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AS FILED WITH SECURITIES AND EXCHANGE COMMISSION OF MARCH 18, 1999
REGISTRATION NO. 333-71571
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_______________
AMENDMENT NO. 1
TO
FORM SB-2/A
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
CHEROKEE BANKING COMPANY
------------------------
(Name of Small Business Issuer in its Charter)
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<S> <C> <C>
GEORGIA 6021 58-2432974
- ------------------------------ ---------------------------- -------------------------------------
(State or jurisdiction of (Primary Standard Industrial (I.R.S. Employer Identification No.)
incorporation or organization) Classification Code Number)
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P. O. BOX 1314
CANTON, GEORGIA 30114
(770) 479-3400
---------------------------
(Address, and telephone number of principal executive offices)
1275 RIVERSTONE PARKWAY
CANTON, GEORGIA 30114
(770) 479-3400
---------------------
(Address of principal place of business or intended principal place of business)
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DENNIS W. BURNETTE COPIES TO:
205 WALESKA ROAD, SUITE 2A KATHRYN L. KNUDSON, ESQ.
CANTON, GEORGIA 30114 POWELL GOLDSTEIN FRAZER & MURPHY LLP
(770) 479-3400 191 PEACHTREE STREET, N.E., 16/TH/ FLOOR
_____________________ ATLANTA, GEORGIA 30303
(404) 572-6600
(Name, address, and
telephone number, of
agent for service)
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Approximate date of proposed sale to the public: AS SOON AS PRACTICABLE AFTER
THIS REGISTRATION STATEMENT IS DECLARED EFFECTIVE.
If this Form is filed to register additional securities for an offering pursuant
to rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If the delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
================================================================================
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CHEROKEE BANKING COMPANY
A Proposed Bank Holding Company for
[LOGO APPEARS HERE]
(Proposed)
1,000,000 SHARES OF COMMON STOCK
(Minimum Purchase: 100 Shares)
Cherokee Banking Company is offering a minimum of 650,000 shares and a
maximum of 1,000,000 shares of its common stock to organize Cherokee Bank, N.A.,
a proposed national bank. Cherokee Banking Company's organizers will offer and
sell the common stock to potential investors without compensation. Prior to
this offering, Cherokee Banking Company has not conducted active business
operations, and there has not been a public market for the shares of common
stock. After this offering, we do not expect the common stock to be actively
traded, and we do not have any plans to list the stock on any exchange or
Nasdaq.
INVESTING IN THE COMMON STOCK INVOLVES RISKS WHICH ARE DESCRIBED IN THE
"RISK FACTORS" SECTION BEGINNING ON PAGE 7 OF THIS PROSPECTUS.
The shares of common stock offered are not deposits, savings accounts, or
other obligations of a bank or savings association and are not insured by the
Federal Deposit Insurance Corporation or any other governmental agency.
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<CAPTION>
Total
Per Share Minimum Total Maximum
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Price to public............................ $ 10.00 $ 6,500,000 $ 10,000,000
Fees and commissions....................... -- -- --
Net proceeds, before expenses, to $ 10.00 $ 6,500,000 $ 10,000,000
Cherokee Banking Company
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Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
accuracy or adequacy of this prospectus. Any representation to the contrary is a
criminal offense.
We will promptly deposit subscription proceeds in an escrow account with
our escrow agent, The Bankers Bank, Atlanta, Georgia. The escrow agent will
hold the subscription proceeds until we receive the following:
. Subscriptions for at least 650,000 shares
. Preliminary approval from Cherokee Bank's regulator, and
. Final approval from Cherokee Banking Company regulators.
We plan to end the offering on [JUNE 1], 1999, unless we decide to end it sooner
or extend it. If we are unable to sell 650,000 shares of common stock, the
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escrow agent will promptly return all subscription proceeds to investors,
without interest, and we will pay all of Cherokee Banking Company's
expenses.
THE DATE OF THIS PROSPECTUS IS _________, 1999
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[MAP APPEARS HERE]
THE MARKET AREA OF CHEROKEE BANK, N.A. (PROPOSED) IS CHEROKEE COUNTY.
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SUMMARY
This summary does not contain all the information you should consider
before investing in the common stock. You should read carefully the entire
prospectus.
IN GENERAL
Cherokee Banking Company is a Georgia corporation that was incorporated to
serve as the holding company for Cherokee Bank, a proposed national bank.
Cherokee Bank will operate as a full service commercial bank emphasizing
prompt, personalized customer service to the individuals and businesses located
in Cherokee County, Georgia. Cherokee Bank expects to operate out of a temporary
office located at 1275 Riverstone Parkway, Canton, Georgia, until a permanent
facility at that location is constructed. We expect to begin construction of the
permanent facility by July 1, 1999, and we plan to open that facility in
December of 1999.
Cherokee Banking Company and Cherokee Bank must receive all necessary
regulatory approvals before Cherokee Banking Company may purchase Cherokee
Bank's common stock and before Cherokee Bank may begin business. We are in the
process of filing all of the necessary applications with the banking regulators.
We anticipate that we will receive the necessary approvals and begin business in
the third quarter of 1999.
THE CHEROKEE MARKET
Cherokee Bank will be located in Canton, Georgia. Our primary market will
consist of the geographic area of Cherokee County, which includes the cities of
Ball Ground, Canton, Holly Springs, Waleska, and Woodstock. The city of Canton
is the commercial and retail center of Cherokee Bank's market area.
We believe that successful community banks offer excellent customer
service, convenience, and competitively priced products. We plan to do these
things. We also believe that the degree of success of a community bank is
largely influenced by the growth rate of its market and the level of local
competition. Over the last five years, Cherokee County has had an average
deposit growth rate of almost 14% per year. This is one of the top growth rates
not only in Georgia, but also in the entire United States. In addition, two
banks that had many Cherokee County residents as shareholders have recently sold
to large bank holding companies -- Regions Financial Corporation and Synovus
Financial Corp. Throughout the Southeast, new locally-owned and managed banks
are doing well under these circumstances.
We also believe that the proper strategy for Cherokee Bank is to emphasize
customer relationships more than products. The large banks tend to emphasize
products. By contrast, if we emphasize customer relationships, we think our
customers will be more likely to bank with us for a long time and will not be as
sensitive to the price of our services. We also think a bank can differentiate
itself from other banks by identifying underserved but profitable groups,
developing customer relationships within those groups, and then developing
products to satisfy the financial needs of those customers. In Cherokee County,
we believe that small businesses are underserved by other banks, and we plan to
focus on them as customers.
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PRODUCTS AND SERVICES
We plan to offer Cherokee Bank's products and services with a focus on
community involvement while providing our customers with the financial
sophistication and array of products typically offered by a larger bank.
Cherokee Bank's lending services will include commercial loans to small- and
medium-sized businesses and professional concerns, consumer loans to
individuals, and real estate-related loans. We plan to offer our products and
services through our main office, automated teller machines, telephone banking
and internet banking.
Cherokee Bank will offer a broad array of competitively priced deposit
services, including interest-bearing and non-interest bearing checking accounts,
statement savings accounts, money market deposits, certificates of deposit and
individual retirement accounts. To complement our lending and deposit services,
we will also provide ATM and debit cards, travelers checks, official checks,
MasterCard(R) and VISA(R) credit cards, direct deposit, automatic transfer,
savings bonds, night depository, stop payments, collections, wire transfer,
overdraft protection, and courier services.
DIRECTORS AND OFFICERS
Our management team includes individuals who have significant experience in
the banking industry in Georgia. Dennis W. Burnette is the President and Chief
Executive Officer of Cherokee Banking Company and will serve as the President
and Chief Executive Officer of Cherokee Bank. Mr. Burnette has over 30 years of
banking experience, including 20 years as President and Chief Executive Officer
of a bank in neighboring Pickens County. While working in Pickens County, Mr.
Burnette also established many banking relationships in Cherokee County.
A. Rick Roberts, III will be the Chief Financial Officer and Chief
Operations Officer of Cherokee Bank. Mr. Roberts served in various positions at
Citizens Bank, Ball Ground, Georgia, for 19 years, including as Executive Vice
President and Chief Financial Officer. Mr. Roberts also serves as Mayor of Ball
Ground, Georgia.
The directors of Cherokee Banking Company and Cherokee Bank consist of the
10 organizers. Except for Mr. Burnette, all of the organizers live, work,
and/or own businesses in Cherokee County. Mr. Burnette lives in the adjoining
county of Pickens and will be relocating to Cherokee County. The directors
expect to utilize their diverse backgrounds and their extensive local business
relationships to attract customers from all segments of the community. The
directors and executive officers also intend to purchase approximately 152,000
shares of the common stock offered by this prospectus, which represents 23% of
the minimum and 15% of the maximum number of shares to be sold. The directors'
financial interest in Cherokee Banking Company and Cherokee Bank should
encourage their active participation in growing our franchise.
BUSINESS STRATEGY
Our strategy as an independent bank holding company will be carried out
through the operations and growth of Cherokee Bank. In an effort to emphasize
prompt, responsive service to our target customers and to expand our presence in
the Cherokee market, our strategies are to:
OPERATING STRATEGY:
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. Hire and retain highly experienced and qualified banking personnel;
. Capitalize on the directors' and officers' diverse community
involvement and business experience;
. Provide individual service and attention with local decision-making;
. Implement a targeted marketing program;
GROWTH STRATEGY:
. Seek to hire employees with established customer relationships;
. Construct a building that will support the hiring of additional
lending officers;
. Utilize technology and strategic outsourcing to provide a broad array
of banking products and services;
. Expand our presence in the Cherokee County market by opening branch
offices in strategic locations as appropriate; and
. Evaluate strategic acquisition opportunities on an ongoing basis.
EXECUTIVE OFFICES
Our offices will be located at 1275 Riverstone Parkway, Canton, Georgia
30114. Our telephone number is (770) 479-3400. Until we begin operations, our
offices will be located at 205 Waleska Road, Suite 2A, Canton, Georgia 30114.
THE OFFERING
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Securities offered.......................... Common stock, no par value, of Cherokee
Banking Company
Common stock to be outstanding after the
offering................................... Minimum 650,000 shares;
Maximum 1,000,000 shares
Offering price.............................. $ 10.00 per share
Use of proceeds............................. To capitalize Cherokee Bank, to pay
organizational, offering and pre-opening
expenses, to construct Cherokee Bank's main
office and to provide working capital for
Cherokee Bank to be used for business
purposes, including making loans and other
investments. See "Use of Proceeds"
(page 18).
</TABLE>
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The number of shares to be outstanding after the offering does not include
the shares of common stock that Cherokee Banking Company will issue:
(1) To the organizers if they exercise their warrants;
(2) To its President if he exercises his option; and
(3) To other employees who may be granted options in the future, if they
exercise the options granted to them.
See "Executive Compensation" (page 45).
The organizers will offer and sell the common stock to potential investors
without compensation.
NO DIVIDENDS
We do not plan to pay dividends until we recover any losses that we have
incurred and until we become profitable. See "Risk Factors" (page 7).
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RISK FACTORS
An investment in the common stock involves a significant degree of risk.
You should not invest in the common stock unless you can afford to lose your
entire investment. You should consider carefully the following risk factors and
other information in this prospectus before deciding to invest in the common
stock.
The following paragraphs describe all of the material risks of an
investment in the common stock presently known to us. You should also carefully
read the cautionary statement following the Risk Factors regarding the use of
forward-looking statements.
We have no operating history upon which to base our future Earnings
prospects
Neither Cherokee Banking Company nor Cherokee Bank has any operating
history on which to base any estimate of their future earnings prospects.
Cherokee Banking Company was only recently formed, and Cherokee Bank will not
receive regulatory approval to begin operations until after this offering is
completed. Consequently, you will not have access to historical information that
would be helpful in deciding whether to invest in Cherokee Banking Company.
You may not recover all or any part of your investment if we do not become
profitable
Typically, most new banks incur substantial start-up expenses, are not
profitable in the first year of operation and, in some cases, are not profitable
for several years. If we are ultimately unsuccessful, you may not recover all or
any part of your investment in the common stock. Additionally, many of Cherokee
Bank's loans initially will be unseasoned -- new loans to new borrowers.
Accordingly, it will take several years to determine the borrowers' payment
histories, and, accordingly, management will not be able to evaluate reliably
the quality of the loan portfolio until that time. Our profitability will depend
on Cherokee Bank's profitability, and we can give no assurance that Cherokee
Bank will ever operate profitably. Additionally, if we are ultimately
unsuccessful, you may not recover all or any part of your investment in the
common stock. See "Management's Discussion and Analysis of Financial Condition
and Plan of Operations" (page 22).
Failure to implement our business strategies may adversely affect our financial
performance
We have developed a business plan that describes the strategy we intend to
implement to achieve profitable operations. The strategy includes hiring and
retaining experienced and qualified employees. If we cannot hire or retain
qualified employees, or otherwise cannot implement our business strategy, we
will be hampered in our ability to develop business and serve our customers,
which could have an adverse effect on our financial performance. Even if we
successfully implement this strategy, it may not have the favorable impact
on
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operations that we expect. See "Proposed Business of Cherokee Banking Company
and Cherokee Bank--Business Strategy" (page 29).
A delay in beginning Cherokee Bank's operations will result in additional losses
Our target date to open Cherokee Bank is July 1, 1999. Any delay in the
date that Cherokee Bank's opening for business will increase its pre-opening
expenses and postpone its ability to generate income. Such a delay will cause
our accumulated deficit to continue to increase as a result of continuing
operating expenses such as salaries and other administrative expenses. Although
we expect to receive all regulatory approvals and to open for business in the
third quarter of 1999, we can give no assurance as to when, if at all, these
events will occur.
If regulatory conditions are not satisfied, we may terminate business operations
and you may only receive a portion, if any, of your investment
If we do not receive final approval for Cherokee Bank to start its banking
operations or other regulatory requirements are not satisfied, then we will
solicit shareholder approval to terminate Cherokee Banking Company's business
operations. If we terminate business operations after funds are released from
escrow, you would receive only a portion, if any, of your original investment
because we would have used the proceeds of the offering to pay all expenses and
capital costs incurred by Cherokee Banking Company. These expenses would include
the expenses of the offering, the organizational and pre-opening expenses of
Cherokee Banking Company and Cherokee Bank, and the claims of creditors. We
would then distribute to you any funds remaining after we pay or provide for the
payment of all claims against Cherokee Banking Company. Although Cherokee
Banking Company and Cherokee Bank are in the process of filing the necessary
applications required to begin business, we may not receive final approvals in a
timely manner, or at all. The closing of this offering and the release of funds
from escrow are not conditioned upon receipt of the final approval to begin
business.
Departures of our key personnel or directors may impair our operations
Dennis W. Burnette and A. Rick Roberts are important to our success and if
either leaves his position with Cherokee Banking Company or Cherokee Bank, our
financial condition and results of operations may be adversely affected. Mr.
Burnette has been instrumental in our organization and will be the key
management official in charge of daily business operations. Mr. Roberts has also
been instrumental in our organization and will be the Chief Financial Officer
and Chief Operations Officer of Cherokee Bank. We have entered into an
employment agreement with Mr. Burnette, but cannot be assured of the continued
service of either Mr. Burnette or Mr. Roberts. Additionally, our directors'
community involvement,
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diverse backgrounds and extensive local business relationships are important to
our success. If the composition of our Board of Directors changes materially,
our growth could be adversely affected. See "Management" (page 39).
Because we face strong competition from other banks in Cherokee County, we may
have to pay higher interest rates to attract depositors
The banking business is highly competitive. Our profitability will depend
on our ability to compete successfully. Cherokee Bank will compete with numerous
other lenders and deposit-takers that are not subject to the same degree of
regulation and have greater resources than we will have. These competitors
include other commercial banks, savings and loan associations, credit unions,
finance companies, mutual funds, insurance companies and brokerage and
investment banking firms. We will compete primarily with other financial
institutions in the Cherokee County market, but may also compete with internet
banks and financial institutions located throughout the United States for
products such as large certificates of deposit. All of our competitors actively
solicit business from residents of Cherokee County. See "Proposed Business of
Cherokee Banking Company and Cherokee Bank--Market Opportunities--Competition"
(page 28).
Changes in interest rates may decrease our net interest income
An increase or decrease in interest rates could have a material adverse
effect on Cherokee Bank's net income, capital and liquidity. Cherokee Bank's
operations will depend substantially on its net interest income, which is the
difference between the interest income earned on its interest-earning assets,
such as loans, and the interest expense paid on its interest-bearing
liabilities, such as deposits and borrowings. Cherokee Bank's earnings and net
interest income will be affected by changes in market interest rates and other
economic factors beyond its control. While we intend to take measures to guard
against interest rate risk, these measures may not be effective in minimizing
the exposure to interest rate risk. Cherokee Bank's results of operations will
also be affected by credit policies of monetary authorities, particularly the
Board of Governors of the Federal Reserve System. See "Management's Discussion
and Analysis of Financial Condition and Plan of Operations--Liquidity and
Interest Rate Sensitivity" (page 23).
Unpredictable economic conditions may have an adverse effect on our financial
performance
The majority of Cherokee Bank's borrowers and depositors will be
individuals and businesses located and doing business in the Cherokee County
area. Cherokee Bank's success will therefore depend on the general economic
conditions in Cherokee County, which management cannot predict with certainty.
Factors that adversely affect the Cherokee County economy could adversely affect
Cherokee Bank's performance. For example, an adverse change in the local economy
would make it more difficult for borrowers to repay their loans, which
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could lead to loan losses for Cherokee Bank. See "Proposed Business of Cherokee
Banking Company and Cherokee Bank" (page 25).
Lower lending limits than many of our competitors may limit our ability to
attract borrowers
At least during its first years of operations, Cherokee Bank's legally
mandated lending limits will be lower than those of many of its competitors
because initially it will have less capital than many of its competitors. Our
lower lending limits may discourage potential borrowers who have lending needs
that exceed our limits, which may restrict our ability to grow. We may try to
serve the needs of these borrowers by selling loan participations to other
institutions, but this strategy may not succeed. See "Proposed Business of
Cherokee Banking Company and Cherokee Bank--Lending Services-Lending Limits"
(page 31).
We do not plan to pay dividends, and our ability to pay dividends depends on
Cherokee Bank's ability to pay dividends
We do not plan to pay dividends until we recover any losses that we have
incurred and we have become profitable. Initially, Cherokee Banking Company will
have no source of income other than dividends that it receives from Cherokee
Bank. Our ability to pay dividends to you will therefore depend on Cherokee
Bank's ability to pay dividends to Cherokee Banking Company.
Bank holding companies and national banks are both subject to significant
regulatory restrictions on the payment of cash dividends. In light of these
restrictions and the need for Cherokee Banking Company and Cherokee Bank to
retain and build capital, it will be the policy of each of their Boards of
Directors to reinvest earnings for the period of time necessary to help support
the success of their operations. In the future, Cherokee Banking Company may
begin income-producing operations independent from those of Cherokee Bank, which
may provide another source of income from which Cherokee Banking Company could
pay dividends to you. We can give no assurance, however, as to when, if at all,
these operations may begin or whether they will be profitable. Additionally, our
future dividend policy will depend on our earnings, capital requirements,
financial condition and other factors that the Boards of Directors of Cherokee
Banking Company and Cherokee Bank consider relevant. See "Dividends" (page
21).
Arbitrarily determined public offering price may be higher or lower than the
market price of the common stock after the offering
Because the organizers only recently formed Cherokee Banking Company and
are in the process of organizing Cherokee Bank, the offering price of $10.00 per
share could not be set with reference to historical measures of Cherokee Banking
Company's financial performance. Therefore, the organizers arbitrarily
determined the offering price. The organizers did not retain an independent
investment banking firm to assist in determining the offering price. You may not
be able to resell the common stock for the offering price or any other amount.
See "The Offering" (page 15).
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It is unlikely that an active trading market will develop
Prior to the offering, there has been no public trading market for Cherokee
Banking Company's common stock, and an active trading market is not likely to
develop or continue to develop after the offering. If an active trading market
does not develop or continue after the offering, you may not be able to sell
your shares at or above the price at which these shares are being offered to the
public. You should consider carefully the limited liquidity of your investment
before purchasing any shares of common stock.
Government regulation may have adverse effect on our profitability and
growth
Bank holding companies and banks are subject to extensive state and federal
government supervision and regulation. Our ability to achieve profitability and
to grow could be adversely affected by state and federal banking laws and
regulations. These and other restrictions limit how we conduct our business,
including Cherokee Bank's ability to attract deposits, make loans and achieve
satisfactory interest spreads. Many of these laws and regulations are intended
to protect depositors, the public, and the FDIC. They are not intended to
protect shareholders. In addition, the burden imposed by federal and state laws
and regulations may place us at a competitive disadvantage compared to
competitors who are less regulated. Applicable laws, regulations,
interpretations and enforcement policies have been subject to significant, and
sometimes retroactively applied, changes in recent years, and may be subject to
significant future changes. Future legislation or government policy may
adversely affect the banking industry or our operations. See "Supervision and
Regulation" (page 56).
