AGREEMENT AND PLAN OF MERGER

Exhibit 2.1

EXECUTION COPY

AGREEMENT AND PLAN OF MERGER

BY AND BETWEEN

HUDSON CITY BANCORP, INC.

AND

SOUND FEDERAL BANCORP, INC.

DATED AS OF FEBRUARY 8, 2006

TABLE OF CONTENTS

AGREEMENT AND PLAN OF MERGER

     This AGREEMENT AND PLAN OF MERGER (this “Agreement”) is dated as of February 8, 2006, by and between Hudson City Bancorp, Inc., a Delaware corporation (the “Purchaser”), and Sound Federal Bancorp, Inc., a Delaware corporation (the “Seller”).

      WHEREAS , the Board of Directors of each of Purchaser and Seller has (i) determined that this Agreement and the business combination and related transactions contemplated hereby are in the best interests of their respective companies and stockholders, and (ii) has approved this Agreement at meetings of each of such Boards of Directors;

      WHEREAS , in accordance with the terms of this Agreement, Merger Sub will merge with and into Seller and immediately thereafter Seller Bank will be merged with and into the Bank, a wholly owned subsidiary of Purchaser;

      WHEREAS , as a condition to the willingness of Purchaser to enter into this Agreement, each of the directors and executive officers of Seller has entered into a Voting Agreement, substantially in the form of Exhibit A hereto, dated as of the date hereof, with Purchaser (the “Voting Agreement”), pursuant to which each such director or executive officer has agreed, among other things, to vote all shares of common stock of Seller owned by such person in favor of the approval of this Agreement and the transactions contemplated hereby, upon the terms and subject to the conditions set forth in such Voting Agreement; and

      WHEREAS , the parties desire to make certain representations, warranties and agreements in connection with the business transactions described in this Agreement and to prescribe certain conditions thereto.

      NOW, THEREFORE in consideration of the mutual covenants, representations, warranties and agreements herein contained and of other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

ARTICLE I.

CERTAIN DEFINITIONS

Section 1.01 Certain Definitions.

     As used in this Agreement the following terms have the following meanings (unless the context otherwise requires, references to Articles and Sections refer to Articles and Sections of this Agreement).

     “Acquisition Agreement” shall have the meaning set forth in Section 6.07(b).

     “Acquisition Proposal” shall mean any inquiry, proposal or offer from any person relating to, or that could reasonably be expected to lead to, any direct or indirect acquisition or purchase, in one transaction or a series of transactions, of assets (including equity securities of any Seller Subsidiary) or businesses that constitute 25% or more of the revenues, net income or assets of Seller and the Seller Subsidiaries, taken as a whole, or 25% or more of any class of equity securities of Seller, any tender offer or exchange offer that if consummated would result in any person beneficially owning 25% or more of any class of equity securities of Seller, or any merger, consolidation, business combination, recapitalization, liquidation, dissolution, joint venture, binding share exchange or similar transaction involving Seller or any Seller Subsidiary pursuant to which any person or the stockholders of any person

would own 25% or more of any class of equity securities of Seller or of any resulting parent company of Seller, in each case other than the transactions contemplated by this Agreement.

     “Advisory Board” shall have the meaning set forth in Section 6.09.

     “Affiliate” means any Person who directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, such Person and, without limiting the generality of the foregoing, includes any executive officer or director of such Person and any Affiliate of such executive officer or director.

     “Agreement” means this agreement, and any amendment hereto.

     “Bank” shall mean Hudson City Savings Bank, a federally chartered savings bank, with its principal offices located at West 80 Century Road, Paramus, New Jersey 07652, which is a wholly owned subsidiary of Purchaser.

     “Bank Merger” shall have the meaning set forth in Section 2.02.

     “Bank Regulator” shall mean any Federal or state banking regulator, including but not limited to the OTS and the FDIC, which regulates the Bank or Seller Bank, or any of their respective holding companies or subsidiaries.

     “BOLI” shall mean bank owned life insurance.

     “Certificate” shall mean a certificate evidencing shares of Seller Common Stock.

     “Claim” shall have the meaning set forth in Section 6.10(b).

     “Closing” shall have the meaning set forth in Section 2.07.

     “Closing Date” shall have the meaning set forth in Section 2.07.

     “COBRA” shall mean the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended.

     “Code” shall mean the Internal Revenue Code of 1986, as amended.

     “Compensation and Benefit Plans” shall have the meaning set forth in Section 3.16(a).

     “Confidentiality Agreements” shall mean the confidentiality agreements referred to in Section 11.01 of this Agreement.

     “Continuing Employees” shall have the meaning set forth in Section 6.08(c).

     “CRA” shall mean the Community Reinvestment Act of 1977.

     “Derivatives Contract” shall have the meaning set forth in Section 3.24.

     “DGCL” shall mean the Delaware General Corporation Law.

     “Disclosure Letter” shall have the meaning set forth Section 3.01.

     “Dissenting Shares” shall mean shares of Seller Common Stock the holder of which pursuant to any applicable law providing for dissenters’ or appraisal rights is entitled to receive payment in accordance with the provisions of any such law.

     “Dissenting Stockholder” shall mean the holder of Dissenting Shares.

     “Effective Time” shall mean the date and time specified pursuant to Section 2.07 hereof as the effective time of the Merger.

     “Environmental Laws” means any applicable Federal, state or local law, statute, ordinance, rule, regulation, code, license, permit, authorization, approval, consent, order, judgment, decree, injunction or agreement with any governmental entity relating to (1) the protection, preservation or restoration of the environment (including, without limitation, air, water vapor, surface water, groundwater, drinking water supply, surface soil, subsurface soil, plant and animal life or any other natural resource), and/or (2) the exposure to, or the use, storage, recycling, treatment, generation, transportation, processing, handling, labeling, production, release or disposal of Materials of Environmental Concern. The term Environmental Law includes without limitation (a) the Comprehensive Environmental Response, Compensation and Liability Act, as amended, 42 U.S.C. §9601, et seq; the Resource Conservation and Recovery Act, as amended, 42 U.S.C. §6901, et seq; the Clean Air Act, as amended, 42 U.S.C. §7401, et seq; the Federal Water Pollution Control Act, as amended, 33 U.S.C. §1251, et seq; the Toxic Substances Control Act, as amended, 15 U.S.C. §2601, et seq; the Emergency Planning and Community Right to Know Act, 42 U.S.C. §11001, et seq; the Safe Drinking Water Act, 42 U.S.C. §300f, et seq; and all comparable state and local laws, and (b) any common law (including without limitation common law that may impose strict liability) that may impose liability or obligations for injuries or damages due to the presence of or exposure to any Materials of Environmental Concern.

     “ERISA” shall mean the Employee Retirement Income Security Act of 1974, as amended.

     “ERISA Affiliate” shall have the meaning set forth in Section 3.16(c).

     “ERISA Affiliate Plan” shall have the meaning set forth in Section 3.16(c).

     “Exchange Act” shall mean the Securities Exchange Act of 1934, as amended.

     “Excluded Shares” shall have the meaning set forth in Section 2.03(a).

     “FDIA” shall mean the Federal Deposit Insurance Act, as amended, and applicable regulations thereunder.

     “FDIC” shall mean the Federal Deposit Insurance Corporation or any successor thereto.

     “FHLB” shall mean the Federal Home Loan Bank of New York.

     “GAAP” shall mean accounting principles generally accepted in the United States of America.

     “Governmental Entity” shall mean any federal, state, local or other government, governmental, regulatory or administrative authority, agency or commission (including, but not limited to, the SEC, NASDAQ, OTS and FDIC) or any court, tribunal or judicial or arbitral body.

     “HOLA” shall mean the Home Owners’ Loan Act, as amended.

     “HIPAA” shall mean the Health Insurance Portability and Accountability Act of 1996, as amended.

     “Indemnified Liabilities” shall have the meaning set forth in Section 6.10(b).

     “Intellectual Property” shall mean all (i) trademarks, service marks, brand names, d/b/a/’s, Internet domain names, logos, symbols, trade dress, trade names, and other indicia of origin, all applications and registrations for the foregoing, and all goodwill associated therewith and symbolized thereby, including all renewals of same, (ii) inventions and discoveries, whether patentable or not, and all patents, registrations, invention disclosures and applications therefor, including divisions, continuations, continuations-in-part and renewal applications, and including renewals, extensions and reissues, (iii) Trade Secrets, (iv) published and unpublished works of authorship, whether copyrightable or not (including without limitation databases and other compilations of information), copyrights therein and thereto, and registrations and applications therefor, and all renewals, extensions, restorations and reversions thereof, and (v) all other intellectual property or proprietary rights.

     “IRS” shall mean the United States Internal Revenue Service.

     “IT Assets” shall mean Seller’s and each Seller Subsidiaries’ computers, computer software, firmware, middleware, servers, workstations, routers, hubs, switches, data communications lines, and all other information technology equipment, and all associated documentation.

     “Knowledge” as used with respect to a Person (including references to such Person being aware of a particular matter) means those facts that are known by any officer with the title ranking not less than vice president or a director of such Person, and includes any facts, matters or circumstances set forth in any written notice from any Bank Regulator or any other material written notice received by an officer with the title ranking not less than vice president or a director of that Person. For purposes of this definition, an officer or director will be deemed to have “Knowledge” of a particular fact or other matter if a prudent individual could be expected to discover or otherwise become aware of such fact or other matter in the course of conducting a reasonably comprehensive investigation concerning the existence of such fact or other matter.

