AGREEMENT AND PLAN OF MERGER BY AND AMONG NEWALLIANCE BANCSHARES, INC. AND NEWALLIANCE BANK AND CORNERSTONE BANCORP, INC. AND CORNERSTONE BANK DATED AS OF

Exhibit 2.1

 

AGREEMENT AND PLAN OF MERGER

 

BY AND AMONG

 

NEWALLIANCE BANCSHARES, INC.

 

AND

 

NEWALLIANCE BANK

 

AND

 

CORNERSTONE BANCORP, INC.

 

AND

 

CORNERSTONE BANK

 

DATED AS OF

 

April 12, 2005

TABLE OF CONTENTS

 

 

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AGREEMENT AND PLAN OF MERGER

 

This AGREEMENT AND PLAN OF MERGER (the “Agreement” ) dated as of April 12, 2005 is by and among NEWALLIANCE BANCSHARES, INC. a Delaware Corporation ( “NewAlliance” ), NEWALLIANCE BANK, a Connecticut chartered savings bank and wholly owned subsidiary of NewAlliance ( “NAB” ), CORNERSTONE BANCORP, INC., a Connecticut corporation ( “CBI” ), and CORNERSTONE BANK , a Connecticut chartered savings bank and wholly-owned subsidiary of CBI ( “Cornerstone” ).

 

W I T N E S S E T H:

 

WHEREAS , the Boards of Directors of NewAlliance, NAB, CBI and Cornerstone have determined that it is in the best interest of their respective companies and shareholders to consummate the business combination transactions provided for herein whereby, subject to the terms and conditions set forth herein:

 

CBI will merge with and into NewAlliance, with NewAlliance being the surviving entity (the “Merger” ); and

 

Prior to the consummation of the Merger, NAB and Cornerstone will enter into a merger agreement, in the form attached hereto as Exhibit A (the “Bank Merger Agreement” ) pursuant to which Cornerstone will merge with and into NAB, with NAB being the surviving entity (the “Bank Merger” ), which Bank Merger shall be consummated immediately following the Merger;

 

WHEREAS , all of the directors of CBI have agreed, in their capacities as shareholders of CBI, to vote their shares of CBI Common Stock in favor of this Agreement pursuant to separate voting agreements entered into by and between each such director and NewAlliance prior to or on the date hereof in the form attached hereto as Exhibit B ; and

 

WHEREAS , the parties hereto desire to make certain representations, warranties and agreements in connection with the business combination 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 for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows:

 

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ARTICLE I

 

CERTAIN DEFINITIONS

 

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

 

“Acquisition Agreement” shall have the meaning set forth in Section 11.1.9 hereof.

 

“Acquisition Proposal” means any proposal or offer with respect to any of the following (other than the transactions contemplated hereunder) involving CBI or any CBI Subsidiaries: (i) any merger, consolidation, share exchange, business combination or other similar transaction; (ii) any sale, lease, exchange, mortgage, pledge, transfer or other disposition of 25% or more of its consolidated assets in a single transaction or series of transactions; (iii) any tender offer or exchange offer for 25% or more of the outstanding shares of its capital stock or the filing of a registration statement under the Securities Act in connection therewith; or (iv) any public announcement of a proposal, plan or intention to do any of the foregoing or any agreement to engage in any of the foregoing.

 

“Acquisition Transaction” means any of the following (other than the transactions contemplated hereunder) involving CBI or any CBI Subsidiaries: (i) any merger, consolidation, share exchange, business combination or other similar transaction; (ii) any sale, lease, exchange, mortgage, pledge, transfer or other disposition of 25% or more of its consolidated assets in a single transaction or series of transactions; or (iii) any tender offer or exchange offer for 25% or more of the outstanding shares of its capital stock or the filing of a registration statement under the Securities Act in connection therewith.

 

“Affiliate” shall mean, with respect to a Person, any Person that directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, such Person.

 

“AMEX” shall mean the American Stock Exchange.

 

“Average Closing Price” of NewAlliance Common Stock shall mean the arithmetic mean of the daily closing sales prices per share of NewAlliance Common Stock reported on the NYSE Composite Transaction Tape (as reported by the Wall Street Journal or, if not reported thereby, another authoritative source) for the five consecutive NYSE trading days ending at the close of trading on the Determination Date.

 

“Banking Law” shall mean the Banking Law of Connecticut, CGS §36a-1 et seq., as amended.

 

“Bank Merger” shall have the meaning set forth in the Recitals hereto.

 

“Bank Merger Agreement” shall have the meaning set forth in the Recitals hereto.

 

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“Bank Regulator” shall mean any federal or state banking regulator that regulates NAB or Cornerstone, or any of their respective holding companies or subsidiaries, as the case may be, including but not limited to the FDIC, the Department, and the FRB.

 

“BIF” shall mean Bank Insurance Fund administered by the FDIC.

 

“BHCA” shall mean Bank Holding Company Act of 1956, as amended.

 

“Business Day” means Monday through Friday of each week, except a legal holiday recognized as such by the U.S. Government or any day on which banking institutions in the State of Connecticut are authorized or obligated to close.

 

“Cash Election Consideration” shall have the meaning set forth in Section 3.1.3 hereof.

 

“Cash Election Price” shall have the meaning set forth in Section 3.1.3 hereof.

 

“CBI” shall mean Cornerstone Bancorp, Inc., a Connecticut corporation with its principal office located at 550 Summer Street, Stamford, Connecticut 06901.

 

“CBI Common Stock” shall mean the common stock, par value $.01 per share, of CBI.

 

“CBI Disclosure Schedule” shall mean a written, signed disclosure schedule delivered by CBI to NewAlliance specifically referring to the appropriate section of this Agreement and describing in reasonable detail the matters contained therein.

 

“CBI Employee Plan(s)” shall mean all stock option, employee stock purchase, stock bonus and any other stock-based plans, qualified pension or profit-sharing plans, any deferred compensation, non-qualified plan or arrangement, supplemental retirement, consultant, bonus or group insurance contract or any other material incentive, health and welfare or employee benefit plan or agreement maintained for the benefit of any of the employees or former employees or directors of CBI or any CBI Subsidiary, whether written or oral as in effect at the time of the execution of this Agreement.

 

“CBI Executive Officer and Director Agreements” shall mean the CBI and Cornerstone Employment Agreements, the CBI Change in Control Agreement, the Cornerstone Salary Continuation Agreements, the CBI Director Compensation Plan, and the CBI Stock Plans.

 

“CBI Financial Statements” shall mean (i) the audited consolidated balance sheets (including related notes and schedules, if any) of CBI as of December 31, 2004, 2003 and 2002 and the consolidated statements of operations, changes in shareholders’ equity and cash flows (including related notes and schedules, if any) of CBI for each of the three (3) years ended 2004, 2003 and 2002 as filed by CBI in its Securities Documents.

 

“CBI Option Plans” shall mean the CBI 1986 Incentive and Non-Qualified Stock Option Plan and the CBI 1996 Stock Plan.

 

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“CBI Stock Plans” shall mean the CBI Option Plans and the 2001 Restricted Stock Plan.

 

“CBI Subsidiary” shall mean a Subsidiary controlled by CBI.

 

“Certificate” shall mean certificates evidencing shares of CBI Common Stock.

 

“CGS” shall mean the Connecticut General Statutes, as amended.

 

“Closing” shall have the meaning set forth in Section 2.3 hereof

 

“Closing Date” shall have the meaning set forth in Section 2.3 hereof.

 

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

 

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

 

“Confidentiality Agreements” shall mean the confidentiality agreements referred to in Section 12.1 of this Agreement.

 

“Continuing Employee” shall have the meaning set forth in Section 7.5.2 hereof.

 

“Cornerstone” shall mean Cornerstone Bank, a Connecticut-chartered savings bank with its principal offices located at 550 Summer Street, Stamford, Connecticut 06901.

 

“DGCL” shall mean the Delaware General Corporation Law, as amended.

 

“Department” shall mean the Connecticut Department of Banking.

 

“Determination Date” shall mean the date on which the last required approval of a Governmental Entity is obtained with respect to the Merger, without regard to any requisite waiting period.

 

“DOJ” shall mean the United States Department of Justice.

 

“Effective Date” shall mean the date on which the Effective Time occurs.

 

“Effective Time” shall mean the date and time specified pursuant to Section 2.3 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 use, storage, recycling, treatment, generation, transportation, processing, handling, labeling, production, release or disposal of Materials of Environment Concern. The term Environmental Law includes

 

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without limitation (a) the Comprehensive Environmental Response, Compensation and Liability Act, as amended, 42 U.S.C. §9601, et seq.; the Resource Conservation and Recovery Act, as amended, 42 U.S.C. §6901, et seq.; the Clean Air Act, as amended, 42 U.S.C. §7401, et seq.; the Federal Water Pollution Control Act, as amended, 33 U.S.C. §1251, et seq.; the Toxic Substances Control Act, as amended, 15 U.S.C. §9601, et seq.; the Emergency Planning and Community Right to Know Act, 42 U.S.C. §1101, et seq.; the Safe Drinking Water Act, 42 U.S.C. §300f, et seq.; the Connecticut Transfer Act, CGS §22a-134 et seq.; and all applicable 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.

