U. S. Securities and Exchange Commission
Washington, D.C. 20549
Form SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
CAROLINA NATIONAL CORPORATION
- --------------------------------------------------------------------------------
(Name of small business issuer in its charter)
South Carolina 6021 57-1101005
- ------------------------------ ---------------------------- -------------------
(State or jurisdiction of (Primary Standard Industrial I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
1350 Main Street, Columbia, South Carolina 29201 (803) 779-0411
- --------------------------------------------------------------------------------
(Address and telephone number of principal executive offices)
1350 Main Street, Columbia, South Carolina 29201
- --------------------------------------------------------------------------------
(Address of intended principal place of business)
Roger B. Whaley Copies to:
1350 Main Street George S. King, Jr., Esquire
Columbia, South Carolina 29201 Suzanne Hulst Clawson, Esquire
(803) 461-0171 Haynsworth Sinkler Boyd, P.A.
(Name, address and telephone 1426 Main Street, 12th Floor
number of agent for service) Columbia, South Carolina 29201
(803) 779-3080
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
<Table>
<Caption>
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 150,000 $10.00 $1,500,000.00 $138.00
</Table>
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.
<Page>
Prospectus
CAROLINA NATIONAL CORPORATION
a holding company for
CAROLINA NATIONAL BANK & TRUST COMPANY
150,000 Shares
COMMON STOCK
$10.00 per share
On July 12, 2002, we completed our initial public offering of common
stock and used the proceeds of the offering to acquire and fund the start up of
Carolina National Bank & Trust Company, N.A., and to pay some of our offering
and organizational expenses. Carolina National Bank & Trust Company, N.A. opened
for business on July 15, 2002.
Our initial public offering was over-subscribed, and the purpose of
this offering is primarily to provide an additional opportunity to acquire
Carolina National Corporation common stock for the people we turned away because
of the over-subscription. We will also consider accepting subscriptions from
people who did not subscribe or indicate their intention to subscribe in the
initial offering.
No underwriters or compensated selling agents are currently involved in
this offering, and we plan to sell the common stock directly to the public
solely through the efforts of our officers and directors.
Please make subscription checks payable to " Carolina National
Corporation". This offering will terminate on September 30, 2002 (unless we
extend the termination date to no later than December 31, 2002) or it may be
terminated earlier if all of the shares are sold. You must purchase at least 250
shares to participate in this offering. No minimum amount of stock is required
to be sold in this offering, and subscription funds will not be escrowed. See
"OFFERING AND METHOD OF SUBSCRIPTION."
Our stock is not traded or listed on any national securities exchange
or market, and there currently is no market for our stock. We have no present
plans to have our stock listed on an exchange.
Neither the Securities and Exchange Commission nor any State Securities
Commission has approved or disapproved of these securities or determined if this
Prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
The purchase of these securities involves certain risks. See "RISK
FACTORS," page 3.
The shares of common stock are equity securities; they are not savings
accounts or deposits. They will NOT be insured by the Federal Deposit Insurance
Corporation or any other government agency or company.
<Table>
<Caption>
Price Underwriting Proceeds to
to Discounts and Carolina National
Public Commissions Corporation(1)
------ ----------- --------------
PER SHARE.......................................... $10.00 -0- $10.00
---------- --- ----------
TOTAL: 150,000 shares............................. $1,500,000 -0- $1,500,000
========== === ==========
</Table>
(1) This is the amount of proceeds before deduction of expenses associated with
this offering payable by Carolina National Corporation. Such expenses are
estimated at $30,000.
The Date of this Prospectus is August __, 2002
<Page>
TABLE OF CONTENTS
Page
SUMMARY .....................................................................1
RISK FACTORS..................................................................2
FORWARD LOOKING STATEMENTS....................................................4
OFFERING AND METHOD OF SUBSCRIPTION...........................................5
USE OF PROCEEDS...............................................................6
PRO FORMA CAPITALIZATION......................................................6
DIVIDENDS.....................................................................7
MARKET FOR COMMON STOCK AND RELATED STOCKHOLDER MATTERS.......................8
PLAN OF OPERATION OF CAROLINA NATIONAL CORPORATION
AND ORGANIZATION OF CAROLINA NATIONAL BANK & TRUST COMPANY..................8
SERVICES OF CAROLINA NATIONAL BANK & TRUST COMPANY............................12
DIRECTORS AND EXECUTIVE OFFICERS..............................................16
MANAGEMENT COMPENSATION.......................................................20
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS................................23
SUPERVISION AND REGULATION....................................................23
DESCRIPTION OF CAPITAL STOCK..................................................27
LEGAL MATTERS.................................................................30
ACCOUNTING MATTERS............................................................30
INDEX TO FINANCIAL STATEMENTS................................................F-1
APPENDIX A -- Subscription Agreement
-------------------------------------------
Prospective investors may rely only on the information contained in
this Prospectus. Carolina National Corporation has not authorized anyone to
provide prospective investors with information different from the information
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
<Page>
SUMMARY
This is a brief summary of some of the information in this Prospectus. It
is not a complete statement of all material facts about the matters in this
Prospectus. Please read the entire Prospectus carefully before you invest.