     “Lending Policy” shall have the meaning set forth in Section 5.02(p).

     “Licensed Intellectual Property” means Intellectual Property that Seller and the Seller Subsidiaries are licensed or otherwise permitted by other Persons to use.

     “Listed Intellectual Property” shall have the meaning set forth in Section 3.12(a).

     “Loan Property” shall have the meaning set forth in Section 3.18.

     “Material Adverse Effect” shall mean an effect which (A) is material and adverse to the assets, business, financial condition, results of operations or prospects of Seller or Purchaser, as the context may dictate, and its subsidiaries taken as a whole, other than any such effect attributable to or resulting from (x) any change in banking or similar laws, rules or regulations of general applicability or interpretations thereof by courts or governmental authorities, (y) any change in GAAP or regulatory accounting principles, in each case which affects banks, thrifts or their holding companies generally or (z) any change in interest rates, provided, that any such change in interest rates shall not affect the referenced party to a materially greater extent than banks, thrifts or their holding companies generally, or (B) adversely affects the ability of Seller or Purchaser, as the context may dictate, to perform its material obligations hereunder or (C) materially and adversely affects the timely consummation of the transactions contemplated hereby.

     “Materials of Environmental Concern” means pollutants, contaminants, wastes, toxic substances, petroleum and petroleum products, and any other materials regulated under Environmental Laws, including, but not limited to, radon, radioactive material, asbestos, asbestos-containing material, urea formaldehyde foam insulation, lead, polychlorinated biphenyl, flammables and explosives.

     “Maximum Amount” shall have the meaning set forth in Section 6.10(a).

     “Merger” shall mean the merger of Seller with and into Merger Sub pursuant to the terms hereof.

     “Merger Consideration” shall mean the cash in an aggregate per share amount to be paid by Purchaser for each share of Seller Common Stock, as set forth in Section 2.03(a).

     “Merger Sub” shall have the meaning set forth in Section 2.01.

     “NASD” shall mean the National Association of Securities Dealers, Inc.

     “NASDAQ” shall mean the Nasdaq National Market, Inc.

     “Notice of Superior Proposal” shall have the meaning set forth in Section 6.07(b).

     “OTS” shall mean the Office of Thrift Supervision or any successor thereto.

     “Participation Facility” shall have the meaning set forth in Section 3.18.

     “Paying Agent” shall mean Mellon Bank, NA, or such other bank or trust company or other agent designated by Purchaser, which shall act as agent for Purchaser in connection with the exchange procedures for exchanging Certificates for the Merger Consideration.

     “Paying Agent Agreement” shall have the meaning set forth in Section 2.04(b).

     “PBGC” shall mean the Pension Benefit Guaranty Corporation or any successor thereto.

     “Person” shall mean any individual, corporation, partnership, joint venture, association, trust or “group” (as that term is defined under the Exchange Act).

      “ Plan of Bank Merger ” shall have the meaning set forth in Section 2.02.

     “Plan of Interim Merger” shall have the meaning set forth in Section 2.01.

     “Pre-Effective Time Tax Period” means any taxable period (or the allocable portion of a Straddle Period) ending on or before the close of business on the date the Effective Time occurs.

     “Proxy Statement” shall have the meaning set forth in Section 7.02.

     “Purchaser” shall mean Hudson City Bancorp, Inc., a Delaware corporation, with its principal executive offices located at West 80 Century Road, Paramus, New Jersey 07652.

     “Purchaser Subsidiary” means any substantial corporation or limited liability company, 50% or more of the capital stock of which is owned, either directly or indirectly, by Purchaser or the Bank, except any corporation the stock of which is held in the ordinary course of the lending activities of the Bank.

     “Regulatory Agreement” shall have the meaning set forth in Section 3.15(c).

     “Regulatory Approvals” means the approval of the OTS to the Merger, the Bank Merger and the related transactions contemplated by this Agreement.

     “Representatives” shall have the meaning set forth in Section 6.07(a).

     “Rights” shall mean warrants, options, rights, convertible securities, stock appreciation rights and other arrangements or commitments which obligate an entity to issue or dispose of any of its capital stock or other ownership interests or which provide for compensation based on the equity appreciation of its capital stock.

     “SEC” shall mean the Securities and Exchange Commission or any successor thereto.

     “Securities Act” shall mean the Securities Act of 1933, as amended.

     “Securities Laws” shall mean the Securities Act; the Exchange Act; the Investment Company Act of 1940, as amended; the Investment Advisers Act of 1940, as amended; the Trust Indenture Act of 1939, as amended; and the rules and regulations of the SEC promulgated thereunder.

     “Seller” shall have the meaning set forth in the preamble.

     “Seller Adverse Recommendation Change” shall have the meaning set forth in Section 6.07(b).

     “Seller Bank” shall mean Sound Federal Savings, a federally chartered savings association, with its principal offices located at 1311 Mamaroneck Avenue, White Plains, New York 10605, which is a wholly owned subsidiary of Seller.

     “Seller Bank Common Stock” shall have the meaning set forth in Section 3.03(b).

     “Seller Bank Preferred Stock” shall have the meaning set forth in Section 3.03(b).

     “Seller Common Stock” shall mean the common stock, par value $0.01 per share, of Seller.

     “Seller Defined Benefit Plan” shall have the meaning set froth in Section 3.16(c).

     “Seller ESOP” shall mean the Seller Employee Stock Ownership Plan.

     “Seller Fee” shall have the meaning in Section 10.02(b)(iii).

     “Seller Group” means any combined, unitary, consolidated or other affiliated group within the meaning of Section 1504 of the Code or otherwise, of which Seller or any Seller Subsidiary is or has been a member for Tax purposes.

     “Seller Loan” shall have the meaning set forth in Section 3.19(d).

     “Seller Option” shall mean an option to purchase shares of Seller Common Stock granted pursuant to the Seller Stock Benefit Plans and outstanding as of the date hereof, as set forth in the Disclosure Letter.

     “Seller Preferred Stock” shall have the meaning set forth in Section 3.03(a).

     “Seller Reports” shall have the meaning set forth in Section 3.07(a).

     “Seller Stock Benefit Plans” shall mean the Seller 1999 Stock Option Plan, Seller 2004 Incentive Stock Benefit Plan, and any and all amendments thereto.

     “Seller Stockholders Meeting” shall have the meaning set forth in Section 7.01.

     “Seller Subsidiary” means any corporation, 50% or more of the capital stock of which is owned, either directly or indirectly, by Seller or Seller Bank, except any corporation the stock of which is held in the ordinary course of the lending activities of Seller Bank.

     “Seller REIT Subsidiary” means any corporation, trust or association, 50% or more of the beneficial ownership of which is owned, either directly or indirectly, by Seller or Seller Bank, except any corporation, trust or association, the beneficial ownership of which is held in the ordinary course of the lending activities of Seller Bank.

     “Settlement Agreement” shall have the meaning set forth in Section 6.08(e).

     “Stockholder Approval” shall have the meaning set forth in Section 8.01(a).

     “Straddle Period” means any taxable period that includes (but does not end on) the Closing Date.

     “Superior Proposal” shall mean an Acquisition Proposal, which the Board of Directors of Seller reasonably determines (after consultation with a financial advisor of nationally recognized reputation) to be (i) more favorable to the stockholders of Seller from a financial point of view than the Merger (taking into account all the terms and conditions of such proposal and this Agreement (including any changes to the financial terms of this Agreement proposed by Purchaser in response to such offer or otherwise)) and (ii) reasonably capable of being completed, taking into account all financial, legal, regulatory and other aspects of such proposal.

     “Surviving Corporation” shall have the meaning set forth in Section 2.01.

     “Tax” means any and all (a) federal, state, local or foreign tax, fee or other like assessment or charge of any kind, including, without limitation, any net income, alternative or add-on minimum tax, gross income, gross receipts, sales, use, ad valorem, value-added, transfer, franchise, profits, license, payroll, employment, social security (or similar), unemployment, disability, registration, estimated, excise, severance, stamp, capital stock, occupation, property, environmental or windfall tax, premium, customs duty or other tax, together with any interest, penalty or additions thereto, whether disputed or not; (b) liability for the payment of Tax as the result of membership in the Seller Group; and (c) transferee or secondary liability in respect of any Tax (whether imposed by law or contractual arrangement).

     “Tax Return” means any return (including estimated returns), declaration, report, claim for refund, or information return or statement or any amendment thereto relating to Taxes, including any such document prepared on an affiliated, consolidated, combined or unitary group basis and any schedule or attachment thereto.

     “Taxing Authority” means any governmental or regulatory authority, body or instrumentality exercising any authority to impose, regulate or administer the imposition of Taxes.

     “Termination Date” shall mean March 31, 2007.

     “Trade Secrets” means confidential information, trade secrets and know-how, including confidential processes, schematics, business methods, formulae, drawings, prototypes, models, designs, customer lists and supplier lists.

     “Treasury Stock” means all shares of Seller Common Stock held in the treasury of Seller (other than shares held in a fiduciary capacity or in connection with debts previously contracted).

