-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, PdCv677DBxDsvI1vmtjHzmoWkY7IBhYyHHQMfA4UDZ4WXSBYXytMvDWPu/qCY/2L TN+ZS2W+g2CN5KmqIvFFKg== 0000948520-99-000050.txt : 19990624 0000948520-99-000050.hdr.sgml : 19990624 ACCESSION NUMBER: 0000948520-99-000050 CONFORMED SUBMISSION TYPE: SB-2 PUBLIC DOCUMENT COUNT: 9 FILED AS OF DATE: 19990528 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CORNERSTONE BANCORP/SC CENTRAL INDEX KEY: 0001087455 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 571077978 STATE OF INCORPORATION: SC FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SB-2 SEC ACT: SEC FILE NUMBER: 333-79543 FILM NUMBER: 99637183 BUSINESS ADDRESS: STREET 1: PO BOX 428 CITY: EASLEY STATE: SC ZIP: 29641 BUSINESS PHONE: 8643061444 SB-2 1 FORM SB-2 U. S. Securities and Exchange Commission Washington, D.C. 20549 Form SB-2 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 (Amendment No. ____) CORNERSTONE BANCORP - -------------------------------------------------------------------------------- (Name of small business issuer in its charter) South Carolina 6021 57-1077978 -------------- ---- ---------- (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 - -------------------------------------------------------------------------------- (Address and telephone number of principal executive offices) 1670 East Main Street, Easley, South Carolina 29642 - -------------------------------------------------------------------------------- (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. [ ] CALCULATION OF REGISTRATION FEE
Title of each Proposed maximum Proposed maximum class of securities Amount to be offering price aggregate offering Amount of to be registered registered per unit price registration fee ---------------- ---------- -------- ----- ---------------- Common Stock 800,000 shares $10.00 $8,000,000.00 $2,224.00
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. Prospectus CORNERSTONE BANCORP a proposed holding company for CORNERSTONE NATIONAL Corporation (In Organization) 625,000 Shares (Minimum) 800,000 Shares (Maximum) COMMON STOCK $10.00 per share Cornerstone Bancorp is offering for sale a minimum of 625,000 shares and a maximum of 800,000 shares of its Common Stock at a purchase price of $10.00 per share. The minimum number of shares that you may purchase is 100 shares. 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. If we sell fewer than 625,000 Shares by August 15, 1999 (unless we extend the date to no later than April 1, 2000), 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. This offering will terminate on August 15, 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. See "OFFERING AND METHOD OF SUBSCRIPTION." The Bank may not commence operations until it receives final approvals from state and federal agencies. If the Bank has not opened for business by December 31, 1999, (unless we extend the date to no later than 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.
=================================================================================================================== Price Underwriting to Discounts Proceeds Public and to Commissions the Company(1) =================================================================================================================== PER SHARE........................................ $ 10.00 $0.00 $ 10.00 - ------------------------------------------------------------------------------------------------------------------- TOTAL: Maximum -- 800,000 shares............ $8,000,000 $-0- $8,000,000 Minimum -- 625,000 shares(2) ........ $6,250,000 $-0- $6,250,000 ===================================================================================================================
(1) This is the amount of proceeds before deduction of expenses associated with this offering payable by the Company. Such expenses are estimated at $50,000. (2) If the Company fails to raise gross proceeds of at least $6,250,000 through this offering, we will withdraw the offering and the Escrow Agent will promptly return all subscription funds without interest. The Date of This Prospectus is June ___, 1999 TABLE OF CONTENTS Page Summary .....................................................................1 Risk Factors.................................................................3 Offering And Method Of Subscription..........................................5 Use Of Proceeds..............................................................7 Pro Forma Capitalization.....................................................8 Dividends ...................................................................8 Plan of Operation of the Company and Proposed Business Of The Bank...........9 Directors and Executive Officers............................................13 Certain Relationships And Related Transactions..............................17 Supervision And Regulation..................................................17 Description Of Capital Stock................................................21 Legal Matters...............................................................24 Accounting Matters..........................................................24 Index To Financial Statements..............................................F-1 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. ii 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 (In Organization). Our principal executive office is presently located at 4821 Calhoun Memorial Highway, Easley, South Carolina 29642. Our telephone number is (864) 306-1444. We must obtain the approval of the Board of Governors of the Federal Reserve System (the "Federal Reserve") and give notice to the South Carolina State Board of Financial Institutions (the "State Board") before we can acquire Cornerstone National Bank. Cornerstone National Bank (In Organization) Cornerstone National Bank (In Organization) is sometimes referred to in this Prospectus as the "Bank." It is being organized in Easley, South Carolina as a national bank. The Organizers of the Bank have filed an application with the Office of the Comptroller of the Currency (the "OCC") and received preliminary approval to organize the Bank. The Organizers have also filed an application with the Federal Deposit Insurance Corporation (the "FDIC") for insurance of deposits. The Bank may not conduct any banking business until the FDIC approves deposit insurance and the OCC 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 OCC and the FDIC. One of these requirements will be capitalization of the Bank with at least $6 million. The Bank will engage in a commercial and retail banking business in the Easley area, and will emphasize its local contacts and personalized services. The Bank's principal offices will be located at 1670 East Main Street, Easley, South Carolina 29642. While the Bank's offices are being built at that location, the Bank will be located in temporary offices on the same lot. During the stock subscription period, the Bank's office address will be 4821 Calhoun Memorial Highway, Easley, South Carolina 29642. Its phone number at that location is (864) 306-1444. If we receive all state and federal regulatory approvals to organize the Bank, we plan to use the proceeds of this offering to capitalize the Bank and to pay offering and organizational expenses of the Bank. If this offering to capitalize the Bank does not raise sufficient funds, or if we do not receive all state and federal regulatory approvals to organize the 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 the 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 the Company. Mr. Clark is the Company's Chief Financial Officer. Mr. Anthony and Mr. Clark plan to serve in the same capacities as officers of the Bank. All of the Organizers are directors of the Company and plan to serve as initial directors of the Bank. 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 1 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." The Offering
Shares of Common Stock Offered........................... Minimum -- 625,000 ...................... Maximum -- 800,000 Offering Price Per Share................................. $10.00 Minimum Individual Purchase(1)........................... 100 shares Maximum Individual Purchase(1)........................... 31,250 shares Use of Proceeds(2)....................................... To capitalize the Bank and pay offering, organizational and pre-opening expenses
- --------------------- (1) We reserve the right to alter the minimum and maximum purchase amounts in our sole discretion. See "OFFERING AND METHOD OF SUBSCRIPTION." (2) We will place proceeds of this offering in an escrow account with The Bankers Bank, Atlanta, Georgia. The proceeds will remain in escrow until we close this offering and receive all required regulatory approvals to charter the Bank. See "OFFERING AND METHOD OF SUBSCRIPTION -- Escrow of Funds" and "RISK FACTORS -- Regulatory Approvals." Risk Factors - For a discussion of certain risks you should consider before buying our stock, see "RISK FACTORS" beginning on the next page. 2 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: Lack of Operating History We do not yet have an operating history. Therefore, you have limited information on which to base an investment decision. New banks typically incur substantial initial expenses and are not profitable for several years after commencing business. Furthermore, the Bank may never operate profitably. The 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 "PLAN OF OPERATION OF THE COMPANY AND PROPOSED BUSINESS OF THE BANK Lack of Profitability in the Early Period of Operation." Regulatory Approvals The Organizers of the Bank have filed an application with the OCC for approval to organize and operate the Bank. The OCC has granted preliminary, but not final, approval of the application. They 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 the Bank and give prior notice to the State Board of such proposed acquisition. 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 the Bank's capital, potential revenues and income. Approvals may also contain conditions limiting payment of dividends and restricting certain activities by the Bank or the Company. Such conditions could have an adverse impact on the Bank's operations and profitability. Since the Bank will be the Company's only significant asset, such conditions would also have an adverse impact on the Company's operations and profitability. If the Bank has not opened for business by December 31, 1999, unless we extend the date to April 1, 2000, the Escrow Agent will promptly return your subscription funds, without any interest. Dependence on Key Personnel 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 the Bank. Also, the Bank must attract and retain other qualified officers and employees to open for business. See "PLAN OF OPERATION OF THE COMPANY AND PROPOSED BUSINESS OF THE BANK -Employees." Failure to Raise Anticipated Proceeds If we fail to receive subscriptions for at least 625,000 shares of Common Stock by August 15, 1999 (unless we extend the offering for an additional period ending no later than April 1, 2000), we will abandon the offering. In the event the offering is abandoned, the Escrow Agent will promptly return all subscription funds, without interest. Absence of Trading Market; Sale Price 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. You should consider the potentially illiquid nature of the Common Stock. 