U. S. Securities and Exchange Commission
Washington, D.C. 20549
Form SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
(Amendment No. 1)
CORNERSTONE BANCORP
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(Name of small business issuer in its charter)
South Carolina 6021 57-1077978
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(State or jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
4821 Calhoun Memorial Highway, Easley, South Carolina 29642 (864) 306-1444
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(Address and telephone number of principal executive offices)
1670 East Main Street, Easley, South Carolina 29642
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(Address of intended principal place of business)
J. Rodger Anthony Copies to:
4821 Calhoun Memorial Highway George S. King, Jr., Esquire
Easley, South Carolina 29642 Suzanne Hulst Clawson, Esquire
(864) 306-1444 Sinkler & Boyd, P.A.
(Name, address and telephone 1426 Main Street, 12th Floor
number of agent for service) Columbia, South Carolina 29201
Approximate date of proposed sale to the public: As soon as possible after
effectiveness of this Registration Statement.
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 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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Prospectus
CORNERSTONE BANCORP
a proposed holding company for
CORNERSTONE NATIONAL BANK
(In Organization)
625,000 Shares (Minimum)
800,000 Shares (Maximum)
COMMON STOCK
$10.00 per share
Cornerstone Bancorp is offering its common stock for the purpose of
raising money with which to acquire Cornerstone National Bank (In Organization).
No underwriters are involved in this offering, and we will sell the common stock
directly to the public solely through the efforts of our officers and directors.
Please make subscription checks payable to "The Bankers Bank, Escrow
Agent for Cornerstone Bancorp." We will promptly submit all subscription funds
to an escrow account. This offering will terminate on August 20, 1999 (unless we
extend the termination date to no later than April 1, 2000) or may be terminated
earlier if the minimum objectives of this offering are met. If we sell fewer
than 625,000 Shares by the termination date, we will withdraw this offering and
the Escrow Agent will promptly return all subscription funds. You will not be
paid interest on such returned funds. You must purchase at least 100 shares to
participate in this offering. See "OFFERING AND METHOD OF SUBSCRIPTION."
Cornerstone National Bank may not commence operations until it receives
final approvals from federal regulatory agencies. If the Office of the
Comptroller of the Currency has not authorized the escrow agent to release $6
million of the escrowed funds to Cornerstone National Bank by April 1, 2000, the
escrow agent will promptly return all subscription funds. You will not be paid
interest on the returned funds.
Neither the Securities and Exchange
Commission nor any State Securities Commission
has approved or disapproved of these securities or
determined if this Prospectus is truthful or complete.
Any representation to the contrary is a criminal
offense.
The purchase of these securities involves certain risks. See
"RISK FACTORS," page 3.
The shares of common stock are equity securities; they are not savings
accounts or deposits. They will NOT be insured by the Federal Deposit
Insurance Corporation or any other government agency or company.
<TABLE>
<CAPTION>
========================================================= -------------------- ------------------- --------------------
Price Underwriting Proceeds to
to Discounts and Cornerstone
Public Commissions Bancorp(1)
- --------------------------------------------------------- -------------------- ------------------- --------------------
<S> <C> <C> <C>
PER SHARE..................................... $10.00 $-0- $10.00
========================================================= ==================== =================== ====================
$8,000,000 $-0- $8,000,000
TOTAL: Maximum -- 800,000 shares.......... $6,250,000 $-0- $6,250,000
Minimum -- 625,000 shares..........
========================================================= ==================== =================== ====================
</TABLE>
(1) This is the amount of proceeds before deduction of expenses associated
with this offering payable by Cornerstone Bancorp. Such expenses are
estimated at $50,000.
The Date of This Prospectus is July ___, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Summary............................................................................................................. 1
Risk Factors........................................................................................................ 3
Offering And Method Of Subscription................................................................................. 6
Use Of Proceeds..................................................................................................... 8
Pro Forma Capitalization............................................................................................ 9
Dividends........................................................................................................... 9
Plan of Operation of Cornerstone Bancorp and Organization Of Cornerstone National Bank.............................. 10
Proposed Services of Cornerstone National Bank...................................................................... 12
Directors and Executive Officers.................................................................................... 16
Certain Relationships And Related Transactions...................................................................... 20
Supervision And Regulation.......................................................................................... 21
Description Of Capital Stock........................................................................................ 24
Legal Matters....................................................................................................... 27
Accounting Matters.................................................................................................. 27
Index To Financial Statements....................................................................................... 28
</TABLE>
APPENDIX A -- Subscription Agreement
-------------------------------------------
Prospective investors may rely only on the information contained in this
Prospectus. Cornerstone Bancorp has not 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 the delivery of this Prospectus or any
sale of these securities.
This prospectus contains forward-looking statements which involve risks and
uncertainties. You can identify these forward-looking statements through our use
of words such as "may," "will," "expect," "anticipate," "beleive," "plan,"
"estimate," "continue," or other similar words. Our actual results may differ
significantly from the results we mention in these forward-looking statements,
especially since we are a new company with no operations. Factors that might
cause such a difference include, but are not limited to: our growth and our
ability to maintain growth; governmental monetary and fiscal policies, as well
as legislative and regulatory changes; the effect of interest rate changes on
our level and composition of deposits, loan demand and the value of our loan
collateral and securities; the effects of competition from other financial
institutions operating in our market area and elsewhere, including institutions
operating locally, regionally, nationally and internationally, together with
competitors that offer banking products and services by mail, telphone and
computer and/or the internet; failure of assumptions underlying the
establishment of our allowance for loan losses, including the value of
collateral securing loans; and those factors discussed in "RISK FACTORS"
beginning on page 3 of this prospectus.
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SUMMARY
This is a brief summary of some information in this Prospectus. It is not a
complete statement of all material facts about the matters in this Summary.
Please read the entire Prospectus carefully before you invest.
Cornerstone Bancorp
We were organized for the purpose of becoming a holding company for
Cornerstone National Bank. Our principal executive office is presently located
at 4821 Calhoun Memorial Highway, Easley, South Carolina 29642. Our telephone
number is (864) 306-1444. After opening of Cornerstone National Bank, our
address will be 1670 East Main Street, Easley, South Carolina 29642. We must
obtain the approval of the Board of Governors of the Federal Reserve System (the
"Federal Reserve") before we can acquire Cornerstone National Bank.
Cornerstone National Bank
Cornerstone National Bank is being organized in Easley, South Carolina as a
national bank. The Organizers of Cornerstone National Bank have filed an
application with the Office of the Comptroller of the Currency and received
preliminary approval to organize Cornerstone National Bank. The Organizers have
also filed an application with the FDIC for insurance of deposits. Cornerstone
National Bank may not conduct any banking business until the FDIC approves
deposit insurance and the Comptroller of the Currency grants final approval of
the charter application. The charter will be issued and FDIC deposit insurance
will be granted only if the Organizers comply with legal requirements imposed by
the Comptroller of the Currency and the FDIC. One of these requirements will be
capitalization of Cornerstone National Bank with at least $6 million.
Cornerstone National Bank will engage in a commercial and retail
banking business in the Easley area, and will emphasize its local contacts and
personalized services. Cornerstone National Bank's principal offices will be
located at 1670 East Main Street, Easley, South Carolina 29642. While
Cornerstone National Bank's offices are being built at that location,
Cornerstone National Bank will be located in temporary offices on the same lot.
If we receive all regulatory approvals to organize Cornerstone National
Bank, we plan to use the proceeds of this offering to capitalize Cornerstone
National Bank and to pay offering and organizational expenses of Cornerstone
National Bank. If this offering to capitalize Cornerstone National Bank does not
raise sufficient funds, or if we do not receive all regulatory approvals to
organize Cornerstone National Bank, we will withdraw the offering and the escrow
agent will promptly return all subscription funds. No interest will be paid on
such returned funds. See "OFFERING AND METHOD OF SUBSCRIPTION -- Escrow of
Funds."
The Directors and Organizers
Our directors and the organizers of Cornerstone National Bank are:
J. Rodger Anthony S. Ervin Hendricks, Jr.
Walter L. Brooks Joe E. Hooper
T.Edward Childress, III Robert R. Spearman
Nicholas S. Clark John M. Warren, Jr., M. D.
J. Bruce Gaston George I. Wike, Jr.
Mr. Anthony, who has 28 years of banking experience, is President and Chief
Executive Officer of Cornerstone Bancorp. Mr. Clark is Cornerstone Bancorp's
Chief Financial Officer. Mr. Anthony and Mr. Clark plan to serve in the same
capacities as officers of Cornerstone National Bank. All of the Organizers are
directors of Cornerstone Bancorp and plan to serve as initial directors of
Cornerstone National Bank.
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Our directors and members of their immediate families intend to
purchase an aggregate of at least 295,000 shares in the offering. These shares
will represent 47.2% of the total shares to be outstanding if 625,000 shares are
sold and 36.9% of the total shares to be outstanding if 800,000 shares are sold.
Our directors are not obligated to purchase such shares, however, and they may
decide to purchase fewer shares or more shares.
Our directors have specifically reserved the right to purchase as many
additional shares as may be necessary to achieve the minimum objective of sale
of 625,000 shares, although they are not obligated to purchase any such shares.
Because purchases by our directors may be substantial, you should not rely on
the sale of 625,000 shares as an indication of the merits of this offering or as
an indication that unaffiliated investors share a Director's confidence in his
investment decision. See "DIRECTORS AND EXECUTIVE OFFICERS -- Stock Ownership of
Directors."
<TABLE>
<CAPTION>
The Offering
<S> <C>
Shares of Common Stock Offered........................... Minimum -- 625,000
...................... Maximum -- 800,000
Offering Price Per Share................................. $10.00
Minimum Individual Purchase.............................. 100 shares
Maximum Individual Purchase.............................. 31,250 shares
Use of Proceeds.......................................... To capitalize Cornerstone National Bank and pay
offering, organizational and pre-opening expenses
</TABLE>
We reserve the right to alter the minimum and maximum purchase amounts in
our sole discretion. See "OFFERING AND METHOD OF SUBSCRIPTION."
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RISK FACTORS
Investment in our stock involves a significant degree of risk. Before
subscribing to purchase any of the shares, you should consider certain risks and
speculative features, which are inherent in and affect our business. You should
only make an investment after careful consideration of the risk factors set
forth below. You should not invest in our stock unless you can afford an
investment involving such risks. You should consider the following risks as well
as others:
You May Lose Your Total Investment
Due to the significant risks associated with an investment in the
common stock of a newly-formed company and bank, you should make sure, before
investing, that you are financially able to sustain a total loss of any funds
used to purchase our common stock. Our common stock is not a deposit, and will
not be insured by the FDIC or any other government agency.
We Have No Operating History
We do not yet have an operating history. Therefore, you have limited
information on which to base an investment decision.
We May Not Be Profitable
New banks typically incur substantial initial expenses and are not
profitable for several years after commencing business. Furthermore, Cornerstone
National Bank may never operate profitably. Cornerstone National Bank's proposed
operations will be subject to other risks inherent in the establishment of a new
business and, specifically, of a new financial institution. See "PROPOSED
SERVICES OF CORNERSTONE NATIONAL BANK - Lack of Profitability in the Early
Period of Operation."
We May Be Unable to Obtain Necessary Regulatory Approvals
The Organizers of Cornerstone National Bank have filed an application
with the Comptroller of the Currency for approval to organize and operate
Cornerstone National Bank. The Comptroller of the Currency has granted
preliminary, but not final, approval of the application. The Organizers have
also filed an application with the FDIC for deposit insurance. We will also file
an application with the Federal Reserve for approval to become a bank holding
company by acquiring all of the capital stock of Cornerstone National Bank. It
is possible that such approvals may not be granted or, if granted, may be
delayed. Any significant delay in commencing business will increase pre-opening
expenses and may reduce Cornerstone National Bank's capital, potential revenues
and income. Approvals may also contain conditions limiting payment of dividends
and restricting certain activities by Cornerstone National Bank or Cornerstone
Bancorp. Such conditions could have an adverse impact on Cornerstone National
Bank's operations and profitability. Since Cornerstone National Bank will be
Cornerstone Bancorp's only significant asset, such conditions would also have an
adverse impact on Cornerstone Bancorp's operations and profitability, and an
adverse impact on the value of your investment.
We are Highly Dependent Upon our President and Chief Executive Officer
We are, and for the foreseeable future we will be, dependent on the
services of J. Rodger Anthony, who is our president and chief executive officer.
If Mr. Anthony's services become unavailable, we cannot promise that we will
find a suitable successor who would be willing to be employed upon the terms and
conditions that we would offer. Failure to replace Mr. Anthony promptly, should
his services become unavailable, could have a materially adverse effect on our
operations and the value of our common stock. Our ability to attract and retain
other qualified officers and employees will also affect our profitability and
success. See "PROPOSED SERVICES OF CORNERSTONE NATIONAL BANK -Employees."
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Our Common Stock Has No Trading Market
There currently is no market for our stock. Due to the relatively
small size of the offering, and the number of shares that will be owned by
persons who are not Directors, it is unlikely that an active and liquid trading
market will develop or be maintained. The development of a public trading market
depends upon the existence of willing buyers and sellers and is not within our
control. For these reasons, our common stock may not be appropriate as a
short-term investment, and you should be prepared to hold our common stock
indefinitely.
We Arbitrarily Determined the Offering Price
The price of the stock has not been set as a result of arm's length
negotiations or with reference to prices established in an active trading
market, and no particular factors played a role in setting the offering price.
We established the aggregate offering price to adequately capitalize Cornerstone
National Bank. The price per share was arbitrarily set at $10.00 per share
solely with a view to obtaining a broad distribution of the common stock in our
community. Even if a trading market for the Common Stock develops, we cannot
assure you that you will be able to sell your shares at or above $10.00 per
share.
Our Directors and Others May Purchase Additional Shares With Borrowed Funds
to Meet the Minimum Offering Requirement
Our Directors, their affiliates and others affiliated with us may
purchase shares in addition to the number set forth in this Prospectus in order
to meet the minimum offering requirement. They may borrow funds to do so. See
"DIRECTORS AND EXECUTIVE OFFICERS -- Stock Ownership of Directors." Accordingly,
there is a risk that the offering will close and you will become a shareholder
of Cornerstone Bancorp even though the market may have judged the terms of the
offering unsatisfactory because it perceives the risk of investment to be too
great, the value placed on the offering by us to be too great, or for any other
reason.
We Will Not Pay Dividends in the Foreseeable Future, and May Never Pay Dividends
We cannot assure you when or whether Cornerstone National Bank will
pay cash dividends to us. It is expected that the Board of Directors of
Cornerstone National Bank will follow a policy of retaining earnings for an
indefinite period. If Cornerstone National Bank does not pay dividends to us, it
is not likely that we will be able to pay dividends to you. Cornerstone National
Bank's declaration and payment of future dividends are within the discretion of
the Board of Directors of Cornerstone National Bank, and are dependent upon
Cornerstone National Bank's earnings, financial condition, its need to retain
earnings for use in the business, and any other pertinent factors. Payment of
dividends by Cornerstone National Bank may also be subject to prior approval of
the Comptroller of the Currency. Declaration and payment of dividends by
Cornerstone Bancorp are within the discretion of the Board of Directors of
Cornerstone Bancorp. See "DIVIDENDS."
Provisions of our Articles of Incorporation May Discourage or Prevent Takeover
Attempts
Our Articles of Incorporation include several provisions that may have
the effect of discouraging or preventing hostile take-over attempts, and thus of
making the removal of incumbent management difficult. The provisions include
staggered terms for the Board of Directors and requirements of super-majority
votes to approve certain business transactions. See "DESCRIPTION OF CAPITAL
STOCK." To the extent that these provisions are effective in discouraging or
preventing take-over attempts, they may tend to reduce the market price for our
stock.
Our Directors Will Have Significant Voting Power
Our present directors are expected to own between 47.2% and 36.9% of
our stock. If they vote together, they will be able to prevent any merger,
consolidation, share exchange, sale of substantial assets, dissolution, removal
of directors or amendment to the articles of incorporation they do not want.
