Document:

exv10w1

 

EXHIBIT 10.1

EMPLOYMENT AGREEMENT

     This EMPLOYMENT AGREEMENT (“Agreement”), dated as of December 21, 2005 (the “Effective
Date”), is made by and between AVANIR PHARMACEUTICALS, a California corporation having its
principal offices at 11388 Sorrento Valley Road, San Diego, California, 92121 (the
“Company”), and Randall Kaye (“Employee”).

AGREEMENT

     1. Commencement Date.

          Employee’s employment under this Agreement shall commence on January 16, 2006
(“Commencement Date”).

     2. At-will Employment.

          Employee’s employment relationship with the Company (“Employment”) is at-will,
terminable at any time and for any or no reason by either the Company or Employee. While certain
sections of this Agreement describe events that could occur at a particular time in the future,
nothing in this Agreement shall be construed as a guarantee of employment of any length.

     3. Employment Duties.

          a. Title. Employee shall be Vice-President of Medical Affairs of the Company and
shall be assigned duties and responsibilities consistent with that position at the discretion of
the Company, including but not limited to working closely with the R&D organization.

          b. Full-Time Attention. Employee shall devote his full time, attention, energy and
skills to the Company during the period he is employed under this Agreement.

          c. Policy Compliance. Employee shall comply with all of the Company’s policies,
practices and procedures, including the terms of the Confidentiality Agreement (defined below).

     4. Compensation.

          a. Base Salary. The Company shall pay Employee a base salary of $21,666.67 per month
(an annual rate of $260,000), or such higher amount as the Company may determine from time to time
(“Base Salary”), payable in accordance with the Company’s regular payroll practices.

 

 

          b. Bonus Compensation. In addition to the Base Salary, Employee shall be eligible for
an annual discretionary bonus of up to 30% of the then-current annual Base Salary, which is payable
in October and annually thereafter, provided that the actual bonus may be
higher or lower than the target amount, at the discretion of the Company. No bonus will be
payable if Employee is not employed by the Company at the normal time of bonus payment. Any bonus
payable in October 2006 will not be prorated on account of commencement of employment less than one
year prior to October 2006.

          Employee must be employed by the Company when bonuses are distributed in order to be eligible
to receive any portion of such bonus.

          c. Signing Bonus. Four months from Commencement Date, assuming Employee is still
employed by the Company Employee shall receive a signing bonus in the amount of $50,000 to
compensate him for forfeiture of his annual bonus at his prior employer. In the event that
Employee receives his annual bonus from his prior employer in an amount equal to or greater than
$50,000, the Company will not be obligated to pay this signing bonus. The signing bonus shall be
immediately repaid to the Company if, within one year from the Commencement Date, Employee resigns
except for good cause.

          d. Equity Compensation. The Company will recommend to its Board of Directors that
Employee be granted the following equity awards as additional compensation:

                i. Subject to Board approval, Employee shall be granted the option to purchase 50,000 shares
of Class A common stock (the “Restricted
Shares”) at a purchase price of $0.001 per share.
The Restricted Shares shall vest in full upon Employee’s completion of two full years of employment
and will be governed by the terms and conditions of the 2003 Equity Incentive Plan of the Company
and the form of Restricted Stock Grant Notice, Restricted Stock Agreement and other related
documents attached hereto as Exhibit A. The fair market value of the Restricted Shares as of the
grant date will be determined by the Board.

                ii. Subject to Board approval, Employee shall be granted the option to purchase 150,000 shares
of Class A common stock, with an exercise price equal to 100% of the fair market value of the
underlying shares on the date of grant, subject to a four-year vesting schedule (25% vesting as of
January 16, 2007 and the remainder vesting in 12 equal installments on April 16, 2007, July 16,
2007, October 16, 2007, January 16, 2008, April 16, 2008, July 16, 2008, October 16, 2008, January
16, 2009, April 16, 2009, July 16, 2009, October 16, 2009, and January 16, 2010. ) This option
shall be subject to the terms and conditions of the Company’s 2003 Equity Incentive Plan. The
options will be intended to be incentive stock options under Internal Revenue Code Section 422 to
the extent permitted by law, and any excess will be intended to be nonstatutory stock options. The
Company has no responsibility as to actual tax treatment, however.

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The foregoing share amounts and share purchase prices shall be adjusted, as necessary, to give
effect to any stock split, reverse stock split, stock dividend, recapitalization or similar
transaction affecting the Company’s Class A common stock that is effected after the Effective Date.

          e. Employee Benefits. Employee shall be entitled to participate in all employee
benefit plans, programs and arrangements maintained by the Company and made available to employees
generally. The Employee’s participation in such Company plans or
programs shall be on the same basis and terms as are applicable to other executive employees
of the Company.

          f. Reimbursement of Expenses. During his employment with the Company, Employee shall
be entitled to reimbursement for all reasonable and necessary business expenses incurred on behalf
of the Company, in accordance with the Company’s policies and procedures.

          g. Reimbursement of Moving/Housing Expenses. The Company shall pay Employee $50,000
as reimbursement for moving and housing expenses related to his employment with Company. Payment
shall be made on the Commencement Date.

     5. Confidentiality Agreement. Employee shall concurrently herewith execute and
deliver to the Company the Employee Confidential Disclosure Agreement (“Confidentiality
Agreement”) in the form attached hereto as Exhibit B.

     6. Non-Competition. During his Employment, Employee shall not, directly or
indirectly, either as an employee, employer, consultant, corporate officer or director, investor,
or in any other capacity, engage or participate in any business that is a Competitor of the
Company, unless such participation or interest is fully disclosed to the Company and approved by
the Board. “Competitor” as used in this paragraph refers to any company that has therapeutic
products (i) on the market or in clinical development and (ii) that are in competition with the
products the Company has on the market or that have entered clinical development. Notwithstanding
the above, Employee may own securities in any Competitor that is a public company, so long as
Employee does not own, of record or beneficially, more than an aggregate of five percent of the
outstanding securities of such company.

     7. Non-Solicitation. During his Employment, and for a period of 12 months thereafter,
whether for Employee’s own account or the account of any other person, Employee shall not solicit,
directly or indirectly, any employee to leave his or her employment with the Company. For purposes
of this Agreement, the phrase, “shall not solicit, directly or indirectly,” includes, without
limitation, that Employee shall not: (i) identify any Company employees to any third party as
potential candidates for employment, such as by disclosing the names, backgrounds, compensation or
qualifications of any Company employees; (ii) personally or through any other person approach,
recruit or otherwise solicit employees of Company to work for any other employer; or (iii)
participate in any pre-employment interview with any person who was employed by the Company while
Employee was employed by the Company whether under this Agreement or otherwise.

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     8. Agreement with Previous Employers. Employee represents and warrants to the Company
that he does not have any agreement with any previous employer that prevents him from performing
his duties and responsibilities under this Agreement or (other than customary confidentiality
agreements) that in any way limits his performance hereunder. Employee understands and
acknowledges that his employment with Avanir is contingent upon his compliance with any and all
agreements between him and his prior employers.

     9. Change of Control. Employee shall be eligible to participate in any future change
of control plan or policy generally applicable to Officers of the Company which, will supersede any
then-existing agreement inconsistent with its terms.

     10. Dispute Resolution Procedures. Except as expressly provided in this Agreement,
Employee agrees that any dispute or controversy arising out of, relating to, or in connection with
this Agreement, or the interpretation, validity, construction, performance, breach, or termination
thereof shall be settled by arbitration, to the extent permitted by law, to be held in San Diego
County, California in accordance with the National Rules for the Resolution of Employment Disputes
then in effect of the American Arbitration Association (the “Rules”) and in accordance with
the accompanying Mutual Arbitration Agreement attached hereto as Exhibit B. The
arbitrator’s decision shall be final, conclusive and binding on the parties to the arbitration
pursuant to the Mutual Arbitration Agreement. Judgment may be entered on the decision of the
arbitrator in any court having competent jurisdiction.

     11. Notices. Any reports, notices or other communications required or permitted to be
given by either party hereto, shall be given in writing by personal delivery, overnight courier
service, or by registered or certified mail, postage prepaid, return receipt requested, addressed
to each respective party at the address shown below or other current address:

     If to AVANIR:

                     Avanir Pharmaceuticals

                     11388 Sorrento Valley Road

                     San Diego, California 92121

                     Fax: (858) 658-7455

                     Attn: Chief Executive Officer

     If to Employee:

                     Randall Kaye

                     [address]

     12. Withholding. All payments, except the payment for moving/housing expenses to be
made hereunder where proof of such expenses is provided to the Company, including Base Salary and
bonus, shall be paid less applicable Federal and state withholding taxes. In the case

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of the rights referred to in Section 4(c) (Equity Compensation) above, Employee shall be responsible for
furnishing the Company with the amount of any required withholding at the time it is due, and the
Company’s obligations with respect to such rights shall be conditioned upon Employee’s compliance
with this Section 12.

     13. General Provisions.

          a. Governing Law. This Agreement shall be governed by and construed in accordance
with the laws of the State of California.

          b. Assignment. Employee may not assign, pledge or encumber his interest in this
Agreement or any part thereof.

          c. No Waiver of Breach. The failure to enforce any provision of this Agreement shall
not be construed as a waiver of any such provision, nor prevent a party thereafter from enforcing
the provision or any other provision of this Agreement. The rights granted the parties are
cumulative, and the election of one shall not constitute a waiver of such party’s right to assert
all other legal and equitable remedies available under the circumstances.

          d. Severability. The provisions of this Agreement are severable, and if any provision
shall be held to be invalid or otherwise unenforceable, in whole or in part, the remainder of the
provisions, or enforceable parts of this Agreement, shall not be affected.

          e. Entire Agreement. This Agreement and the exhibits hereto constitute the entire
agreement of the parties with respect to the subject matter of this Agreement and supersedes all
prior and contemporaneous negotiations, agreements and understandings between the parties, whether
oral or written.

          f. Modifications and Waivers. No modification or waiver of this Agreement shall be
valid unless in writing, signed by the party against whom such modification or waiver is sought to
be enforced.

          g. Amendment. This Agreement may be amended or supplemented only by a writing signed
by both of the parties hereto.

          h. Duplicate Counterparts. This Agreement may be executed in duplicate counterparts,
each of which shall be deemed an original; provided, however, such counterparts shall together
constitute only one agreement.

          i. Interpretation. The headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of this Agreement.

          j. Drafting Ambiguities. Each party to this Agreement and its counsel have reviewed
and revised this Agreement. The rule of construction that any ambiguities are to be

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resolved against the drafting party shall not be employed in the interpretation of this Agreement or any of
the amendments to this Agreement.

EXECUTED at San Diego, California, this 21st day of December, 2005.

	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	AVANIR PHARMACEUTICALS	 	 
	 

	 	 	 	 	 	 	 	 	 	 
	Dated:

	 	12/21/05
	 	 	 	By:
	 	     Paul Acosta for Eric Brandt	 	 
	 

	 	 
	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	 	 	          Eric Brandt

          Chief Executive Officer	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	EMPLOYEE	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	Dated:

	 	12/23/05
	 	 	 	 	 	     Randall Kaye	 	 
	 

	 	 
	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	 	 	     Randall Kaye	 	 

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EXHIBIT A

AVANIR PHARMACEUTICALS

RESTRICTED STOCK PURCHASE AGREEMENT

     This Restricted Stock Purchase Agreement (the “Agreement”) is made as of December ___,
2005 by and between Avanir Pharmaceuticals, a California corporation (the “Company”), and
Randall Kaye (“Purchaser”).

     A. Purchaser and the Company are parties to an Employment Agreement, effective December 21,
2005 (the “Employment Agreement”).

     B. Purchaser and the Company desire to specify the terms and conditions of Purchaser’s
restricted stock participation in the Company as contemplated in the Employment Agreement.

     THE PARTIES AGREE AS FOLLOWS:

     1. Sale of Stock. In satisfaction of the Company’s obligations under Section 4(d)(i)
of the Employment Agreement, and subject to the terms and conditions of this Agreement, on the
Purchase Date (as defined below) the Company will issue and sell to Purchaser, and Purchaser agrees
to purchase from the Company, 50,000 shares of the Company’s Class A Common Stock (the
“Purchased Shares”) at a purchase price of $0.001 per Share for a total purchase price of
$50. The term “Shares” refers to the Purchased Shares and all securities received in
replacement of the Purchased Shares or as stock dividends or splits, all securities received in
replacement of the Shares in a recapitalization, merger, reorganization, exchange or the like, and
all new, substituted or additional securities or other properties to which Purchaser is entitled by
reason of Purchaser’s ownership of the Shares (including the Purchased Shares).

     2. Purchase. The purchase and sale of the Shares under this Agreement shall occur at
the principal office of the Company simultaneously with the execution of this Agreement by the
parties or on such other date as the Company and Purchaser shall agree (the “Purchase
Date”). As promptly as practicable after the Purchase Date, the Company will deliver to the
Company’s Secretary pursuant to Section 4 a certificate representing the Shares to be purchased by
Purchaser (which shall be issued in Purchaser’s name) against payment of the purchase price
therefor on the Purchase Date by Purchaser by cash or check made payable to the Company.

     3. Limitations on Transfer. In addition to any other limitation on transfer created
by applicable securities laws, Purchaser shall not assign, encumber or dispose of any interest in
any portion of the Shares which are subject to the Repurchase Option. After any portion of the
Shares has been released from the Repurchase Option, Purchaser shall not assign, encumber or
dispose of any interest in such portion except in compliance with the provisions below and
applicable securities laws.

 

 

          (a) Repurchase Option.

                (i) In the event of the voluntary or involuntary termination of Purchaser’s employment or
consulting relationship with the Company for any reason (including death or disability), with or
without cause, upon the date of such termination (the “Termination Date”), the Company
shall have an irrevocable, exclusive option (the “Repurchase Option”) for a period of 90
days from such date to repurchase all or any portion of the Shares held by Purchaser as of the
Termination Date which have not yet been released from the Company’s Repurchase Option at the
original purchase price per Share specified in Section 1 (adjusted for any stock splits, stock
dividends and the like).

                (ii) Unless the Company notifies Purchaser within 90 days from the Termination Date that it
does not intend to exercise its Repurchase Option with respect to some or all of the Shares, the
Repurchase Option shall be deemed automatically exercised by the Company as of the 90th day
following the Termination Date, provided that the Company may notify Purchaser that it is
exercising its Repurchase Option as of a date prior to such 90th day. Unless Purchaser is
otherwise notified by the Company pursuant to the preceding sentence that the Company does not
intend to exercise its Repurchase Option as to some or all of the Shares to which it applies at the
time of termination, execution of this Agreement by Purchaser constitutes written notice to
Purchaser of the Company’s intention to exercise its Repurchase Option with respect to all Shares
to which such Repurchase Option applies. The Company, at its choice, may satisfy its payment
obligation to Purchaser with respect to exercise of the Repurchase Option by either (A) delivering
a check to Purchaser in the amount of the purchase price for the Shares being repurchased, or (B)
in the event Purchaser is indebted to the Company, canceling an amount of such indebtedness equal
to the purchase price for the Shares being repurchased, or (C) by a combination of (A) and (B) so
that the combined payment and cancellation of indebtedness equals such purchase price. In the
event of any deemed automatic exercise of the Repurchase Option pursuant to this Section 3(a)(ii)
in which Purchaser is indebted to the Company, such indebtedness equal to the purchase price of the
Shares being repurchased shall be deemed automatically canceled as of the 90th day following the
Termination Date unless the Company otherwise satisfies its payment obligations. Any failure on
the part of the Company to promptly satisfy its payment obligations for the Repurchase Option shall
not, in any way, affect the enforceability of the Company’s exercise of the Repurchase Option. As
a result of any repurchase of Shares pursuant to this Section 3(a), the Company shall become the
legal and beneficial owner of the Shares being repurchased and shall have all rights and interest
therein or related thereto, and the Company shall have the right to transfer to its own name the
number of Shares being repurchased by the Company, without further action by Purchaser.

                (iii) All of the Shares shall initially be subject to the Repurchase Option. Provided that
Purchaser remains continuously employed by the Company (or continues to provide services to the
Company as a consultant), the Shares shall be released from the Repurchase Option pursuant to the
following schedule:

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	 	 	No. Shares released	 	 	 	 
	 	 	from Repurchase Option	 	Date	 	 
	 	 	 	 	 	 	 	 	 
	 

	 	 	50,000	 	 	January 16, 2008
	 	 

          (b) Restrictions Binding on Transferees. All transferees of Shares or any interest
therein will receive and hold such Shares or interest subject to the provisions of this Agreement,
including insofar as applicable the Company’s Repurchase Option. Any sale or transfer of the
Shares shall be void unless the provisions of this Agreement are satisfied.

          (c) Termination of Rights. Upon the expiration or exercise of the Repurchase Option,
a new certificate or certificates representing the Shares not repurchased shall be issued, on
request, without the legend referred to in Section 5(a) below and delivered to Purchaser.

     4. Escrow of Unvested Shares. For purposes of facilitating the enforcement of the
provisions of Section 3 above, Purchaser agrees, immediately upon receipt of the certificate(s) for
the Shares subject to the Repurchase Option, to deliver such certificate(s), together with an
Assignment Separate from Certificate in the form attached to this Agreement as Exhibit A
executed by Purchaser and by Purchaser’s spouse (if required for transfer), in blank, to the
Secretary of the Company, or the Secretary’s designee, to hold such certificate(s) and Assignment
Separate from Certificate in escrow and to take all such actions and to effectuate all such
transfers and/or releases as are in accordance with the terms of this Agreement. Purchaser hereby
acknowledges that the Secretary of the Company, or the Secretary’s designee, is so appointed as the
escrow holder with the foregoing authorities as a material inducement to make this Agreement and
that said appointment is coupled with an interest and is accordingly irrevocable. Purchaser agrees
that said escrow holder shall not be liable to any party hereof (or to any other party). The
escrow holder may rely upon any letter, notice or other document executed by any signature
purported to be genuine and may resign at any time. Purchaser agrees that if the Secretary of the
Company, or the Secretary’s designee, resigns as escrow holder for any or no reason, the Board of
Directors of the Company shall have the power to appoint a successor to serve as escrow holder
pursuant to the terms of this Agreement.

     5. Restricted Securities; Legends and Stop-Transfer Orders.

          (a) Restricted Securities; Legends. Purchaser understands that the Shares have not
been registered under the Securities Act of 1933, as amended (the “Securities Act”), by
reason of an exemption therefrom. Purchaser is purchasing the Shares for investment for his own
account only and not with a view to, or for resale in connection with, any “distribution” thereof
within the meaning of the Securities Act. The certificate or certificates representing the Shares
shall bear the following legend (as well as any legends required by applicable state and federal
corporate and securities laws):

THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED

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(THE “ACT”). SUCH SECURITIES MAY NOT BE TRANSFERRED UNLESS A REGISTRATION STATEMENT
UNDER THE ACT IS IN EFFECT AS TO SUCH TRANSFER OR, IN THE OPINION OF COUNSEL
REASONABLY SATISFACTORY TO THE COMPANY, REGISTRATION UNDER THE ACT IS UNNECESSARY IN
ORDER FOR SUCH TRANSFER TO COMPLY WITH THE ACT OR UNLESS SOLD PURSUANT TO RULE 144
OF THE ACT.

THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE REPURCHASE OPTION OF
THE COMPANY AND MAY BE TRANSFERRED ONLY IN ACCORDANCE WITH THE TERMS OF AN AGREEMENT
BETWEEN THE COMPANY AND THE STOCKHOLDER, A COPY OF WHICH IS ON FILE WITH THE
SECRETARY OF THE COMPANY.

          (b) Stop-Transfer Notices. Purchaser agrees that, in order to ensure compliance with
the restrictions referred to herein, the Company may issue appropriate “stop transfer” instructions
to its transfer agent, if any, and that, if the Company transfers its own securities, it may make
appropriate notations to the same effect in its own records.

          (c) Refusal to Transfer. The Company shall not be required (i) to transfer on its
books any Shares that have been sold or otherwise transferred in violation of any of the provisions
of this Agreement or (ii) to treat as owner of such Shares or to accord the right to vote or pay
dividends to any purchaser or other transferee to whom such Shares shall have been so transferred.

     6. No Employment Rights. Nothing in this Agreement shall affect in any manner
whatsoever the right or power of the Company, or a parent or subsidiary of the Company, to
terminate Purchaser’s employment or consulting relationship, for any reason, with or without cause.