Exercise of stock options and warrants will cause dilution
The organizers and officers may exercise their warrants or options to
purchase common stock which would result in the dilution of your proportionate
interest in Cherokee Banking Company. As part of his employment agreement with
Cherokee Banking Company and Cherokee Bank, Dennis W. Burnette will be granted a
stock option to purchase 30,000 shares of common stock at an exercise price of
$10.00 per share. In addition, each organizer will be issued a warrant to
purchase the same number of shares of common stock as he or she purchases in
this offering. These warrants will also have an exercise price of $10.00 per
share.
The organizers and officers will have the opportunity to profit from any rise in
the market value of the common stock or any increase in our net worth.
In addition, the exercise of the warrants or options could adversely affect
the terms on which we are able to obtain additional capital. For instance, the
holders of the option or warrants could exercise them when we could have
obtained capital by offering additional
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securities on terms more favorable to Cherokee Banking Company than those
provided for by the option or warrants. See "Executive Compensation" (page 45).
We may not be able to raise more capital
In the future, should we need more capital, we may not be able to raise
additional funds by selling more common stock or other securities. Even if we
are able to obtain more capital by selling more shares of common stock or other
securities, we may not be able to sell these securities at prices or on terms
that are better than or equal to the public offering price. The sale of new
securities could dilute your ownership interest in Cherokee Banking
Company.
If our Articles of Incorporation and Bylaws deter a change in control, you may
be deprived of an opportunity to sell your shares at a premium over market
prices
Our Articles of Incorporation and Bylaws contain antitakeover provisions
that may deter an attempt to change or gain control of Cherokee Banking Company.
As a result, you may be deprived of opportunities to sell some or all of your
shares at prices that represent a premium over market prices. These antitakeover
provisions include the existence of preferred stock, staggered terms for the
directors, restrictions on the ability to change the number of directors or to
remove a director, supermajority voting requirements, and flexibility in
evaluating acquisition proposals. See "Important Provisions of the Articles of
Incorporation and Bylaws" (page 49).
Directors and officers could have the ability to influence shareholder
Actions
Our directors and executive officers, together, may be able to control the
outcome of director elections or block a significant transaction that might
otherwise be approved by the shareholders. After the offering, we anticipate
that our directors and executive officers will directly or indirectly own at
least 152,000 shares, representing 23% of the minimum and 15% of the maximum
number of shares to be sold in this offering. These persons may acquire
additional shares of common stock after the offering, which would increase this
percentage. See "Important Provisions of the Articles of Incorporation and
Bylaws" (page 49).
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Our computer systems, or those of our service providers, suppliers, or
customers, may not operate properly on year 2000-sensitive dates
The year 2000 issue common to most corporations concerns the inability of
certain software and databases to recognize the year 2000 and other year 2000-
sensitive dates. If Cherokee Banking Company, Cherokee Bank or any of their
service providers, correspondents, vendors or customers experiences a disruption
of business resulting from a year 2000 problem, the financial condition, results
of operations and liquidity of Cherokee Banking Company and Cherokee Bank could
be materially adversely affected. Cherokee Bank, like most banks, will depend
heavily on complex computer systems for most phases of its operations. If not
corrected, a year 2000 problem could result in a disruption to the operations of
Cherokee Bank as well as other financial institutions, which are particularly
sensitive to these disruptions. These could include events ranging from
electrical or water failure to computer systems failure, with any of these
events potentially stopping Cherokee Bank's business activities until the
problem is resolved.
We will rely on software and hardware developed by independent third
parties to provide the information systems used by us. As a result, we will
depend on the efforts of those vendors to ensure that their data processing
systems accommodate year 2000 information. Although we intend to require vendor
certification regarding year 2000 readiness before we purchase any equipment, we
cannot verify independently that the equipment will in fact be year 2000
compliant. Additionally, Cherokee Bank could be adversely affected by year 2000
problems experienced by others over which it has no control, including
customers, service providers, vendors, customers' vendors, correspondent banks,
government agencies, and the financial services industry in general. If, for
example, one of Cherokee Bank's major borrowers were unable to conduct its
operations as a result of a year 2000 problem, that borrower could be unable to
maintain its cash flow and might default on its loan, which would lead to loan
losses for Cherokee Bank. See "Proposed Business of Cherokee Banking Company and
Cherokee Bank--Information Systems and the Year 2000" (page 35).
We may not allocate all of the net proceeds in the most profitable manner
After providing $6.0 million in capital to Cherokee Bank, our Board of
Directors and management will have broad discretion in allocating
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a total of up to $4.0 million, if we raise the maximum of $10.0 million in this
offering. We cannot predict the extent to which we will allocate these funds to
income-generating assets, capital assets or liquidity. The allocation will
directly affect our earnings and, as a result, it will be difficult to predict
our results of operations. Although we intend to utilize the funds to serve
Cherokee Banking Company's best interests, we cannot assure you that our
allocation will ultimately reflect the most profitable application of these
proceeds.
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CAUTIONARY STATEMENT ABOUT FORWARD-LOOKING STATEMENTS
Some of the statements in this prospectus under the captions "Summary,"
"Risk Factors," "Management's Discussion and Analysis of Financial Condition and
Plan of Operations" and "Proposed Business of Cherokee Banking Company and
Cherokee Bank" and elsewhere in this prospectus are "forward-looking
statements." Forward-looking statements include, among other things, statements
about the competitiveness of the banking industry, possible regulatory
obligations, Cherokee Banking Company's strategies, and other statements that
are not historical facts. When used in this prospectus, the words "anticipate,"
"believe," "estimate" and similar expressions generally identify forward-looking
statements. Because forward-looking statements involve risks and uncertainties,
there are important factors that could cause actual results to differ materially
from those expressed or implied by the forward-looking statements. These factors
include, among other things:
. Risks associated with starting a new business
. A delay in beginning operations
. A risk that Cherokee Banking Company will terminate business
operations if it does not satisfy regulatory conditions
. Our dependence on our directors and key personnel
. The possible adverse effect of competition
. Interest rate risk
. The possible adverse effect of unpredictable economic conditions
. Possible limitations on our growth resulting from low lending
limits
. Risks associated with the year 2000 and
. Other factors discussed under "Risk Factors."
16
<PAGE>
THE OFFERING
MINIMUM/MAXIMUM
Cherokee Banking Company is offering a minimum of 650,000 shares and a
maximum of 1,000,000 shares of its common stock for a price of $10.00 per share,
for a total minimum price of $6,500,000 and a total maximum price of
$10,000,000. The minimum purchase for any investor is 100 shares of common
stock, unless Cherokee Banking Company, in its sole discretion, accepts a
subscription for a lesser number of shares. The maximum purchase for any
investor is 25,000 shares of common stock, unless Cherokee Banking Company, in
its sole discretion, accepts a subscription for a greater number of shares.
ORGANIZER SUBSCRIPTIONS
The organizers of Cherokee Banking Company intend to purchase a total of
152,000 shares of common stock in this offering. This represents 23% of the
minimum and 15% of the maximum number of shares to be sold in this offering.
The organizers may also acquire additional shares of the common stock, up to a
maximum aggregate number for all organizers of 650,000 shares, in order to
achieve the minimum subscription level necessary to release subscription
proceeds from escrow.
OFFERING PERIOD
The offering period for the shares will end when all of the shares of the
common stock are sold or 5:00 p.m. Canton, Georgia time, on [JUNE 1], 1999,
whichever occurs first. We may extend this date at our discretion for
additional periods not exceeding a total of 210 days, which means that the
offering period will end by December 31, 1999. We will promptly notify
subscribers of any extensions. The date on which this offering ends plus any
extension is referred to in this prospectus as the "expiration date."
We also reserve the right to end the offering at any time after 650,000
shares have been subscribed if we determine that the total amount of
subscriptions will provide adequate capitalization for Cherokee Banking Company
after payment of expenses.
HOW TO SUBSCRIBE
We will ask investors who have already submitted preliminary subscription
agreements to send us a check in the amount of $10.00 multiplied by the number
of shares subscribed. Our receipt of the check will convert the subscriber's
preliminary nonbinding subscription agreement into a final binding subscription
agreement. All other investors who wish to subscribe will need to send us a
completed and signed final subscription agreement and a check in the amount of
$10.00 multiplied by the number of shares subscribed. All checks should be
payable to "The Bankers Bank - Escrow Account for Cherokee Banking Company."
ALL FINAL BINDING SUBSCRIPTIONS WILL BE IRREVOCABLE UNTIL THE CLOSE OF THE
OFFERING.
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<PAGE>
COMPANY DISCRETION
We reserve the right, in our sole discretion, to accept or reject any
subscription in whole or in part on or before the expiration date. If the
offering is over subscribed, we plan to give preference to subscribers who are
residents of Cherokee County. We also reserve the right to accept subscriptions
on a first-come, first-served basis or on a prorated basis if we receive
subscriptions for more than 650,000 shares. We will notify all subscribers
within five business days after the expiration date whether their subscriptions
have been accepted. If we do not accept all or a portion of a subscription, we
will also return the unaccepted portion of the subscription funds, without
interest.
ESCROW
We will promptly deposit all subscription proceeds in an escrow account
with our escrow agent, The Bankers Bank, located in Atlanta, Georgia. The
escrow agent will invest the subscription proceeds in short-term United States
Government securities, or interest bearing accounts offered by the escrow agent,
or in other short-term investments as we may agree upon with the escrow agent.
The escrow agent has not investigated the desirability or advisability of an
investment in Cherokee Banking Company, and has not approved, endorsed, or
passed upon the merits of the common stock.
RELEASE FROM ESCROW
The escrow agent will release the subscription proceeds to us when all of
the following events have occurred:
(1) We have received subscriptions and subscription proceeds for a
total of at least 650,000 shares of common stock;
(2) The Board of Governors of the Federal Reserve System and the
Georgia Department of Banking and Finance have approved Cherokee
Banking Company's application to become a bank holding company;
and
(3) The Office of the Comptroller of the Currency has preliminarily
approved Cherokee Bank's application to operate as a national
bank.
If the above conditions are met, we may instruct the escrow agent to
release to us the amount of subscription proceeds in excess of $6.5 million. We
will not deposit in the escrow account any subscription proceeds we receive
after the above conditions are met but before this offering ends. Instead, those
funds will be available for our immediate use.
If we do not meet the conditions to release the funds from the escrow
account by the expiration date, then the escrow agent will return the
subscription agreements and the full amount of all subscription funds, without
interest, to subscribers within five business days after the expiration date.
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<PAGE>
PLAN OF DISTRIBUTION
Cherokee Banking Company's organizers will offer and sell the common stock
to potential investors without compensation.
We may also find it desirable to utilize the services of brokers and/or
dealers to sell the common stock. We have no present arrangements with any
brokers or dealers relating to this offering. If we use brokers or dealers,
they would help the organizers to sell the common stock to potential investors,
and we would pay the brokers or dealers a commission based on the shares sold by
them. We believe that the range of possible commissions to be paid to brokers
or dealers is $.50 to $.75 per share and that the maximum average commission
payable in the offering when all shares subject to this offering are taken into
account is $0.23. We do not except that sales of common stock through brokers
or dealers will comprise a major part of this offering.
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<PAGE>
USE OF PROCEEDS
We estimate that the minimum net proceeds of the offering to Cherokee
Banking Company will be $6.5 million and the maximum will be $10.0 million. The
table illustrates how we intend to use the net proceeds of this offering.
<TABLE>
<CAPTION>
Minimum Maximum
------- -------
<S> <C> <C>
Repay amounts drawn on line of credit $ 250,000 (1) $ 250,000 (1)
Working capital 6,250,000 (2) 9,250,000 (2)
----------- -----------
Total $ 6,500,000 $10,000,000
=========== ===========
</TABLE>
_________________________
(1) At December 31, 1998, Cherokee Banking Company had drawn $60,000 under its
line of credit and had used these funds to pay organizational and pre-
opening expenses.
(2) Cherokee Banking Company will contribute $6.0 million of this amount to
Cherokee Bank as capital when Cherokee Bank receives final regulatory
approval.
Cherokee Banking Company's offering expenses will consist primarily of
registration fees and legal, accounting, and printing expenses. Cherokee
Banking Company will use its working capital initially for liquidity and
thereafter for expansion and for general purposes such as payment of operating
expenses, the provision of additional capital for Cherokee Bank or the purchase
of certificates of deposit from Cherokee Bank, if necessary or deemed desirable
by Cherokee Banking Company.
After Cherokee Bank receives the necessary regulatory approvals, Cherokee
Banking Company will purchase all of Cherokee Bank's common stock for a minimum
of $6.0 million. Cherokee Bank intends to use these proceeds for the following
purposes:
<TABLE>
<S> <C>
Purchase of land for Cherokee Bank's
main office $ 450,000
Construction of the main office
building 980,000
Furniture, fixtures and equipment
for Cherokee Bank's main office 478,600
Funds to be used for loans to
customers, for investments and
for other general purposes 4,091,400
----------
Total $6,000,000
==========
</TABLE>
We estimate that Cherokee Bank's organizational expenses will be $97,400
and will include consulting fees, expenses for market analysis and feasibility
studies, and legal fees and expenses. Assuming Cherokee Bank opens for business
on its target date of July 1, 1999, we estimate that its pre-opening expenses
will be $180,180 and will include officers' and employees' salaries and
benefits, as well as lease payments for the temporary facility expected to
20
<PAGE>
be used by Cherokee Bank, marketing expenses, interest expenses, accounting and
other pre-opening expenses. Until we apply the net proceeds of this offering to
the specific purposes described above, we plan to invest them in short-term,
investment-grade securities, federal funds, certificates of deposit or
guaranteed obligations of the United States government.
21
<PAGE>
CAPITALIZATION
The following table shows Cherokee Banking Company's capitalization as of
December 31, 1998 and its pro forma consolidated capitalization, as adjusted to
give effect to the receipt of the net proceeds from the sale of a minimum of
650,000 shares and a maximum of 1,000,000 shares of common stock in this
offering.
A. Rick Roberts, III purchased 10 shares of common stock upon Cherokee
Banking Company's incorporation. Cherokee Banking Company will redeem these
shares for $10.00, which is the price Mr. Roberts paid for the 10 shares, upon
the issuance of shares in this offering. The number of shares shown as
outstanding after giving effect to this offering do not include the shares of
common stock issuable upon exercise of the warrants or the options that have
been or may be granted by Cherokee Banking Company. For additional information
concerning the number and terms of these warrants and options, see "Executive
Compensation."
<TABLE>
<CAPTION>
Actual Minimum Maximum
Shareholders' Equity December 31, 1998 As Adjusted As Adjusted
-------------------- ----------------- ----------- -----------
<S> <C> <C> <C>
Preferred stock, no par value; 2,000,000
shares authorized; no shares issued or outstanding $ -- $ -- $ --
Common stock, no par value; 10,000,000 shares
authorized; 10 shares issued ($1.00 each) and
outstanding; 650,000 and 1,000,000 shares,
respectively, issued ($10.00 each) and
outstanding as adjusted 10 6,435,100/(1)/ 9,935,100/(1)/
Accumulated deficit (40,414)/(2)/ (212,680)/(3)/ (212,680)/(3)/
----------- ----------- -----------
Total shareholders' deficit $ (40,404) $ 6,222,420 $ 9,722,420
=========== =========== ===========
Book value per share $ (4,040) $ 9.57/(4)/ $ 9.72/(4)/
=========== =========== ===========
</TABLE>
____________________
(1) We will charge the expenses of the offering against this account. We
estimate that our offering expenses will be $64,900, including legal,
accounting, printing and filing fees.
(2) This deficit reflects pre-opening expenses incurred through December 31,
1998, consisting primarily of professional and filing fees.
(3) The "As Adjusted" accumulated deficit results from estimated pre-opening
expenses of $212,680 which we expect to incur through July 1, 1999,
Cherokee Bank's target opening date. Actual pre-opening expenses may be
higher and may therefore increase the deficit accumulated during the pre-
opening stage and further reduce shareholders' equity.
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<PAGE>
(4) After giving effect to the net proceeds from this offering, there is an
immediate dilution in the book value per share of $0.43 if we sell 650,000
shares and $0.28 if we sell 1,000,000 shares, resulting from the pre-
opening expenses and the offering expenses.
DIVIDENDS
Cherokee Banking Company will initially have no source of income other than
dividends that Cherokee Bank pays to it. Cherokee Banking Company's ability to
pay dividends to its shareholders will therefore depend on Cherokee Bank's
ability to pay dividends to Cherokee Banking Company. In the future, Cherokee
Banking Company may begin income-producing operations independent from those of
Cherokee Bank, which may provide another source of income from which Cherokee
Banking Company could pay dividends to you. We can give no assurance, however,
as to when, if at all, these operations may begin or whether they will be
profitable. Bank holding companies and national banks are both subject to
significant regulatory restrictions on the payment of cash dividends. In light
of these restrictions and the need for Cherokee Banking Company and Cherokee
Bank to retain and build capital, it will be the policy of each of their Boards
of Directors to reinvest earnings for the period of time necessary to help
support the success of their operations. As a result, we do not plan to pay
dividends until we recover any losses that we have incurred and until we become
profitable. Additionally, our future dividend policy will depend on our
earnings, capital requirements, financial condition and other factors that the
Boards of Directors of Cherokee Banking Company and Cherokee Bank consider
relevant.
Additionally, regulatory authorities may determine, under circumstances
relating to the financial condition of Cherokee Bank or Cherokee Banking
Company, that the payment of dividends would be an unsafe or unsound practice
and to prohibit dividend payment. See "Supervision and Regulation--Payment of
Dividends."
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND PLAN OF OPERATIONS
Cherokee Banking Company's financial statements and related notes, which
are included in this prospectus, provide additional information relating to the
following discussion of its financial condition. See "Index to Financial
Statements."
Cherokee Banking Company was organized on October 9, 1998, to serve as a
holding company for a proposed national bank. Since it was organized, the main
activities of Cherokee Banking Company have been centered on seeking,
interviewing and selecting its directors and officers, applying for a national
bank charter, applying for FDIC deposit insurance, applying to become a bank
holding company and raising equity capital through this offering.
Cherokee Banking Company's operations from October 9, 1998 through the
close of the offering have been and will continue to be funded through a line of
credit from SunTrust Bank, Atlanta. The total amount available on the line of
credit is $250,000, of which approximately $60,000 was outstanding at December
31, 1998. This loan bears interest at the prime rate of SunTrust Bank, minus
1.00%, and is due on December 21, 1999. Cherokee Banking Company plans to repay
the line of credit after the closing of this offering.
From October 9, 1998 through December 31, 1998, Cherokee Banking Company's
net loss amounted to $40,414. The estimated net loss for the period from October
9, 1998 through July 1, 1999, the anticipated opening date of Cherokee Bank, is
$212,680, which is attributable to the following estimated noninterest
expenses:
<TABLE>
<CAPTION>
<S> <C>
Salaries and benefits: $135,367
Legal and professional fees: 12,600
Other pre-opening expenses: 64,713
--------
Total $212,680
</TABLE>
On December 11, 1998, Cherokee Banking Company executed a Purchase and Sale
Agreement for the purchase of approximately 1.06 acres of land at 1275
Riverstone Parkway, Canton, Georgia, at a purchase price of $450,000. Cherokee
Bank will use this property as the site for its main office. Cherokee Banking
Company intends to close the purchase and sale on or before May 1, 1999, using
either the net proceeds of this offering or borrowings under the line of credit.
After Cherokee Banking Company contributes $6.0 million to Cherokee Bank as
capital, Cherokee Bank will purchase the property from Cherokee Banking Company
for the same price that Cherokee Banking Company paid for it. Management
anticipates that Cherokee Bank will operate a temporary banking office on the
property while a permanent building is under construction, and expects to begin
construction in July 1999 and complete construction in December 1999. Cherokee
Bank will fund the construction of the main building, estimated at $980,000,
with the proceeds received from the issuance of its stock to Cherokee Banking
Company.
24
<PAGE>
LIQUIDITY AND INTEREST RATE SENSITIVITY
Since Cherokee Banking Company has been in the organizational stage, there
are no results to present at this time. Nevertheless, once Cherokee Bank starts
operations, net interest income, Cherokee Banking Company's primary source of
earnings, will fluctuate with significant interest rate movements. To lessen the
impact of these margin swings, we intend to structure the balance sheet so that
repricing opportunities exist for both assets and liabilities in roughly the
same amounts at approximately the same time intervals. Imbalance in these
repricing opportunities at any point in time constitutes interest rate
sensitivity.