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We Will Face Strong Competition from Larger, More Established Competitors
We will encounter strong competition from financial institutions
operating in the Easley, South Carolina area. In the conduct of certain aspects
of its business, Cornerstone National Bank will also compete with credit unions,
insurance companies, money market mutual funds and other financial institutions,
some of which are not subject to the same degree of regulation as Cornerstone
National Bank. Many of these competitors have substantially greater resources
and lending abilities than Cornerstone National Bank. They offer certain
services, such as investment banking, trust and international banking services,
that Cornerstone National Bank does not expect to provide or will not provide
initially. We believe that Cornerstone National Bank will be able to compete
effectively with these institutions with personalized service, loan
participations and other techniques, but we cannot promise that we are correct
in our belief. See "PLAN OF OPERATION OF CORNERSTONE BANCORP AND ORGANIZATION OF
CORNERSTONE NATIONAL BANK -- Competition."
We May Need Additional Capital and We May Dilute Your Common Stock
We have no present intention to issue additional stock, but we may
attempt to do so in the future if additional capital is required or useful. We
have not attempted to determine whether additional capital would be available or
the terms on which such capital might be available. Our common stock is not
subject to any preemptive rights. Therefore, your percentage ownership of our
company will be diluted if we sell additional shares of our common stock, and as
we grant stock awards, options or other awards to hire or retain employees. See
"SUPERVISION AND REGULATION -- Capital Adequacy Guidelines for Bank Holding
Companies and National Banks" and "DESCRIPTION OF CAPITAL STOCK - No Preemptive
Rights."
We Will Have Lending Risks Associated With a Small Market Area and a New Loan
Portfolio
We anticipate that the majority of Cornerstone National Bank's
depositors will be located in or doing business in and around Easley, South
Carolina. We also anticipate that Cornerstone National Bank will lend a
substantial portion of its capital and deposits to individual and commercial
borrowers in and around Easley. Any factors that adversely affect Easley and
surrounding areas could, in turn, adversely affect the performance of
Cornerstone National Bank. Management will endeavor to be prudent in making
loans, but some loan losses are unavoidable. Changes in both national and local
economic conditions could affect the ability of borrowers to repay their loans.
It is possible that defaults by Cornerstone National Bank's borrowers could be
large enough to impair the ability of Cornerstone National Bank to continue its
operations. Loan losses and other losses might reduce Cornerstone National
Bank's capital below the level required by the FDIC, which could result in loss
of deposit insurance, Cornerstone National Bank's being placed in receivership,
and total loss of the value of your investment in Cornerstone Bancorp.
We Will Be Susceptible to Changes in Monetary Policy and Other Economic Factors
Changes in governmental, economic, and monetary policies may affect
the ability of Cornerstone National Bank to attract deposits and make loans. The
rates of interest payable on deposits and chargeable on loans are affected by
governmental regulation and fiscal policy as well as by national, state and
local economic conditions. See "SUPERVISION AND REGULATION."
We May Experience Problems as a Result of the Year 2000 Date Change
Banks and other financial institutions are very dependent upon
computers for carrying on most aspects of their business. Until recently most
computers have been programmed in a way that causes them to operate as though
all dates are in the 1900's. Such computers may fail to operate properly in the
year 2000. Although the banking industry has been working to eliminate these
problems within the industry, there can be no assurance that those efforts will
be completely successful and that no disruptions will result in the year 2000.
Cornerstone National Bank is aware of the potential problem and plans to take
steps to acquire computer systems that are free of the year 2000 problem.
Nevertheless, the fact that so much of financial commerce is electronically
based and interrelated presents the risk that disruptions of electronic commerce
will occur that will adversely affect the business of Cornerstone National Bank.
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We Will be Subject to Governmental Regulation, Which Could Change
We will operate in a highly regulated industry and will be subject to
examination, supervision and comprehensive regulation by various federal and
state agencies. Our compliance with these agencies will be costly and may limit
our growth and restrict certain of our activities, including, payment of
dividends, mergers and acquisitions, investments, loans and interest rates
charged, interest rates paid on deposits, and locations of offices. We will also
be subject to capitalization guidelines set forth in federal legislation.
The laws and regulations applicable to the banking industry could
change at any time, and we cannot predict the impact of these changes on our
business and profitability. Because government regulation greatly affects the
business and financial results of all commercial banks and bank holding
companies, our cost of compliance could adversely affect our ability to operate
profitably.
OFFERING AND METHOD OF SUBSCRIPTION
The Offering
Cornerstone Bancorp is offering a minimum of 625,000 shares and a
maximum of 800,000 shares of its Common Stock (no par value) at a price of
$10.00 per share. The price of the Common Stock has not been set as the result
of arm's length negotiations or with reference to prices established in an
active trading market. Cornerstone Bancorp is seeking to raise sufficient
capital through this offering to adequately capitalize Cornerstone National
Bank.
The minimum individual purchase pursuant to this offering is 100
shares, and the maximum purchase is 31,250 shares. Cornerstone Bancorp reserves
the right to alter the individual minimum and maximum purchase amounts should
conditions so warrant and specifically reserves the right to approve purchases
of more than 31,250 shares. Cornerstone Bancorp has approved the purchase of
75,000 shares by each of two Directors. Under no circumstances will a subscriber
other than a Director be permitted to subscribe for more than 5% of the total
shares sold. Subscribers should be aware that beneficial ownership of more than
10% of the outstanding Common Stock of Cornerstone Bancorp would obligate the
beneficial owner to comply with certain reporting and disclosure requirements of
federal banking and securities laws.
At least $6,000,000 is necessary to capitalize Cornerstone National
Bank. If 625,000 shares are not sold prior to the Expiration Date (as defined
below) to provide funds to capitalize Cornerstone National Bank and pay
offering, organizational and pre-opening expenses, this offering will be
withdrawn and all subscription funds will be promptly refunded without interest.
See "Escrow of Funds" and "Certain Contingencies." Although they are not
obligated to do so, in order to cause 625,000 shares to be subscribed, the
Directors, their affiliates and others affiliated with Cornerstone Bancorp may
purchase shares in addition to the number set forth under "DIRECTORS AND
EXECUTIVE OFFICERS -- Stock Ownership of Directors," and they may borrow funds
to finance their purchases. See "--Certain Contingencies," "RISK FACTORS - Our
Directors and Others May Purchase Additional Shares With Borrowed Funds to Meet
the Minimum Offering Requirement," "DIRECTORS AND EXECUTIVE OFFICERS -- Stock
Ownership of Directors."
Escrow of Funds
Subscription funds will be held in an escrow account (the "Escrow
Account") with The Bankers Bank, Atlanta, Georgia (the "Escrow Agent"), until
the close of this offering and authorization by the Comptroller of the Currency
to release $6 million of the escrowed funds to Cornerstone National Bank.
Subscription funds will be deposited by the Escrow Agent in certificates of
deposit, accounts or other deposits, which are insured by the FDIC or another
agency of the United States government, or invested in short-term securities
issued or fully guaranteed by the United States government or federal funds,
until release of $6 million to Cornerstone Bancorp is authorized by the
Comptroller of the Currency. Any interest earned on subscription funds while
such funds were held in escrow will be property of Cornerstone Bancorp.
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If the Comptroller of the Currency has not authorized the Escrow Agent
to release $6 million of the escrowed funds to Cornerstone National Bank by
April 1, 2000, the Escrow Agent will promptly refund all subscription funds. No
interest will be paid to subscribers on such refunded funds.
Plan of Distribution
This offering is being made to the public through the executive
officers and directors of Cornerstone Bancorp and Cornerstone National Bank. No
commission or other sales compensation will be paid to any officer or director
of Cornerstone Bancorp or any proposed officer or director of Cornerstone
National Bank in connection therewith.
Method of Subscription
Shares may be subscribed for by delivery of the enclosed subscription
form, completed and executed, together with full payment of the subscription
price, to Cornerstone Bancorp, at 4821 Calhoun Memorial Highway, Easley, South
Carolina 29642. All subscription payments must be made in United States dollars
by check, bank draft, or money order drawn to the order of "The Bankers Bank,
Escrow Agent for Cornerstone Bancorp." Subscription payments will be delivered
promptly to the Escrow Agent. Subscriptions and full payment must be received on
or prior to the Expiration Date (as defined below).
Cornerstone Bancorp reserves the right to reject any offer of
subscription in whole or in part or to cancel acceptance of any subscription
offer in whole or in part until the date the shares subscribed hereunder are
issued for any reason whatsoever. If all or part of a subscription is not
accepted or is cancelled by Cornerstone Bancorp, all funds relating to the
unaccepted or cancelled portion shall be promptly returned to the subscriber
without interest thereon. Only the President of Cornerstone Bancorp has the
authority to accept or reject a subscription, or portion thereof, on behalf of
Cornerstone Bancorp.
Expiration Date or Extension of the Offering
Cornerstone Bancorp will offer shares of the Common Stock hereunder
until the earlier of (1) receipt by Cornerstone Bancorp of subscriptions for an
aggregate of 800,000 shares; (2) a decision by Cornerstone Bancorp to terminate
the offering; or (3) August 20, 1999 (the "Expiration Date"). While Cornerstone
Bancorp intends to use its best efforts to sell 800,000 shares, the offering may
be terminated without notice to anyone before all such shares are sold if the
sale of at least 625,000 shares has been completed.
The Expiration Date may be extended until April 1, 2000, in the
discretion of Cornerstone Bancorp. Written notice of any such extension shall be
given to all persons who are already subscribers at the time of the extension,
but any such extension will not alter the binding nature of subscriptions
already submitted to Cornerstone Bancorp. The extension of the Expiration Date
may cause an increase in Cornerstone National Bank's pre-operating expenses and
in the expenses incurred by Cornerstone Bancorp in connection with this
offering. It is anticipated that Cornerstone National Bank will commence
operations in the third quarter of 1999.
Certain Contingencies
Cornerstone Bancorp must receive the approval of the Federal Reserve
before it can capitalize Cornerstone National Bank. Organization of Cornerstone
National Bank and commencement of its operations is contingent upon
capitalization of Cornerstone National Bank at $6,000,000, receipt of FDIC
insurance of deposits and the Comptroller of the Currency's final approval of
the application to organize. There can, however, be no assurance if or when
these requirements will be met. Any significant delay in receipt of Comptroller
of the Currency and FDIC approvals will delay commencement of business and
increase pre-opening expenses and may reduce Cornerstone National Bank's
capital, potential revenues and income.
The Directors reserve the right to purchase, directly or indirectly,
shares in addition to the shares set forth in the table under "DIRECTORS AND
EXECUTIVE OFFICERS -- Stock Ownership of Directors," if necessary to reach the
625,000 share threshold, though they are not obligated to do so. Borrowed funds
may be used to purchase such shares. Accordingly, investors should not place any
reliance on the sale of 625,000 shares as an indication of the merits
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of this offering or that a Director's confidence in his investment decision is
shared by investors who are not affiliates of Cornerstone Bancorp.
If 625,000 shares are not sold prior to the Expiration Date of this
offering, or if regulatory approvals to commence operations are not received for
any other reason and if the Comptroller of the Currency has not authorized the
Escrow Agent to release $6 million of the escrowed funds to Cornerstone National
Bank by April 1, 2000, the Escrow Agent will promptly return all subscription
funds without interest.
Issuance of Stock Certificates
Certificates for shares of Common Stock offered hereby, subscriptions
for which have been accepted by Cornerstone Bancorp and paid for by the
subscriber, will be issued by Cornerstone Bancorp promptly after Cornerstone
National Bank receives its charter.
USE OF PROCEEDS
The net proceeds from this offering are expected to be between
approximately $6,200,000 and $7,950,000 after deduction of offering expenses
estimated at approximately $50,000. Upon receipt of final regulatory approvals,
Cornerstone Bancorp will use $6,000,000 of the net proceeds from this offering
to capitalize Cornerstone National Bank and to meet Cornerstone National Bank's
organizational and pre-opening expenses. Proceeds in excess of $6,000,000 will
be temporarily invested by Cornerstone Bancorp and used to pay Cornerstone
Bancorp's administrative expenses. To the extent not needed to pay such
expenses, such funds, if any, will be available to increase the capital of
Cornerstone National Bank or for other activities in which a bank holding
company is permitted to engage.
The proceeds of the offering used to capitalize Cornerstone National Bank
will be applied primarily to provide funds for Cornerstone National Bank's
banking operations, including loans to customers and investments, for purchase
of the property on which Cornerstone National Bank's headquarters will be
located and construction of the Cornerstone National Bank building, for
furnishing and equipping Cornerstone National Bank, and for working capital.
Cornerstone National Bank has not allotted specific portions of the proceeds for
making loans and for working capital but plans to use the funds as needed.
Cornerstone National Bank's present plans and applications filed with the
Comptroller of the Currency and the FDIC contemplate that Cornerstone National
Bank will only operate out of one location for several years. Should the
proceeds of this offering substantially exceed the minimum, Cornerstone National
Bank may seek regulatory approval to open additional offices if it appears that
doing so will benefit Cornerstone National Bank and its shareholder. The precise
amounts and manners in which these funds will be used will be subject to the
discretion of management in light of current market conditions and, therefore,
cannot now be usefully predicted.
Cornerstone National Bank expects to incur approximately $275,000 in
organizational and pre-opening expenses which will, provided all necessary
regulatory approvals are obtained, be payable from the proceeds of the offering.
This amount will be offset partially by interest income earned during the
pre-opening period. Of the total estimated $275,000 of organizational and
pre-opening expenses, approximately $125,000 will be used to pay salaries and
the remainder will be used to repay a line of credit used for the benefit of
Cornerstone National Bank and for miscellaneous expenses such as legal,
consulting, accounting, and other expenses associated with the organization of
Cornerstone National Bank. Approximately $47,000 in organizational and
pre-opening expenses had been incurred as of April 30, 1999.
The Organizers have estimated that initial fixed asset expenditures
will be approximately $450,000 for purchase of property on which Cornerstone
National Bank is to be located, and $250,000 for furniture, fixtures and
equipment. The Organizers plan to build Cornerstone National Bank's permanent
offices during its second year at an approximate cost of $1,000,000. Actual
expenses may, however, vary from these estimates.
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PRO FORMA CAPITALIZATION
The following table sets forth the pro forma capitalization of
Cornerstone Bancorp after completion of this offering. The table assumes
capitalization of Cornerstone Bancorp at $6,200,000 after deduction of estimated
offering expenses of $50,000. Prior to its opening, Cornerstone National Bank
expects to incur pre-opening and organizational expenses that would result in a
retained deficit of approximately $275,000.
Stockholders' Equity
<TABLE>
<CAPTION>
<S> <C>
Preferred Stock (10,000,000 Shares Authorized) no Shares Outstanding
Common Stock, no par value (20,000,000 Shares Authorized)
625,000 Shares Outstanding....................................................... $6,200,000
Retained deficit.................................................................... (275,000)
----------
Total Stockholders' Equity.................................................... $5,925,000
==========
</TABLE>
DIVIDENDS
The most likely source of dividends to be paid by Cornerstone Bancorp
will be dividends paid to Cornerstone Bancorp by Cornerstone National Bank.
Accordingly, the payment of dividends by Cornerstone Bancorp is indirectly
subject to the same laws and regulations that govern the payment of dividends by
national banks.
Cornerstone National Bank will be restricted in its ability to pay
dividends under the national banking laws and by regulations of the Comptroller
of the Currency. Pursuant to 12 U.S.C. Section 56, a national bank may not pay
dividends from its capital. All dividends must be paid out of net profits then
on hand, after deducting losses and bad debts. Payment of dividends out of net
profits is further limited by 12 U. S. C. Section 60(a), which prohibits a bank
from declaring a dividend on its shares of common stock until its surplus equals
the amount of its capital, unless there has been transferred to surplus not less
than 1/10 of the bank's net profits of the preceding two consecutive half years
periods (in the case of an annual dividend). Pursuant to 12 U. S. C. Section 60
(b), the approval of the Comptroller of the Currency is required if the total of
all dividends declared by Cornerstone National Bank in any calendar year will
exceed the total of its retained net profits for that year combined with its net
profits for the preceding two years, less any required transfers to surplus. The
Comptroller of the Currency has issued policy statements that indicate that
insured banks should generally only pay cash dividends out of current operating
earnings.