     7. Section 83(b) Election. Purchaser understands that Section 83(a) of the Internal
Revenue Code of 1986, as amended (the “Code”), taxes as ordinary income the difference
between the amount paid for the Shares and the fair market value of the Shares as of the date any
restrictions on the Shares lapse. In this context, “restriction” means the right of the Company to
buy back the Shares pursuant to the Repurchase Option set forth in Section 3(a) of this Agreement.
Purchaser understands that Purchaser may elect to be taxed at the time the Shares are purchased,
rather than when and as the Repurchase Option expires, by filing an election under Section 83(b)
(an “83(b) Election”) of the Code with the Internal Revenue Service within 30 days
from the date of purchase. In this case, the difference between the fair market value of the
Shares at the time of the execution of this Agreement and the amount Purchaser is paying for the
Shares makes it unlikely that Purchaser will choose to make an 83(b) Election, as such election
would require that Purchaser pay taxes on that difference at the time the Shares are purchased.
However, the 83(b) Election must be made if the Purchaser wishes to avoid additional income under
Section 83(a) in the future. Accordingly, Purchaser understands that failure to file such an
election in a timely manner may result in adverse tax consequences for

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Purchaser. Purchaser further understands that an additional copy of such election form should
be filed with his or her federal income tax return for the calendar year in which the date of this
Agreement falls. Purchaser acknowledges that the foregoing is only a summary of the effect of
United States federal income taxation with respect to purchase of the Shares hereunder, and does
not purport to be complete. Purchaser further acknowledges that the Company has directed Purchaser
to seek independent advice regarding the applicable provisions of the Code, the income tax laws of
any municipality, state or foreign country in which Purchaser may reside, the tax consequences of
Purchaser’s death and the decision as to whether or not to file an 83(b) Election in connection
with the acquisition of the Shares.

     Purchaser agrees that he will execute and deliver to the Company with this executed Agreement
a copy of the Acknowledgment and Statement of Decision Regarding Section 83(b) Election (the
“Acknowledgment”), attached hereto as Exhibit B. Purchaser further agrees that
Purchaser will execute and submit with the Acknowledgment a copy of the 83(b) Election, attached
hereto as Exhibit C, if Purchaser has indicated in the Acknowledgment his or her decision
to make such an election.

     8. Withholding. At the request of the Company, either herewith or at any time
hereafter, Employee authorizes withholding from payroll and any other amounts payable to him and,
if such withholding is insufficient, to pay the balance in cash to the Company, any sums required
to satisfy the federal, state, local and foreign tax withholding obligations of the Company (or any
affiliate) which arise in connection with the Purchased Shares. Unless Employee satisfies such tax
withholding obligations of the Company (or any affiliate) as provided above, the Company shall have
no obligation to release any of the Shares from escrow.

     9. Miscellaneous.

          (a) Governing Law. This Agreement and all acts and transactions pursuant hereto and
the rights and obligations of the parties hereto shall be governed, construed and interpreted in
accordance with the laws of the State of California, without giving effect to principles of
conflicts of law.

          (b) Entire Agreement; Enforcement of Rights. This Agreement and the Offer Letter set
forth the entire agreement and understanding of the parties relating to the subject matter herein
and merge all prior discussions between them. No modification of or amendment to this Agreement,
nor any waiver of any rights under this Agreement, shall be effective unless in writing signed by
the parties to this Agreement. The failure by either party to enforce any rights under this
Agreement shall not be construed as a waiver of any rights of such party.

          (c) Severability. If one or more provisions of this Agreement are held to be
unenforceable under applicable law, the parties agree to renegotiate such provision in good faith.
In the event that the parties cannot reach a mutually agreeable and enforceable replacement for
such provision, then (i) such provision shall be excluded from this Agreement, (ii) the balance of
this Agreement shall be interpreted as if such provision were so excluded and (iii) the balance of
this Agreement shall be enforceable in accordance with its terms.

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          (d) Construction. This Agreement is the result of negotiations between and has been
reviewed by each of the parties hereto and their respective counsel, if any; accordingly, this
Agreement shall be deemed to be the product of all of the parties hereto, and no ambiguity shall be
construed in favor of or against any one of the parties hereto.

          (e) Notices. Any notice required or permitted by this Agreement shall be in writing
and shall be deemed sufficient when delivered personally or sent by telegram or fax or 48 hours
after being deposited in the U.S. mail, as certified or registered mail, with postage prepaid, and
addressed to the party to be notified at such party’s address or fax number as set forth below or
as subsequently modified by written notice.

          (f) Counterparts. This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original and all of which together shall constitute one instrument.

          (g) Successors and Assigns. The rights and benefits of this Agreement shall inure to
the benefit of, and be enforceable by the Company’s successors and assigns. The rights and
obligations of Purchaser under this Agreement may only be assigned with the prior written consent
of the Company.

[Signature Page Follows]

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     The parties have executed this Agreement as of the date first set forth above.

	 	 	 	 	 
	 

	 	COMPANY:	 	 
	 
	 	 	 	 
	 	 	AVANIR PHARMACEUTICALS
	 
	 	 	 	 
	 	 	By: Paul Acosta for Eric Brandt
	 
	 	 	 	 
	 	 	     Eric K. Brandt

     President and Chief Executive Officer
	 
	 	 	 	 
	 

	 	Address:
	 	11388 Sorrento Valley Road

San Diego, CA 92121

     PURCHASER ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES PURSUANT TO SECTION 3 HEREOF IS
EARNED ONLY BY CONTINUING SERVICE AS AN EMPLOYEE OR CONSULTANT AT THE WILL OF THE COMPANY.
PURCHASER FURTHER ACKNOWLEDGES AND AGREES THAT NOTHING IN THIS AGREEMENT SHALL CONFER UPON
PURCHASER ANY RIGHT WITH RESPECT TO CONTINUATION OF SUCH EMPLOYMENT OR CONSULTING RELATIONSHIP WITH
THE COMPANY, NOR SHALL IT INTERFERE IN ANY WAY WITH PURCHASER’S RIGHT OR THE COMPANY’S RIGHT TO
TERMINATE PURCHASER’S EMPLOYMENT OR CONSULTING RELATIONSHIP AT ANY TIME, WITH OR WITHOUT CAUSE.

	 	 	 	 	 
	 

	 	PURCHASER:
	 	 
	 
	 	 	 	 
	 

	 	Randall Kaye	 	 
	 
	 	 	 	 
	 

	 	 

(Signature)	 	 
	 
	 	 	 	 
	 

	 	Address:	 	 
	 
	 	 	 	 
	 

	 	 
	 	 
	 
	 	 	 	 
	 

	 	 
	 	 

I,                                         , spouse of Randall Kaye, have read and hereby approve the foregoing
Agreement. In consideration of the Company’s granting my spouse the right to purchase the Shares
as set forth in the Agreement, I hereby agree to be irrevocably bound by the Agreement and further
agree that any community property or similar interest that I may have in the Shares shall be
similarly bound by the Agreement. I hereby appoint my spouse as my attorney-in-fact with respect
to any amendment or exercise of any rights under the Agreement.

	 	 	 	 	 
	 
	 	 	 	 
	 

	 	 

Spouse of Randall Kaye
	 	 

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EXHIBIT A

ASSIGNMENT SEPARATE FROM CERTIFICATE

     FOR VALUE RECEIVED and pursuant to that certain Restricted Stock Purchase Agreement between
the undersigned (“Purchaser”) and Avanir Pharmaceuticals (the “Company”) dated as
of December      , 2005 (the “Agreement”), Purchaser hereby sells, assigns and transfers unto
the Company                                                              (                   
 ) shares of the Class A Common Stock of the Company
standing in Purchaser’s name on the Company’s books and represented by Certificate No.      , and
does hereby irrevocably constitute and appoint                                          to transfer said stock on the
books of the Company with full power of substitution in the premises. THIS ASSIGNMENT MAY ONLY BE
USED AS AUTHORIZED BY THE AGREEMENT AND THE EXHIBITS THERETO.

Dated:                                         

	 	 	 	 	 
	 

	 	Signature:
	 	 
	 
	 	 	 	 
	 
	 	 	 	 
	 

	 	 

Randall Kaye	 	 
	 
	 	 	 	 
	 
	 	 	 	 
	 

	 	 

Spouse of Randall Kaye	 	 
	 
	 	 	 	 
	 
	 	 	 	 
	 
	 	 	 	 
	 
	 	 	 	 
	 
	 	 	 	 

Instruction: Please do not fill in any blanks other than the signature line. The purpose of this
assignment is to enable the Company to exercise its repurchase option set forth in the Agreement
without requiring additional signatures on the part of Purchaser.

 

 

EXHIBIT B

ACKNOWLEDGMENT AND STATEMENT OF DECISION 

REGARDING SECTION 83(b) ELECTION

     The undersigned has entered a Restricted Stock Purchase Agreement with Avanir Pharmaceuticals,
a California corporation (the “Company”), pursuant to which the undersigned is purchasing
50,000 shares of Class A common stock of the Company (the “Shares”). In connection with
the purchase of the Shares, the undersigned hereby represents as follows:

     1. The undersigned has carefully reviewed the Restricted Stock Purchase Agreement pursuant to
which the undersigned is purchasing the Shares.

     2. The undersigned either [check and complete as applicable]:

	 	(a)	 	      has consulted, and has been fully advised by, the undersigned’s own tax
advisor,                                        , whose business address is
                                        , regarding the federal, state and local tax consequences
of purchasing the Shares, and particularly regarding the advisability of making
elections pursuant to Section 83(b) of the Internal Revenue Code of 1986, as amended
(the “Code”) and pursuant to the corresponding provisions, if any, of
applicable state law; or

	 	(b)	 	      has knowingly chosen not to consult such a tax advisor.

     3. The undersigned hereby states that the undersigned has decided [check as applicable]:

	 	(a)	 	      to make an election pursuant to Section 83(b) of the Code, and is
submitting to the Company, together with the undersigned’s executed Restricted Stock
Purchase Agreement, an executed form entitled “Election Under Section 83(b) of the
Internal Revenue Code of 1986”; or

	 	(b)	 	      not to make an election pursuant to Section 83(b) of the Code.

     4. Neither the Company nor any subsidiary or representative of the Company has made any
warranty or representation to the undersigned with respect to the tax consequences of the
undersigned’s purchase of the Shares or of the making or failure to make an election pursuant to
Section 83(b) of the Code or the corresponding provisions, if any, of applicable state law.

	 	 	 	 	 	 	 	 	 
	Date:

	 	 
 

	 	 
	 	 
 
Randall Kaye
	 	 
	 
	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	Date:

	 	 
 

	 	 	 	 
 
Spouse of Randall Kaye	 	 

 

 

EXHIBIT C

ELECTION UNDER SECTION 83(b)

OF THE INTERNAL REVENUE CODE OF 1986

     The undersigned taxpayer hereby elects, pursuant to Section 83(b) of the Internal Revenue
Code, to include in taxpayer’s gross income for the current taxable year, the amount of any
compensation taxable to taxpayer in connection with taxpayer’s receipt of the property described
below:

	 	 	 	 	 	 	 	 	 
	1.	 	The name, address, taxpayer identification number and taxable year of the undersigned
are as follows:
	 

	 	 	 	 	 	 	 	 
	 	 	NAME OF TAXPAYER:	 	 
 
	 	 
	 
	 	 	 	 	 	 	 	 
	 	 	NAME OF SPOUSE:	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	 	 	ADDRESS:	 	 
 
	 	 
	 
	 	 	 	 	 	 	 	 
	 	 	 	 	 
 
	 	 
	 
	 	 	 	 	 	 	 	 
	 	 	IDENTIFICATION NO. OF TAXPAYER:	 	 
	 
	 	 	 	 	 	 	 	 
	 	 	IDENTIFICATION NO. OF SPOUSE:	 	 
	 
	 	 	 	 	 	 	 	 
	 	 	TAXABLE YEAR:	 	 	 	 

	 	 	 
	2.

	 	The property with respect to which the election is made is described as follows:
	 
	 	 
	 

	 	                    shares of the Class A Common Stock, of Avanir Pharmaceuticals, a California
corporation (the “Company”).
	 
	 	 
	3.

	 	The date on which the property was transferred is:                     
	 
	 	 
	4.

	 	The property is subject to the following restrictions:
	 
	 	 
	 

	 	Repurchase option at cost in favor of the Company upon termination of taxpayer’s employment
or consulting relationship or failure of vesting criteria.
	 
	 	 
	5.

	 	The fair market value at the time of transfer, determined without regard to any
restriction other than a restriction which by its terms will never lapse, of such
property is: $                    .
	 
	 	 
	6.

	 	The amount (if any) paid for such property: $                    

The undersigned has submitted a copy of this statement to the person for whom the services were
performed in connection with the undersigned’s receipt of the above-described property. The
transferee of such property is the person performing the services in connection with the transfer
of said property.

The undersigned understands that the foregoing election may not be revoked except with the
consent of the Commissioner.

	 	 	 	 	 	 	 	 	 
	Date:

	 	 
 

	 	 
	 	 
 
Taxpayer
	 	 
	 
	 	 	 	 	 	 	 	 
	Date:

	 	 
 

	 	 	 	 
 
Spouse of Taxpayer	 	 

 

 

RECEIPT

     Avanir Pharmaceuticals hereby acknowledges receipt of cash or a check in the amount of $50
given by Randall Kaye as consideration for Certificate No.                      for 50,000 shares of Class A
Common Stock of Avanir Pharmaceuticals.

	 	 	 	 	 
	Dated:

	 	 
 

	 	 

	 	 	 	 	 	 	 
	 	 	Avanir Pharmaceuticals  
	 
	 	 	 	 	 	 
	 

	 	By:
	 	 
 
	 	 
	 
	 	 	 	 	 	 
	 

	 	Title:
	 	 
 
	 	 

 

 

RECEIPT AND CONSENT

     The undersigned hereby acknowledges receipt of a photocopy of Certificate No.       for
50,000 shares of Common Stock of Avanir Pharmaceuticals (the “Company”).

     The undersigned further acknowledges that the Secretary of the Company, or his or her
designee, is acting as escrow holder pursuant to the Restricted Stock Purchase Agreement the
undersigned has previously entered into with the Company. As escrow holder, the Secretary of the
Company, or his or her designee, holds the original of the aforementioned certificate issued in the
undersigned’s name.

	 	 	 	 	 
	Dated:

	 	 
 

	 	 

	 	 	 	 	 
	 

	 	 

Randall Kaye
	 	 

 

 

EXHIBIT B

MUTUAL ARBITRATION AGREEMENT

     This MUTUAL ARBITRATION AGREEMENT (“Agreement”), dated as of December 21, 2005, is made by and
between AVANIR Pharmaceuticals, a California corporation (“the Company”) and Randall Kaye
(“Employee”) (collectively, the “Parties” or “we”).

Agreement to Arbitrate Certain Disputes and Claims

     We agree to arbitrate before a neutral arbitrator any and all disputes or claims arising from
or relating to Employee’s recruitment to or employment with the Company, or the termination of that
employment, including claims against any current or former agent or employee of the Company,
whether the disputes or claims arise in tort, contract, or pursuant to a statute, regulation, or
ordinance now in existence or which may in the future be enacted or recognized, including, but not
limited to, the following claims:

	 	•	 	claims for fraud, promissory estoppel, fraudulent inducement of contract or breach
of contract or contractual obligation, whether such alleged contract or obligation be
oral, written, or express or implied by fact or law;

	 	•	 	claims for wrongful termination of employment, violation of public policy and
constructive discharge, infliction of emotional distress, misrepresentation,
interference with contract or prospective economic advantage, defamation, unfair
business practices, and any other tort or tort-like causes of action relating to or
arising from the employment relationship or the formation or termination thereof;

	 	•	 	claims for discrimination, harassment, or retaliation under any and all Federal,
state, or municipal statutes, regulations, or ordinances that prohibit discrimination,
harassment, or retaliation in employment, as well as claims for violation of any other
Federal, state, or municipal statute, regulation, or ordinance, except as set forth
herein;

	 	•	 	claims for non-payment or incorrect payment of wages, commissions, bonuses,
severance, employee fringe benefits, stock options and the like, whether such claims be
pursuant to alleged express or implied contract or obligation, equity, the California
Labor Code, the Fair Labor Standards Act, the Employee Retirement Income Securities
Act, and any other Federal, state, or municipal laws concerning wages, compensation or
employee benefits; and

	 	•	 	claims arising out of or relating to the grant, exercise, vesting and/or issuance of
equity in the Company or options to purchase equity in the Company.

     We understand and agree that arbitration of the disputes and claims covered by this Agreement
shall be the sole and exclusive method of resolving any and all existing and future

 

 

disputes or claims arising out of Employee’s recruitment to or employment with the Company or
the termination thereof. We further understand and agree that claims for workers’ compensation
benefits, unemployment insurance, or state or Federal disability insurance are not covered by this
Agreement and shall therefore be resolved in any appropriate forum, including courts of law, as
required by the laws then in effect.

     Nothing in this Agreement should be interpreted as restricting or prohibiting the Employee
from filing a charge or complaint with a Federal, state, or local administrative agency charged
with investigating and/or prosecuting complaints under any applicable Federal, state or municipal
law or regulation. Any dispute or claim that is not resolved through the Federal, state, or local
agency must be submitted to arbitration in accordance with this Agreement.

Final and Binding Arbitration

     We understand and agree that the arbitration of disputes and claims under this Agreement shall
be instead of a trial before a court or jury. We further understand and agree that, by signing
this Agreement, we are expressly waiving any and all rights to a trial before a court regarding any
disputes and claims which we now have or which we may in the future have that are subject to
arbitration under this Agreement. However, nothing in this Agreement shall prohibit or limit
either Employee’s or the Company’s right to seek equitable relief from a court, including but not
limited to injunctive relief, pending the resolution of a dispute by arbitration.

           Arbitration Procedures

     We understand and agree that the arbitration shall be conducted in accordance with the
National Rules for the Resolution of Employment Disputes of the American Arbitration Association.
To the extent that any of the National Rules for the Resolution of Employment Disputes or anything
in this Agreement conflicts with any arbitration procedures required by applicable law, the
arbitration procedures required by applicable law shall govern. Employee and the Company also
agree that nothing in this Agreement relieves either of them from any obligation they may have to
exhaust certain administrative remedies before arbitrating any claims or disputes under this
Agreement.

     We understand and agree that the Arbitrator shall issue a written award that sets forth the
essential findings and conclusions on which the award is based. The Arbitrator shall have the
authority to award any relief authorized by law in connection with the asserted claims or disputes.
The Arbitrator’s award shall be subject to correction, confirmation, or vacation, as provided by
any applicable law setting forth the standard of judicial review of arbitration awards.

           Place of Arbitration

     We understand and agree that the arbitration shall take place in San Diego County, California.

           Governing Law

 

 

     We understand and agree that this Agreement and its validity, construction and performance, as
well as disputes and/or claims arising under this Agreement, shall be governed by the laws of
California, or Federal law. If both Federal and state law apply to any given dispute or claim,
Employee shall have the right to elect the applicable law.

           Costs of Arbitration

     We understand and agree that the Company shall bear the arbitrator’s fee and any other type of
expense or cost that Employee would not be required to bear if he or she were free to bring the
dispute or claim in court as well as any other expense or cost that is unique to arbitration. We
shall each pay our own attorneys’ fees incurred in connection with the arbitration, and the
arbitrator shall not have authority to award attorneys’ fees unless a statute or contract at issue
in the dispute authorizes the award of attorneys’ fees to the prevailing party, in which case the
arbitrator shall have the authority to make an award of attorneys’ fees as required or permitted by
applicable law. If there is a dispute as to whether the Company or Employee is the prevailing
party in the arbitration, the Arbitrator shall decide this issue.

           Severability

     We understand and agree that if any term or portion of this Agreement shall, for any reason,
be held to be invalid or unenforceable or to be contrary to public policy or any law, then the
remainder of this Agreement shall not be affected by such invalidity or unenforceability but shall
remain in full force and effect, as if the invalid or unenforceable term or portion thereof had not
existed within this Agreement.

           Complete Agreement

     We understand and agree that this Agreement contains the complete agreement between the
Company and Employee regarding the subject matter of this Agreement, superseding any and all prior
representations and agreements between the Company and Employee, if any, and that it may be
modified only in a writing, expressly referencing this Agreement, and signed by Employee and the
Chairman of the Board of the Company.