     “Voting Agreement” shall have the meaning set forth in the recitals to this Agreement.

     Other terms used herein are defined in the preamble and elsewhere in this Agreement.

ARTICLE II.

THE MERGER

Section 2.01 Structure of the Merger.

     Subject to the terms and conditions of this Agreement, Purchaser will cause a Delaware corporation to be organized as a wholly owned special purpose subsidiary of Purchaser or the Bank (“Merger Sub”). At the Effective Time, Merger Sub will merge (the “Merger”) with and into Seller, with Seller being the surviving entity (the “Surviving Corporation”), pursuant to the provisions of, and with the effect provided in, the DGCL and pursuant to the terms and conditions of an agreement and plan of merger (“Plan of Interim Merger”) to be entered into between Merger Sub and Seller in the form attached hereto as Exhibit B. The separate corporate existence of Merger Sub shall thereupon cease. The Surviving Corporation shall continue to be governed by the laws of the State of Delaware and its separate corporate existence with all of its rights, privileges, immunities, powers and franchises shall continue unaffected by the Merger. At the Effective Time, the certificate of incorporation and bylaws of Seller shall be amended in their entirety to conform to the certificate of incorporation and bylaws of Merger Sub in effect immediately prior to the Effective Time and shall become the certificate of incorporation and bylaws of the Surviving Corporation. At the Effective Time, the directors and officers of Merger Sub shall become the directors and officers of the Surviving Corporation. As part of the Merger, each share of Seller Common Stock will be converted into the right to receive the Merger Consideration pursuant to the terms of Section 2.03.

Section 2.02 Bank Merger .

     Immediately after the Merger, the board of directors of the Surviving Corporation shall adopt a plan of dissolution (which shall be a plan of complete liquidation and dissolution of the Surviving Corporation for purposes of Section 332(a) and 337(a) of the Code) and shall cause articles of dissolution authorized in accordance with the DGCL to be filed with the Secretary of State of the State of Delaware. Upon the certificate of dissolution becoming effective, the Bank and Seller Bank shall enter into a plan of merger (the “Plan of Bank Merger”) in the form attached hereto as Exhibit C (which shall be a plan of complete liquidation and dissolution of Seller for purposes of Sections 332(a) and 337(a) of the Code) pursuant to which Seller Bank will be merged with and into the Bank (the “Bank Merger”) pursuant to and with the effect set forth in the regulations of the OTS and the FDIC. The documentation relating to the Bank Merger shall provide that the directors and officers of Bank as the surviving entity of the Bank Merger shall be all of the respective directors and officers of Bank immediately prior to such merger.

Section 2.03 Effect on Outstanding Shares .

     (a) By virtue of the Merger, automatically and without any action on the part of the holder thereof, each share of Seller Common Stock, issued and outstanding at the Effective Time (other than (i) Dissenting Shares (the holder of which shall only have the rights provided under applicable law), (ii) shares held directly or indirectly by Purchaser (other than shares held in a fiduciary capacity or in satisfaction of a debt previously contracted), (iii) unissued Seller Common Stock reserved for issuance

pursuant to the Seller Stock Benefit Plans and (iv) Treasury Stock (the shares referred to in clauses (i), (ii), (iii) and (iv) are hereinafter collectively referred to as the “Excluded Shares”)) shall become and be converted into the right to receive $20.75 in cash without interest (the “Merger Consideration”).

     As of the Effective Time, each Excluded Share, other than Dissenters’ Shares, shall be cancelled and retired and cease to exist, and no exchange or payment shall be made with respect thereto.

     (b) As of the Effective Time, all shares of Seller Common Stock other than Excluded Shares shall no longer be outstanding and shall be automatically cancelled and retired and shall cease to exist, and each holder of a Certificate formerly representing any such share of Seller Common Stock shall cease to have any rights with respect thereto, except the right to receive the Merger Consideration. After the Effective Time, there shall be no transfers on the stock transfer books of Seller.

Section 2.04 Exchange Procedures.

     (a) Immediately prior to the Effective Time, each Certificate previously representing shares of Seller Common Stock (except as specifically set forth in Section 2.03) shall represent only the right to receive the Merger Consideration.

     (b) As of the Effective Time, Purchaser shall deposit, or shall cause to be deposited with the Paying Agent pursuant to the terms of an agreement (the “Paying Agent Agreement”) in form and substance reasonably satisfactory to Purchaser and Seller, for the benefit of the holders of shares of Seller Common Stock, for exchange in accordance with this Section 2.04, an amount of cash sufficient to pay the aggregate Merger Consideration to be paid pursuant to Section 2.03(a).

     (c) As promptly as practicable after the Effective Time, but no later than ten (10) business days after the Effective Time, Purchaser shall cause the Paying Agent to mail to each holder of record of a Certificate or Certificates the following: (i) a letter of transmittal specifying that delivery shall be effected, only upon the delivery and surrender of the Certificates to the Paying Agent, which shall be in a form and contain any other provisions as Purchaser may reasonably determine; and (ii) instructions in effecting the delivery and surrender of the Certificates in exchange for the Merger Consideration. At the Effective Time, each stockholder of Seller that upon proper delivery and surrender of a Certificate or Certificates to the Paying Agent, together with a properly completed and duly executed letter of transmittal, shall be entitled to receive in exchange therefor a check in an amount equal to the product of the Merger Consideration and the number of shares of Seller Common Stock represented by the Certificate or Certificates delivered and surrendered pursuant to the provisions hereof, and the Certificate or Certificates so surrendered shall be canceled forthwith. No interest will be paid or accrued on the Merger Consideration. If a transfer of ownership of any shares of Seller Common Stock has been made but not registered in the transfer records of Seller prior to the Effective Time, a check for the Merger Consideration may be issued to the transferee if the Certificate representing such Seller Common Stock is presented to the Paying Agent, accompanied by documents sufficient, in the reasonable discretion of Purchaser and the Paying Agent, (i) to evidence and effect such transfer and (ii) to evidence that all applicable stock transfer taxes have been paid.

     (d) From and after the Effective Time, there shall be no transfers on the stock transfer records of Seller of any shares of Seller Common Stock that were outstanding immediately prior to the Effective Time. If after the Effective Time Certificates are presented to Purchaser or the Surviving Corporation, they shall be canceled and exchanged for the Merger Consideration deliverable in respect thereof pursuant to this Agreement in accordance with the procedures set forth in this Section 2.04.

     (e) Any portion of the aggregate Merger Consideration or the proceeds of any investments thereof that remains unclaimed by the stockholders of Seller for twelve (12) months after the Effective Time shall be repaid by the Paying Agent to Purchaser. Any stockholders of Seller who have not theretofore complied with this Section 2.04 shall thereafter look only to Purchaser for payment of the Merger Consideration deliverable in respect of each share of Seller Common Stock such stockholder holds as determined pursuant to this Agreement, without any interest thereon. If outstanding Certificates for shares of Seller Common Stock are not delivered and surrendered or the payment for them is not claimed prior to the date on which such payments would otherwise escheat to or become the property of any governmental unit or agency, the unclaimed items shall, to the extent permitted by abandoned property and any other applicable law, become the property of Purchaser (and to the extent not in its possession shall be paid over to it), free and clear of all claims or interest of any person previously entitled to such claims. Notwithstanding the foregoing, none of Purchaser, the Surviving Corporation, the Paying Agent or any other person shall be liable to any former holder of Seller Common Stock for any amount delivered to a public official pursuant to applicable abandoned property, escheat or similar laws.

     (f) If any Certificate has been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming such Certificate to be lost, stolen or destroyed and, if required by the Paying Agent, the posting by such person of a bond in such amount as the Paying Agent may direct as indemnity against any claim that may be made against it with respect to such Certificate, the Paying Agent will issue in exchange for such lost, stolen or destroyed Certificate the Merger Consideration deliverable in respect thereof pursuant to this Agreement.

     (g) Purchaser or the Paying Agent will be entitled to deduct and withhold from the consideration otherwise payable pursuant to this Agreement or the transactions contemplated hereby to any holder of Seller Common Stock, such amounts as Purchaser (or any Affiliate thereof) or the Paying Agent are required to deduct and withhold with respect to the making of such payment under the Code, or any applicable provision of U.S. federal, state, local or non-U.S. Tax law. To the extent that such amounts are properly withheld by Purchaser or the Paying Agent, such withheld amounts will be treated for all purposes of this Agreement as having been paid to the holder of the Seller Common Stock in respect of whom such deduction and withholding were made by Purchaser or the Paying Agent.

Section 2.05 Dissenters ’ Rights .

     Notwithstanding anything in this Agreement to the contrary, any shares of Seller Common Stock that are issued and outstanding as of the Effective Time and that are held by a stockholder who has properly exercised his or her appraisal rights under the DGCL shall not be converted into the right to receive the Merger Consideration unless and until such holder shall have failed to perfect, or shall have effectively withdrawn or lost, his or her right to dissent from the Merger or seek appraisal for his or her shares under the DGCL and to receive such consideration as may be determined to be due with respect to such Dissenters’ Shares pursuant to and subject to the requirements of the DGCL. If any such Dissenting Stockholder shall have failed to perfect or shall have effectively withdrawn or lost the right to dissent or seek appraisal, the Dissenters’ Shares held by the holder shall thereupon be treated as though such Dissenters’ Shares had been converted into the right to receive the Merger Consideration pursuant to Section 2.03. Seller shall give Purchaser (i) prompt notice of any notice or demands for appraisal or payment for shares of Seller Common Stock, attempted withdrawals of any such demands and any other instruments served pursuant to the DGCL and received by Seller relating to stockholders’ rights of appraisal and (ii) the opportunity to participate in and direct all negotiations and proceedings with respect to any such demands or notices. Seller shall not, without the prior written consent of Purchaser, make any payment with respect to, or settle, offer to settle or otherwise negotiate, any such demands.