Interest rate sensitivity refers to the responsiveness of interest-bearing
assets and liabilities to change in market interest rates. The rate sensitive
position, or gap, is the difference in the volume of rate sensitive assets and
liabilities at a given time interval. The general objective of gap management is
to manage actively rate sensitive assets and liabilities to reduce the impact of
interest rate fluctuations on the net interest margin. Management will generally
attempt to maintain a balance between rate sensitive assets and liabilities as
the exposure period is lengthened to minimize Cherokee Bank's overall interest
rate risk.
Management will regularly evaluate the asset mix of the balance sheet in
terms of several variables: yield, credit quality, appropriate funding sources
and liquidity. To effectively manage the balance sheet's liability mix,
management plans to focus on expanding Cherokee Bank's deposit base and other
sources of funds.
As Cherokee Bank continues to grow, management will continuously structure
its rate sensitivity position to best hedge against rapidly rising or falling
interest rates. Cherokee Bank's Asset and Liability Management Committee will
meet on a quarterly basis to develop a strategy for the upcoming period. The
committee's strategy will include anticipating future interest rate movements.
Liquidity represents the ability to provide steady sources of funds for
loan commitments and investment activities, as well as to maintain sufficient
funds to cover deposit withdrawals and payment of debt and operating
obligations. Management can obtain these funds by converting assets to cash or
by attracting new deposits. Cherokee Bank's ability to maintain and increase
deposits will serve as its primary source of liquidity.
Other than the offering, management knows of no trends, demands,
commitments, events or uncertainties that should result in or are reasonably
likely to result in Cherokee Banking Company's liquidity increasing or
decreasing in any material way in the foreseeable future.
CAPITAL ADEQUACY
There are now two primary measures of capital adequacy for banks and bank
holding companies: (1) risk-based capital guidelines and (2) the leverage
ratio.
The risk-based capital guidelines measure the amount of a bank's required
capital in relation to the degree of risk perceived in its assets and its off-
balance sheet items. Note that under the risk-based capital guidelines, capital
is divided into two "tiers." Tier 1 capital consists of common shareholders'
equity, noncumulative and cumulative (bank holding companies only) perpetual
preferred stock and minority interests. Goodwill is subtracted from the total.
Tier 2 capital consists of the allowance for loan losses, hybrid capital
instruments, term subordinated
25
<PAGE>
debt and intermediate term preferred stock. Banks are required to maintain a
minimum risk-based capital ratio of 8.0%, with at least 4.0% consisting of tier
1 capital.
The second measure of capital adequacy relates to the leverage ratio. The
Office of the Comptroller of the Currency has established a 3.0% minimum
leverage ratio requirement. The leverage ratio is computed by dividing tier 1
capital into total assets. In the case of Cherokee Bank and other banks that
have not received the highest regulatory rating by their primary regulator, the
minimum leverage ratio should be 3.0% plus an additional cushion of at least 1%
to 2%, depending upon risk profiles and other factors.
The Board of Governors of the Federal Reserve System, the Office of the
Comptroller of the Currency and the FDIC recently established a rule that adds a
measure of interest rate risk to the determination of supervisory capital
adequacy. In connection with this new rule, the agencies have also proposed a
measurement process to measure interest rate risk. Under this proposal, all
items on the balance sheet, as well as off-balance sheet items, would be
reported according to maturity, repricing dates and cash flow characteristics.
The bank would then multiply its reporting position by duration-based risk
factors that weight its position according to rate sensitivity. The appropriate
supervisory agency would access capital adequacy using this net risk weighted
position. The objective of this complex proposal is to determine a bank's
sensitivity to various rising and falling interest rate scenarios.
We believe that the minimum, as well as the maximum, net proceeds of the
offering will satisfy our cash requirements for at least the five-year period
following the opening of Cherokee Bank. Accordingly, we do not anticipate that
it will be necessary to raise additional funds to operate Cherokee Banking
Company or Cherokee Bank over the next five years. For additional information
about planned expenditures, see "Use of Proceeds." For additional information
about our plan of operations, see "Proposed Business of Cherokee Banking Company
and Cherokee Bank" and "Management."
26
<PAGE>
PROPOSED BUSINESS OF CHEROKEE BANKING COMPANY
AND CHEROKEE BANK
BACKGROUND
CHEROKEE BANKING COMPANY. Cherokee Banking Company was incorporated as a
Georgia corporation on October 9, 1998, to serve as a bank holding company for
Cherokee Bank. Cherokee Banking Company plans to use $6.0 million of the net
proceeds of this offering to capitalize Cherokee Bank. In return, Cherokee Bank
will issue all of its common stock to Cherokee Banking Company, and Cherokee
Banking Company will be Cherokee Bank's sole shareholder. Cherokee Banking
Company will apply to the Federal Reserve Bank of Atlanta and the Georgia
Department of Banking and Finance for prior approval to capitalize Cherokee
Bank. If these agencies grant the necessary approvals, Cherokee Banking Company
will become a bank holding company within the meaning of the Bank Holding
Company Act of 1956, as currently in effect, and the Georgia Bank Holding
Company Act upon its purchase of Cherokee Bank's common stock. See "Supervision
and Regulation--General."
Cherokee Banking Company has been organized to make it easier for Cherokee
Bank to serve its future customers. The holding company structure will provide
flexibility for expansion of Cherokee Banking Company's banking business through
the possible acquisition of other financial institutions and the provision of
additional capital and banking-related services that are permissible for bank
holding companies and for national banks. A holding company structure will make
it easier to raise capital for Cherokee Bank because Cherokee Banking Company
will be able to issue securities without the need for prior banking regulatory
approval and the proceeds of debt securities issued by Cherokee Banking Company
can be invested in Cherokee Bank as primary capital.
CHEROKEE BANK. The organizers filed applications on behalf of Cherokee Bank
with the Office of the Comptroller of the Currency and with the FDIC on December
14, 1998 for authority to organize as a national bank with federally insured
deposits. Cherokee Bank will not be authorized to conduct its banking business
until it obtains a charter from the Office of the Comptroller of the Currency.
The issuance of the charter will depend, among other things, upon Cherokee
Bank's receiving at least $6.0 million in capital from Cherokee Banking Company
and upon compliance with other standard conditions expected to be imposed by the
FDIC and the Office of the Comptroller of the Currency. These conditions are
generally designed to familiarize Cherokee Bank with operating requirements of a
new bank and to prepare Cherokee Bank to begin business. The Office of the
Comptroller of the Currency requires that a new national bank open for business
within 18 months after receipt of preliminary approval from the Office of the
Comptroller of the Currency. Cherokee Bank's application to the Office of the
Comptroller of the Currency to form a national bank is pending. Cherokee Bank's
application to the FDIC for deposit insurance also is pending.
MARKET OPPORTUNITIES
PRIMARY SERVICE AREA. Cherokee Bank's primary service area is Cherokee
County which includes the cities of Ball Ground, Canton, Holly Springs, Waleska,
and Woodstock. Cherokee County lies northwest of the city of Atlanta and
directly north of Cobb County. Current population projections indicate that
Cherokee County will reach over 130,650 persons by the year 2000. Interstate 575
opened in 1984 and allows Cherokee County residents direct access to employment
opportunities in the northern metropolitan Atlanta area.
27
<PAGE>
ECONOMIC AND DEMOGRAPHIC FACTORS. The city of Canton is the commercial and
retail center of Cherokee Bank's primary service area. According to the 1990
Census, the population of Cherokee County at that time was 90,204 persons.
According to information compiled by Information Decision System, the median age
of the population is 32.8 and the median family income is $50,989.
EMPLOYMENT. Cherokee County's economy is strong and growing. Its employment
sectors are diversified, representing poultry processing and agriculture,
apparel manufacturing, construction, electronics, services industries, and
aerospace. Service employment is the largest sector, providing 22% of the jobs
and 21% of employment earnings. Retail trade is the next largest contributor,
providing 18% of the jobs and 14% of employment earnings. Construction is also
important to Cherokee County's economy, providing 15% of the jobs and 18% of
employment earnings. Approximately 31% of Cherokee County's workforce is
employed within Cherokee County while the balance, 69%, commutes out of Cherokee
County. Cherokee County's unemployment rates have traditionally been low
compared to unemployment rates in Georgia. The May 1998 unemployment rate was
2.2% as compared to the Georgia unemployment rate of 4.6%.
Cherokee County's ten largest corporations include Seaboards Farms of
Canton, Evenflo, L.A.T. Sportswear, MVE, Y.D.K. America, Piolax, ERB Industries,
Siemens Energy & Automation, Underwood Mold, and Universal Alloy. The presence
of these corporations has led to the significant growth experienced by the
entrepreneurs and/or small businesses in Cherokee County. The strength of the
economy in Cherokee County relies on its large, diversified small business
community.
RESIDENTIAL AND COMMERCIAL ACTIVITY. New residential and commercial
development is prevalent in all areas of Cherokee County. The majority of this
activity is in progress or has been completed in the last 18 months. Highlights
of this activity follow:
. Riverstone Plaza Development -- a 500 acre regional shopping complex.
Phase 1 of the project represents 280,000 square feet that will
include a Publix, Belk Department Store, J.C. Penney's, Goody's
Department Store, Home Depot, new Canton Post Office, 16-screen
Carmike Cinema, and numerous restaurants. Phase 2 of the project
encompassing 100 acres is being cleared, with about 40 acres under
contract to R. T. Jones Hospital. The remainder of the land will be
developed for commercial and retail use. The Riverstone Plaza
Development is expected to employ about 2,000 people.
. A new Super Wal-Mart.
. Improvements to Reinhardt College Parkway.
. The new realignment of Georgia Highway 140, connecting Georgia 140 to
Old Georgia 5.
. Universal Alloy Corporation, a Swiss-owned aircraft parts supplier,
has announced plans to build a $10 million 105,000 square foot
aluminum extrusion plant on a 17-acre site in the Canton-Cherokee
Industrial Park. The plant will initially employ 75 workers but is
expected to grow to about 350.
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<PAGE>
. Herman Miller, a large office furniture manufacturer, has announced
plans to build a 330,000 square foot regional office located on 70
acres near Georgia 5, north of Exit 11 on Interstate 575.
. Canton Textile Mill No. 2, a 400,000 square foot historic building,
has been purchased for $1.5 million. The owner plans to convert it
into offices, stores and loft apartments.
. Downtown revitalization of small businesses sponsored by the Canton
Downtown Development Authority.
. Mayor's plans for River 2000 -- to develop a 5 mile stretch of the
Etowah River as a recreational area.
. New restaurants:
Applebee's Neighborhood Grill & Bar O'Charley's
Buffalo's Cafe Long Horn Steakhouse
Starbucks Tanner's
Zaxby's Outback Steakhouse
. Residential activity:
Name # Houses Price Range Development Status
---- -------- ----------- ------------------
Bridge Mill 4,000 $150,000-$400,000 Less than 1 Year
The Preserve 30 $170,000-$220,000 Less than 1 Year
Governors Walk 14 $150,000-$300,000 Developing
Cherokee Overlook 60 $ 70,000-$ 90,000 5th Year, still developing
Whispering Hills 60 $110,000-$130,000 3rd Year
Camden Woods 30 $120,000-$160,000 2nd Year
Fieldstone 35 $120,000-$170,000 Less than 1 Year
BANK SITE. Cherokee Bank will be located at 1275 Riverstone Parkway,
Canton, Georgia, which is part of the new Riverstone Plaza Development on
Interstate 575. Riverstone Parkway is also Georgia Business Highway 5, which is
one of the major thoroughfares through Cherokee County and Canton. We selected
the site because of its convenience to Interstate 575 which will allow us to
reach small business customers throughout Cherokee County and consumers
traveling to Riverstone Plaza, the newest major retail area in Cherokee County
and the primary destination point in the market. We propose to build a 7,000
square foot building at this location and to operate in a temporary facility at
this location while the building is under construction.
COMPETITION. The banking business is highly competitive. Cherokee Bank will
compete with other commercial banks, savings and loan associations, credit
unions, and money market mutual funds operating in Cherokee County. Cherokee
County is currently served by 12
29
<PAGE>
financial institutions with a total of 33 branches. The 12 financial
institutions represent 10 commercial banks and 2 savings banks. Of these, the
three largest are Regions Bank, Bank of Canton, and Synovus Financial Corp.
The regional holding companies represented in Cherokee County are: Regions
Bank, which is the largest with deposit market share of 31.54%; Synovus
Financial Corp., which is the third largest with market share of 12.76%;
Wachovia Bank; SunTrust Bank; First Union National Bank; SouthTrust;
NationsBank; and Tucker Federal Savings Bank. We do not believe that the
regional banks will be significant competitors because their retail products are
designed for the masses and their commercial products are oriented toward large
companies. In addition, each of the regional banks typically maintains a
centralized process for customer relations, which sometimes has resulted in
fewer employees and a reduction in the level of personal service. Also, the
centralized credit process that many of the larger banks use has not appeared to
be responsive to the needs of customers. We believe that many customers move
their banking relationships from the large banks because of pricing changes and
the level of personal service. We expect that the recent acquisition of two
local community banks in Cherokee County will reduce the high quality service
which had been available to small businesses and consumers.
The community banks represented in Cherokee County are Bank of Canton,
First National Bank of Cherokee, and Security State Bank. We believe that each
of these banks do offer some level of competition. However, we do not believe
these banks represent a significant threat to the growth plans for Cherokee Bank
because our executive management team has proven successful banking experience
in North Georgia. In addition, the future growth prospects of Cherokee County
will offer Cherokee Bank and its competitors significant opportunities for new
business.
All of the banks in Cherokee County have grown rapidly over the past five
years and indications are that this growth will continue. The large banks are
likely to continue doing what they do best, which is to market to the masses and
to very large businesses. The community banks are likely to continue to grow
rapidly by competing for customers that want a more personal approach to
transacting business, as well as by generating new business from the rapidly
increasing population.
BUSINESS STRATEGY
MANAGEMENT PHILOSOPHY. Cherokee Bank's philosophy will be to operate as a
community bank emphasizing prompt, personalized customer service to the
individuals and businesses located in Cherokee County. Cherokee Bank has adopted
this philosophy in order to attract customers and to acquire market share now
controlled by other financial institutions operating in the market. We believe
that local ownership and control will allow Cherokee Bank to serve customers
more efficiently and will aid in Cherokee Bank's growth and success.
Additionally, we believe that the expansion and growth of Cherokee Bank's
operations will be a significant factor in the success of Cherokee Banking
Company. Accordingly, we will implement the following operating and growth
strategies.
OPERATING STRATEGY. In order to achieve the level of prompt, responsive
service that we believe will be necessary to attract customers and to develop
Cherokee Bank's image as a local bank with an individual focus, we will employ
the following operating strategies:
. QUALITY EMPLOYEES. We will strive to hire highly trained and seasoned
staff. We plan to train our staff to answer questions about all of our
products and services so
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that the first employee the customer encounters can resolve any
questions the customer may have. We are committed to hiring
experienced and qualified staff, although this may result in higher
personnel costs than those of similar financial institutions.
. EXPERIENCED SENIOR MANAGEMENT. Cherokee Bank's senior management
possesses extensive experience in the banking industry as well as
substantial business and banking contacts in Cherokee County. For
example, Cherokee Banking Company's President, Dennis W. Burnette, has
over 30 years of banking experience in North Georgia; and Cherokee
Bank's Chief Financial Officer, A. Rick Roberts, III, has over 20
years of banking experience in Cherokee County. See "Management."
. COMMUNITY-ORIENTED BOARD OF DIRECTORS. The Board of Directors consists
of long-time residents of the area who represent Cherokee Bank's
target markets and will be sensitive and responsive to the needs of
the community. Additionally, the Board of Directors represents a wide
array of business experience and community involvement. We expect that
the directors will bring substantial business and banking contacts to
Cherokee Bank.
. COMMUNITY INVOLVEMENT. All of the officers and directors of Cherokee
Banking Company are active in the Cherokee County community, and their
continued active community involvement will provide an opportunity to
promote Cherokee Bank and its products and services.
. HIGHLY VISIBLE SITE. Cherokee Bank's main office is highly visible and
located in close proximity to a high concentration of the targeted
commercial businesses and residential areas. We believe this will
enhance Cherokee Bank's image as a strong competitor.
. INDIVIDUAL CUSTOMER FOCUS. Cherokee Bank will focus on providing
individual service and attention to its target customers, which
include individuals and small to medium-sized businesses. As the
employees, officers and directors become familiar with Cherokee Bank's
customers on an individual basis, Cherokee Bank will be able to
respond to credit requests more quickly and be more flexible in
approving complex loans based on collateral quality and personal
knowledge of the customer.
. OFFICER AND DIRECTOR CALL PROGRAM. We intend to implement an active
officer and director call program to promote Cherokee Bank's
philosophy. The purpose of this call program will be to visit
prospective customers and to describe Cherokee Bank's products,
services and philosophy.
. MARKETING AND ADVERTISING. We plan to develop Cherokee Bank's image as
a community oriented bank with an emphasis on quality service and
personal contact. We also plan to use a target marketing approach
through local newspapers, radio advertisements during peak driving
times, direct mail campaigns, and television spots to promote Cherokee
Bank.
GROWTH STRATEGY. Because we believe that growth and expansion of Cherokee
Bank's operations will be a significant factor in the success of Cherokee
Banking Company, we plan to implement the following growth strategies:
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. CAPITALIZE ON TREND TOWARD CONSOLIDATION. We plan to capitalize on
Cherokee Bank's position as one of a limited number of community banks
headquartered in Cherokee County to attract individuals and small- to
medium-sized business customers that may be underserved as a result of
recent bank consolidations.
. ATTRACT EMPLOYEES WITH ESTABLISHED CUSTOMER BASES. We will seek to
hire employees who have, through their experience in banking,
established significant customer bases. By hiring employees with
established customer bases, Cherokee Bank will be able to grow much
more rapidly than it would if it were to hire inexperienced employees
who would require time to develop a customer base.
. ALLOW SPACE FOR EXPANSION. Cherokee Bank will construct a main office
building with sufficient room to allow for the future expansion of
Cherokee Bank. The size of the proposed main office for Cherokee Bank
will allow for additional loan officers and for the addition of a
mortgage lending department.
. OFFER FEE-GENERATING PRODUCTS AND SERVICES. Cherokee Bank's range of
services, pricing strategies, interest rates paid and charged, and
hours of operation will be structured to attract Cherokee Bank's
target customers and increase its market share. Cherokee Bank will
strive to offer the small business person, professional, entrepreneur
and consumer the best loan services available while charging
aggressively for such services and utilizing technology and strategic
outsourcing to increase fee revenues.
. OPEN ADDITIONAL BRANCHES. In the future, Cherokee Bank intends to
expand its presence in the Cherokee County market by opening new
offices in strategic locations as appropriate. By adding these
branches, Cherokee Bank will gain new channels through which it can
build its deposit base and solicit new customers.
LENDING SERVICES
LENDING POLICY. Cherokee Bank is being established to support Canton and
surrounding areas of Cherokee County. Consequently, Cherokee Bank will
aggressively seek creditworthy borrowers within a limited geographic area. We
project that Cherokee Bank's real estate-related loans will comprise
approximately 66% of its loan portfolio. We also project that the real estate-
loans will be divided approximately evenly among commercial real estate loans,
construction and development loans, and residential real estate loans. Cherokee
Bank also plans to make commercial loans to small- and medium-size businesses
and professional concerns. We project that these loans will comprise
approximately 18% of our loan portfolio. Finally, Cherokee Bank plans to make
consumer loans to individuals. We project that these loans will comprise
approximately 17% of our loan portfolio.
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LOAN APPROVAL AND REVIEW. Cherokee Bank's loan approval policies will
provide for various levels of officer lending authority. When the total amount
of loans to a single borrower exceeds that individual officer's lending
authority, an officer with a higher lending limit or Cherokee Bank's Loan
Committee will determine whether to approve the loan request. Initially,
however, all loans regardless of amount will go to the Loan Committee. Cherokee
Bank will not make a loan to its directors or executive officers unless the
Board of Directors approves the loan and the terms of the loan are no more
favorable than would be available to any other borrower.
LENDING LIMITS. Cherokee Bank's lending activities will be subject to a
variety of lending limits imposed by federal law. Differing limits apply based
on the type of loan and the nature of the borrower, including the borrower's
relationship to Cherokee Bank. In general, however, Cherokee Bank will be able
to loan any one borrower a maximum amount equal to either: (1) 15% of Cherokee
Bank's capital and surplus or (2) 25% of its capital and surplus if the excess
over 15% is within federal guidelines, which provide an exception to the 15%
limit for certain secured debt. Based on the proposed capitalization of Cherokee
Bank and its projected pre-opening expenses, Cherokee Bank's initial lending
limit will be approximately $850,000 for loans not fully secured plus an
additional $550,000, for a total of approximately $1.4 million, for loans that
meet the federal guidelines. Cherokee Bank has not yet established any minimum
or maximum loan limits other than the statutory lending limits described above.