           Knowing and Voluntary Agreement

     We understand and agree that we have been advised to consult with an attorney of our own
choosing before signing this Agreement, and we have had an opportunity to do so. We agree that we
have read this Agreement carefully and understand that by signing it, we are waiving all rights to
a trial or hearing before a court or jury of any and all disputes and claims subject to arbitration
under this Agreement.

 

 

     IN WITNESS WHEREOF, the parties have executed this Agreement at San Diego, California on the
      day of                     , 2005.

	 	 	 	 	 	 	 
	 	 	AVANIR PHARMACEUTICALS	 	 
	 
	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	 
 
	 	 
	 

	 	 	 	     Eric Brandt

     Chief Executive Officer	 	 
	 
	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	 	 	EMPLOYEE	 	 
	 
	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	 	 	 

Randall KayeEXECUTION COPY

================================================================================

                          AGREEMENT AND PLAN OF MERGER

                                 BY AND BETWEEN

                            HUDSON CITY BANCORP, INC.

                                       AND

                           SOUND FEDERAL BANCORP, INC.

                          DATED AS OF FEBRUARY 8, 2006

================================================================================

<PAGE>

                                TABLE OF CONTENTS
                                                                            Page

ARTICLE I.  CERTAIN DEFINITIONS................................................1

         Section 1.01      Certain Definitions.................................1

ARTICLE II.  THE MERGER........................................................8

         Section 2.01      Structure of the Merger.............................8
         Section 2.02      Bank Merger.........................................8
         Section 2.03      Effect on Outstanding Shares........................8
         Section 2.04      Exchange Procedures.................................9
         Section 2.05      Dissenters' Rights.................................10
         Section 2.06      Stock Options......................................11
         Section 2.07      Closing; Effective Time............................11

ARTICLE III.  REPRESENTATIONS AND WARRANTIES OF SELLER........................11

         Section 3.01      Disclosure Letter..................................11
         Section 3.02      Organization.......................................12
         Section 3.03      Capitalization.....................................12
         Section 3.04      Authority; No Violation............................13
         Section 3.05      Consents...........................................14
         Section 3.06      Fairness Opinion; Required Vote....................14
         Section 3.07      Financial Statements...............................14
         Section 3.08      Absence of Certain Changes or Events...............15
         Section 3.09      Taxes..............................................15
         Section 3.10      Material Contracts; Leases; Defaults...............18
         Section 3.11      Ownership of Property; Insurance Coverage..........18
         Section 3.12      Intellectual Property..............................19
         Section 3.13      Labor Matters......................................20
         Section 3.14      Legal Proceedings..................................20
         Section 3.15      Compliance With Applicable Law.....................21
         Section 3.16      Employee Benefit Plans.............................21
         Section 3.17      Brokers, Finders and Financial Advisors............24
         Section 3.18      Environmental Matters..............................24
         Section 3.19      Loan Portfolio.....................................25
         Section 3.20      Related Party Transactions.........................27
         Section 3.21      Deposits...........................................27
         Section 3.22      Antitakeover Provisions Inapplicable...............27
         Section 3.23      Registration Obligations...........................28
         Section 3.24      Risk Management Instruments........................28

ARTICLE IV.  REPRESENTATIONS AND WARRANTIES OF PURCHASER......................28

         Section 4.01      Organization.......................................28
         Section 4.02      Authority; No Violation............................29
         Section 4.03      Consents...........................................29
         Section 4.04      Access to Funds....................................29
         Section 4.05      Financial Statements...............................29
         Section 4.06      Legal Proceedings..................................30

ARTICLE V.  CONDUCT PENDING ACQUISITION.......................................30

         Section 5.01      Conduct of Business Prior to the Effective Time....30
         Section 5.02      Forbearances of Seller.............................30
         Section 5.03      Maintenance of Insurance...........................34

                                       i
<Page>

         Section 5.04      All Reasonable Efforts.............................34

ARTICLE VI.  COVENANTS........................................................34

         Section 6.01      Current Information................................34
         Section 6.02      Access to Properties and Records...................35
         Section 6.03      Financial and Other Statements.....................35
         Section 6.04      Disclosure Letter Supplements......................36
         Section 6.05      Consents and Approvals of Third Parties............36
         Section 6.06      Failure to Fulfill Conditions......................36
         Section 6.07      No Solicitation....................................36
         Section 6.08      Employee Benefits..................................38
         Section 6.09      Advisory Board.....................................40
         Section 6.10      Directors and Officers Indemnification and
                            Insurance.........................................40
         Section 6.11      Certain Policies of Seller.........................42
         Section 6.12      Antitakeover Provisions............................42
         Section 6.13      Voting Agreements..................................42

ARTICLE VII.  REGULATORY AND OTHER MATTERS....................................42

         Section 7.01      Meeting of Stockholders............................42
         Section 7.02      Proxy Statement....................................42
         Section 7.03      Regulatory Approvals...............................43

ARTICLE VIII.  CLOSING CONDITIONS.............................................43

         Section 8.01      Conditions to Each Party's Obligations under this
                            Agreement.........................................43
         Section 8.02      Conditions to the Obligations of Purchaser under
                            this Agreement....................................44
         Section 8.03      Conditions to the Obligations of Seller under
                            this Agreement....................................45

ARTICLE IX.  THE CLOSING......................................................46

         Section 9.01      Time and Place.....................................46
         Section 9.02      Deliveries at the Pre-Closing and the Closing......46

ARTICLE X.  TERMINATION, AMENDMENT AND WAIVER.................................46

         Section 10.01     Termination........................................46
         Section 10.02     Effect of Termination..............................47
         Section 10.03     Amendment, Extension and Waiver....................48

ARTICLE XI.  MISCELLANEOUS....................................................48

         Section 11.01     Confidentiality....................................48
         Section 11.02     Public Announcements...............................49
         Section 11.03     Survival...........................................49
         Section 11.04     Notices............................................49
         Section 11.05     Parties in Interest................................50
         Section 11.06     Complete Agreement.................................50
         Section 11.07     Counterparts.......................................50
         Section 11.08     Severability.......................................50
         Section 11.09     Governing Law......................................50
         Section 11.10     Interpretation.....................................50
         Section 11.11     Specific Performance...............................51

Exhibit A         Form of Voting Agreement
Exhibit B         Form of Plan of Interim Merger
Exhibit C         Form of Plan of Bank Merger
Exhibit D         Form of Settlement Agreement

                                       ii
<PAGE>

                         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

<Page>

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.

                                       2
<Page>

     "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.  ss.9601, et seq; the Resource Conservation and Recovery Act,
as amended, 42 U.S.C.  ss.6901, et seq; the Clean Air Act, as amended, 42 U.S.C.
ss.7401,  et seq; the Federal Water Pollution Control Act, as amended, 33 U.S.C.
ss.1251,  et seq;  the Toxic  Substances  Control  Act,  as  amended,  15 U.S.C.
ss.2601,  et seq; the  Emergency  Planning and  Community  Right to Know Act, 42
U.S.C. ss.11001, et seq; the Safe Drinking Water Act, 42 U.S.C. ss.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.

                                       3
<Page>

     "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.

                                       4

     "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).

                                       5
<Page>

     "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).

                                       6

<Page>

     "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.

                                       7
<Page>

     "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

                                       8
<Page>

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.

     (c) 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.

                                       9
<Page>

     (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.

                                       10
<Page>

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

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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

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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

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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

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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)

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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

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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.

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     (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,

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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

                                       19
<page>

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,

                                       20

<Page>

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

                                       21
<Page>

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

                                       22
<Page>

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).

                                       23

<Page>

     (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 a "modified  endowment  contract" as
defined in Section  7702A of the Code and (iii) has not  resulted in the loss or
denial of an interest deduction under Section 264(f) of the Code.

     (l) Except as set forth in the Disclosure  Letter,  each  Compensation  and
Benefit  Plan can be  amended,  terminated  or  otherwise  discontinued  without
liability  to the  Seller,  any  Seller  Subsidiary,  Purchaser,  any  Purchaser
Subsidiary or any ERISA Affiliate.

Section 3.17      Brokers, Finders and Financial Advisors.

     Neither  Seller  nor any  Seller  Subsidiary,  nor any of their  respective
officers,  directors,  employees or agents,  has employed any broker,  finder or
financial  advisor in  connection  with the  transactions  contemplated  by this
Agreement,  or incurred any liability or commitment  for any fees or commissions
to any such person in  connection  with the  transactions  contemplated  by this
Agreement  except for the  retention of Keffe,  Bruyette and Woods by Seller and
the fee payable  pursuant  thereto,  which  Seller has  separately  disclosed to
Purchaser.

Section 3.18      Environmental Matters.

     (a)  Except  as may be  set  forth  in any  Phase  I  Environmental  Report
identified in the  Disclosure  Letter (a true copy of which has been provided to
Purchaser), with respect to Seller and each Seller Subsidiary:

          (i) Each of Seller and the  Seller  Subsidiaries,  each  Participation
     Facility, and, to Seller's Knowledge,  each Loan Property is, and has been,
     in compliance in all material  respects with, and is not liable under,  any
     Environmental Laws;

          (ii) Seller has received no written notice and does not otherwise have
     Knowledge  that there is any suit,  claim,  action,  demand,  executive  or
     administrative order,  directive,  investigation or proceeding pending and,
     to  Seller's  Knowledge,  no such action is  threatened,  before any court,
     governmental  agency  or  other  forum  against  it or any  of  the  Seller
     Subsidiaries or any  Participation  Facility (x) for alleged  noncompliance
     (including by any predecessor)  with, or liability under, any Environmental
     Law or (y) relating to the presence of or release into the  environment  of
     any Materials of Environmental Concern (as defined herein),  whether or not
     occurring  at or on a site  owned,  leased or  operated by it or any of the
     Seller Subsidiaries or any Participation Facility;

          (iii)  Seller has  received no written  notice that there is any suit,
     claim,  action,  demand,  executive  or  administrative  order,  directive,
                                       24
<Page>

     investigation  or  proceeding  pending  and, to Seller's  Knowledge no such
     action is threatened,  before any court, governmental agency or other forum
     relating  to or against any Loan  Property  (or Seller or any of the Seller
     Subsidiaries  in respect of such Loan  Property)  (x)  relating  to alleged
     noncompliance  (including by any predecessor) with, or liability under, any
     Environmental  Law or (y)  relating to the  presence of or release into the
     environment  of any  Materials  of  Environmental  Concern,  whether or not
     occurring at or on a site owned, leased or operated by a Loan Property;

          (iv) The  properties  currently  owned or  operated  by  Seller or any
     Seller  Subsidiary  and, to the  Seller's  Knowledge,  the Loan  Properties
     (including,  without limitation,  soil, groundwater or surface water on, or
     under the properties,  and buildings thereon) are not contaminated with and
     do not otherwise contain any Materials of Environmental Concern;

          (v)  There  is no suit  from any  federal,  state,  local  or  foreign
     governmental  entity  or  any  third  party  indicating  that  it may be in
     violation of, or liable under, any Environmental Law;

          (vi)  Except  as set  forth in the  Disclosure  Letter,  there  are no
     underground  storage tanks on, in or under any properties owned or operated
     by Seller or any of the Seller Subsidiaries or any Participation  Facility,
     and, to Seller's Knowledge, the Loan Properties; and to Seller's Knowledge,
     no  underground  storage  tanks  have  been  closed  or  removed  from  any
     properties  owned or operated by Seller or any Seller  Subsidiaries  or any
     Participation Facility or Loan Properties; and

          (vii) To Seller's Knowledge,  during the period of (s) Seller's or any
     of the  Seller  Subsidiaries'  ownership  or  operation  of  any  of  their
     respective  current  properties  or (t)  Seller's  or  any  of  the  Seller
     Subsidiaries'   participation  in  the  management  of  any   Participation
     Facility,  there has been no  contamination  by or release of  Materials of
     Environmental Concern in, on, under or affecting such properties that could
     reasonably  be  expected  to  result  in  material   liability   under  the
     Environmental  Laws.  To  Seller's  Knowledge,  prior to the  period of (x)
     Seller's or any of the Seller  Subsidiaries'  ownership or operation of any
     of their respective current properties or (y) Seller's or any of the Seller
     Subsidiaries'   participation  in  the  management  of  any   Participation
     Facility,  there  was  no  contamination  by or  release  of  Materials  of
     Environmental Concern in, on, under or affecting such properties that could
     reasonably  be  expected  to  result  in  material   liability   under  the
     Environmental Laws.

          (viii) To Seller's  knowledge,  there is no  reasonable  basis for any
     suit, claim, action,  demand,  executive or administrative order, directive
     or proceeding of a type described in Section 3.18(a)(ii) or (iii).

     "Loan Property" means any property in which Seller or any Seller Subsidiary
holds a security  interest,  and,  where  required by the context,  includes the
owner or operator of such property, but only with respect to such property.

     "Participation  Facility"  means any facility in which Seller or any Seller
Subsidiary  participates  in the  management  (including  all  property  held as
trustee or in any other fiduciary  capacity) and, where required by the context,
includes the owner or operator of such  property,  but only with respect to such
property.

Section 3.19      Loan Portfolio.

     (a) The  allowance  for loan  losses  reflected  in the  notes to  Seller's
audited consolidated statement of financial condition at March 31, 2005 was, and

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the allowance  for loan losses shown in the notes to the unaudited  consolidated
financial  statements in the Seller  Reports for periods  ending after March 31,
2005 were, or will be, adequate, as of the dates thereof, under GAAP.

     (b) The  Disclosure  Letter sets forth a listing,  as of the most  recently
available date, by account, of: (A) each borrower, customer or other party which
has notified Seller Bank or any other Seller  Subsidiary  during the past twelve
months of, or has asserted  against Seller Bank or any other Seller  Subsidiary,
in each case in writing,  any "lender  liability" or similar claim,  and, to the
knowledge of Seller Bank each borrower,  customer or other party which has given
Seller Bank or any other Seller  Subsidiary any oral  notification of, or orally
asserted to or against  Seller  Bank or any other  Seller  Subsidiary,  any such
claim; and (B) all loans, (1) that are contractually past due 90 days or more in
the payment of principal  and/or interest,  (2) that are on non-accrual  status,
(3)  that as of the  date of this  Agreement  are  classified  as  "Other  Loans
Specially  Mentioned",  "Special Mention",  "Substandard",  "Doubtful",  "Loss",
"Classified",  "Criticized",  "Watch list" or words of similar import,  together
with the principal  amount of and accrued and unpaid  interest on each such loan
and the identity of the obligor thereunder,  (4) where a reasonable doubt exists
as to the timely future collectability of principal and/or interest,  whether or
not interest is still  accruing or the loans are less than 90 days past due, (5)
where the interest rate terms have been reduced  and/or the maturity  dates have
been extended  subsequent to the agreement  under which the loan was  originally
created due to concerns  regarding the  borrower's  ability to pay in accordance
with such initial terms, or (6) where a specific  reserve  allocation  exists in
connection therewith;  and (C) all other assets classified by Seller Bank or any
other Seller  Subsidiary as real estate acquired through  foreclosure or in lieu
of  foreclosure,  including  in-substance  foreclosures,  and all  other  assets
currently held that were acquired through foreclosure or in lieu of foreclosure.

     (c) All loans receivable (including discounts) and accrued interest entered
on the  books of  Seller  and the  Seller  Subsidiaries  arose  out of bona fide
arm's-length transactions,  were made for good and valuable consideration in the
ordinary course of Seller's or the appropriate  Seller  Subsidiary's  respective
business,  and each note or other evidences of indebtedness with respect to such
loans  (including  discounts)  is a legal,  valid and binding  obligation of the
maker  or  obligor  thereof,  enforceable  against  such  maker  or  obligor  in
accordance with its terms. To the Knowledge of Seller, the loans,  discounts and
the  accrued  interest   reflected  on  the  books  of  Seller  and  the  Seller
Subsidiaries are subject to no defenses,  set-offs or counterclaims  (including,
without limitation, those afforded by usury or truth-in-lending laws), except as
may be provided by bankruptcy,  insolvency or similar laws affecting  creditors'
rights generally or by general principles of equity. All such loans are owned by
Seller or the appropriate Seller Subsidiary free and clear of any liens.

     (d) With respect to each loan owned by Seller or any Seller Subsidiary,  in
whole or in part (each, a "Seller Loan"):

          (i) neither Seller nor any Seller Subsidiary nor any prior holder of a
     Seller Loan has modified the note or any of the related security  documents
     in any material respect or satisfied (other than the ordinary  amortization
     of principal or prepayment of principal as permitted by the applicable loan
     documents),  canceled  or  subordinated  the  note  or any  of the  related
     security  documents  except as  otherwise  disclosed  by  documents  in the
     applicable Seller Loan file;

          (ii)  Seller or a Seller  Subsidiary  is the sole  holder of legal and
     beneficial  title to each  Seller  Loan (or  Seller or Seller  Subsidiary's
     applicable participation interest, as applicable);

          (iii) the note and the related security documents, copies of which are
     included  in the Seller  Loan  files,  are true and  correct  copies of the
     documents  they  purport  to be  and  have  not  been  suspended,  amended,
     modified,  canceled or otherwise  changed except as otherwise  disclosed by
     documents in the applicable Seller Loan file;

                                       26
<Page>

          (iv)  there  is no  pending  or,  to  Seller's  Knowledge,  threatened
     condemnation  proceeding or similar proceeding affecting the property which
     serves as security for a Seller Loan;

          (v) there is no  litigation  or  proceeding  pending  or, to  Seller's
     Knowledge,  threatened,  relating to the property  which serves as security
     for a Seller  Loan that  would  have a  material  adverse  effect  upon the
     related Seller Loan;

          (vi)  with   respect  to  a  Seller   Loan  held  in  the  form  of  a
     participation, the participation documentation is legal, valid, binding and
     enforceable  and the  interest  in such  Seller  Loan of Seller or a Seller
     Subsidiary  created  by  such  participation  would  not be a  part  of the
     insolvency  estate of the Seller Loan  originator or other third party upon
     the insolvency thereof; and

          (vii) each Seller Loan secured by a mortgage on  residential  property
     (except for  construction  loans) was originated by a bank,  thrift,  other
     HUD-approved lender, licensed mortgage broker or insurance company.

Section 3.20      Related Party Transactions.

     Except as described in Seller's Proxy  Statement  distributed in connection
with the annual  meeting of  stockholders  in 2005  (which has  previously  been
provided to Purchaser),  neither Seller nor any Seller  Subsidiary is a party to
any  transaction  (including  any loan or other credit  accommodation)  with any
Affiliate  of Seller or any Seller  Subsidiary.  Except as described in Seller's
Proxy Statement,  all such  transactions (a) were made in the ordinary course of
business,  (b) were made on  substantially  the same terms,  including  interest
rates  and  collateral,   as  those   prevailing  at  the  time  for  comparable
transactions  with other  Persons,  and (c) did not involve more than the normal
risk of collectability or present other unfavorable  features. No loan or credit
accommodation  to any Affiliate of Seller or any Seller  Subsidiary is presently
in default or, during the three-year period prior to the date of this Agreement,
has been in default or has been  restructured,  modified or extended  except for
rate  modifications  pursuant to Seller Bank's loan modification  policy that is
applicable to all Persons.  Neither  Seller nor any Seller  Subsidiary  has been
notified  that  principal  and  interest  with respect to any such loan or other
credit  accommodation  will  not  be  paid  when  due or  that  the  loan  grade
classification   accorded  such  loan  or  credit  accommodation  by  Seller  is
inappropriate.

Section 3.21      Deposits.

     None of the  deposits of Seller or any Seller  Subsidiary  is a  "brokered"
deposit or subject to any  encumbrance,  legal  restraint or other legal process
except to the extent any such deposits  serve as collateral  for any Loan or are
subject to legal restraint in the ordinary course of the banking business due to
the action of the depositor or a third party.

Section 3.22      Antitakeover Provisions Inapplicable.

     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),   the  transactions
contemplated  by this  Agreement  are not  subject  to the  requirements  of any
"moratorium," "control share," "fair price," "affiliate transactions," "business
combination" or other antitakeover laws and regulations of any state,  including
the  provisions  of Section 203 of the DGCL  applicable  to Seller or any Seller
Subsidiary.