Section 2.06 Stock Options .

     At the Effective Time, each Seller Option which is outstanding and unexercised immediately prior thereto, whether or not then vested or exercisable, shall be cancelled and all rights thereunder shall be extinguished. As consideration for such cancellation, Seller shall make payment to such holder of an amount determined by multiplying (x) the number of shares of Seller Common Stock subject to such holder’s Seller Option by (y) an amount equal to the excess (if any) of (i) the Merger Consideration, over (ii) the exercise price per share of such Seller Option; provided, however, that no such payment shall be made to such holder unless, and such payment shall be deferred without interest until, such holder has agreed to such payment and has executed and delivered to Seller an instrument in such form prescribed by Purchaser and reasonably satisfactory to Seller accepting such payment in full settlement of his or her rights relative to the Seller Option. Prior to the date hereof (in the case of Messrs. McStravick and Fabiano and each non-employee director of Seller) and within thirty (30) days thereafter (in the case of all others), Seller shall use its reasonable best efforts to obtain the written consent to the provisions of this Section 2.06 on the form prescribed by the Purchaser of each person who is the holder of Seller Options that will not, by their terms, expire prior to the Effective Time. Prior to date hereof, Seller shall have taken or shall have caused to have been taken, all requisite action under the terms of Stock Benefit Plans or otherwise to cause cancellation of all Seller Options in the manner set forth herein.

Section 2.07 Closing; Effective Time .

     Subject to the satisfaction or waiver of all conditions to closing contained in Article VIII hereof, the Closing shall occur (i) no later than five business days following the latest to occur of (a) the receipt of all required Regulatory Approvals and the expiration of any applicable waiting periods, or (b) the approval of the Merger by the stockholders of Seller, or (ii) at such other date or time upon which Purchaser and Seller mutually agree (the “Closing”). The Merger shall be effected by the filing of a certificate of merger with the Delaware Office of the Secretary of State on the day of the Closing (the “Closing Date”), in accordance with the DGCL. The “Effective Time” means the date and time upon which the certificate of merger is filed with the Delaware Office of the Secretary of State, or as otherwise stated in the certificate of merger, in accordance with the DGCL.

ARTICLE III.

REPRESENTATIONS AND WARRANTIES OF SELLER

     Seller represents and warrants to Purchaser that the statements contained in this Article III are true and correct as of the date of this Agreement and will be true and correct as of the Closing Date (as though made then and as though the Closing Date were substituted for the date of this Agreement throughout this Article III), except as set forth in the Disclosure Letter (as defined below) delivered by Seller to Purchaser prior to the execution of this Agreement. References to the Knowledge of Seller shall include the Knowledge of any Seller Subsidiary.

Section 3.01 Disclosure Letter .

     On or prior to the date hereof, Seller has delivered to Purchaser a letter (the “Disclosure Letter”) setting forth, among other things, facts, circumstances and events the disclosure of which are required or appropriate in relation to any or all of its covenants, representations and warranties (and making specific reference to the section of this Agreement to which such section of the Disclosure Letter relates), other than Section 3.08; provided, that the mere inclusion of a fact, circumstance or event in the Disclosure Letter shall not be deemed an admission by a party that

such item represents a material exception or that such item is reasonably likely to result in a Material Adverse Effect. The Disclosure Letter is true, correct and complete in all material respects.

Section 3.02 Organization .

     (a) Seller is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware, and is duly registered as a savings and loan holding company under the HOLA. Seller has all requisite corporate power and authority to own, lease and operate its properties and carry on its business as now conducted. Seller is duly licensed or qualified to do business in each jurisdiction where its ownership or leasing of property or the conduct of its business requires such qualification, except where the failure to obtain such license or qualification would not reasonably be expected to have a Material Adverse Effect.

     (b) Seller Bank is a stock savings association duly organized, validly existing and in good standing under the laws of the United States of America. The deposits of Seller Bank are insured by the FDIC to the fullest extent permitted by law, and all premiums and assessments required to be paid in connection therewith have been paid by Seller Bank when due. Seller Bank is a member of the FHLB and owns the requisite amount of stock therein.

     (c) The Disclosure Letter sets forth each Seller Subsidiary. Each Seller Subsidiary is a corporation duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation or organization. The Disclosure Letter sets forth all entities (whether corporations, partnerships, or similar organizations), including the corresponding percentage ownership in which Seller owns, directly or indirectly, 5% or more of the ownership interests as of the date of this Agreement and indicates for each Seller Subsidiary, as of such date, its jurisdiction of organization and the jurisdiction wherein it is qualified to do business. All of the Seller Subsidiaries are in compliance with all applicable laws, rules and regulations relating to direct investments in equity ownership interests. Seller owns, either directly or indirectly, all of the outstanding capital stock of each Seller Subsidiary. No Seller Subsidiary (other than Seller Bank) is an “insured depositary institution” as defined in the FDIA. All of the shares of capital stock of each Seller Subsidiary (including Seller Bank) held by Seller or by another Seller Subsidiary are validly issued, fully paid, nonassessable and not subject to any preemptive rights and are owned by Seller or a Seller Subsidiary free and clear of any pledges, security interests, claims, liens, encumbrances or restrictions (other than those imposed by applicable federal and state securities laws) and there are no agreements or understandings with respect to the voting or disposition of any such shares.

     (d) The respective minute books of Seller, Seller Bank and each other Seller Subsidiary accurately record, in all material respects, all corporate actions of their respective stockholders and boards of directors (including committees).

     (e) Prior to the date of this Agreement, Seller has made available to Purchaser true and correct copies of the certificate of incorporation or charter and bylaws of Seller, Seller Bank and each other Seller Subsidiary.

Section 3.03 Capitalization .

     (a) The authorized capital stock of Seller consists of 24,000,000 shares of Seller Common Stock and 1,000 shares of preferred stock of Seller, par value $0.01 per share (“Seller Preferred Stock”). As of the date of this Agreement: (A) 12,322,206 shares of Seller Common Stock were issued and outstanding, (B) no shares of Seller Preferred Stock were issued and outstanding, (C) no shares of Seller Preferred Stock were reserved

for issuance, (D) 1,004,582 shares of Seller Common Stock were reserved for issuance pursuant to the Seller Stock Benefit Plans, and (E) 1,313,964 shares of Seller Common Stock were held by Seller in its treasury or by its Subsidiaries. All outstanding shares of Seller Common Stock are validly issued, fully paid and nonassessable and not subject to any preemptive rights and, with respect to shares held by Seller in its treasury or by its Subsidiaries, are free and clear of all liens, claims, encumbrances or restrictions (other than those imposed by applicable federal and state securities laws) and there are no agreements or understandings with respect to the voting or disposition of any such shares. The Disclosure Letter sets forth a complete and accurate list of all options to purchase Seller Common Stock that have been granted and are outstanding pursuant to the Seller Stock Benefit Plans including the dates of grant, exercise prices, dates of vesting, dates of termination and shares subject to each grant. Seller has not, since March 31, 2005 adopted or modified the terms of any stock option plan or restricted stock or phantom stock plan or made any grants under the Seller Stock Benefit Plans.

     (b) The authorized capital stock of Seller Bank consists of 20,000,000 shares of common stock, par value $0.10 per share (the “Seller Bank Common Stock”), and 10,000,000 shares of preferred stock, par value $0.10 per share (the “Seller Bank Preferred Stock”). As of the date of this Agreement, 1,000 shares of the Seller Bank Common Stock were outstanding, no shares of the Seller Bank Preferred Stock were outstanding, no shares of Seller Bank Common Stock or Seller Bank Preferred Stock were reserved for issuance and all outstanding shares of the Seller Bank Common Stock were, and as of the Effective Time will be, owned by Seller. All of the outstanding shares of the Seller Bank Common Stock are validly issued, fully paid and nonassessable.

     (c) No bonds, debentures, notes or other indebtedness having the right to vote on any matters on which stockholders of Seller may vote are issued or outstanding.

     (d) As of the date of this Agreement and, except for this Agreement, neither Seller nor any Seller Subsidiary has or is bound by any Rights obligating Seller or any Seller Subsidiary to issue, deliver or sell, or cause to be issued, delivered or sold, any additional shares of capital stock of Seller or any Seller Subsidiary or obligating Seller or any Seller Subsidiary to grant, extend or enter into any such Right other than pursuant to the Seller Stock Benefit Plans. As of the date hereof, there are no outstanding contractual obligations of Seller or any Seller Subsidiary to repurchase, redeem or otherwise acquire any shares of capital stock of Seller or any Seller Subsidiary.

Section 3.04 Authority; No Violation .