 

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

 

“Exchange Agent” shall mean American Stock Transfer and Trust Company or another reputable exchange agent designated by NewAlliance and reasonably acceptable to CBI, which shall act as agent for NewAlliance in connection with the exchange procedures for converting Certificates and Options into the Merger Consideration.

 

“Exchange Fund” shall have the meaning set forth in Section 3.3.1 hereof.

 

“FDIA” shall mean the Federal Deposit Insurance Act, as amended.

 

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

 

“Fill Option” shall have the meaning set forth in Section 11.1.10 hereof.

 

“Final Index Price” shall mean the market-weighted closing prices of the members of the Index Group for the same trading days used in calculating the Average Closing Price.

 

“Fractional Share Consideration” shall have the meaning set forth in Section 3.1.5 hereof.

 

“FRB” shall mean the Board of Governors of the Federal Reserve System or any successor thereto.

 

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

 

“Governmental Entity” shall mean any federal or state court, administrative agency or commission or other governmental authority or instrumentality.

 

“HOLA” means the Home Owners’ Loan Act.

 

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“Index Group” shall mean The SNL Thrift Index.

 

“Initial Index Price” shall mean the market-weighted closing prices of the members of the Index Group on the date hereof, as published by SNL Financial.

 

“Intellectual Property” shall have the meaning set forth in Section 4.26 hereof.

 

“Joint Venture” shall mean any limited partnership, joint venture, corporation, or venture capital investment.

 

“Knowledge” as used with respect to a Person (including references to such Person being aware of a particular matter) shall mean those facts that are known, or reasonably should have been known, by the executive officers and directors of such Person (in the ordinary performance of their duties without additional inquiry specific to this Agreement), and includes any facts, matters or circumstances set forth in any written notice from any bank regulatory agencies or any other material written notice received by that Person.

 

“Loan Property” shall have the meaning set forth in Section 4.9.2 hereof.

 

“Material Adverse Effect” shall mean, with respect to CBI or NewAlliance, respectively, any effect that (i) is material and adverse to the financial condition, results of operations or business of CBI and its Subsidiaries taken as a whole, or NewAlliance and its Subsidiaries taken as a whole, respectively, or (ii) materially impairs the ability of either CBI, on the one hand, or NewAlliance, on the other hand, to consummate the transactions contemplated by this Agreement; provided that “Material Adverse Effect” shall not be deemed to include the impact of (a) changes in laws and regulations affecting banks generally, (b) changes in GAAP or regulatory accounting principles generally applicable to banks and their holding companies, (c) actions and omissions of a party (or any of its Subsidiaries) taken with the prior written consent of the other party, and (d) the direct effects of compliance with this Agreement on the operating performance of the parties, including expenses incurred by the parties hereto in consummating the transactions contemplated in this Agreement.

 

“Materials of Environmental Concern” shall mean petroleum and petroleum products, byproducts or breakdown products, radioactive materials, asbestos-containing materials and polychlorinated biphenyls and any other chemicals, materials or substances regulated at the Effective Time as toxic or hazardous or as a pollutant, contaminant or waste under any applicable Environmental Laws.

 

“Maximum Premium Amount” shall have the meaning set forth in Section 7.6.1 hereof.

 

“Merger” shall have the meaning set forth in the Recitals hereto.

 

“Merger Consideration” shall mean the consideration paid by NewAlliance to holders of CBI Common Stock and Options under Section 3.1 hereof.

 

“Merger Registration Statement” shall have the meaning set forth in Section 7.6.1 hereto.

 

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“NASDAQ” shall mean the National Association of Securities Dealers Automatic Quotation System, f/k/a “National Market”, and now know as “The NASDAQ Stock Market.”

 

“NewAlliance” shall mean NewAlliance Bancshares, Inc., a Delaware corporation with its principal office at 195 Church Street, New Haven, Connecticut 06510 which shall be the surviving corporation in the Merger.

 

“NewAlliance Amendment” shall have the meaning set forth in Section 6.10(b) hereof.

 

“NAB” shall mean NewAlliance Bank, a Connecticut-chartered stock savings bank with its principal offices located at 195 Church Street, New Haven, Connecticut 06510.

 

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

 

“NewAlliance Disclosure Schedule” shall mean a written, signed disclosure schedule delivered by NewAlliance specifically referring to the appropriate section of this Agreement and describing in reasonable detail the matters contained therein.

 

“NewAlliance Employee Plan(s)” shall mean all qualified pension or profit-sharing plans, any deferred compensation, non-qualified plan or arrangement, supplemental retirement, consultant, bonus or group insurance contract or any other incentive, health and welfare or employee benefit plan or agreement maintained for the benefit of any of the employees or former employees or directors of NewAlliance or any NewAlliance Subsidiary, whether written or oral as in effect at the time of the execution of this Agreement.

 

“NewAlliance Financial Statements” shall mean the unaudited interim and audited consolidated financial statements of NewAlliance, as of the end of each calendar quarter and fiscal year, respectively, following March 31, 2004 as filed by NewAlliance in its Securities Documents.

 

“NewAlliance Ratio” shall have the meaning set forth in Section 11.1.10 hereof.

 

“NewAlliance Starting Price” of NewAlliance Common Stock shall mean the arithmetic mean of the daily closing sales prices per share of NewAlliance Common Stock reported on the NYSE Composite Transaction Tape (as reported by the Wall Street Journal or, if not reported thereby, another authoritative source) for the fifteen (15) consecutive NYSE trading days ending at the close of trading on the date prior to the date hereof.

 

“NewAlliance Subsidiary” shall mean a Subsidiary controlled by NewAlliance.

 

“NYSE” shall mean the New York Stock Exchange, Inc.

 

“Option Consideration” shall have the meaning set forth in Section 3.1.4 hereof.

 

“Options” shall mean options to purchase shares of CBI Common Stock granted pursuant to the CBI Option Plans as set forth in Section 4.1 of the CBI Disclosure Schedule.

 

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“Participation Facility” shall have the meaning set forth in Section 4.9.2 hereof.

 

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

 

“PCAOB” shall mean the Public Company Accounting Oversight Board.

 

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

 

“Proxy Statement-Prospectus” shall have the meaning set forth in Section 8.2.1 hereof.

 

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

 

“SEC” shall mean the Securities and Exchange Commission.

 

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

 

“Securities Documents” shall mean all reports, offering circulars, proxy statements, registration statements and all similar documents filed, or required to be filed, pursuant to the Securities Laws, provided, however, that SEC Forms 3, 4, 5 and 144 and Schedules 13D and 13G shall not be deemed to be Securities Documents.

 

“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.

 

“Stock Conversion Number” shall have the meaning set forth in Section 3.2 hereof.

 

“Stock Election Price” shall have the meaning set forth in Section 3.1.2 hereof.

 

“Stock Election Consideration” shall have the meaning set forth in Section 3.1.2 hereof.

 

“Stock Merger Consideration” shall have the meaning set forth in Section 3.1.5 hereof.

 

“Subsidiary” shall have the meaning set forth in Rule 1-02 of Regulation S-X of the SEC.

 

“Superior Proposal” shall have the meaning set forth in Section 6.10 hereof.

 

“Surviving Bank” shall mean NAB as the resulting institution of the Bank Merger.

 

“Surviving Corporation” shall have the meaning set forth in Section 2.1 hereof.

 

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“Tax” shall have the meaning set forth in Section 4.10.5 hereof.

 

“Tax Return” shall have the meaning set forth in Section 4.10.5 hereof.

 

“Termination Date” shall mean February 28, 2006.

 

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

 

ARTICLE II

 

THE MERGER

 

2.1 The Merger . As promptly as practicable following the satisfaction or waiver of the conditions to each party’s respective obligations hereunder, and subject to the terms and conditions of this Agreement, at the Effective Time the Merger will be consummated by the merger of CBI with and into NewAlliance, with NewAlliance as the surviving corporation (the “Surviving Corporation”) in accordance with the provisions of the DGCL. At the Effective Time of the Merger, each share of CBI Common Stock and each Option will be converted into the right to receive the Merger Consideration, as applicable, pursuant to the terms of Article III hereof. The parties agree that the target date for the Effective Time is January 2, 2006.

 

2.2 The Bank Merger . The Bank Merger shall be consummated immediately following the Merger.

 

2.3 Effective Time . 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 (“Closing Date”), in accordance with the DGCL (the “Closing”). The “Effective Time” of the Merger shall be the close of business on the date that the certificate of merger as to the Merger is filed with the Delaware Office of the Secretary of State, or as otherwise stated in such certificate of merger.