Carolina National Corporation
We were organized for the purpose of becoming a holding company for
Carolina National Bank & Trust Company, a new national bank which opened July
15, 2002. Our principal executive office is located at 1350 Main Street,
Columbia, South Carolina 29201. Our telephone number is (803) 779-0411.
Carolina National Bank & Trust Company
Carolina National Bank & Trust Company has just been organized in
Columbia, South Carolina as a national bank. Carolina National Bank & Trust
Company will engage in a commercial and retail banking business in the Greater
Columbia area, and will emphasize its local contacts and personalized services.
Carolina National Bank & Trust Company's principal offices are located at 1350
Main Street, Columbia, South Carolina 29201. Carolina National Bank & Trust
Company has also opened a branch office at 4840 Forest Drive in Columbia's
Trenholm Plaza Shopping Center.
Purpose of Offering
On July 12, 2002, we completed our initial public offering of stock.
The maximum number of shares we were offering was 1,166,500 at $10.00 per share.
We sold 1,159,021 shares to approximately 1,012 people in that offering but had
subscriptions and indications of intention to subscribe for about 91,000 shares
from an additional 149 people that we were unable to accept. The purpose of this
offering is to provide an additional opportunity for the people who were turned
away in the first offering to acquire Carolina National Corporation common
stock. We will also consider accepting subscriptions from people who did not
subscribe or indicate an intention to subscribe in the initial offering.
The Directors
Our directors, who are also directors of Carolina National Bank & Trust
Company, are:
Charlotte J. Berry
William P. Cate Leon Joseph Pinner, Jr.
Kirkman Finlay, III Joel A. Smith, III
I. S. Leevy Johnson Robert E. Staton, Sr.
Angus B. Lafaye William H. Stern
R. C. McEntire, Jr. Joe E. Taylor
C. Whitaker Moore Roger B. Whaley
Mr. Whaley, who has 29 years of banking experience, 18 of which is in
the Columbia, South Carolina market, is President and Chief Executive Officer of
Carolina National Corporation. Mr. Whaley serves in the same capacities as an
officer of Carolina National Bank & Trust Company.
We do not expect our directors and executive officers to purchase any
additional shares in this offering although they have the right to do so.
The Offering
<Table>
<Caption>
Shares of Common Stock Offered........... 150,000
Offering Price Per Share................. $10.00
Minimum Individual Purchase.............. 250 shares
Use of Proceeds.......................... Assuming all of the shares are sold,
we estimate the following
amounts will be received and used:
Proceeds received $1,500,000
Used to pay offering expenses 30,000
Used for general corporate purposes 1,470,000
See "USE OF PROCEEDS."
</Table>
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<Page>
RISK FACTORS
Investment in our stock involves a significant degree of risk. Before
subscribing to purchase any of our shares, you should consider certain risks and
speculative features, which are inherent in and affect our business. You should
only make an investment after careful consideration of the risk factors set
forth below. You should not invest in our stock unless you can afford an
investment involving such risks. You should consider the following risks as well
as others:
You May Lose Your Total Investment.
Due to the significant risks associated with an investment in the
common stock of a newly-formed company and bank, you should make sure, before
investing, that you are financially able to sustain a total loss of any funds
used to purchase our common stock. Our common stock is not a deposit, and is not
insured by the FDIC or any other government agency.
We Have No Operating History.
We do not yet have an operating history. Therefore, you have limited
information on which to base an investment decision.
We May Not Be Profitable.
New banks typically incur substantial initial expenses and are not
profitable for several years after commencing business. Furthermore, Carolina
National Bank & Trust Company may never operate profitably. Carolina National
Bank & Trust Company's operations are subject to other risks inherent in the
establishment of a new business and, specifically, of a new financial
institution. See "SERVICES OF CAROLINA NATIONAL BANK & TRUST COMPANY - Lack of
Profitability in the Early Period of Operation."
Our Opening of a Branch of Carolina National Bank & Trust Company at or About
the Same Time We Opened Carolina National Bank & Trust Company May Divert Our
Time and Resources.