3 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 the Bank. The price per share was arbitrarily set at $10.00 per share. 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. Minimum Offering Requirement The 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 the Company 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. Dividend Rights and Policy We cannot assure you when or whether the Bank will pay cash dividends to us. It is expected that the Board of Directors of the Bank will follow a policy of retaining earnings for an indefinite period. If the Bank does not pay dividends to us, it is not likely that we will be able to pay dividends to you. The Bank's declaration and payment of future dividends are within the discretion of the Board of Directors of the Bank, and are dependent upon the Bank's earnings, financial condition, its need to retain earnings for use in the business, and any other pertinent factors. Payment of dividends by the Bank may also be subject to prior approval of the OCC. Declaration and payment of dividends by the Company are within the discretion of the Board of Directors of the Company. See "DIVIDENDS." Certain Provisions of the Articles of Incorporation 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. Concentration of Voting Power Our present directors will 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. Competition We will encounter strong competition from financial institutions operating in the Easley, South Carolina area. In the conduct of certain aspects of its business, the 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 the Bank. Many of these competitors have substantially greater resources and lending abilities than the Bank. They offer certain services, such as investment banking, trust and international banking services, that the Bank does not expect to provide or will not provide initially. We believe that the 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 THE COMPANY AND PROPOSED BUSINESS OF THE BANK -- Competition." Possible Need for Additional Capital 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, or the effect on you of issuing additional stock. See "SUPERVISION AND REGULATION -- Capital Adequacy Guidelines for Bank Holding Companies and National Banks." 4 Loan Losses; Capital Deficiency We anticipate that the majority of the Bank's depositors will be located in or doing business in and around Easley, South Carolina. We also anticipate that the 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 the 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 the Bank's borrowers could be large enough to impair the ability of the Bank to continue its operations. Loan losses and other losses might reduce the Bank's capital below the level required by the FDIC, which could result in loss of deposit insurance, the Bank's being placed in receivership, and total loss of the value of your investment in the Company. Monetary Policy and Other Economic Factors Changes in governmental, economic, and monetary policies may affect the ability of the 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." Year 2000 Computer Problems 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. The 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 the Bank. OFFERING AND METHOD OF SUBSCRIPTION The Offering The Company 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. The Company is seeking to raise sufficient capital through this offering to adequately capitalize the Bank. The minimum individual purchase pursuant to this offering is 100 shares, and the maximum purchase is 31,250 shares. The Company 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. The Company 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 the Company 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 the Bank. If 625,000 shares are not sold prior to the Expiration Date (as defined below) to provide funds to capitalize the 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 the Company 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 - -- Minimum Offering Requirement," "DIRECTORS AND EXECUTIVE OFFICERS -- Stock Ownership of Directors." 5 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 final approval of the Bank's charter by the OCC. 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 to the Company is authorized by the OCC. Any interest earned on subscription funds while such funds were held in escrow will be property of the Company. If the Bank has not opened for business by December 31, 1999, unless extended to no later than April 1, 2000 by the Directors, 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 the Company and Cornerstone National Bank (In Organization). No commission or other sales compensation will be paid to any officer or director of the Company or any proposed officer or director of the 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). The Company 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 the Company, all funds relating to the unaccepted or cancelled portion shall be promptly returned to the subscriber without interest thereon. Only the President of the Company has the authority to accept or reject a subscription, or portion thereof, on behalf of the Company. Expiration Date or Extension of the Offering The Company will offer shares of the Common Stock hereunder until the earlier of (1) receipt by the Company of subscriptions for an aggregate of 800,000 shares; (2) a decision by the Company to terminate the offering; or (3) August 15, 1999 (the "Expiration Date"). While the Company 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 the Company. 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 the Company. The extension of the Expiration Date may cause an increase in the Bank's pre-operating expenses and in the expenses incurred by the Company in connection with this offering. It is anticipated that the Bank will commence operations in the third quarter of 1999. 6 Certain Contingencies The Company must receive the approval of the Federal Reserve and give prior notice to the State Board before it can capitalize the Bank. Organization of the Bank and commencement of its operations is contingent upon capitalization of the Bank at $6,000,000, receipt of FDIC insurance of deposits and OCC 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 OCC and FDIC approvals will delay commencement of business and increase pre-opening expenses and may reduce the 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 of this offering or that a Director's confidence in his investment decision is shared by investors who are not affiliates of the Company. 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 the Bank does not open for business by December 31, 1999, (unless the Company extends the date to no later than 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 the Company and paid for by the subscriber, will be issued by the Company promptly after the 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, the Company will use $6,000,000 of the net proceeds from this offering to capitalize the Bank and to meet the Bank's organizational and pre-opening expenses. Proceeds in excess of $6,000,000 will be temporarily invested by the Company and used to pay the Company's administrative expenses. To the extent not needed to pay such expenses, such funds, if any, will be available to increase the capital of the Bank or for other activities in which a bank holding company is permitted to engage. The proceeds of the offering used to capitalize the Bank will be applied primarily to provide funds for the Bank's banking operations, including loans to customers and investments, for purchase of the property on which the Bank's headquarters will be located and construction of the Bank building, for furnishing and equipping the Bank, and for working capital. The Bank's present plans and applications filed with the OCC and FDIC contemplate that the Bank will only operate out of one location for several years. Should the proceeds of this offering substantially exceed the minimum, the Bank may seek regulatory approval to open additional offices if it appears that doing so will benefit the 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. The 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 the Bank and for miscellaneous expenses such as legal, consulting, accounting, and other expenses associated with the organization of the Bank. Approximately $47,000 in organizational and pre-opening expenses had been incurred as of April 30, 1999. 7 The Organizers have estimated that initial fixed asset expenditures will be approximately $450,000 for purchase of property on which the Bank is to be located, and $250,000 for furniture, fixtures and equipment. The Organizers plan to build the Bank's permanent offices during its second year at an approximate cost of $1,000,000. Actual expenses may, however, vary from these estimates. PRO FORMA CAPITALIZATION The following table sets forth the pro forma capitalization of the Company after completion of this offering. The table assumes capitalization of the Company at $6,200,000 after deduction of estimated offering expenses of $50,000. Prior to opening of the Bank, the Bank expects to incur pre-opening and organizational expenses that would result in a retained deficit of approximately $275,000. Stockholders' Equity
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