 

2.4 Certificate of Incorporation and Bylaws . The Certificate of Incorporation and Bylaws of NewAlliance as in effect immediately prior to the Effective Time shall be the Certificate of Incorporation and Bylaws of the Surviving Corporation until thereafter amended as provided therein and by applicable law.

 

2.5 Directors and Officers of Surviving Corporation . The directors of the Surviving Corporation immediately after the Effective Time shall be the directors of NewAlliance immediately prior to the Effective Time. The officers of NewAlliance immediately prior to the Effective Time shall be the officers of the Surviving Corporation immediately after the Effective Time.

 

2.6 Directors and Officers of Surviving Bank . The directors of NAB immediately after the Effective Time shall be the directors of NAB immediately prior to the Effective Time. The officers of NAB immediately prior to the Effective Time, together with any additional officers of Cornerstone as the directors of NAB may appoint, shall be the officers of the Surviving Bank immediately after the Effective Time.

 

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2.7 Additional Actions . If, at any time after the Effective Time, the Surviving Corporation or the Surviving Bank shall consider or be advised that any further assignments or assurances in law or any other acts are necessary or desirable (a) to vest, perfect or confirm, of record or otherwise, in the Surviving Corporation or the Surviving Bank, title to and possession of any property or right of CBI (or Cornerstone) acquired or to be acquired by reason of, or as a result of, the Merger or Bank Merger, or (b) otherwise to carry out the purposes of this Agreement, CBI, Cornerstone and their officers and directors shall be deemed to have granted to the Surviving Corporation and Surviving Bank an irrevocable power of attorney to execute and deliver all such proper deeds, assignments and assurances in law and to do all acts necessary or proper to vest, perfect or confirm title to and possession of such property or rights in the Surviving Corporation or the Surviving Bank and otherwise to carry out the purposes of this Agreement; and the officers and directors of the Surviving Corporation and the Surviving Bank are fully authorized in the name of CBI, Cornerstone or otherwise to take any and all such action.

 

2.8 Effects of the Merger . At and after the Effective Time, the Merger shall have the effects set forth in the DGCL with respect to NewAlliance and CBI, and the Bank Merger shall have the effects set forth in Banking Law with respect to NAB and Cornerstone.

 

2.9 Possible Alternative Structures . Prior to the Effective Time, NAB shall be entitled to revise the structure of the Merger and/or the Bank Merger described in Section 2.1 hereof and the Recitals hereto, provided that (i) there are no adverse federal or state income tax consequences to CBI and its shareholders as a result of the modification; (ii) the consideration to be paid to the holders of CBI Common Stock and Options under this Agreement is not thereby changed in kind or reduced in amount; (iii) there are no adverse changes to the benefits and other arrangements provided to or on behalf of CBI’s directors, officers and other employees; and (iv) such modification will not delay materially or jeopardize receipt of any required regulatory approvals or non-objection of any Governmental Entity.

 

ARTICLE III

 

CONVERSION OF SHARES AND OPTIONS

 

3.1 Exchange of CBI Common Stock; Merger Consideration . At the Effective Time, by virtue of the Merger and without any action on the part of NewAlliance, NAB, CBI, Cornerstone or the holders of any of the shares of CBI Common Stock, the Merger shall be effected in accordance with the following terms:

 

3.1.1 All shares of CBI Common Stock held in the treasury of CBI and each share of CBI Common Stock owned by NewAlliance or any direct or indirect wholly owned subsidiary of NewAlliance or of CBI immediately prior to the Effective Time (other than shares held in a fiduciary capacity or in connection with debts previously contracted) shall, at the Effective Time, cease to exist, and the certificates for such shares shall be canceled as promptly as practicable thereafter, and no payment or distribution shall be made in consideration therefore.

 

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3.1.2 Each outstanding share of CBI Common Stock that under the terms of Section 3.2 is to be converted into the right to receive shares of NewAlliance Common Stock (the “Stock Election Consideration”) shall, subject to the provisions of Section 3.3 generally, be converted into and become the right to receive from NewAlliance 2.518 shares of NewAlliance Common Stock (the “Stock Election Price”).

 

3.1.3 Each outstanding share of CBI Common Stock that under the terms of Section 3.2 is to be converted into the right to receive cash (the “Cash Election Consideration”) shall, subject to the provisions of Section 3.1.7, be converted into the right to receive a cash payment of thirty five ($35.00) dollars (the “Cash Election Price”).

 

3.1.4 Each Option which remains issued and outstanding immediately prior to the Effective Time shall, by virtue of the Merger and without regard to any future vesting date thereof, be cancelled and converted into the right to receive a cash payment in an amount determined by multiplying (i) the positive difference, if any, between the Cash Election Price and the exercise price of such Option for each share of CBI Common Stock subject to such Option (the “Option Price”) by (ii) the number of shares of CBI Common Stock subject to such Option (this quotient shall be referred to as the “Option Consideration”).

 

The payment of the Option Consideration referred to in this Section 3.1.4 to each holder of an Option shall be subject to such holder executing such instruments of cancellation, as NewAlliance and CBI may reasonably deem appropriate. NewAlliance, NAB, CBI or Cornerstone shall make necessary tax withholdings from the Option Consideration, as they deem appropriate.

 

3.1.5 Notwithstanding anything to the contrary contained herein, no certificates or scrip representing fractional shares of NewAlliance Common Stock shall be issued upon the surrender for exchange of Certificates, no dividend or distribution with respect to NewAlliance Common Stock shall be payable on or with respect to any fractional share interest, and such fractional share interests shall not entitle the owner thereof to vote or to any other rights of a stockholder of NewAlliance. In lieu of the issuance of any such fractional share, NewAlliance shall pay to each former holder of CBI Common Stock who otherwise would be entitled to receive a fractional share of NewAlliance Common Stock, an amount in cash determined by multiplying the Cash Election Price by the fraction of a share of NewAlliance Common Stock which such holder would otherwise be entitled to receive pursuant to Section 3.1.3 hereof (the “Fractional Share Consideration”). No interest will be paid on the cash that the holders of such fractional shares shall be entitled to receive upon such delivery. For purposes of determining any fractional share interest, all shares of CBI Common Stock owned by a CBI shareholder shall be combined so as to calculate the maximum number of whole shares of NewAlliance Common Stock issuable to such CBI shareholder.

 

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The Stock Election Consideration, the Cash Election Consideration and the Fractional Share Consideration shall be referred to as the “Stock Merger Consideration,” and the Stock Merger Consideration and the Option Consideration are sometimes referred to collectively as the “Merger Consideration.”

 

3.1.6 After the Effective Time, shares of CBI Common Stock shall be no longer outstanding and shall automatically be canceled and shall cease to exist, and shall thereafter by operation of this Section 3.1.6 be a right to receive the Merger Consideration.

 

3.1.7 Notwithstanding any other provision of this Agreement to the contrary, if the tax opinion referred to in Section 9.1.5 cannot be rendered because the counsel charged with providing such opinion reasonably determines that the Merger may not satisfy the continuity of interest requirements applicable to reorganizations under Section 368(a) of the Code, then NewAlliance shall reduce the aggregate number of Cash Election Shares, and thereby the aggregate Cash Election Consideration, by the minimum extent necessary to enable such tax opinion to be rendered, and correspondingly increase the aggregate number of shares of CBI Common Stock to be converted into the Stock Election Price.

 

3.1.8 Each unvested restricted share of CBI Common Stock granted under the CBI Stock Plans which is outstanding immediately prior to the Effective Time shall vest and become free of restrictions at the close of business on the day immediately preceding the Effective Date or such earlier date as may be agreed to by NewAlliance.

 

3.2 Proration and Election Procedures . The Parties acknowledge that for United States income tax purposes it is intended that the Merger shall qualify as a reorganization under the provisions of Section 368(a) of the Code, and this Agreement is intended to be and is adopted as a plan of reorganization within the meaning of Section 368 of the Code. Consistent with that intent, notwithstanding any provision of this Agreement to the contrary, the aggregate Merger Consideration payable to all holders of CBI Common Stock shall include such number of shares of NewAlliance Common Stock as is necessary in order that the aggregate number of shares of CBI Common Stock exchanged through the Merger for shares of NewAlliance Common Stock is seventy percent (70%) of the aggregate of (i) the total number of shares of CBI Common Stock issued and outstanding and (ii) the total number of shares of CBI Common Stock subject to Options immediately prior to the Effective Time (the “Stock Conversion Number”). Subject to the Stock Conversion Number, holders of CBI Common Stock may elect to receive shares of NewAlliance Common Stock or the Cash Election Price in exchange for their shares of CBI Common Stock in accordance with the following procedures.