Carolina National Bank & Trust Company opened a branch of the Bank
about the same time the Bank commenced its initial operations. The branch will
increase our operating costs and divert some of our attention from activities
associated with initial operations of the Bank.
We are Highly Dependent Upon our President and Chief Executive Officer.
We are, and for the foreseeable future we will be, dependent on the
services of Roger B. Whaley, who is our President and Chief Executive Officer.
If Mr. Whaley'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. Whaley promptly, should
his services become unavailable, could have a materially adverse effect on our
operations and the value of our common stock. Our ability to attract and retain
other qualified officers and employees will also affect our profitability and
success. See "SERVICES OF CAROLINA NATIONAL BANK & TRUST COMPANY -Employees."
Our Common Stock is Not Listed on any Exchange and Has No Trading Market.
Our common stock is not traded or listed on any national securities
exchange or market, and there currently is no market for our stock. We have no
present plans to list our common stock on any exchange or market. Due to the
relatively small size of this offering and our prior public offering, and the
number of shares that will be owned by persons who are Directors, it is unlikely
that an active and liquid trading market will develop or be maintained. The
development of a public trading market depends upon the existence of willing
buyers and sellers and is not within our control. For these reasons, our common
stock may not be appropriate as a short-term investment, and you should be
prepared to hold our common stock indefinitely.
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We Arbitrarily Determined the Offering Price.
The price of the stock has not been set as a result of arm's length
negotiations or with reference to prices established in an active trading
market, and no particular factors played a role in setting the offering price.
We established the aggregate offering price of our first public offering to
adequately capitalize Carolina National Bank & Trust Company. The price per
share in that offering was arbitrarily set at $10.00 per share solely with a
view to obtaining a broad distribution of the common stock in our community. The
price per share in this offering was set to equal the offering price in the
first offering. 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.
We Will Not Pay Dividends in the Foreseeable Future, and May Never Pay
Dividends.
We cannot assure you when or whether Carolina National Bank & Trust
Company will pay cash dividends to us. It is expected that the Board of
Directors of Carolina National Bank & Trust Company will follow a policy of
retaining earnings for an indefinite period. If Carolina National Bank & Trust
Company does not pay dividends to us, it is not likely that we will be able to
pay dividends to you. Carolina National Bank & Trust Company's declaration and
payment of future dividends are within the discretion of the Board of Directors
of Carolina National Bank & Trust Company, and are dependent upon Carolina
National Bank & Trust Company's earnings, financial condition, its need to
retain earnings for use in the business, and any other pertinent factors.
Payment of dividends by Carolina National Bank & Trust Company may also be
subject to prior approval of the Comptroller of the Currency. Declaration and
payment of dividends by Carolina National Corporation are within the discretion
of the Board of Directors of Carolina National Corporation. See "DIVIDENDS."
Provisions of our Articles of Incorporation May Discourage or Prevent Takeover
Attempts.
Our Articles of Incorporation include several provisions that may have
the effect of discouraging or preventing hostile take-over attempts, and thus of
making the removal of incumbent management difficult. The provisions include
staggered terms for the Board of Directors and requirements of super-majority
votes to approve certain business transactions. See "DESCRIPTION OF CAPITAL
STOCK." To the extent that these provisions are effective in discouraging or
preventing take-over attempts, they may tend to reduce the market price for our
stock.
Our Directors Have Significant Voting Power.
Our present directors beneficially own 22.3% of our stock. Because they
own over 20%, 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. See
"DESCRIPTION OF CAPITAL STOCK."
We Will Face Strong Competition from Larger, More Established Competitors.
We will encounter strong competition from financial institutions
operating in the Greater Columbia, South Carolina area. In the conduct of
certain aspects of its business, Carolina National Bank & Trust Company 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 Carolina National Bank & Trust Company. Many of these
competitors have substantially greater resources and lending abilities than
Carolina National Bank & Trust Company, and offer services, such as investment
banking, trust and international banking services, that Carolina National Bank &
Trust Company does not expect to provide or will not provide initially. We
believe that Carolina National Bank & Trust Company 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 CAROLINA NATIONAL CORPORATION AND
ORGANIZATION OF CAROLINA NATIONAL BANK & TRUST COMPANY -- Competition."
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We May Need Additional Capital and We May Dilute Your Common Stock.
We have no present intention to issue additional stock, but we may
attempt to do so in the future if additional capital is required or useful. We
have not attempted to determine whether additional capital would be available or
the terms on which such capital might be available. Our common stock is not
subject to any preemptive rights. Therefore, your percentage ownership of our
company will be diluted if we sell additional shares of our common stock, if
options and warrants we have granted are exercised, and as we grant stock
awards, options or other awards to hire or retain employees. See "SUPERVISION
AND REGULATION -- Capital Adequacy Guidelines for Bank Holding Companies and
National Banks" and "DESCRIPTION OF CAPITAL STOCK - No Preemptive Rights."