DIVIDENDS The most likely source of dividends to be paid by the Company will be dividends paid to the Company by the Bank. Accordingly, the payment of dividends by the Company is indirectly subject to the same laws and regulations that govern the payment of dividends by national banks. The Bank will be restricted in its ability to pay dividends under the national banking laws and by regulations of the OCC. 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 OCC is required if the total of all dividends declared by the 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 OCC 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 the 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, the Company will be in a position to pay cash dividends on the Common Stock. Once the Bank becomes sufficiently profitable in the judgment of its directors, its directors expect that the Bank will pay some dividends in cash to the Company. However, the Company anticipates that all or substantially all of the Bank's earnings in the foreseeable future may be required for use in the development of the Bank's business. If the Bank pays cash dividends to the Company, there is no requirement that the Company, in turn, pay dividends to its shareholders. 8 PLAN OF OPERATION OF THE COMPANY AND PROPOSED BUSINESS OF THE BANK Organization and Plan of Operation of the Company The Company was incorporated under the laws of South Carolina in January, 1999. The Company was organized for the purpose of becoming the holding company for the Bank. Before the Company can acquire the Bank, however, it must obtain the approval of the Federal Reserve and give prior notice to the State Board. An application for approval of the Federal Reserve will be filed in the near future, and notice will be given to the State Board shortly after receipt of the Federal Reserve's approval. For the foreseeable future, the Company expects that its primary business activity will be ownership and operation of the Bank. At some point in the future, if the directors of the Company determine that it is appropriate to do so and any necessary regulatory approvals can be obtained, the Company may engage in other activities permitted for bank holding companies and may organize or acquire additional banks, through there can be no assurances that it will do so. Organization of the Bank On February 1, 1999, the Organizers filed an application to obtain a national bank charter with the OCC. The OCC has granted preliminary approval to the application. The Bank will not be permitted to receive deposits, make loans, or otherwise engage in banking activities unless and until the Bank receives a certificate from the OCC 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, the Bank must establish capital in the amount of $6,000,000, and the Bank must satisfy any administrative conditions imposed by the OCC. The OCC has the authority to alter, suspend, or rescind the approval of the Bank's application at any time if the OCC deems any development warrants such action. The Organizers have submitted an application to the FDIC for the insurance of the 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 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 the 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 OCC and deposit insurance from the FDIC, there can be no assurance that the OCC will grant a certificate to commence business or that the Bank will obtain FDIC insurance. Management Philosophy and Policy The 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 the Bank to concentrate on this hometown market with a professional staff that is sensitive to local needs. The Organizers of the Bank are dedicated to providing personalized banking to the citizens of the Easley area. Many citizens in Easley 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: Decisions regarding credit and services of a bank can best be made at a local level. 9 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 the 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 the Bank, though no assurances can be given that this will be the case. The 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 the 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. The 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. The 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. The 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 the Bank. Because the management of the 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 the Bank's initial capitalization will enable it to commence operations as a significant competitor. With an initial capitalization of approximately $6,000,000, the Bank will have a legal lending limit of approximately $900,000 for loans to a single customer. The Organizers anticipate that the Bank will establish correspondent relationships with The Bankers Bank, and other banks to participate loans when loan amounts exceed the Bank's legal lending limits or internal lending policies. The Organizers believe that the Bank's initial capitalization should support substantial growth in deposits and loans, and will be sufficient to meet the capital requirements of the 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 the Bank will be able to compete effectively in those areas, but no assurance can be given that it will be able to do so. The 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, the 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 and restrictions as the Bank. Most of these competitors have substantially greater resources and lending abilities than the Bank and offer certain services, such as international banking, investment banking, and trust services, that the Bank will not provide initially. 10 Proposed Services The 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. The Bank intends to solicit these accounts from individuals, businesses, associations and organizations, and government authorities. Although the 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. The Bank expects to offer a full range of short- and intermediate-term commercial and personal loans. The Bank intends to originate fixed and variable rate residential and other mortgage loans for its own account and for resale. The Bank intends to make personal loans directly to individuals for various other purposes, including purchases of automobiles, boats and other recreational vehicles, home improvements, education and personal investments. Commercial loans, secured and unsecured, will be made primarily to individuals and small and mid-sized businesses operating in the Easley area of South Carolina. These loans will be available for general operating purposes, acquisition of fixed assets, including real estate, purchases of equipment and machinery, financing of inventory and accounts receivable, and other business purposes. Although the Bank plans to take a progressive and competitive approach to lending, it will stress high quality loans. To promote such quality lending, the Board of Directors of the Bank will establish lending authority for each loan officer. Each loan request exceeding a loan officer's authority will have to be approved by one or more senior officers. A loan committee of the Board of Directors will review larger loans for approval when the loan request exceeds established limits for the senior officers. Because the Bank will be locally managed, such quality control should not impair the Bank's ability to provide prompt and personal response to customers. The Bank may participate in a regional network of automated teller machines that may be used by Bank customers in major cities throughout the Southeast. The 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. The 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 the 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 the 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 the 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 the 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. 11 Premises The Bank and the Company presently operate out of a leased office located at 4821 Calhoun Memorial Highway, Easley, South Carolina. The Bank plans to purchase a 1.8 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, the 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. The 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 the 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. The chief financial officer of the 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. Other employees will be hired in phases prior to the opening of the Bank. It is anticipated that the Bank will make available to its employees competitive benefits, which should enable the Bank to attract and retain quality employees. Pre-Opening Activities The Organizers will monitor and supervise the acquisitions of the 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 the Bank will be profitable during its first 3 years of operation or at any time thereafter. The Organizers of the Bank, who are mostly local residents of the 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. 12 Economy The 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. Over 90% of those employed are in non-agricultural employment with over 50% of those employed in trades and manufacturing 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. 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"), the Company will be required to file annual, quarterly and periodic reports with the SEC. If, after that first year, the Company 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 the Company 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. The Company's filings with the SEC are made electronically. The SEC maintains an internet site that contains the reports and other information filed by the Company with the SEC. The address of the SEC's internet site is http:/www.sec.gov. The Company 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 the Company 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. The Company will furnish shareholders with annual reports containing audited financial information. DIRECTORS AND EXECUTIVE OFFICERS The directors of the Company are the Organizers of the Bank. The Organizers are also expected to be members of the initial board of directors of the Bank. The directors are all initial directors of the Company and will serve until the first meeting of the shareholders of the Company at which time directors will be elected by the shareholders. The following table sets forth, as of May 31, 1999, certain information about the directors and executive officers of the Company.
Name, Address Age Principal Occupation for the Past Five Years J. Rodger Anthony 53 Banker; President and Chief Executive Officer of the Liberty, SC Company Walter L. Brooks 72 President, G&B Enterprises (egg production) Townville, SC T. Edward Childress, III 53 Pharmacist Easley, SC 13 Nicholas S. Clark 31 Banker; Vice President, Secretary, Treasurer and Chief Easley, SC Financial Officer of the Company 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, Easley, SC Inc. 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
J. Rodger Anthony is a native of Pickens County, South Carolina. He is the President and Chief Executive Officer of the Company. 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 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. 14 Nicholas S. Clark is the Chief Financial Officer of the Company 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 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. 15 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 the Company'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."
Number of Shares to % of Common Stock Name and Address be Beneficially Owned to be Outstanding - ---------------- --------------------- ----------------- Minimum (1) Maximum (2) ----------- ----------- 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
- ----------------------- (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 the Company'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.