These limits will increase or decrease as Cherokee Bank's capital increases or
decreases as a result of its earnings or losses, among other reasons. Cherokee
Bank will need to sell loan participations to other financial institutions to
meet the needs of customers requiring loans above these limits.
CREDIT RISKS. The principal economic risk associated with each category of
the loans that Cherokee Bank expects to make is the creditworthiness of the
borrower. Borrower creditworthiness is affected by general economic conditions
and the strength of the services and retail market segments. Risks associated
with real estate loans also include fluctuations in the value of real estate,
new job creation trends, tenant vacancy rates and, in the case of commercial
borrowers, the quality of the borrower's management. In addition, a commercial
borrower's ability both to evaluate properly changes in the supply and demand
characteristics affecting its markets for products and services and to respond
effectively to such changes are significant factors in the creditworthiness of a
commercial borrower. General economic factors affecting a borrower's ability to
repay include interest, inflation and employment rates, as well as other factors
affecting a borrower's customers, suppliers and employees.
The well established banks in Cherokee County are likely to make
proportionately more loans to medium to large-sized businesses than Cherokee
Bank. Many of the commercial loans that Cherokee Bank expects to make will
likely be made to small- to medium-sized businesses which may be less able to
withstand competitive, economic and financial pressures than larger borrowers.
REAL ESTATE LOANS. Cherokee Bank will make commercial real estate loans,
construction and development loans, and residential real estate loans in and
around Cherokee County. These loans will include commercial loans where
Cherokee Bank takes a security interest in real estate out of an abundance of
caution and not as the principal collateral for the loan, but will exclude home
equity loans which are classified as consumer loans.
COMMERCIAL REAL ESTATE. Commercial real estate loan terms generally will
be limited to five years or less, although payments may be structured on a
longer amortization basis. Interest rates may be fixed or adjustable, although
rates will not be fixed for a period
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<PAGE>
exceeding 60 months. Cherokee Bank will generally charge an origination fee. We
will attempt to reduce credit risk on our commercial real estate loans by:
(1) Emphasizing loans on owner-occupied office and retail buildings;
(2) Limiting the ratio of the principal amount of the loan to the value of
the collateral, as established by an independent appraisal, to no more
than 80%; and
(3) Requiring that the net projected cash flow available for debt service
equals 120% of the debt service requirement.
In addition, Cherokee Bank may require personal guarantees from the property
owners supported by Cherokee Bank's review of the owners' personal financial
statements. Risks associated with commercial real estate loans include
fluctuations in the value of real estate, new job creation trends, tenant
vacancy rates and the quality of the borrower's management. Cherokee Bank will
try to limit its risk by analyzing borrowers' cash flow and collateral value on
an ongoing basis.
CONSTRUCTION AND DEVELOPMENT LOANS. Construction and development loans will
be made both on a pre-sold and speculative basis. If the borrower has entered
into an agreement to sell the property prior to beginning construction, then the
loan is considered to be on a pre-sold basis. If the borrower has not entered
into an agreement to sell the property prior to beginning construction, then the
loan is considered to be on a speculative basis. Construction and development
loans are generally made with a term of nine months and interest is paid
quarterly. The ratio of the principal amount of the loan to the value of the
collateral, as established by independent appraisal, will not exceed 75%.
Speculative loans will be based on the borrower's financial strength and cash
flow position. Loan proceeds will be disbursed as the project is completed and
only after the project has been inspected by an experienced construction lender
or appraiser. Risks associated with construction loans include fluctuations in
the value of real estate and new job creation trends.
RESIDENTIAL REAL ESTATE. Cherokee Bank's residential real estate loans
will consist of residential first and second mortgage loans and residential
construction loans. We will offer fixed and variable rates on our mortgages.
The amortization of first mortgages will generally not exceed 15 years and the
rates will generally not be fixed for over 60 months. The ratio of the loan
principal to the value of collateral, as established by independent appraisal,
will generally not exceed 90%. We expect that these loan-to-value ratios will
be sufficient to compensate for fluctuations in real estate market value and
will minimize losses that could result from a downturn in the residential real
estate market.
Cherokee Bank may also originate mortgage loans for sale to institutional
investors in the secondary market. Cherokee Bank intends to limit interest rate
risk and credit risk on these loans by locking in the interest rate for each
loan with the secondary market investor and receiving the investor's
underwriting approval before making the loan.
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<PAGE>
COMMERCIAL LOANS. Cherokee Bank plans to make commercial loans to small-
and medium-size businesses and professional concerns. The terms of these loans
will vary by their purpose and by their underlying collateral, if any. Cherokee
Bank will typically make equipment loans for a term of seven years or less at
fixed or variable rates, with the loan being fully amortized over the term.
Equipment loans generally will be secured by the financed equipment, and the
ratio of the amount of the loan to the value of the financed equipment or other
collateral will generally be 80% or less. Loans to support working capital will
typically have terms of one year or less and will usually be secured by accounts
receivable, inventory or personal guarantees of the principals of the business.
For loans secured by accounts receivable or inventory, principal will typically
be repaid as the assets securing the loan are converted into cash, and for loans
secured with other types of collateral, principal will typically be due at
maturity. The quality of the commercial borrower's management, its ability to
properly evaluate changes in the supply and demand characteristics affecting its
markets for products and services, and its ability to respond effectively to
such changes are significant factors in a commercial borrower's
creditworthiness.
CONSUMER LOANS. Cherokee Bank will make a variety of loans to individuals
for personal, family and household purposes, including secured and unsecured
installment and term loans, home equity loans and lines of credit. Consumer
loan repayments depend upon the borrower's financial stability and are more
likely to be adversely affected by divorce, job loss, illness and personal
hardships. Because many consumer loans are secured by depreciable assets such
as boats, cars and trailers, we plan to amortize the loan over the useful life
of the asset. To minimize the risk that the borrower cannot afford the monthly
payments, we plan to limit fixed monthly obligations to no more than 38% of the
borrower's gross monthly income. The borrower should also be employed for at
least 12 months prior to obtaining the loan. The loan officer will review the
borrower's past credit history, past income level, debt history and, when
applicable, cash flow to determine the impact of all of these factors on the
borrower's ability to make future payments as agreed.
LENDING OFFICERS. In addition to its President who will be a lender,
Cherokee Bank intends to hire a commercial lender and a consumer lender in order
to develop its loan portfolios. Each lender will have experience in Cherokee
County and will be expected to bring substantial contacts to Cherokee Bank.
INVESTMENTS
In addition to loans, Cherokee Bank will make other investments primarily
in obligations of the United States or obligations guaranteed as to principal
and interest by the United States and other taxable securities. No investment
in any of those instruments will exceed any applicable limitation imposed by law
or regulation. The Asset and Liability Management Committee will review the
investment portfolio on an ongoing basis to ensure that investments are
profitable and conform to Cherokee Bank's policy set by the Board of Directors.
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ASSET AND LIABILITY MANAGEMENT
Cherokee Bank intends to establish an Asset and Liability Management
Committee to manage its assets and liabilities. This committee will strive to
provide an optimum and stable net interest margin, a profitable after-tax return
on assets and return on equity, and adequate liquidity. The committee will
conduct these management functions within the framework of written loan and
investment policies that Cherokee Bank will adopt. The committee will attempt to
maintain a balanced position between rate sensitive assets and rate sensitive
liabilities. Specifically, it will chart assets and liabilities on a matrix by
maturity, effective duration and interest adjustment period and attempt to
manage any gaps in maturity ranges.
DEPOSIT SERVICES
Cherokee Bank will seek to establish solid core deposits, including
checking accounts, money market accounts, a variety of certificates of deposit
and IRA accounts. To attract deposits, Cherokee Bank will employ an aggressive
marketing plan in Cherokee County, and will feature a broad product line and
competitive services. The primary sources of deposits will be residents of, and
businesses and their employees located in, Cherokee County. Cherokee Bank plans
to obtain these deposits primarily through personal solicitation by its officers
and directors, direct mail solicitations, radio advertisements during peak
driving times, and advertisements published in the local media. It plans to
generate deposits by offering a broad array of competitively priced deposit
services, including demand deposits, regular savings accounts, money market
deposits, certificates of deposit, retirement accounts and other legally
permitted deposit or funds transfer services that may be offered to remain
competitive in the market.
OTHER BANKING SERVICES
Cherokee Bank also intends to provide traveler's checks, direct deposit of
payroll and social security checks, and automatic transfers for various
accounts. Cherokee Bank also plans to become associated with a shared network of
automated teller machines that Bank customers will be able to use throughout
Georgia and other regions. We plan to offer MasterCard/(R)/ and VISA/(R)/ credit
card services through a correspondent bank as an agent for Cherokee Bank.
Cherokee Bank does not plan to exercise trust powers during its initial years of
operation. In the future, it may offer a full-service trust department, but
cannot do so without the prior approval of the Office of the Comptroller of the
Currency.
MARKETING AND ADVERTISING
Cherokee Bank's target customers will be the residents and the small to
medium-sized businesses and their employees located in Cherokee County. Several
of our directors and officers have developed business contacts with numerous
professionals within the medical services industry. We intend to develop a niche
in providing banking services to these and other medical providers.
We plan to use a targeted marketing approach through local newspapers,
radio advertisements during peak driving times, direct mail campaigns, and
television spots as necessary. Additionally, we plan to sponsor community
activities on an active, ongoing basis.
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INFORMATION SYSTEMS AND THE YEAR 2000
THE YEAR 2000 PROBLEM. The year 2000 issue confronting Cherokee Banking
Company, Cherokee Bank and its suppliers, customers, customers' suppliers and
competitors centers on the inability of computer systems to recognize the year
2000 and other year 2000 sensitive dates such as September 9, 1999, December 31,
1999 and February 29, 2000. Many existing computer programs and systems
originally were programmed with six-digit dates that provided only two digits to
identify the calendar year in the date field. With the impending new millennium,
these programs and computers will recognize "00" as the Year 1900 rather than
the year 2000. Like most financial service providers, Cherokee Banking Company
and its operations may be affected significantly by the year 2000 issue because
it depends on computer-generated financial information. Software, hardware and
equipment both within and outside our direct control, and third parties with
whom we electronically or operationally interface are likely to be affected.
These third parties include customers and third-party vendors providing data
processing, information systems management, computer systems maintenance and
credit bureau information. If computer systems are not able to identify the year
2000, many computer applications could fail or create incorrect results.
Consequently, many calculations that rely on date-related information, such as
interest, payment or due dates and other operating functions, could generate
significantly misstated results, and we could lose our ability to process
transactions, prepare statements or engage in similar normal business
activities. In addition, the failure to address adequately the year 2000 issue
could adversely affect the viability of our suppliers and creditors and the
creditworthiness of our borrowers. If not adequately addressed, the year 2000
issue could ultimately have a significant adverse impact on our products,
services, and competitive condition and, in turn, our financial condition and
results of operations.
REGULATORY OVERSIGHT. Financial institution regulators recently have
increased their focus on year 2000 compliance issues and have issued guidance
concerning the responsibilities of senior management and directors. The Federal
Financial Institutions Examination Council has issued several interagency
statements on the year 2000. These statements require, among other things, that
financial institutions examine the year 2000 implications of relying on vendors
and the potential impact of the year 2000 issue on their customers, suppliers
and borrowers. These statements also require each federally regulated financial
institution to survey its exposure, measure its risk, and prepare a plan to
address the year 2000 issue. In addition, the federal banking regulators have
issued safety and soundness guidelines to be followed by insured depository
institutions to ensure resolution of any year 2000 problems. The federal banking
agencies have asserted that year 2000 testing and certification is a key safety
and soundness issue in regulatory examinations. Consequently, an institution's
failure to address appropriately the year 2000 issue could result in supervisory
action, including the reduction of the institution's supervisory ratings,
disapproval of mergers or acquisitions, and the imposition of civil money
penalties.
Because Cherokee Banking Company is still pending regulatory approval
regarding its status as a bank holding company and Cherokee Bank has not yet
started operations, federal banking regulators are focusing on Cherokee Banking
Company's and Cherokee Bank's year 2000 readiness as part of the regulatory
approval process. Once Cherokee Banking Company and Cherokee Bank have obtained
the necessary regulatory approvals, the federal banking regulators will continue
to monitor their status on year 2000 issues as described above.
OUR READINESS. Because Cherokee Banking Company is a start-up entity and
Cherokee Bank has not yet started business, Cherokee Banking Company does not
have existing systems
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or equipment requiring year 2000 testing and remediation. Rather, we are
purchasing all of our office equipment, hardware and software and obtaining
service commitments only from vendors and service providers that can certify
that their products and services are year 2000 compliant. For example, we will
purchase applications software, microcomputers, teller equipment, and a network
file server only from vendors that can provide year 2000 compliance certificates
relating to those products. We plan to obtain data processing services,
automatic teller machine applications, a voice response system, internet banking
services, document imaging solutions and bond accounting systems from third
party service providers that can certify that the products and services they
provide will be year 2000 compliant. We believe that we will be able to obtain
these products and services from vendors and service providers that can supply
the necessary certification. If we are unable to do so, however, we will either
forego acquiring the product or service until we receive the required
certification or, if the product or service is essential to our operations,
arrange for independent testing and verification of year 2000 compliance.
As we acquire our equipment and systems and start operations, we will test
their year 2000 readiness on an ongoing basis. Although we do not anticipate
that we will encounter difficulties in this area, we will require our vendors
and service providers to upgrade or replace any equipment that proves to be non-
compliant. If we do not receive the necessary upgrades or equipment, we will
obtain new equipment or engage a new service provider with demonstrated year
2000 compliance.
Although our internal systems, equipment, and operations require
significant oversight relating to year 2000 issues, we believe that our
customers' year 2000 readiness could also have a significant effect on our
operations. For example, if a customer with an outstanding loan from Cherokee
Bank is unable to maintain its cash flow as a result of disruption caused by its
own or its customers' year 2000 problems, the customer could default in the
repayment of the loan, which would lead to increased loan losses for Cherokee
Bank. Although we plan to consider this possibility when we establish loan loss
reserves for Cherokee Bank, the potential losses could exceed our estimate and
ultimately cause a net loss to Cherokee Bank. To address this concern, we will
communicate with customers on an ongoing basis regarding their year 2000
readiness and attempt to identify at the earliest opportunity those customers
that are likely to encounter year 2000 problems. We plan to work with these
customers to ensure, to the greatest extent possible, that their year 2000
compliance issues do not disrupt Cherokee Bank's operations.
RESOURCES ALLOCATED. To ensure that senior members of management continue
to monitor our year 2000 readiness on a consistent basis, Cherokee Banking
Company's Board of Directors established a Year 2000 Committee on January 13,
1999. The members of the committee will establish guidelines for the acquisition
of new equipment and services that will be year 2000 compliant; communicating
with potential borrowers, vendors and service providers regarding year 2000
issues; and monitoring our progress in this area. Members of the committee will
also attend conferences and information sharing sessions to gain additional
insight into the year 2000 issue and potential strategies for addressing it. The
committee's work will continue until the year 2000 and, in the event a year 2000
problem occurs, thereafter until the problem is resolved. The members of the
committee are Dennis W. Burnette, Albert Louis Evans, Jr. and A. Rick Roberts,
III.
Because our year 2000 compliance program will principally involve ensuring
that we initially acquire systems, equipment and outsourced services that are
year 2000 compliant, we do not expect that Cherokee Banking Company or Cherokee
Bank will incur material year 2000 compliance costs. Rather, these costs will be
included in the initial cost of obtaining the equipment or services that we will
need in order to start operations. Consequently, we have not
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<PAGE>
established a separate budget for year 2000 compliance expenses. The year 2000
committee will, however, monitor our needs in this area and will establish a
budget for year 2000 expenses if it believes that such costs will prove to be
material.
CONTINGENCY PLANS. We believe that our only mission-critical, or "core,"
system is our host application processing system, which will be provided and
operated by a third party service provider. If this system is unable to process
data reliably, we will be forced to obtain the same services from another
service provider or, in the alternative, cease operations until the existing
system becomes year 2000 compliant. A failure in this system or any other date
sensitive system could have a material adverse effect on our results of
operations, liquidity and financial condition.
EMPLOYEES
Cherokee Bank expects to have approximately 14 employees when it opens for
business. Cherokee Banking Company does not expect to have any employees who are
not also employees of Cherokee Bank.
Dennis W. Burnette is the President and Chief Executive Officer of Cherokee
Banking Company and will be the President and Chief Executive Officer of
Cherokee Bank. Mr. Burnette has over 30 years of banking experience, including
20 years as President and Chief Executive Officer of a bank in neighboring
Pickens County. While working in Pickens County, Mr. Burnette also established
many banking relationships in Cherokee County.
A. Rick Roberts, III will be the Chief Financial Officer and Chief
Operations Officer of Cherokee Bank. Mr. Roberts has over 20 years of banking
experience, including extensive experience in the areas of finance and
operations.
FACILITIES
Cherokee Bank will be located at 1275 Riverstone Parkway in Canton, Georgia
in Cherokee County. On December 11, 1998 Cherokee Banking Company executed a
Purchase and Sale Agreement for the purchase of approximately 1.06 acres of land
at the above address, at a purchase price of $450,000. The construction of the
permanent facility is planned to begin in July 1999, with a completion date
planned for December 1999. The permanent facility will consist of approximately
7,000 square feet and will include three drive-up windows and one automated
teller machine. The estimated construction costs of the building total $980,000.
Cherokee Bank's proposed location offers high visibility in an area with
significant traffic, and is located within the main shopping and retail area in
Cherokee County. The general area is the central location for medical,
professional, government and shopping in Cherokee County and is near the
interstate highway that runs north and south through the middle of the county.
Cherokee Bank initially expects to operate out of a temporary facility that
we plan to locate on the site of the permanent facility. The monthly rental fee
for the temporary facility will be approximately $4,000.
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MANAGEMENT
PROPOSED EXECUTIVE OFFICERS AND DIRECTORS OF CHEROKEE BANKING COMPANY AND
CHEROKEE BANK
The following table sets forth the following information for the initial
members of the Board of Directors of both Cherokee Banking Company and Cherokee
Bank:
(1) Their names, addresses, and ages at December 31, 1998;
(2) Their respective positions with Cherokee Banking Company and Cherokee
Bank;
(3) The number of shares of common stock they intend to purchase in the
offering;
(4) The percentage that the number of shares they intend to purchase bears
to the minimum and maximum number of shares to be sold in the
offering; and
(5) The number of shares subject to warrants, and an option for Mr.
Burnette, that they will receive because of their expected purchase of
common stock in this offering.
<TABLE>
<CAPTION>
MINIMUM/
MAXIMUM
PERCENTAGE OF SHARES
POSITION(S) NUMBER OUTSTANDING SUBJECT TO
NAME AND ADDRESS (AGE): TO BE HELD OF SHARES SHARES WARRANTS
- ----------------------- ---------- --------- ------ --------
<S> <C> <C> <C> <C>
Dennis W. Burnette (52) President, 10,000 1.5%/1.0% 40,000(1)
7007 Wilderness Parkway/ Chief Executive
656 Big Canoe Officer and
Big Canoe, Georgia 30143 Director
William Lee Early (45) Director 20,000 3.1%/2.0% 20,000
173 Indian River Trail
Ball Ground, Georgia 30107
Albert Louis Evans, Jr. (52) Director 25,000 3.8%/2.5% 25,000
2268 Reinhardt College Parkway
Canton, Georgia 30114
J. Calvin Hill (51) Director 12,000 1.8%/1.2% 12,000
817 Clubhouse Pointe
Woodstock, Georgia 30188
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
MINIMUM/
MAXIMUM
PERCENTAGE OF SHARES
POSITION(S) NUMBER OUTSTANDING SUBJECT TO
NAME AND ADDRESS (AGE): TO BE HELD OF SHARES SHARES WARRANTS
- ----------------------- ---------- --------- ------ --------
<S> <C> <C> <C> <C>
Roger M. Johnson (56) Director 10,000 1.5%/1.0% 10,000
1300 Tom Hulsey Drive
Canton, Georgia 30115
J. David Keller (51) Director 10,000 1.5%/1.0% 10,000
1237 Indian Bunting Trail
Big Canoe, Georgia 30143
Wanda P. Roach (50) Director 10,000 1.5%/1.0% 10,000
229 Breeze Hill Court
Canton, Georgia 30114
A. Rick Roberts, III (45) Chief Financial 15,000 2.3%/1.5% 15,000
3030 Canton Highway Officer, Chief
Ball Ground, Georgia 30107 Operations
Officer and
Director
Donald F. Stevens (55) Chairman of the 25,000 3.1%/2.0% 25,000
9295 E. Cherokee Drive Board
Canton, Georgia 30115
Edwin I. Swords, III (39) Director 15,000 2.3%/1.5% 15,000
891 Ivey Drive
Canton, Georgia 30114
All proposed directors and 152,000 23.3%/15.2% 182,000
executive officers as a group (10
persons)
</TABLE>
___________________
(1) Includes an option to purchase 30,000 shares to be issued to Mr. Burnette.