                                       27
<Page>

Section 3.23      Registration Obligations.

     Neither  Seller  nor  any  Seller   Subsidiary  is  under  any  obligation,
contingent or otherwise,  which will survive the Effective Time by reason of any
agreement to register any transaction  involving any of its securities under the
Securities Act.

Section 3.24      Risk Management Instruments.

     Neither Seller nor any Subsidiary is a party to or has agreed to enter into
an exchange-traded or over-the-counter  equity,  interest rate, foreign exchange
or other  swap,  forward,  future,  option,  cap,  floor or  collar or any other
contract that is not included in the consolidated statements of condition and is
a  derivative  contract  (including  various  combinations   thereof)  (each,  a
"Derivatives  Contract") or owns securities that (A) are referred to generically
as "structured  notes," "high risk mortgage  derivatives  (other than "high risk
mortgage  derivatives"  set forth in the Disclosure  Letter),"  "capped floating
rate notes" or "capped floating rate mortgage  derivatives" or (B) are likely to
have  changes in value as a result of  interest or exchange  rate  changes  that
significantly  exceed  normal  changes  in value  attributable  to  interest  or
exchange  rate  changes,  except  for  those  Derivatives  Contracts  and  other
instruments  legally  purchased  or  entered  into  in the  ordinary  course  of
business,  consistent  with  safe and sound  banking  practices  and  regulatory
guidance,  and  listed  (as of the date  hereof)  in the  Disclosure  Letter  or
disclosed in Seller Reports filed on or prior to the date hereof.

                                  ARTICLE IV.

                   REPRESENTATIONS AND WARRANTIES OF PURCHASER

     Purchaser  represents and warrants to Seller that the statements  contained
in this  Article IV 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 IV).

Section 4.01      Organization.

     (a) Purchaser 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.  Purchaser  has all requisite
corporate power and authority to own, lease and operate its properties and carry
on its  business  as now  conducted  and is duly  licensed  or  qualified  to do
business in the states of the United States and foreign  jurisdictions where its
ownership  or leasing of property or the conduct of its business  requires  such
qualification.

     (b) The Bank is a stock savings bank duly organized,  validly  existing and
in good standing under the laws of the United States of America. The deposits of
the 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 when due.

     (c)  Merger  Sub  will,  at  the  Effective  Time,  be a  corporation  duly
incorporated  and validly  existing under the laws of the State of Delaware.  At
the  Effective  Time,  the Bank will have  received all  requisite  approvals of
government  authorities  to own, and the Bank will own,  all of the  outstanding
capital stock of Merger Sub.

                                       28
<Page>

Section 4.02      Authority; No Violation.

     (a) Purchaser has full corporate power and authority to execute and deliver
this Agreement and, subject to receipt of the required Regulatory Approvals,  to
consummate the transactions  contemplated  hereby. The execution and delivery of
this Agreement by Purchaser and the completion by Purchaser of the  transactions
contemplated  hereby,  have  been  duly and  validly  approved  by the  Board of
Directors  of  Purchaser,  and no  other  corporate  proceedings  on the part of
Purchaser are necessary to complete the transactions  contemplated  hereby. This
Agreement has been duly and validly  executed and  delivered by  Purchaser,  and
subject to the receipt of the Regulatory  Approvals,  constitutes  the valid and
binding  obligation of Purchaser,  enforceable  against  Purchaser 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.

     (b) The execution and delivery of this  Agreement by Purchaser,  subject to
receipt of the Regulatory  Approvals and compliance by Seller and Purchaser with
any  conditions   contained  therein,   the  consummation  of  the  transactions
contemplated  hereby  and  compliance  by  Purchaser  with  any of the  terms or
provisions  hereof will not (i) conflict with or result in a breach or violation
of, or default under and provision of the certificate of incorporation or bylaws
of Purchaser or (ii) violate any statute,  code,  ordinance,  rule,  regulation,
judgment,  order,  writ,  decree,  governmental  permit or license or injunction
applicable to Purchaser.

     (c) Merger Sub will, at the Effective  Time,  have full corporate power and
authority  to execute  and deliver  the Plan of Interim  Merger and,  subject to
receipt of the required  Regulatory  Approvals,  to consummate the  transactions
contemplated hereby.

Section 4.03      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, to the  Knowledge of  Purchaser,  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 Purchaser
and the  completion by Purchaser of the Merger or (b) the execution and delivery
of the Plan of Interim Merger by the Purchaser and the completion by the Bank of
the Bank  Merger.  Purchaser  has no reason to believe  that (i) any  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 4.04      Access to Funds.

     Purchaser  has,  or on the  Closing  Date  will  have,  access to all funds
necessary to consummate  the Merger and pay the aggregate  Merger  Consideration
and shall have entered into the Paying Agent Agreement with Paying Agent.

Section 4.05      Financial Statements.

     The  financial  statements  of the  Purchaser  included in the  Purchaser's
Annual  Report on Form 10-K for the fiscal  year ended  December  31, 2004 filed
with the SEC have been prepared in accordance  with GAAP applied on a consistent

                                       29
<Page>

basis  during the  periods  involved  (except as may be  indicated  in the notes
thereto or, in the case of unaudited financial  statements,  as permitted by SEC
Form 10-K or the Securities Laws).

Section 4.06      Legal Proceedings.

     Purchaser  is not a party to any  action,  suit or  proceeding  that  would
materially   adversely  affect  the  ability  of  Purchaser  to  consummate  the
transactions contemplated by this Agreement.

                                   ARTICLE V.

                           CONDUCT PENDING ACQUISITION

Section 5.01      Conduct of Business Prior to the Effective Time.

     Except as expressly  provided in this  Agreement or with the prior  written
consent of Purchaser,  during the period from the date of this  Agreement to the
Effective  Time,  Seller shall,  and shall cause each Seller  Subsidiary to: (i)
conduct its  business in the  ordinary  and usual  course  consistent  with past
practices and prudent  banking  practice;  (ii) maintain and preserve intact its
business   organization,    properties,   leases   and   advantageous   business
relationships  and retain the services of its officers and key employees;  (iii)
take no action  which  would  adversely  affect or delay the  ability of each of
Seller or any Seller  Subsidiary to perform its  covenants  and  agreements on a
timely basis under this  Agreement;  (iv) take no action  which would  adversely
affect or delay the  ability  of  parties  to obtain  any  necessary  approvals,
consents or waivers of any Governmental  Authority required for the transactions
contemplated  hereby or which would reasonably be expected to result in any such
approvals, consents or waivers containing any material condition or restriction;
and (v)  take no  action  that  results  in or is  reasonably  likely  to have a
Material Adverse Effect on Seller or the Seller Subsidiaries taken as a whole.

Section 5.02      Forbearances of Seller.

     Without  limiting the covenants set forth in Section 5.01 hereof,  from the
date hereof  until the  Effective  Time,  except as  expressly  contemplated  or
permitted by this  Agreement,  without the prior  written  consent of Purchaser,
which consent shall not be unreasonably  withheld,  Seller will not, and it will
cause each of the Seller Subsidiaries not to:

     (a) change or waive any  provision  of its  certificate  of  incorporation,
charter or bylaws or any similar  governing  documents of any Seller  Subsidiary
except as required by law, except as necessary to eliminate  Section 8A from the
Federal Stock Charter of Seller Bank;

     (b) change the number of authorized or issued shares of its capital  stock,
issue any shares of Seller  Common  Stock that are held as Treasury  Stock as of
the date of this  Agreement,  or issue or grant  any Right or  agreement  of any
character  relating to its  authorized or issued capital stock or any securities
convertible into shares of such stock,  make any grant or award under the Seller
Stock Benefit Plans,  or split,  combine or reclassify any shares of its capital
stock,  or  declare,  set aside or pay any  dividend  or other  distribution  in
respect of its capital  stock,  or purchase or redeem or  otherwise  acquire any
shares of its capital  stock,  except that (A) Seller may issue shares of Seller
Common Stock upon the valid  exercise,  in accordance  with the  information set
forth in the Disclosure  Letter, of presently  outstanding Seller Options issued
under the Seller Stock Benefit Plans, (B) Seller may continue to pay its regular
quarterly  cash  dividend  of $0.075 per share  with  payment  and record  dates
consistent with past practice,  and (C) any Seller  Subsidiary may pay dividends
to its parent company (as permitted under applicable law or regulations);

                                       30
<page>

     (c)  except as  provided  in clause  (p) below,  enter  into,  amend in any
material  respect or  terminate  any contract or  agreement  (including  without
limitation  any settlement  agreement  with respect to  litigation)  involving a
payment by Seller or any Seller Subsidiary of $25,000 or more;

     (d) make any  commitment  relating  to an  application  for the  opening or
closing of any, or open or close any, branch,  automated banking or other office
facility;

     (e) enter into any new line of business or introduce any new products;

     (f)  grant or agree to pay any  bonus,  severance  or  termination  payment
(including,  but not limited to discretionary  severance pay) to, or enter into,
renew or amend any employment agreement, severance agreement and/or supplemental
executive  agreement with, or increase in any manner the  compensation or fringe
benefits of, any of its directors,  officers or employees,  except (i) as may be
required by applicable law or pursuant to binding,  written commitments existing
on the date hereof and set forth in the Disclosure  Letter,  (ii) the payment of
bonuses for the year ending March 31, 2006, to the extent such bonuses have been
accrued in  accordance  with GAAP through  March 31, 2006 and provided that such
bonuses are consistent,  as to amount and persons  covered,  with past practice,
and (iii) Seller Bank may hire at-will,  non-officer employees to fill vacancies
that  may from  time to time  arise  in the  ordinary  course  of  business.  In
addition,  Seller may agree to pay  employees of Seller or Seller Bank,  who are
identified  by  Seller  and  agreed to by  Purchaser,  a  retention  bonus in an
individual amount, and in an aggregate amount as to all retention bonuses, to be
agreed to by Purchaser;

     (g) enter into or, except as may be required by law,  materially modify any
pension,  retirement,  stock option,  stock purchase,  stock appreciation right,
stock  grant,  savings,  profit  sharing,  deferred  compensation,  supplemental
retirement,  consulting,  bonus,  group  insurance  or other  employee  benefit,
incentive  or welfare  contract,  plan or  arrangement,  or any trust  agreement
related thereto, in respect of any of its directors,  officers or employees;  or
make any  contributions to any defined  contribution or defined benefit plan not
in the ordinary course of business consistent with past practice;

     (h) merge or  consolidate  Seller or any Seller  Subsidiary  with any other
corporation;  sell or lease  all or any  substantial  portion  of the  assets or
business of Seller or any Seller Subsidiary;  make any acquisition of all or any
substantial  portion of the business or assets of any other Person other than in
connection with foreclosures,  settlements in lieu of foreclosure, troubled loan
or debt  restructuring,  or the  collection  of any loan or  credit  arrangement
between Seller,  or any Seller  Subsidiary,  and any other Person;  enter into a
purchase and assumption  transaction  with respect to deposits and  liabilities;
permit the revocation or surrender by any Seller  Subsidiary of its  certificate
of authority to maintain,  or file an  application  for the  relocation  of, any
existing branch office, or file an application for a certificate of authority to
establish a new branch office;

     (i) sell or  otherwise  dispose of the  capital  stock of Seller or sell or
otherwise  dispose of any asset of Seller or of any Seller Subsidiary other than
in the ordinary course of business consistent with past practice;

     (j)  incur  any   indebtedness   for  borrowed   money  (or  guarantee  any
indebtedness for borrowed money) or subject any asset of Seller or of any Seller
Subsidiary to any lien,  pledge,  security interest or other encumbrance  (other
than in connection with deposits,  repurchase  agreements,  bankers acceptances,
"treasury tax and loan" accounts  established in the ordinary course of business
and transactions in "federal funds" and the  satisfaction of legal  requirements
in the exercise of trust powers),  except as set forth in the Disclosure  Letter
or in the ordinary course of business consistent with past practice;

                                       31
<Page>

     (k) take any action  which would result in any of the  representations  and
warranties of Seller set forth in this Agreement  becoming untrue as of any date
after the date  hereof or in any of the  conditions  set forth in  Article  VIII
hereof not being satisfied, except in each case as may be required by applicable
law;

     (l) change any method,  practice or principle of accounting,  except as may
be required  from time to time by GAAP  (without  regard to any  optional  early
adoption date) or any Bank Regulator responsible for regulating Seller or Seller
Bank;

     (m) waive,  release,  grant or  transfer  any  material  rights of value or
modify or change in any material respect any existing  agreement or indebtedness
to which Seller or any Seller Subsidiary is a party,  other than in the ordinary
course of business, consistent with past practice;

     (n) make any investment in any debt security, including mortgage-backed and
mortgage  related  securities,  other than U.S.  government and U.S.  government
agency  securities with final  maturities not greater than five years,  that are
purchased in the ordinary course of business  consistent with past practice,  in
either case, with a purchase price no greater than 101.5% of par value;

     (o) other than  investments for Seller's  portfolio made in accordance with
Section 5.02(m),  make any investment either by purchase of stock or securities,
contributions  to capital,  property  transfers,  or purchase of any property or
assets of any other  individual,  corporation  or other  entity  other  than the
purchase of FHLB common stock necessary to maintain  Seller's  membership status
with the FHLB of New York and other than  pursuant to existing  commitments  set
forth in the Disclosure Letter;

     (p) except  pursuant to  commitments  existing at the date hereof which are
set forth in the Disclosure Letter, make, renegotiate,  renew, increase,  extend
or purchase any loan, lease (credit equivalent),  advance, credit enhancement or
other  extension  of  credit,  or make any  commitment  in respect of any of the
foregoing, except in conformity with existing lending practices set forth in the
Sound Federal Savings Loan Department Procedures Manual, last revised on January
20, 2005,  and attached to the Disclosure  Letter (the "Lending  Policy") and in
amounts not to exceed the limits set forth in such Lending Policy;

     (q) enter into, renew, extend or modify any other transaction (other than a
deposit transaction) with any Affiliate other than pursuant to Seller's existing
Insider Loan Policy;

     (r) enter into any futures contract,  option,  interest rate caps, interest
rate floors,  interest rate exchange  agreement or other agreement,  or take any
other action for purposes of hedging the exposure of its interest-earning assets
and interest-bearing liabilities to changes in market rates of interest;

     (s) except for the execution of this Agreement,  and actions taken or which
will be taken in accordance with this Agreement and performance thereunder, take
any action  that would give rise to a right of payment to any  individual  under
any employment agreement;

     (t) make any change in policies in existence on the date of this  Agreement
with regard to: the extension of credit,  or the  establishment of reserves with
respect to the  possible  loss  thereon  or the  charge  off of losses  incurred
thereon;  investments;  asset/liability  management;  or other material  banking
policies  in any  material  respect  except as may be  required  by  changes  in
applicable  law or  regulations  or by a Bank  Regulator or changes in GAAP,  as
advised by Seller's independent public accountants;

                                       32
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     (u)  except  for the  execution  of this  Agreement,  and the  transactions
contemplated therein, take any action that would give rise to an acceleration of
the right to payment to any individual under any Seller Compensation and Benefit
Plan;

     (v) make any  capital  expenditures  in excess of $50,000  individually  or
$100,000 in the aggregate,  other than pursuant to binding commitments  existing
on the date hereof which are set forth in the  Disclosure  Letter and other than
expenditures necessary to maintain existing assets in good repair;

     (w) purchase or  otherwise  acquire,  or sell or otherwise  dispose of, any
assets or incur any  liabilities  other than in the ordinary  course of business
consistent with past practices and policies;

     (x) sell any participation  interest in any loan (other than sales of loans
secured  by one- to  four-family  real  estate  that are  consistent  with  past
practice) unless the Bank has been given the first  opportunity and a reasonable
time to purchase any loan participation being sold;

     (y) undertake or, enter into any lease,  contract or other  commitment  for
its account, other than in the normal course of providing credit to customers as
part of its  banking  business,  involving  a payment  by  Seller or any  Seller
Subsidiary of more than $25,000 annually, or containing any financial commitment
extending beyond 12 months from the date hereof;

     (z) pay,  discharge,  settle or compromise any claim,  action,  litigation,
arbitration or proceeding; other than any such payment, discharge, settlement or
compromise in the ordinary course of business consistent with past practice that
involves   solely  money  damages  in  the  amount  not  in  excess  of  $25,000
individually or $50,000 in the aggregate;

     (aa) other than in the  ordinary  course of business  consistent  with past
practice and pursuant to policies  currently in effect (which  includes sales of
residential  loans and mortgages,  mortgage related and other securities as part
of balance sheet management),  sell, transfer,  mortgage,  encumber or otherwise
dispose of any of its material  properties,  leases or assets to any individual,
corporation  or other  entity  other  than a direct  or  indirect  wholly  owned
subsidiary of Seller or cancel,  release or assign any  indebtedness of any such
person,  except pursuant to contracts or agreements in force at the date of this
Agreement and which are set forth in the Disclosure Letter;  provided,  however,
that no sales may be made with recourse;

     (bb)  purchase  or sell  servicing  rights  (other  than  loan  sales  with
servicing released) with respect to loans the principal balance of which, either
individually or in the aggregate, exceeds $1,000,000;

     (cc) fail to maintain all its properties in repair,  order and condition no
worse than on the date of this Agreement other than as a result of ordinary wear
and tear;

     (dd) make any  investment  or commitment to invest in real estate or in any
real estate development project, other than real estate acquired in satisfaction
of defaulted mortgage loans and investments or commitments approved by the Board
of  Directors  of Seller prior to the date of this  Agreement  and  disclosed in
writing to  Purchaser;  (ee) elect to the Board of Directors of Seller or Seller
Bank any  person  who is not a member  of the  Board of  Directors  of Seller or
Seller Bank as of the date of this Agreement;

     (ff) make or change any  election in respect of Taxes,  adopt or change any
accounting  method in respect  of Taxes or  otherwise,  enter  into any  closing

                                       33
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agreement, settle any claim or assessment in respect of Taxes, or consent to any
extension  or  waiver  of the  limitation  period  applicable  to any  claim  or
assessment in respect of Taxes,  except as required by law, rule,  regulation or
GAAP; or

     (gg) agree to do any of the foregoing.

Section 5.03      Maintenance of Insurance.

     Seller  shall  maintain,  and cause the Seller  Subsidiaries  to  maintain,
insurance in such amounts as are reasonable to cover such risks as are customary
in relation to the character and location of its  properties,  and the nature of
its business.

Section 5.04      All Reasonable Efforts.

     Subject to the terms and conditions herein provided,  Seller agrees to use,
and agrees to cause each Seller  Subsidiary to use, all commercially  reasonable
efforts  to take,  or cause to be taken,  all  action  and to do, or cause to be
done,  all things  necessary,  proper or  advisable  under  applicable  laws and
regulations to consummate and make effective the  transactions  contemplated  by
this Agreement.

                                  ARTICLE VI.

                                    COVENANTS

Section 6.01       Current Information.

     (a) During  the period  from the date of this  Agreement  to the  Effective
Time,  Seller  will  cause one or more of its  representatives  to  confer  with
representatives  of  Purchaser  and report  the  general  status of its  ongoing
operations  at such times as  Purchaser  may  reasonably  request.  Seller  will
promptly  notify  Purchaser of any material  change in the normal  course of its
business or in the operation of its properties  and, to the extent  permitted by
applicable law, of any governmental  complaints,  investigations or hearings (or
communications indicating that the same may be contemplated), or the institution
or the known  threat  of  material  litigation  involving  Seller or any  Seller
Subsidiary.

     (b) Seller  Bank and the Bank shall meet on a regular  basis to discuss and
plan for the conversion of Seller Bank's data processing and related  electronic
informational  systems to those used by the Bank which  planning  shall include,
but not be limited to, discussion of the possible  termination by Seller Bank of
third-party service provider arrangements  effective at the Effective Time or at
a date thereafter, non-renewal of personal property leases and software licenses
used by Seller Bank in  connection  with its systems  operations,  retention  of
outside consultants and additional employees to assist with the conversion,  and
outsourcing, as appropriate, of proprietary or self-provided system services, it
being understood that,  unless Seller Bank otherwise agrees, no conversion shall
take place prior to the Effective  Time. In the event that Seller Bank takes, at
the request of the Bank, any action  relative to third parties to facilitate the
conversion  that results in the imposition of any  termination  fees or charges,
Purchaser  shall  indemnify  Seller Bank for any such fees and charges,  and the
costs of reversing the conversion  process,  if for any reason the Merger is not
consummated  for any  reason  other than a breach of this  Agreement  by Seller.
Seller shall reasonably cooperate with Purchaser to effect any conversion of the
operating systems of Seller and the Seller Subsidiaries to those of Purchaser or
its  Affiliates  on the  Closing  Date or as soon  thereafter  as is  reasonably
practicable.  In connection  therewith,  Seller  shall,  from and after the date
hereof through the Closing,  reasonably  assist  Purchaser in making and sending
notices,  information  and materials to the  customers and service  providers of
Seller and the Seller Subsidiaries.