% of Common Stock Number of Shares to to be Outstanding Name be Beneficially Owned Minimum(1) Maximum(2) ---- --------------------- ---------- ---------- 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%
- -------------------- (1) Assuming sale of 625,000 shares. (2) Assuming sale of 800,000 shares. 16 Compensation of Executive Officers and Directors Mr. Anthony has agreed to serve as President and Chief Executive Officer of the 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 the Company are not presently compensated for their service as directors, though they may be reimbursed for reasonable expenses. The Company 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 the Company has used to pay its operating expenses during the organizational period of the 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 the Company, the options held by him will expire six months after he ceases to be a director. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The 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. The Company leases its office at 4821 Calhoun Memorial Highway from Ervin Hendricks, a director of the Company. 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. The Company believes that the lease rate is fair to the Company and comparable to what other space in the Easley area would cost. The 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 the 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. The Company has obtained two independent appraisals on the subject property which indicate that the fair market value of the property is equal to or greater than $450,000. The transaction will result in a profit to Mr. Hendricks. Nevertheless, the other directors of the Company unanimously agree that the transaction is fair to and in the best interest of the Company. 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 the Company and the Bank. General As a bank holding company registered under the Bank Holding Company Act ("BHCA"), the Company will be subject to the regulations of the Federal Reserve. Under the BHCA, the Company's activities and those of its subsidiaries are 17 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 the Company 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 the Company 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 the Company 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. The Company will also be registered under the bank holding company laws of South Carolina. Accordingly, the Company will be subject to regulation and supervision by the State Board. A registered South Carolina bank holding company must provide the State Board with information with respect to the financial condition, operations, management and inter-company relationships of the holding company and its subsidiaries. The State Board also may require such other information as is necessary to keep itself informed about whether the provisions of South Carolina law and the regulations and orders issued thereunder by the State Board have been complied with, and the State Board may examine any bank holding company and its subsidiaries. Obligations of the Company 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 the Bank. 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 18 assets of less than $150 million, as the Company will be initially, compliance is measured on a bank only basis. The OCC's regulations establish two capital standards for national banks: a leverage requirement and a risk-based capital requirement. In addition, the OCC may establish individual minimum capital requirements for a national bank that are different from the general requirements. Failure to meet capital requirements could subject the 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 OCC 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. The Company and the Bank will initially exceed all applicable capital requirements by a wide margin. Payment of Dividends The Company will be a legal entity separate and distinct from its bank subsidiary. Most of the revenues of the Company are expected to result from dividends paid to the Company by the Bank. There are statutory and regulatory requirements applicable to the payment of dividends by subsidiary banks as well as by the Company to its shareholders. It is not anticipated that the Company will pay cash dividends in the near future. "DESCRIPTION OF CAPITAL STOCK -- Dividends" and "DIVIDENDS." Certain Transactions by the Company with its Affiliates Federal law regulates transactions among the Company 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 the Bank's deposits will be insured by the BIF, the 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. Thus, for the semi-annual period beginning January 1, 1997, 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 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 the Bank The 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. The 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 19 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 the 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. The 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 the 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 on interstate acquisitions of banks by bank holding companies have been repealed, such that the Company 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. The legislation also provides that, unless an individual state elects beforehand either (i) to accelerate the effective date or (ii) to prohibit out-of-state banks from operating interstate branches within its 20 territory, on or after June 1, 1997, adequately capitalized and managed bank holding companies will be able 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 would be 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 will 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. The Bank believes that this legislation may result in additional acquisitions of South Carolina financial institutions by out-of-state financial institutions. However, the Bank 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 the Bank cannot predict the future course of such legislative proposals or their impact on the Company and the 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 the Company and the 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 the Company and the Bank cannot be predicted. DESCRIPTION OF CAPITAL STOCK The Company is a South Carolina corporation. As such, South Carolina law will control the rights of shareholders and other matters relating to the stock of the Company. 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. The Company 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 the Company upon dissolution. The Company 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 the Company's common stock will be entitled to one vote per share and to the same and identical voting rights as other holders of the Company'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. 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 the Company or any resolution to dissolve the Company, 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 the Company. 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 the Company. 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 21 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 the Company 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 the Corporation at least 90 days prior to the date of the meeting. The notice is required to include any information required by the Bylaws of the Company. Removal of Directors. The Articles provide that an affirmative vote of 80% of the outstanding shares of the Company 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 the Company, the board of directors shall consider the interests of the employees of the Company and the community or communities in which the Company and its subsidiaries, if any, do business in addition to the interests of the Company'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 the Company will not be personally liable to the Company 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 the Company 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 the Company will not have preemptive rights with respect to the issuance of additional shares, options or rights of any class of the Company stock. As a result, the directors may sell additional authorized shares of the Company'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 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 the Company. 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 the Company. Amendments to change the number and classes of shares authorized to be issued by the Company and to change the name of the Company 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. The Company's common stock will be entitled, pro rata, to dividends paid by the Company 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 the Company'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 22 dividends will be or whether such dividends will continue for future periods. The Company 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 the Company issues preferred stock, the terms of the preferred stock may require the Company 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. The Company'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 the Company has a class of securities registered under Section 12 of the Securities Exchange Act of 1934, this statute would not ordinarily apply to the Company. However, the Company 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%, 33a% 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. The Company 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 the Company if it has a class of securities registered under Section 12 of the Securities Exchange Act of 1934. 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. 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 Company pursuant to the foregoing provisions, or otherwise, the Company has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. 23 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 the Company 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 the Company. ACCOUNTING MATTERS The financial statements of the Company at April 30, 1999, and for the period from January 11, 1999 (inception) to April 30, 1999, have been audited by Elliott Davis & Company, L.L.P., 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. 24 INDEX TO FINANCIAL STATEMENTS Report of Independent Certified Public Accountants.......................... F-2 Balance sheet as of April 30, 1999.......................................... F-3 Statement of operations and retained deficit for the period from January 11 (date of inception) to April 30, 1999........ F-4 Statement of cash flows for the period from January 11 (date of inception) to April 30, 1999............................................ F-5 Notes to Financial Statements............................................... F-6 F-1 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, L.L.P. Greenville, South Carolina May 17, 1999 F-2 CORNERSTONE BANCORP (A DEVELOPMENT STAGE ENTERPRISE) BALANCE SHEET APRIL 30, 1999