The payment of cash dividends by Cornerstone National Bank may also be
affected or limited by other factors, such as the requirements to maintain
adequate capital above regulatory guidelines. In addition, if, in the opinion of
the applicable regulatory authority, a bank under its jurisdiction is engaged in
or is about to engage in an unsafe or unsound practice (which, depending on the
financial condition of the bank, could include the payment of cash dividends),
such authority may require, after notice and hearing, that such bank cease and
desist from such practice. Paying dividends that deplete a bank's capital base
to an inadequate level may constitute an unsafe and unsound banking practice.
There can be no assurance when, or whether, Cornerstone Bancorp will
be in a position to pay cash dividends on the Common Stock. Once Cornerstone
National Bank becomes sufficiently profitable in the judgment of its directors,
its directors expect that Cornerstone National Bank will pay some dividends in
cash to Cornerstone Bancorp. However, Cornerstone Bancorp anticipates that all
or substantially all of Cornerstone National Bank's earnings in the foreseeable
future may be required for use in the development of Cornerstone National Bank's
business. If Cornerstone National Bank pays cash dividends to Cornerstone
Bancorp, there is no requirement that Cornerstone Bancorp, in turn, pay
dividends to its shareholders. See "DESCRIPTION OF CAPITAL STOCK -- Dividends."
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PLAN OF OPERATION OF CORNERSTONE BANCORP AND ORGANIZATION OF CORNERSTONE
NATIONAL BANK
Organization and Plan of Operation of Cornerstone Bancorp
Cornerstone Bancorp was incorporated under the laws of South Carolina
in January, 1999. Cornerstone Bancorp was organized for the purpose of becoming
the holding company for Cornerstone National Bank. Before Cornerstone Bancorp
can acquire Cornerstone National Bank, however, it must obtain the approval of
the Federal Reserve. An application for approval of the Federal Reserve will be
filed in the near future.
For the foreseeable future, Cornerstone Bancorp expects that its
primary business activity will be ownership and operation of Cornerstone
National Bank. At some point in the future, if the directors of Cornerstone
Bancorp determine that it is appropriate to do so and any necessary regulatory
approvals can be obtained, Cornerstone Bancorp may engage in other activities
permitted for bank holding companies and may organize or acquire additional
banks, though there can be no assurances that it will do so.
Organization of Cornerstone National Bank
On February 1, 1999, the Organizers filed an application to obtain a
national bank charter with the Comptroller of the Currency. The Comptroller of
the Currency has granted preliminary approval to the application. Cornerstone
National Bank will not be permitted to receive deposits, make loans, or
otherwise engage in banking activities unless and until it receives a
certificate from Comptroller of the Currency to the effect that it has complied
with all provisions of law required to entitle it to commence banking
operations, including securing insurance of its deposits from the FDIC. Prior to
receiving such a certificate, Cornerstone National Bank must establish capital
in the amount of $6,000,000, and must satisfy any administrative conditions
imposed by the Comptroller of the Currency. The Comptroller of the Currency has
the authority to alter, suspend, or rescind the approval of Cornerstone National
Bank's application at any time if the Comptroller of the Currency deems any
development warrants such action.
The Organizers have submitted an application to the FDIC for the
insurance of Cornerstone National Bank's deposit accounts. In evaluating
applications for insurance, the FDIC considers several factors, including the
adequacy of the applicant's capital structure, the general character of its
management, its future earnings prospects, the risk to federal insurance funds,
and the convenience and needs of the community to be served by the proposed
bank. In addition, prior to approving an application, the FDIC must be satisfied
that, among other things, the projected ratio of equity capital plus reserves to
assets is at least 8% at the end of the third year of Cornerstone National
Bank's operations and profitable operations are projected for the third year of
operations.
Although the Organizers are taking the actions they believe are
necessary to obtain a certificate to operate a banking business from the
Comptroller of the Currency and deposit insurance from the FDIC, there can be no
assurance that the Comptroller of the Currency will grant a certificate to
commence business or that Cornerstone National Bank will obtain FDIC insurance.
Management Philosophy and Policy
Cornerstone National Bank will be the first start-up bank in the
Easley area in over 13 years. The Organizers believe that, with the increased
demand for banking services arising from steady growth in population, personal
income, and employment, the banking market will continue to grow in the Easley
area. It is their opinion that there is a need for an additional locally owned
and managed bank to serve the needs of the community, including individuals and
small and medium-sized business enterprises. The Organizers intend for
Cornerstone National Bank to concentrate on this hometown market with a
professional staff that is sensitive to local needs.
The Organizers of Cornerstone National Bank are dedicated to providing
personalized banking to the citizens of the Easley area. Based on their
knowledge of the area as long-time residents and business people, the Organizers
believe that a bank owned and managed by people living and working in the local
area can best serve the community for the following reasons:
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Decisions regarding credit and services of a bank can best be made at
a local level.
Funds made available from local deposits should be re-invested in the
depositors' community.
Stability and continuity of management within a banking institution
without frequent changes are important to its customers.
The wave of bank mergers and consolidations has resulted in most banks
in the Easley market area being controlled by large out-of-state institutions. A
primary objective of the Organizers of Cornerstone National Bank is to provide
citizens of Easley with more opportunity to have their banking needs met
locally. The Organizers are involved extensively in business in the Easley
service area and intend to make meeting the credit needs of this area a first
priority. The Organizers believe that a large number of bank customers prefer a
local bank, and that this preference should result in the successful and
profitable operation of Cornerstone National Bank, though no assurances can be
given that this will be the case.
Cornerstone National Bank intends to offer a wide range of banking
services including checking and savings accounts; commercial, installment, and
personal loans; and other associated services. While trust services will not be
offered immediately, the Organizers would expect Cornerstone National Bank to
consider offering such services when a need for offering these services is
indicated and when the appropriate staff can be developed and regulatory
approvals obtained. The goals of the new Bank will be to provide banking
services to satisfy the needs of its customers, while investing its funds in
accordance with sound banking practices and earning the maximum profit for
shareholders.
Cornerstone National Bank intends to provide personalized banking
services, with emphasis on knowledge of the individual financial needs and
objectives of its customers and an appropriate array of services to meet those
needs and objectives, coupled with timely response. Cornerstone National Bank
will seek to promote continuous long-term relationships between officers and
customers by minimizing transfers of account officers to different customers,
departments or locations. Cornerstone National Bank will also seek to limit the
number of accounts served by each of its officers to a level that will permit
personal attention to each customer and full development of each customer's
business relationship with Cornerstone National Bank. Because the management of
Cornerstone National Bank will be located in Easley, all credit and related
decisions will be made locally, which is expected to facilitate prompt response.
The Organizers anticipate that Cornerstone National Bank's initial
capitalization will enable it to commence operations as a significant
competitor. With an initial capitalization of approximately $6,000,000,
Cornerstone National Bank will have a legal lending limit of approximately
$900,000 for loans to a single customer. The Organizers anticipate that
Cornerstone National Bank will establish correspondent relationships with The
Bankers Bank, and other banks to participate loans when loan amounts exceed
Cornerstone National Bank's legal lending limits or internal lending policies.
The Organizers believe that Cornerstone National Bank's initial capitalization
should support substantial growth in deposits and loans, and will be sufficient
to meet the capital requirements of Cornerstone National Bank for at least its
first three years of operations.
Competition
South Carolina law permits statewide branching by banks and savings
and loan associations. Consequently, many financial institutions have branches
located in several communities. Currently, 8 commercial banks and 2 savings
institutions operate branches in Pickens County. Approximately $831 million in
deposits are maintained in these branches. Six of the institutions have branches
in Easley with an aggregate of $347,060,000 in deposits at June 30, 1998.
The principal areas and methods of competition in the banking industry
are the services offered, pricing of those services, the convenience and
availability of the services, and the degree of expertise and personal manner
with which those services are offered. The Organizers believe that Cornerstone
National Bank will be able to compete effectively in those areas, but no
assurance can be given that it will be able to do so.
Cornerstone National Bank will encounter strong competition from most of
the financial institutions in its extended market area. In the conduct of
certain areas of its business, Cornerstone National Bank will also compete
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with credit unions, insurance companies, money market mutual funds and
other financial institutions, some of which are not subject to the same degree
of regulation and restrictions as Cornerstone National Bank will be. Most of
these competitors have substantially greater resources and lending abilities
than Cornerstone National Bank will have and offer certain services, such as
international banking, investment banking, and trust services, that Cornerstone
National Bank will not provide initially.
PROPOSED SERVICES OF CORNERSTONE NATIONAL BANK
Deposits
Cornerstone National Bank intends to offer the full range of deposit
services typically available in most banks and savings and loan associations,
including checking accounts, NOW accounts, and savings and other time deposits
of various types, ranging from daily money market accounts to longer-term
certificates of deposit. The transaction accounts and time certificates will be
tailored to the principal market area at rates competitive with those offered in
the area. In addition, retirement accounts such as IRA's (Individual Retirement
Accounts) will be made available. All deposit accounts will be insured by the
FDIC up to the maximum amount permitted by law. Cornerstone National Bank
intends to solicit these accounts from individuals, businesses, associations and
organizations, and government authorities. Although Cornerstone National Bank
intends to be competitive in its efforts to attract deposit accounts, it does
not plan to aggressively seek jumbo certificates of deposit (certificates in
amounts greater than $100,000) and does not intend to accept brokered deposit
accounts.
Lending Activities
Cornerstone National Bank intends to emphasize a range of lending
services, including real estate, commercial and consumer loans. Consumer loans
will include both installment and term loans, and will include loans for
automobiles, household goods, education, boats and general personal expenses.
To address the risks inherent in making loans, management will
maintain an allowance for loan losses based on, among other things, an
evaluation of Cornerstone National Bank's loan loss experience, management's
experience at other financial institutions in the market area, the amount of
past due and nonperforming loans, current and anticipated economic changes and
the values of certain loan collateral. Based upon such factors, management will
make various assumptions and judgments about the ultimate collectibility of the
loan portfolio and provide an allowance for potential loan losses based upon a
percentage of the outstanding balances and specific loans. However, because
there are certain risks that cannot be precisely quantified, management's
judgment of the allowance is necessarily approximate and imprecise. The adequacy
and methodology of the allowance for loan losses will be subject to regulatory
examination and compared to a peer group of financial institutions identified by
the regulatory agencies.
Real Estate Loans
The Organizers expect that one of the primary components of
Cornerstone National Bank's loan portfolio will be loans secured by first or
second mortgages on residential and commercial real estate. These loans will
generally consist of commercial real estate loans, construction and development
loans and residential real estate loans (including home equity and second
mortgage loans). Interest rates may be fixed or adjustable and Cornerstone
National Bank will generally charge an origination fee. Cornerstone National
Bank will seek to manage credit risk in the commercial real estate portfolio by
emphasizing loans on owner-occupied office and retail buildings where the
loan-to-value ratio, established by independent appraisals, does not exceed 80%.
The Organizers presently anticipate that the loan-to-value ratio for first and
second mortgage loans and for construction loans generally will not exceed 80%.
In addition, Cornerstone National Bank may require personal guarantees of the
principal owners of the property. Cornerstone National Bank may also originate
mortgage loans for sale into the secondary market, earning a fee, but avoiding
the interest rate risk of holding long-term, fixed-rate loans.
The principal economic risk associated with all loans, including real
estate loans, is the creditworthiness of Cornerstone National Bank's borrowers.
The ability of a borrower to repay a real estate loan will depend upon a number
of economic factors, including employment levels and fluctuations in the value
of real estate. In the case of a
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real estate construction loan, there is generally no income from the
underlying property during the construction period, and the developer's personal
obligations under the loan are typically limited. Each of these factors
increases the risk of nonpayment by the borrower. In the case of a real estate
purchase loan, the borrower may be unable to repay the loan at the end of the
loan term and may thus be forced to refinance the loan at a higher interest
rate, or, in certain cases, the borrower may default as a result of its
inability to refinance the loan. In either case, the risk of nonpayment by the
borrower is increased.
Cornerstone National Bank will also face additional credit risks to
the extent that it engages in making adjustable rate mortgage loans ("ARMs"). In
the case of an ARM, as interest rates increase, the borrower's required payments
increase, thus increasing the potential for default. The marketability of all
real estate loans, including ARMs, is also generally affected by the prevailing
level of interest rates.
Commercial Loans
Cornerstone National Bank will make loans for commercial purposes in
various lines of business. The commercial loans will include both secured and
unsecured loans for working capital (including inventory and receivables), loans
for business expansion (including acquisition of real estate and improvements),
Small Business Administration ("SBA") loans for new businesses (as well as other
governmentally guaranteed business loans), and loans for purchases of equipment
and machinery. The Organizers anticipate that equipment loans will typically be
made for a term of five years or less at either fixed or variable rates, with
the loan fully amortized over the term and secured by the financed equipment.
Working capital loans will typically have terms not exceeding one year and will
usually be secured by accounts receivable, inventory or personal guarantees of
the principals of the business. Commercial loans will vary greatly depending
upon the circumstances and loan terms will be structured on a case-by-case basis
to better serve customer needs.
The risks associated with commercial loans vary with many economic
factors, including the economy in the Easley/Pickens County area. The
well-established banks in the Easley/Pickens County area will make
proportionately more loans to medium- to large-sized businesses than Cornerstone
National Bank. Many of Cornerstone National Bank's anticipated commercial loans
will likely be made to small- to medium-sized businesses, which are typically
smaller, have shorter operating histories, and less sophisticated record keeping
systems than larger entities. As a result, these smaller entities may be less
able to withstand adverse competitive, economic and financial conditions than
larger borrowers. In addition, because payments on loans secured by commercial
property generally depend to a large degree on the results of operations and
management of the properties, repayment of such loans may be subject, to a
greater extent than other loans, to adverse conditions in the real estate market
or the economy.
Consumer Loans
Cornerstone National Bank will make a variety of loans to individuals
for personal and household purposes, including secured and unsecured installment
and term loans, home equity loans and lines of credit and unsecured revolving
lines of credit such as credit cards. The secured installment and term loans to
consumers will generally consist of loans to purchase automobiles, boats,
recreational vehicles, mobile homes and household furnishings, with the
collateral for each loan being the purchased property. The underwriting criteria
for home equity loans and lines of credit will generally be the same as applied
by Cornerstone National Bank when making a first mortgage loan, as described
above, and home equity lines of credit will typically expire 15 years or less
after origination, unless renewed or extended.
Consumer loans generally involve more credit risks than other loans
because of the type and nature of the underlying collateral or because of the
absence of any collateral. Consumer loan repayments are dependent on the
borrower's continuing financial stability and are likely to be adversely
affected by job loss, divorce and illness. Furthermore, the application of
various federal and state laws, including federal and state bankruptcy and
insolvency laws, may limit the amount which can be recovered on such loans in
the case of default. In most cases, any repossessed collateral will not provide
an adequate source of repayment of the outstanding loan balance. Although the
underwriting process for consumer loans includes a comparison of the value of
the security, if any, to the proposed loan amount, Cornerstone National Bank
cannot predict the extent to which the borrower's ability to pay, and the value
of the security, will be affected by prevailing economic and other conditions.
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Loan Approval and Review
Cornerstone National Bank's loan approval policies will provide for
various levels of officer lending authority. When the amount of aggregate loans
to a single borrower exceeds an individual officer's lending authority, the loan
request will be considered and approved by an officer with a higher lending
limit or by the Loan Committee of the Board of Directors. The Loan Committee
will set the lending limits for Cornerstone National Bank's loan officers, and
any loan in excess of such lending limits must be approved by the Loan
Committee. Cornerstone National Bank will not make any loans to any director,
officer of employee of Cornerstone National Bank unless the loan is approved by
Cornerstone National Bank's Board of Directors, or a committee thereof, and is
made on terms not more favorable to such person than would be available to a
person not affiliated with Cornerstone National Bank.