     (a) Seller has full corporate power and authority to execute and deliver this Agreement, the Plan of Interim Merger and, subject to the receipt of the Regulatory Approvals and the approval of this Agreement by Seller’s stockholders, to consummate the transactions contemplated hereby (it being understood that Seller Bank shall amend Section 8 of its Federal Stock Charter prior to the Closing Date to eliminate any restrictions on ownership or voting of Seller Bank Common Stock). The execution and delivery of this Agreement by Seller and the completion by Seller of the transactions contemplated hereby have been duly and validly approved by the Board of Directors of Seller. This Agreement has been duly and validly executed and delivered by Seller, and subject to approval by the stockholders of Seller and receipt of the Regulatory Approvals, constitutes the valid and binding obligation of Seller, enforceable against Seller in accordance with its terms, subject to applicable bankruptcy, insolvency and similar laws affecting creditors’ rights generally, and subject, as to enforceability, to general principles of equity, whether applied in a court of law or a court of equity.

     (b) Subject to receipt of Regulatory Approvals and receipt of the approval of the stockholders of Seller, the consummation of the transactions contemplated hereby and compliance by Seller with any of the terms or provisions hereof will not: (i) conflict with or result in a breach or violation of or a default under any provision of the Certificate of Incorporation or Bylaws of Seller or any

Seller Subsidiary or the Federal Stock Charter and Bylaws of Seller Bank (other than Section 8 of the Federal Stock Charter of Seller Bank, which Seller Bank shall amend prior to the Closing Date to eliminate any restrictions on ownership or voting of Seller Bank Common Stock); (ii) violate any statute, code, ordinance, rule, regulation, judgment, order, writ, decree, governmental permit or license or injunction applicable to Seller or any Seller Subsidiary or any of their respective properties or assets or enable any person to enjoin the Merger or the other transactions contemplated hereby; or (iii) violate, conflict with, result in a breach of any provisions of, constitute a default (or an event which, with notice or lapse of time, or both, would constitute a default) under, result in the termination of, accelerate the performance required by, or result in a right of termination or acceleration or the creation of any lien, security interest, charge or other encumbrance upon any of the properties or assets of Seller or Seller Subsidiary under any of the terms, conditions or provisions of any material note, bond, mortgage, indenture, deed of trust, license, lease, agreement or other instrument or obligation to which Seller or Seller Subsidiary is a party, or by which they or any of their respective properties or assets may be bound or affected.

Section 3.05 Consents .

     Except for the Regulatory Approvals and compliance with any conditions contained therein, the filing of the Proxy Statement with the SEC contemplated by Section 7.02 hereof and the approval of this Agreement by the requisite vote of the stockholders of Seller, no consents, waivers or approvals of, or filings or registrations with, any Governmental Entity or Bank Regulator are necessary, and no consents, waivers or approvals of, or filings or registrations with, any other third parties are necessary, in connection with (a) the execution and delivery of this Agreement by Seller, and the completion by Seller of the Merger or (b) the execution and delivery of the Plan of Bank Merger by Seller Bank and the completion by Seller Bank of the Bank Merger. Seller has no reason to believe that (i) any required Regulatory Approvals or other required consents or approvals will not be received, or that (ii) any public body or authority, the consent or approval of which is not required or to which a filing is not required, will object to the completion of the transactions contemplated by this Agreement.

Section 3.06 Fairness Opinion; Required Vote.

     Seller has received an opinion from Keefe, Bruyette & Woods to the effect that, subject to the terms, conditions and qualifications set forth therein, as of the date hereof, the Merger Consideration to be received by the stockholders of Seller pursuant to this Agreement is fair to such stockholders from a financial point of view. Such opinion has not been amended or rescinded as of the date of this Agreement and Seller has no reason to believe that such opinion may be amended or rescinded after the date hereof. The affirmative vote of a majority of the issued and outstanding shares of Seller Common Stock is the only vote of Stockholders required to approve this Agreement and the Merger under Seller’s certificate of incorporation, bylaws and the DGCL.

Section 3.07 Financial Statements.

     (a) As of their respective dates, neither Seller’s Annual Report on Form 10-K for the fiscal year ended March 31, 2005 nor any other document filed subsequent to March 31, 2005 under Section 13(a), 13(c), 14 or 15(d) of the Exchange Act, each in the form (including exhibits and any documents specifically incorporated by reference therein) filed with the SEC (collectively, the “Seller Reports”), contained or will contain any untrue statement of a material fact or omitted or will omit to state a material fact required to be stated therein or necessary to make the statements made therein, in light of the circumstances under which they were made, not misleading. Each of the financial statements of Seller included in the Seller Reports complied as to form, as of their respective dates of filing with the SEC, in all material respects with applicable accounting requirements and with the published rules and regulations

of the SEC with respect thereto and have been prepared in accordance with GAAP applied on a consistent basis during the periods involved (except as may be indicated in the notes thereto or, in the case of the unaudited financial statements, as permitted by SEC Form 10-Q). Each of the balance sheets contained or incorporated by reference in Seller’s Reports (including in each case any related notes and schedules) fairly presented the financial position of the entity or entities to which it relates as of its date and each of the statements of income and of changes in stockholders’ equity and of cash flows, contained or incorporated by reference in the Seller Reports (including in each case any related notes and schedules), fairly presented the results of operations, stockholders’ equity and cash flows, as the case may be, of the entity or entities to which it relates for the periods set forth therein (subject, in the case of unaudited interim statements, to normal year-end audit adjustments that are not material in amount or effect), in each case in accordance with GAAP consistently applied during the periods involved, except as may be noted therein. No event has occurred that would cause a normal year-end adjustment to the unaudited interim financial statements prepared prior to the date hereof (including such statements as are included in the Seller’s Quarterly Reports on Form 10-Q for the periods ended June 30, 2005, September 30, 2005 and December 31, 2005) that would be material in amount or effect and no such adjustment is reasonably likely to occur. Seller has made available to Purchaser a true and complete copy of all Seller Reports filed with the SEC since March 31, 2005.

     (b) Seller and each Seller Subsidiary have each timely filed all reports, registrations and statements, together with any amendments required to be made with respect thereto, that they were required to file since December 31, 2002 with (i) the OTS, (ii) the FDIC, (iii) any state banking commission, (iv) and other state or federal regulatory authority having jurisdiction over insured depository institutions or their holding companies, (v) the SEC, (vi) the NASDAQ and (vii) any other self regulatory organization, and have paid all fees and assessments due and payable in connection therewith, except to the extent the failure of a report, registration or statement to have been filed in a “timely” fashion has not and will not result in a failure to comply with applicable laws, rules or regulations or materially prejudice the Seller or any Seller Subsidiary with respect to the applicable Governmental Entity.

Section 3.08 Absence of Certain Changes or Events.

     Except as disclosed in the Seller Reports filed since March 31, 2005 and prior to the date of this Agreement and except for the reasonable out-of-pocket fees and disbursements of Seller incurred in connection with the completion of the transactions contemplated hereby, including reasonable attorney’s fees of Seller and the fees of Seller’s financial advisor, good faith estimates of which have been provided to Purchaser, since March 31, 2005 (i) neither Seller nor any Seller Subsidiary has incurred any liability, except in the ordinary course of its business consistent with past practice, (ii) Seller and each Seller Subsidiary has conducted its respective businesses only in the ordinary and usual course of such businesses and (iii) there has not been any condition, event, change or occurrence that, individually or in the aggregate, has had, or is reasonably likely to have, a Material Adverse Effect.

Section 3.09 Taxes.

     (a) (i) Seller, each Seller Subsidiary and the Seller Group has filed or caused to be filed, and with respect to Tax Returns due between the date of this Agreement and the date the Effective Time occurs, will timely file (including any applicable extensions) all Tax Returns required to be filed, (ii) all such Tax Returns are, or in the case of such Tax Returns not yet filed, will be, true, complete and correct in all material respects and such Tax Returns correctly reflected (or in the case of such Tax Returns not yet filed, will correctly reflect) the facts regarding the income, business, assets, operations, activities, status and other matters of Seller, each Seller Subsidiary and the Seller Group and any other information required to be shown thereon, and (iii) all Taxes of Seller, the Seller Subsidiaries and the Seller Group

(whether or not reflected on any such Tax Returns) attributable to a Pre-Effective Time Tax Period have been, or in the case of Taxes the due date for payment of which is between the date of this Agreement and the date the Effective Time occurs, timely paid in full, including, without limitation, all Taxes which Seller, each Seller Subsidiary and the Seller Group is obligated to withhold for amounts paid or owing to employees, independent contractors, stockholders creditors and other third parties other than Taxes that have been reserved or accrued on the balance sheet contained in the most recent Seller Report, which the Seller is contesting in good faith.

     (b) The most recent audited financial statements for Seller reflect an adequate reserve for all Taxes payable by Seller and the Seller Subsidiaries for all taxable periods and portions thereof through the date of such financial statements, and, in the case of Taxes owed as of the date hereof, an adequate reserve is (and until the date the Effective Time occurs will continue to be) reflected in the accruals for Taxes payable on the balance sheet contained in the most recent Seller Report, other than accruals established to reflect timing differences and accruals reflected only in the notes thereto.

     (c) There are no liens for Taxes, except for statutory liens not yet due with respect to any of the assets or properties of Seller or any Seller Subsidiary.