ASSETS 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 ========
The accompanying notes are an integral part of this financial statement. F-3 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. F-4 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. F-5 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. F-6 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. F-7 CORNERSTONE BANCORP APPENDIX A SUBSCRIPTION AGREEMENT The undersigned, having received and reviewed the Prospectus (the "Prospectus") dated June __, 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. 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. 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. 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 registration statement to be signed on its behalf by the undersigned, in the City of Easley, State of South Carolina, on May 26, 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 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 May 26, 1999 J. Rodger Anthony Director s/Nicholas S. Clark - ---------------------------- Chief Financial Officer, May 26, 1999 Nicholas S. Clark Director s/Walter L. Brooks - ---------------------------- Director May 26, 1999 Walter L. Brooks s/T. Edward Childress, III - ---------------------------- Director May 26, 1999 T. Edward Childress, III s/J. Bruce Gaston - ---------------------------- Director May 26, 1999 J. Bruce Gaston s/S. Ervin Hendricks, Jr. - ---------------------------- Director May 26, 1999 S. Ervin Hendricks, Jr. s/Joe E. Hooper - ---------------------------- Director May 26, 1999 Joe E. Hooper s/Robert R. Spearman - ---------------------------- Director May 26, 1999 Robert R. Spearman s/John M. Warren, Jr., M.D. - ---------------------------- Director May 26, 1999 John M. Warren, Jr., M.D. s/George I. Wike, Jr. - ---------------------------- Director May 26, 1999 George I. Wike, Jr. 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 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 27 Financial Data Schedule EX-3.1 2 ARTICLES OF INCORPORATION STATE OF SOUTH CAROLINA SECRETARY OF STATE ARTICLES OF INCORPORATION 1. The name of the proposed corporation is Cornerstone Bancorp. 2. The initial registered office of the corporation is 4821 Calhoun Memorial Highway, Easley, South Carolina 29642 and the initial registered agent at such address is J. Rodger Anthony. 3. The corporation is authorized to issue shares of stock as follows. Complete a or b whichever is applicable: a. / / The corporation is authorized to issue a single class of shares, and the total number of shares authorized is: ____________________________________. b. /x / The corporation is authorized to issue more than one class of shares: Class of Shares Authorized No. of Each Class Common Stock 20,000,000 Preferred Stock 10,000,000 The relative rights, preferences, and limitations of the shares of each class, and of each series within a class, are as follows: Common Stock: The shares of common stock shall have unlimited voting rights and are entitled, together with any services of preferred stock which also has such right specified, to receive the net assets of the corporation upon dissolution. Preferred Stock: The board of directors shall determine the preferences, limitations and relative rights of one or more series of shares of preferred stock. 4. The existence of the corporation shall begin when these articles are filed with the Secretary of State unless a delayed date is indicated (See ss. 33-1-230(b)): 5. The optional provisions which the corporation elects to include in the articles of incorporation are as follows (See ss. 33-2-102 and the applicable comments thereto; and 35-2-105 and 35-2-221 of the 1976 South Carolina Code): A. NO PREEMPTIVE RIGHTS. No holder of shares of the Corporation of any class, now or hereafter authorized, shall have any preferential or preemptive right to subscribe for, purchase or receive any shares of the stock of the Corporation of any class, now or hereafter authorized, or any options or warrants for such shares, or any securities convertible into, carrying an option to purchase or exchangeable for such shares, which may at any time be issued, sold or offered for sale by the Corporation. B. NO CUMULATIVE VOTING. The holders of shares entitled to vote at an election of directors shall not have the right to cumulate their votes. C. NUMBER OF DIRECTORS. The Board of Directors shall have the power to set the number of directors from time to time at six (6) or more directors. D. CLASSIFICATION OF DIRECTORS: STAGGERED TERMS. Directors shall be divided into three classes, each class to be as nearly equal in number as possible. Except as otherwise required by law or as may be necessary to have the classes as nearly equal as possible, each director shall be elected to serve a three (3) year term. E. BUSINESS COMBINATIONS. Whether or not the Corporation has a class of voting shares registered with the Securities and Exchange Commission or another federal agency under Section 12 of the Securities Exchange Act of 1934 (the "1934 Act"), any "business combination," as defined in S.C. Code Section 35-2-205 (as such section may from time to time be amended) shall only be undertaken in compliance with the provisions of Article 2 of Chapter 2 of Title 35 of the South Carolina Code (as such article may from time to time be amended), as though the Corporation had a class of voting shares registered under the 1934 Act; provided, however, if Article 2 of Chapter 2 of Title 35 of the South Carolina Code shall at any time be repealed, this provision of the Corporation's Articles of Incorporation shall not also be repealed, but shall remain in effect, unless repealed by the shareholders, in the form such Article 2 was in effect immediately prior to such repeal. F. LIMITATION OF DIRECTOR LIABILITY. No director of the Corporation shall be personally liable to the Corporation or its shareholders for monetary damages for breach of fiduciary duty as a director occurring after the effective date hereof; provided, however, the foregoing shall not eliminate or limit the liability of a director (i) for any breach of the director's duty of loyalty to the Corporation 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 Section 33-8-330 of the South Carolina 2 Business Corporation Act of 1988, as it may be amended from time to time (the "Act") or (iv) for any transaction from which the director derived an improper personal benefit. This provision shall eliminate or limit the liability of a director only to the maximum extent permitted from time to time by Section 33-2-102(e) and by the Act or any successor law or laws. Any repeal or modification of the foregoing protection by the shareholders of the Corporation shall not adversely affect any right or protection of a director of the Corporation existing at the time of such repeal or modification. G. QUORUM. A majority of the shares entitled to vote thereat shall constitute a quorum at any meeting of shareholders for the transaction of any business. H. MERGERS, CONSOLIDATIONS, EXCHANGES, SALES OF ASSETS OR DISSOLUTION. With respect to any plan or 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 the Corporation or any resolution to dissolve the Corporation, 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 the Corporation. I. NOMINATION OF DIRECTORS. No person shall be eligible to be elected a director of the Corporation at a meeting of shareholders unless that person has been nominated by a record shareholder entitled to vote at such meeting by giving written notice of such nomination to the Secretary of the Corporation at least ninety (90) days prior to the date of the meeting. Such written notice shall provide any information required in the Bylaws of the Corporation. J. REMOVAL OF DIRECTORS. An affirmative vote of 80% of the outstanding shares of the Corporation shall be required to remove any or all of the directors without cause. K. DUTY OF DIRECTORS. When evaluating any proposed plan of merger, consolidation, exchange, or sale of all, or substantially all, of the assets of the Corporation, the Board of Directors shall consider the interests of the employees of the Corporation and the community or communities in which the Corporation and its subsidiaries, if any, do business in addition to the interests of the Corporation's shareholders. L. AMENDMENT TO ARTICLES OF INCORPORATION. Any amendment to the Articles of Incorporation of the Corporation which amends, 3 alters, repeals or is inconsistent with any of the provisions of Article 5.A, B, C, D, E, F, G, H, I, J or K above, or this Article 5.L, unless such amendment shall have been approved by the affirmative vote of at least two-thirds of the full board of directors, shall not be effective unless it is approved by the affirmative vote of 80% of the outstanding shares of the Corporation. If two-thirds of the full Board of Directors approves such an amendment, the amendment need only be approved by an affirmative vote of holders of two-thirds of the outstanding shares of the Corporation. Any amendment to the Articles of Incorporation (other than these amendments which may be adopted by the Board of Directors without Shareholder approval) to change the number or classes of shares the Corporation is authorized to issue or to change the name of the Corporation may be adopted upon approval by the affirmative vote of a majority of the outstanding shares of the Corporation. 