 

3.2.1 An election form (“Election Form”) will be sent by NewAlliance no later than fifteen (15) Business Days and no earlier than thirty (30) Business Days prior to the expected Effective Time (provided that it need not be sent until the approvals from the Bank Regulators as set forth in Section 8.3 have been obtained) to each holder of record of CBI Common Stock permitting such holder (or in the case of nominee record holders, the beneficial owner through proper instructions and documentation) to elect to receive, subject to the pro-ration procedures described in Section 3.2.2, (i) all NewAlliance Common Stock with respect to each share of such holder’s CBI Common Stock, as provided herein (the “Stock

 

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Election Shares”); (ii) all cash with respect to each share of such holder’s CBI Common Stock, as provided herein (the “Cash Election Shares”) or (iii) a combination of Stock Merger Consideration consisting of 70% Stock Election Consideration and 30% Cash Election Consideration with respect to each share of such holder’s CBI Common Stock, as provided herein. Any shares of CBI Common Stock with respect to which the holder thereof shall not, as of the Election Deadline, have made such an election by submission to the Exchange Agent on an effective, properly completed Election Form (“Non-Election Shares”) shall be deemed to have elected the Cash Election Consideration and shall be converted into the Cash Election Price in accordance with Section 3.1.3, subject to the pro-ration procedures described in Section 3.2.2.

 

3.2.2 The term “Election Deadline”, as used below, shall mean 5:00 p.m., Eastern time, on the fifteenth (15 ^th ) Business Day following but not including the date of mailing of the Election Form or such other date as NewAlliance and CBI shall mutually agree upon, provided in any event, the Election Deadline shall be at or before the Effective Time. Any election to receive NewAlliance Common Stock or cash shall have been properly made only if the Exchange Agent shall have actually received a properly completed Election Form by the Election Deadline. Any Election Form may be revoked or changed by the person submitting such Election Form to the Exchange Agent by written notice to the Exchange Agent only if such notice is actually received, including by facsimile, by the Exchange Agent at or prior to the Election Deadline. The Certificate or Certificates representing CBI Common Stock relating to any revoked Election Form shall be promptly returned without charge to the person submitting the Election Form to the Exchange Agent. The Exchange Agent shall have discretion to determine when any election, modification or revocation is received and whether any such election, modification or revocation has been properly made. Within five (5) Business Days after the Election Deadline, the Exchange Agent shall calculate the allocation, if any, among holders of CBI Common Stock of rights to receive the Stock Election Price and the Cash Election Price as follows:

 

If the number of Stock Election Shares does not equal the Stock Conversion Number, then the Stock Election Shares and the Cash Election Shares will be converted into the right to receive NewAlliance Common Stock and cash in the following manner:

 

(a) If the aggregate number of Stock Election Shares (the “Stock Election Number”) exceeds the Stock Conversion Number, then all CBI Cash Election Shares and all Non-Election Shares of each holder thereof shall be converted into the right to receive the Cash Consideration, and Stock Election Shares of each holder thereof will be converted into the right to receive the Stock Consideration in respect of that number of Stock Election Shares equal to the product obtained by multiplying (x) the number of Stock Election Shares held by such holder by (y) a fraction, the numerator of which is the Stock Conversion Number and the denominator of which is the Stock Election Number, with the remaining number of such holder’s Stock Election Shares being converted into the right to receive the Cash Election Consideration; and

 

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(b) If the Stock Election Number is less than the Stock Conversion Number (the amount by which the Stock Conversion Number exceeds the Stock Election Number being referred to herein as the “Shortfall Number”), then all Stock Election Shares shall be converted into the right to receive the Stock Consideration and the Non-Election Shares and Cash Election Shares shall be treated in the following manner:

 

(i) If the Shortfall Number is less than or equal to the number of Non-Election Shares, then all Cash Election Shares shall be converted into the right to receive the Cash Election Consideration and the Non-Election Shares of each holder thereof shall be converted into the right to receive the Stock Consideration in respect of that number of Non-Election Shares equal to the product obtained by multiplying (x) the number of Non-Election Shares held by such holder by (y) a fraction, the numerator of which is the Shortfall Number and the denominator of which is the total number of Non-Election Shares, with the remaining number of such holder’s Non-Election Shares being converted into the right to receive the Cash Election Consideration; or

 

(ii) If the Shortfall Number exceeds the number of Non-Election Shares, then all Non-Election Shares shall be converted into the right to receive the Stock Election Consideration, and Cash Election Shares of each holder thereof shall be converted into the right to receive the Stock Election Consideration in respect of that number of Cash Election Shares equal to the product obtained by multiplying (x) the number of Cash Election Shares held by such holder by (y) a fraction, the numerator of which is the amount by which (1) the Shortfall Number exceeds (2) the total number of Non-Election Shares and the denominator of which is the total number of Cash Election Shares, with the remaining number of such holder’s Cash Election Shares being converted into the right to receive the Cash Election Consideration.

 

3.3 Procedures for Exchange of CBI Common Stock .

 

3.3.1 NewAlliance to Make Merger Consideration Available. At or before the Effective Time, NewAlliance shall deposit, or shall cause to be deposited, with the Exchange Agent for the benefit of the holders of CBI Common Stock, for exchange in accordance with this Section 3.3, certificates representing the shares of NewAlliance Common Stock sufficient to pay the Stock Election Price and an estimated amount of cash sufficient to pay the aggregate Option Consideration, the aggregate Cash Election Consideration and the aggregate Fractional Share Consideration payable hereunder (such cash and certificates for shares of NewAlliance Common Stock, together with any dividends or distributions with respect thereto, being hereinafter referred to as the “Exchange Fund”).

 

3.3.2 Exchange of Certificates. Within five (5) business days after the Effective Time, NewAlliance shall take all steps necessary to cause the Exchange Agent to mail to each holder of a Certificate or Certificates, a form letter of transmittal for return to the Exchange Agent and instructions for use in effecting the surrender of the Certificates for, as the case may be, certificates representing the shares of NewAlliance Common Stock, cash in respect of the Cash Election Price, and cash in respect of the Fractional Share Price. The letter of transmittal (which shall be subject to the reasonable approval of CBI) shall specify that delivery shall be effected, and risk of loss and title to the Certificates shall pass, only upon delivery of the Certificates to the Exchange Agent. Upon proper surrender of a Certificate for exchange and cancellation to the Exchange Agent, together with a properly completed

 

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letter of transmittal, duly executed, the holder of such Certificate shall be entitled to receive in exchange therefore, as applicable, (i) a certificate representing that number of shares (if any) of NewAlliance Common Stock to which such former holder of CBI Common Stock shall have become entitled pursuant to the provisions of Section 3.1.2 hereof, (ii) a check representing that amount of cash (if any) to which such former holder of CBI Common Stock shall have become entitled in respect of the Cash Election Price pursuant to the provisions of Section 3.1.3 hereof, and (iii) a check representing the amount of cash (if any) payable in respect of the Fractional Share Price, which such former holder has the right to receive in respect of the Certificate surrendered pursuant to the provisions of Section 3.1.5, and the Certificate so surrendered shall forthwith be cancelled. No interest will be paid or accrued on the cash payable in lieu of fractional shares. Certificates surrendered for exchange by any person who is an “affiliate” of CBI for purposes of Rule 145(c) under the Securities Act shall not be exchanged for certificates representing shares of NewAlliance Common Stock until NewAlliance has received the written agreement of such person contemplated by Section 8.4 hereof.

 

3.3.3 Rights of Certificate Holders after the Effective Time. The holder of a Certificate that prior to the Merger represented issued and outstanding CBI Common Stock shall have no rights, after the Effective Time, with respect to such CBI Common Stock except to surrender the Certificate in exchange for the Merger Consideration as provided in this Agreement. No dividends or other distributions declared after the Effective Time with respect to NewAlliance Common Stock shall be paid to the holder of any unsurrendered Certificate until the holder thereof shall surrender such Certificate in accordance with Section 3.3. After the surrender of a Certificate in accordance with Section 3.3, the record holder thereof shall be entitled to receive any such dividends or other distributions, without any interest thereon, which theretofore had become payable with respect to shares of NewAlliance Common Stock represented by such Certificate.

 

3.3.4 Surrender by Person Other than Record Holders. If the Person surrendering a Certificate and signing the accompanying letter of transmittal is not the record holder thereof, then it shall be a condition of the payment of the Stock Merger Consideration that: (i) such Certificate is properly endorsed to such Person or is accompanied by appropriate stock powers, in either case signed exactly as the name of the record holder appears on such Certificate, and is otherwise in proper form for transfer, or is accompanied by appropriate evidence of the authority of the Person surrendering such Certificate and signing the letter of transmittal to do so on behalf of the record holder; and (ii) the Person requesting such exchange shall pay to the Exchange Agent in advance any transfer or other taxes required by reason of the payment to a person other than the registered holder of the Certificate surrendered, or required for any other reason, or shall establish to the satisfaction of the Exchange Agent that such tax has been paid or is not payable.