We Will Have Lending Risks Associated With a Small Market Area and a New Loan
Portfolio.
We anticipate that the majority of Carolina National Bank & Trust
Company's depositors will be located in or doing business in and around the
Greater Columbia, South Carolina area, which is comprised of Richland,
Lexington, Newberry, Fairfield and Kershaw Counties. We also anticipate that
Carolina National Bank & Trust Company will lend a substantial portion of its
capital and deposits to individual and commercial borrowers in and around
Columbia. Any factors that adversely affect Columbia and surrounding areas
could, in turn, adversely affect the performance of Carolina National Bank &
Trust Company. 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 Carolina National Bank & Trust Company's borrowers
could be large enough to impair the ability of Carolina National Bank & Trust
Company to continue its operations. Loan losses and other losses might reduce
Carolina National Bank & Trust Company's capital below the level required by the
FDIC, which could result in loss of deposit insurance, Carolina National Bank &
Trust Company's being placed in receivership, and total loss of the value of
your investment in Carolina National Corporation.
FORWARD LOOKING STATEMENTS
This prospectus contains "forward-looking statements" within the
meaning of the securities laws. All statements that are not historical facts are
"forward-looking statements." You can identify these forward-looking statements
through our use of words such as "may," "will," "expect," "anticipate,"
"believe," "intend, " "estimate," "project, " "continue," or other similar
words. Forward-looking statements include, but are not limited to, statements
regarding our future business prospects, revenues, working capital, liquidity,
capital needs, interest costs, income, business operations and proposed
services.
These forward-looking statements are based on current expectations,
estimates and projections about our industry, management's beliefs, and
assumptions made by management. Such information includes, without limitation,
discussions as to estimates, expectations, beliefs, plans, strategies, and
objectives concerning our future financial and operating performance. These
statements are not guarantees of future performance and are subject to risks,
uncertainties and assumptions that are difficult to predict, particularly in
light of the fact that we are a new company with no operating history.
Therefore, actual results may differ materially from those expressed or
forecasted in such forward-looking statements. The risks and uncertainties
include, but are not limited to:
o our growth and our ability to maintain growth;
o governmental monetary and fiscal policies, as well as legislative and
regulatory changes;
o the effect of interest rate changes on our level and composition of
deposits, loan demand and the value of our loan collateral and
securities;
o the effects of competition from other financial institutions operating
in our market area and elsewhere, including institutions operating
locally, regionally, nationally and internationally, together with
competitors that offer banking products and services by mail,
telephone and computer and/or the Internet;
o failure of assumptions underlying the establishment of our allowance
for loan losses, including the value of collateral securing loans;
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o loss of consumer confidence and economic disruptions resulting from
terrorist activities; and
o the factors discussed in "Risk Factors" beginning on page 2 of this
prospectus.
We undertake no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise. In light of these risks, uncertainties, and assumptions,
the forward-looking events discussed in this prospectus might not occur.
OFFERING AND METHOD OF SUBSCRIPTION
The Offering
Carolina National Corporation is offering 150,000 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. On July 12, 2002,
Carolina National Corporation completed a public offering of up to 1,166,500
shares of its Common stock for $10.00 per share. A total of 1,159,021 shares
were sold in that offering and the proceeds were used to pay organizational
costs and provide the initial capital for Carolina National Bank & Trust
Company, a new national bank. (In this Prospectus, we sometimes refer to
Carolina National Bank & Trust Company as the "Bank", and to Carolina National
Corporation as the "Company", "we" or "us".) We received more subscriptions and
indications of intention to subscribe for our stock in that offering than we
could accept. We are making this offering to give the people who were turned
down in the first offering another opportunity to become Carolina National
Corporation shareholders. We will also consider accepting subscriptions from
people who did not subscribe or indicate an intention to subscribe in the prior
offering.
The minimum individual purchase pursuant to this offering is 250
shares. Carolina National Corporation reserves the right to alter the individual
minimum purchase amount should conditions so warrant and specifically reserves
the right to approve all purchases.
Plan of Distribution
Carolina National Corporation will make this offering to the public
only through the executive officers and directors of Carolina National. No
commission or other sales compensation will be paid to any officer or director
of Carolina National in connection therewith.
Persons whose subscriptions were not accepted in our prior offering
will be given initial priority to purchase shares in this offering. However,
Carolina National Corporation reserves the right to limit the priority period
and to sell to other persons as well.