     (d) (i) No Tax Return of Seller, any Seller Subsidiary or the Seller Group has within the past six (6) years been examined by the Internal Revenue Service, (ii) except as set forth in the Disclosure Letter, no Tax Return of Seller, any Seller Subsidiary or the Seller Group is under audit or examination by any other Taxing Authority, and (iii) except as set forth in the Disclosure Letter, no notice of such an audit or examination has been received by Seller or any Seller Subsidiary.

     (e) Each deficiency, if any, resulting from any audit or examination relating to Taxes by any Taxing Authority has been timely paid. No issues relating to Taxes were raised by the relevant Taxing Authority in any completed audit or examination that can reasonably be expected to recur in a later taxable period. The relevant statute of limitations is closed with respect to the Tax Returns of Seller, each Seller Subsidiary and the Seller Group for all years through 2001. Seller has made available to Purchaser documents setting forth the dates of the most recent audits or examinations of the Seller, each Seller Subsidiary and the Seller Group by any Taxing Authority in respect of Taxes for all taxable periods for which the statute of limitations has not yet expired.

     (f) Except as set forth in the Disclosure Letter, none of Seller, any Seller Subsidiary or the Seller Group is a party to or is bound by any Tax sharing agreement, Tax indemnity obligation or similar agreement, arrangement or practice with respect to Taxes (including, without limitation, any advance pricing agreement, closing agreement or other agreement relating to Taxes with any Taxing Authority).

     (g) Neither Seller nor any Seller Subsidiary will be required to include in a taxable period ending after the date of the Effective Time any taxable income attributable to income that accrued, but was not recognized, in a Pre-Effective Time Tax Period (or the portion of a Straddle Period allocable to the Pre-Effective Time Tax Period) as a result of an adjustment under Section 481 of the Code, the installment method of accounting, the long-term contract method of accounting, the cash method of accounting, any comparable provision of state, local, or foreign Tax law, or for any other reason.

     (h) Except as set forth in the Disclosure Letter, there are no outstanding agreements or waivers extending, or having the effect of extending, the statutory period of limitation applicable to any Tax Returns required to be filed with respect to Seller or any Seller Subsidiary, and none of Seller, any Seller Subsidiary or the Seller Group has requested any extension of time within which to file any Tax Return, which return has not yet been filed. No power of attorney with respect to any Taxes has been

executed or filed with any Taxing Authority by or on behalf of Seller, any Seller Subsidiary or the Seller Group.

     (i) Seller and each of the Seller Subsidiaries have complied in all respects with all applicable laws relating to the payment and withholding of Taxes (including withholding of Taxes pursuant to Sections 1441, 1442, 3121 and 3402 of the Code or any comparable provision of any state, local or foreign laws) and have, within the time and in the manner prescribed by applicable law, withheld from and paid over to the proper Taxing Authorities all amounts required to be so withheld and paid over under such laws.

     (j) Neither Seller nor any Seller Subsidiary has been a party to any distribution occurring during the last five years in which the parties to such distribution treated the distribution as one to which Section 355 of the Code applied.

     (k) Neither Seller nor any Seller Subsidiary is a party to any “listed transaction” as defined in Treasury Regulation Section 1.6011-4(b)(2).

     (l) None of the Tax Returns filed by Seller, any Seller Subsidiary or the Seller Group contains a disclosure statement under former Section 6661 of the Code or Section 6662 of the Code (or any similar provision of state, local or foreign Tax law).

     (m) Seller has not been, at any time during the applicable time period set forth in Section 897(c)(1) of the Code, a United States real property holding company within the meaning of Section 897(c)(2) of the Code.

     (n) Seller has made available to Purchaser for inspection (i) complete and correct copies of all material Tax Returns of Seller, each Seller Subsidiary and the Seller Group relating to Taxes for all taxable periods for which the applicable statute of limitations has not yet expired, and (ii) complete and correct copies of all private letter rulings, revenue agent reports, information document requests, notices of proposed deficiencies, deficiency notices, protests, petitions, closing agreements, settlement agreements, pending ruling requests, and any similar documents, submitted by, received by or agreed to by or on behalf of Seller or any Seller Subsidiary, or, to the extent related to the income, business, assets, operations, activities or status of Seller or any Seller Subsidiary, submitted by, received by or agreed to by or on behalf of any Seller Group, and relating to Taxes for all taxable periods for which the statute of limitations has not yet expired.

     (o) The Disclosure Letter sets forth each state, county, local, municipal or foreign jurisdiction in which Seller or any Seller Subsidiary files, or is or has been required to file, a Tax Return relating to state and local income, franchise, license, excise, net worth, property or sales and use taxes or is or has been liable for any Taxes on a “nexus” basis at any time for a taxable period for which the relevant statutes of limitation have not expired. Neither Seller nor any Seller Subsidiary has received notice of any claim by a Taxing Authority in a jurisdiction where Seller or such Seller Subsidiary does not file Tax Returns that Seller or such Seller Subsidiary is or may be subject to taxation by such jurisdiction.

     (p) Neither Seller nor any Seller Subsidiary has ever (i) made an election under Section 1362 of the Code to be treated as an S corporation for federal income tax purposes, or (ii) made any similar election under any comparable provision of any state, local or foreign Tax law.

     (q) From April 19, 1999 through the Effective Time, Sound REIT, Inc. has been and will continue to be a real estate investment trust within the meaning of Section 856 of the Code.

     (r) From May 12, 1999 through the Effective Time, First Federal REIT, Inc. has been and will continue to be a real estate investment trust within the meaning of Section 856 of the Code.

Section 3.10 Material Contracts; Leases; Defaults.

     (a) Except as set forth in the Disclosure Letter, neither Seller nor any Seller Subsidiary is a party to or subject to: (i) any employment, consulting or severance contract with any past or present officer, director or employee of Seller or any Seller Subsidiary, except for “at will” arrangements; (ii) any plan or contract providing for bonuses, pensions, options, or other equity deferred compensation, retirement payments, profit sharing, insurance benefits, death benefits, health, medical or disability benefits or similar material arrangements for or with any past or present officers, directors or employees of Seller or any Seller Subsidiary; (iii) any collective bargaining agreement with any labor union relating to employees of Seller or any Seller Subsidiary; (iv) any agreement which by its terms limits the payment of dividends by Seller or any Seller Subsidiary; (v) any instrument evidencing or related to indebtedness for borrowed money whether directly or indirectly, by way of purchase money obligation, conditional sale, lease purchase, guaranty or otherwise, in respect of which Seller or any Seller Subsidiary is an obligor to any person, which instrument evidences or relates to indebtedness other than deposits, FHLB advances, repurchase agreements, bankers’ acceptances, and “treasury tax and loan” accounts established in the ordinary course of business and transactions in “federal funds” or which contains financial covenants or other restrictions (other than those relating to the payment of principal and interest when due) which would be applicable on or after the Closing Date to Purchaser or any Purchaser Subsidiary; (vi) any other agreement, written or oral, not terminable on 60 days’ notice, that obligates Seller or any Seller Subsidiary for the payment of more than $25,000 annually; or (vii) any agreement (other than this Agreement), contract, arrangement, commitment or understanding (whether written or oral) that restricts or limits in any material way the conduct of business by Seller or any Seller Subsidiary (it being understood that any non-compete or similar provision shall be deemed material).

     (b) Subject to any consents that may be required as a result of the transactions contemplated by this Agreement, neither Seller nor any Seller Subsidiary is in default under any material contract, agreement, commitment, arrangement, lease, insurance policy or other instrument to which it is a party, by which its assets, business, or operations may be bound or affected, or under which it or its assets, business, or operations receive benefits, and there has not occurred any event that, with the lapse of time or the giving of notice or both, would constitute such a default.

     (c) True and correct copies of agreements, contracts, arrangements and instruments referred to in Sections 3.10(a) and (b) have been made available to Purchaser on or before the date hereof, are listed on the Disclosure Letter and are in full force and effect on the date hereof and enforceable against the counterparty to which it relates.

Section 3.11 Ownership of Property; Insurance Coverage.

     (a) Except as set forth in the Disclosure Letter, Seller and each Seller Subsidiary has good and, as to real property, marketable title to all assets and properties owned by Seller or each Seller Subsidiary in the conduct of its businesses, whether such assets and properties are real or personal, tangible or intangible, including assets and property reflected in the balance sheet contained in the most recent Seller Financial Statements or acquired subsequent thereto (except to the extent that such assets and properties have been disposed of in the ordinary course of business, since the date of such balance sheet and except to the extent that the failure to have good title to any personal property would not reasonably be expected to have a Material Adverse Effect), subject to no encumbrances, liens, mortgages, security interests or pledges, except (i) those items which secure liabilities for public or statutory obligations or any discount with, borrowing from or other obligations to FHLB, inter-bank credit

facilities, reverse repurchase agreements or any transaction by a Seller Subsidiary acting in a fiduciary capacity, (ii) statutory liens for amounts not yet delinquent or which are being contested in good faith. Seller and the Seller Subsidiaries, as lessee, have the right under valid and existing leases of real and personal properties used by Seller and the Seller Subsidiaries in the conduct of their businesses to occupy or use all such properties as presently occupied and used by each of them and (iii) encumbrances that do not materially affect the marketability of any title to real property. Such existing leases and commitments to lease constitute or will constitute operating leases for both tax and financial accounting purposes and the lease expense and minimum rental commitments with respect to such leases and lease commitments are as disclosed in all respects in the notes to the Seller Financial Statements. Each real estate lease that will require the consent of the lessor or its agent to consummate the effects intended by the Merger or otherwise as a result of the Merger or the Bank Merger by virtue of the terms of any such lease is listed in the Disclosure Letter identifying the section of the lease that contains such prohibition or restriction.