 

3.3.5 Closing of Transfer Books . From and after the Effective Time, there shall be no transfers on the stock transfer books of CBI of the CBI Common Stock that were outstanding immediately prior to the Effective Time. If, after the Effective Time, Certificates representing such shares are presented for transfer to the Exchange Agent, they shall be exchanged for the Merger Consideration and canceled as provided in this Section 3.3.

 

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3.3.6 Return of Exchange Fund . At any time following the twelve (12) month period after the Effective Time, NewAlliance shall be entitled to require the Exchange Agent to deliver to it any portions of the Exchange Fund which had been made available to the Exchange Agent and not disbursed to holders of Certificates (including, without limitation, all interest and other income received by the Exchange Agent in respect of all funds made available to it), and thereafter such holders shall be entitled to look to NewAlliance (subject to abandoned property, escheat and other similar laws) with respect to any Merger Consideration that may be payable upon due surrender of the Certificates held by them. Notwithstanding the foregoing, neither NewAlliance nor the Exchange Agent shall be liable to any holder of a Certificate for any Merger Consideration delivered in respect of such Certificate to a public official pursuant to any abandoned property, escheat or other similar law.

 

3.3.7 Lost, Stolen or Destroyed Certificates . In the event any Certificate shall have 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 NewAlliance, the posting by such person of a bond in such amount as NewAlliance may reasonably direct as indemnity against any claim that may be made against it with respect to such Certificate, NewAlliance or the Exchange Agent will issue in exchange for such lost, stolen or destroyed Certificate the Merger Consideration deliverable in respect thereof.

 

3.3.8 Withholding . NewAlliance or the Exchange 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 CBI Common Stock such amounts as NewAlliance (or any Affiliate thereof) or the Exchange 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 NewAlliance or the Exchange Agent, such withheld amounts will be treated for all purposes of this Agreement as having been paid to the holder of the CBI Common Stock in respect of whom such deduction and withholding were made by NewAlliance or the Exchange Agent.

 

3.3.9 Payment of Option Consideration . Immediately prior to the Effective Time, CBI, subject to a review of the calculation by NewAlliance, shall issue and deliver a check representing the Option Price to the holders of the Options, all of which Options shall have been cancelled in connection with Section 3.1.4 above.

 

3.3.10 Reservation of Shares. Effective upon the date of this Agreement, NewAlliance shall reserve for issuance a sufficient number of shares of the NewAlliance Common Stock for the purpose of issuing shares of NewAlliance Common Stock to the CBI shareholders in accordance with this Article III.

 

3.3.11 Listing of Additional Shares. Prior to the Effective Time, NewAlliance shall notify the NYSE of the additional shares of NewAlliance Common Stock to be issued by NewAlliance in exchange for the shares of CBI Common Stock.

 

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ARTICLE IV

 

REPRESENTATIONS AND WARRANTIES OF

CBI AND CORNERSTONE

 

CBI and Cornerstone represent and warrant to NewAlliance and NAB that the statements contained in this Article IV are correct and complete as of the date of this Agreement and will be correct and complete 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), except as set forth in the CBI DISCLOSURE SCHEDULE delivered by CBI to NewAlliance on the date hereof, and except as to any representation or warranty which specifically relates to an earlier date, provided, however, that Cornerstone’s representations and warranties made herein are limited to only representations and warranties with respect to Cornerstone.

 

4.1 Capital Structure . The authorized capital stock of CBI consists of 5 million shares of common stock, par value $0.01 per share. As of the date of this Agreement, 1,272,433 shares of CBI Common Stock are issued and outstanding and 41,386 shares of CBI Common Stock are directly or indirectly held by CBI as treasury stock. All outstanding shares of CBI Common Stock have been duly authorized and validly issued and are fully paid and non-assessable, and none of the outstanding shares of CBI Common Stock has been issued in violation of the preemptive rights of any person, firm or entity. Except for the CBI Option Plans pursuant to which there are outstanding options to acquire 177,305 shares of CBI Common Stock, a schedule of which is set forth in Section 4.1 of the CBI DISCLOSURE SCHEDULE, and the CBI Dividend Reinvestment Plan pursuant to which no more than 1,500 shares of CBI Common Stock may be issued within thirty (30) days following the actions by CBI to terminate the plan pursuant to Section 6.17, there are no Rights authorized, issued or outstanding with respect to or relating to the capital stock of CBI.

 

4.2 Organization, Standing and Authority of CBI . CBI is a corporation duly organized, validly existing and in good standing under the laws of the State of Connecticut with full corporate power and authority to own or lease all of its properties and assets and to carry on its business as now conducted, and is duly licensed or qualified to do business and is in good standing in each jurisdiction in which its ownership or leasing of property or the conduct of its business requires such licensing or qualification except where the failure to be so licensed or qualified would not have a Material Adverse Effect on CBI. CBI is duly registered as a bank holding company under the BHCA. CBI has heretofore delivered to NewAlliance and has included as Section 4.2 of the CBI DISCLOSURE SCHEDULE true, complete and correct copies of the Certificate of Incorporation and Bylaws of CBI as in effect as of the date hereof.

 

4.3 Ownership of CBI Subsidiaries . Set forth in Section 4.3 of the CBI DISCLOSURE SCHEDULE is the name, jurisdiction of incorporation and percentage ownership of each direct or indirect CBI Subsidiary. Except for (a) capital stock of the CBI Subsidiaries, (b) securities and other interests held in a fiduciary capacity and beneficially owned by third parties or taken in consideration of debts previously contracted, and (c) securities and other interests which are set forth in the CBI DISCLOSURE SCHEDULE, CBI does not own or have the right or obligation to acquire, directly or indirectly, any outstanding capital stock or other voting securities or ownership interests of any corporation, bank, savings association,

 

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partnership, joint venture or other organization, other than investment securities representing not more than five percent (5%) of the outstanding capital stock of any entity. The outstanding shares of capital stock or other ownership interests of each CBI Subsidiary that are owned by CBI or any CBI Subsidiary have been duly authorized and validly issued, are fully paid and non-assessable and are directly or indirectly owned by CBI free and clear of all liens, claims, encumbrances, charges, pledges, restrictions or rights of third parties of any kind whatsoever. No Rights are authorized, issued or outstanding with respect to the capital stock or other ownership interests of any CBI Subsidiary and there are no agreements, understandings or commitments relating to the right of CBI to vote or to dispose of such capital stock or other ownership interests.

 

4.4 Organization, Standing and Authority of CBI Subsidiaries . Each CBI Subsidiary is a bank, or corporation or partnership duly organized, validly existing and in good standing or legal existence, as appropriate, under the laws of the jurisdiction in which it is organized. Each CBI Subsidiary (i) has full power and authority to own or lease all of its properties and assets and to carry on its business as now conducted, and (ii) is duly licensed or qualified to do business and is in good standing or legal existence, as appropriate, in each jurisdiction in which its ownership or leasing of property or the conduct of its business requires such qualification except where the failure to be so licensed or qualified would not have a Material Adverse Effect on CBI. CBI is authorized to own each CBI Subsidiary under the BHCA. The deposit accounts of Cornerstone are insured by the FDIC through the BIF to the maximum extent permitted by the FDIA. Cornerstone has paid all premiums and assessments required by the FDIC. CBI has heretofore delivered or made available to NewAlliance and has included as Section 4.4 of the CBI DISCLOSURE SCHEDULE true, complete and correct copies of the Certificate of Incorporation and Bylaws of Cornerstone and each other CBI Subsidiary as in effect as of the date hereof.

 

4.5 Authorized and Effective Agreement .

 

4.5.1 Each of CBI and Cornerstone has all requisite corporate power and authority to enter into this Agreement and the Bank Merger Agreement, as applicable, and (subject to receipt of all necessary governmental approvals and the approval of CBI’s shareholders of this Agreement) to perform all of its obligations under this Agreement and the Bank Merger Agreement, as applicable. The execution and delivery of this Agreement and the Bank Merger Agreement and the consummation of the transactions contemplated hereby and thereby have been duly and validly authorized by all necessary corporate action in respect thereof on the part of CBI and Cornerstone, except for the approval of this Agreement by CBI’s shareholders. This Agreement has been duly and validly executed and delivered by CBI and Cornerstone and, assuming due authorization and execution by NewAlliance and NAB, constitutes the legal, valid and binding obligations of CBI and Cornerstone, enforceable against CBI and Cornerstone in accordance with its terms, subject, as to enforceability, to bankruptcy, insolvency and other laws of general applicability relating to or affecting creditors’ rights and to general equity principles. The Bank Merger Agreement, upon execution and delivery by Cornerstone, will have been duly and validly executed and delivered by Cornerstone and, assuming due authorization and execution by NAB, will constitute the legal, valid and binding obligation of Cornerstone, enforceable against Cornerstone in accordance with its terms, subject, as to enforceability, to bankruptcy, insolvency, and other laws of general applicability relating to or affecting creditors’ rights and to general equity principles.