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 Carolina National Corporation, at 1350 Main Street, Columbia, South
Carolina 29201. All subscription payments must be made in United States dollars
by check, bank draft, or money order drawn to the order of "Carolina National
Corporation." Subscriptions and full payment must be received on or prior to the
Termination Date (as defined below).
Carolina National Corporation reserves the right to reject any
subscription in whole or in part or to cancel acceptance of any subscription 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 Carolina National Corporation, all funds relating to the unaccepted
or cancelled portion shall be promptly returned to the subscriber without
interest thereon. Only the President of Carolina National Corporation has the
authority to accept or reject a subscription, or portion thereof, on behalf of
Carolina National Corporation.
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No Escrow of Subscription Funds
Subscription funds will not be escrowed. Subscribers will become
shareholders of Carolina National Corporation upon acceptance of their
subscription by Carolina National Corporation. As stated under "Method of
Subscription," funds related to any subscription or portion thereof that is not
accepted will be promptly returned to the subscriber without interest.
Termination Date or Extension of the Offering
Carolina National Corporation will offer shares of the Common Stock
hereunder until the earlier of (1) the sale of 150,000 shares; (2) a decision by
Carolina National Corporation to terminate the offering; or (3) September 30,
2002 (the "Termination Date"). While Carolina National Corporation intends to
use its best efforts to sell 150,000 shares, the offering may be terminated
without notice to anyone before all such shares are sold. No minimum amount of
shares is required to be sold in this offering.
The Termination Date may be extended until December 31, 2002, in the
discretion of Carolina National Corporation.
Issuance of Stock Certificates
Certificates for shares of Common Stock offered hereby, subscriptions
for which have been accepted by Carolina National Corporation and paid for by
the subscriber, will be issued by Carolina National Corporation promptly after
confirmation of payment.
No Trading Market for the Common Stock
Our stock is not traded or listed on any national securities exchange
or market, and there currently is no market for our stock. We have no present
plans to have our stock listed on an exchange. See "RISK FACTORS -- Our Common
Stock is Not Listed on any Exchange and Has No Trading Market."
USE OF PROCEEDS
The proceeds from this offering will be used first to pay offering
expenses which are estimated to be approximately $30,000. If all of the offered
shares are sold the net proceeds are expected to be $1,470,000.
The net proceeds of this offering will be temporarily invested by
Carolina National Corporation and may be used to pay Carolina National
Corporation's administrative expenses. To the extent not needed to pay such
expenses, such funds, if any, will be available to increase the capital of
Carolina National Bank & Trust Company or for other activities in which a bank
holding company is permitted to engage.
The principal reasons for the offering are to accommodate the persons
turned down in the prior offering, many of whom may become customers of the
Bank, and to acquire additional capital that appears to be readily available at
this time and can be used to support future growth of the Company and the bank.
PRO FORMA CAPITALIZATION
The following table sets forth the capitalization of Carolina National
Corporation at June 30, 2002 and July 15, 2002, after completion of its initial
public offering, and its pro forma capitalization after completion of this
offering. Pro forma information is provided for the assumed sale in this
offering of 150,000 shares. The table assumes that estimated offering expenses
of $30,000 have been deducted from the proceeds of the sale of the shares, and
that all of the shares were sold on July 15, 2002.
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Stockholder's Equity
(Dollars in thousands)
<Table>
<Caption>
Pro Forma if
150,000
Shares Sold in
June 30, 2002 July 15, 2002 This Offering
------------- ------------- -------------
Preferred Stock, (10,000,000 Shares Authorized) none issued
Common Stock, no par value (20,000,000 Shares Authorized)
135,000 Shares issued........................................... $1,350,000
1,294,021 Shares issued......................................... $12,683,948
1,444,021 Shares issued......................................... $14,153,948
Retained deficit.................................................... (1,126,824) ( 1,200,794) ( 1,200,794)
---------- ----------- -----------
Total Stockholder's Equity................................ $ 223,176 $11,483,154 $12,953,154
========== =========== ===========
</Table>
- ---------------------
DIVIDENDS
The most likely source of dividends to be paid by Carolina National
Corporation will be dividends paid to Carolina National Corporation by Carolina
National Bank & Trust Company. Accordingly, the payment of dividends by Carolina
National Corporation is indirectly subject to the same laws and regulations that
govern the payment of dividends by national banks.