Other Services
Cornerstone National Bank may participate in a regional network of
automated teller machines that may be used by Bank customers in major cities
throughout the Southeast. Cornerstone National Bank plans to offer both VISA and
MasterCard brands of bank cards together with related lines of credit. The lines
of credit may be used for overdraft protection as well as pre-authorized credit
for personal purchases and expenses.
Cornerstone National Bank will provide travelers checks, direct
deposit of payroll and social security checks, and automatic drafts for various
accounts, but will not provide international or trust banking services in the
near future.
Asset and Liability Management
The primary earning assets of Cornerstone National Bank will consist
of the loan portfolio and investment account. Efforts will be made generally to
match maturities and rates of loans and the investment portfolio with those of
deposits, although exact matching will not be possible. The majority of
Cornerstone National Bank's securities investments will be in marketable
obligations of the United States government, federal agencies and state and
municipal governments, generally with varied maturities.
Long-term loans will be priced primarily to be interest-rate sensitive
with only a small portion of Cornerstone National Bank's portfolio of long-term
loans at fixed rates. In the near term, such fixed-rate loans will not have
maturities longer than fifteen years, except in exceptional cases.
Deposit accounts will represent the majority of the liabilities of
Cornerstone National Bank. These will include transaction accounts, time
deposits and certificates of deposit. The maturities of the majority of
interest-sensitive accounts will be 12 months or less.
Premises
Cornerstone National Bank and Cornerstone Bancorp presently operate
out of a leased office located at 4821 Calhoun Memorial Highway, Easley, South
Carolina. Cornerstone National Bank plans to purchase a 1.82 acre parcel of land
located at 1670 East Main Street, Easley, South Carolina on which to build a
permanent banking facility. See "CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS."
At its opening and during construction of the building, Cornerstone
National Bank will operate out of a temporary modular bank office facility to be
located on the same lot as the permanent facility. The temporary building will
be leased from an unrelated third party. Cornerstone National Bank expects to
spend approximately $25,000 for site preparation of the land to make it suitable
for its temporary use.
Employees
The president and chief executive officer of Cornerstone National Bank will
be J. Rodger Anthony. Mr. Anthony, age 53, has over 28 years of experience in
the banking industry. Mr. Anthony's most recent banking experience was as Chief
Executive Officer of First National Bank of Pickens County. See "DIRECTORS AND
EXECUTIVE OFFICERS."
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The chief financial officer of Cornerstone National Bank will be Nicholas
Clark. Mr. Clark, age 31, was employed by First National Bank of Pickens County
from 1993 to 1998 and served as that bank's commercial credit analyst, cashier
and chief financial officer. See "DIRECTORS AND EXECUTIVE OFFICERS."
Other employees will be hired in phases beginning prior to the opening
of Cornerstone National Bank. It is anticipated that Cornerstone National Bank
will make available to its employees competitive benefits, which should enable
Cornerstone National Bank to attract and retain quality employees.
Pre-Opening Activities
The Organizers will monitor and supervise the acquisitions of
Cornerstone National Bank's facilities, hiring and training its staff,
arrangements to purchase or lease and install equipment necessary for the
transaction of business, establishment of correspondent banking relationships,
and make other arrangements for necessary services.
Lack of Profitability in the Early Period of Operation
It has been the experience in the banking industry for new banks to
operate at a loss in the first several years of operation. Every reasonable
effort will be made to reach a level of profitability as quickly as possible,
but there can be no assurances that Cornerstone National Bank will be profitable
during its first 3 years of operation or at any time thereafter.
The Organizers of Cornerstone National Bank, who are mostly local
residents of Cornerstone National Bank's market area, believe that the existing
and future bank market in Easley and Pickens County presents an excellent
opportunity for a new locally owned bank. Their belief is based upon their
review of the economic outlook for the area and the size, nature, and growth
potential of the existing market for banking services and the experience of
Messrs. Anthony and Clark with First National Bank of Pickens County.
Economy
Cornerstone National Bank's primary market area will be the Town of Easley,
South Carolina and the immediately surrounding areas of Pickens County. Pickens
County and four neighboring counties make up the
Greenville-Spartanburg-Anderson, South Carolina Metropolitan Statistical Area
(the "Greenville MSA"). The population of the Greenville MSA is over 900,000
with approximately 470,000 employed in 1997. Over 90% of those employed were in
non-agricultural employment with over 50% of those employed in manufacturing and
trades, in roughly equal numbers.
The banking industry plays an important role in the economy of an
area. There is a close correlation between personal income and deposits, loans,
and other banking services. Median family income for Pickens County grew by more
than 25% from 1989 to 1997. The anticipated increase in personal income, because
of increasing income levels and population growth in Easley and Pickens County
over the next decade, points to a greater demand for banking services in the
future.
Year 2000 Considerations
The computers used by financial institutions, their customers and
suppliers have historically been programmed in a way that causes them to operate
as though all dates are in the 1900's. Such computers may fail to operate
properly when the year changes to 2000. Any failures that do occur may also
trigger other problems or failures. To the extent that such problems are not
corrected before or immediately after they occur, they could cause disruptions
to the business of Cornerstone National Bank. There has also been widespread
publicity about the computer problem and there is a likelihood that many people,
including bank customers, will alter their normal routines of behavior to reduce
the risk of being inconvenienced by computer failures. There is a risk that
banks will experience abnormally high withdrawals of cash by customers as 1999
draws to an end.
Cornerstone National Bank will acquire new computer systems and data
processing services prior to the bank's opening for business. Cornerstone
National Bank will seek assurances from the suppliers of its computers,
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software and computer services that their hardware and software is year
2000 compliant. In addition, Cornerstone National Bank plans to obtain data
processing services from a service provider that is subject to the regulatory
oversight of the federal banking regulators and has had its compliance program
rated satisfactory. As the bank acquires its systems and services it will test
them to verify that they are operating properly and are year 2000 compliant.
The year 2000 problem was well known in the banking industry before
the Organizers began organization of Cornerstone National Bank. Because the bank
will begin with new equipment and service arrangements which the bank believes
to be year 2000 compliant, the bank does not expect to incur any substantial
expense in dealing with the hardware and software aspects of the problem.
Lending to customers who experience a year 2000 problem may pose risks
of delayed payment or default which are greater than normal for the type loan
involved. Cornerstone National Bank expects to manage this risk as part of its
normal credit analysis process by making appropriate inquiries of customers as
to their exposure to the problem and their steps to avoid it.
If Cornerstone National Bank opens for business when planned, it will
only have been operating for about three months on January 1, 2000. The
Organizers believe that it is unlikely that the bank's business will have grown
in size or complexity to a point at which the year 2000 problem will pose a
threat much greater than that of a substantial inconvenience by January 1, 2000.
Nevertheless, the Organizers and management of Cornerstone National Bank plan to
monitor the situation closely, to develop contingency plans and to follow the
guidance of the federal banking regulators to avoid as much of the problem as
possible.
Materials filed with the Securities and Exchange Commission and Reports to
Shareholders.
For at least the first year after the registration statement relating
to this offering was filed with the Securities and Exchange Commission (the
"SEC"), Cornerstone Bancorp will be required to file annual, quarterly and
periodic reports with the SEC. If, after that first year, Cornerstone Bancorp
has fewer than 300 shareholders, it will not be required to file further reports
with the SEC. You may read or obtain copies of reports filed by Cornerstone
Bancorp with the SEC at the SEC's Public Reference Room at 450 Fifth Street,
N.W., Washington, D.C. 20549. You may obtain information about the operation of
the Public Reference Room by calling the SEC at 1-800-SEC-0330. Cornerstone
Bancorp's filings with the SEC are made electronically. The SEC maintains an
internet site that contains the reports and other information filed by
Cornerstone Bancorp with the SEC. The address of the SEC's internet site is
http://www.sec.gov.
Cornerstone Bancorp has filed a registration statement on Form SB-2
with the SEC that relates to this offering of common stock. This Prospectus does
not contain all of the information set forth in the registration statement and
the exhibits thereto. For further information about Cornerstone Bancorp and the
common stock, you should read the entire registration statement and its
exhibits. Copies of the registration statement may be obtained from the SEC's
Public Reference Room or internet site at the addresses provided in the
preceding paragraph.
Cornerstone Bancorp will furnish shareholders with annual reports
containing audited financial information.
DIRECTORS AND EXECUTIVE OFFICERS
The directors of Cornerstone Bancorp are the Organizers of Cornerstone
National Bank. The Organizers are also expected to be members of the initial
board of directors of Cornerstone National Bank. The directors are all initial
directors of Cornerstone Bancorp and will serve until the first meeting of the
shareholders of Cornerstone Bancorp at which time directors will be elected by
the shareholders.
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The following table sets forth, as of May 31, 1999, certain
information about the directors and executive officers of Cornerstone Bancorp .
<TABLE>
<CAPTION>
Name, Address Age Principal Occupation for the Past Five Years
<S> <C> <C>
J. Rodger Anthony 53 Banker; President and Chief Executive Officer of
Liberty, SC Cornerstone Bancorp
Walter L. Brooks 72 President, G&B Enterprises
Townville, SC
T. Edward Childress, III 53 Pharmacist
Easley, SC
Nicholas S. Clark 31 Banker; Vice President, Secretary, Treasurer and Chief
Easley, SC Financial Officer of Cornerstone Bancorp
J. Bruce Gaston 42 Certified Public Accountant
Easley, SC
S. Ervin Hendricks, Jr. 56 President, Nu-Life Environmental, Inc.
Easley, SC
Joe E. Hooper 60 President, Pride Mechanical & Fabrication Company, Inc.
Easley, SC
Robert R. Spearman 59 Surveyor
Easley, SC
John M. Warren, Jr., M.D. 48 Physician
Easley, SC
George I. Wike, Jr. 54 Investor
Taylors, SC
</TABLE>
J. Rodger Anthony is a native of Pickens County, South Carolina. He is the
President and Chief Executive Officer of Cornerstone Bancorp. He is also the
proposed Chief Executive Officer of Cornerstone National Bank. Mr. Anthony began
his banking career with Peoples Bank, (the predecessor to Bankers Trust of South
Carolina), in Greenville, South Carolina in 1971. He worked with Bankers Trust
of South Carolina as a commercial lender until 1979 when he went to First
National Bank of Pickens County in Easley, South Carolina as senior loan
officer. From 1996 to 1998, he served as Chief Executive Officer of First
National Bank of Pickens County. Mr. Anthony is a graduate of Wofford College,
The School of Banking of the South at Louisiana State University, and the ABA
Commercial Lending School in Norman, Oklahoma. He currently serves as a director
and finance committee Chairman of the Pickens County Board of Disabilities and
Special Needs. He is a former President of the Easley Kiwanis Club, director of
the Pickens County YMCA, and director of the Easley Chamber of Commerce. Mr.
Anthony served as a 1st Lieutenant in the U.S. Army from 1969 to 1971 where he
was a platoon leader and company commander in the Vietnam conflict.
Walter L. Brooks is a native of Pickens County, South Carolina. He is the
President and co-owner of G & B Enterprises, an independent egg producer located
in Liberty, South Carolina. Mr. Brooks served in the U.S. Navy during World War
II from 1945 to 1946. He is a member of the South Carolina Chamber of Commerce
and is on the export committee for U.S. Egg Marketing. He is a past director of
the South Carolina Poultry Federation and the Southern United Egg Producers. He
is past Vice President of the Easley Jaycees and a past member of the Easley
Chamber of Commerce. Mr. Brooks is a former member of the advisory board of
First National Bank of Pickens County and its successor, Carolina First Bank. He
is a member of Townville Presbyterian Church.
T. Edward Childress, III, is a long time resident of the upstate of South
Carolina. He is a registered pharmacist with a Bachelor of Science in Pharmacy
degree earned from the Medical University of South Carolina College of Pharmacy
in 1968. Mr. Childress was founder, President, and Treasurer of Nursing Home
Consultant Pharmacy, Inc. from 1977-1995. He is currently involved in the
ownership of long-term care facilities in Georgia, North Carolina, and South
Carolina. Mr. Childress is past President and current member of the South
Carolina Pharmaceutical Association and
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<PAGE>
past President and current member of the Thirteenth District Pharmaceutical
Association. He is a fellow of the American Society of Consultant Pharmacists
and is current Chairman of the Medical Care Advisory Committee to the South
Carolina Health and Human Services Finance Commission. Mr. Childress was the
1993 South Carolina Pharmaceutical Association's Pharmacist of the Year. He has
been a member of the Medical University of South Carolina (MUSC) College of
Pharmacy's Board of Advisors since 1991. Mr. Childress was the MUSC annual fund
Chairman in 1996 and President of the MUSC Alumni Association from 1996 to 1998.
He is President of the Easley YMCA and has been a member of the Board of
Directors since February 1997. He is currently Chairman of the SCPHA Foundation
Trustees, a position he has held since January 1997. Mr. Childress is a past
member of the advisory board for First National Bank of Pickens County and its
successor, Carolina First Bank. He is a member of Kings Grove Baptist Church and
serves on the finance committee, youth committee, and new sanctuary committee.
Nicholas S. Clark is the Chief Financial Officer of Cornerstone Bancorp and the
proposed Chief Financial Officer of Cornerstone National Bank. Mr. Clark began
his banking career in 1993 with First National Bank of Pickens County in Easley,
South Carolina as a commercial credit analyst. His other responsibilities
included being the bank's cashier, marketing director, purchasing agent, funds
management committee member, and technology administrator. Mr. Clark also
administered call report preparation, risk based capital analysis, allowance for
loan loss reserve analysis, and asset/liability analysis. His last position with
First National Bank of Pickens County was Chief Financial Officer. He holds a
bachelor's degree in finance from the University of Alabama in Huntsville and an
MBA degree from the University of North Alabama. Mr. Clark is currently
completing the Certified Financial Planning curriculum with the College for
Financial Planning. He is currently a member of the Institute for Certified
Financial Planners.
J. Bruce Gaston is a native of Pickens County, South Carolina. He graduated from
Clemson University with honors in 1978. He is a Certified Public Accountant and
has been a principal partner with Gaston & Gaston, CPA's, P.A., in Easley, South
Carolina since the firm's inception in 1985. Mr. Gaston worked with a regional
CPA firm in the upstate of South Carolina for five years prior to 1985. He is a
past member of the advisory board of First National Bank of Pickens County and
its successor, Carolina First Bank. Mr. Gaston has served as Commissioner of the
Saluda Lake Special Tax District since 1996 and has been Vice President of the
Saluda Lake Association since 1993. Mr. Gaston has been a member of Mt. Carmel
Baptist Church since 1966 and is a past member of the board of deacons.
S. Ervin Hendricks, Jr,. is a native of Easley, South Carolina. He is President,
founder and co-owner of Nu-Life Environmental, Inc., a 19-year-old manufacturer
of waste handling equipment, in Easley, South Carolina. Mr. Hendricks is also
President and owner of Advanced Machine Works, Inc., a manufacturer of parts and
base plates. He was President, Chief Executive Officer, and owner of Bes-Pac,
Inc., successor to Hendricks Processing Company, Inc., from 1969 to 1988. Mr.
Hendricks is currently serving on the foundation board at Tri-County Technical
College. He is a past President of the Easley Chamber of Commerce, a past member
of the Baptist Medical Center Foundation Board, and helped organize Upstate
Upclose. Mr. Hendricks is a member of Pickens Presbyterian Church.
Joe E. Hooper is a native of the upstate of South Carolina. He is owner,
President, and Chief Executive Officer of Pride Mechanical & Fabrication
Company, Inc., a specialty metal fabricating business located in Easley, South
Carolina. Mr. Hooper has maintained an unlimited mechanical contractor license
for the state of South Carolina since 1985. He is a 12-year member of the Easley
Chamber of Commerce and has served on the board of the Pickens and Easley YMCA
for two years. He is a four-year board member of the Tri-County Technical
College. Mr. Hooper was small businessperson of the year for Pickens County in
1987. He serves on the advisory board for the Skelton Vocational School in
Pickens, South Carolina and for the Donaldson Vocational School in Greenville,
South Carolina. Mr. Hooper is a past member of the advisory board of First
National Bank of Pickens County, and its successor Carolina First Bank.