Each person listed above has been a director of Cherokee Banking Company
since October 9, 1998 and is a proposed director of Cherokee Bank. Directors of
Cherokee Banking Company serve staggered terms which means that one-third of the
directors will be elected each year at Cherokee Banking Company's annual meeting
of shareholders. The initial terms of the Class I directors will expire in 1999,
the initial terms of the Class II directors will expire in 2000, and the initial
terms of the Class III directors will expire in 2001. Thereafter, each director
will serve for a term of three years. Cherokee Banking Company's officers are
appointed by the Board of Directors and hold office at the will of the Board.
See "Important Provisions of the Articles of Incorporation and Bylaws--Staggered
Terms for Board of Directors."
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Each of Cherokee Bank's proposed directors will, upon approval by the
Office of the Comptroller of the Currency, serve until Cherokee Bank's first
shareholders meeting, which will be held shortly after Cherokee Bank receives
its charter. Cherokee Banking Company, as the sole shareholder of Cherokee Bank,
will nominate each proposed director to serve as director of Cherokee Bank at
that meeting. After the first shareholders meeting, directors of Cherokee Bank
will serve for a term of one year and will be elected by Cherokee Banking
Company each year at Cherokee Bank's annual meeting of shareholders. Cherokee
Bank's officers will be appointed by its Board of Directors and will hold office
at the will of its Board.
Additional information about the directors of Cherokee Banking Company and
Cherokee Bank follows.
DENNIS W. BURNETTE. Dennis Burnette resides in Big Canoe, Georgia. Mr. Burnette
has a Bachelor of Sciences Degree in Business Administration from West Georgia
College and attended the Graduate School of Banking at Louisiana State
University. He has been involved in various aspects of banking since 1967 and
has 20 years of experience as a bank president. His banking career began as a
banking officer of The Citizens and Southern National Bank, Atlanta, Georgia.
From 1972 to 1976, Mr. Burnette served as Vice President and Chief Financial
Officer of the First National Bank of DeKalb County, Decatur, Georgia. In 1976,
Mr. Burnette organized and served as a Director, Chief Executive Officer and
President of Pickens County Bank, Jasper, Georgia, until 1996 when the bank was
purchased by Regions Financial Corporation, Birmingham, Alabama. Since the sale,
he has been an executive search consultant with Sanford Rose Associates in
Atlanta. Mr. Burnette's consulting practice has been based exclusively within
the banking industry with clients primarily in Georgia and the Carolinas. Mr.
Burnette has also served as a past Chairman of the Georgia Bankers Association
and as a past Trustee of the Graduate School of Banking at Louisiana State
University.
WILLIAM LEE EARLY. Bill Early has lived in Cherokee County for the past 20
years. Dr. Early is a physician, and is also the Founder, President and Managing
Partner of Medical Associates of North Georgia. Medical Associates now employs
14 physicians and 100 employees. Dr. Early has a Bachelor of Sciences Degree in
biochemistry from the University of Georgia and received his Medical Degree from
the Medical College of Georgia.
ALBERT LOUIS EVANS, JR. Al Evans has lived in Cherokee County for over 20 years.
He has a Bachelor of Arts Degree from Yale University, a M.Ed. from the
University of Florida, and a Ph.D from Georgia State University. Dr. Evans
currently serves as Chief Financial Officer of Emergency Medicine Associates,
P.C., Canton, Georgia. As a former educator, Dr. Evans has been involved in
numerous professional activities, has written educational-related dissertations
and publications, and serves on the Education Committee of the Walker School in
Marietta, Georgia. In addition, Dr. Evans has been coaching youth soccer in the
Cherokee County area for the last eight years.
J. CALVIN HILL. Calvin Hill is President of Gila Distributing - GA, Inc., a
distributing business located in Canton, Georgia. Mr. Hill resides in Woodstock
and is active in many community activities in Cherokee County. Mr. Hill is the
Vice Chairman for Economic Development and a Director of the Cherokee County
Chamber of Commerce; the Chairman of United Way of Cherokee County and the
Campaign Chairman in 1997; a Director and past Chairman of YMCA, Cherokee; a
Director of March of Dimes - Northwest; and the President-Elect of the Rotary
Club of Canton. Mr. Hill serves on the Board of Advisors for Reinhardt College;
is a Regional Leadership Institute graduate and Leadership Cherokee graduate;
and serves on the Atlanta
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Regional Commission. He also served on the board of Regions Bank of Cherokee
County until 1998. Mr. Hill is a past Mayor of Ball Ground, Georgia, having
served two terms.
ROGER M. JOHNSON. Roger Johnson has lived in Cherokee County for over 40 years
and resides in Canton, Georgia. He has been an attorney in private practice
since 1972 and a partner with the firm of Bray & Johnson in Canton since
February 1973. Prior to starting his law practice, he was the owner and manager
of the Credit Bureau of Canton from 1967 to 1972. Mr. Johnson has been a member
of the Canton Bar Association since 1973 and formerly served as its President.
He has also been a member of the State Bar Association of Georgia since 1973.
Other community activities include serving as a past member and director of the
Cherokee County Recreation Association for 4 years; a former member of the
Georgia General Assembly from 1975-76; an active member of the Cherokee County
Chamber of Commerce for 15 years or more; and a past member of the Canton
Jaycees for 15 years serving as a director of the Jaycees for 5 years. Mr.
Johnson attended Reinhardt College and received a Bachelor of Law Degree from
John Marshall Law School.
J. DAVID KELLER. David Keller is President and Secretary of L.A.T. Sportswear,
Inc. in Canton. Recently, L.A.T. Sportswear successfully completed a public
stock offering and is now publicly traded. Mr. Keller serves on the Advisory
Board for the Cherokee County Children's Advocacy Council and is a former Board
Member of the Cherokee County division of the American Cancer Society. Mr.
Keller has a BA in Business Administration from Georgia State University.
WANDA P. ROACH. Wanda Roach has been a real estate agent with Century 21- Max
Stancil Realty since 1989. Mrs. Roach currently serves on the Cherokee County
Chamber of Commerce; Cherokee County Family Violence Center as a director; City
of Canton Downtown Development Authority Board; Canton First United Methodist
Church - Building Committee; and Reinhardt College-A-Day Advance Gifts
Committee. Her previous experience includes serving as President and Treasurer
for the Service League of Cherokee County; serving as President of the Cherokee
Association of Realtors; being selected as Cherokee County Realtor of the Year
(l994); serving as Finance & Stewardship Chairman for Canton First United
Methodist Church; serving as a member of the Cherokee County Land Use Plan
Committee (1997); serving as Co-Chair of the Christmas Tour of Homes for R.T.
Jones Memorial Hospital; serving as a director of the Cherokee County Cancer
Society; and serving on A-Day Committee for Reinhardt College.
A. RICK ROBERTS, III. Rick Roberts is the proposed Chief Financial Officer and
Chief Operations Officer of Cherokee Bank. He is a lifelong resident of Cherokee
County and serves as Mayor of Ball Ground. Mr. Roberts served in various
positions at Citizens Bank in Ball Ground for 19 years. His career began as a
teller in 1977 and progressed with increasing responsibility to Executive Vice
President and Chief Financial Officer. Mr. Roberts' responsibilities as
Executive Vice President and Chief Financial Officer included finance, control,
accounting, and data processing. He also served as Marketing and Human Resources
Officer, Controller, Asset Liability Manager, and Audit Coordinator. Mr.
Roberts' community activities include Vice Chairman of Cherokee Parks and
Recreation Authority, Cherokee County Chamber of Commerce Board of Directors, A
Day for Reinhardt College Committee Member, Reinhardt College Board of Advisors,
Cherokee County Municipal Planning Commission, Cherokee Municipal Association,
and Cherokee Chamber of Commerce Leadership Class. Mr. Roberts was recently
appointed to the Executive Council of the District Boy Scouts of America. Mr.
Roberts is a graduate of the University of Georgia.
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DONALD F. STEVENS. Don Stevens is a 20-year resident of Cherokee County. He
retired in 1997 from Delta Air Lines Inc. after serving since 1968 as a pilot
and captain. Currently he is President of Terry & Stevens, Inc. and 84 West,
Inc. which are companies involved in building residential homes. He is presently
a member of the Cherokee County Chamber of Commerce and the Chairman for 1999;
the Co-Founder of Cherokee Thanksgiving; a member of the Cherokee County Airport
Authority; a member of the Cherokee County Water and Sewer Authority; and member
of various committees of the Canton First United Methodist Church. In the past
he has served on committees of the Cherokee County Sheriff Department, the
Canton Kiwanis Club, and is a graduate of Leadership Cherokee. He served on the
Advisory Board of Directors of North Georgia National Bank, Woodstock, Georgia,
from 1990 to 1994.
EDWIN I. SWORDS, III. Edwin Swords has been a dentist with Swords, Swords, and
Phelps which is a dental practice in Canton, Georgia since 1985. He served on
the Advisory Board of Directors of Etowah Bank, Canton, Georgia from 1995 to
1998. Dr. Swords is a past President of the Canton Optimist Club; is a past
Board member of Flying Doctor of America; and is also a past member of the
Canton Rotary Club. Dr. Swords graduated from the Emory University School of
Dentistry.
COMMITTEES OF THE BOARDS OF DIRECTORS
The Board of Directors of Cherokee Banking Company has established the
committees described below. The members of each committee will be the same for
Cherokee Bank and Cherokee Banking Company.
COMPENSATION COMMITTEE. The Compensation Committee establishes
compensation levels for officers of Cherokee Banking Company and Cherokee Bank,
reviews management organization and development, reviews significant employee
benefit programs and establishes and administers executive compensation
programs. The members of the Compensation Committee are William Lee Early,
Albert Louis Evans, Jr. and Donald F. Stevens.
SITE SELECTION COMMITTEE. The Site Selection Committee decided on a
location for Cherokee Bank's main office and will review and decide on locations
for any future branches. The members of the Site Selection Committee are Wanda
P. Roach and Edwin I. Swords, III, with A. Rick Roberts, III and Dennis W.
Burnette as unofficial members.
The Board of Directors of Cherokee Bank expects to establish the following
additional committees: Audit and Compliance Committee, Loan Committee, and Asset
and Liability Management Committee.
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EXECUTIVE COMPENSATION
1998 COMPENSATION
The following table shows information for 1998 with regard to compensation
for services rendered in all capacities to Cherokee Banking Company and Cherokee
Bank by its Chief Executive Officer. No executive officer earned more than
$100,000 in salary and bonus in 1998.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
---------------------------------------
Name and Other Annual
Principal Position Year Salary ($) Bonus ($) Compensation ($)
- --------------------- ---- ---------- --------- ----------------
<S> <C> <C> <C> <C>
Dennis W. Burnette 1998 -0- -0- -0-
President and Chief
Executive Officer
</TABLE>
EMPLOYMENT AGREEMENT
Effective January 1, 1999, we entered into an employment agreement with
Dennis W. Burnette that provides that he will serve as President and Chief
Executive Officer of Cherokee Banking Company and Cherokee Bank. Under the terms
of the employment agreement, Cherokee Bank will pay Mr. Burnette a salary of
$90,000 per year until Cherokee Bank opens for business and $120,000 per year
thereafter during the term of the agreement. Beginning with the year 2000 and
for each calendar year thereafter during the term of the agreement, Cherokee
Bank will pay Mr. Burnette a cash bonus based on pre-established performance
standards determined by the Board of Directors of Cherokee Bank in its sole
discretion. The Board has not yet established these performance standards, nor
any guidelines for the standards.
Cherokee Banking Company will grant Mr. Burnette a nonqualified stock
option to purchase 30,000 shares of common stock. The option will become
exercisable in annual increments of 6,000 shares each, beginning on January 1,
1999 and will have an exercise price of $10.00 per share. When Cherokee Bank
opens for business, Cherokee Bank will provide Mr. Burnette with a $600 per
month automobile allowance. Prior to that time, Cherokee Banking Company will
reimburse Mr. Burnette for business mileage at the IRS-approved rate.
The initial term of Mr. Burnette's employment begins on January 1, 1999 and
will continue for a period of three years. At the end of the initial term and at
the end of each succeeding 12-month term, the agreement will automatically
extend for an additional 12-month period unless Cherokee Bank or Mr. Burnette
elects not to extend it. If Mr. Burnette dies or Cherokee Bank abandons its
organizational efforts, neither Cherokee Banking Company nor Cherokee Bank will
have any further obligations under the agreement. Mr. Burnette's employment may
be terminated under the following circumstances:
(1) By Cherokee Bank for cause, as defined in the agreement;
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(2) By Mr. Burnette if Cherokee Bank breaches any material provision
of the agreement or if Cherokee Bank materially lessens Mr. Burnette's
powers, responsibilities or duties; or
(3) Upon Mr. Burnette's death or disability.
If Cherokee Bank terminates Mr. Burnette's employment without cause or elects
not to extend the term of the agreement, or if Mr. Burnette terminates his
employment with cause, Cherokee Bank will be required to pay Mr. Burnette's base
salary for a period of 12 months. During the term of the agreement and for 12
months following its termination, Mr. Burnette is prohibited from soliciting
Cherokee Bank's customers or employees. In addition, during the term of the
agreement and for 12 months following its termination, if the agreement is not
terminated by Cherokee Bank for cause, and not terminated by Mr. Burnette
because of a change in control, as defined in the agreement, Mr. Burnette is
prohibited from competing with Cherokee Bank in Cherokee County.
DIRECTOR COMPENSATION
Cherokee Banking Company and Cherokee Bank will not separately compensate
their directors for their service as directors until Cherokee Banking Company
has recovered all of its losses. Thereafter, Cherokee Banking Company and
Cherokee Bank will adopt compensatory policies for their directors that conform
to applicable law.
ORGANIZERS' WARRANTS
The organizers intend to purchase a total of 152,000 shares of common stock
in the offering at a price of $10.00 per share. This represents 23% of the
minimum and 15% of the maximum number of shares to be sold in this offering. In
addition, in recognition of the efforts made and financial risks undertaken by
the organizers in organizing Cherokee Banking Company and Cherokee Bank,
Cherokee Banking Company will issue to the organizers warrants to purchase
additional shares of common stock. The organizers will be issued warrants at a
rate of one warrant for each share of common stock purchased in the offering. As
a result, Cherokee Banking Company currently expects to issue 152,000 warrants
to the organizers but may issue more warrants if the organizers purchase more
shares of common stock in this offering. The warrants will become exercisable in
equal annual increments of 33-1/3% each, beginning on the first anniversary of
the closing of this offering. Exercisable warrants will remain exercisable for
the ten-year period following the closing of this offering or for 90 days after
a warrant holder ceases to be a director, whichever is shorter. Each warrant
will be exercisable at $10.00 per share.
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RELATED PARTY TRANSACTIONS
Cherokee Banking Company and Cherokee Bank will have banking and other
business transactions in the ordinary course of business with their directors
and officers, including members of the directors' and officers' families or
corporations, partnerships or other organizations in which their directors and
officers have a controlling interest. If these transactions occur, each
transaction:
(1) Will be on substantially the same terms, including price or
interest rate and collateral, as those prevailing at the time for
comparable transactions with unrelated parties, and any banking
transactions will not be expected to involve more than the normal risk
of collectibility or present other unfavorable features to Cherokee
Bank;
(2) Will be on terms no less favorable than could be obtained from an
unrelated party; and
(3) Will be approved by a majority of the directors, including a
majority of the directors who do not have an interest in the
transaction.
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DESCRIPTION OF CAPITAL STOCK OF CHEROKEE BANKING COMPANY
COMMON STOCK
Cherokee Banking Company's Articles of Incorporation authorize it to issue
up to 10,000,000 shares of common stock, no par value, of which a minimum of
650,000 and a maximum of 1,000,000 shares will be issued in this offering.
Cherokee Banking Company has reserved an additional 30,000 shares of common
stock to be issued upon the exercise of the stock option granted to Dennis W.
Burnette, and an additional 152,000 shares of common stock to be issued upon the
exercise of the warrants to be granted to the organizers. Cherokee Banking
Company will reserve additional shares for issuance on exercise of warrants if
the organizers become entitled to more warrants because they purchase more
shares of common stock in this offering.
All shares of common stock will be entitled to share equally in dividends
from legally available funds, when, as and if declared by Cherokee Banking
Company's Board of Directors. If Cherokee Banking Company terminates its
business operations and sells its assets, all shares of common stock would be
entitled to share equally in all of Cherokee Banking Company's assets available
for distribution to the shareholders. We do not anticipate that Cherokee Banking
Company will pay any cash dividends on the common stock in the near future. Each
holder of common stock will be entitled to one vote for each share on all
matters submitted to the shareholders. Holders of common stock will not have any
right to acquire authorized but unissued capital stock of Cherokee Banking
Company whenever it issues new shares of capital stock. No cumulative voting,
redemption, sinking fund or conversion rights or provisions apply to the common
stock. All shares of the common stock issued in the offering will be fully paid
and non-assessable.
PREFERRED STOCK
Cherokee Banking Company's Articles of Incorporation authorize its Board of
Directors to issue 2,000,000 shares of preferred stock, no par value. The Board
of Directors may determine the terms of the preferred stock. Preferred stock may
have voting rights, subject to applicable law and a determination by the Board
of Directors. Cherokee Banking Company has not issued any preferred stock and
will not issue any preferred stock to the organizers except on the same terms as
it may be offered to all other existing shareholders or to new shareholders.
Although Cherokee Banking Company has no present plans to issue any preferred
stock, the ownership and control of Cherokee Banking Company by the holders of
the common stock would be diluted if Cherokee Banking Company were to issue
preferred stock that had voting rights.
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IMPORTANT PROVISIONS OF THE
ARTICLES OF INCORPORATION AND BYLAWS
ANTITAKEOVER PROVISIONS
GENERAL. Shareholders' rights and related matters are governed by the
Georgia Business Corporation Code and Cherokee Banking Company's Articles of
Incorporation and Bylaws. All references in this prospectus to Cherokee Banking
Company's "Articles of Incorporation" mean its Amended and Restated Articles of
Incorporation as filed with the Georgia Secretary of State on January 6, 1999.
Cherokee Banking Company's Articles of Incorporation and Bylaws contain
antitakeover provisions that would have the effect of impeding an attempt to
change or remove Cherokee Banking Company's management or to gain control of
Cherokee Banking Company in a transaction not supported by its Board of
Directors. These provisions are discussed in more detail below. In general, one
purpose of these provisions is to assist Cherokee Banking Company's Board of
Directors in playing a role in connection with attempts to acquire control of
Cherokee Banking Company. They allow the Board of Directors to further and
protect Cherokee Banking Company's interests and those of its shareholders as
appropriate under the circumstances, including if the Board of Directors
determines that a sale of control is in the best interests of Cherokee Banking
Company and its shareholders, by enhancing the Board's ability to maximize the
value to be received by the shareholders upon a sale.
Although Cherokee Banking Company's management believes the antitakeover
provisions are beneficial to shareholders of Cherokee Banking Company, they also
may tend to discourage some takeover bids. As a result, Cherokee Banking
Company's shareholders may be deprived of opportunities to sell some or all of
their shares at prices that represent premiums over prevailing market prices. On
the other hand, defeating undesirable acquisition offers can be a very expensive
and time-consuming process. To the extent that the antitakeover provisions
discourage undesirable proposals, Cherokee Banking Company may be able to avoid
those expenditures of time and money.
The antitakeover provisions also may discourage open market purchases by a
potential acquirer. These purchases could increase the market price of the
common stock temporarily, enabling shareholders to sell their shares at a price
higher than that which otherwise would prevail. In addition, the antitakeover
provisions may decrease the market price of the common stock by making the stock
less attractive to persons who invest in securities in anticipation of price
increases from potential acquisition attempts. The provisions also may make it
more difficult and time consuming for a potential acquirer to obtain control of
Cherokee Banking Company through replacing its Board of Directors and
management. Furthermore, the provisions may make it more difficult for
shareholders of Cherokee Banking Company to replace the Board of Directors or
management, even if a majority of the shareholders believes that replacing them
would be in Cherokee Banking Company's best interests. As a result, the
antitakeover provisions may tend to keep the incumbent Board of Directors and
management in place.