     (b) With respect to all agreements pursuant to which Seller or any Seller Subsidiary has purchased securities subject to an agreement to resell, if any, Seller or such Seller Subsidiary, as the case may be, has a lien or security interest (which to Seller’s Knowledge is a valid, perfected first lien) in the securities or other collateral securing the repurchase agreement, and the value of such collateral equals or exceeds the amount of the debt secured thereby.

     (c) Seller and each Seller Subsidiary currently maintain insurance for reasonable amounts with financially sound and reputable insurance companies, against such risks as companies engaged in a similar business would, in accordance with good business practice, customarily be insured. Neither Seller nor any Seller Subsidiary has received notice from any insurance carrier that (i) such insurance will be canceled or that coverage thereunder will be reduced or eliminated, or (ii) premium costs with respect to such policies of insurance will be substantially increased. There are presently no material claims pending under such policies of insurance and no notices have been given by Seller or any Seller Subsidiary under such policies. All such insurance is valid and enforceable and in full force and effect, and within the last three years Seller and each Seller Subsidiary has received each type of insurance coverage for which it has applied and during such periods has not been denied indemnification for any claims submitted under any of its insurance policies. The Seller Disclosure Letter identifies all policies of insurance maintained by Seller and each Seller Subsidiary as well as the other matters required to be disclosed under this Section.

Section 3.12 Intellectual Property.

     (a) The Disclosure Letter sets forth a true and complete list of all (i) Registered and/or material Intellectual Property owned by Seller and Seller Subsidiaries indicating for each Registered item the registration or application number and the applicable filing jurisdiction (collectively, the “Listed Intellectual Property”). Seller or the relevant Seller Subsidiary exclusively owns (beneficially, and of record where applicable) all Listed Intellectual Property, free and clear of all encumbrances, exclusive licenses and non-exclusive licenses not granted in the ordinary course of business. The Listed Intellectual Property is valid, subsisting and enforceable, and is not subject to any outstanding order, judgment, decree or agreement adversely affecting the Seller’s use thereof or its rights thereto. Seller and the Seller Subsidiaries have sufficient rights to use all Intellectual Property used in its business as currently conducted. To Seller’s Knowledge, Seller and the Seller Subsidiaries do not and have not in the past five years infringed or otherwise violated the Intellectual Property rights of any third party. There is no material litigation, opposition, cancellation, proceeding, objection or claim pending, asserted or threatened against the Seller or any Seller Subsidiary concerning the ownership, validity, registerability, enforceability, infringement or use of, or licensed right to use, any Intellectual Property. To the Seller’s Knowledge, (x) no valid basis for any such litigation, opposition, cancellation, proceeding, objection or claim exists, (y) no Person is violating any Listed Intellectual Property or other Intellectual Property right

owned or held exclusively by Seller or any Seller Subsidiary, and (z) the Licensed Intellectual Property is valid, subsisting and enforceable and is not subject to any outstanding order, judgment, decree or agreement adversely affecting the Seller’s use thereof or its rights thereto. Consummation of the transactions contemplated by this Agreement will not terminate or alter the terms pursuant to which the Seller or any Seller Subsidiary is permitted to use any Licensed Intellectual Property and will not create any rights by third parties to use any Intellectual Property owned by the Purchaser (other than any termination, alteration or creation of any rights that results from action of the Purchaser and its Affiliates).

     (b) The Seller and the Seller Subsidiaries have taken commercially reasonable measures to protect the confidentiality of all Trade Secrets that are owned, used or held by Seller and the Seller Subsidiaries, and to the Seller’s Knowledge, such Trade Secrets have not been used, disclosed to or discovered by any Person except pursuant to valid and appropriate non-disclosure and/or license agreements which have not been breached. Seller has exercised commercially reasonable efforts to ensure that Seller’s and the Seller Subsidiaries’ current and prior employees who have access to confidential information have executed valid intellectual property and confidentiality agreements or are obligated, pursuant to Seller policies, to maintain the confidentiality of such information for the benefit of Seller or the relevant Seller Subsidiary on terms and conditions consistent with industry standards. All Intellectual Property developed under contract to Seller or the Seller Subsidiaries has been assigned to Seller or the Seller Subsidiaries.

     (c) To Seller’s Knowledge, the IT Assets operate and perform in all respects in accordance with their documentation and functional specifications and otherwise as required by Seller in connection with its business, and have not malfunctioned or failed within the past three years. To Seller’s Knowledge, the IT Assets do not contain any “time bombs,” “Trojan horses,” “back doors,” “trap doors,” “worms,” viruses, bugs, faults or other devices or effects that (1) enable or assist any person to access without authorization the IT Assets, or (ii) otherwise significantly adversely affect the functionality of the IT Assets, in either case except as disclosed in its documentation. To Seller’s Knowledge, no person has gained unauthorized access to the IT Assets. Seller has implemented commercially reasonable backup and disaster recovery technology consistent with industry practices.

     (d) To Seller’s Knowledge, none of the software owned by it contains any shareware, open source code, or other software whose use requires disclosure or licensing of Intellectual Property.

Section 3.13 Labor Matters.

     Neither Seller nor any Seller Subsidiary is or has ever been a party to, or is or has ever been bound by, any collective bargaining agreement, contract, or other agreement or understanding with a labor union or labor organization with respect to its employees and no such agreement or contract is currently being negotiated by Seller or any Seller Subsidiary, nor is Seller or any Seller Subsidiary the subject of any proceeding asserting that it has committed an unfair labor practice or otherwise relating to labor matters involving any current or former employees of Seller or any Seller Subsidiary or seeking to compel it or any Seller Subsidiary to bargain with any labor organization as to wages and conditions of employment, nor is any strike, other labor dispute or organizational effort involving Seller or any Seller Subsidiary pending or, to the Knowledge of Seller, threatened. Seller and each Seller Subsidiary is in compliance with applicable laws regarding employment of employees and retention of independent contractors, and are in compliance with applicable employment tax laws.

Section 3.14 Legal Proceedings.

     Neither Seller nor any Seller Subsidiary is a party to any, and there are no pending or, to Seller’s Knowledge, threatened legal, administrative, arbitration or other proceedings, claims (whether asserted or

unasserted), actions or governmental investigations or inquiries of any nature, (i) against Seller or any Seller Subsidiary, (ii) to which Seller or any Seller Subsidiary’s assets are or may be subject, (iii) challenging the validity or propriety of any of the transactions contemplated by this Agreement, or (iv) which could adversely affect the ability of Seller to perform under this Agreement.

Section 3.15 Compliance With Applicable Law.

     (a) Seller and each Seller Subsidiary is in compliance in all material respects with all applicable federal, state, local and foreign statutes, laws, regulations, ordinances, rules, judgments, orders or decrees applicable to it, its properties, assets and deposits, its business, and its conduct of business and its relationship with its employees, including, without limitation, the Sarbanes-Oxley Act of 2002, the USA Patriot Act, the Bank Secrecy Act, the Equal Credit Opportunity Act, the Fair Housing Act, the CRA, the Home Mortgage Disclosure Act, and all other applicable fair lending laws and other laws relating to discriminatory business practices.

     (b) Seller and each Seller Subsidiary has all permits, licenses, authorizations, orders and approvals of, and has made all filings, applications and registrations with, all Bank Regulators that are required in order to permit it to own or lease its properties and to conduct its business as presently conducted; all such permits, licenses, certificates of authority, orders and approvals are in full force and effect and, to the Knowledge of Seller, no suspension or cancellation of any such permit, license, certificate, order or approval is threatened or will result from the consummation of the transactions contemplated by this Agreement, subject to obtaining the approvals set forth in Section 7.03.

     (c) From the period beginning January 1, 2003, neither Seller nor any Seller Subsidiary has received any written notification or any other communication from any Bank Regulator (i) asserting that Seller or any Seller Subsidiary is not in material compliance with any of the statutes, regulations or ordinances which such Bank Regulator enforces; (ii) threatening to revoke any license, franchise, permit or governmental authorization; (iii) requiring or threatening to require Seller or any Seller Subsidiary, or indicating that Seller or any Seller Subsidiary may be required, to enter into a cease and desist order, agreement or memorandum of understanding or any other agreement with any federal or state governmental agency or authority which is charged with the supervision or regulation of banks or engages in the insurance of bank deposits restricting or limiting, or purporting to restrict or limit, in any material respect the operations of Seller or any Seller Subsidiary, including without limitation any restriction on the payment of dividends; or (iv) directing, restricting or limiting, or purporting to direct, restrict or limit, in any manner the operations of Seller or any Seller Subsidiary (any such notice, communication, memorandum, agreement or order described in this sentence is hereinafter referred to as a “Regulatory Agreement”). Neither Seller nor any Seller Subsidiary has consented to or entered into any Regulatory Agreement that is currently in effect. The most recent regulatory rating given to Seller Bank as to compliance with the CRA is “satisfactory” or better.