Robert R. Spearman is a native of Pickens County, South Carolina. He is owner of
Spearman Surveying Company, located in Easley, South Carolina. His company has
been in continuous operation since 1971. Mr. Spearman is a registered land
surveyor licensed to practice in South Carolina and is a member of the Northwest
Chapter of the South Carolina Society of Professional Land Surveyors. He is a
co-founder of Dunn and Associates Engineers in Easley and Co-founder of Nu-South
Surveying Company in Anderson, South Carolina. He is a former member of the
Easley Chapter of the U.S. Jaycees, a former member of the Easley Sertoma Club,
and served as a member of the Easley Housing Authority for approximately two
years. Mr. Spearman is a former member of the advisory board of First
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<PAGE>
National Bank of Pickens County, and its successor Carolina First Bank. He is a
member of the First Baptist Church in Easley, South Carolina.
John M. Warren, Jr., M.D. has practiced obstetrics and gynecology with the
Easley Ob-Gyn Associates, PA in Easley, South Carolina since 1980, where he is
senior partner and co-founder. He holds an undergraduate degree from Vanderbilt
University and an M.D. degree from the University of South Alabama. Dr. Warren
is a past chairman of the Pickens County School Board, past board member of the
Pickens County United Way, past President and current member of the Easley
Rotary Club. Dr. Warren served on the advisory board for First National Bank of
Pickens County, and its successor Carolina First Bank. He attends Easley
Presbyterian Church and is active in the Church Choir. Dr. Warren is active in
numerous medical organizations.
George I. Wike, Jr., is an investor. He was in the private practice of
optometry from 1967 to 1994. Dr. Wike also practiced optometry from 1969 to 1971
while in the U.S. Navy. His optometry practice was based in Greenville, South
Carolina from 1971 to 1994. Dr. Wike is a 1967 graduate of Southern College of
Optometry with a Bachelor of Science and a Doctor of Optometry degree. Dr. Wike
is a past member of the American Optometric Association and the South Carolina
Optometric Association.
Principal Security Holders
The following Directors are expected to purchase 5% or more of
Cornerstone Bancorp's Common Stock pursuant to this offering. Such persons are
not, however, obligated to purchase stock in this offering, and may decide to
purchase more or fewer shares than the number shown below. See "Stock Ownership
of Directors."
<TABLE>
<CAPTION>
Number of Shares to % of Common Stock
Name and Address be Beneficially Owned to be Outstanding
- ---------------- --------------------- -----------------
Minimum (1) Maximum (2)
----------- -----------
<S> <C> <C> <C>
T. Edward Childress, III 75,000 12.0% 9.4%
2905 White Horse Road
Greenville, South Carolina
George I. Wike, Jr. 75,000 12.0% 9.4%
28 Mandarin Circle
Taylors, South Carolina
</TABLE>
- -----------------------
(1) Assuming 625,000 shares are outstanding after this offering.
(2) Assuming 800,000 shares are outstanding after this offering.
Stock Ownership of Directors
The following table sets forth information about the shares of Cornerstone
Bancorp's Common Stock expected to be purchased by the Directors and members of
their immediate families pursuant to this offering and the percent of total
shares outstanding such shares will represent assuming sale of a total of
625,000 shares and 800,000 shares, respectively. Such persons are not, however,
obligated to purchase such shares, and may decide to purchase more or fewer
shares than the number shown below. The Directors specifically reserve the right
to purchase additional shares if necessary to reach the 625,000-share minimum
offering requirement. Because purchases by the Directors may be substantial,
investors should not place any reliance on the sale of all of the shares offered
hereby as an indication of the merits of this offering or that a Director's
confidence in his investment decision is shared by unaffiliated investors.
19
<PAGE>
<TABLE>
<CAPTION>
% of Common Stock
Number of Shares to to be Outstanding
Name be Beneficially Owned Minimum(1) Maximum(2)
<S> <C> <C> <C>
J. Rodger Anthony 30,000 4.8% 3.8%
Walter L. Brooks 5,000 0.8% 0.6%
T. Edward Childress, III 75,000 12.0% 9.4%
Nicholas S. Clark 15,000 2.4% 1.9%
J. Bruce Gaston 15,000 2.4% 1.9%
S. Ervin Hendricks, Jr. 25,000 4.0% 3.1%
Joe E. Hooper 40,000 6.4% 5.0%
Robert R. Spearman 5,000 0.8% 0.6%
John M. Warren, Jr., M.D. 10,000 1.6% 1.3%
George I. Wike, Jr. 75,000 12.0% 9.4%
------- ----- ----
Total 295,000 47.2% 36.9%
</TABLE>
- --------------------
(1) Assuming sale of 625,000 shares.
(2) Assuming sale of 800,000 shares.
Compensation of Executive Officers and Directors
Mr. Anthony has agreed to serve as President and Chief Executive
Officer of Cornerstone National Bank at an annual salary of $100,000. He also
will be eligible for other usual executive perquisites, as well as the employee
benefits offered to all other Bank employees.
Directors of Cornerstone Bancorp are not presently compensated for
their service as directors, though they may be reimbursed for reasonable
expenses. Cornerstone Bancorp plans to issue stock options to the directors to
compensate them for: (a) their time and efforts as directors; (b) their having
personally guaranteed the line of credit Cornerstone Bancorp has used to pay its
operating expenses during the organizational period of Cornerstone National
Bank; and (c) their continued service as directors. The stock options, when
granted, will be for a number of shares of common stock that, in the aggregate,
will be equal to or less than 5% of the outstanding shares of common stock. The
options will have a duration of ten years and an exercise price of $10.00 per
share. The options will vest over a three year period with one-third becoming
exercisable at the end of one year and another third becoming exercisable at the
end of each of the next two years. If the holder of options ceases to be a
director of Cornerstone Bancorp, the options held by him will expire six months
after he ceases to be a director.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Cornerstone National Bank expects to have loan and deposit
relationships with some of its directors, executive officers and their families,
and with companies with which such persons are associated. All such loan and
deposit relationships are expected to be in the ordinary course of business, on
substantially the same terms, including interest rates and collateral, as those
prevailing at the time for comparable transactions with other persons.
Cornerstone Bancorp leases its office at 4821 Calhoun Memorial Highway
from Ervin Hendricks, a director of Cornerstone Bancorp. The space, which
consists of one large office containing 430 square feet of space plus the use of
a shared receptionist, meeting room and office equipment, is leased for $500 per
month, including utilities, on a month to month basis. Cornerstone Bancorp
believes that the lease rate is fair to Cornerstone Bancorp and comparable to
what other space in the Easley area would cost.
Cornerstone National Bank also has an option to purchase a 1.82 acre site
from Mr. Hendricks. The lot is believed by the directors to be well situated for
the location of Cornerstone National Bank's office. The price for the exercise
of the option is $450,000. The price was negotiated with Mr. Hendricks in
arms-length negotiations between Mr. Hendricks and Messrs. Anthony, Clark,
Gaston and Spearman. Cornerstone Bancorp has obtained two independent appraisals
on the subject property which indicate that the fair market value of the
property is equal to or
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<PAGE>
greater than $450,000. The transaction will result in a profit to Mr. Hendricks
Nevertheless, the other directors of Cornerstone Bancorp unanimously agree that
the transaction is fair to and in the best interest of Cornerstone Bancorp.
SUPERVISION AND REGULATION
Bank holding companies and banks are extensively regulated under
federal and state law. To the extent that the following information describes
statutory and regulatory provisions, it is qualified in its entirety by
reference to such statutes and regulations. Any change in applicable law or
regulation may have a material effect on the business of Cornerstone Bancorp and
Cornerstone National Bank.
General
As a bank holding company registered under the Bank Holding Company
Act ("BHCA"), Cornerstone Bancorp will be subject to the regulations of the
Federal Reserve. Under the BHCA, Cornerstone Bancorp's activities and those of
its subsidiaries are limited to banking, managing or controlling banks,
furnishing services to or performing services for its subsidiaries or engaging
in any other activity which the Federal Reserve determines to be so closely
related to banking or managing or controlling banks as to be a proper incident
thereto. The BHCA prohibits Cornerstone Bancorp from acquiring direct or
indirect control of more than 5% of the outstanding voting stock or
substantially all of the assets of any bank or from merging or consolidating
with another bank holding company without prior approval of the Federal Reserve.
The BHCA also prohibits Cornerstone Bancorp from acquiring control of any bank
operating outside the State of South Carolina unless such action is specifically
authorized by the statutes of the state where the bank to be acquired is
located.
Additionally, the BHCA prohibits Cornerstone Bancorp from engaging in
or from acquiring ownership or control of more than 5% of the outstanding voting
stock of any company engaged in a non-banking business unless such business is
determined by the Federal Reserve to be so closely related to banking as to be
properly incident thereto. The BHCA generally does not place territorial
restrictions on the activities of such non-banking related activities.
Cornerstone Bancorp will also be subject to regulation and supervision
by the State Board.
Obligations of Cornerstone Bancorp to its Subsidiary Bank
A number of obligations and restrictions are imposed on bank holding
companies and their depository institution subsidiaries by Federal law and
regulatory policy that are designed to reduce potential loss exposure to the
depositors of such depository institutions and to the FDIC insurance funds in
the event the depository institution is in danger of becoming insolvent or is
insolvent. For example, under the policy of the Federal Reserve, a bank holding
company is required to serve as a source of financial strength to its subsidiary
depository institutions and to commit resources to support such institutions in
circumstances where it might not do so absent such policy. In addition, the
"cross-guarantee" provisions of the Federal Deposit Insurance Act, as amended
("FDIA"), require insured depository institutions under common control to
reimburse the FDIC for any loss suffered or reasonably anticipated by either the
Savings Association Insurance Fund ("SAIF") or the Bank Insurance Fund ("BIF")
of the FDIC as a result of the default of a commonly controlled insured
depository institution or for any assistance provided by the FDIC to a commonly
controlled insured depository institution in danger of default. The FDIC may
decline to enforce the cross-guarantee provisions if it determines that a waiver
is in the best interest of the SAIF or the BIF or both. The FDIC's claim for
damages is superior to claims of shareholders of the insured depository
institution or its holding company but is subordinate to claims of depositors,
secured creditors and holders of subordinated debt (other than affiliates) of
the commonly controlled insured depository institutions.
The FDIA also provides that amounts received from the liquidation or
other resolution of any insured depository institution by any receiver must be
distributed (after payment of secured claims) to pay the deposit liabilities of
the institution prior to payment of any other general or unsecured senior
liability, subordinated liability, general creditor or shareholder. This
provision would give depositors a preference over general and subordinated
creditors and shareholders in the event a receiver is appointed to distribute
the assets of Cornerstone National Bank.
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<PAGE>
Any capital loans by a bank holding company to any of its subsidiary
banks are subordinate in right of payment to deposits and to certain other
indebtedness of such subsidiary bank. 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 subsidiary bank will be assumed
by the bankruptcy trustee and entitled to a priority of payment.
Capital Adequacy Guidelines for Bank Holding Companies and National Banks
The Federal Reserve has adopted risk-based and leverage capital
adequacy guidelines for bank holding companies that are generally the same as
the capital requirements for national banks. For bank holding companies with
consolidated assets of less than $150 million, as Cornerstone Bancorp will be
initially, compliance is measured on a bank only basis. The Comptroller of the
Currency's regulations establish two capital standards for national banks: a
leverage requirement and a risk-based capital requirement. In addition, the
Comptroller of the Currency may establish individual minimum capital
requirements for a national bank that are different from the general
requirements.
Failure to meet capital requirements could subject Cornerstone
National Bank to a variety of enforcement remedies, including the termination of
deposit insurance by the FDIC and a prohibition on the taking of brokered
deposits.
The risk-based capital standards of both the Federal Reserve Board and
the Comptroller of the Currency explicitly identify concentrations of credit
risk and the risk arising from non-traditional activities, as well as an
institution's ability to manage these risks, as important factors to be taken
into account by the agencies in assessing an institution's overall capital
adequacy. The capital guidelines also provide that an institution's exposure to
a decline in the economic value of its capital due to changes in interest rates
should be considered by the agencies as a factor in evaluating a bank=s capital
adequacy. The Federal Reserve also has recently issued additional capital
guidelines for bank holding companies that engage in certain trading activities.
Cornerstone Bancorp and Cornerstone National Bank will initially
exceed all applicable capital requirements by a wide margin.
Payment of Dividends
Cornerstone Bancorp will be a legal entity separate and distinct from
its bank subsidiary. Most of the revenues of Cornerstone Bancorp are expected to
result from dividends paid to Cornerstone Bancorp by Cornerstone National Bank.
There are statutory and regulatory requirements applicable to the payment of
dividends by subsidiary banks as well as by Cornerstone Bancorp to its
shareholders. It is not anticipated that Cornerstone Bancorp will pay cash
dividends in the near future. "DESCRIPTION OF CAPITAL STOCK -- Dividends" and
"DIVIDENDS."
Certain Transactions by Cornerstone Bancorp with its Affiliates
Federal law regulates transactions among Cornerstone Bancorp and its
affiliates, including the amount of bank loans to or investments in nonbank
affiliates and the amount of advances to third parties collateralized by
securities of an affiliate. Further, a bank holding company and its affiliates
are prohibited from engaging in certain tie-in arrangements in connection with
any extension of credit, lease or sale of property or furnishing of services.
FDIC Insurance Assessments
Because Cornerstone National Bank's deposits will be insured by the
BIF, Cornerstone National Bank will be subject to insurance assessments imposed
by the FDIC. The FDIC equalized the assessment rates for BIF-insured and
SAIF-insured deposits effective January 1, 1997. Currently, the assessments
imposed on all FDIC deposits for deposit insurance have an effective rate
ranging from 0 to 27 basis points per $100 of insured deposits, depending on the
institution's capital position and other supervisory factors. However, because
legislation enacted in 1996 requires that both SAIF-insured and BIF-insured
deposits pay a pro rata portion of the interest due on the obligations issued by
the Financing Corporation ("FICO"), the FDIC is currently assessing BIF-insured
deposits an additional 1.26 basis points per $100 of deposits, and SAIF-insured
deposits an additional 6.30 basis points per $100 of deposits, to cover those
22
<PAGE>
obligations. The FICO assessment will continue to be adjusted quarterly to
reflect changes in the assessment bases of the respective funds based on
quarterly Call Report and Thrift Financial Report submissions.
Regulation of Cornerstone National Bank
Cornerstone National Bank will also be subject to various other state
and federal laws and regulations, including state usury laws, laws relating to
fiduciaries, consumer credit and laws relating to branch banking. Cornerstone
National Bank's loan operations will be subject to certain federal consumer
credit laws and regulations promulgated thereunder, including, but not limited
to: the federal Truth-In-Lending Act, governing disclosures of credit terms to
consumer borrowers; the Home Mortgage Disclosure Act, requiring financial
institutions to provide certain information concerning their mortgage lending;
the Equal Credit Opportunity Act and the Fair Housing Act, prohibiting
discrimination on the basis of certain prohibited factors in extending credit;
the Fair Credit Reporting Act, governing the use and provision of information to
credit reporting agencies; the Bank Secrecy Act, dealing with, among other
things, the reporting of certain currency transactions; and the Fair Debt
Collection Act, governing the manner in which consumer debts may be collected by
collection agencies. The deposit operations of Cornerstone National Bank will be
subject to the Truth in Savings Act, requiring certain disclosures about rates
paid on savings accounts; the Expedited Funds Availability Act, which deals with
disclosure of the availability of funds deposited in accounts and the collection
and return of checks by banks; the Right to Financial Privacy Act, which imposes
a duty to maintain certain confidentiality of consumer financial records and the
Electronic Funds Transfer Act and regulations promulgated thereunder, which
govern automatic deposits to and withdrawals from deposit accounts and
customers' rights and liabilities arising from the use of automated teller
machines and other electronic banking services.