The Articles of Incorporation of Cherokee Banking Company also contain a
provision which eliminates the potential personal liability of directors for
monetary damages. In addition, the Bylaws of Cherokee Banking Company contain
provisions which provide indemnification for directors of Cherokee Banking
Company. The antitakeover provisions and the provisions relating to elimination
of liability and indemnification of directors are discussed more fully
below.
PREFERRED STOCK. The existence of preferred stock could impede the takeover
of Cherokee Banking Company without the approval of its Board of Directors.
Cherokee Banking Company's Board of Directors could issue shares of preferred
stock to persons friendly to current management, which could render more
difficult or discourage any attempt to gain control of Cherokee Banking
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Company through a proxy contest, tender offer, merger or otherwise. In addition,
the issuance of shares of preferred stock with voting rights may adversely
affect the rights of the holders of common stock and could decrease the market
price of the common stock.
STAGGERED TERMS FOR BOARD OF DIRECTORS. Article 7 of the Articles of
Incorporation provides that the Board of Directors of Cherokee Banking Company
will be divided into three classes and that the directors in each class will
serve for staggered terms, which means that one-third of the directors will be
elected each year at Cherokee Banking Company's annual meeting of shareholders.
The initial term of the Class I directors expires in 2000, the initial term of
the Class II directors expires in 2001, and the initial term of the Class III
directors expires in 2002. Thereafter, each director will serve for a term of
three years. This means that unless the existing directors were to resign, it
would take at least two annual meetings of Cherokee Banking Company's
shareholders to replace a majority of its directors.
Under Georgia law, directors are elected annually for a term of one year
unless the articles of incorporation provide otherwise.
CHANGE IN NUMBER OF DIRECTORS. Article 8 of Cherokee Banking Company's
Articles of Incorporation provides that any change in the number of directors,
as contained in its Bylaws, would have to be made by the affirmative vote of 2/3
of the entire Board of Directors or by the affirmative vote of the holders of at
least 2/3 of the outstanding shares of common stock.
Under Georgia law, the number of directors may be increased or decreased by
the shareholders or the directors, unless the articles of incorporation provide
otherwise or unless the number of directors is otherwise fixed by the articles
of incorporation.
REMOVAL OF DIRECTORS. Article 9 of Cherokee Banking Company's Articles of
Incorporation of provides that one or more directors of may be removed for cause
during their terms only by the affirmative vote of the holders of a majority of
the issued and outstanding shares of common stock entitled to vote in an
election of directors. Article 9 also provides that directors of Cherokee
Banking Company may be removed during their terms without cause only by the
affirmative vote of the holders of 2/3 of the issued and outstanding shares of
Cherokee Banking Company entitled to vote in an election of directors.
Under Georgia law, one or more directors of a corporation may be removed
with or without cause by the affirmative vote of a majority of the shares
present and entitled to vote at a meeting at which a quorum is present, unless
the articles of incorporation or a bylaw adopted by the shareholders provides
otherwise.
SUPERMAJORITY VOTING ON MERGER TRANSACTIONS. Under Article 13 of Cherokee
Banking Company's Articles of Incorporation, with some exceptions, any merger
involving Cherokee Banking Company or any sale or other disposition of all or
substantially all of its assets will require the affirmative vote of a majority
of Cherokee Banking Company's directors and the affirmative vote of the holders
of at least 2/3 of its outstanding shares of common stock. However, if Cherokee
Banking Company's Board of Directors has approved the particular transaction by
the affirmative vote of 2/3 of the entire Board, then the applicable provisions
of Georgia law would govern and shareholder approval of the transaction would
require the affirmative vote of the holders of only a majority of the
outstanding shares of common stock entitled to vote on the transaction.
EVALUATION OF AN ACQUISITION PROPOSAL. Article 14 of Cherokee Banking
Company's Articles of Incorporation provides the factors that the Board of
Directors must consider in evaluating whether any
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acquisition proposal made by another party is in the best interests of Cherokee
Banking Company and its shareholders. The term "acquisition proposal" refers to
any offer of another party:
(1) To make a tender offer or exchange offer for the common stock or
any other equity security of Cherokee Banking Company;
(2) To merge Cherokee Banking Company with another corporation;
or
(3) To purchase or otherwise acquire all or substantially all of the
properties and assets owned by Cherokee Banking Company.
Article 14 charges the Board, in evaluating an acquisition proposal, to
consider all relevant factors, including the following:
(1) The expected social and economic effects of the transaction on
the employees, customers, shareholders, and other constituents, such
as suppliers of goods and services to Cherokee Banking Company and
Cherokee Bank;
(2) The expected social and economic effects on the communities
within which Cherokee Banking Company and Cherokee Bank operate;
and
(3) The payment being offered by the other corporation in relation to
the current value of Cherokee Banking Company as determined in a
freely negotiated transaction and to the Board of Directors' estimate
of Cherokee Banking Company's future value as an independent company
at the time of the proposal.
The Board may also consider other relevant factors.
This Article has been included in Cherokee Banking Company's Articles of
Incorporation because Cherokee Bank is charged with providing support to and
being involved with the communities it serves. As a result, the Board believes
its obligations in evaluating an acquisition proposal extend beyond evaluating
merely the payment being offered in relation to the market or book value of the
common stock at the time of the proposal. Georgia law does not specifically list
the factors a corporation's board of directors should consider in the event the
corporation is presented with an acquisition proposal.
While the value of the payment being offered to shareholders in exchange
for their stock is the main factor when weighing the benefits of an acquisition
proposal, the Board believes it appropriate also to consider all other relevant
factors. For example, this Article directs the Board to evaluate the payment
being offered in relation to the current value of Cherokee Banking Company
determined in a freely negotiated transaction and in relation to the Board's
estimate of the future value of Cherokee Banking Company as an independent
concern at the time of the proposal. A takeover bid often places the target
corporation virtually in the position of making a forced sale, sometimes when
the market price of its stock may be depressed. The Board believes that
frequently the payment offered in such a situation, even though it may exceed
the value at which shares are then trading, is less than the payment that could
be obtained in a freely negotiated transaction. In a freely negotiated
transaction, management would have the opportunity to seek a suitable partner at
a time of its choosing and to negotiate for the most favorable price and terms
that would reflect not only Cherokee Banking Company's current value, but also
its future value.
One effect of this Article may be to discourage a tender offer in advance.
Often an offeror consults the Board of a target corporation before or after
beginning a tender offer in an attempt to prevent a contest
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from developing. In the opinion of the Board, this provision will strengthen its
position in dealing with any potential offeror that might attempt to acquire
Cherokee Banking Company through a hostile tender offer. Another effect of this
Article may be to dissuade shareholders who might be displeased with the Board's
response to an acquisition proposal from engaging Cherokee Banking Company in
costly litigation.
Article 14 of the Articles of Incorporation would not make an acquisition
proposal regarded by the Board as being in Cherokee Banking Company's best
interests more difficult to accomplish. It would, however, permit the Board to
determine that an acquisition proposal was not in Cherokee Banking Company's
best interests, and thus to oppose it, on the basis of the various factors that
the Board deems relevant. In some cases, opposition by the Board might have the
effect of maintaining the incumbent management.
INDEMNIFICATION
Cherokee Banking Company's Bylaws contain indemnification provisions which
provide that directors, officers, employees or agents of Cherokee Banking
Company (collectively, the "insiders") will be indemnified against expenses that
they actually and reasonably incur if they are successful on the merits of a
claim or proceeding.
When a case or dispute is settled or otherwise not determined on its
merits, the indemnification provisions provide that Cherokee Banking Company
will indemnify insiders when they meet the applicable standard of conduct. The
applicable standard of conduct is met if the insider acted in a manner he or she
in good faith believed to be in or not opposed to the best interests of Cherokee
Banking Company and, in case of a criminal action or proceeding, if the insider
had no reasonable cause to believe his or her conduct was unlawful. Cherokee
Banking Company's Board of Directors, its shareholders, or independent legal
counsel determines whether the insider has met the applicable standard of
conduct in each specific case.
Cherokee Banking Company's Bylaws also provide that the indemnification
rights contained in the Bylaws do not exclude other indemnification rights to
which an insider may be entitled under any bylaw, resolution or agreement,
either specifically or in general terms approved by the affirmative vote of the
holders of a majority of the shares entitled to vote. Cherokee Banking Company
can also provide for greater indemnification than is provided in the Bylaws if
it chooses to do so, subject to approval by its shareholders. Cherokee Banking
Company may not, however, indemnify an insider for liability arising out of
circumstances that would cause the insider to remain liable for his or her
actions as described under "--Limitation of Liability" below.
The indemnification provisions of the Bylaws specifically provide that
Cherokee Banking Company may purchase and maintain insurance on behalf of any
director against any liability asserted against and incurred by him or her in
his or her capacity as a director, whether or not Cherokee Banking Company would
have had the power to indemnify against the liability.
Cherokee Banking Company is not aware of any pending or threatened action,
suit or proceeding involving any of its insiders for which indemnification from
Cherokee Banking Company may be sought.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as currently in effect, may be permitted to directors, officers and
controlling persons of Cherokee Banking Company as a result of the foregoing
provisions, or otherwise, Cherokee Banking Company has been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities other
than the payment by Cherokee Banking Company of expenses incurred or paid by a
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director, officer or controlling person of Cherokee Banking Company in the
successful defense of any action, suit or proceeding is asserted by such
director, officer or controlling person in connection with the securities being
registered, Cherokee Banking Company will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
LIMITATION OF LIABILITY
Article 11 of Cherokee Banking Company's Articles of Incorporation
eliminates, with some exceptions, the potential personal liability of a director
for monetary damages to Cherokee Banking Company and to its shareholders for
breach of a duty as a director. There is no elimination of liability for the
following:
(1) A breach of duty involving appropriation of a business opportunity of
Cherokee Banking Company;
(2) An act or omission not in good faith or involving intentional
misconduct or a knowing violation of law;
(3) A transaction from which the director derives an improper material
tangible personal benefit; or
(4) Any payment of a dividend or approval of a stock repurchase that is
illegal under the Georgia Business Corporation Code.
Article 11 does not eliminate or limit the right of Cherokee Banking Company or
its shareholders to seek injunctive or other equitable relief not involving
monetary damages.
The Georgia Business Corporation Code allows Georgia corporations to
include in their articles of incorporation a provision eliminating or limiting
the liability of directors, except in the circumstances described above. As a
result, to encourage qualified individuals to serve and remain as directors of
Cherokee Banking Company, Cherokee Banking Company included Article 11 in its
Articles of Incorporation. While Cherokee Banking Company has not experienced
any problems in locating directors, it could experience difficulty in the future
as its business activities increase and diversify. Cherokee Banking Company also
adopted Article 11 to enhance its ability to secure liability insurance for its
directors at a reasonable cost. Cherokee Banking Company intends to obtain
liability insurance covering actions taken by its directors in their capacities
as directors. The Board of Directors believes that Article 11 will enable
Cherokee Banking Company to secure such insurance on terms more favorable than
if it were not included in the Articles of Incorporation.
AMENDMENTS
Any amendment of Articles 7, 9, 11, 13 and 14 of Cherokee Banking Company's
Articles of Incorporation requires the affirmative vote of the holders of at
least 2/3 of the outstanding shares of common stock, unless 2/3 of the entire
Board of Directors approves the amendment. If 2/3 of the Board approves the
amendment, the applicable provisions of Georgia law would govern, and the
approval of only a majority of the outstanding shares of common stock would be
required.
53
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the offering, Cherokee Banking Company will have a
minimum of 650,000 and a maximum of 1,000,000 shares of common stock
outstanding. These shares will be freely tradable without restriction, except
that "affiliates" of Cherokee Banking Company must comply with the resale
limitations of Rule 144 issued under the Securities Act of 1933, as currently in
effect.
Rule 144 defines an affiliate of a company as a person who directly or
indirectly controls, or is controlled by, or is under common control with, the
company. Affiliates of a company generally include its directors, officers and
principal shareholders.
Each of Cherokee Banking Company's affiliates who purchases common stock in
this offering may sell, within any three-month period, a number of shares of
common stock that does not exceed the greater of the following amounts:
(1) 1% of the outstanding shares of common stock; or
(2) Cherokee Banking Company's average weekly trading volume during the
four calendar weeks preceding the affiliate's proposed sale.
Sales by affiliates under Rule 144 are also subject to manner of sale
provisions, notice requirements and the availability of current public
information about Cherokee Banking Company.
Prior to the offering, there has not been a public market for the common
stock, and we cannot predict the effect, if any, that the sale of shares or the
availability of shares for sale will have on the market price prevailing from
time to time. Nevertheless, sales of substantial amounts of common stock on the
public market could adversely affect prevailing market prices and the ability of
Cherokee Banking Company to raise equity capital in the future.
54
<PAGE>
SUPERVISION AND REGULATION
The following discussion sets forth the material elements of the regulatory
framework that applies to banks and bank holding companies and provides specific
information about Cherokee Banking Company.
GENERAL
Cherokee Banking Company will be a bank holding company registered with the
Board of Governors of the Federal Reserve System under the Bank Holding Company
Act of 1956, as currently in effect. As a result, Cherokee Banking Company and
any future non-bank subsidiaries it establishes will be subject to the
supervision, examination, and reporting requirements of the Bank Holding Company
Act and the regulations of the Federal Reserve.
The Bank Holding Company Act requires every bank holding company to obtain
the Federal Reserve's prior approval before: (1) it may acquire direct or
indirect ownership or control of any voting shares of any bank if, after the
acquisition, the bank holding company will directly or indirectly own or control
more than 5% of the bank's voting shares; (2) it or any of its non-bank
subsidiaries may acquire all or substantially all of the assets of any bank; or
(3) it may merge or consolidate with any other bank holding company.
The Bank Holding Company Act further provides that the Federal Reserve may
not approve any transaction that would result in or tend to create a monopoly,
substantially lessen competition or otherwise function as a restraint of trade,
unless the anticompetitive effects of the proposed transaction are clearly
outweighed by the public interest in meeting the convenience and needs of the
community to be served. The Federal Reserve is also required to consider the
financial and managerial resources and future prospects of the bank holding
companies and banks concerned and the convenience and needs of the community to
be served. The Federal Reserve's consideration of financial resources generally
focuses on capital adequacy, which is discussed below.
Cherokee Banking Company and any other bank holding company located in
Georgia may acquire a bank located in any other state, and any bank holding
company located outside of Georgia may acquire any Georgia-based bank,
regardless of state law to the contrary. In either case, deposit-percentage
limits, aging requirements, and other restrictions apply. National and state-
chartered banks may branch across state lines by acquiring banks in other
states. By adopting legislation prior to June 1, 1997, a state could elect
either to "opt in" and accelerate the date after which interstate branching
would be permissible or "opt out" and prohibit interstate branching altogether.
The Georgia Interstate Banking Act provides that interstate acquisitions by or
of institutions located in Georgia are permitted in states that also allow
national interstate acquisitions. The Georgia Interstate Branching Act permits
Georgia-based banks and bank holding companies owning or acquiring banks outside
of Georgia and all non-Georgia banks and bank holding companies owning or
acquiring banks in Georgia to merge any lawfully acquired bank into an
interstate branch network. The Georgia Interstate Branching Act also allows
banks to establish new branches throughout Georgia.
The Bank Holding Company Act generally prohibits Cherokee Banking Company
from engaging in activities other than banking or managing or controlling banks
or other permissible subsidiaries and from acquiring or keeping direct or
indirect control of any company engaged in any activities other than those
activities that the Federal Reserve determines that to be closely related to
banking or managing or controlling banks. In determining whether a particular
activity
55
<PAGE>
is permissible, the Federal Reserve must consider whether the activity
reasonably can be expected to produce benefits to the public, such as greater
convenience, increased competition, or gains in efficiency, that outweigh
possible adverse effects, such as undue concentration of resources, decreased or
unfair competition, conflicts of interest, or unsound banking practices. For
example, the Federal Reserve has determined that factoring accounts receivable,
acquiring or servicing loans, leasing personal property, conducting discount
securities brokerage activities, performing data processing services, acting as
agent or broker in selling credit life insurance and other types of insurance in
connection with credit transactions, and performing insurance underwriting
activities are generally permissible activities of bank holding companies. The
Bank Holding Company Act does not place territorial limitations on permissible
non-banking activities of bank holding companies. Despite prior approval, the
Federal Reserve may order a holding company or its subsidiaries to terminate any
activity or ownership or control of any subsidiary when it has reasonable cause
to believe that the holding company's continued activity, ownership or control
constitutes a serious risk to the financial safety, soundness, or stability of
any bank subsidiaries.
Cherokee Bank's deposits will be insured by the FDIC to the maximum extent
provided by law. Cherokee Bank will also be subject to numerous state and
federal statutes and regulations that will affect its business, activities and
operations, and it will be supervised and examined by one or more state or
federal bank regulatory agencies.
The Office of the Comptroller of the Currency will regularly examine the
operations of Cherokee Bank and has the authority to approve or disapprove
mergers, the establishment of branches, and similar corporate actions. The
Office of the Comptroller of the Currency also has the power to prevent the
continuance or development of unsafe or unsound banking practices or other
violations of law.
PAYMENT OF DIVIDENDS
Cherokee Banking Company is a legal entity separate and distinct from
Cherokee Bank. The principal sources of Cherokee Banking Company's cash flow,
including cash flow to pay dividends to its shareholders, are dividends that
Cherokee Bank pays to its sole shareholder, Cherokee Banking Company. Statutory
and regulatory limitations apply to Cherokee Bank's payment of dividends to
Cherokee Banking Company as well as to Cherokee Banking Company's payment of
dividends to its shareholders.
If, in the opinion of the Office of the Comptroller of the Currency,
Cherokee Bank were engaged in or about to engage in an unsafe or unsound
practice, such authority could require, after notice and a hearing, that
Cherokee Bank cease and desist from its practice. The federal banking agencies
have indicated that paying dividends that deplete a depository institution's
capital base to an inadequate level would be an unsafe and unsound banking
practice. Under the Federal Deposit Insurance Corporation Improvement Act of
1991, a depository institution may not pay any dividend if payment would cause
it to become undercapitalized or if it already is already undercapitalized.
Moreover, the federal agencies have issued policy statements that provide that
bank holding companies and insured banks should generally only pay dividends out
of current operating earnings. See "--Prompt Corrective Action" below.
The payment of dividends by Cherokee Banking Company and Cherokee Bank may
also be affected or limited by other factors, such as the requirement to
maintain adequate capital above regulatory guidelines.
56
<PAGE>
CAPITAL ADEQUACY
Cherokee Banking Company and Cherokee Bank will be required to comply with
the capital adequacy standards established by the Federal Reserve in the case of
Cherokee Banking Company and the Office of the Comptroller of the Currency in
the case of Bank. The Federal Reserve has established two basic measures of
capital adequacy for bank holding companies -- a risk-based measure and a
leverage measure. A bank holding company must satisfy all applicable capital
standards to be considered in compliance.
The risk-based capital standards are designed to make regulatory capital
requirements more sensitive to differences in risk profiles among banks and bank
holding companies, to account for off-balance-sheet exposure, and to minimize
disincentives for holding liquid assets. Assets and off-balance-sheet items are
assigned to broad risk categories, each with appropriate weights. The resulting
capital ratios represent capital as a percentage of total risk-weighted assets
and off-balance-sheet items.
The minimum guideline for the ratio of total capital to risk-weighted
assets is 8%. At least half of total capital must comprise common stock,
minority interests in the equity accounts of consolidated subsidiaries,
noncumulative perpetual preferred stock, and a limited amount of cumulative
perpetual preferred stock, less goodwill and certain other intangible assets
("Tier 1 Capital"). The remainder may consist of subordinated debt, other
preferred stock, and a limited amount of loan loss reserves ("Tier 2 Capital").
In addition, the Federal Reserve has established minimum leverage ratio
guidelines for bank holding companies. These guidelines provide for a minimum
ratio of Tier 1 Capital to average assets, less goodwill and certain other
intangible assets, of 3% for bank holding companies that meet specified criteria
including having the highest regulatory rating. All other bank holding
companies generally are required to maintain a leverage ratio of at least 3%,
plus an additional cushion of 100 to 200 basis points. The guidelines also
provide that bank holding companies experiencing internal growth, as will be the
case for Cherokee Banking Company, or making acquisitions will be expected to
maintain strong capital positions substantially above the minimum supervisory
levels without significant reliance on intangible assets. Furthermore, the
Federal Reserve has indicated that it will consider a bank holding company's
Tier 1 Capital leverage ratio, after deducting all intangibles, and other
indicators of capital strength in evaluating proposals for expansion or new
activities.
Cherokee Bank will be subject to risk-based and leverage capital
requirements adopted by the Office of the Comptroller of the Currency, which are
substantially similar to those adopted by the Federal Reserve for bank holding
companies.