Carolina National Bank & Trust Company is restricted in its ability to
pay dividends under the national banking laws and by regulations of the
Comptroller of the Currency. Pursuant to 12 U.S.C. Section 56, a national bank
may not pay dividends from its capital. All dividends must be paid out of net
profits then on hand, after deducting losses and bad debts. Payment of dividends
out of net profits is further limited by 12 U. S. C. Section 60(a), which
prohibits a bank from declaring a dividend on its shares of common stock until
its surplus equals the amount of its capital, unless there has been transferred
to surplus not less than 1/10 of the bank's net profits of the preceding two
consecutive half year periods (in the case of an annual dividend). Pursuant to
12 U. S. C. Section 60 (b), the approval of the Comptroller of the Currency is
required if the total of all dividends declared by Carolina National Bank &
Trust Company in any calendar year will exceed the total of its net income for
that year combined with its retained net profits for the preceding two years,
less any required transfers to surplus. The Comptroller of the Currency has
issued policy statements that indicate that insured banks should generally only
pay cash dividends out of current operating earnings.
The payment of cash dividends by Carolina National Bank & Trust Company
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, Carolina National
Corporation will be in a position to pay cash dividends on the Common Stock.
Once Carolina National Bank & Trust Company becomes sufficiently profitable in
the judgment of its directors, its directors expect that Carolina National Bank
& Trust Company will pay some dividends in cash to Carolina National
Corporation. However, Carolina National Corporation anticipates that all or
substantially all of Carolina National Bank & Trust Company's earnings in the
foreseeable future may be required for use in the development of the Bank's
business. Furthermore, even if Carolina National Bank & Trust Company pays cash
dividends to Carolina National Corporation, there is no requirement that
Carolina National Corporation, in turn, pay dividends to its shareholders. See
`DESCRIPTION OF CAPITAL STOCK - Dividends."
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MARKET FOR COMMON STOCK AND RELATED
STOCKHOLDER MATTERS
As discussed above under "RISK FACTORS" and "OFFERING AND METHOD OF
SUBSCRIPTION," our common stock is not listed on any exchange and has no trading
market. We do not plan to list our stock on any exchange at any time in the near
future, and we do not expect a market for our stock to develop in the near
future. We are not aware of any trades in our common stock since termination of
the initial public offering on July 12, 2002.
Carolina National Corporation currently has 1,294,021 shares of its
common stock outstanding held by approximately 1,012 shareholders of record.
There are currently 201,554 shares of Carolina National Corporation
common stock subject to outstanding warrants. These warrants were issued to
organizers and directors upon completion of the initial offering. See
"MANAGEMENT -- Director Compensation and Stock Warrants." Currently 174,000
shares of Carolina National Corporation held by affiliates of the Company could
be sold pursuant to Rule 144 under the Securities Act. Although restricted
securities within the meaning of Rule 144 are also outstanding, none of such
shares are currently eligible for sale because the holding period requirements
of such rule have not been met.
No options are currently outstanding and no stock option plans have
been adopted.
PLAN OF OPERATION OF CAROLINA NATIONAL CORPORATION AND ORGANIZATION OF
CAROLINA NATIONAL BANK & TRUST COMPANY
Organization and Plan of Operation of Carolina National Corporation
Carolina National Corporation was incorporated under the laws of South
Carolina in May, 2000. Carolina National Corporation was organized for the
purpose of becoming the holding company for Carolina National Bank & Trust
Company. Carolina National Corporation acquired Carolina National Bank & Trust
Company on July 12, 2002.
At the time of its incorporation, Carolina National Corporation had
only a few organizers whose immediate goal was to assemble a group of organizers
and directors that would be recognized as a strong board of successful people
with strong ties to the community and to find the right locations for the Bank's
offices in order to file an application for a national bank charter. A chief
executive officer was employed at the outset and given primary responsibility
for finding appropriate locations for the Bank's main office and branch as well
as helping assemble the board of directors. Locating and negotiating leases of
the right locations for the Bank's offices proved to be a lengthy process.
Similarly, it took a considerable amount of time to assemble the desired board
of directors because several of the desired directors had prior commitments that
had to be reconciled before they could commit to join Carolina National
Corporation.
As a result of the time expended in choosing its locations and
directors, Carolina National Corporation took a somewhat longer period of time
in the phase between its inception and filing of its national bank charter
application and incurred higher organizational expenses than is typical to new
bank and holding company organization in South Carolina. Higher organizational
expenses resulted primarily from having a highly compensated chief executive
officer employed from the outset of the extended organizational process. The
chief executive officer subsequently terminated his relationship with Carolina
National Corporation and was paid a severance package which also increased the
expenses. See "MANAGEMENT COMPENSATION--Severance Agreement with Former Chief
Executive Officer."