 

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4.5.2 Neither the execution and delivery of this Agreement by CBI or Cornerstone, the execution and delivery of the Bank Merger Agreement by Cornerstone, nor consummation of the transactions contemplated hereby or thereby, nor compliance by CBI and Cornerstone with any of the provisions hereof or thereof (i) does or will conflict with or result in a breach of any provisions of the Certificate of Incorporation or Bylaws of CBI or the equivalent documents of any CBI Subsidiary, (ii) except as set forth in Section 4.5.2(ii) of the CBI DISCLOSURE SCHEDULE, violate, conflict with or result in a breach of any term, condition or provision of, or constitute a default (or an event which, with notice or lapse of time, or both, would constitute a default) under, or give rise to any right of termination, cancellation or acceleration with respect to, or result in the creation of any lien, charge or encumbrance upon any property or asset of CBI or any CBI Subsidiary pursuant to, any material note, bond, mortgage, indenture, deed of trust, license, lease, agreement or other instrument or obligation to which CBI or any CBI Subsidiary is a party, or by which any of their respective properties or assets may be bound or affected, or (iii) subject to receipt of all required governmental and shareholder approvals, violate any order, writ, injunction, decree, statute, rule or regulation applicable to CBI or any CBI Subsidiary.

 

4.5.3 Except as set forth in Section 4.5.3 of the CBI DISCLOSURE SCHEDULE and except for (i) the filing of applications and notices with, and the consents and approvals of, as applicable, the Bank Regulators, (ii) the filing and effectiveness of the Merger Registration Statement with the SEC, (iii) the approval of this Agreement by the requisite vote of the shareholders of CBI, (iv) the filing of the certificate of merger with respect to the merger of CBI with and into NewAlliance with the Secretary of State of the State of Delaware pursuant to the DGCL in connection with the Merger, and (v) the approval of the FDIC and the filing of a copy of the Bank Merger Agreement and a copy of the approval of the Commissioner of the Connecticut Department of Banking with the Connecticut Secretary of the State with respect to the Bank Merger, no consents or approvals of or filings or registrations with any Governmental Entity or with any third party are necessary on the part of CBI or Cornerstone in connection with the execution and delivery by CBI and Cornerstone of this Agreement, the execution and delivery by Cornerstone of the Bank Merger Agreement, the consummation of the Merger by CBI, and the consummation of the Bank Merger by Cornerstone.

 

4.5.4 As of the date hereof, neither CBI nor Cornerstone has Knowledge of any reasons relating to CBI or Cornerstone (including without limitation Community Reinvestment Act compliance) why all material consents and approvals shall not be procured from all regulatory agencies having jurisdiction over the Merger or the Bank Merger as shall be necessary for (i) consummation of the Merger and the Bank Merger, and (ii) the continuation by NewAlliance and NAB after the Effective Time of the business of CBI and Cornerstone as such business is carried on immediately prior to the Effective Time, free of any conditions or requirements which, in the reasonable opinion of CBI, could have a Material Adverse Effect on the business of CBI or Cornerstone or materially impair the value of CBI and Cornerstone to NewAlliance or NAB.

 

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4.6 Securities Documents and Regulatory Reports .

 

4.6.1 Since December 31, 2001, CBI has timely filed with the SEC and AMEX all Securities Documents required by the Securities Laws, and such Securities Documents, as the same may have been amended, complied, at the time filed with the SEC, in all material respects with the Securities Laws.

 

4.6.2 Since December 31, 2001, each of CBI and Cornerstone, has duly filed with the Bank Regulators in correct form the reports required to be filed under applicable laws and regulations and such reports, as the same may have been amended, were complete and accurate and in compliance with the requirements of applicable laws and regulations in all material respects. Except as set forth in Section 4.6.2 of the CBI DISCLOSURE SCHEDULE, in connection with the most recent federal and state Bank Regulator examinations of CBI and Cornerstone, neither CBI nor Cornerstone was required to correct or change any action, procedure or proceeding which CBI or Cornerstone believes has not been corrected or changed as required as of the date hereof.

 

4.7 Financial Statements .

 

4.7.1 CBI has previously delivered or made available to NewAlliance complete and accurate copies of the CBI Financial Statements. The CBI Financial Statements have been prepared in accordance with GAAP (including related notes where applicable) and fairly present in each case in all material respects, the consolidated financial condition, results of operations, shareholders’ equity and cash flows of CBI for the respective periods or as of the respective dates set forth therein, except as indicated in the notes thereto or in the case of unaudited statements, as permitted by Form 10-QSB.

 

4.7.2 Each of the CBI Financial Statements referred to in Section 4.7.1 has been prepared in accordance with GAAP and, if applicable, the accounting pronouncements of the PCAOB, during the periods involved (except for the absence of footnotes and customary year-end adjustments in the case of unaudited interim CBI Financial Statements). The audits of CBI and CBI Subsidiaries have been conducted in accordance with generally accepted auditing standards. The books and records of CBI and the CBI Subsidiaries are being maintained in compliance with applicable legal and accounting requirements, and such books and records accurately reflect in all material respects all dealings and transactions in respect of the business, assets, liabilities and affairs of CBI and its Subsidiaries. The minute books of CBI and each CBI Subsidiary contain complete and accurate records of all meetings and other corporate actions of their respective shareholders and Boards of Directors (including all committees for which minutes are customarily kept) authorized at such meetings held or taken since December 31, 2001 through the date of this Agreement.

 

4.7.3 Except (i) as set forth in Section 4.7.3(i) of the CBI DISCLOSURE SCHEDULE, (ii) as reflected, disclosed or provided for in the CBI Financial Statements as of December 31, 2004, 2003 and 2002 (including related notes), (iii) for liabilities incurred since December 31, 2004 in the ordinary course of business and (iv) for liabilities incurred in connection with this Agreement and the transactions contemplated hereby, neither CBI nor any CBI Subsidiary has any liabilities, whether absolute, accrued, contingent or otherwise, material to the financial condition, results of operations or business of CBI on a consolidated basis that would be required in accordance with GAAP to be reflected on an audited consolidated balance sheet of CBI or the notes thereto.

 

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4.8 Material Adverse Change . Since January 1, 2005 to the date hereof (i) CBI and each CBI Subsidiary has conducted its respective business in the ordinary and usual course (excluding the incurrence of expenses in connection with this Agreement, and excluding the transactions contemplated hereby), and (ii) no event has occurred or circumstance arisen that, individually or in the aggregate, has had or is reasonably likely to have a Material Adverse Effect on CBI.

 

4.9 Environmental Matters .

 

4.9.1 Except as set forth in Section 4.9.1 of the CBI DISCLOSURE SCHEDULE, with respect to CBI and each CBI Subsidiary:

 

(a) To CBI’s Knowledge, each of CBI and the CBI Subsidiaries, the Participation Facilities and the Loan Properties are, and at all times have been, in full compliance with, and are not in violation of or liable under, any Environmental Laws;

 

(b) CBI has received no written notice that there is any suit, claim, action, demand, executive or administrative order, directive, investigation or proceeding pending and, to CBI’s Knowledge, there is no such action threatened, and there is no basis to expect any action before any court, governmental agency or other forum against it or any of the CBI 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 (as defined herein) into the environment of any Materials of Environmental Concern (as defined herein), whether or not occurring at or on a site currently or formerly owned, leased or operated by it or any of the CBI Subsidiaries or any Participation Facility or (z) with respect to any property at or to which Material of Environmental Concern were generated, manufactured, refined, transported, transferred, imported, used, disposed, treated, or processed by CBI or any CBI Subsidiary or any Participation Facility or from which Materials of Environmental Concern have been transported, treated, stored, handled, transferred, disposed, recycled, or received;

 

(c) CBI has received no written notice that there is any suit, claim, action, demand, executive or administrative order, directive, investigation or proceeding pending and, to CBI’s Knowledge, no such action is threatened, and to CBI’s Knowledge there is no basis to expect any action before any court, governmental agency or other forum relating to or against any Loan Property (or CBI or any of the CBI 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;

 

(d) To CBI’s Knowledge, the real properties, leasehold or other interest in real property currently or formerly owned or operated by CBI or any CBI Subsidiary (including, without limitation, soil, groundwater or surface water on, under or geologically or hydrologically adjacent to the properties, and buildings thereon) are not contaminated with and do not otherwise contain any Materials of Environmental Concern;

 

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(e) Neither CBI nor any CBI Subsidiary has received (and there is no reasonable basis to expect) any written notice, demand letter, executive or administrative order, directive or request for information 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;

 

(f) Except as set forth on Schedule 4.9.1(f) of the CBI DISCLOSURE SCHEDULE, to CBI’s Knowledge there are no underground storage tanks on, in or under any properties currently or formerly owned or operated by CBI or any of the CBI Subsidiaries or any Participation Facility, and no underground storage tanks have been closed or removed from any properties currently or formerly owned or operated by CBI or any of the CBI Subsidiaries or any Participation Facility; and

 

(g) To CBI’s Knowledge during the period of (s) CBI’s or any of the CBI Subsidiaries’ ownership or operation of any of their respective currently or formerly owned or operated properties or (t) CBI’s or any of the CBI 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. To CBI’s Knowledge, prior to the period of (x) CBI’s or any of the CBI Subsidiaries’ ownership or operation of any of their respective currently or formerly owned or operated properties or (y) CBI’s or any of CBI 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.