                                       34
<page>

     (c) Seller shall provide  Purchaser,  within 10 business days of the end of
each  calendar  month,  a  written  list  of  nonperforming   assets  (the  term
"nonperforming  assets," for purposes of this  subsection,  means (i) loans that
are  "troubled  debt   restructuring"  as  defined  in  Statement  of  Financial
Accounting  Standards No. 15,  "Accounting by Debtors and Creditors for Troubled
Debt Restructuring," (ii) loans on nonaccrual, (iii) real estate owned, (iv) all
loans  ninety  (90) days or more  past due as of the end of such  month and (iv)
impaired  loans).  On a monthly  basis,  Seller shall provide  Purchaser  with a
schedule of all loan  approvals,  which schedule shall indicate the loan amount,
loan type and other material features of the loan.

     (d) Seller shall promptly  inform  Purchaser  upon receiving  notice of any
legal,  administrative,  arbitration  or other  proceedings,  demands,  notices,
audits or investigations (by any federal,  state or local commission,  agency or
board)  relating to the  alleged  liability  of Seller or any Seller  Subsidiary
under any labor or employment law.

Section 6.02      Access to Properties and Records.

     Seller shall permit Purchaser  reasonable  access upon reasonable notice to
its properties and those of the Seller Subsidiaries, and shall disclose and make
available to Purchaser during normal business hours all of its books, papers and
records  relating  to  the  assets,  properties,   operations,  obligations  and
liabilities,  including, but not limited to, all books of account (including the
general  ledger),  tax records,  minute books of directors'  (other than minutes
that discuss any of the transactions contemplated by this Agreement or any other
subject matter Seller  reasonably  determines should be treated as confidential)
and stockholders' meetings, organizational documents, Bylaws, material contracts
and agreements,  filings with any regulatory authority,  litigation files, plans
affecting  employees,  and any other  business  activities or prospects in which
Purchaser may have a reasonable interest;  provided,  however, that Seller shall
not be  required  to take any action  that would  provide  access to or disclose
information where such access or disclosure,  in Seller's  reasonable  judgment,
would interfere with the normal conduct of Seller's business or would violate or
prejudice  the rights or business  interests or  confidences  of any customer or
other person,  or would result in the waiver by it of the  privilege  protecting
communications  between it and any of its  counsel,  or would be contrary to any
law or  regulation  applicable  to Seller Bank.  Seller shall  provide and shall
request  its  auditors  to  provide  Purchaser  with such  historical  financial
information  regarding it (and related audit reports,  consents and work papers)
as Purchaser may reasonably request. Purchaser shall use commercially reasonable
efforts to minimize any interference  with Seller's regular business  operations
during any such access to Seller's property,  books and records. Seller and each
Seller Subsidiary shall permit  Purchaser,  at Purchaser's  expense,  to cause a
"phase  I  environmental  audit"  and a "phase  II  environmental  audit"  to be
performed  at any  physical  location  owned or occupied by Seller or any Seller
Subsidiary.

Section 6.03      Financial and Other Statements.

     (a) Promptly upon receipt thereof,  Seller will furnish to Purchaser copies
of each annual,  interim or special  audit of the books of Seller and the Seller
Subsidiaries  made by its  independent  accountants  and copies of all  internal
control reports  submitted to Seller by such accountants in connection with each
annual,  interim  or  special  audit  of the  books  of  Seller  and the  Seller
Subsidiaries made by such accountants.

     (b) As soon  as  reasonably  available,  but in no  event  later  than  two
business days after such  documents are filed with the SEC,  Seller will deliver
to Purchaser  the Seller  Reports  filed by it with the SEC.  Within 10 business
days after the end of each month Seller will deliver to Purchaser a consolidated
balance sheet and a consolidated statement of operations, without related notes,
for  such  month  prepared  in  accordance  with  current  financial   reporting
practices.

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<Page>

     (c) Seller will advise Purchaser promptly of the receipt of any examination
report of any Bank  Regulator  with respect to the  condition or  activities  of
Seller or any of the Seller Subsidiaries.

     (d) With  reasonable  promptness  Seller  will  furnish to  Purchaser  such
additional  financial data that Seller possesses and as Purchaser may reasonably
request, including without limitation, detailed monthly financial statements and
loan reports.

Section 6.04      Disclosure Letter Supplements.

     From  time to time  prior  to the  Effective  Time,  Seller  will  promptly
supplement or amend the Disclosure Letter delivered in connection  herewith with
respect to any matter hereafter  arising which, if existing,  occurring or known
at the date of this  Agreement,  would  have  been  required  to be set forth or
described  in such  Disclosure  Letter  or which is  necessary  to  correct  any
information  in such  Disclosure  Letter  which  has  been  rendered  materially
inaccurate  thereby.  No supplement or amendment to such Disclosure Letter shall
have any effect for the purpose of  determining  satisfaction  of the conditions
set forth in Article VII or shall relieve Seller of any liability hereunder.

Section 6.05      Consents and Approvals of Third Parties.

     In addition to the  Obligations  of Article VI hereunder,  Seller shall use
all commercially reasonable efforts, and shall cause each Seller Subsidiary,  to
obtain as soon as  practicable  all consents and  approvals of any other persons
necessary or desirable for the consummation of the transactions  contemplated by
this Agreement.

Section 6.06      Failure to Fulfill Conditions.

     In the event that Seller  determines  that a condition to its obligation to
complete  the Merger or Bank  Merger  cannot be  fulfilled  and that it will not
waive that condition, it will promptly notify Purchaser.

Section 6.07      No Solicitation.

     (a)  Seller  shall  not,  nor  shall it  authorize  or  permit  any  Seller
Subsidiary or any of their  respective  directors,  officers or employees or any
investment  banker,  financial advisor,  attorney,  accountant or other advisor,
agent or representative (collectively,  "Representatives") retained by it or any
Seller Subsidiary to, directly or indirectly, (i) solicit, initiate or knowingly
encourage,  or take any other action  designed to, or which could  reasonably be
expected to, facilitate,  any Acquisition  Proposal or (ii) enter into, continue
or otherwise  participate  in any  discussions  or  negotiations  regarding,  or
furnish to any person any information with respect to, or otherwise cooperate in
any way with,  any  Acquisition  Proposal.  Seller  shall,  and shall cause each
Seller Subsidiary and any Representative  engaged thereby,  to immediately cease
and cause to be terminated  all existing  discussions or  negotiations  with any
Person conducted heretofore with respect to any Acquisition Proposal and request
the prompt return or  destruction  of all  confidential  information  previously
furnished.  Notwithstanding  the  foregoing,  at any time prior to obtaining the
Stockholder  Approval,  in response to a bona fide written Acquisition  Proposal
that the Board of Directors of Seller in good faith reasonably determines (after
consultation  with  its  outside  legal  counsel  and  a  financial  advisor  of
nationally  recognized  reputation)  (i) it is legally  necessary for the proper
discharge of its fiduciary  duties to respond to such  Acquisition  Proposal and
(ii) such Acquisition  Proposal constitutes or is reasonably likely to lead to a
Superior  Proposal,  and which Acquisition  Proposal was not solicited after the
date hereof and was made after the date hereof and did not otherwise result from
a breach of this Section 6.07(a), Seller may, subject to compliance with Section
6.07(c),  (x)  furnish  information  with  respect  to  Seller  and each  Seller

                                       36
<page>
Subsidiary   to  the  person   making  such   Acquisition   Proposal   (and  its
Representatives)  pursuant to a  customary  confidentiality  agreement  not less
restrictive  to  such  person  than  the   confidentiality   provisions  of  the
Confidentiality  Agreement,  provided that all such  information  has previously
been provided to Purchaser or is provided to Purchaser prior to or substantially
concurrent  with the time it is provided to such person,  and (y) participate in
discussions or  negotiations  with the person making such  Acquisition  Proposal
(and its Representatives) regarding such Acquisition Proposal.

     (b)  Neither the Board of  Directors  of Seller nor any  committee  thereof
shall (i) (A) withdraw (or modify in a manner adverse to Purchaser), or publicly
propose to withdraw (or modify in a manner  adverse to Seller),  the adoption or
recommendation  by such Board of Directors or any such committee thereof of this
Agreement,  the Merger or the other transactions  contemplated by this Agreement
or (B) adopt or  recommend,  or  propose  publicly  to adopt or  recommend,  any
Acquisition  Proposal (any action described in this clause (i) being referred to
as a "Seller  Adverse  Recommendation  Change") or (ii) adopt or  recommend,  or
publicly  propose  to adopt or  recommend,  or allow the  Seller  or any  Seller
Subsidiary  to  execute or enter  into,  any  letter of  intent,  memorandum  of
understanding,  agreement in principle, merger agreement, acquisition agreement,
option  agreement,  joint  venture  agreement,  partnership  agreement  or other
similar  contract  constituting  or related  to, or that is intended to or could
reasonably  be  expected  to lead to, any  Acquisition  Proposal  (other  than a
confidentiality  agreement  referred  to in Section  6.07(a))  (an  "Acquisition
Agreement").  Notwithstanding the foregoing,  at any time prior to obtaining the
Stockholder  Approval,  the Board of  Directors  of Seller may in response to an
Acquisition  Proposal  that the  Board of  Directors  of  Seller  in good  faith
reasonably  determines  (after  consultation  with outside  legal  counsel and a
financial advisor of nationally  recognized  reputation)  constitutes a Superior
Proposal  and that was  unsolicited  and made after the date hereof and that did
not  otherwise  result  from a breach of this  Section  6.07,  (1) make a Seller
Adverse  Recommendation  Change or (2) cause Seller to terminate  this Agreement
and  concurrently  with or after  such  termination  enter  into an  Acquisition
Agreement  as provided by and with the effect set forth in Article X;  provided,
however,  that Seller  shall not be  entitled  to  exercise  its right to make a
Seller Adverse  Recommendation  Change or terminate  this Agreement  pursuant to
this clause until after the fifth business day following  Purchaser's receipt of
written notice (a "Notice of Superior  Proposal") from Seller advising Purchaser
that the Board of Directors of Seller intends to take such action and specifying
the  reasons  therefor,  including  the terms  and  conditions  of any  Superior
Proposal that is the basis of the proposed action by the Board of Directors.  In
determining whether to make a Seller Adverse  Recommendation  Change or to cause
Seller to so terminate  this  Agreement,  the Board of Directors of Seller shall
take into account any changes to the financial terms of this Agreement  proposed
by Purchaser in response to a Notice of Superior Proposal or otherwise.

     (c) In addition to the obligations of Seller forth in Sections  6.07(a) and
6.07(b),  Seller shall promptly  advise  Purchaser  orally and in writing of any
Acquisition Proposal,  the material terms and conditions of any such Acquisition
Proposal  (including any changes  thereto) and the identity of the person making
any such Acquisition Proposal. Seller shall (i) keep Purchaser fully informed in
all  material  respects of the status and details  (including  any change to the
terms thereof) of any Acquisition Proposal, (ii) provide to Purchaser as soon as
practicable after receipt or delivery thereof copies of all  correspondence  and
other written material sent or provided to Seller or any Seller  Subsidiary from
any person that  describes  any of the terms or  conditions  of any  Acquisition
Proposal  (including any draft  acquisition  agreement) and (iii) keep Purchaser
fully  informed  in all  material  respects  of the  status  and  details of any
determination   by  Seller's  Board  of  Directors  with  respect  to  any  such
Acquisition Proposal.

     (d) Nothing  contained  in this  Section  6.07 shall  prohibit  Seller from
complying with its disclosure obligations under federal securities laws or state
law;  provided,  however,  that in no event  shall  the  Seller  or its Board of
Directors or any committee thereof take, or agree or resolve to take, any action
prohibited by Section 6.07(b) (it being understood that any accurate  disclosure

                                       37
<page>

of factual information to the stockholders of Seller that is required to be made
to such  stockholders  under  applicable  federal  securities  Laws shall not be
considered a modification prohibited by clause (i)(A) of Section 6.07(b)).

Section 6.08      Employee Benefits

     (a) Purchaser  intends to approach suitably  qualified  employees of Seller
whose  positions  do not continue  after the  Effective  Time to fill  vacancies
within the Purchaser wherever  possible.  Purchaser will review all Compensation
and Benefit Plans to determine  whether to maintain,  terminate or continue such
plans. In the event employee  compensation and/or benefits as currently provided
by Seller or Seller Bank are changed or terminated by Purchaser,  in whole or in
part,  Purchaser shall provide Continuing Employees (as defined below in Section
6.08(c))  with   compensation   and  benefits   that  are,  in  the   aggregate,
substantially  similar to the  compensation  and benefits  provided to similarly
situated Purchaser employees (as of the date any such compensation or benefit is
provided). All Continuing Employees who become participants in a compensation or
benefit  plan  sponsored,  maintained  or  contributed  to by  Purchaser  or any
Purchaser Subsidiary shall, for purposes of determining  eligibility for and for
any  applicable  vesting  periods of such  employee  benefits  only (and not for
benefit  accrual  purposes) be given credit for meeting  eligibility and vesting
requirements  in such plans for  service as an employee of Seller or Seller Bank
or any predecessor thereto prior to the Effective Time; provided,  however, that
such service  shall not be  recognized  for any purpose  under  Purchaser's  tax
qualified defined benefit plan or retiree insurance plan.

     (b) The Seller ESOP shall be  terminated  as of, or prior to, the Effective
Time.  All shares held by the Seller ESOP shall be  converted  into the right to
receive the Merger Consideration, all outstanding Seller ESOP indebtedness shall
be repaid as soon as practicable  following the Effective  Time, and the balance
of the shares and any other assets  remaining in the loan suspense account shall
be allocated and distributed to Seller ESOP participants (subject to the receipt
of a favorable determination letter from the IRS), as provided for in the Seller
ESOP and unless  otherwise  required by applicable  law.  Prior to the Effective
Time,  Seller,  and  following the Effective  Time,  Purchaser,  shall use their
respective  best  efforts in good faith to obtain such  favorable  determination
letter  (including,  but not limited to, making such changes to the ESOP and the
proposed  allocations  as may be  requested  by the  IRS as a  condition  to its
issuance of a favorable  determination  letter).  Prior to the  Effective  Time,
Seller, and following the Effective Time, Purchaser,  will adopt such amendments
to the Seller ESOP as may be  reasonably  required by the IRS as a condition  to
granting such favorable  determination  letter on  termination.  Neither Seller,
prior to the Effective Time, nor Purchaser,  following the Effective Time, shall
make  any  distribution  from the  Seller  ESOP  except  as may be  required  by
applicable law until receipt of such favorable determination letter. In the case
of a  conflict  between  the terms of this  Section  and the terms of the Seller
ESOP, the terms of the Seller ESOP shall control;  however,  in the event of any
such  conflict,  Seller  before the Effective  Time,  and  Purchaser,  after the
Effective  Time,  shall use their best  efforts  to cause the Seller  ESOP to be
amended to conform to the requirements of this Section.

     (c) In the event of any  termination  of any Seller or Seller  Bank  health
plan or  consolidation  of any such plan with any Purchaser or Bank health plan,
Purchaser  shall  make  available  to  employees  of Seller  or Seller  Bank who
continue  employment  with  Purchaser  or a  Purchaser  Subsidiary  ("Continuing
Employees") and their dependents,  employer-provided health coverage on the same
basis as it provides such coverage to Purchaser  employees.  Unless a Continuing
Employee affirmatively  terminates coverage under a Seller or Seller Bank health
plan  prior to the time  that  such  Continuing  Employee  becomes  eligible  to
participate  in the  Purchaser  or Bank health  plan,  no coverage of any of the
Continuing Employees or their dependents shall terminate under any of the Seller
or Seller Bank  health  plans prior to the time such  Continuing  Employees  and
their  dependents  become eligible to participate in the health plans,  programs
and benefits common to all employees of Purchaser or Bank and their  dependents.

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In the event of a  termination  or  consolidation  of any Seller or Seller  Bank
health  plan,   terminated   Seller  or  Seller  Bank  employees  and  qualified
beneficiaries will have the right to continued coverage under group health plans
of Purchaser or Bank in accordance with Code Section  4980B(f),  consistent with
the provisions  below.  In the event of any  termination of any Seller or Seller
Bank health plan, or consolidation of any Seller or Seller Bank health plan with
any Purchaser or Bank health plan,  individuals  covered by the Seller or Seller
Bank health plan shall be entitled to immediate  coverage under the Purchaser or
Bank health plan in accordance with HIPAA and the regulations issued thereunder,
including limitations on pre-existing  condition  exclusions,  nondiscrimination
and special  enrollment  rights.  All Seller or Seller Bank  employees who cease
participating in a Seller or Seller Bank health plan and become  participants in
a  comparable  Purchaser  or Bank  health  plan  shall  receive  credit  for any
co-payment and deductibles  paid under Seller's or Seller Bank's health plan, to
the extent such credit would be provided  under Seller's or Seller Bank's health
plan,  for purposes of satisfying  any  applicable  deductible or  out-of-pocket
requirements under the Purchaser or Bank health plan, upon substantiation,  in a
form  satisfactory to Purchaser or Bank that such co-payment  and/or  deductible
has been satisfied.

     (d) Prior to the Effective Time, Seller shall take or cause to be taken all
requisite  action  to (i)  freeze,  as of the  Effective  Time,  future  benefit
accruals under Seller's defined benefit plans (whether or not tax-qualified) and
(ii) if requested by Purchaser, to amend any or all of Seller's Compensation and
Benefit Plans to prohibit the enrollment of new participants after the Effective
Time.

     (e) Purchaser  shall assume and honor Seller and Seller Bank's  obligations
under the Compensation and Benefit Plans; provided,  however,  concurrently with
the execution and delivery of this Agreement, Richard P. McStravick,  Anthony J.
Fabiano and each of the members of the Board of Directors of Seller will execute
and deliver to the Purchaser an agreement in the form attached hereto as Exhibit
D (a "Settlement Agreement") setting forth the manner in which his or her rights
under the  Compensation  and Benefit  Plans will be settled by the Seller or the
Purchaser or assumed and honored by the Purchaser, as applicable.

     (f)  Immediately  prior to the  Effective  Time,  Seller  and/or the Seller
Subsidiaries  shall  terminate  each of the Seller  Bank  Amended  and  Restated
Director  Deferred Fee Plan, the Seller Bank 2005 Director Deferred Fee Plan and
the Seller Bank Amended and Restated Director Retirement Plan, and shall pay the
amounts due thereunder in a lump sum to the participants therein, on or prior to
the Effective Time in accordance with Code Section 409A. Each person receiving a
payment  thereunder  shall  concurrently  execute and deliver an  acknowledgment
acknowledging the payment of the amounts due and releasing Purchaser, Seller and
Seller Bank from any further obligations thereunder.

     (g)  Immediately  prior to the  Effective  Time,  a lump sum payment of the
present value due to each executive in connection with a change in control under
the Seller  Bank  Amended  and  Restated  Non-Qualified  Supplemental  Executive
Retirement  Agreement  shall  be made to each  executive  who is a party  to the
Seller Bank Amended and Restated Non-Qualified Supplemental Executive Retirement
Agreement.  Each executive  receiving a payment  thereunder  shall  concurrently
execute and deliver an  acknowledgment  acknowledging the payment of the amounts
due and releasing Purchaser, Seller and Seller Bank from any further obligations
thereunder. Following the distribution of all amounts due thereunder, but in any
event,  prior to the  Effective  Time,  the Amended and  Restated  Non-Qualified
Supplement Executive Agreements shall be terminated. The Supplemental Retirement
Agreement for William J.  LaCalamito  shall not terminate at the Effective  Time
but benefits due thereunder shall be paid in accordance with the agreement.