Because of the desirability of the locations obtained and the strength
of its director team, management of Carolina National Corporation believes that
the resulting delay in filing the charter application and increase in
organizational expenses was in the long term best interest of Carolina National
Corporation.
For the foreseeable future, Carolina National Corporation expects that
its primary business activity will be ownership and operation of Carolina
National Bank & Trust Company. At some point in the future, if the directors of
Carolina National Corporation determine that it is appropriate to do so and any
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necessary regulatory approvals can be obtained, Carolina National Corporation
may engage in other activities permitted for bank holding companies and may
organize or acquire additional banks, though there can be no assurances that it
will do so.
Organization of Carolina National Bank & Trust Company
On December 3, 2001, the organizers of Carolina National Bank & Trust
Company filed an application to obtain a national bank charter with the
Comptroller of the Currency. The Comptroller of the Currency approved the
application and the Bank opened on July 15, 2002. The organizers also submitted
an application to the FDIC for the insurance of Carolina National Bank & Trust
Company's deposit accounts which was also approved. Accordingly the Bank's
deposits are insured by FDIC up to the limits provided by law.
Management Philosophy and Policy
The directors of Carolina National Corporation and Carolina National
Bank & Trust Company 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 Greater Columbia
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 directors intend for Carolina
National Bank & Trust Company to concentrate on this hometown market with a
professional staff that is sensitive to local needs.
The directors of Carolina National Bank & Trust Company are dedicated
to providing personalized banking to the citizens of the Greater Columbia area.
Based on their knowledge of the area as long-time residents and business people,
the directors 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:
o Decisions regarding credit and services of a bank can best be made at
a local level.
o Funds made available from local deposits should be re-invested in the
depositors' community.
o 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 Greater Columbia market area being controlled by large out-of-state
institutions. A primary objective of the directors of Carolina National Bank &
Trust Company is to provide citizens of Greater Columbia with more opportunity
to have their banking needs met locally. The directors are involved extensively
in business in the Greater Columbia service area and intend to make meeting the
credit needs of this area a first priority. The directors 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 Carolina National Bank &
Trust Company, though no assurances can be given that this will be the case.
Carolina National Bank & Trust Company offers and 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 directors would expect
Carolina National Bank & Trust Company to consider offering such services when a
need for offering them 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.
Carolina National Bank & Trust Company 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
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Carolina National Bank & Trust Company. Because the management of the Bank will
be located in Columbia, all credit and related decisions will be made locally,
which is expected to facilitate prompt response.
The directors anticipate that Carolina National Bank & Trust Company's
initial capitalization will enable it to commence operations as a significant
competitor. With an initial capitalization of approximately $8,000,000, the Bank
has a legal lending limit of approximately $1,200,000 for loans to a single
customer. The Bank has established a correspondent relationship with The Bankers
Bank, and may establish correspondent relationships with other banks to
participate loans when loan amounts exceed the Bank's legal lending limits or
internal lending policies. The directors believe that Carolina National Bank &
Trust Company's initial capitalization should support substantial growth in
deposits and loans, and will be sufficient to meet its capital requirements for
at least its first three years of operations.
Market Area
The information about market area provided below has been compiled from
information obtained from various federal, state, county, city and local
agencies that the directors believe to be reliable sources, but the directors
have not independently confirmed all of such information and make no
representations as to its accuracy.
Size and Location
Columbia is South Carolina's capital city and is the largest city in
the state. Columbia, together with the adjacent towns of Forest Acres and
Arcadia Lakes, comprise the Bank's primary service area. These smaller towns are
attractive traditional "bedroom" communities with relatively upscale retail and
service businesses. They are fully integrated physically with Columbia. The
secondary service area is Richland County, with a potential extended market into
the outlying area considered as "Greater Columbia," which is comprised of
Richland County (includes Columbia) and the four surrounding counties.
Ranked among the top twenty metropolitan growth areas in the country,
Columbia stands at the geographic center of the South Atlantic region of the
United States, which is one of the fastest growing areas in the country. The
city is located in the center of the 1,465 square mile Columbia Metropolitan
Statistical Area and anchors the Greater Columbia area. The Greater Columbia
area's overall population grew 17.3% to 664,000 in the decade of the nineties
and a continuation of this trend is expected for the foreseeable future.
Columbia is situated 205 miles northeast of Atlanta, Georgia and 95
miles south of Charlotte, North Carolina. It shares many of those cities'
favorable natural attributes typical of the sunbelt and conducive to healthy
economic growth. The city is geographically positioned in the center of South
Carolina and serves as its economic hub. It is a service center located
approximately midway between the healthy, industrialized Upstate and the
bustling coastal city of Charleston, which is the fourth largest containerized
shipping port in the United States and a thriving tourist area.