6. The name and address of each incorporator is as follows (only one is required): Name Address Signature J. Rodger Anthony 1079 Blackbottom Road /s/J. Rodger Anthony Greenville, SC 7. I, George S. King, Jr., an attorney licensed to practice in the State of South Carolina, certify that the corporation, to whose articles of incorporation this certificate is attached, has complied with the requirements Section 33-2-102 of the 1976 South Carolina Code. Date: December 31, 1998 /s/George S. King, Jr. ---------------------------------- (Signature) George S. King, Jr. ---------------------------------- (Type or Print Name) Address: P. O. Box 11889 Columbia, South Carolina 29211 4 EX-3.2 3 BYLAWS OF CORNERSTONE BANCORP BY-LAWS OF CORNERSTONE BANCORP ARTICLE I OFFICES Section 1. Office. Cornerstone Bancorp (hereinafter referred to as the "Corporation"), is a South Carolina corporation. The main office of the Corporation shall be located in the City of Easley, South Carolina. Section 2. Additional Offices. The Corporation may also have offices and places of business at such other places, within or without the State of South Carolina, as the Board of Directors may from time to time determine. ARTICLE II MEETINGS OF SHAREHOLDERS Section 1. Time and Place. The annual meeting of the shareholders for the election of directors and all special meetings of shareholders for that or for any other purpose may be held at such time and place within or without the State of South Carolina as shall be stated in the notice of the meeting, or in a duly executed waiver of notice thereof. Section 2. Annual Meetings. An annual meeting of shareholders shall be held each year at the time and place set by the Board of Directors. At each annual meeting the shareholders shall elect directors and transact such other business as may properly be brought before the meeting. Section 3. Notice of Annual Meeting. Written notice of the place, date and hour of the annual meeting shall be given personally or by mail to each shareholder entitled to vote thereat not less than ten nor more than sixty days prior to the meeting. Section 4. Special Meetings. Special meetings of the shareholders, for any purpose or purposes, unless otherwise prescribed by statute or by the articles of incorporation, may be called by the president or the chairman of the Board of Directors or a majority of the directors and shall be called by the president or the secretary at the request in writing of a majority of the directors, or at the request in writing of shareholders owning at least ten per cent in amount of the shares of the Corporation issued and outstanding and entitled to vote. Such request shall state the purpose or purposes of the proposed meeting. Section 5. Notice of Special Meeting. Written notice of a special meeting of shareholders stating the place, date and hour of the meeting, the purpose or purposes for which the meeting is called, and by or at whose direction it is being issued shall be given personally or by mail to each shareholder entitled to vote thereat not less than ten nor more than sixty days prior to the meeting. Section 6. Quorum. The holders of a majority of the shares of the Corporation issued and outstanding and entitled to vote thereat present in person or represented by proxy shall be necessary to and shall constitute a quorum for the transaction of business at all meetings of the shareholders. If, however, such quorum shall not be present or represented at any meeting of the shareholders, the shareholders entitled to vote thereat present in person or represented by proxy shall have power to adjourn the meeting from time to time, until a quorum shall be present or represented. At such adjourned meeting at which a quorum shall be present or represented, any business may be transacted which might have been transacted at the meeting as originally noticed. Section 7. Voting. At any meeting of the shareholders, every shareholder having the right to vote shall be entitled to vote in person or by proxy. Except as otherwise provided by law or the articles of incorporation, each shareholder of record shall be entitled to one vote for every share of stock standing in his name on the books of the Corporation. All elections shall be determined by a plurality vote, and, except as otherwise provided by law or the articles of incorporation, all other matters shall be determined by vote of a majority of the shares present or represented at such meeting and voting on such questions. Section 8. Proxies. Every proxy must be executed in writing and dated by the shareholder or by his attorney-in-fact. No proxy 2 shall be valid after the expiration of eleven months from the date thereof, unless otherwise provided in the proxy. Every proxy shall be revocable at the pleasure of the shareholder executing it, except in those cases where an irrevocable proxy is permitted by law and the proxy expressly states that it is irrevocable. Section 9. Consents. Whenever by any provision of law the vote of shareholders at a meeting thereof is required or permitted to be taken in connection with any corporate action, the meeting and vote of shareholders may be dispensed with if all the shareholders who would have been entitled to vote upon the action if such meeting were held shall consent in writing to such corporate action being taken. Section 10. Record date. For the purpose of determining the shareholders entitled to notice of or to vote at any meeting of shareholders or any adjournment thereof, or to express consent to or dissent from any proposal without a meeting, or for the purpose of determining shareholders entitled to receive payment of any dividend or the allotment of any rights, or for the purpose of any other action affecting the interests of shareholders, the Board of Directors may fix, in advance, a record date. Such date shall not be more than seventy days before the date of any such meeting or other action requiring a determination of shareholders. In each such case, except as otherwise provided by law, only such persons as shall be shareholders of record on the date so fixed shall be entitled to notice of, and to vote at, such meeting and any adjournment thereof, or to express such consent or dissent, or to receive payment of such dividend, or such allotment of rights, or otherwise to be recognized as shareholders for the related purpose, notwithstanding any registration of transfer of shares on the books of the Corporation after any such record date so fixed. 3 ARTICLE III DIRECTORS Section 1. Number; Tenure. The number of directors constituting the Board of Directors shall from time to time be set by the Board of Directors at six or more directors. Directors' terms shall be staggered by dividing the total number of directors into three groups with each group to be as nearly equal in number as possible. Initially, one group will be elected for one year, one group will be elected for two years, and one group will be elected for three years. Thereafter, each group will be elected for three years. Directors shall be elected at the annual meeting of the shareholders, except as provided in Section 3 of this Article III, and each director shall be elected to serve until his successor has been elected and has qualified. Section 2. Resignation; Removal. Any director may resign at any time. The shareholders entitled to vote for the election of directors may remove a director, with or without cause; provided, however, an affirmative vote of 80% of the outstanding shares of the Corporation shall be required to remove any or all of the directors without cause. Section 3. Vacancies. If any vacancies occur in the Board of Directors by reason of the death, resignation, retirement, disqualification or removal from office of any director, the remaining directors, although less than a quorum, may by majority vote choose a successor or successors, and the directors so chosen shall hold office until the next annual meeting of the shareholders and until their successors shall be duly elected and qualified, unless sooner displaced; provided, however, that if, in the event of any such vacancy, the directors remaining in office shall be unable, by majority vote, to fill such vacancy within thirty days of the occurrence thereof, the president or the secretary may call a special meeting of the shareholders at which such vacancy shall be filled. The board of directors may increase or decrease by not more than thirty percent the number of directors last approved by 4 the shareholders. Any vacancy on the board of directors created by the increase in the number of directors may be filled by a majority vote of the board of directors or by the shareholders. Any director elected to fill a vacancy created by an increase in the number of directors shall serve until the next annual meeting of shareholders. Section 4. Duties and Powers. The Board of Directors shall have control and management of the affairs and business of the Corporation. In the transaction of business, the act of a majority present at a meeting, except as otherwise provided by law or the Articles of Incorporation, shall be the act of the Board, provided a quorum is present. The Directors may adopt such rules for the conduct of their meetings and the management of the Corporation as they deem proper, not inconsistent with law or these Bylaws. ARTICLE IV MEETINGS OF THE BOARD Section 1. Place. The Board of Directors of the Corporation may hold meetings, both regular and special, either within or without the State of South Carolina. Section 2. First Meeting. A first meeting of the Board of Directors shall be held immediately following each annual meeting of shareholders at which such directors are elected, and no notice of such meeting to the directors shall be necessary in order to constitute the meeting, provided a quorum shall be present. In the event such meeting is not held at such time, the meeting may be held at the time and place as shall be specified in a notice given as hereinafter provided for special meetings of the Board of Directors or as shall be specified in a duly executed waiver of notice thereof. Section 3. Regular Meetings. Regular meetings of the Board of Directors may be held without notice at such time and at such place as shall from time to time be determined by the Board of Directors. Section 4. Special Meetings. Special meetings of the Board of Directors may be called by the chairman of the Board of 5 Directors, if any, or by the president on twenty-four hours notice to each director, either personally or by telephone, facsimile, courier, mail or other legal method. Special meetings shall be called by the chairman, president or secretary in like manner and on like notice at the written request of 25% or more of the directors. Section 5. Quorum. At all meetings of the Board of Directors, a majority of the directors then in office shall be necessary to and constitute a quorum for the transaction of business, and the vote of a majority of the directors present at the time of the vote if a quorum is present shall be the act of the Board of Directors. If a quorum shall not be present at any meeting of the Board of Directors, the directors present thereat may adjourn the meeting from time to time until a quorum shall be present. Notice of any such adjournment shall be given to any directors who were not present and, unless announced at the meeting, to the other directors. Section 6. Compensation. Directors, as such, shall not be entitled to received compensation for their services except as may be fixed by resolution of the Board of Directors, provided that nothing herein contained shall be construed to preclude any director from serving the Corporation in any other capacity and receiving compensation therefor. Section 7. Any action which may be authorized or taken at a meeting of the Board of Directors may be authorized or taken without a meeting in a writing or writings signed by all of the directors. The action or authorization shall be effective when the last director signs the writing unless the writing specifies a different effective date. The writing or writings shall be filed with or entered upon the records of the Corporation. 