Cornerstone National Bank will also be subject to the requirements of
the Community Reinvestment Act (the "CRA"). The CRA imposes on financial
institutions an affirmative and ongoing obligation to meet the credit needs of
their local communities, including low- and moderate-income neighborhoods,
consistent with the safe and sound operation of those institutions. Each
financial institution's actual performance in meeting community credit needs is
evaluated as part of the examination process, and also is considered in
evaluating mergers, acquisitions and applications to open a branch or facility.
Other Safety and Soundness Regulations
Prompt Corrective Action. The federal banking agencies have broad
powers under current federal law to take prompt corrective action to resolve
problems of insured depository institutions. The extent of these powers depends
upon whether the institutions in question are "well capitalized," "adequately
capitalized," "undercapitalized," "significantly undercapitalized" or
"critically undercapitalized."
A bank that is "undercapitalized" becomes subject to provisions of the
FDIA: restricting payment of capital distributions and management fees;
requiring FDIC to monitor the condition of the bank; requiring submission by the
bank of a capital restoration plan; restricting the growth of the bank's assets
and requiring prior approval of certain expansion proposals. A bank that is
"significantly undercapitalized" is also subject to restrictions on compensation
paid to senior management of the bank, and a bank that is "critically
undercapitalized" is further subject to restrictions on the activities of the
bank and restrictions on payments of subordinated debt of the bank. The purpose
of these provisions is to require banks with less than adequate capital to act
quickly to restore their capital and to have the FDIC move promptly to take over
banks that are unwilling or unable to take such steps.
Brokered Deposits. Under current FDIC regulations, "well capitalized"
banks may accept brokered deposits without restriction, "adequately capitalized"
banks may accept brokered deposits with a waiver from the FDIC (subject to
certain restrictions on payment of rates), while "undercapitalized" banks may
not accept brokered deposits. Management does not believe that these regulations
will have a material adverse effect on the operations of Cornerstone National
Bank.
Interstate Banking
The Riegle-Neal Interstate Banking and Branching Efficiency Act of
1994 ("Riegle-Neal") has increased the ability of bank holding companies and
banks to operate across state lines. Under Riegle-Neal, the previous
restrictions
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<PAGE>
on interstate acquisitions of banks by bank holding companies have been
repealed, such that Cornerstone Bancorp and any other bank holding company
located in South Carolina can acquire a bank located in any other state, and a
bank holding company located outside South Carolina can acquire any South
Carolina-based bank, in either case subject to certain deposit percentage and
other restrictions. Unless prohibited by state law, since June 1, 1997,
Riegel-Neal has permitted adequately capitalized and managed bank holding
companies to consolidate their multistate bank operations into a single bank
subsidiary and to branch interstate through acquisitions. De novo branching by
an out-of-state bank is permitted only if the laws of the host state expressly
permit it. The authority of a bank to establish and operate branches within a
state continue to be subject to applicable state branching laws. South Carolina
law was amended, effective July 1, 1996, to permit such interstate branching but
not de novo branching by an out-of-state bank. Although this legislation has
resulted in additional acquisitions of South Carolina financial institutions by
out-of-state financial institutions, Cornerstone Bancorp does not presently
anticipate that such legislation will have a material adverse impact on its
operations or future plans.
Legislative Proposals
New proposed legislation, which could significantly affect the
business of banking, has been introduced or may be introduced in Congress from
time to time. Management of Cornerstone National Bank cannot predict the future
course of such legislative proposals or their impact on Cornerstone Bancorp and
Cornerstone National Bank should they be adopted.
Fiscal and Monetary Policy
Banking is a business which depends largely on interest rate
differentials. In general, the difference between the interest paid by a bank on
its deposits and its other borrowings, and the interest received by a bank on
its loans and securities holdings, constitutes the major portion of a bank's
earnings. Thus, the earnings and growth of Cornerstone Bancorp and Cornerstone
National Bank are subject to the influence of economic conditions generally,
both domestic and foreign, and also to the monetary and fiscal policies of the
United States and its agencies, particularly the Federal Reserve. The Federal
Reserve regulates the supply of money through various means, including
open-market dealings in United States government securities, the discount rate
at which banks may borrow from the Federal Reserve, and the reserve requirements
on deposits. The nature and timing of any changes in such policies and their
impact on Cornerstone Bancorp and Cornerstone National Bank cannot be predicted.
DESCRIPTION OF CAPITAL STOCK
Cornerstone Bancorp is a South Carolina corporation. As such, South
Carolina law will control the rights of shareholders and other matters relating
to the stock of Cornerstone Bancorp. This document contains important
information about shareholder rights and prospective subscribers should review
it carefully before making a decision to invest. The following summarizes
certain provisions of the Articles of Incorporation and state law, but is not
complete and is qualified in its entirety by reference to the Articles of
Incorporation and by the applicable statutory provisions.
Capitalization. Cornerstone Bancorp is authorized to issue 20,000,000
shares of common stock (no par value). The common stock will have unlimited
voting rights and be entitled to receive the net assets of Cornerstone Bancorp
upon dissolution. Cornerstone Bancorp is also authorized to issue up to
10,000,000 shares of preferred stock in one or more series having the
preferences, limitations and relative rights determined by the Board of
Directors.
Voting Rights; No Cumulative Voting. In general, each holder of
Cornerstone Bancorp's common stock will be entitled to one vote per share and to
the same and identical voting rights as other holders of Cornerstone Bancorp's
common stock. In the election of directors, each shareholder will have the right
to vote the number of shares owned by him on the record date for as many persons
as there are directors to be elected. Cumulative voting will not be permitted.
Absence of cumulative voting makes it more difficult to effect a change in the
board of directors.
24
<PAGE>
Mergers, Consolidations, Exchanges, Sales of Assets or Dissolution.
The Articles of Incorporation provide that, with respect to any plan of merger,
consolidation or exchange or any plan for the sale of all, or substantially all,
the property and assets, with or without the good will, of Cornerstone Bancorp
or any resolution to dissolve Cornerstone Bancorp, which plan or resolution
shall not have been adopted by the affirmative vote of at least two-thirds of
the full board of directors, such plan or resolution must be approved by the
affirmative vote of holders of 80% of the outstanding shares of Cornerstone
Bancorp. If at least two-thirds of the full board of directors approves any such
plan or resolution, the plan or resolution need only be approved by the
affirmative vote of holders of two-thirds of the outstanding shares of
Cornerstone Bancorp. Consequently, unless two-thirds of the directors favor such
a plan or resolution, it may be very difficult to effect any such transaction.
Classified Board of Directors. The Articles provide that the board of
directors shall have the power to set the number of directors from time to time
at six or more directors. The Articles provide further that the board of
directors shall be divided into three classes, each class to be as nearly equal
in number as possible. The terms of directors in the first group expire at the
first annual shareholders' meeting after their election; the terms of the second
group expire at the second annual shareholders' meeting after their election;
and the terms of the third group expire at the third annual shareholders'
meeting after their election. At each annual shareholders' meeting held
thereafter, directors are chosen for a term of three years to succeed those
directors whose terms expire. Existence of a classified board makes it more
difficult to effect a change in control because it would normally require at
least two elections to gain a majority representation on the board, and three
elections to change the entire board.
Nomination of Directors. The Articles provide that no person shall be
eligible to be elected a director of Cornerstone Bancorp at a meeting of
shareholders unless that person has been nominated by a shareholder entitled to
vote at such meeting by giving written notice of such nomination to the
secretary of Cornerstone Bancorp at least 90 days prior to the date of the
meeting. The notice is required to include any information required by the
Bylaws of Cornerstone Bancorp.
Removal of Directors. The Articles provide that an affirmative vote of
80% of the outstanding shares of Cornerstone Bancorp shall be required to remove
any or all of the directors without cause.
Duty of Directors. The Articles provide that when evaluating any
proposed plan of merger, consolidation, exchange or sale of all, or
substantially all, of the assets of Cornerstone Bancorp, the board of directors
shall consider the interests of the employees of Cornerstone Bancorp and the
community or communities in which Cornerstone Bancorp and its subsidiaries, if
any, do business in addition to the interests of Cornerstone Bancorp's
shareholders. Absent this provision, under existing common law, directors would
be required to give paramount consideration with respect to such matters to the
best interests of shareholders.
Limitation of Director Liability. The Articles provide that, to the
extent permitted by the South Carolina Business Corporation Act, directors of
Cornerstone Bancorp will not be personally liable to Cornerstone Bancorp or its
shareholders for monetary damages for breaches of their fiduciary duties. This
provision does not, however, eliminate or limit the liability of any director
(i) for any breach of the director's duty of loyalty to Cornerstone Bancorp or
its shareholders, (ii) for acts or omissions not in good faith or which involve
gross negligence, intentional misconduct or a knowing violation of law, (iii)
imposed for unlawful distributions as set forth in the South Carolina Business
Corporation Act, or (iv) for any transaction from which the director derived an
improper personal benefit.
No Preemptive Rights. Shareholders of Cornerstone Bancorp will not
have preemptive rights with respect to the issuance of additional shares,
options or rights of any class of Cornerstone Bancorp stock. As a result, the
directors may sell additional authorized shares of Cornerstone Bancorp's common
stock without first offering them to existing shareholders and giving them the
opportunity to purchase sufficient additional shares to prevent dilution of
their ownership interests.
Quorum. A majority of the shares entitled to vote constitutes a quorum
at any meeting of shareholders.
Amendment to Articles of Incorporation. Unless such amendment shall
have been approved by the affirmative vote of at least two-thirds of the full
board of directors, no amendment to the Articles which amends, alters, repeals
or is inconsistent with any of provisions of the Articles described in the nine
paragraphs above, or in the
25
<PAGE>
provisions relating to business combinations set forth under "Statutory
Matters" below, shall be effective unless it is approved by the affirmative vote
of 80% of the outstanding shares of Cornerstone Bancorp. If two-thirds of the
full board of directors approves such an amendment, the amendment need only be
approved by holders of two-thirds of the outstanding shares of Cornerstone
Bancorp. Amendments to change the number and classes of shares authorized to be
issued by Cornerstone Bancorp and to change the name of Cornerstone Bancorp only
require the approval of a majority of the outstanding shares. Other amendments
requiring shareholder approval must be approved by two-thirds of the outstanding
shares.
Dividends. Cornerstone Bancorp's common stock will be entitled, pro
rata, to dividends paid by Cornerstone Bancorp when, if and as declared by the
board of directors from funds legally available, whether in cash or in stock,
but common stockholders have no specific right to dividends. The determination
and declaration of dividends will be within the discretion of the board of
directors and will take into account Cornerstone Bancorp's financial condition,
results of operations and other relevant factors. No assurances can be given
that any future dividends will be declared or, if declared, what the amount of
such dividends will be or whether such dividends will continue for future
periods. Cornerstone Bancorp may not declare or pay a cash dividend on any of
its stock if it is insolvent or if the payment of the dividend would render it
insolvent. If Cornerstone Bancorp issues preferred stock, the terms of the
preferred stock may require Cornerstone Bancorp to pay dividends to holders of
preferred stock under some circumstances. The payment of dividends to holders of
preferred stock will not entitle common stockholders to the payment of
dividends.
Conversion; Redemption; Sinking Fund. None of the Common Stock will be
convertible, have any redemption rights or be entitled to any sinking fund.
Statutory Matters.
Business Combination Statute. The South Carolina business combinations
statute provides that a 10% or greater shareholder of a resident domestic
corporation cannot engage in a "business combination" (as defined in the
statute) with such corporation for a period of two years following the date on
which the 10% shareholder became such, unless the business combination or the
acquisition of shares is approved by a majority of the disinterested members of
such corporation's board of directors before the 10% shareholder's share
acquisition date. This statute further provides that at no time (even after the
two-year period subsequent to such share acquisition date) may the 10%
shareholder engage in a business combination with the relevant corporation
unless certain approvals of the board of directors or disinterested shareholders
are obtained or unless the consideration given in the combination meets certain
minimum standards set forth in the statute. The law is very broad in its scope
and is designed to inhibit unfriendly acquisitions but it does not apply to
corporations whose articles of incorporation contain a provision electing not to
be covered by the law. Cornerstone Bancorp's Articles of Incorporation do not
contain such a provision. An amendment of the Articles of Incorporation to that
effect will, however, permit a business combination with an interested
shareholder although that status was obtained prior to the amendment. Unless
Cornerstone Bancorp has a class of securities registered under Section 12 of the
Securities Exchange Act of 1934, this statute would not ordinarily apply to
Cornerstone Bancorp. However, Cornerstone Bancorp has elected in its Articles of
Incorporation to make the provisions of the statute applicable to it.
Control Share Acquisitions. The South Carolina corporations law also
contains provisions that, under certain circumstances, would preclude an
acquiror of the shares of a South Carolina corporation who crosses one of three
voting thresholds (20%, 33-1/3% or 50%) from obtaining voting control with
respect to such shares unless a majority in interest of the disinterested
shareholders of the corporation votes to accord voting power to such shares.
The legislation provides that, if authorized by the articles of
incorporation or bylaws prior to the occurrence of a control share acquisition,
the corporation may redeem the control shares if the acquiring person has not
complied with certain procedural requirements (including the filing of an
"acquiring person statement" with the corporation within 60 days after the
control share acquisition) or if the control shares are not accorded full voting
rights by the shareholders. Cornerstone Bancorp is not authorized by its
Articles of Incorporation or bylaws to redeem control shares.
The provisions of the Control Share Acquisitions Act will only apply
to Cornerstone Bancorp if it has a class of securities registered under Section
12 of the Securities Exchange Act of 1934.
26
<PAGE>
Indemnification of Directors and Officers. Under South Carolina law, a
corporation has the power to indemnify directors and officers who meet the
standards of good faith and reasonable belief that their conduct was lawful and
in the corporate interest (or not opposed thereto) set forth by statute. A
corporation may also provide insurance for directors and officers against
liability arising out of their positions although the insurance coverage is
broader than the power of the corporation to indemnify. Unless limited by its
articles of incorporation, a corporation must indemnify a director or officer
who is wholly successful, on the merits or otherwise, in the defense of any
proceeding to which he was a party because he is or was a director against
reasonable expenses incurred by him in connection with the proceeding.
Cornerstone Bancorp's Articles of Incorporation do not limit such
indemnification.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 (the "Act") may be permitted to directors, officers and
controlling persons of Cornerstone Bancorp pursuant to the foregoing provisions,
or otherwise, Cornerstone Bancorp 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.
General. Taken together, the foregoing provisions of the proposed
Articles of Incorporation and South Carolina law favor maintenance of the status
quo and may make it more difficult to change current management, and may impede
a change of control of Cornerstone Bancorp even if desired by a majority of its
shareholders.
LEGAL MATTERS
Sinkler & Boyd, P.A., Columbia, South Carolina has passed upon certain
matters relating to this offering of common stock for Cornerstone Bancorp.
ACCOUNTING MATTERS
The financial statements of Cornerstone Bancorp at April 30, 1999, and
for the period from January 11, 1999 (inception) to April 30, 1999, have been
audited by Elliott, Davis & Company, LLP., Certified Public Accountants, as
stated in their report appearing elsewhere herein, and have been so included in
reliance on the report of such firm given upon their authority as certified
public accountants.
27
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Report of Independent Certified Public Accountants.......................... 29
Balance sheet as of April 30, 1999.......................................... 30
Statement of operations and retained deficit for
the period from January 11 (date of inception) to April 30, 1999........ 31
Statement of cash flows for the period from January 11 (date of
inception) to April 30, 1999............................................ 32
Notes to Financial Statements............................................... 33
28
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Directors
Cornerstone Bancorp
Easley, South Carolina
We have audited the accompanying balance sheet of Cornerstone Bancorp
(a development stage enterprise) as of April 30, 1999 and the related statements
of operations and retained deficit and cash flows for the period from January
11, 1999 (date of inception) to April 30, 1999. 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 Cornerstone Bancorp
(a development stage enterprise) as of April 30, 1999 and the results of its
operations and its cash flows for the period from January 11, 1999 (date of
inception) to April 30, 1999 in conformity with generally accepted accounting
principles.