Section 3.16 Employee Benefit Plans.

     (a) The Disclosure Letter includes a descriptive list of all plans, programs, policies, payroll practices, contracts, agreements and other arrangements providing for bonus, incentive compensation, deferred compensation, pension, retirement benefits or payments, profit-sharing, thrift, savings, employee stock ownership, stock bonus, stock purchase, restricted stock, stock option, stock appreciation, phantom stock, and other stock and stock related awards, severance, welfare benefits, fringe benefits, employment, severance and change in control benefits or payments and all other types of compensation and types of compensation and compensation and benefit practices, policies and arrangements, in each case, sponsored or contributed to, required to be contributed to or maintained by Seller

or any Seller Subsidiary in which any employee or former employee, consultant or former consultant or director or former director of Seller or any Seller Subsidiary participates or to which any such employee, consultant or director is a party or is otherwise entitled to receive benefits (the “Compensation and Benefit Plans”). Other than as set forth in the Disclosure Letter, neither Seller nor any of its Subsidiaries has any commitment to create any additional Compensation and Benefit Plan or to modify, change or renew any existing Compensation and Benefit Plan (any modification or change that increases the cost of such plans would be deemed material), except as required by law or regulation to maintain the qualified status thereof. Seller has made available to Purchaser true and correct copies of the Compensation and Benefit Plans and amendments thereto.

     (b) Each Compensation and Benefit Plan has been operated and administered in all material respects in accordance with its terms and with applicable law, including, but not limited to, ERISA, the Code, the Securities Act, the Exchange Act, the Age Discrimination in Employment Act, COBRA, HIPAA and any regulations or rules promulgated thereunder, and all filings, disclosures and notices required by ERISA, the Code, the Securities Act, the Exchange Act, the Age Discrimination in Employment Act and any other applicable law have been timely made or any interest, fines, penalties or other impositions for late filings have been paid in full. Each Compensation and Benefit Plan which is an “employee pension benefit plan” within the meaning of Section 3(2) of ERISA and which is intended to be qualified under Section 401(a) of the Code is, and since its inception has been, so qualified, and has received a favorable determination letter from the IRS, and Seller is not aware of any circumstances which are reasonably likely to result in revocation of any such favorable determination letter. There is no pending or, to the Knowledge of Seller threatened, action, suit or claim relating to any of the Compensation and Benefit Plans (other than routine claims for benefits). Neither Seller nor any Seller Subsidiary has engaged in a transaction, or omitted to take any action, with respect to any Compensation and Benefit Plan that would reasonably be expected to subject Seller or any Seller Subsidiary to an unpaid tax or penalty imposed by either Section 4975 of the Code or Section 502 of ERISA.

     (c) The Disclosure Letter sets forth the funding status of each Seller Defined Benefit Plan (as hereinafter defined) at December 31, 2004. No liability, other than PBGC premiums arising in the ordinary course of business, has been or could reasonably be expected by Seller, any Seller Subsidiary or any ERISA Affiliate (as hereinafter defined) to be incurred with respect to any Compensation and Benefit Plan which is a defined benefit plan subject to Title IV of ERISA (“Seller Defined Benefit Plan”), or with respect to any “single-employer plan” (as defined in Section 4001(a) of ERISA) currently or formerly maintained by Seller or any entity which is considered one employer with Seller under Sections 4001(a)(14) and (b)(1) of ERISA or Section 414 of the Code (an “ERISA Affiliate”) (such plan hereinafter referred to as an “ERISA Affiliate Plan”). No proceeding has been initiated by the PBGC to terminate any Seller Defined Benefit Plan or to appoint a trustee to administer any Seller Defined Benefit Plan. No Seller Defined Benefit Plan had an “accumulated funding deficiency” (as defined in Section 302 of ERISA), whether or not waived, as of the last day of the end of the most recent plan year ending prior to the date hereof and each Seller Defined Benefit Plan has been maintained in compliance with the minimum funding standards of ERISA and the Code. The fair market value of the assets of each Seller Defined Benefit Plan exceeds the present value of the “benefit liabilities” (as defined in Section 4001(a)(16) of ERISA) under such Seller Defined Benefit Plan as of the end of the most recent plan year with respect to the respective Seller Defined Benefit Plan ending prior to the date hereof, calculated on the basis of the actuarial assumptions used in the most recent actuarial valuation for such Seller Defined Benefit Plan as of the date hereof; and no notice of a “reportable event” (as defined in Section 4043 of ERISA) has been required to be filed for any Seller Defined Benefit Plan within the 12-month period ending on the date hereof. Neither Seller nor any of its Subsidiaries has provided, or is required to provide, security to any Seller Defined Benefit Plan or to any single-employer plan of an ERISA Affiliate pursuant to Section 401(a)(29) of the Code or has taken any action, or omitted to take any action, that has resulted, or would reasonably be expected to result in the imposition of a lien under Section 412(n) of the Code or pursuant to ERISA. To the Knowledge of Seller, there is no pending investigation, audit or

enforcement action by any Bank Regulator, the IRS, the U.S. Department of Labor or the PBGC with respect to any Compensation and Benefit Plan or any ERISA Affiliate Plan.

     (d) The Seller and the ERISA Affiliates have never had an obligation to contribute to a “multi-employer plan” as such term is defined in section 3(37) of ERISA or had any direct or indirect liability or potential liability with respect to such a plan.

     (e) All contributions required to be made under the terms of any Compensation and Benefit Plan or ERISA Affiliate Plan or any employee benefit arrangements to which Seller or any Seller Subsidiary is a party or a sponsor have been timely made, and all anticipated contributions and funding obligations are accrued on Seller’s consolidated financial statements to the extent required by GAAP. Seller and the Seller Subsidiaries have expensed and accrued as a liability the present value of future benefits under each applicable Compensation and Benefit Plan for financial reporting purposes as required by GAAP.

     (f) Except as set forth in the Disclosure Letter, neither Seller nor any Seller Subsidiary has any obligations to provide retiree health, life insurance, disability insurance, or death benefits under any Compensation and Benefit Plan, other than benefits mandated by Section 4980B of the Code and there has been no communication to employees by Seller or any Seller Subsidiary that would reasonably be expected to promise or guarantee such benefits.

     (g) With respect to each Compensation and Benefit Plan, if applicable, Seller has provided or made available to Purchaser copies of the: (A) trust instruments and insurance contracts; (B) two most recent Forms 5500 filed with the IRS; (C) two most recent actuarial reports and financial statements; (D) most recent summary plan description; (E) most recent determination letter issued by the IRS; and (F) any Form 5310 or Form 5330 filed with the IRS within the last two years.

     (h) Except as set forth in the Disclosure Letter, the consummation of the Merger will not, directly or indirectly (including, without limitation, as a result of any termination of employment or service at any time prior to or following the Effective Time): (A) entitle any current or former employee, consultant, independent contractor or director to any payment or benefit (including severance pay, change in control benefit, or similar compensation) or any increase in compensation, (B) result in the vesting or acceleration of any benefits under any Compensation and Benefit Plan, (C) result in any material increase in benefits payable under or the obligation to fund benefits under any Compensation and Benefit Plan or (D) result in the triggering or imposition of any restrictions or limitations on the rights of Seller, any of the Seller Subsidiaries, the Purchaser or any of the Purchaser Subsidiaries to amend or terminate any Compensation and Benefit Plan. Except as set forth in the Disclosure Letter, the consummation of the Merger and/or the Bank Merger will not, directly or indirectly (including without limitation, as a result of any termination of employment or service at any time prior to or following the Effective Time), entitle any current or former employee, director, consultant or independent contractor of Seller or any Seller Subsidiary to any actual or deemed payment (or benefit) which could constitute an “excess parachute payment” (as such term is defined in Section 280G of the Code). The Disclosure Letter includes a schedule of all termination benefits and related payments that would be employees who are participants in the Seller Bank Amended and Restated Severance Plan for Key Employees, under the Compensation and Benefit Plans, assuming their employment or service is terminated as of the Closing Date and based on the other assumptions specified in such schedule. Except for such individuals described in the previous sentence and those individuals who have delivered Settlement Agreements pursuant to Section 6.08(e), no other individuals are entitled to any termination benefits or any related payments under any of the Compensation and Benefit Plans (other than a tax qualified Pension Plan).

     (i) Except as set forth in the Disclosure Letter, neither Seller nor any Seller Subsidiary maintains any compensation plans, programs or arrangements under which (i) payment is reasonably likely to become non-deductible, in whole or in part, for tax reporting purposes as a result of the limitations under Section 162(m) of the Code and the regulations issued thereunder, or (ii) any payment is reasonably likely to become subject to an excise tax under section 409A or 4999 of the Code.

     (j) Except as set forth in the Disclosure Letter, there are no stock option, stock appreciation or similar rights, earned dividends or dividend equivalents, or shares of restricted stock, outstanding under any of the Compensation and Benefit Plans or otherwise as of the date hereof and none will be granted, awarded, or credited after the date hereof.

     (k) Except as set forth in the Disclosure Letter, each BOLI contract of the Seller Bank (i) constitutes a “life insurance contract” as defined in Section 7702 of the Code, (ii) does not constitute