6 ARTICLE V NOTICES Section 1. Form; Delivery. Except as otherwise provided in these Bylaws, notices to directors and shareholders shall be in writing and may be delivered personally or by mail, courier, facsimile or telegram. Notice by mail shall be deemed to be given at the time when deposited in the post office or a letter box, in a post-paid sealed wrapper, and addressed to the directors or the shareholders at their addresses appearing on the records of the Corporation. Section 2. Waiver. Whenever a notice is required to be given by any statute, the articles of incorporation or these by-laws, a waiver thereof in writing, signed by the person or persons entitled to such notice, whether before or after the time stated therein, shall be deemed equivalent to such notice. ln addition, any shareholder attending a meeting of shareholders in person or by proxy without protesting prior to the conclusion of the meeting the lack of notice thereof to him, and any director attending a meeting of the Board of Directors without protesting prior to the meeting or at its commencement such lack of notice shall be conclusively deemed to have waived notice of such meeting. ARTICLE VI OFFICERS Section 1. Executive Officers. The executive officers of the Corporation shall be a president, secretary, treasurer and such assistant officers or vice presidents as may from time to time be appointed by the Board. The Board may also designate the chairman of the Board as an executive officer. If the chairman of the Board is so designated, the Board of Directors shall also designate whether the chairman or the president will serve as the chief executive officer of the Corporation. Section 2. Authority and duties. All officers, as between themselves and the Corporation, shall have such authority and perform such duties in the management of the Corporation as may be 7 provided by these by-laws, or, to the extent not so provided, by the Board of Directors. Section 3. Term of Office; Removal. All officers shall be elected by the Board of Directors and shall hold office for such term as may be prescribed by the Board. Any officer elected or appointed by the Board may be removed with or without cause at any time by the Board. Section 4. Compensation. The compensation of all officers of the Corporation shall be fixed by the Board of Directors and the compensation of agents shall either be so fixed or shall be fixed by officers thereunto duly authorized. Section 5. Vacancies. If an office becomes vacant for any reason, the Board of Directors shall fill such vacancy. Any officer so appointed or elected by the Board shall serve only until such time as the unexpired term of his predecessor shall have expired unless re-elected or reappointed by the Board. ARTICLE VII SHARE CERTIFICATES Section 1. Form; Signature. The certificates for shares of the Corporation shall be in such form as shall be determined by the Board of Directors and shall be numbered consecutively and entered in the books of the Corporation as they are issued. Each certificate shall exhibit the registered holder's name and the number and class of shares, and shall be signed by the president or a vice-president and the secretary or an assistant secretary, and shall bear the seal of the Corporation or a facsimile thereof. Where any such certificate is countersigned by a transfer agent, or registered by a registrar, the signature of any such officer may be a facsimile signature. In case any officer who signed or whose facsimile signature or signatures were placed on any such certificate shall have ceased to be such officer before such certificate is issued, it may nevertheless be issued by the Corporation with the same effect as if he were such officer at the date of issue. 8 Section 2. Lost Certificates. The Board of Directors may direct a new share certificate or certificates to be issued in place of any certificate or certificates theretofore issued by the Corporation alleged to have been lost or destroyed, upon the compliance with notice, affidavit and bond requirements of S. C. Code Section 36-8-405, unless compliance with such requirements shall have been waived for good cause by the Board. Section 3. Registration of Transfer. Upon surrender to the Corporation or any transfer agent of the Corporation of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer, it shall be the duty of the Corporation or such transfer agent to issue a new certificate to the person entitled thereto, cancel the old certificate and record the transaction upon its books. Section 4. Registered Shareholders. Except as otherwise provided by law, the Corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends or other distributions, and to vote as such owner, and shall not be bound to recognize any equitable or legal claim to or interest in such share or shares on the part of any other person. ARTICLE VIII GENERAL PROVISIONS Section 1. Instruments Under Seal. All deeds, bonds, mortgages, contracts, and other instruments requiring a seal may be signed in the name of the Corporation by the president or by any other officer authorized to sign such instrument by the Board of Directors. Section 2. Checks, etc. All checks or demands for money and notes or other instruments evidencing indebtedness or obligations of the Corporation shall be signed by such officer or officers or such other person or persons as the Board of Directors may from time to time designate. Section 3. Fiscal Year. The fiscal year of the Corporation shall begin on the first day of January and end on the last day of 9 December in each calendar year, unless a different fiscal year shall be fixed by resolution of the Board of Directors. Section 5. Seal. The corporate seal shall have inscribed thereon the name of the Corporation and shall be in such form as is determined by the Board of Directors. The seal may be used by causing it or a facsimile thereof to be impressed or affixed or otherwise reproduced. Such seal may be used in the discretion of the officers and directors, and no document, contract or act of the Corporation shall be invalid because it has not been sealed. ARTICLE IX AMENDMENTS Section 1. Power to Amend. The Board of Directors shall have power to amend, repeal or adopt by-laws at any regular or special meeting of the Board, with the exception of any by-law adopted by the shareholders that expressly provides that the Board may not adopt, amend or repeal that bylaw or any bylaw on that subject. Any by-law adopted by the Board may be amended or repealed by vote of the holders of a majority of the shares entitled at the time to vote for the election of directors. Neither the directors nor the shareholders shall, however, have the power to adopt, amend or repeal any by-law if such adoption, amendment or repeal would cause the Corporation's by-laws to be inconsistent with the Corporation's articles of incorporation. 10 EX-4 4 FORM OF STOCK CERTIFICATE COMMON STOCK CUSIP CORNERSTONE BANCORP ORGANIZED UNDER THE LAWS OF SOUTH CAROLINA This certificate is transferable in New York, New York and Atlanta, Georgia This certifies that________________ is the owner of ____________ shares of the COMMON STOCK, No Par Value, of CORNERSTONE BANCORP, fully paid and nonassessable transferable only on the books of the Corporation by the holder hereof in person or by duly authorized attorney upon surrender of this certificate properly indorsed. This Certificate and the shares represented hereby are issued and shall be held subject to all of the provisions of the Articles of Incorporation and of the Bylaws of the Corporation and all amendments and supplements thereto, copies of which are on file with the Corporation, to all of which the holder by acceptance of this Certificate assents. This Certificate is not valid until countersigned and registered by the Transfer Agent and Registrar. In witness whereof, the Corporation has caused this Certificate to bear the facsimile signatures of its duly authorized officers and its facsimile seal to be hereunto affixed. Dated:_________________ [SEAL] _________________________ _____________________________________ President Secretary COUNTERSIGNED AND REGISTERED: _____________________________________ Transfer Agent and Registrar By:__________________________________ Authorized Signature [REVERSE OF STOCK CERTIFICATE] CORNERSTONE BANCORP The Corporation will furnish to any shareholder upon request and without charge, a full statement of the designations, preferences, limitations, and relative rights of the shares of each class authorized to be issued and, if the Corporation is authorized to issue any preferred or special class in series, the variations in the relative rights and preferences between the shares or each such series so far as the same have been fixed and determined, and the authority of the board of directors to fix and determine the relative rights and preferences of other series. [STANDARD TRANSFER FORM] EX-5 5 OPINION OF SINKLER & BOYD, P.A. EXHIBIT 5 May 28, 1999 Cornerstone Bancorp 4821 Calhoun Memorial Highway Easley, South Carolina 29642 Gentlemen: In connection with the registration under the Securities Act of 1933 (the "Act") of 800,000 shares of the common stock, no par value (the "Common Stock"), of Cornerstone Bancorp, a South Carolina corporation (the "Company"), we have examined such corporate records, certificates