     (h) After the execution of this  Agreement,  neither Seller nor Seller Bank
shall  reassign  any person who is a "key  employee"  (within the meaning of the
Amended and Restated  Severance Plan for Key Employees) to a principal  place of
employment that is 30 or more miles from Purchaser's  executive  offices at West
80 Century  Road,  Paramus,  New Jersey.  Purchaser  will offer a  service-based

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<page>

severance  pay plan and an  outplacement  assistance  program for  employees  of
Seller or Seller Bank who are discharged without cause within one year after the
Effective Time and who are not otherwise eligible for termination benefits under
an  employment  agreement  or the Amended and  Restated  Severance  Plan for Key
Employees.  Prior to the execution and delivery of this Agreement, the Seller or
Seller  Bank shall  cause the  Committee  (as such term is defined in the Seller
Bank  Amended and  Restated  Severance  Plan for Key  Employees)  to appoint the
individuals  designated by Purchaser or Bank as the successors to the members of
such Committee.

     (i) Prior to the  execution  and  delivery  of this  Agreement,  Seller and
Seller  Bank  shall  amend  the  Sound  Federal  Savings  Amended  and  Restated
Supplemental  Executive Retirement Agreement,  the Sound Federal Savings Amended
and Restated Director  Retirement Plan and the Sound Federal Savings Amended and
Restated  Director  Deferred Fee Plan to  eliminate  therefrom  any  restriction
(other than any  restriction  specifically  required to be set forth  therein to
avoid the  imposition  of an excise tax under  section  409A of the Code) on the
right of Purchaser to terminate or cause to terminate any of them, to the extent
not  terminated  prior to the Effective  Time. A certified  copy of  resolutions
adopted  by the Board of  Directors  of Seller or Seller  Bank,  as  applicable,
effecting such amendments shall be included in Section 6.08(i) of the Disclosure
Letter.

Section 6.09      Advisory Board.

     Effective as of the Closing  Date,  Purchaser  shall  establish an Advisory
Board (the "Advisory  Board").  Each person who serves on the Board of Directors
of Seller or Seller  Bank  both on the date of this  Agreement  and  immediately
prior to the Effective Time,  shall be appointed to the Advisory Board effective
immediately  following  the  Effective  Time.  The  Advisory  Board  shall  meet
quarterly,  and shall be continued  for a period of three years.  Each  advisory
board member shall  receive an annual  retainer of $20,000  payable at the first
quarterly meeting of each year.

Section 6.10      Directors and Officers Indemnification and Insurance.

     (a)  Purchaser  shall  maintain,  or shall cause the Bank to  maintain,  in
effect for six years  following the Effective  Time, the current  directors' and
officers'  liability  insurance  policies  maintained  by Seller and Seller Bank
(provided, that Purchaser may, at its option, substitute therefor policies of at
least the same coverage containing terms and conditions which are not materially
less favorable)  with respect to matters  occurring prior to the Effective Time;
provided,  however,  that in no event  shall  Purchaser  be  required  to expend
annually  pursuant  to this  Section  6.10(a)  more than 175% of the annual cost
currently expended by Seller and Seller Bank with respect to such insurance (the
"Maximum Amount");  provided, further, that if the amount of the annual premiums
necessary  to maintain or procure  such  insurance  coverage  exceed the Maximum
Amount,  Purchaser shall maintain the most  advantageous  policies of directors'
and officers'  insurance  obtainable  for an annual premium equal to the Maximum
Amount.  In connection with the foregoing,  Seller agrees in order for Purchaser
to fulfill its agreement to provide directors and officers  liability  insurance
policies for six years to provide such insurer or  substitute  insurer with such
representations as such insurer may request with respect to the reporting of any
prior claims.

     (b) In  addition  to Section  6.10(a),  for a period of six years after the
Effective Time, Purchaser shall indemnify,  defend and hold harmless each person
who is now,  or who has been at any time  before the date  hereof or who becomes
before  the  Effective  Time,  an  officer  or  director  of Seller or an Seller
Subsidiary (the  "Indemnified  Parties")  against all losses,  claims,  damages,
costs, expenses (including attorneys' fees), liabilities or judgments or amounts
that are paid in settlement  (which  settlement  shall require the prior written
consent  of  Purchaser,  which  consent  shall  not  be  unreasonably  withheld,
conditioned  or  delayed)  of or in  connection  with any claim,  action,  suit,

                                       40

<page>

proceeding or investigation,  whether civil, criminal, or administrative (each a
"Claim"), in which an Indemnified Party is, or is threatened to be made, a party
or witness in whole or in part on or arising in whole or in part out of the fact
that such person is or was a director, officer or employee of Seller or a Seller
Subsidiary  if such Claim  pertains to any matter of fact  arising,  existing or
occurring before the Effective Time (including,  without limitation,  the Merger
and the other  transactions  contemplated  hereby),  regardless  of whether such
Claim is  asserted  or  claimed  before,  or  after,  the  Effective  Time  (the
"Indemnified  Liabilities"),  to the fullest extent permitted under Delaware law
(to the extent  not  prohibited  by federal  law),  Purchaser's  Certificate  of
Incorporation  and Bylaws,  and under Seller's  Certificate of Incorporation and
Bylaws.  Purchaser shall pay expenses in advance of the final disposition of any
such  action or  proceeding  to each  Indemnified  Party to the  fullest  extent
permitted  by Delaware  law (to the extent not  prohibited  by federal law) upon
receipt of an  undertaking  to repay such  advance  payments if the  Indemnified
Party shall be adjudicated  or determined to be not entitled to  indemnification
in  the  manner  set  forth  below.  Any  Indemnified  Party  wishing  to  claim
indemnification  under this Section  6.10(b) upon  learning of any Claim,  shall
notify  Purchaser (but the failure so to notify  Purchaser  shall not relieve it
from any liability which it may have under this Section  6.10(b),  except to the
extent  such  failure  materially  prejudices  Purchaser)  and shall  deliver to
Purchaser the undertaking referred to in the previous sentence.  In the event of
any such  Claim  (whether  arising  before  or after  the  Effective  Time)  (1)
Purchaser shall have the right to assume the defense thereof (in which event the
Indemnified  Parties will  cooperate in the defense of any such matter) and upon
such assumption  Purchaser shall not be liable to any Indemnified  Party for any
legal expenses of other counsel or any other expenses  subsequently  incurred by
any  Indemnified  Party in connection with the defense  thereof,  except that if
Purchaser  elects not to assume such  defense,  or counsel  for the  Indemnified
Parties  reasonably  advises the  Indemnified  Parties  that there are or may be
(whether or not any have yet actually  arisen)  issues which raise  conflicts of
interest between Purchaser and the Indemnified  Parties, the Indemnified Parties
may retain counsel reasonably  satisfactory to them, and Purchaser shall pay the
reasonable  fees and expenses of such counsel for the Indemnified  Parties,  (2)
except to the extent otherwise required due to conflicts of interest,  Purchaser
shall  be  obligated  pursuant  to this  paragraph  to pay for  only one firm of
counsel for all Indemnified  Parties whose reasonable fees and expenses shall be
paid promptly as statements are received  unless there is a conflict of interest
that  necessitates more than one law firm, (3) Purchaser shall not be liable for
any settlement  effected  without its prior written consent (which consent shall
not be unreasonably  withheld,  conditioned or delayed),  and (4) no Indemnified
Party shall be entitled to indemnification hereunder with respect to a matter as
to which (x) he shall have been  adjudicated in any proceeding not to have acted
in good faith and in a manner he  reasonably  believed  to be in, or not opposed
to, the best interests of Seller or any Seller  Subsidiary,  or (y) in the event
that a proceeding  is  compromised  or settled so as to impose any  liability or
obligation  upon an Indemnified  Party,  if there is a  determination  that with
respect to said matter said Indemnified Party did not act in good faith and in a
manner he reasonably believed to be in, or not opposed to, the best interests of
Seller or any Seller Subsidiary.  Such determination shall be made in accordance
with the DGCL.

     (c) In the event that either  Purchaser or any of its successors or assigns
(i)  consolidates  with or  merges  into any other  person  and shall not be the
continuing or surviving bank or entity of such  consolidation or merger, or (ii)
transfers all or  substantially  all of its properties and assets to any person,
then,  and in each  such  case,  proper  provision  shall  be  made so that  the
successors and assigns of Purchaser  shall assume the  obligations  set forth in
this Section 6.10.

     (d) The  obligations  of  Purchaser  provided  under this  Section 6.10 are
intended to be enforceable against Purchaser directly by the Indemnified Parties
and shall be binding  on all  respective  successors  and  permitted  assigns of
Purchaser.  Purchaser shall pay all reasonable costs, including attorneys' fees,
that may be incurred by any  Indemnified  Party in  successfully  enforcing  the
indemnity and other obligations provided for in this Section 6.10 to the fullest
extent permitted under applicable law.

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<page>

Section 6.11      Certain Policies of Seller.

     At the  written  request  of  Purchaser,  each  of  Seller  or  any  Seller
Subsidiary shall modify and change its loan,  litigation,  real estate valuation
policies and practices  (including loan classifications and levels of reserves),
investment and  asset/liability  management policies and practices and operating
and internal control procedures after the date on which all required  regulatory
and shareholder  approvals are received and  immediately  prior to the Effective
Time so as to be  consistent  on a  mutually  satisfactory  basis  with those of
Purchaser  or  the  Bank;  provided,  that  such  policies  and  procedures  are
consistent  with  GAAP  and  all  applicable  laws  and  regulations.   Seller's
representations,  warranties and covenants contained in this Agreement shall not
be  deemed  to be  untrue  or  breached  in any  respect  for any  purpose  as a
consequence of any modifications or changes undertaken solely on account of this
Section 6.11.

Section 6.12      Antitakeover Provisions.

     Seller  shall take all steps (i) to exempt or continue to exempt  Purchaser
and  Merger  Sub,  this  Agreement,  the  Merger  and the Bank  Merger  from any
provisions of an anti-takeover nature in the Seller Certificate of Incorporation
or Bylaws (or equivalent documents),  and the provisions of any federal or state
anti-takeover  laws,  and (ii) upon the request of  Purchaser,  to assist in any
challenge by Purchaser or Merger Sub to the applicability to this Agreement, the
Merger and the Bank Merger of any federal or state anti-takeover law.

Section 6.13      Voting Agreements.

     Each director and executive officer of Seller and Seller Bank shall execute
a voting  agreement  substantially  in the form  attached as Exhibit A as of the
date hereof.

ARTICLE VII.

                          REGULATORY AND OTHER MATTERS

Section 7.01      Meeting of Stockholders.

     Seller shall take all steps necessary to duly call, give notice of, convene
and hold a meeting of its stockholders for the purpose of considering and voting
on approval of this  Agreement and the Merger,  and for such other,  purposes as
may be, in Seller's  reasonable  judgment,  necessary or desirable  (the "Seller
Stockholders  Meeting").  In connection  with the  solicitation  of proxies with
respect to the Seller  Stockholders  Meeting,  the Board of  Directors of Seller
shall recommend approval of this Agreement to the Seller  stockholders  (subject
to Section 6.07) and cooperate and consult with  Purchaser  with respect to each
of the foregoing matters.  Seller shall use its best efforts to solicit approval
of the Merger.  Without  limiting the generality of the foregoing,  Seller shall
utilize  the  services  of a  professional  proxy  soliciting  firm  to  provide
assistance  in  obtaining  the  stockholder  vote  required to be obtained by it
hereunder.

Section 7.02      Proxy Statement.

     As soon as practicable after the date hereof,  Seller shall prepare a Proxy
Statement, which shall be reasonably acceptable to counsel to Purchaser, for the
purpose of taking  stockholder  action on the Merger and this Agreement and file
the Proxy Statement with the SEC not later than 45 days from the date hereof and
respond  to  comments  of the  staff  of the SEC and  promptly  mail  the  Proxy
Statement to the holders of record (as of the applicable  record date) of shares
of voting  stock of  Seller.  Seller  represents  and  covenants  that the Proxy
Statement  and  any  amendment  or  supplement  thereto,  with  respect  to  the

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<page>

information  pertaining to it or its  Subsidiaries at the date of mailing to its
stockholders  and the date of the Stockholder  Meetings to be held in connection
with the Merger,  will be in  compliance  with the Exchange Act and all relevant
rules and regulations of the SEC and will not contain any untrue  statement of a
material  fact or omit to state  any  material  fact  required  to be  stated or
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading  (except as to information  regarding
Purchaser as to which no  representation  or covenant is being made).  Purchaser
represents and covenants that information  regarding  Purchaser,  that Purchaser
provides to Seller for  inclusion in the Proxy  Statement,  will not contain any
untrue  statement of a material fact or omit to state any material fact required
to be stated or necessary in order to make the statements  therein,  in light of
the  circumstances  under which they were made,  not  misleading  at the date of
mailing of the Proxy Statement to stockholders of Purchaser.

Section 7.03      Regulatory Approvals.

     Each of Seller  and  Purchaser  will  cooperate  with the other and use all
reasonable  efforts to promptly prepare and file all necessary  documentation to
obtain the  Regulatory  Approvals.  Seller and Purchaser will furnish each other
and each  other's  counsel with all  information  concerning  themselves,  their
respective  Subsidiaries,  directors,  officers and  stockholders and such other
matters as may be necessary or advisable  in  connection  with any  application,
petition or other  statement  made by or on behalf of Seller or Purchaser to any
Bank Regulator or governmental  body in connection with the Merger and the other
transactions  contemplated by this Agreement.  Each party acknowledges that time
is of  the  essence  in  connection  with  the  preparation  and  filing  of the
documentation  referred  to above.  Seller  shall  have the right to review  and
approve in advance all  characterizations  of the information relating to Seller
and any of the Seller Subsidiaries which appear in any filing made in connection
with the transactions contemplated by this Agreement with any governmental body.
In addition, Seller and Purchaser shall each furnish to the other a copy of each
publicly   available  portion  of  such  filing  made  in  connection  with  the
transactions  contemplated by this Agreement with any governmental body promptly
after its filing.

                                 ARTICLE VIII.

                               CLOSING CONDITIONS

Section 8.01      Conditions to Each Party's Obligations under this Agreement.

     The  respective  obligations  of each party under this  Agreement  shall be
subject to the  fulfillment  at or prior to the  Closing  Date of the  following
conditions, none of which may be waived:

     (a) Stockholder Approval. This Agreement and the transactions  contemplated
hereby shall have been approved by the  requisite  vote of the  stockholders  of
Seller in accordance with applicable law and regulations.

     (b) Injunctions.  None of the parties hereto shall be subject to any order,
decree or  injunction  of a court or agency of  competent  jurisdiction,  and no
statute,  rule or  regulation  shall have been  enacted,  entered,  promulgated,
interpreted,  applied or enforced by any Governmental  Entity or Bank Regulator,
that enjoins or prohibits the consummation of the  transactions  contemplated by
this Agreement.

     (c) Regulatory Approvals. All required Regulatory Approvals shall have been
obtained  and shall  remain in full  force and effect  and all  waiting  periods
relating  thereto  shall have expired;  and no such  Regulatory  Approval  shall
include any condition or  requirement,  that would, in the judgment of the Board
of Directors of Purchaser,  have a Material Adverse Effect on (x) Seller and the
Seller  Subsidiaries  taken  as a  whole  or (y)  Purchaser  and  the  Purchaser
Subsidiaries taken as a whole.

                                       43
<page>

Section 8.02    Conditions to the Obligations of Purchaser under this Agreement.

     The  obligations of Purchaser under this Agreement shall be further subject
to the satisfaction of the conditions set forth in this Section 8.02 at or prior
to the Closing Date:

     (a)  Representations  and  Warranties.  Each  of  the  representations  and
warranties  of  Seller  set forth in this  Agreement  that are  qualified  as to
materiality shall be true and correct in all respects and each representation or
warranty  that is not so  qualified  shall be true and  correct in all  material
respects,  in each case, as of the date of this Agreement and upon the Effective
Time with the same effect as though all such  representations and warranties had
been made at the Effective Time (except to the extent such  representations  and
warranties  speak as of an earlier  date),  and Seller  shall have  delivered to
Purchaser a certificate to such effect signed by the Chief Executive Officer and
the Chief Financial Officer of Seller as of the Effective Time.

     (b) Agreements  and Covenants.  Seller shall have performed in all material
respects  all  obligations  and  complied  in all  material  respects  with  all
agreements  or covenants  to be performed or complied  with by it at or prior to
the Effective  Time, and Purchaser  shall have received a certificate  signed on
behalf of Seller by the Chief Executive  Officer and Chief Financial  Officer of
Seller to such effect dated as of the Effective Time.

     (c)  Good  Standing.  Purchaser  shall  have  received  certificates  (such
certificates  to be dated as of a day as close  as  practicable  to the  Closing
Date)  from  appropriate  authorities  as to  the  good  standing  or  corporate
existence, as applicable, of Seller and each Seller Subsidiary.

     (d) Third  Party  Consents.  Seller  shall  have  obtained  the  consent or
approval  of each  person  (other than the  governmental  approvals  or consents
referred  to in Section  7.03) whose  consent or  approval  shall be required in
connection with the  transactions  contemplated  hereby under any loan or credit
agreement,  note,  mortgage,  indenture,  lease,  license or other  agreement or
instrument  to which Seller or any Seller  Subsidiary is a party or is otherwise
bound,  except those for which  failure to obtain such  consents  and  approvals
would not,  individually or in the aggregate,  have a Material Adverse Effect on
Seller (after giving effect to the transactions contemplated hereby) or upon the
consummation of the transactions contemplated hereby.

     (e) Legal Opinion. Seller shall have caused to be delivered to Purchaser an
opinion,  dated the Closing  Date,  from the law firm of Luse Gorman  Pomerenk &
Schick, P.C., counsel to Seller, concerning the following matters:

          (i) Seller is a corporation  duly organized,  validly  existing and in
     good standing under the laws of the State of Delaware, and Seller Bank is a
     federally  chartered stock savings and loan  association duly organized and
     in existence under the laws of the United States of America;

          (ii) Seller and Seller Bank have the power and  authority  to carry on
     the business as  described in the Proxy  Statement  and to  consummate  the
     transactions contemplated by this Agreement;

          (iii) this  Agreement has been duly  authorized and approved by Seller
     and this  Agreement  and the  transactions  contemplated  hereby  have been
     approved  by  the  requisite  vote  of  Seller's   stockholders   and  duly
     authorized, executed and delivered by Seller;

                                       44
<page>

          (iv) all corporate acts, other proceedings  required to be taken by or
     on the part of Seller,  including  the  adoption of this  Agreement  by the
     stockholders   of   Seller,   and  the   necessary   approvals,   consents,
     authorizations  or  notifications  required to be taken to  consummate  the
     transactions  contemplated by this  Agreement,  have been properly taken or
     obtained;  neither the  execution  and delivery of this  Agreement  nor the
     consummation of the transactions  contemplated  hereby, with or without the
     giving  of  notice  or the lapse of time,  or both,  will (i)  violate  any
     provision of the certificate of incorporation,  charter or bylaws of Seller
     or Seller Bank, as the case may be; or (ii) violate,  conflict with, result
     in the material  breach or termination  of,  constitute a material  default
     under, or accelerate the performance  required by any indenture,  mortgage,
     deed of trust,  or other  agreement or instrument to which Seller or Seller
     Bank are a party or by which it or any of their properties or assets may be
     bound and of which such counsel is aware,  or violate any statute,  rule or
     regulation applicable to Seller or Seller Bank, which would have a Material
     Adverse Effect on the financial condition, assets, liabilities, or business
     of Seller or Seller  Bank;  no  consent,  approval,  authorization,  order,
     registration or qualification of or with any court, regulatory authority or
     other  governmental  body, other than as specifically  contemplated by this
     Agreement is required for the  consummation by Seller or Seller Bank of the
     transactions contemplated by this Agreement;

     (f) Other Documents.  Seller will furnish  Purchaser with such certificates
of its officers or others and such other  documents to evidence  fulfillment  of
the  conditions  set  forth  in  this  Section  8.02  or as  are  customary  for
transaction of the type provided for herein as Purchaser may reasonably request.

Section 8.03      Conditions to the Obligations of Seller under this Agreement.