Elliott, Davis & Company, LLP
Greenville, South Carolina
May 17, 1999
29
<PAGE>
CORNERSTONE BANCORP
(A DEVELOPMENT STAGE ENTERPRISE)
BALANCE SHEET
APRIL 30, 1999
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Cash and cash equivalents .................................................................................. $ 20,114
Nonrefundable real estate purchase option .................................................................. 15,000
Deferred stock offering costs .............................................................................. 5,000
Other assets ............................................................................................... 3,850
--------
Total assets ........................................................................................ $ 43,964
========
LIABILITIES AND ORGANIZERS' DEFICIT
LIABILITIES
Line of credit .......................................................................................... $ 90,000
Interest payable ........................................................................................ 1,056
--------
91,056
COMMITMENTS AND CONTINGENCIES - Notes 2 and 3
ORGANIZERS' DEFICIT
Preferred stock, 10,000,000 shares authorized, no shares issued ......................................... -
Common stock, no par value, 20,000,000 shares
authorized; no shares issued .......................................................................... -
Retained deficit accumulated during the development stage ............................................... (47,092)
--------
Total liabilities and organizers' deficit ........................................................... $ 43,964
========
</TABLE>
The accompanying notes are an integral part of this financial statement.
30
<PAGE>
CORNERSTONE BANCORP
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENT OF OPERATIONS AND RETAINED DEFICIT
For the period from January 11, 1999 (date of inception)
to April 30, 1999
EXPENSES
Salaries ................................................... $ 22,735
Filing fees ................................................ 15,000
Rent ....................................................... 2,500
Telephone and supplies ..................................... 2,096
Interest ................................................... 1,828
Other ...................................................... 2,933
--------
Loss before provision for income taxes ................. (47,092)
PROVISION FOR INCOME TAXES .................................... -
Net loss ............................................... (47,092)
RETAINED DEFICIT AT JANUARY 11, 1999 (inception) .............. -
--------
RETAINED DEFICIT AT APRIL 30, 1999 ............................ $(47,092)
========
The accompanying notes are an integral part of this financial statement.
31
<PAGE>
CORNERSTONE BANCORP
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENT OF CASH FLOWS
For the period from January 11,1999 (date of inception)
to April 30, 1999
NET CASH USED FOR PRE-OPERATING ACTIVITIES
Net loss ................................................... $(47,092)
Deferred stock offering costs .............................. (5,000)
Interest payable ........................................... 1,056
Other assets ............................................... (3,850)
--------
Net cash used for pre-operating activities ........... (54,886)
INVESTING ACTIVITIES
Purchase of real estate option ............................. (15,000)
FINANCING ACTIVITIES
Proceeds from borrowings on line of credit ................. 90,000
Net increase in cash ................................. 20,114
CASH AND CASH EQUIVALENTS, JANUARY 11, 1999
(date of inception) ........................................ -
CASH AND CASH EQUIVALENTS, END OF PERIOD ...................... $ 20,114
========
The accompanying notes are an integral part of this financial statement.
32
<PAGE>
CORNERSTONE BANCORP
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ACTIVITIES
Cornerstone Bancorp (the "Company") is a South Carolina corporation
organized for the purpose of owning and controlling all of the capital stock of
Cornerstone National Bank (in organization) (the "Bank"). The Bank is being
organized as a national bank under the laws of the United States with the
purpose of becoming a new community bank to be located in Pickens County, South
Carolina. The Company has filed a charter application with the OCC and an
application for deposit insurance with the FDIC. Provided that the applications
are timely approved and the necessary capital is raised, it is expected that
banking operations will commence in September 1999.
The Company is a development stage enterprise as defined by Statement of
Financial Accounting Standard No. 7, "Accounting and Reporting by Development
Stage Enterprises", as it devotes substantially all its efforts to establishing
a new business. The Company's planned principal operations have not commenced
and revenue has not been recognized from the planned principal operations.
The Company intends to sell a maximum of 800,000 and a minimum of 625,000
shares of its common stock at $10 per share. The maximum offering will raise
$7,950,000 and minimum offering will raise $6,200,000, each net of estimated
$50,000 offering expenses. The directors of the Company plan to purchase 295,000
shares of common stock at $10 per share, for a total of $2,950,000. The
remaining shares will be sold through a public offering. The Company will use
the proceeds to capitalize the proposed Bank.
Year-end
The Company has adopted a fiscal year ending on December 31, effective for
the period ending December 31, 1999.
Estimates
The financial statements include estimates and assumptions that effect the
Company's financial position and results of operations and disclosure of
contingent assets and liabilities. Actual results could differ from these
estimates.
Cash equivalents
The Company considers all highly liquid investments with original maturities
of three months or less to be cash equivalents. The Company places its
temporary cash investments with high credit quality financial institutions.
At times such investments may be in excess of the FDIC insurance limits.
Deferred stock offering costs
Deferred stock offering costs are expenses incurred by the Company in
connection with the offering and issuance of its stock. The deferred stock
offering costs will be deducted from the Company's additional paid-in capital
after the stock offering. If the stock offering is deemed unsuccessful, all
deferred stock offering costs will be charged to operations during the period
in which the offering is deemed unsuccessful.
Organization costs
Organization costs include incorporation, legal and consulting fees incurred
in connection with establishing the Company. In accordance with Statement of
Position (SOP) 98-5, "Reporting on the Costs of Start-Up Activities,"
organization costs are expensed when incurred.
33
<PAGE>
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ACTIVITIES, Continued
This SOP is effective for fiscal periods beginning after December 15, 1998.
The Company adopted this pronouncement and accordingly, has charged all
organization costs to operations.
Income taxes
Income taxes are provided for the tax effects of transactions reported in the
financial statements and consist of taxes currently due plus deferred taxes
related primarily to differences between the financial reporting and income
tax bases of assets and liabilities. At April 30, 1999, no taxable income has
been generated and therefore, no tax provision has been included in these
financial statements.
NOTE 2 - LINE OF CREDIT
The Company has established a $325,000 line of credit with a bank to
fund operating expenses of the Company during the development stage. The line is
uncollateralized and is guaranteed by the directors. The line bears interest at
the prime rate and expires December 11, 2000. As of April 30, 1999, $90,000 is
outstanding on this line of credit.
NOTE 3 - COMMITMENTS AND CONTINGENCIES
The Company has entered into an agreement with a law firm to assist
in preparing and filing all organizational, incorporation, and bank applications
and to assist in preparing stock offering documents and consummating the
Company's initial offering. The aggregate cost of the services is expected to
approximate $50,000.
The Company leases temporary office space under a month-to-month
operating lease. The lease requires monthly payments of $500 and includes
secretarial services on an as needed basis. Additionally, the Company has
entered into a 24-month operating lease for a modular unit to temporarily serve
as its first commercial bank office. The lease requires monthly payments of
approximately $2,600. The Company plans to construct a permanent building by the
conclusion of the lease term.
The Company has paid $15,000 for nonrefundable deposits on 1.80 acres
of real estate and plans to purchase the property for $450,000 and construct a
banking facility on this site. The real estate option expires August 31, 1999,
and can be extended for an additional 90 days for $5,000.
The Company has entered into a five-year agreement with a data
processor to provide ATM services, item processing and general ledger
processing. Components of this contract include minimum charges based on volume
and include initial setup costs of approximately $90,000.
The Company is purchasing and will be the beneficiary of term life
insurance policies for its chief executive officer and chief financial officer
with policy face amounts of $1,000,000 and $500,000, respectively.
NOTE 4 - RELATED PARTY TRANSACTIONS
One of the organizers of the Company owns the building from which the
Company leases its temporary office space.
One of the organizers of the Company owns the land from which the
Company has purchased a real estate option. The Company plans to build its
branch office on this property.
34
<PAGE>
CORNERSTONE BANCORP APPENDIX A
SUBSCRIPTION AGREEMENT
The undersigned, having received and reviewed the Prospectus (the
"Prospectus") dated July __, 1999, of Cornerstone Bancorp (the "Company"),
subject to the terms and conditions of the Prospectus, hereby subscribes for the
number of shares of Common Stock of Cornerstone Bancorp (the "Common Stock"),
shown below. The undersigned tenders herewith the purchase price of $10.00 per
share to the Company. All payments shall be in United States dollars in cash or
by check, draft or money order drawn to the order of "The Bankers Bank, as
Escrow Agent for Cornerstone Bancorp."
Your Properly Completed Subscription Form and Payment Must Be Returned To:
CORNERSTONE BANCORP
Post Office Box 428
Easley, South Carolina 29641
Acknowledgments and Representations
In connection with this subscription, the undersigned hereby acknowledges
and agrees that:
(1) This subscription may not be cancelled, terminated, or revoked by the
undersigned before April 1, 2000. Upon acceptance in writing by the
Company, the Subscription Agreement will be binding and legally enforceable
against the undersigned until April 1, 2000. This subscription will only be
deemed accepted upon agreement thereto by the President of the Company. No
other person has authority to accept or reject a subscription on behalf of
the Company.
(2) The Company reserves the right to accept this subscription in whole or in
part. If this subscription is accepted in part, the undersigned agrees to
purchase the accepted number of shares subject to all of the terms of this
offer.
(3) All funds relating to this subscription received by the Company will be
held in escrow by The Bankers Bank, as escrow agent, and will be deposited
in certificates of deposit, accounts or other deposits, which are insured
by the FDIC or invested in short-term securities issued or fully guaranteed
by the United States government or federal funds. Any interest accruing on
such funds will be the property of the Company and the undersigned
expressly waives all claims thereto.
(4) The Company reserves the right to cancel this subscription after acceptance
until the date of issue of the Common Stock.
(5) If this subscription is cancelled by the Company in whole or in part, the
corresponding portion of any funds received by the Company relating to this
subscription shall be returned to the undersigned, and, should the Company
fail to commence operations by December 31, 1999, unless such date is
extended to a date not later than April 1, 2000, all such funds shall be
returned to the undersigned. No interest will be paid on any such returned
funds.
(6) The shares of Common Stock subscribed for hereby are equity securities and
are not savings accounts or deposits, and Investment therein Is Not insured
by the Federal Deposit Insurance Corporation.
(7) This subscription is nonassignable and nontransferable, except with the
written consent of the Company.
(8) Certificates will be delivered by first class mail to the address set forth
herein.
(9) The undersigned has received a copy of the Prospectus, and represents that
this Subscription Agreement is made solely on the basis of the information
contained in the Prospectus and is not made in reliance on any inducement,
representation or statement not contained in the Prospectus. No person
(including any Director of the Company) has given any information or made
any representation not contained in the Prospectus, or, if given or made,
such information or representation has not been relied upon.
<PAGE>
I wish to subscribe for the following shares of Common Stock:
Number of Shares I want to buy is
____________ Shares x $10.00 = $______________________*
My payment of that amount is enclosed. Make check out to:
The Bankers Bank, as Escrow Agent for Cornerstone Bancorp.
*If this amount is more or less than the correct amount for the number of shares
shown or as to which the subscription is accepted, I want to buy as many shares
as this amount will buy at $10.00 per share (or as are accepted).
- --------------------------------------------------------------------------------
(Name(s) in which stock certificates should be registered**)
- --------------------------------------------------------------------------------
(Street Address)
- --------------------------------------------------------------------------------
(City/State/Zip Code)
- --------------------------------------------------------------------------------
(Social Security or Employer I.D. No.)
( ) ( )
- ------------------------------ ---------------------------------------
(Home Telephone No.) (Business Telephone No.)
**Stock certificates for shares to be issued in the names of two or more persons
will be registered in the names of such persons as joint tenants with right of
survivorship, and not as tenants in common.
SUBSTITUTE W-9
Under the penalties of perjury, I certify that: (1) the Social Security number
or taxpayer identification number given above 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.
I HAVE READ AND UNDERSTAND THE PROSPECTUS AND THIS SUBSCRIPTION AGREEMENT.
- ------------------------------------- -----------------------------
(Signature (Date)
- ------------------------------------- -----------------------------
(Signature) (Date)
If shares are to be held in joint ownership, all joint owners should sign
this Agreement.
Subscription payments will be delivered to the Escrow Agent promptly following
receipt thereof.
<PAGE>
PART II - INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers.
Under South Carolina law, a corporation has the power to indemnify
directors and officers who meet the standards of good faith and reasonable
belief that their conduct was lawful and in the corporate interest (or not
opposed thereto) set forth by statute. A corporation may also provide insurance
for directors and officers against liability arising out of their positions
although the insurance coverage is broader than the power of the corporation to
indemnify. Unless limited by its articles of incorporation, a corporation must
indemnify a director or officer who is wholly successful, on the merits or
otherwise, in the defense of any proceeding to which he was a party because he
is or was a director against reasonable expenses incurred by him in connection
with the proceeding. The Company's Articles of Incorporation do not limit such
indemnification.
Item 25. Other Expenses of Issuance and Distribution.
SEC registration fee.............................. $ 2,224
Blue Sky filing fees.............................. 1,000*
Accounting fees................................... 5,000*
Legal fees and expenses........................... 30,000*
Printing and Mailing Costs........................ 10,000*
Miscellaneous..................................... 1,776*
-------
Total........................................ $50,000
*Estimated
Item 26. Recent Sales of Unregistered Securities.
Not applicable.
Item 27. Exhibits.
See Exhibit Index.
Item 28. Undertakings.
(a) The Registrant hereby undertakes:
(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 in
the registration statement; and 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 17
C.F.R. ss. 230.424(b) if, in the aggregate, the changes in the
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, to 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) To file a post-effective amendment to remove from registration any of
the securities that remain unsold at the end of the offering.
(e) Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the small business issuer pursuant to the foregoing provisions, or
otherwise, the small business issuer 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 the small business issuer of expenses incurred or paid by a
director, officer or controlling person of the small business issuer 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 small business issuer 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.
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form SB-2 and authorized this amendment to
registration statement to be signed on its behalf by the undersigned, in the
City of Easley, State of South Carolina, on July 9, 1999.
CORNERSTONE BANCORP
s/J. Rodger Anthony
By:-----------------------------------------
J. Rodger Anthony, President and Chief
Executive Officer
In accordance with the requirements of the Securities Act of 1933,
this amendment to Registration Statement was signed by the following persons in
the capacities and on the dates stated.
Signature Title Date
- --------- ----- ----
s/ J. Rodger Anthony
- ---------------------------- Chief Executive Officer July 9, 1999
J. Rodger Anthony Director
s/ Nicholas S. Clark
- ---------------------------- Chief Financial Officer July 9, 1999
Nicholas S. Clark (Principal Accounting
Officer), Director
*s/ Walter L. Brooks
- ---------------------------- Director July 9, 1999
Walter L. Brooks
*s/ T. Edward Childress, III
- ---------------------------- Director July 9, 1999
T. Edward Childress, III
*s/ J. Bruce Gaston
- ---------------------------- Director July 9, 1999
J. Bruce Gaston
*s/ S. Ervin Hendricks, Jr.
- ---------------------------- Director July 9, 1999
S. Ervin Hendricks, Jr.
*s/ Joe E. Hooper
- ---------------------------- Director July 9, 1999
Joe E. Hooper
*s/ Robert R. Spearman
- ---------------------------- Director July 9, 1999
Robert R. Spearman
*s/ John M. Warren, Jr., M.D.
- ---------------------------- Director July 9, 1999
John M. Warren, Jr., M.D.
*s/ George I. Wike, Jr.
- ---------------------------- Director July 9, 1999
George I. Wike, Jr.
* By Power of Attorney
s/ Nicholas S. Clark
----------------------
Attorney-in-fact
<PAGE>
EXHIBIT INDEX
Exhibit No. in
Item 601 of
Regulation S-B) Description
- --------------- -----------
*3.1 Articles of Incorporation of Cornerstone Bancorp
*3.2 Bylaws of Cornerstone Bancorp
*4 Form of stock certificate
*5 Opinion of Sinkler & Boyd, P.A.
