business or assets of the Bank or the Holding Company,
expressly and unconditionally to assume and agree to perform the Bank's
obligations under this Agreement, in the same manner and to the same extent that
the Bank would be required to perform if no such succession or assignment had
taken place.


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                                  SIGNATURES

     IN WITNESS WHEREOF, West Essex Bank has caused this agreement to be
executed and its seal to be affixed hereunto by its duly authorized officers,
and Executive has signed this Agreement, on the 2nd day of February, 1999.



ATTEST: [SEAL]                      WEST ESSEX BANK




/s/ Craig L. Montanaro                 By: /s/ William J. Foody
---------------------------            ------------------------------
                                       William J. Foody                    
                                       For the Entire Board of Directors


WITNESS:                            EXECUTIVE



/s/ Dennis A. Petrello                 By: /s/ Leopold W. Montanaro
---------------------------            ------------------------------
                                       Leopold W. Montanaro


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