     The  obligations of Seller under this Agreement shall be further subject to
the satisfaction of the conditions set forth in Sections 8.03 at or prior to the
Closing Date:

     (a)  Representations  and  Warranties.  Each  of  the  representations  and
warranties  of Purchaser  set forth in this  Agreement  that are qualified as to
materiality shall be true and correct in all respects and each representation or
warranty  that is not so  qualified  shall be true and  correct in all  material
respects,  in each case, as of the date of this Agreement and upon the Effective
Time with the same effect as though all such  representations and warranties had
been made at the Effective Time (except to the extent such  representations  and
warranties  speak as of an earlier date),  and Purchaser shall have delivered to
Seller a certificate  to such effect signed by the Chief  Executive  Officer and
the Chief Financial Officer of Purchaser as of the Effective Time.

     (b)  Agreements  and  Covenants.  Purchaser  shall  have  performed  in all
material respects all obligations and complied in all material respects with all
agreements  or covenants  to be performed or complied  with by it at or prior to
the  Effective  Time,  and Seller shall have  received a  certificate  signed on
behalf of Purchaser by the Chief Executive  Officer and Chief Financial  Officer
of Purchaser to such effect dated as of the Effective Time.

     (c) Payment of Merger  Consideration.  Purchaser  shall have  delivered the
Merger  Consideration  to the Paying Agent on or before the Closing Date and the
Paying Agent shall provide Seller with a certificate evidencing such delivery.

     (d)  Good  Standing.   Seller  shall  have  received  a  certificate  (such
certificate to be dated as of a day as close as practicable to the Closing Date)
from the appropriate  authority as to the good standing or corporate  existence,
as applicable of each of Purchaser and Merger Sub.

                                       45
<page>

     (e) Other Documents.  Purchaser will furnish Seller with such  certificates
of their officers or others and such other documents to evidence  fulfillment of
the  conditions  set  forth  in  this  Section  8.03  or as  are  customary  for
transaction of the type provided for herein as Seller may reasonably request.

                                  ARTICLE IX.

                                   THE CLOSING

Section 9.01      Time and Place.

     Subject to the provisions of Articles VIII and X hereof, the Closing of the
transactions  contemplated  hereby  shall take  place at the  offices of Thacher
Proffitt & Wood LLP, Two World  Financial  Center,  New York, New York 10281, at
10:00  a.m.,  or at such  other  place or time upon which  Purchaser  and Seller
mutually  agree.  A pre-closing  of the  transactions  contemplated  hereby (the
"Pre-Closing")  shall take place at the offices of Thacher  Proffitt & Wood LLP,
Two World Financial  Center,  New York, New York 10281, at 10:00 a.m. on the day
prior to the Closing Date.  Section 9.02  Deliveries at the  Pre-Closing and the
Closing.

     At the  Pre-Closing  there shall be delivered  to Purchaser  and Seller the
opinions,  certificates,  and other  documents  and  instruments  required to be
delivered at the Closing  under  Article IX hereof.  At or prior to the Closing,
Purchaser  shall  deliver the Merger  Consideration  as set forth under  Section
8.03(c) hereof.

                                   ARTICLE X.

                        TERMINATION, AMENDMENT AND WAIVER

Section 10.01      Termination.

     This  Agreement  may be  terminated  at any time prior to the Closing Date,
whether before or after approval of the Merger by the stockholders of Seller:

     (a) At any time by the mutual written agreement of Purchaser and Seller;

     (b) By either party  (provided,  that the terminating  party is not then in
breach of any  representation,  warranty,  covenant or other agreement contained
herein)  if there  shall  have  been a breach of any of the  representations  or
warranties  set forth in this  Agreement  (subject to the  standard set forth in
Section 8.02(a) or 8.03(a), as applicable) on the part of the other party, which
breach by its nature cannot be cured prior to the Termination  Date or shall not
have  been  cured  within 30 days  after  written  notice of such  breach by the
terminating party to the other party;

     (c) By either party  (provided,  that the terminating  party is not then in
breach of any  representation  or  warranty  or breach of any  covenant or other
agreement  contained  herein)  if there  shall have been a failure to perform or
comply in any material respect with any of the covenants or agreements set forth
in this  Agreement on the part of the other party,  which  failure by its nature
cannot be cured  prior to the  Termination  Date or shall  not have  been  cured
within 30 days after written notice of such failure by the terminating  party to
the other party;

     (d) At the election of either party, if the Closing shall not have occurred
by the  Termination  Date,  or such later  date as shall have been  agreed to in

                                       46
<page>

writing by Purchaser  and Seller;  provided,  that no party may  terminate  this
Agreement  pursuant  to this  Section  10.01(d) if the failure of the Closing to
have occurred on or before said date was due to such party's  willful  breach of
any  representation  or  warranty or  material  breach of any  covenant or other
agreement contained in this Agreement;

     (e) By either party if (i) final action has been taken by a Bank  Regulator
whose   approval  is  required  in  connection   with  this  Agreement  and  the
transactions contemplated hereby, which final action (x) has become unappealable
and (y) does not approve this Agreement or the transactions contemplated hereby,
(ii) any Bank Regulator whose approval or nonobjection is required in connection
with this Agreement and the transactions  contemplated hereby has stated that it
will not issue the  required  approval  or  nonobjection,  or (iii) any court of
competent  jurisdiction  or other  governmental  authority  shall have issued an
order,  decree,  ruling or taken  any other  action  restraining,  enjoining  or
otherwise  prohibiting the Merger or Bank Merger and such order, decree,  ruling
or other action shall have become final and unappealable;

     (f) By either party,  if Stockholder  Approval shall have not been obtained
at the Seller Stockholders  Meeting duly convened therefor or at any adjournment
or postponement thereof;

     (g) By Seller in accordance with the terms and subject to the conditions of
Section 6.07(b); or

     (h) By Purchaser if prior to  obtaining  Stockholder  Approval (i) a Seller
Adverse Recommendation Change shall have occurred or (ii) the Board of Directors
of Seller fails to publicly  reaffirm its  adoption and  recommendation  of this
Agreement,  the Merger or the other transactions  contemplated by this Agreement
within ten business days of receipt of a written request by Purchaser to provide
such reaffirmation following an Acquisition Proposal.

Section 10.02     Effect of Termination.

     (a) In the event of termination of this Agreement pursuant to any provision
of Section 10.01, this Agreement shall forthwith become void and have no further
force,  except that (i) the provisions of Sections 10.02,  11.01,  11.06, 11.09,
11.10,  and any other Section which, by its terms,  relates to  post-termination
rights or  obligations,  shall survive such  termination  of this  Agreement and
remain in full force and effect.

     (b) If this  Agreement is  terminated,  expenses and damages of the parties
hereto shall be determined as follows:

               (i)  Except  as  provided  below,  whether  or not the  Merger is
          consummated,  all costs and expenses  incurred in connection with this
          Agreement and the transactions contemplated by this Agreement shall be
          paid by the party incurring such expenses.

               (ii) In the event of a termination of this Agreement because of a
          willful breach of any representation,  warranty, covenant or agreement
          contained in this  Agreement,  the breaching party shall be liable for
          any and all damages,  costs and  expenses,  including  all  reasonable
          attorneys' fees, sustained or incurred by the non-breaching party as a
          result  thereof  or in  connection  therewith  or with  respect to the
          enforcement of its rights hereunder.

               (iii) As a condition of Purchaser's willingness,  and in order to
          induce  Purchaser  to enter  into  this  Agreement,  and to  reimburse
          Purchaser  for  incurring  the costs and expenses  related to entering
          into this Agreement and consummating the transactions  contemplated by
          this Agreement,  Seller hereby agrees to pay Purchaser,  and Purchaser
          shall be  entitled to payment of, a fee of  $13,265,000  (the  "Seller
          Fee"),  within three business days after written demand for payment is
          made by Purchaser,  following the  occurrence of any of the events set
          forth below:

                                       47
<page>

          (A) This  Agreement  is  terminated  pursuant to Sections  10.01(g) or
          10.01(h); or

          (B) The entering into a definitive  agreement by Seller relating to an
          Acquisition  Proposal or the  consummation of an Acquisition  Proposal
          involving  Seller within twelve months after the  occurrence of any of
          the  following:  (i) the  termination  of the  Agreement  by Purchaser
          pursuant to Section  10.01(b) or 10.01(c)  because of a willful breach
          by  Seller  or any  Seller  Subsidiary;  or (ii)  the  failure  of the
          stockholders  of Seller to approve this Agreement after the occurrence
          of an Acquisition Proposal.

          (iv) If demand  for  payment of the  Seller  Fee is made  pursuant  to
          Section  10.02(b)(iii) and payment is timely made, then Purchaser will
          not have any  other  rights  or claims  against  Seller or the  Seller
          Subsidiaries,  or their respective officers and directors,  under this
          Agreement, it being agreed that the acceptance of the Seller Fee under
          Section 10.02(b)(iii) will constitute the sole and exclusive remedy of
          Purchaser  against  Seller  and  the  Seller  Subsidiaries  and  their
          respective officers and directors.

Section 10.03     Amendment, Extension and Waiver.

     Subject to applicable law, at any time prior to the Effective Time (whether
before or after approval  thereof by the  stockholders  of Seller),  the parties
hereto by action of their  respective  Boards of  Directors,  may (a) amend this
Agreement,  (b) extend the time for the performance of any of the obligations or
other  acts of any  other  party  hereto,  (c)  waive  any  inaccuracies  in the
representations  and warranties  contained  herein or in any document  delivered
pursuant  hereto,  or  (d)  waive  compliance  with  any of  the  agreements  or
conditions contained herein; provided,  however, that after any approval of this
Agreement  and the  transactions  contemplated  hereby  by the  stockholders  of
Seller,  there may not be, without further  approval of such  stockholders,  any
amendment of this  Agreement  which reduces the amount or value,  or changes the
form of, the Merger  Consideration  to be  delivered  to  Seller's  stockholders
pursuant  to this  Agreement.  This  Agreement  may not be amended  except by an
instrument  in  writing  signed  on behalf of each of the  parties  hereto.  Any
agreement  on the part of a party  hereto to any  extension  or waiver  shall be
valid only if set forth in an  instrument  in  writing  signed on behalf of such
party,  but such  waiver or  failure  to insist on strict  compliance  with such
obligation,  covenant,  agreement or condition shall not operate as a waiver of,
or estoppel with respect to, any subsequent or other failure. Any termination of
this  Agreement  pursuant  to  Article X may only be  effected  upon a vote of a
majority of the entire Board of Directors of the terminating party.

                                  ARTICLE XI.

                                  MISCELLANEOUS

Section 11.01     Confidentiality.

     Except as  specifically  set forth herein,  Purchaser  and Seller  mutually
agree to be bound by the terms of the confidentiality  agreements dated November
28, 2005 (the "Confidentiality  Agreements")  previously executed by the parties
hereto,  which  Confidentiality  Agreements  are hereby  incorporated  herein by
reference.  The parties hereto agree that such Confidentiality  Agreements shall
continue  in  accordance  with  their  respective  terms,   notwithstanding  the

                                       48
<page>
termination of this  Agreement.  Seller  acknowledges  that Purchaser is a third
party  beneficiary  of any and all  confidentiality  agreements  entered into by
Seller  in the past six (6)  months  similar  to the  confidentiality  agreement
between the parties hereto.

Section 11.02     Public Announcements.

     Seller and Purchaser shall cooperate with each other in the development and
distribution of all news releases and other public  disclosures  with respect to
this Agreement,  and except as may be otherwise  required by law, neither Seller
nor Purchaser  shall issue any news  release,  or other public  announcement  or
communication  with respect to this Agreement  unless such news release or other
public  announcement  or  communication  has been  mutually  agreed  upon by the
parties hereto.

Section 11.03     Survival.

     All  representations,  warranties and covenants in this Agreement or in any
instrument  delivered  pursuant  hereto  shall  expire  and  be  terminated  and
extinguished  at the Effective  Time,  except for those covenants and agreements
contained  herein  which by their  terms  apply  in whole or in part  after  the
Effective Time.

Section 11.04     Notices.

     All notices or other communications hereunder shall be in writing and shall
be deemed given if delivered  by  receipted  hand  delivery or mailed by prepaid
registered  or  certified  mail  (return  receipt  requested)  or by  recognized
overnight courier addressed as follows:

       If to Seller, to:                 Richard P. McStravick
                                         President and Chief Executive Officer
                                         Sound Federal Bancorp, Inc.
                                         1311 Mamaroneck Avenue
                                         White Plains, NY  10605
                                         Fax: (914) 761-1850

       With required copies to:          Eric Luse, Esq.
                                         and Alan Schick, Esq.
                                         Luse Gorman Pomerenck & Schick, P.C.
                                         5335 Wisconsin Avenue, NW, Suite 400
                                         Washington, DC  20015
                                         Fax: (202) 362-2902

       If to Purchaser, to:              Ronald E. Hermance, Jr.
                                         Chairman, President and
                                         Chief Executive Officer
                                         Hudson City Bancorp, Inc.
                                         West 80 Century Road
                                         Paramus, New Jersey  07652
                                         Fax:  (201) 261-1995
       With required copies to:          Omer S. J. Williams, Esq.
                                         and Robert C. Azarow, Esq.
                                         Thacher Proffitt & Wood LLP
                                         Two World Financial Center
                                         New York, New York 10281
                                         Fax: (212) 912-7751

                                       49
<page>

or such other  address as shall be  furnished  in writing by any party,  and any
such notice or  communication  shall be deemed to have been given: (a) as of the
date  delivered by hand;  (b) three  business days after being  delivered to the
U.S. mail, postage prepaid; or (c) one business day after being delivered to the
overnight courier.

Section 11.05     Parties in Interest.

     This Agreement  shall be binding upon and shall inure to the benefit of the
parties hereto and their respective successors and assigns;  provided,  however,
that  neither this  Agreement  nor any of the rights,  interests or  obligations
hereunder  shall be  assigned  by any party  hereto  without  the prior  written
consent of the other party,  and that (except as  specifically  provided in this
Agreement) nothing in this Agreement is intended to confer upon any other person
any rights or  remedies  under or by reason of this  Agreement.  Nothing in this
Agreement  is intended to confer upon any other person any rights or remedies of
any nature whatsoever under or by reason of this Agreement.

Section 11.06     Complete Agreement.

     This  Agreement,  including the Exhibits hereto and the documents and other
writings  referred to herein or therein or delivered  pursuant hereto,  together
with the Confidentiality  Agreements referred to in Section 11.01,  contains the
entire  agreement and  understanding  of the parties with respect to its subject
matter. There are no restrictions,  agreements,  promises, warranties, covenants
or undertakings  between the parties other than those expressly set forth herein
or therein.  This Agreement  supersedes all prior agreements and  understandings
(other, than the Confidentiality Agreements referred to in Section 11.01 hereof)
between the parties, both written and oral, with respect to its subject matter.

Section 11.07     Counterparts.

         This Agreement may be executed in two or more counterparts all of which
shall be considered one and the same agreement and each of which shall be deemed
an original.

Section 11.08     Severability.

     In the event that any one or more  provisions of this  Agreement  shall for
any reason be held  invalid,  illegal or  unenforceable  in any respect,  by any
court of competent jurisdiction, such invalidity, illegality or unenforceability
shall not affect any other  provisions  of this  Agreement and the parties shall
use their  reasonable  efforts  to  substitute  a valid,  legal and  enforceable
provision  which,  insofar as practical,  implements the purposes and intents of
this Agreement.

Section 11.09     Governing Law.

     This  Agreement  shall be  governed  by the laws of the  State of New York,
without giving effect to its principles of conflicts of laws, other than Section
5-1401 of the New York General Obligations Law.

Section 11.10     Interpretation.

     When a reference is made in this  Agreement  to Sections or Exhibits,  such
reference shall be to a Section of or Exhibit to this Agreement unless otherwise

                                       50
<Page>

indicated.  The recitals  hereto  constitute an integral part of this Agreement.
References  to  Sections  include  subsections,  which  are part of the  related
Section (e.g., a section  numbered  "Section  5.01(a)" would be part of "Section
5.01" and references to "Section 5.01" would also refer to material contained in
the subsection described as "Section 5.01(a)"). The table of contents, index and
headings  contained in this Agreement are for reference  purposes only and shall
not affect in any way the meaning or interpretation of this Agreement.  Whenever
the words "include",  "includes" or "including" are used in this Agreement, they
shall be deemed to be followed by the words  "without  limitation".  The phrases
"the date of this  Agreement",  "the date  hereof" and terms of similar  import,
unless the context otherwise requires,  shall be deemed to refer to the date set
forth in the Recitals to this Agreement.

Section 11.11     Specific Performance.

     The parties hereto agree that  irreparable  damage would occur in the event
that the provisions contained in this Agreement were not performed in accordance
with its specific terms or were  otherwise  breached.  It is accordingly  agreed
that the parties shall be entitled to an injunction  or  injunctions  to prevent
breaches of this Agreement and to enforce  specifically the terms and provisions
hereof in any court of the United States or any state having jurisdiction,  this
being in  addition to any other  remedy to which they are  entitled at law or in
equity.

                                       51

<PAGE>

     IN WITNESS  WHEREOF,  Purchaser and Seller have caused this Agreement to be
executed under seal by their duly  authorized  officers as of the date first set
forth above.

                                   HUDSON CITY BANCORP, INC.

                              By: /s/ Ronald E. Hermance, Jr.
                                 ----------------------------------------
                                 Ronald E. Hermance, Jr.
                                 Chairman, President and Chief Executive Officer

                                   SOUND FEDERAL BANCORP, INC.

                               By: /s/ Richard P. McStravick
                                   -----------------------------------------
                                       Richard P. McStravick
                                       President and Chief Executive Officer

                                       52
<PAGE>

                                                                       EXHIBIT A

                                VOTING AGREEMENT

                                                              February ___, 2006

Hudson City Bancorp, Inc.
West 80 Century Road
Paramus, New Jersey  07652

Ladies and Gentlemen:

     Hudson City Bancorp, Inc. (the "Purchaser") and Sound Federal Bancorp, Inc.
(the  "Seller")  have entered  into an Agreement  and Plan of Merger dated as of
February 8, 2006 (the  "Merger  Agreement"),  pursuant to which,  subject to the
terms and conditions  set forth  therein,  (a) Seller will merge with and into a
corporation to be formed as a wholly owned subsidiary of the Hudson City Savings
Bank (the  "Merger")  and (b)  stockholders  of Seller  will  receive the Merger
Consideration  stated in the Merger  Agreement.  Capitalized terms not otherwise
defined herein shall have the meanings set forth in the Merger Agreement.

     Purchaser  has  requested,  as a condition to its execution and delivery of
the Merger  Agreement,  that the  undersigned,  being a  director  or officer of
Seller  and/or  Seller  Bank,  execute  and  deliver to  Purchaser  this  Letter
Agreement (the "Agreement").