and other documents, and such questions of law, as we have considered necessary or appropriate for the purposes of this opinion. Upon the basis of such examination, it is our opinion that the Common Stock, when issued upon the terms and conditions set forth in the Registration Statement filed by the Company in connection with the registration of the Common Stock, and upon receipt of the consideration therefor, will be legally issued, fully paid and nonassessable. We consent to be named in the Registration Statement as attorneys who will pass upon certain legal matters in connection with the offering described in the Registration Statement, and to the filing of a copy of this opinion as an exhibit to the Registration Statement. In giving such consent, we do not thereby admit that we are in the category of persons whose consent is required under Section 7 of the Act. Very truly yours, Sinkler & Boyd, P.A. EX-10.1 6 OPTION FOR REAL ESTATE STATE OF SOUTH CAROLINA ) ) OPTION COUNTY OF PICKENS ) THIS OPTION GRANTED by Ervin Hendricks and Nu-Life Environmental, Inc. (hereinafter referred to as Seller) to Cornerstone Bancorp, (hereinafter referred to as Purchaser), For and in consideration of the sum of Fifteen Thousand and No/100 ($15,000.00) Dollars in cash paid by Purchaser to Seller, receipt of which is hereby acknowledged, and of the covenants hereinafter contained, and of other good and valuable considerations, the Seller hereby grants to the Purchaser an option to purchase the following described property: 1. Grant of Option. The Seller does hereby grant to the Purchaser the exclusive option to purchase, upon such terms and conditions hereinafter set forth, all that certain piece, parcel, or lot of land lying and being situated in Pickens County, South Carolina, being known as 1670 East Main Street, Easley, South Carolina, (hereinafter, the "Property") and being further described in Exhibit "A" attached hereto. 2. Terms and Exercise of Option. This option shall continue until August 31, 1999 and shall be exercisable by delivery, on or before its expiration, of written notice of exercise to Seller. Notice of exercise shall be deemed delivered to Seller when said written notice is placed in the United States mail as evidenced by postmark. The Purchaser shall have the right and option to extend all terms and conditions of this option agreement for an additional 90 days beyond the expiration date of the original term by tendering the additional sum of Five Thousand and No/100 ($5,000.00) Dollars to Seller on or before the said original term. Notice of exercise shall be deemed delivered when said written notice is placed in the United States Mail as evidenced by postmark. 3. Purchase Price. The Purchase Price of the property is Four Hundred Fifty Thousand and No/100 ($450,000.00) Dollars, to be paid by the Purchaser to Seller at the closing. 4. Title. Seller warrants that the title to the property is of good clear record and marketable in fee simple, free and clear of all tenancies, liens and encumbrances whatsoever, including restrictions and easements. 5. Closing. The closing under this option shall take place in Easley, South Carolina, at a time and place designated by the Purchaser, provided, however, that said closing shall be within thirty (30) days after exercise of this option. 6. Deed. At the closing, upon the payment of the purchase price by the Purchaser, Seller shall execute and deliver to the Purchaser a general warranty deed to the Property, which shall convey good and marketable fee simple title to the Purchaser its successors and assigns, free and clear of all tenancies, liens and encumbrances whatsoever, including restrictions and easements. Seller shall pay for deed and documentary stamps and the Purchaser shall pay for all other closing costs. Taxes shall be prorated. 7. Non-exercise by Purchaser. In the event of the failure of the Purchaser to exercise this option, all money paid by the Purchaser to the Seller shall be retained by the Seller as consideration for the granting of this option to the Purchaser, and all rights of the Purchaser under this option shall terminate. 8. Defective Title. Within thirty (30) days from the date hereof, Purchaser shall have the title to the property searched. In the event the title to the Property is defective or unmarketable, or the Property is subject to liens, encumbrances, easements, conditions or restrictions, or encroachments which are not acceptable to Purchaser, the Purchaser shall immediately notify Seller of such defect(s). Seller may elect to remove said defect or refund to Purchaser all money paid to Seller, and this Agreement shall terminate and be of no further force and effect and neither party shall have any liability or obligation to the other hereunder, except that the Seller shall return to the Purchaser all option monies paid hereunder. 9. Purchaser's Right to Occupy Property. Upon the exercise of this option and before closing of the sale of said Property, Purchaser has the right to place a modular financial building on the property and to perform all functions associated with the operation of a bank in said building and on previously described property. Purchaser will indemnify Seller from any and all liability claims resulting from the operation of said bank. 10. Demolition of Building. Seller agrees that within thirty (30) days of closing of this sale that he will have removed all buildings and structures from the Property and that the site will be clear of all debris from said removal. The Seller will pay all expenses associated with the demolition, removal, and clean up of the Property. 11. Zoning Change. Seller will take necessary action with local authorities to obtain the appropriate zoning classification to accommodate a modular and permanent banking facility for the property. Said zoning change will be obtained on or before June 1, 1999. In the event the seller is unable to obtain said zoning change, the seller shall immediately notify the purchaser and this agreement shall terminate and be of no further force and effort and neither party shall have any liability or obligation to the other hereunder, except that the seller shall return to the purchaser all option monies paid hereunder. 2 12. Notice. All payments provided for the extension of this option and all notices required or permitted herein shall be sent by Certified Mail and shall be addressed: a. If intended for the Seller: Ervin Hendricks 371 Robert P. Jeanes Road Nu-Life Environmental, Inc. Easley, S. C. 29640 b. If intended for the Purchaser: Cornerstone Bancorp 4821 Calhoun Memorial Highway Easley, S. C. 29642 13. Warranties Survive Closing. The representations and warranties of SELLER contained herein shall survive Closing. 14. Benefit. This agreement shall be binding upon and inure to the benefit of the respective parties hereto and their heirs, successors and assigns. WITNESS the hand and seal of Ervin Hendricks this 26 day of January, 1999. [SIGNATURES OMITTED] - -------------------------------------------------------------------------------- 3 EXHIBIT "A" A portion of the property described below consisting of 1.80 acres +/- and more fully described as all property fronting on S. C. Highway No. 93 and following below described lines with Peachtree Street and the boundary line of W. C. Crane, III, to a depth of 200 feet. All that certain piece, parcel or tract of land located in the City of Easley, County of Pickens, State of South Carolina and more fully described as follows: Beginning at a point where the southern right-of-way of South Carolina Highway No. 93 intersects with the western right-of-way of Peachtree Street; thence with the western right-of-way of Peachtree Street the following two courses: (1) South 24-36-57 East 14.11 feet to an iron pin, (2) South 20-31-36 West 361.35 feet to an iron pin on the northern right-of-way of Crescent Avenue; thence with the northern right-of-way of Crescent Avenue North 69-37-55 West 400.94 feet to an iron pin and corner common with the lands of W. C. Crane, III; thence with the lands of W. C. Crane, III, North 20-15-00 East 370.98 feet to an iron pin on the southern right-of-way of South Carolina Highway No. 93; thence with the southern right-of-way of South Carolina Highway No. 93 South 69-40-56 East 392.73 feet to an iron pin and the point of BEGINNING. Containing 3.42 acres more or less; all as more particularly shown on that certain plat entitled "ALTA/ACSM Land Title Survey for Playskool Baby, Inc." prepared by Piedmont Olsen, Inc., dated June 11, 1991 and recorded in the RMC Office for Pickens County in Plat Book 47, at Page 117. The above described property is subject to any and all easements and/or rights of way for roads, utilities, drainage, etc. as may appear of record and/or on the premises and to any and all restrictions, covenants or zoning ordinances affecting such property as may appear of record. This being the same property conveyed to Playskool Baby, Inc. by deed from Arlmar Associates, dated 8/14/91 and recorded in Deed Book 141, at Page 203, in the RMC Office for Pickens County, South Carolina. See Certificate of Merger whereby Playskool Baby, Inc. merged with Hasbro, Inc., as recorded in Deed Book 291, at Page 298 in the RMC Office for Pickens County, South Carolina. 4 EX-10.2 7 ESCROW AGREEMENT 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 the expiration date of the offering as described in the prospectus relating to the offering, (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: (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 offering 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 (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 (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 EX-23.2 8 CONSENT OF ACCOUNTANTS 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 the Registration Statement on Form SB-2, and Prospectus, and to the reference to our firm therein under the caption "ACCOUNTING MATTERS." Elliott, Davis & Company, L.L.P. Greenville, South Carolina May 28, 1999 EX-27 9 FINANCIAL DATA SCHEDULE
9 This schedule contains summary financial information extracted from the Balance Sheet as of April 30, 1999, and the Statement of Operations for the Period Ended April 30, 1999 and is qualified in its entirety by reference to such financial statements. 1,000 OTHER DEC-31-1999 APR-30-1999 20 0 0 0 0 0 0 0 0 44 0 91 0 0 0 0 0 (47) 44 0 0 0 0 0 2 (2) 0 0 45 (47) (47) 0 0 (47) 0 0 0 0 0 0 0 0 0 0 0 0 0 0
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