*10.1 Option between Cornerstone Bancorp and S. Ervin Hendricks,
Jr.
10.2 Escrow Agreement (As amended)
*23.1 Consent of Sinkler & Boyd, P.A. (included in Exhibit 5)
23.2 Consent of Elliott, Davis & Company, L.L.P., Certified
Public Accountants
24 Power of Attorney
*27 Financial Data Schedule
*Previously filed
ESCROW AGREEMENT
THIS ESCROW AGREEMENT (this "Agreement") is entered into and effective as
of the 27TH day of May, 1999, by and between Cornerstone Bancorp, a South
Carolina corporation (the "Company") and The Bankers Bank (the "Escrow Agent").
W I T N E S S E T H:
WHEREAS, the Company proposes to offer and sell (the "Offering") up to
800,000 shares of Common Stock, no par value per share (the "Shares"), to
investors at $10.00 per Share pursuant to a registered public offering; and
WHEREAS, the Company desires to establish an escrow for funds forwarded by
subscribers for Shares, and the Escrow Agent is willing to serve as Escrow Agent
upon the terms and conditions herein set forth.
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
1. Deposit with Escrow Agent.
(a) The Escrow Agent agrees that it will from time to time accept, in its
capacity as escrow agent, subscription funds for the Shares (the "Escrowed
Funds") received by it from the Company when it has received checks from
subscribers. All checks shall be made payable to the Escrow Agent. If any check
does not clear normal banking channels in due course, the Escrow Agent will
promptly notify the Company. Any check which does not clear normal banking
channels and is returned by the drawer's bank to Escrow Agent will be promptly
turned over to the Company along with all other subscription documents relating
to such check. Any check received that is made payable to a party other than the
Escrow Agent shall be returned to the Company for return to the proper party.
The Company in its sole and absolute discretion may reject any subscription for
shares for any reason and upon such rejection it shall notify and instruct the
Escrow Agent in writing to return the Escrowed Funds by check made payable to
the subscriber. If the Company rejects or cancels any subscription for any
reason the Company will retain any interest earned on the Escrowed Funds to help
defray organizational costs.
(b) Subscription agreements for the Shares shall be reviewed for accuracy
by the Company and, immediately thereafter, the Company shall deliver to the
Escrow Agent the following information: (i) the name and address of the
subscriber; (ii) the number of Shares subscribed for by such subscriber; (iii)
the subscription price paid by such subscriber; (iv) the subscriber's tax
identification number certified by such subscriber; and (v) a copy of the
subscription agreement.
2. Investment of Escrowed Funds. 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 another agency of the United States government, short-term
securities issued or fully guaranteed by the United States government 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 Escrowed Funds shall be invested, and the Escrow Agent shall adhere to such
instructions. Unless and until otherwise instructed by the Company, the Escrow
Agent shall by means of a "sweep" or other automatic investment program invest
the Escrowed Funds in blocks of $10,000 in federal funds. 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. Distribution of Escrowed Funds. The Escrow Agent shall distribute the
Escrowed Funds in the amounts, at the times, and upon the conditions hereinafter
set forth in this Agreement.
(a) If at any time on or prior to April 1, 2000 (the "Closing Date"), (i)
the Escrow Agent has certified to the Company in writing that the Escrow Agent
has received at least $6,250,000.00 in Escrowed Funds, and (ii) the Escrow Agent
has received a copy of a letter from the Office of the Comptroller of the
Currency authorizing the release of the funds held in escrow to capitalize
Cornerstone National Bank, Easley, South Carolina(the "Bank"), then the Escrow
Agent shall deliver the Escrowed Funds, to the extent such Escrowed Funds are
collected funds, as follows:
<PAGE>
(x) $6,000,000 plus all interest earned thereon shall be
delivered to the Bank; and
(y) all remaining Escrowed Funds shall be delivered to the Company.
If any portion of the Escrowed Funds are not collected funds, then the Escrow
Agent shall notify the Company of such facts and shall distribute such funds to
the Company only after such funds become collected funds. For purposes of this
Agreement, "collected funds" shall mean all funds received by the Escrow Agent
which have cleared normal banking channels. In all events, the Escrow Agent
shall deliver not less than $6,000,000.00 in collected funds to the Bank, except
as provided in Paragraph 3(b) hereof.
(b) If the Escrowed Funds do not, on or prior to the Closing Date, become
deliverable to the Bank and the Company based on failure to meet the conditions
described in Paragraph 3(a), or if the Company terminates the organization of
the Bank at any time prior to the Closing Date and delivers written notice to
the Escrow Agent of such termination (the "Termination Notice"), the Escrow
Agent shall return the Escrowed Funds which are collected funds as directed in
writing by the Company to the respective subscribers in amounts equal to the
subscription amount theretofore paid by each of them. Any uncleared checks
representing Escrowed Funds which are not collected funds as of the Closing Date
shall be collected by the Escrow Agent and together with all related
subscription documents thereof shall be delivered to the Company by the Escrow
Agent unless the Escrow Agent is otherwise specifically directed in writing by
the Company.
4. Distribution of Interest. Any interest earned on the Escrowed Funds
shall be retained by the Bank and the Company as provided above.
5. Fee of Escrow Agent. The Company shall pay the Escrow Agent a fee of
$15.00 per month. In addition, a $20.00 per check fee will be charged if the
escrow account has to be refunded due to a failure to complete the subscription.
All of these fees are payable upon the release of the Escrowed Funds, and the
Escrow Agent is hereby authorized to deduct such fees from the Escrowed Funds
prior to any release thereof pursuant to Section 3(a) hereof.
6. Liability of Escrow Agent.
(a) In performing any of its duties under the Agreement, or upon the
claimed failure to perform its duties hereunder, the Escrow Agent shall not be
liable to anyone for any damages, losses or expenses which it may incur as a
result of the Escrow Agent so acting, or failing to act; provided, however, the
Escrow Agent shall be liable for damages arising out of its willful default or
misconduct or its gross negligence under this Agreement. Accordingly, the Escrow
Agent shall not incur any such liability with respect to (i) any action taken or
omitted to be taken in good faith upon advice of its counsel or counsel for the
Company which is given with respect to any questions relating to the duties and
responsibilities of the Escrow Agent hereunder; or (ii) any action taken or
omitted to be taken in reliance upon any document, including any written notice
or instructions provided for this Escrow Agreement, not only as to its due
execution and to the validity and effectiveness of its provisions but also as to
the truth and accuracy of any information contained Escrow Agent shall in good
faith believe such document to be genuine, to have been signed or presented by a
proper person or persons, and to conform with the provisions of this Agreement.
(b) The Company agrees to indemnify and hold harmless the Escrow Agent
against any and all losses, claims, damages, liabilities and expenses,
including, without limitation, reasonable costs of investigation and counsel
fees and disbursements which may be imposed by the Escrow Agent or incurred by
it in connection with its acceptance of this appointment as Escrow Agent
hereunder or the performance of its duties hereunder, including, without
limitation, any litigation arising from this Escrow Agreement or involving the
subject matter thereof; except, that if the Escrow Agent shall be found guilty
of willful misconduct or gross negligence under this agreement, then, in that
event, the Escrow agent shall bear all such losses, claims, damages and
expenses.
(c) if a dispute ensues between any of the parties hereto which, in the
opinion of the Escrow Agent, is sufficient to justify its doing so, the Escrow
Agent shall retain legal counsel of its choice as it reasonably may deem
necessary to advise it concerning its obligations hereunder and to represent it
in any litigation to which it may be a part by reason of this Agreement. The
Escrow Agent shall be entitled to tender into the registry or custody of any
court of competent jurisdiction all money or property in its hands under the
terms of this Agreement, and to file such legal proceedings as it deems
appropriate, and shall thereupon by discharged from all further duties under
this Agreement. Any such legal action may be brought in any such court as the
Escrow Agent shall determine to have jurisdiction thereof in connection with
such dispute, the Company shall indemnify the Escrow Agent against its court
costs and reasonable attorney's fees incurred.
2
<PAGE>
(d) The Escrow Agent may resign at any time upon giving thirty (30) days
written notice to the Company. If a successor escrow agent is not appointed by
Company within thirty (30) days after notice of resignation, the Escrow Agent
may petition any court of competent jurisdiction to name a Successor escrow
agent and the Escrow Agent herein shall be fully relieved of all liability under
this Agreement to any and all parties upon the transfer of the Escrowed Funds
and all related documentation thereto, including appropriate information to
assist the successor escrow agent with the reporting of earnings of the Escrowed
Funds to the appropriate state and federal agencies in accordance with the
applicable state and federal income tax laws, to the successor escrow agent
designated by the Company appointed by the court.
7. Appointment of Successor. The Company may, upon the delivery of thirty
(30) days written notice appointing a successor escrow agent to the Escrow
Agent, terminate the services of the Escrow Agent hereunder. In the event of
such termination, the Escrow Agent shall immediately deliver to the successor
escrow agent selected by the Company, all documentation and Escrowed Funds
including interest earnings thereon in its possession, less any fees and
expenses due to the Escrow Agent or required to be paid by the Escrow Agent to a
third party pursuant to this Agreement.
8. Notice. All notices, requests, demands and other communications or
deliveries required or permitted to be given hereunder shall be in writing and
shall be deemed to have been duly given three days after having been deposited
for mailing if sent by registered mail, or certified mail return receipt
requested, or delivery by courier, to the respective addresses set forth below:
If to the subscribers for Shares:
To their respective addresses as specified in their
Subscription Agreements.
The Company: Cornerstone Bancorp
4821 Calhoun Memorial Highway
Easley, South Carolina 29642
Attention: J. Rodger Anthony
President
With a copy to: George S. King, Jr., Esquire
Sinkler & Boyd, P.A.
Post Office Box 11889
Columbia, South Carolina 29211
The Escrow Agent: The Bankers Bank
3715 Northside Parkway
300 Northcreek, Suite 800
Atlanta, Georgia 30327
Attention: Mr. William R. Burkett
Senior Vice President
9. Representations of the Company. The Company hereby acknowledges that the
status of the Escrow Agent with respect to the offering of the Shares is that of
agent only for the limited purposes herein set forth, and hereby agrees 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 in an
investment in the Shares, or has approved, endorsed or passed upon the merits of
the Shares, nor shall the Company use the name of the Escrow Agent in any manner
whatsoever in connection with the offer or sale of the Shares, other than by
acknowledgment that it has agreed to serve as Escrow Agent for the limited
purposes herein set forth.
10. General.
(a) This Agreement shall be governed by and construed and enforced in
accordance with the laws of the State of Georgia.
(b) The section headings contained herein are for reference purposes only
and shall not in any way affect the meaning or interpretation of this Agreement.
3
<PAGE>
(c) This Agreement sets forth the entire agreement and understanding of the
parties with regard to this escrow transaction and supersedes all prior
agreements, arrangements and understandings relating to the subject matter
hereof.
(d) This Agreement may be amended, modified, superseded or canceled, and
any of the terms or conditions hereof may be waived, only by a written
instrument executed by each party hereto or, in the case of a waiver, by the
party waiving compliance. The failure of any part at any time or times to
require performance of any provision hereof shall in no manner affect the right
at a later time to enforce the same. No waiver in any one or more instances by
any part of any condition, or of the breach of any term contained in this
Agreement, whether by conduct or otherwise, shall be deemed to be, or construed
as, a further or continuing waiver of any such condition or breach, or a waiver
of any other condition or of the breach of any other terms of this Agreement.
(e) This Agreement may be executed simultaneously in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
(f) This Agreement shall inure to the benefit of the parties hereto and
their respective administrators, successors and assigns. The Escrow Agent shall
be bound only by the terms of this Escrow Agreement and shall not be bound by or
incur any liability with respect to any other agreement or understanding between
the parties except as herein expressly provided. The Escrow Agent shall not have
any duties hereunder except those specifically set forth herein.
(g) No interest in any part to this Agreement shall be assignable in the
absence of a written agreement by and between all the parties to this Agreement,
executed with the same formalities as this original Agreement.
IN WITNESS WHEREOF, the parties have duly executed this Agreement as the
date first written above.
[SIGNATURES OMITTED]
- --------------------------------------------------------------------------------
4
EXHIBIT 23.2
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the incorporation of our report dated May 17, 1999,
relating to the financial statements of Cornerstone Bancorp in Amendment No. 1
to the Registration Statement on Form SB-2 (file no. 333-79543), and Prospectus,
and to the reference to our firm therein under the caption "ACCOUNTING MATTERS."
Elliott, Davis & Company, LLP
Greenville, South Carolina
July 9, 1999
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each of Cornerstone Bancorp and
the several undersigned Officers and Directors thereof whose signatures appear
below hereby makes, constitutes and appoints J. Rodger Anthony and Nicholas S.
Clark, and each of them acting individually, its and his true and lawful
attorneys, with power to act without the other and with full power of
substitution, to execute, deliver and file in its or his name and on its or his
behalf, and in each of the undersigned Officer's and Director's capacity or
capacities as shown below, (a) a Registration Statement on Form SB-2 (or other
appropriate form) with respect to the registration under the Securities Act of
1933, as amended, of 800,000 shares of common stock, of Cornerstone Bancorp and
all documents in support thereof or supplemental thereto and any and all
amendments, including any and all post-effective amendments, to the foregoing
(hereinafter called the "Registration Statement"), and (b) such registration
statements, petitions, applications, consents to service of process or other
instruments, any and all documents in support thereof or supplemental thereto,
and any and all amendments or supplements to the foregoing, as may be necessary
or advisable to qualify or register the securities covered by said Registration
Statement; and each of Cornerstone Bancorp and said Officers and Directors
hereby grants to said attorneys, and to each of them, full power and authority
to do and perform each and every act and thing whatsoever as said attorneys or
attorney may deem necessary or advisable to carry out fully the intent of this
power of attorney to the same extent and with the same effect as Cornerstone
Bancorp might or could do, and as each of said Officers and Directors might or
could do personally in his capacity or capacities as aforesaid, and each of
Cornerstone Bancorp and said Officers and Directors hereby ratifies and confirms
all acts and things which said attorneys or attorney might do or cause to be
done by virtue of this power of attorney and its or his signatures as the same
may be signed by said attorneys or attorney, or any of them, to any or all of
the following (and/or any and all amendments and supplements to any or all
thereof): such Registration Statement under the Securities Act of 1933, as
amended, and all such registration statements, petitions, applications, consents
to service of process and other instruments, and any and all documents in
support thereof or supplemental thereto, under such securities laws, regulations
and requirements as may be applicable.
<PAGE>
IN WITNESS WHEREOF, Cornerstone Bancorp has caused this power of
attorney to be signed on its behalf, and each of the undersigned Officers and
Directors in the capacity or capacities noted has hereunto set his hand, on the
dates indicated below.
CORNERSTONE BANCORP
By: s/ J. Rodger Anthony
---------------------------
J. Rodger Anthony
Its Chief Executive Officer
Signature Title Date
s/ J. Rodger Anthony
- --------------------------- Chief Executive Officer May 24, 1999
(J. Rodger Anthony) and Director
s/ Walter L. Brooks
- --------------------------- Director May 24, 1999
(Walter L. Brooks)
s/ T. Edward Childress, III
- --------------------------- Director May 24, 1999
(T. Edward Childress, III)
s/ Nicholas S. Clark
- --------------------------- Chief Financial Officer, May 25, 1999
(Nicholas S. Clark) Vice President and Director
s/ J. Bruce Gaston
- --------------------------- Director May 24, 1999
(J. Bruce Gaston)
s/ S. Ervin Hendricks, Jr.
- --------------------------- Director May 28, 1999
(S. Ervin Hendricks, Jr.)
s/ Joe E. Hooper
- --------------------------- Director May 24, 1999
(Joe E. Hooper)
s/ Robert R. Spearman
- --------------------------- Director May 24, 1999
(Robert R. Spearman)
s/ John M. Warren, Jr. M.D.
- --------------------------- Director May 24, 1999
(John M. Warren, Jr., M.D.)
s/ George I. Wike, Jr.
- --------------------------- Director May 24, 1999
(George I. Wike, Jr.)
2