     The  undersigned  (the  "Stockholder"),  in order to  induce  Purchaser  to
execute and deliver the Merger  Agreement,  and  intending to be legally  bound,
hereby irrevocably:

     (a)  Agrees to be  present  (in  person or by  proxy)  at all  meetings  of
stockholders  of Seller  called to vote for  approval  of the Merger so that all
shares of common stock of Seller over which the  undersigned  or a member of the
undersigned's  immediate  family now has sole or shared voting power  (including
any  shares  acquired  by the  Stockholder  prior  to the  record  date for such
meetings)  will be counted  for the  purpose of  determining  the  presence of a
quorum at such meetings and to vote,  or cause to be voted,  all such shares (i)
in favor of approval and adoption of the Merger  Agreement and the  transactions
contemplated  thereby  (including any amendments or  modifications  of the terms
thereof approved by the Board of Directors of Seller), and (ii) against approval
or adoption of any other merger, business combination, recapitalization, partial
liquidation or similar transaction involving Seller, it being understood that as
to immediate family members, the undersigned will use his/her reasonable efforts
to cause the  shares to be  present  and voted in  accordance  with (i) and (ii)
above;

     (b) Agrees not to vote or execute any  written  consent to rescind or amend
in any manner any prior vote or written consent,  as a stockholder of Seller, to
approve or adopt the Merger Agreement;

     (c) Agrees not to sell,  transfer or otherwise dispose of any Seller Common
Stock on or prior to the date of any meeting of Seller  Stockholders  to vote on
the Merger Agreement, except for (i) transfers to charities,  charitable trusts,
or other  charitable  organizations  under  Section  501(c)(3)  of the  Internal
Revenue Code, lineal descendants or the spouse of the undersigned, or to a trust
or  other  entity  for the  benefit  of one or more  of the  foregoing  persons,
provided that the transferee  agrees in writing to be bound by the terms of this
letter  agreement,  and (ii)  dispositions  pursuant  to cashless  exercises  of
outstanding options to purchase common stock of Seller;

                                      A-1
<page>

     (d) Represents that Stockholder (i) has full power, corporate or otherwise,
to enter  into  this  Agreement  and that it is a valid and  binding  obligation
enforceable  against the  undersigned in accordance  with its terms,  subject to
bankruptcy,  insolvency and other laws affecting  creditors'  rights and general
equitable  principles,  (ii) is the  beneficial  owner of all  shares  of Seller
Common Stock as indicated on the final page of this  Agreement  (the  "Shares"),
which at the date hereof  are,  and at all times up until the  Termination  Date
will be,  free and clear of any  liens,  claims,  options,  charges,  proxies or
voting restrictions or other  encumbrances,  and (iii) does not beneficially own
any shares of capital stock of Seller other than the Shares;

     (e)  Agrees  that   Stockholder  will  not,  and  will  cause  his  or  her
representatives and agents not to, directly or indirectly (i) initiate,  solicit
or knowingly encourage (including by way of furnishing non-public information or
assistance)  the making of any proposal that  constitutes,  or may reasonably be
expected to lead to, any Acquisition Proposal, or (ii) enter into or maintain or
continue discussions or negotiate with any Person in furtherance of or to obtain
an  Acquisition  Proposal or agree to or endorse any  Acquisition  Proposal,  or
authorize  any of its  representatives  or  agents  to  take  any  such  action;
provided,  however,  that nothing in this clause (e) shall prohibit  Stockholder
from taking  actions in such  Stockholder's  capacity  as director or  executive
officer of the Seller in accordance with Section 6.07 of the Merger Agreement;

     (f) Agrees to execute and deliver any additional  documents  necessary,  in
the reasonable opinion of Purchaser, to carry out the intent of this Agreement;

     (g) Agrees not to assert,  demand or exercise  any rights of  appraisal  or
dissenters in connection with the Merger;

     (h)  Agrees  that if any  term or  other  provision  of this  Agreement  is
determined to be invalid,  illegal or incapable of being enforced by any rule of
law or public  policy,  all other  conditions  and  provisions of this Agreement
shall  nevertheless  remain in full force and effect so long as the  economic or
legal substance of the transactions  contemplated  hereby is not affected in any
manner materially  adverse to the Purchaser.  Upon such  determination  that any
term or other  provision is invalid,  illegal or  incapable  of being  enforced,
Stockholder and Purchaser shall negotiate in good faith to modify this Agreement
so as to effect the original  intent of this Agreement as closely as possible to
the fullest extent  permitted by applicable  law in an acceptable  manner to the
end that the  transactions  contemplated  hereby  are  fulfilled  to the  extent
possible;

     (i) Agrees that this  Agreement and all of the  provisions  hereof shall be
binding upon and inure to the benefit of  Stockholder  and  Purchaser  and their
respective   successors  and  permitted   assigns,   but,  except  as  otherwise
specifically  provided  herein,  neither this  Agreement  nor any of the rights,
interests or obligations of Stockholder  and Purchaser may be assigned by either
Stockholder or Purchaser without the prior written consent of the other;

     (j) Agrees that  irreparable  damage would occur in the event any provision
of this  Agreement was not performed in accordance  with the terms hereof or was
otherwise breached. It is accordingly agreed that Purchaser shall be entitled to
specific  relief  hereunder,  including,  without  limitation,  an injunction or
injunctions  to prevent and enjoin  breaches of the provisions of this Agreement
and to enforce  specifically  the terms and provisions  hereof,  in any state or
federal court in the State of New York, in addition to any other remedy to which
Purchaser may be entitled at law or in equity. Any requirements for the securing
or posting of any bond with respect to any such remedy are hereby waived;

     (k) Agrees that this  Agreement  shall be governed by, and  interpreted  in
accordance  with  the  laws of the  State  of New  York,  without  regarding  to
conflicts of laws  principles  thereof other than Section 5-1401 of the New York

                                      A-2
<page>

General  Obligations  Law.  Stockholder  agrees that all actions and proceedings
arising  in  connection  with  this  Agreement  or any  agreement,  document  or
instrument  executed in connection  herewith shall be tried and litigated in the
state and Federal  courts located in New York, New York (other than appeals from
those courts that may have to be heard outside of New York, New York); and

     (l) The obligations set forth herein shall terminate  concurrently with any
termination of the Merger Agreement.

                                      A-3

<PAGE>

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

         The undersigned intends to be legally bound hereby.

                             Sincerely,

                             Name:
                             Title:

                             Address for Notice:

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

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

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

                             Shares beneficially owned:

                             ---------------------------------------------------
                             shares of Common Stock of ____________

                                      A-4

<PAGE>

                                                                       EXHIBIT B

                             PLAN OF INTERIM MERGER

     This PLAN OF INTERIM  MERGER dated as of  _____________________,  2006 (the
"Plan of Interim Merger") is entered into by and between Hudson City Merger Sub,
Inc. (the "Merger  Sub"),  a Delaware  corporation,  and Sound Federal  Bancorp,
Inc., a Delaware  corporation  registered as a savings and loan holding  company
(the "Seller").  Capitalized  terms not otherwise  defined herein shall have the
meanings set forth in the Merger Agreement (as defined below).

     WHEREAS,  pursuant to an Agreement and Plan of Merger, dated as of February
8, 2006 (the "Merger Agreement"),  by and between Hudson City Bancorp, Inc. (the
"Purchaser") and Seller, each a Delaware corporation, Seller will merge with and
into Merger Sub, a wholly owned subsidiary of the Bank (the "Merger"); and

     NOW,  THEREFORE,  in consideration of the premises and the mutual covenants
and  agreements  contained  herein and in the Merger  Agreement and for good and
valuable  consideration,   the  receipt  and  sufficiency  of  which  is  hereby
acknowledged, the parties hereto agree as follows:

     Section 1. The Interim Merger.  On the effective date,  Merger Sub shall be
merged  with and into  Seller,  with  Seller  being the  surviving  entity  (the
"Interim  Merger").  The  Interim  Merger  shall be  subject  to the  terms  and
conditions of the Merger  Agreement,  and shall be prior in time to the proposed
merger of Sound Federal  Savings,  a  wholly-owned  subsidiary  of Seller,  (the
"Seller  Bank")  with and into  Hudson  City  Savings  Bank (the  "Bank").  Upon
completion of the Interim Merger, the separate corporate existence of Merger Sub
shall thereupon  cease.  Seller 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
Interim Merger.

     Section  2.  Name of  Surviving  Corporation.  The  name  of the  surviving
corporation  in the  Interim  Merger  (the  "Surviving  Corporation")  shall  be
"____________________".

     Section 3. Location of Offices.  The business of the Surviving  Corporation
shall  be  conducted  at its  administrative  office  at West 80  Century  Road,
Paramus,  New Jersey 07652,  and at all other locations where Seller was legally
authorized to carry out its business immediately prior to the Interim Merger.

Section 4.        Effect on Outstanding Shares.

     (a) By virtue of the Interim 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 of the Interim Merger (the  "Effective  Time")
(other  than (i)  shares  the  holder of which  (the  "Dissenting  Stockholder")
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,
such holder to have only the rights  provided in any such law (the  "Dissenters'
Shares"),  (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 Plan and (iv)  Treasury  Stock ) shall become and be
converted into the right to receive $20.75 in cash without interest.

                                      B-1

     (b) At the Effective  Time, each share of Seller Common Stock held directly
or indirectly by Purchaser (other than shares held in a fiduciary capacity or in
satisfaction  of a debt  previously  contracted)  and  Treasury  Stock  shall be
cancelled  and retired and cease to exist,  and no exchange or payment  shall be
made with respect thereto.

     (c) The  shares  of common  stock of  Merger  Sub  issued  and  outstanding
immediately  prior to the  Effective  Time shall become  shares of the Surviving
Corporation at the Effective Time by virtue of the Interim Merger, automatically
and without any action on the part of the holder thereof,  and shall  thereafter
constitute all of the issued and outstanding  shares of the capital stock of the
Surviving Corporation.

     Section 5. Assets and  Liabilities.  At the Effective  Time, all assets and
property (real, personal, and mixed, tangible and intangible,  choses in action,
rights,  and  credits)  then  owned  by  Seller  shall  pass to and  vest in the
Surviving  Corporation  without any conveyance or other transfer.  The Surviving
Corporation  shall be deemed to be a  continuation  of  Seller.  The  rights and
obligations,  including  liabilities,  of Seller  shall  become  the  rights and
obligations of the Surviving Corporation.

     Section 6. Directors and Officers. At the Effective Time, the directors and
officers of Merger Sub shall become the  directors and officers of the Surviving
Corporation.

     Section 7. Certificate of Incorporation  and Bylaws. 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.

     Section 8.  Termination.  This Plan of Interim  Merger shall be  terminated
automatically without further act or deed of either of the parties hereto in the
event of the  termination of the Merger  Agreement in accordance  with Article X
thereof.

     Section 9. Stockholder Approval. The transactions contemplated by this Plan
of Interim  Merger have been approved by the  affirmative  vote of a majority of
the outstanding  shares of Seller and by the Bank as sole  shareholder of Merger
Sub.

     Section  10.  Amendments.  This Plan of Interim  Merger may be amended by a
subsequent  writing  signed by the parties hereto upon the approval of the board
of directors of each of the parties hereto.

     Section 11.  Counterparts.  This Plan of Interim  Merger may be executed in
two or more  counterparts,  each of which shall be deemed to be an original  and
all of which taken together shall constitute one instrument.

     Section  12.  Successors.  This Plan of Merger  shall be  binding  upon the
successors of Seller Bank and the Bank.

     Section 13.  Governing  Law. This Plan of Interim  Merger shall be governed
by,  and  interpreted  in  accordance  with the laws of the  State of New  York,
without  regarding to conflicts of laws  principles  thereof  other than Section
5-1401 of the New York General Obligations Law.

     Section 14.  Severability.  In the event that any one or more provisions of
this Plan of Interim  Merger  shall for any reason be held  invalid,  illegal or
unenforceable  in any  respect,  by any court of  competent  jurisdiction,  such
invalidity, illegality or unenforceability shall not affect any other provisions

                                      B-2
<page>
of this Plan of  Interim  Merger  and the  parties  shall  use their  reasonable
efforts to substitute a valid, legal and enforceable provision which, insofar as
practical, implements the purposes and intents of this Plan of Interim Merger.

Section 15. Captions and References. The captions contained in this Plan of
Interim Merger are for convenience of reference only and do not form a part of
this Plan of Interim Merger.

                            [Signature page follows]
                                      B-3

<PAGE>

     IN WITNESS WHEREOF,  the parties hereto have caused this Agreement and Plan
of Interim Merger to be duly executed as of the date first above written.

                                             HUDSON CITY MERGER SUB, INC.

                                             By: ___________________________
                                                 Name
                                                 Title

     I, Veronica A. Olszewski, the duly elected,  qualified and acting Secretary
of Hudson City Merger Sub, Inc.,  hereby certify that this Agreement and Plan of
Interim  Merger has been approved and adopted by Hudson City Savings  Bank,  the
sole  stockholder of Hudson City Merger Sub,  Inc., as of  ____________________,
2006.

                                                 -----------------------
                                                 Veronica A. Olszewski
                                                 Secretary

                                                 SOUND FEDERAL BANCORP, INC.

                                                 By: ___________________________
                                                     [Name]
                                                     [Title]

     I,  _________________________,  the  duly  elected,  qualified  and  acting
Secretary of Sound Federal Bancorp,  Inc. hereby certify that this Agreement and
Plan of Interim  Merger has been approved and adopted by Sound Federal  Bancorp,
Inc., as of ___________________, 2006.

                                                    -------------------------
                                                     [Name]
                                                      Secretary

                                      B-4

<PAGE>

                                                                      EXHIBIT C

                               PLAN OF BANK MERGER

     This PLAN OF BANK MERGER  (the "Plan of Merger") is dated as of  _________,
2006,  by and between  Hudson City Savings Bank, a federally  chartered  savings
bank (the "Bank"), and Sound Federal Savings, a federally chartered savings bank
(the "Seller Bank").  Capitalized  terms not otherwise defined herein shall have
the meanings set forth in the Merger Agreement (as defined below).

     WHEREAS,  pursuant to an Agreement and Plan of Merger, dated as of February
8, 2006 (the "Merger Agreement"),  by and between Hudson City Bancorp, Inc. (the
"Purchaser")  and Sound Federal  Bancorp,  Inc. (the "Seller"),  each a Delaware
corporation,  Seller  will  merge  with  and into  Merger  Sub,  a wholly  owned
subsidiary of the Bank (the "Merger"); and

     WHEREAS,  the Merger Agreement  provides that subsequent to consummation of
the Merger, Seller Bank shall be merged with and into the Bank, with the Bank as
the Surviving Bank;

     NOW,  THEREFORE,  in consideration of the premises and the mutual covenants
and  agreements  contained  herein and in the Merger  Agreement and for good and
valuable  consideration,   the  receipt  and  sufficiency  of  which  is  hereby
acknowledged, the parties hereto agree as follows:

Section 1.        The Bank Merger.

     (a) Subject to the terms and conditions set forth in the Merger  Agreement,
at the  Effective  Time,  Seller  Bank  shall be  merged  with and into the Bank
pursuant to the Bank Merger Act, as amended, and the relevant regulations of the
Office of Thrift Supervision. The Bank shall be the "Surviving Bank" of the Bank
Merger and shall continue to be governed by the Office of Thrift Supervision.

     (b) At the Effective  Time, the Surviving Bank shall be considered the same
business and corporate entity as each of the Seller Bank and the Bank (together,
the "Merging  Banks") and thereupon  and  thereafter  all the property,  rights,
privileges, powers and franchises of each of the Merging Banks shall vest in the
Surviving  Bank and the Surviving Bank shall be subject to and be deemed to have
assumed  all of the debts,  liabilities,  obligations  and duties of each of the
Merging  Banks and shall have  succeeded to all of each of their  relationships,
fiduciary  or  otherwise,  as fully and to the same extent as if such  property,
rights, privileges, powers, franchises, debts, liabilities,  obligations, duties
and relationships had been originally acquired,  incurred or entered into by the
Surviving Bank.

     (c)  The  Bank  Merger  shall  become  effective  as of  the  date  of  the
certificate  of  merger  prepared  by the  Office  of  Thrift  Supervision  (the
"Effective Time").

     Section 2. Name of Surviving  Bank. The name of the Surviving Bank shall be
"Hudson City Savings Bank."

     Section 3. Principal  Office and Location of Other  Offices.  The principal
office of the Bank shall  continue  to be West 80  Century  Road,  Paramus,  New
Jersey 07652 after the Effective Time. The branch offices of Seller Bank and the
Bank will be  operated  as branch  offices  of the  Surviving  Bank  immediately
following the Effective Time.  Schedule 3 to this Plan of Merger contains a list
of the principal offices and branch offices of both Seller Bank and the Bank.

                                      C-1
<page>

     Section 4. Effect on Outstanding Shares. Upon the effectiveness of the Bank
Merger,  (i) each share of common  stock,  par value $0.10 per share,  of Seller
Bank issued and  outstanding  immediately  prior to the Effective  Time shall be
cancelled and (ii) each share of common stock, par value $2.00 per share, of the
Bank issued and outstanding immediately prior to the Effective Time shall remain
issued and outstanding and shall  constitute the only shares of capital stock of
the Surviving Bank issued and outstanding immediately after the Effective Time.

     Section 5. Assets and  Liabilities.  At the Effective  Time, all assets and
property (real, personal, and mixed, tangible and intangible,  choses in action,
rights and  credits)  then owned by the Seller Bank shall become the property of
the Surviving  Bank. The Surviving Bank shall be deemed to be a continuation  of
the Seller  Bank,  the rights and  obligations  of which  shall  succeed to such
rights and obligations and the duties and liabilities connected therewith.

     Section 6. Savings  Accounts.  At the Effective Time, all savings  accounts
and certificates of deposit in Seller Bank, shall, without issue reissue, be and
become savings and certificates of deposit of the Surviving Bank, the rights and
obligations of which shall succeed to such rights and obligations and the duties
and liabilities connected therewith.

     Section 7. Directors and Officers.  On and after the Effective Time,  until
changed in accordance  with the certificate of  incorporation  and bylaws of the
Surviving  Bank,  (i) the directors of the Surviving Bank shall be the directors
of the Bank immediately prior to the Effective Time and (ii) the officers of the
Surviving  Bank  shall  be the  officers  of the Bank  immediately  prior to the
Effective  Time.  Schedule 7 to this Plan of Merger  sets forth the names of the
directors and officers of the Surviving  Bank. The directors and officers of the
Surviving  Bank  shall  hold  office  in  accordance  with  the  certificate  of
incorporation and bylaws of the Surviving Bank.

     Section 8. Certificate of  Incorporation.  On and after the Effective Time,
the  Certificate  of  Incorporation  of the  Bank  shall be the  Certificate  of
Incorporation  of the Surviving Bank until amended in accordance with applicable
law.

     Section 9. Bylaws.  On and after the Effective Time, the Bylaws of the Bank
shall be the Bylaws of the  Surviving  Bank until  amended  in  accordance  with
applicable law.

     Section 10.  Capital of Surviving  Bank. The amount of capital stock of the
Surviving Bank  immediately  following the Effective Time shall be  ____________
shares of common stock, par value $0.01 per share, and immediately following the
Effective  Time,  the  Surviving  Bank  shall  maintain  a  surplus  of at least
[__________] ($[-----------]).

     Section 11.  Liquidation  Account.  At the Effective  Time, the liquidation
account of the Seller Bank shall be assumed and become the  liquidation  account
of the Surviving Bank.

     Section 12. Conditions Precedent.  The respective obligations of each party
under this Plan of Merger shall be subject to (i) the consummation of the Merger
pursuant to the Merger Agreement and (ii) the approval of this Plan of Merger by
the respective sole stockholder of each of the Bank and Seller Bank.

     Section  13.   Termination.   This  Plan  of  Merger  shall  be  terminated
automatically without further act or deed of either of the parties hereto in the
event of the  termination of the Merger  Agreement in accordance  with Article X
thereof.

                                      C-2
<page>

     Section 14.  Amendments.  To the extent  permitted  by the Office of Thrift
Supervision,  this Plan of Merger may be amended by a subsequent  writing signed
by the parties hereto upon the approval of the board of directors of each of the
parties hereto.

     Section  15.  Counterparts.  This Plan of Merger may be  executed in two or
more  counterparts,  each of which shall be deemed to be an original  and all of
which taken together shall constitute one instrument.

     Section  16.  Successors.  This Plan of Merger  shall be  binding  upon the
successors of Seller Bank and the Bank.

     Section 17.  Governing  Law.  This Plan of Merger shall be governed by, and
interpreted  in  accordance  with the laws of the  State  of New  York,  without
regarding to conflicts of laws  principles  thereof other than Section 5-1401 of
the New York General Obligations Law.

Section 18. Severability. In the event that any one or more provisions of this
Plan of Merger shall for any reason be held invalid, illegal or unenforceable in
any respect, by any court of competent jurisdiction, such invalidity, illegality
or unenforceability shall not affect any other provisions of this Plan of Merger
and the parties shall use their reasonable efforts to substitute a valid, legal
and enforceable provision which, insofar as practical, implements the purposes
and intents of this Plan of Merger

     Section 19. Captions and References. The captions contained in this Plan of
Interim  Merger are for  convenience of reference only and do not form a part of
this Plan of Interim Merger..

                            [Signature page follows]

                                      C-3

<PAGE>

     IN  WITNESS  WHEREOF,  Seller  Bank and the Bank have  caused  this Plan of
Merger to be executed by their duly authorized officers as of the date first set
forth above.

                                                     HUDSON CITY SAVINGS BANK

ATTEST:

-------------------------------                By:
                                                  ------------------------------
Name:                                             Name:
Title:                                            Title:

                                                     SOUND FEDERAL SAVINGS
ATTEST:

------------------------------                 By:
                                                  ------------------------------
Name:                                             Name:
Title:                                            Title:

                                      C-4

<PAGE>

                                   Schedule 3
                      List of Principal and Branch Offices

                                      C-5

<PAGE>

                                   Schedule 7
                List of Directors and Officers of Surviving Bank

                                      C-6

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