 

4.9.2 ”Loan Property” means any property (including a leasehold interest therein) in which the applicable party (or a Subsidiary of it) currently holds a security interest or has held a security interest within the past five (5) years. “Participation Facility” means any facility in which the applicable party (or a Subsidiary of it) currently participates or formerly participated 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.

 

4.9.3 Except as set forth in Section 4.9.3 of the CBI DISCLOSURE SCHEDULE, CBI does not possess and has not conducted or arranged for the conduct of any environmental studies, reports, analyses, tests or monitoring during the past ten (10) years with respect to any properties currently or formerly owned or leased by CBI or any CBI Subsidiary or any Participation Facility. CBI has delivered to NAB true and complete copies and results of any and all such schedules, reports, analyses, tests or monitoring.

 

4.9.4 Except as set forth in Section 4.9.4 of the CBI DISCLOSURE SCHEDULE, no real property currently or formerly owned or leased by CBI or any CBI Subsidiary, and, to CBI’s Knowledge, no Loan Property and no Participation Facility meets the statutory criteria of an “Establishment” as such term is defined pursuant to the Connecticut Transfer Act, CGS Section 22a-134 et seq. No condition exists at any real property currently or formerly owned or leased by CBI or any CBI Subsidiary, or, to CBI’s Knowledge any Loan Property or any Participation Facility that would require investigation, remediation, or post-remediation or natural attenuation monitoring under the Connecticut Department of Environmental Protection’s Remediation Standard Regulations, Regulations of Connecticut State Agencies Sections 22a-133k-1 et seq.

 

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4.10 Tax Matters .

 

4.10.1 CBI and each CBI Subsidiary has duly filed all Tax Returns required by applicable law to be filed by them in respect of all applicable Taxes required to be paid through the date hereof and will timely file any such Tax Returns required to be filed prior to the Effective Time with respect to Taxes required to be paid through the Effective Time. CBI and each CBI Subsidiary have paid, or where payment is not required to have been made, have set up an adequate reserve or accrual for the payment of, all Taxes required to be paid in respect of the periods covered by such Tax Returns and, as of the Effective Time, will have paid, or where payment is not required to have been made, will have set up an adequate reserve or accrual for the payment of, all Taxes for any subsequent periods ending on or prior to the Effective Time. Neither CBI nor any CBI Subsidiary will have any liability for any such Taxes in excess of the amounts so paid or reserves or accruals so established. Except as set forth in Section 4.10.1 of the CBI DISCLOSURE SCHEDULE, as of the date hereof, no audit, examination or deficiency or refund litigation with respect to any Tax Returns filed by CBI or any CBI Subsidiary is pending or, to CBI’s Knowledge, threatened and to CBI’s Knowledge, there is no basis for any Tax authority to assess any additional Taxes for any period for which Tax Returns have been filed.

 

4.10.2 CBI and each CBI Subsidiary has withheld and paid all Taxes required to be paid in connection with amounts paid to any employee, independent contractor, creditor, stockholder or other third party.

 

4.10.3 Except as set forth in Section 4.10.3 of the CBI DISCLOSURE SCHEDULE, all Tax Returns filed by CBI and its Subsidiaries are complete and accurate. Neither CBI nor any CBI Subsidiary is delinquent in the payment of any Tax, assessment or governmental charge, or has requested any extension of time within which to file any Tax Returns in respect of any fiscal year or portion thereof which have not since been filed. Except as set forth in Section 4.10.3 of the CBI DISCLOSURE SCHEDULE, there is no pending Tax audit examination, Tax deficiency assessment or Tax or governmental charges investigation with respect to CBI or any CBI Subsidiary, and there are no deficiencies for any Tax, assessment or governmental charge that, to CBI’s Knowledge, have been proposed, asserted or assessed (tentatively or otherwise) against CBI or any CBI Subsidiary as a result of any Tax audit examination, Tax deficiency assessment, or Tax or governmental charges investigation which have not been settled and paid. There are currently no agreements in effect with respect to CBI or any CBI Subsidiary to extend the period of limitations for the assessment or collection of any Tax and no power of attorney has been granted by CBI and its Subsidiaries with respect to any Tax matter currently in force.

 

4.10.4 Except as set forth in Section 4.10.4 of the CBI DISCLOSURE SCHEDULE, neither CBI nor any CBI Subsidiary (i) is a party to any agreement providing for the allocation or sharing of taxes (other than a tax allocation agreement between CBI and Cornerstone), (ii) is required to include in income any adjustment pursuant to Section 481(a) of the

 

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Code by reason of a voluntary change in accounting method initiated by CBI or any CBI Subsidiary (nor does CBI have any Knowledge that the Internal Revenue Service has proposed any such adjustment or change of accounting method) or (iii) has filed a consent pursuant to Section 341(f) of the Code or agreed to have Section 341(f)(2) of the Code apply.

 

4.10.5 As used in this Agreement, “Tax” means any federal, state, local or foreign income, gross receipts, license, payroll, employment, excise, severance, stamp, occupation, premium, windfall profits, environmental, customs duties, capital stock, franchise, profits, withholding, social security (or similar), unemployment, disability, real property, personal property, sales, use, transfer, registration, value added, highway, estimated or other tax of any kind whatsoever, including any interest, penalties or addition thereto, whether disputed or not, imposed by any government or quasi-government authority; and “Tax Return” means any return, declaration, report, claim for refund, or information return or statement relating to Taxes, including any schedule or attachment thereto, and including any amendment thereof.

 

4.11 Legal Proceedings . Except as set forth in Section 4.11 of the CBI DISCLOSURE SCHEDULE, there are no actions, suits, claims, governmental investigations or proceedings instituted, pending or, to the Knowledge of CBI or any CBI Subsidiary, threatened against CBI or any CBI Subsidiary or against any asset, interest or right of CBI or any CBI Subsidiary, or against any officer, director or employee of any of them, and neither CBI nor any CBI Subsidiary is a party to any unsatisfied order, judgment or decree.

 

4.12 Compliance with Laws .

 

4.12.1 Each of CBI and the CBI Subsidiaries has all permits, licenses, certificates of authority, orders and approvals of, and has made all filings, applications and registrations with, federal, state, local and foreign governmental or regulatory bodies that are required in order to permit it to carry on its business in all material respects as it is currently being conducted; all such permits, licenses, certificates of authority, orders and approvals are in full force and effect; and to the Knowledge of CBI, no suspension or cancellation of any of the same is threatened.

 

4.12.2 Except as set forth in Section 4.12.2, or 4.9 as to Environmental Laws, of the CBI DISCLOSURE SCHEDULE, neither CBI nor any CBI Subsidiary is in violation of its respective Certificate of Incorporation, Charter or other chartering instrument or Bylaws, has received written notice of any material uncured violation of any applicable federal, state or local law or ordinance or any order, rule or regulation of any federal, state, local or other governmental agency or body (including, without limitation, all banking (including without limitation all regulatory capital requirements), municipal securities, insurance, safety, health, Environmental Law, zoning, anti-discrimination, antitrust, and wage and hour laws, ordinances, orders, rules and regulations), or is in default with respect to any order, writ, injunction or decree of any court, or is in default under any order, license, regulation or demand of any governmental agency and, to the Knowledge of CBI, CBI along with its executive officers and directors is not in violation of any Securities Laws; and neither CBI nor any CBI Subsidiary has received any written notice or communication from any federal, state or local governmental authority asserting that CBI or any CBI Subsidiary is in violation of any of the foregoing, which violation has not been corrected on a prospective basis in all respects. Neither CBI nor any CBI Subsidiary is subject to any regulatory or supervisory cease and desist order, agreement, written directive, memorandum of understanding or written commitment (other than those of general applicability to all banks or holding companies),

 

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and none of them has received any written communication requesting that it enter into any of the foregoing. Since December 31, 2001, no regulatory agency has initiated or continued any proceeding or, to the Knowledge of CBI, investigation into the business or operations of CBI, or any CBI Subsidiary. CBI has not received any objection from any regulatory agency to CBI’s response to any violation, criticism or exception with respect to any report or statement relating to any examination of CBI or any of the CBI Subsidiaries.

 

4.13 Certain Information. None of the information supplied by CBI, any CBI Subsidiary or their agents or representatives relating to CBI and its Subsidiaries for the purpose of being included or incorporated by reference in the Proxy Statement-Prospectus, as of the date(s) such Proxy Statement-Prospectus is mailed to shareholders of CBI, and up to and including the date of the meeting of shareholders to which such Proxy Statement-Prospectus relates, will contain any untrue statement of material fact or omit to state a material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, provided that information as of a later date shall be deemed to modify the information as of the earlier date.