Failure to meet capital guidelines could subject a bank to a variety of
enforcement remedies, including the issuance of a capital directive, the
termination of deposit insurance by the FDIC, a prohibition on the taking of
brokered deposits, and other restrictions on its business. As described below,
substantial additional restrictions can be imposed on FDIC-insured depository
institutions that fail to meet applicable capital requirements. See "--Prompt
Corrective Action."
57
<PAGE>
SUPPORT OF SUBSIDIARY INSTITUTIONS
Under Federal Reserve policy, Cherokee Banking Company is expected to act
as a source of financial strength for, and to commit resources to support,
Cherokee Bank. This support may be required at times when, without this Federal
Reserve policy, Cherokee Banking Company might not be inclined to provide it.
In addition, any capital loans by a bank holding company to its subsidiary bank
will be repaid only after its deposits and certain other indebtedness are repaid
in full. In the event of a bank holding company's bankruptcy, any commitment by
the bank holding company to a federal bank regulatory agency to maintain the
capital of a banking subsidiary will be assumed by the bankruptcy trustee and
entitled to a priority of payment.
PROMPT CORRECTIVE ACTION
The Federal Deposit Insurance Corporation Improvement Act of 1991
established a system of prompt corrective action to resolve the problems of
undercapitalized institutions. Under this system, the federal banking
regulators have established five capital categories--well capitalized,
adequately capitalized, undercapitalized, significantly undercapitalized and
critically undercapitalized. The regulators are required to take mandatory
supervisory actions, and are authorized to take other discretionary actions,
relating to institutions in the three undercapitalized categories. The severity
of the action will depend upon the capital category in which the institution is
placed. Generally, subject to a narrow exception, the banking regulator must
appoint a receiver or conservator for an institution that is critically
undercapitalized. The federal banking agencies have specified by regulation the
relevant capital level for each category.
An institution that is categorized as undercapitalized, significantly
undercapitalized, or critically undercapitalized is required to submit an
acceptable capital restoration plan to its appropriate federal banking agency.
A bank holding company must generally guarantee that a subsidiary depository
institution meets its capital restoration plan, within some limitations. The
controlling holding company' obligation to fund a capital restoration plan is
limited to the lesser of 5% of an undercapitalized subsidiary's assets or the
amount required to meet regulatory capital requirements. An undercapitalized
institution is also generally prohibited from increasing its average total
assets, making acquisitions, establishing any branches, or engaging in any new
line of business, except under an accepted capital restoration plan or with FDIC
approval. In addition, the appropriate federal banking agency may treat an
undercapitalized institution in the same manner as it treats a significantly
undercapitalized institution, if it determines that those actions are
necessary.
FDIC INSURANCE ASSESSMENTS
The FDIC has adopted a risk-based assessment system for insured depository
institutions that takes into account the risks attributable to different
categories and concentrations of assets and liabilities. The system assigns an
institution to one of three capital categories: well capitalized, adequately
capitalized, and undercapitalized. These three categories are substantially
similar to the prompt corrective action categories described above, with the
"undercapitalized" category including institutions that are undercapitalized,
significantly undercapitalized, and critically undercapitalized for prompt
corrective action purposes. The FDIC also assigns an institution to one of
three supervisory subgroups within each capital group. The supervisory subgroup
to which an institution is assigned is based on a supervisory evaluation that
the institution's primary federal regulator provides to the FDIC and information
that the FDIC determines to be relevant to the institution's financial condition
and the risk posed to the
58
<PAGE>
deposit insurance funds. The FDIC determines an institution's insurance
assessment rate based on the institution's capital category and supervisory
category. Under the risk-based assessment system, there are nine combinations of
capital groups and supervisory subgroups to which different assessment rates are
applied. Assessments range from 0 to 27 cents per $100 of deposits, depending on
the institution's capital group and supervisory subgroup.
Effective January 1, 1997, the FDIC imposed assessments to help repay the
$780 million in annual interest payments on the $8 billion of Financing
Corporation bonds issued in the late 1980s as part of the government rescue of
the thrift industry. The FDIC will assess banks at a rate of 1.3 cents per $100
of deposits until December 31, 1999. Thereafter, it will add approximately 2.4
cents per $100 of deposits to each assessment.
The FDIC may terminate an institution's deposit insurance if it finds that
the institution has engaged in unsafe and unsound practices, is in an unsafe or
unsound condition to continue operations, or has violated any applicable law,
regulation, rule, order or condition imposed by the FDIC.
PROPOSED LEGISLATION AND REGULATORY ACTION
New regulations and statutes are regularly proposed that contain wide-
ranging proposals for altering the structures, regulations and competitive
relationships of the nation's financial institutions. We cannot predict whether
or in what form any proposed regulation or statute will be adopted or the extent
to which our business may be affected by any new regulation or statute.
LEGAL MATTERS
Powell, Goldstein, Frazer and Murphy LLP, Atlanta, Georgia, will pass upon
the validity of the shares of common stock offered by this prospectus.
EXPERTS
Cherokee Banking Company's audited financial statements at December 31,
1998, and for the period from October 9, 1998 (inception) until December 31,
1998, included in this prospectus have been included in reliance on the report
of Porter Keadle Moore, LLP, independent certified public accountants, given on
the authority of that firm as experts in accounting and auditing.
REPORTS TO SHAREHOLDERS
Upon the effective date of the Registration Statement on Form SB-2 that
registers the shares of common stock offered by this prospectus with the
Securities and Exchange Commission, Cherokee Banking Company will be subject to
the reporting requirements of the Securities Exchange Act of 1934, as currently
in effect, which include requirements to file annual reports on Form 10-KSB and
quarterly reports on Form 10-QSB with the Securities and Exchange Commission.
This reporting obligation will exist for at least one year and will continue for
fiscal years thereafter, except that these reporting obligations may be
suspended for any subsequent fiscal year if at the beginning of the year the
common stock is held of record by less than 300 persons.
59
<PAGE>
At any time that Cherokee Banking Company is not a reporting company, it
will furnish its shareholders with annual reports containing audited financial
information for each fiscal year on or before the date of the annual meeting of
shareholders as required by Rule 80-6-1-.05 of the Georgia Department of Banking
and Finance. Cherokee Banking Company's fiscal year ends on December 31.
Additionally, Cherokee Banking Company will also furnish such other reports as
it may determine to be appropriate or as otherwise may be required by law.
ADDITIONAL INFORMATION
Cherokee Banking Company has filed with the Securities and Exchange
Commission a Registration Statement on Form SB-2 under the Securities Act of
1933, as currently in effect, relating to the shares of common stock offered by
this prospectus. This prospectus does not contain all of the information
contained in the Registration Statement. For further information about Cherokee
Banking Company and the common stock, we refer you to the Registration Statement
and its exhibits. The Registration Statement may be examined and copied at the
public reference facilities maintained by the Securities and Exchange Commission
at Room 1024, 450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549
and at the regional offices of the Securities and Exchange Commission located at
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-
2511 and Seven World Trade Center, 13th Floor, New York, New York 10048. Copies
of the Registration Statement are available at prescribed rates from the Public
Reference Section of the Securities and Exchange Commission, Room 1024, 450
Fifth Street, N.W., Judiciary Plaza, Washington, DC 20549. The Securities and
Exchange Commission also maintains a Web site (http://www.sec.gov) that contains
registration statements, reports, proxy and information statements and other
information regarding registrants, such as Cherokee Banking Company, that file
electronically with the Securities and Exchange Commission.
Cherokee Banking Company and the organizers are in the process of filing
various applications with the FDIC, the Federal Reserve, the Georgia Department
of Banking and Finance, and the Office of the Comptroller of the Currency.
These applications and the information they contain are not incorporated into
this prospectus. You should rely only on information contained in this
prospectus and in the related Registration Statement in making an investment
decision. To the extent that other available information not presented in this
prospectus, including information available from Cherokee Banking Company and
information in public files and records maintained by the FDIC, the Federal
Reserve, the Georgia Department of Banking and Finance, and the Office of the
Comptroller of the Currency, is inconsistent with information presented in this
prospectus or provides additional information, that information is superseded by
the information presented in this prospectus and should not be relied on.
Projections appearing in the applications are based on assumptions that we
believe are reasonable, but as to which we can make no assurances. We
specifically disaffirm those projections for purposes of this prospectus and
caution you against relying on them for purposes of making an investment
decision.
60
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
<S> <C>
Report of Independent Certified Public Accountants....................... F-2
Balance Sheet - December 31, 1998........................................ F-3
Statement of Operations for the Period from Inception (October 9, 1998)
to December 31, 1998................................................... F-4
Statement of Changes in Stockholders' Equity for the Period from
Inception (October 9, 1998) to December 31, 1998....................... F-5
Statement of Cash Flows for the Period from Inception (October 9, 1998)
to December 31, 1998................................................... F-6
Notes to Financial Statements............................................ F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors
Cherokee Banking Company
We have audited the accompanying balance sheet of Cherokee Banking Company (a
development stage corporation) as of December 31, 1998, and the related
statements of operations, changes in stockholder's deficit and cash flows for
the period from October 9, 1998 (inception) to December 31, 1998. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Cherokee Banking Company as of
December 31, 1998 and the results of its operations and its cash flows from
October 9, 1998 (inception) to December 31, 1998 in conformity with generally
accepted accounting principles.
The accompanying financial statements have been prepared assuming that Cherokee
Banking Company will continue as a going concern. As discussed in note 1 to the
financial statements, the Company is in the organization stage and has not
commenced operations. Also, as discussed in note 3, the Company's future
operations are dependent on obtaining capital through an initial stock offering
and obtaining the necessary final regulatory approvals. These factors and the
expense associated with development of a new banking institution raise
substantial doubt about the Company's ability to continue as a going concern.
Management's plans in regard to these matters are described in note 3. The
financial statements do not include any adjustments relating to the
recoverability of reported asset amounts or the amount of liabilities that might
result from the outcome of this uncertainty.
/s/ Porter Keadle Moore, LLP
Atlanta, Georgia
January 6, 1999
F-2
<PAGE>
CHEROKEE BANKING COMPANY
(A DEVELOPMENT STAGE CORPORATION)
BALANCE SHEET
DECEMBER 31, 1998
Assets
------
<TABLE>
<CAPTION>
<S> <C>
Cash $ 9,596
Other assets 10,000
--------
$ 19,596
========
Liabilities and Stockholder's Deficit
-------------------------------------
Note payable - line of credit $ 60,000
--------
Current liabilities 60,000
--------
Stockholder's deficit:
Preferred stock, no par value, 2,000,000 shares authorized;
no shares issued or outstanding -
Common stock, no par value, 10,000,000 shares authorized;
10 shares issued and outstanding 10
Deficit accumulated during the development stage (40,414)
--------
Total stockholder's deficit (40,404)
--------
$ 19,596
========
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE>
CHEROKEE BANKING COMPANY
(A DEVELOPMENT STAGE CORPORATION)
STATEMENT OF OPERATIONS
FOR THE PERIOD FROM OCTOBER 9, 1998 (INCEPTION) TO DECEMBER 31, 1998
<TABLE>
<S> <C>
Expenses:
Regulatory fees $17,400
Legal and consulting 21,250
Other operating 1,764
-------
Net loss $40,414
=======
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE>
CHEROKEE BANKING COMPANY
(A DEVELOPMENT STAGE CORPORATION)
STATEMENT OF CHANGES IN STOCKHOLDER'S DEFICIT
FOR THE PERIOD FROM OCTOBER 9, 1998 (INCEPTION) TO DECEMBER 31, 1998
<TABLE>
<CAPTION>
Deficit
Accumulated
During the
Preferred Common Development
Stock Stock Stage Total
----------------------------------------
<S> <C> <C> <C> <C>
Issuance of common stock
to organizer $ - 10 - 10
Net loss - - (40,414) (40,414)
----- ------ ------- -------
Balance, December 31, 1998 $ - 10 ( 40,414) (40,404)
===== ====== ======== =======
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE>
CHEROKEE BANKING COMPANY
(A DEVELOPMENT STAGE CORPORATION)
STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM OCTOBER 9, 1998 (INCEPTION) TO DECEMBER 31, 1998
<TABLE>
<S> <C>
Cash flows from operating activities:
Net loss $(40,414)
Adjustments to reconcile net loss to net cash used in
operating activities:
Increase in other assets (10,000)
------
Net cash used in operating activities (50,414)
------
Cash flows from financing activities:
Sale of organization shares of common stock 10
Proceeds from note payable 60,000
------
Net cash provided by financing activities 60,010
------
Net increase in cash 9,596
Cash at beginning of period -----
Cash at end of period $ 9,596
========
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE>
CHEROKEE BANKING COMPANY
(A DEVELOPMENT STAGE CORPORATION)
NOTES TO FINANCIAL STATEMENTS
(1) ORGANIZATION
------------
Cherokee Banking Company (the Company) was incorporated for the purpose of
becoming a bank holding company. The Company intends to acquire 100% of the
outstanding common stock of Cherokee Bank, N.A. (the Bank) (Proposed),
which will operate in the Cherokee County, Georgia area. The organizers of
the Bank filed a joint application to charter the Bank with the Office of
the Comptroller of Currency and the Federal Deposit Insurance Corporation
on December 14, 1998. Provided that the application is timely approved and
necessary capital is raised, it is expected that operations will commence
in the third quarter of 1999.
Operations through December 31, 1998 relate primarily to expenditures by
the organizers for incorporating and organizing the Company. Prior to
January 6, 1999, when the Company changed its name, the organizers had been
operating under the corporate name of Cherokee Organizing Group, Inc. All
expenditures by the organizers are considered expenditures of the Company.
The Company plans to raise between $6,500,000 and $10,000,000 through an
offering of its common stock at $10 per share, of which $6,000,000 will be
used to capitalize the Bank. The organizers and directors expect to
subscribe for a minimum of approximately $1,520,000 of the Company's stock.
In connection with the Company's formation and initial offering, warrants
will be issued to the organizing stockholders. The warrants allow each
holder to purchase one additional share of common stock for each share
purchased in connection with the initial offering and are exercisable on
each of the three succeeding anniversaries of the date of opening of the
Bank at the initial offering price of $10 per share. These warrants expire
ten years after the date of grant. The Company has also reserved 30,000
shares for the issuance of options under an employee incentive stock option
plan.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
ORGANIZATION COSTS
Costs incurred for the organization of the Company and the Bank (consisting
principally of legal, accounting, consulting and incorporation fees) are
being expensed as incurred.
DEFERRED OFFERING EXPENSES
Costs incurred in connection with the stock offering, consisting of direct,
incremental costs of the offering, are being deferred and will be offset
against the proceeds of the stock sale as a charge to additional paid in
capital.
PRE-OPENING EXPENSES
Costs incurred for overhead and other operating expenses are included in
the current period's operating results.
F-7
<PAGE>
CHEROKEE BANKING COMPANY
(A DEVELOPMENT STAGE CORPORATION)
NOTES TO FINANCIAL STATEMENTS, CONTINUED
PRO FORMA NET LOSS PER COMMON SHARE
Pro forma net loss per common share is calculated by dividing net loss by
the minimum number (650,000) of common shares, which would be outstanding
should the offering be successful, as prescribed in Staff Accounting
Bulletin Topic 1:B. The pro forma net loss per share for the period ended
December 31, 1998 was $0.06 per share.
(3) LIQUIDITY AND GOING CONCERN CONSIDERATIONS
------------------------------------------
The Company incurred a net loss of $40,414 for the period from October 9,
1998 (inception) to December 31, 1998. At December 31, 1998, liabilities
exceeded assets by $40,404.
At December 31, 1998, the Company is funded by a line of credit from a
bank. Management believes that the current level of expenditures is well
within the financial capabilities of the organizers and adequate to meet
existing obligations and fund current operations, but obtaining final
regulatory approvals and commencing banking operations is dependent on
successfully completing the stock offering.
To provide permanent funding for its operation, the Company is currently
offering a minimum of 650,000 and a maximum of 1,000,000 shares of its no
par value common stock at $10 per share in an initial public offering.
Costs related to the organization and registration of the Company's common
stock will be paid from the gross proceeds of the offering. Shares issued
which are outstanding at December 31, 1998 will be redeemed concurrently
with the consummation of the offering. Should subscriptions for the minimum
offering not be obtained, amounts paid by the subscribers with their
subscriptions will be returned and the offer withdrawn.
(4) LINE OF CREDIT
--------------
Organization, offering and pre-opening costs incurred prior to the opening
for business will be funded under a $250,000 line of credit. The terms of
the existing line of credit, which is guaranteed by the organizers, include
a maturity of December 21, 1999 and interest, payable quarterly, calculated
at one percent below the prime interest rate.
(5) PREFERRED STOCK
---------------
Shares of preferred stock may be issued from time to time in one or more
series as established by resolution of the Board of Directors of the
Company. Each resolution shall include the number of shares issued,
preferences, special rights and limitations as determined by the Board.
(6) COMMITMENTS AND RELATED PARTY TRANSACTIONS
------------------------------------------
A contract for the land on which the main office will be constructed has
been entered into with a total purchase price of $450,000, of which $10,000
has been paid as earnest money.
The Company intends to enter into an employment agreement with its
President and Chief Executive Officer, providing for an initial term of
three years commencing January 1, 1999. The agreement provides for a base
salary, an incentive bonus based on the Company's performance, stock
options, and other perquisites commensurate with his employment
F-8
<PAGE>
CHEROKEE BANKING COMPANY
(A DEVELOPMENT STAGE CORPORATION)
NOTES TO FINANCIAL STATEMENTS, CONTINUED
(7) INCOME TAXES
------------
The following summarizes the sources and expected tax consequences of
future taxable deductions which comprise the net deferred taxes at December
31, 1998:
<TABLE>
<S> <C>
Deferred tax assets:
Pre-opening expenses $ 15,516
--------
Total gross deferred tax assets 15,516
Less valuation allowance (15,516)
------
Net deferred taxes $ -
========
</TABLE>
The future tax consequences of the differences between the financial
reporting and tax basis of the Company's assets and liabilities resulted in
a net deferred tax asset. A valuation allowance was established for the net
deferred tax asset, as the realization of these deferred tax assets is
dependent on future taxable income.
F-9
<PAGE>
EXHIBIT A
FINAL SUBSCRIPTION AGREEMENT
Cherokee Banking Company
P.O. Box 1314
Canton, GA 30114
Ladies and Gentlemen:
I hereby subscribe to purchase the number of shares of Cherokee Banking
Company's common stock indicated below.
I have received a copy of Cherokee Banking Company's final prospectus,
dated _______________, 1999. I understand that my purchase of Cherokee Banking
Company's common stock involves significant risk, as described under "Risk
Factors" in the final prospectus. I also understand that no federal or state
agency has made any finding or determination regarding the fairness of Cherokee
Banking Company's offering of common stock, the accuracy or adequacy of the
final prospectus, or any recommendation or endorsement concerning an investment
in the common stock.
I enclose my check in the amount of $10.00 multiplied by the number of
shares I wish to buy. My check is made payable to "The Bankers Bank - Escrow
Account for Cherokee Banking Company."
When Cherokee Banking Company receives this agreement and my check, this
subscription will be final and binding and will be irrevocable until the
offering is closed.
Number of Shares
(minimum 100 shares): _____________
Total Subscription Price
(at $10.00 per share): $____________
_________________________________________
Please PRINT or TYPE exact name(s) in
----- ----
which the shares should be registered
(Over)
A-1
<PAGE>
SUBSTITUTE W-9
Under the penalties of perjury, I certify that: (1) the Social Security Number
or Taxpayer Identification Number given below is correct; and (2) I am not
subject to backup withholding. INSTRUCTION: YOU MUST CROSS OUT #2 ABOVE IF YOU
HAVE BEEN NOTIFIED BY THE INTERNAL REVENUE SERVICE THAT YOU ARE SUBJECT TO
BACKUP WITHHOLDING BECAUSE OF UNDERREPORTING INTEREST OR DIVIDENDS ON YOUR TAX
RETURN.
___________________________ _________________________________________________
Date Signature(s)*
___________________________
Area Code and Telephone No.
_________________________________________________
Please indicate the form of ownership desired for
the shares (individual, joint tenants with right
of survivorship, tenants in common, trust,
corporation, partnership custodian, etc.)
___________________________
Email address, if available
_____________________________
Social Security or Federal Taxpayer
Identification No.
_________________________________________________
Street Address
_________________________________________________
City/State/Zip Code
*When signing as attorney, trustee, administrator or guardian, please give your
full title as such. If a corporation, please sign in full corporate name by
president or other authorized officer. In case of joint tenants, each joint
owner must sign.
TO BE COMPLETED BY CHEROKEE BANKING COMPANY
Accepted as of ______________________, 1999, as to __________ shares.