 

4.14 Employee Benefit Plans .

 

4.14.1 CBI has set forth in Section 4.14.1 of the CBI DISCLOSURE SCHEDULE all CBI Employee Plans, and CBI has previously furnished or made available to NewAlliance accurate and complete copies of the same together with (i) Schedule B forms and the actuarial and audited financial reports prepared with respect to any qualified plans for the last three (3) plan years, (ii) the annual reports filed with any governmental agency for any qualified or non-qualified plans for the last three (3) plan years, (iii) the Summary Annual Report provided to Participants for the last three (3) plan years; and (iv) all rulings and determination letters and any open requests for rulings or letters that pertain to any qualified plan.

 

4.14.2 None of CBI, any CBI Subsidiary, any employee pension benefit plan (as defined in Section 3(2) of ERISA) maintained by any of them and intended to be qualified under Section 401 of the Code or, to CBI’s Knowledge, any fiduciary of such plan has incurred any liability to the PBGC (except for premiums payable in the ordinary course) or the Internal Revenue Service with respect to any employee pension plan of CBI or any CBI Subsidiary. In the last five (5) years, no reportable event under Section 4043(b) of ERISA has occurred with respect to any such employee pension benefit plan, other than the transactions contemplated by this Agreement or events notice of which has been waived by regulations under Section 4043 of ERISA.

 

4.14.3 Except as set forth in Section 4.14.3 of the CBI Disclosure Schedule: (a) neither CBI nor any CBI Subsidiary participates in or has incurred any liability under Section 4201 of ERISA for a complete or partial withdrawal from a multi-employer plan (as such term is defined in ERISA); (b) no liability under Title IV of ERISA has been incurred by CBI or any CBI Subsidiary with respect to any CBI Employee Plan which is subject to Title IV of ERISA, or with respect to any “single-employer plan” (as defined in Section 4001(a) of ERISA and which is subject to Title IV of ERISA) (“CBI Defined Benefit Plan”) currently or formerly maintained by CBI or any entity which is considered an affiliated employer with CBI

 

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under Section 4001(b) (1) of ERISA or Section 414 of the Code (an “ERISA Affiliate”) since the effective date of ERISA that has not been satisfied in full to the extent required by ERISA from time to time; (c) no CBI Pension 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; (d) the fair market value of the assets of each CBI Defined Benefit Plan exceeds the present value of the “benefit liabilities” (as defined in Section 4001(a) (16) of ERISA) under such CBI Defined Benefit Plan as of the end of the most recent plan year with respect to the respective CBI 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 CBI Defined Benefit Plan as of the date hereof; (e) neither CBI nor any ERISA Affiliate has provided, or is required to provide, security to any CBI Defined Benefit Plan or to any single-employer plan of an ERISA Affiliate pursuant to Section 401(a) (29) of the Code; (f) neither CBI nor any ERISA Affiliate has contributed to any “multi-employer plan,” as defined in Section 3(37) of ERISA, on or after September 26, 1980; (g) neither CBI, nor any ERISA Affiliate, nor any CBI Employee Plan, including any CBI Defined Benefit Plan, nor any trust created thereunder has engaged in a transaction in connection with which CBI, any ERISA Affiliate, and any CBI Employee Plan, including any CBI Defined Benefit Plan, any such trust or any trustee or administrator thereof, is subject to either a material civil liability or penalty pursuant to Section 409, 502(i) or 502(1) of ERISA or a material tax imposed pursuant to Chapter 43 of the Code.

 

4.14.4 A favorable determination letter has been issued by the Internal Revenue Service, with respect to each CBI Employee Plan which is an “employee pension benefit plan” (as defined in Section 3(2) of ERISA) which is intended to qualify under Section 401 of the Code (a “CBI Pension Plan”), to the effect that such plan is qualified under Section 401 of the Code and the trust associated with such employee pension plan is tax exempt under Section 501 of the Code. No such letter has been revoked or, to the best of CBI’s Knowledge, is threatened to be revoked, and CBI does not know of any ground on which such revocation may be based. Except as set forth in Section 4.13.4 of the CBI DISCLOSURE SCHEDULE, neither CBI nor any CBI Subsidiary has any current liability under any such plan that was required to be reflected as a liability on the Financial Statements as of December 31, 2004 under GAAP, which was not reflected on the consolidated statement of financial condition of CBI at December 31, 2004 included in the CBI Financial Statements. All contributions required to be made under the terms of any such plan have been made on a timely basis in all material respects.

 

4.14.5 Except as specifically identified in Section 4.14.5 of the CBI DISCLOSURE SCHEDULE, neither CBI nor any CBI Subsidiary has any obligations for post-retirement or post-employment benefits (including but not limited to health, life or disability insurance for retirees) under any CBI Employee Plan, except for coverage required by Part 6 of Title I of ERISA or Section 4980B of the Code, or similar state law, the cost of which is borne by the insured individual. Full payment has been made (or proper accruals have been established) of all contributions which are required for periods prior to the date hereof, and full payment will be so made (or proper accruals will be so established) of all contributions which are required for periods after the date hereof and prior to the Effective Time, under the terms of each CBI Employee Plan or ERISA except where the failure to make such payment or accrual would not result in a Material Adverse Effect to CBI.

 

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4.14.6 The CBI Employee Plans have been operated in compliance in all material respects with the applicable provisions of ERISA, the Code, all regulations, rulings and announcements promulgated or issued thereunder and all other applicable governmental laws and regulations.

 

4.14.7 There are no pending or, to the Knowledge of CBI, threatened claims (other than routine claims for benefits) by, on behalf of or against any of the CBI Employee Plans or any trust related thereto or any fiduciary thereof.

 

4.14.8 Section 4.14.8 of the CBI DISCLOSURE SCHEDULE sets forth (i) the maximum amount that could be paid to each executive officer and director of CBI or any CBI Subsidiary as a result of the transactions contemplated by this Agreement under all employment, severance, and termination agreements, other compensation arrangements, CBI Executive Officer and Director Agreements and CBI Employee Plans currently in effect, other than those agreements superceded by the Retention Agreements and the Release, Consulting and Noncompetition Agreements being entered into pursuant to Section 7.5.4 hereof; and (ii) the “base amount” (as such term is defined in Section 280G(b)(3) of the Code) for each such individual calculated as of the date of this Agreement based on compensation through December 31, 2004 for each such individual who it is estimated at the time of Closing will be a “disqualified individual” within the meaning of Final Treasury Regulation Section 1.280G-1, Q&A 15 to 21.

 

4.14.9 Except as set forth in Section 4.14.9 of the CBI DISCLOSURE SCHEDULE, with respect to any CBI Employee Plan which is an employee welfare benefit plan (within the meaning of ERISA Section 3(1) (a “CBI Welfare Plan”): (i) each such CBI Welfare Plan which is intended to meet the requirements for tax-favored treatment under Subchapter B of Chapter 1 of the Code meets such requirements; (ii) there is no disqualified benefit (as such term is defined in Code Section 4976(b)) which would subject CBI to a material tax under Code Section 4976(a); (iii) each CBI Welfare Plan which is a group health plan (as such term is defined in Code Sections 5000(b)(1)) is in material compliance with the applicable requirements of Code Section 4980B; and (iv) each such CBI Welfare Plan (including any such plan covering former employees of CBI or any CBI Subsidiary) may be amended or terminated by CBI or NAB or NewAlliance on or at any time after the Effective Date without incurring liability to participants in such Plan thereunder except as required to satisfy the terms of the Plan.

 

4.15 Certain Contracts .

 

4.15.1 Except for this Agreement, and those agreements and other documents which have been filed as exhibits to CBI’s Securities Documents or set forth in the CBI DISCLOSURE SCHEDULE, neither CBI nor any CBI Subsidiary is a party to, bound by or subject to (i) any agreement, contract, arrangement, commitment or understanding (whether written or oral) that is a “material contract” within the meaning of Item 601(b)(10) of the SEC’s Regulation S-K; (ii) any collective bargaining agreement with any labor union relating to employees of CBI or any CBI Subsidiary; (iii) any agreement which by its terms limits the payment of dividends by CBI or Cornerstone; (iv) any instrument evidencing or related to material indebtedness for borrowed money whether directly or indirectly, by way of purchase money obligation, conditional sale, lease, purchase, guaranty or otherwise, in respect of

 

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which CBI or any CBI Subsidiary is an obligor to any person, which instrument evidences or relates to indebtedness other than deposits, repurchase agreements, Federal Home Loan Bank of Boston advances, bankers’ acceptances, and “treasury tax and loan” accounts established in the ordinary course of business and transactions in “federal funds” or which contain 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 CBI or any Cornerstone Subsidiary; (v) any contract (ot