CHEROKEE BANKING COMPANY
By:______________________________
Signature
_________________________________
Print Name
A-2
<PAGE>
Prospective investors may rely only on the information contained in this
prospectus. No one has authorized anyone to provide prospective investors with
information different from that contained in this prospectus. This prospectus is
not an offer to sell, nor is it seeking an offer to buy, these securities in any
jurisdiction where the offer or sale is not permitted. The information contained
in this prospectus is correct only as of the date of this prospectus, regardless
of the time of any delivery of this prospectus or any sale of these
securities.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Summary.................................................................... 3
Risk Factors............................................................... 7
Cautionary Statement About Forward-Looking Statements...................... 14
The Offering............................................................... 15
Use of Proceeds............................................................ 18
Capitalization............................................................. 20
Dividends.................................................................. 21
Management's Discussion and Analysis of Financial Condition and
Plan of Operations....................................................... 22
Proposed Business of Cherokee Banking Company and Cherokee Bank............ 25
Management................................................................. 39
Executive Compensation..................................................... 45
Related Party Transactions................................................. 47
Description of Capital Stock of Cherokee Banking Company................... 48
Important Provisions of the Articles of Incorporation and Bylaws........... 49
Shares Eligible for Future Sale............................................ 55
Supervision and Regulation................................................. 56
Legal Matters.............................................................. 60
Experts.................................................................... 61
Reports to Shareholders.................................................... 61
Additional Information..................................................... 61
Index to Financial Statements.............................................. F-1
Final Subscription Agreement............................................... A-1
</TABLE>
Until [May 11], 1999 (40 days after the date of this prospectus), all dealers
that buy, sell or trade the common stock, whether or not participating in this
offering, may be required to deliver a prospectus.
CHEROKEE BANKING COMPANY
A Proposed Bank Holding Company
For
[LOGO] CHEROKEE BANK
(Proposed)
1,000,000
SHARES OF
COMMON STOCK
PROSPECTUS
April 1, 1999
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers.
Consistent with the applicable provisions of the laws of Georgia, the
Registrant's Bylaws provide that the Registrant shall have the power to
indemnify its directors and officers against expenses (including attorneys'
fees) and liabilities arising from actual or threatened actions, suits or
proceedings, whether or not settled, to which they become subject by reason of
having served in such role if such director or officer acted in good faith and
in a manner he or she reasonably believed to be in or not opposed to the best
interests of the Registrant and, with respect to a criminal action or
proceeding, had no reasonable cause to believe his or her conduct was unlawful.
Advances against expenses shall be made so long as the person seeking
indemnification agrees to refund the advances if it is ultimately determined
that he or she is not entitled to indemnification. A determination of whether
indemnification of a director or officer is proper because he met the applicable
standard of conduct shall be made (1) by the Board of Directors of the
Registrant, (2) in certain circumstances, by independent legal counsel in a
written opinion or (3) by the affirmative vote of a majority of the shares
entitled to vote.
In addition, Article 11 of the Registrant's Articles of Incorporation,
subject to certain exceptions, eliminates the potential personal liability of a
director for monetary damages to the Registrant and to the shareholders of the
Registrant for breach of a duty as a director. There is no elimination of
liability for (1) a breach of duty involving appropriation of a business
opportunity of the Registrant, (2) an act or omission involving intentional
misconduct or a knowing violation of law, (3) a transaction from which the
director derives an improper material tangible personal benefit or (4) as to any
payment of a dividend or approval of a stock repurchase that is illegal under
the Georgia Business Corporation Code. The Articles of Incorporation do not
eliminate or limit the right of the Registrant or its shareholders to seek
injunctive or other equitable relief not involving monetary damages.
Item 25. Other Expenses of Issuance and Distribution.
Estimated expenses, other than underwriting discounts and commissions, of
the sale of the Registrant's common stock, no par value, are as follows:
<TABLE>
<S> <C>
Securities and Exchange Commission Registration Fee $ 2,780
Legal Fees and Expenses 25,000
Accounting Fees and Expenses 2,500
Copying and Edgar Expenses 6,000
Mail and Distribution 4,500
Miscellaneous 4,220
-------
Total $45,000
=======
</TABLE>
II-1
<PAGE>
Item 26. Recent Sales of Unregistered Securities.
On December 30, 1998, the Registrant issued to A. R. (Rick) Roberts, III,
in a private placement, ten shares of the Registrant's common stock, no par
value per share, for a total price of $10.00 in connection with the organization
of Cherokee Banking Company. The sale to Mr. Roberts was exempt from
registration under the Securities Act pursuant to Section 4(2) of the Act
because it was a transaction by an issuer that did not involve a public
offering.
Item 27. Exhibits.
Exhibit
Number Description
- ------ -----------
3.1* Amended and Restated Articles of Incorporation, dated January 6,
1999
3.2* Bylaws
4.1* See Exhibits 3.1 and 3.2 for provisions of the Articles of
Incorporation and Bylaws defining rights of holders of the
common stock
5.1* Legal Opinion of Powell, Goldstein, Frazer & Murphy LLP
10.1* Purchase and Sale Agreement (main office property), dated
December 11, 1998
10.3* Employment Agreement, dated as of January 1, 1999, among
Cherokee Bank, N.A. (Proposed), Cherokee Banking Company, and
Dennis W. Burnette
10.5* Form of Cherokee Banking Company Organizers' Warrant Agreement
10.6 Escrow Agreement, dated as of April 1, 1999, among Cherokee
Banking Company and The Bankers Bank
21.1* List of Subsidiaries
23.1* Consent of Porter Keadle Moore, LLP, dated February 1, 1999
23.2* Consent of Powell, Goldstein, Frazer & Murphy LLP (contained in
Exhibit 5.1)
23.3 Consent of Porter Keadle Moore, LLP, dated March 18, 1999
24.1* Power of Attorney (refer to page II-5 of the Registration
Statement)
27.1* Financial Data Schedule (for SEC use only)
99.1* Final Subscription Letter
99.2* Final Subscription Agreement
*Previously filed on February 1, 1999, with the Registration Statement.
II-2
<PAGE>
Item 28. Undertakings.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to foregoing provisions, or otherwise, the Registrant has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The undersigned Registrant hereby undertakes as follows:
(a)(1) To file, during any period in which it offers or sells securities, a
post-effective amendment to this Registration Statement to:
(i) Include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) Reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in the information set
forth in the Registration Statement. Notwithstanding the foregoing, any increase
or decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any deviation
from the low or high end of the estimated maximum offering range may be
reflected in the form of prospectus filed with the Commission pursuant to Rule
424(b) if, in the aggregate, the changes in volume and price represent no more
than a 20% change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective Registration Statement;
(iii) Include any additional or changed material information on the
plan of distribution.
(2) For determining liability under the Securities Act, treat each post-
effective amendment as a new registration statement of the securities offered,
and the offering of the securities at that time to be the initial bona fide
offering.
(3) File a post-effective amendment to remove from registration any of
the securities being registered that remain unsold at the end of the offering.
The Registrant hereby undertakes as follows:
II-3
<PAGE>
(b)(1) For determining any liability under the Securities Act, to treat
the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant under Rule 424(b)(1), or (4) or 497(h) under
the Securities Act as part of this Registration Statement as of the time the
Commission declared it effective.
(2) For determining any liability under the Securities Act, to treat
each post-effective amendment that contains a form of prospectus as a new
registration statement for the securities offered in the Registration Statement,
and that offering of the securities at that time as the initial bona fide
offering of those securities.
II-4
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, as
amended, the Registrant certifies that it has reasonable grounds to believe that
it meets all of the requirements for filing on Form SB-2 and authorized this
Registration Statement to be signed on its behalf by the undersigned in the city
of Canton, State of Georgia, on March 18, 1999.
CHEROKEE BANKING COMPANY
By: /s/ Dennis W. Burnette
----------------------
Dennis W. Burnette
President and Chief Executive Officer
In accordance with the requirements of the Securities Act of 1933, as
amended, this Registration Statement has been signed by the following persons in
the capacities and on the dates stated.
SIGNATURE TITLE DATE
- --------- ----- ----
/s/ Dennis W. Burnette President, Chief Executive
- ----------------------
March 18, 1999
Dennis W. Burnette Officer and Director
(principal executive officer)
/s/ William L. Early Director
- --------------------
March 18, 1999
William L. Early
II-5
<PAGE>
SIGNATURE TITLE DATE
- --------- ----- ----
/s/ Albert L. Evans, Jr. Director
- ------------------------
March 18, 1999
Albert L. Evans, Jr.
/s/ J. Calvin Hill Director
- ------------------
March 18, 1999
J. Calvin Hill
/s/ Roger M. Johnson Director
- --------------------
March 18, 1999
Roger M. Johnson
/s/ J. David Keller Director
- -------------------
March 18, 1999
J. David Keller
/s/ Wanda P. Roach Director
- ------------------
March 18, 1999
Wanda P. Roach
/s/ A. Rick Roberts, III Chief Financial Officer,
- ------------------------
March 18, 1999
A. Rick Roberts, III Chief Operations Officer
and Director (principal
financial and accounting officer)
/s/ Donald F. Stevens Director
- ---------------------
March 18, 1999
Donald F. Stevens
/s/ Edwin I. Swords, III Director
- ------------------------
March 18, 1999
Edwin I. Swords, III
II-6
<PAGE>
By: /s/ Dennis W. Burnette
------------------------
Dennis W. Burnette
Attorney-in-fact
2
<PAGE>
EXHIBIT 10.6
ESCROW AGREEMENT
THIS ESCROW AGREEMENT, made and entered into as of this 1st day of April,
1999, by and between CHEROKEE BANKING COMPANY, a Georgia corporation (the
"Company"), and THE BANKERS BANK, a bank chartered under the laws of Georgia
(the "Escrow Agent"), as escrow agent.
W I T N E S S E T H:
--------------------
WHEREAS, the Company proposes to offer for sale up to an aggregate of
1,000,000 shares of common stock of the Company at a purchase price of $10.00
per share; and
WHEREAS, the Company has agreed to deposit certain proceeds from the
offering in escrow on the terms and conditions set forth herein; and
WHEREAS, the Escrow Agent has agreed to accept copies of subscription
documents (the "Subscription Documents"), with the Company retaining the
originals of the Subscription Documents, to be executed and delivered by
subscribers for shares together with sums (the "Subscription Funds") received
from such subscribers and to hold and distribute the Subscription Documents and
Subscription Funds all in accordance with the terms and conditions herein set
forth;
NOW, THEREFORE, in consideration of the premises and for good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged by
the Escrow Agent, the parties hereto do hereby agree as follows:
1. Deposits with the Escrow Agent. The Company agrees to deposit with
------------------------------
the Escrow Agent, or to cause to be deposited with the Escrow Agent, all
Subscription Documents and Subscription Funds received by it. The Company will
allow the Subscription Funds and Subscription Documents to remain in escrow with
the Escrow Agent and will not withdraw or attempt to withdraw either the
Subscription Funds or the Subscription Documents from the Escrow Agent except as
herein provided.
2. Deposit Accounts. Upon collection of each check by the Escrow Agent,
----------------
the Escrow Agent shall invest the funds in deposit accounts or certificates of
deposit which are fully insured by the Federal Deposit Insurance Corporation or
securities issued or fully guaranteed by the United States government (or money
market funds consisting entirely thereof) or federal funds. The Company shall
provide the Escrow Agent with instructions from time to time concerning in which
of the specific investment instruments described above the Subscription Funds
shall be invested, and the Escrow Agent shall adhere to such instructions.
Interest and other earnings shall start accruing on such funds as soon as such
funds would be deemed to be available for access under applicable banking laws
and pursuant to the Escrow Agent's own banking policies.
3. Minimum Escrow Amount. Except as otherwise provided herein, the
---------------------
Escrow Agent shall negotiate and hold all Subscription Documents and
Subscription Funds deposited with the Escrow Agent under the terms of this
Escrow Agreement until such time as the Escrow Agent shall have received a
written request from the Company and Subscription Documents executed by
investors agreeing to purchase at least 650,000 of the shares of common
1
<PAGE>
stock of the Company and cleared and collected Subscription Funds in the amount
of at least $6,500,000 with respect thereto, at which time all Subscription
Documents and all Subscription Funds held by the Escrow Agent and any interest
earned thereon shall be distributed to the Company by the Escrow Agent. At the
time of the release of the Subscription Documents and Subscription Funds to the
Company in the manner described above, except for the provisions of Section 9
hereof, this Escrow Agreement will terminate.
4. Return of Documents and Funds. In the event that the Escrow Agent (a)
-----------------------------
shall not have received, prior to termination of the offering, Subscription
Documents executed by subscribers agreeing to purchase at least 650,000 shares
of Company common stock and Subscription Funds in the amount of at least
$6,500,000 with respect thereto, or (b) shall have received a written notice
from the Company that it is terminating the offering and this Escrow Agreement,
then the Escrow Agent shall return all Subscription Funds then held by it under
this Escrow Agreement, with any interest accrued thereon to the respective
subscribers at the addresses indicated on the Subscription Documents, or as such
subscribers may otherwise direct, together with the corresponding executed
Subscription Documents. After the distribution of all Subscription Documents
and Subscription Funds in accordance with the terms of this Section 4, except
for the provisions of Section 9 hereof, this Escrow Agreement shall terminate.
5. Return of Subscriptions. In the event the Escrow Agent shall have
-----------------------
received written notification from the Company that any subscription is being
returned by the Company to the subscriber, in whole or in part, the Escrow Agent
shall return to the subscriber at the address indicated on the subscriber's
Subscription Documents, or as such subscriber may otherwise direct, the
Subscription Documents executed by such subscriber and all or a portion of the
Subscription Funds deposited with the Escrow Agent on behalf of such subscriber.
Release of any Subscription Funds by the Escrow Agent under the circumstances
described in this Section shall be accomplished by delivery to the subscriber of
a check of the Escrow Agent in the amount of the Subscription Funds being
returned, together with any interest accrued thereon payable to the order of
such subscriber.
6. Agreement of the Escrow Agent. The Escrow Agent hereby agrees to
-----------------------------
receive such deposits of Subscription Documents and Subscription Funds, to hold
the same intact, to promptly negotiate all checks, money orders or other
instruments received by Subscription Funds, to keep true, complete and accurate
records of all deposits and disbursements of the Subscription Documents and
Subscription Funds, to permit withdrawal thereof only in accordance with the
terms of this Escrow Agreement, and to refund or deliver all such Subscription
Funds and Subscription Documents to the respective subscribers or the Company,
as the case may be, at the time and in the manner provided under the terms of
this Escrow Agreement.
7. Representations of Company. The Company hereby acknowledges that the
--------------------------
status of the Escrow Agent with respect to the offering of the shares of stock
is that of agent only for the limited purposes herein set forth, and hereby
agrees that it will not represent or imply that the Escrow Agent, by serving as
the Escrow Agent hereunder or otherwise, has investigated the desirability or
advisability of investment in the Company, or has approved, endorsed or passed
upon the merits of the shares of the stock or the Company.
8. Liability of the Escrow Agent. The acceptance by the Escrow Agent of
-----------------------------
its duties under this Agreement is subject to the following terms and
conditions, which all parties to this Agreement hereby agree shall govern and
control with respect to the rights, duties and liabilities of the Escrow
Agent:
2
<PAGE>
(a) The Escrow Agent is not a party to and is not bound by any
agreement between any one or more of the parties hereto, except this Agreement,
unless otherwise expressly stated herein.
(b) The duties of the Escrow Agent hereunder are only such as are
herein specifically provided, being purely ministerial in nature, and it shall
have no responsibility in respect of any of the cash, property or items ("Escrow
Deposit") deposited with it other than faithfully to follow the instructions
herein contained.
(c) The Escrow Agent acts hereunder as a depositary only. The Escrow
Agent is not responsible for or liable in any manner whatever for the
sufficiency, correctness, genuineness and validity of any security, document, or
other item, which is a part of the Escrow Deposit or for any claim or action by
any person, firm, corporation or trustee concerning the right or power of any
depositor to make any transfer or the validity of the transfer of any part of
the Escrow Deposit to the Escrow Agent.
(d) The Escrow Agent shall be protected in acting upon any written
notice, request, waiver, consent, receipt or other paper or documents which the
Escrow Agent in good faith believes to be genuine.
(e) The Escrow Agent shall not be liable for any error of judgment,
or for any act done or step taken or omitted by it in good faith, or for any
mistake of fact or law, or for anything which it may do or refrain from doing in
connection herewith, except its own gross negligence or willful misconduct.
(f) The Escrow Agent is authorized to hire, may consult with, and
obtain advice from legal counsel in the event any dispute, conflict or question
arises as to the construction of any of the provisions hereof or its duties
hereunder. The Escrow Agent shall be indemnified in accordance with Section 9
hereof for all reasonable costs so incurred and shall incur no liability and
shall be fully protected for acting in good faith in accordance with the written
opinion and instructions of such counsel.
(g) The Escrow Agent may, but shall not be required to, defend itself
in any legal proceedings which may be instituted against it or it may, by shall
not be required to, institute legal proceedings in respect of the Escrow
Deposit, or any part thereof. The Escrow Agent shall be indemnified and held
harmless in accordance with Section 9 hereof against the cost and expense of any
such defense or action.
(h) The Escrow Agent shall make payment to or for, or deliver
documents to, any party only if in the Escrow Agent's judgment such payment or
delivery may be made under the terms of this Agreement without its incurring any
liability. If conflicting demands not expressly provided for in this Agreement
are made or notices served upon the Escrow Agent with respect to its action or
omission under this Agreement, the parties hereto agree that the Escrow Agent
shall have the absolute right to elect to do either or both of the following:
(i) withhold and stop all future actions or omissions on its
part under this Agreement, or
3
<PAGE>
(ii) file a suit in interpleader or for instructions or for a
declaratory judgment for other relief and obtain an order from a
proper court requiring the parties to litigate in such court their
conflicting claims and demands.
In the event any such action is taken, the Escrow Agent shall be fully released
and discharged from all obligations.
9. Indemnification of the Escrow Agent. The Company hereby agrees to
-----------------------------------
indemnify and hold harmless the Escrow Agent against any and all losses, claims,
damages, liabilities and expenses, including reasonable costs of investigation
and counsel fees and disbursements, which may be imposed upon the Escrow Agent
or incurred by the Escrow Agent hereunder, or as a result of the performance of
its duties as the Escrow Agent hereunder or involving the subject matter hereof.
10. Escrow Agent Fees. The Company shall pay fees, service charges and
-----------------
per check fees to the Escrow Agent as described on Exhibit A, which is attached
hereto and made a part hereof. All of these fees are payable upon the release
of the Subscription Funds, and the Escrow Agent is hereby authorized to deduct
such fees from the Subscription Funds prior to any release thereof pursuant to
this Agreement.
11. Instructions and Notices. All notices, requests, demands or other
------------------------
communications authorized or required to be given by any party pursuant to this
Agreement shall be in writing to all parties, and shall be deemed to have been
sufficiently given on the date delivered by hand delivery, by overnight courier
or by certified mail, return receipt requested, to the address set forth below:
(i) If to the Escrow Agent:
The Bankers Bank
2410 Paces Ferry Road
600 Paces Summit
Atlanta, Georgia 30339
Attention: S. Shaw Lokey
(ii) If to the Company:
Cherokee Banking Company
1275 Riverstone Parkway
Canton, Georgia 30114
Attention: Dennis W. Burnette
(iii) With a copy to:
Kathryn L. Knudson, Esq.
Powell, Goldstein, Frazer & Murphy LLP
191 Peachtree Street N.E.
Sixteenth Floor
Atlanta, Georgia 30303
4
<PAGE>
Any party hereto may change its address for purposes of notice by
notice of such change given to the other parties in the manner specified herein.
12. Amendment. The parties hereto may amend, alter, modify or change any
---------
portion of the Escrow Agreement by written agreement of the parties hereto.
13. Counterparts. This Agreement may be executed in multiple
------------
counterparts, each of which shall be deemed an original and all of which shall
constitute one agreement. The signature of any party to any counterpart shall
be deemed to be a signature to, and may be appended to, any other counterpart.
14. Application of Georgia Law. This Escrow Agreement and the application
--------------------------
and interpretation hereof shall be governed exclusively by the laws of the State
of Georgia.
[Remainder of Page Intentionally Left Blank]
5
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Escrow Agreement as of
the day and year first above written.
CHEROKEE BANKING COMPANY
By:_______________________________________
Dennis W. Burnette
President and
Chief Executive Officer
THE BANKERS BANK
By:_______________________________________
Signature
______________________________________
Print Name/Title
6
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANT
We hereby consent to the incorporation by reference of our report dated
January 6, 1999, relating to the financial statements of Cherokee Banking
Company, in the Registration Statement on Form SB-2, as amended, and prospectus,
and to the reference to our firm therein under the caption "Experts."
/s/ Porter Keadle Moore, LLP
Atlanta, Georgia
March 18, 1999