Transportation
Columbia's strategic location and interstate highway networks have
stimulated its overall commercial and industrial growth, particularly
warehousing and distribution. Three major interstate highways serve Columbia
(I-20, I-77 and I-26), directly connecting it to the commerce centers referred
to above and providing important access to every economic region in the nation.
The recently completed Southeastern Beltway linking I-77 to I-26 has
significantly enhanced the accessibility and development potential of Forest
Acres, Arcadia Lakes and the rest of Columbia's east side.
The Columbia Metropolitan airport is located 6.5 miles southwest of
Columbia and provides service by Delta, US Airways, United and Continental. A
$48,000,000 redevelopment project was recently completed and includes a new
concourse, a new connector with moving sidewalk and complete interior
remodeling. The project doubled the space of the existing terminal. United
Parcel Service recently built a regional air hub at the Columbia Metropolitan
Airport. The air hub allows local firms to ship more quickly and is drawing new
distribution firms to the area. The UPS hub is a magnet for new industries and
jobs, particularly for catalog operations, light manufacturing and businesses
with time-sensitive shipments.
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Rail transportation in the region is provided by Norfolk-Southern and
CSX Systems, and inter-city bus service in the Columbia area is provided by
Greyhound-Continental Bus Lines. Intra-city bus and taxicab service is also
available in the city. Amtrak Silver Star serves the Columbia area with
passenger rail service from its downtown station. Port services are available
from Charleston (one and one-half hour drive) or Savannah, Georgia (three-hour
drive). The Columbia area's sixty motor freight carriers round out the
transportation network. The city is therefore well located to expedite its
shipping, transportation, and distribution processes to most locations in the
state and the Southeast region.
Government and Related Influence
Columbia, as the capital city of the state, is the center of government
on city, county, state and federal levels. Columbia has a council-manager form
of government, while Forest Acres and Arcadia Lakes have mayor-council forms of
government. Richland County is governed by a county council. Many services are
performed as joint ventures between city and county government such as water and
sanitary sewer service, fire protection and emergency medical treatment. The
city's public water and sewer systems are quite good and are believed to provide
for adequate capacity for expansion.
Government exercises a substantial stabilizing influence on the area
economy as a purchaser, service provider and employer. State government is the
area's largest employer. Local and federal governments are the third and fourth
ranking employers, respectively. Established in World War I, Fort Jackson is the
second largest employer in the area. In the spring of 1989, the U. S. Army named
Fort Jackson as its number one military training facility in the world. More
recruits are trained there than at any other military base in the United States.
Annually, Fort Jackson disburses over $350,000,000 in remuneration to its
employees, a significant portion of which is spent in the Columbia area. Each
year, approximately 35,000 soldiers attend initial entry training at the fort
and each graduate has an average of two visitors traveling to attend the
graduation ceremony, which generates significant tourism expenditures.
Approximately 9,000 students attend schools at Fort Jackson each year and a new
$7.6 million construction project for the U. S. Chaplain Center and school at
Fort Jackson is planned.
The highly regarded University of South Carolina is located in Columbia
and has the state's largest number of enrollees in higher education at
approximately 27,000. It is the city's sixth largest employer with approximately
4,500 faculty and workers on its payroll. Midlands Technical College in Columbia
has enrollment of approximately 9,100 students, while the combined enrollment of
the eight other institutions of higher learning in the area numbers
approximately 4,900 students.
Competition
South Carolina law permits statewide branching by banks and savings and
loan associations. Consequently, many financial institutions have branches
located in several communities. The City of Columbia is currently served by 14
commercial banking organizations with approximately 100 branches, one savings
bank and approximately 17 credit unions. One additional commercial bank serves
the Richland County area outside of Columbia. Since interstate banking was first
permitted, an overwhelming number of Columbia's locally based commercial banks
have been acquired, mostly by large regional out-of-state banks. Of the 14
commercial banks left in Columbia, seven are owned and controlled out of state,
and only two of the remaining seven (one of which is Carolina National Bank &
Trust Company) are headquartered in Columbia.
Carolina National Bank & Trust Company will encounter strong
competition from most of these financial institutions. In the conduct of certain
areas of its business, Carolina National Bank & Trust Company 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 Carolina National
Bank & Trust Company has and offer certain services, such as international
banking, investment banking, and trust services, that the Bank does not
currently provide.
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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. As discussed above under "Management
Philosophy and Policy", the directors believe that Carolina National Bank &
Trust Company will be able to exploit opportunities available for a
locally-owned community bank so that the Bank can compete effectively in those
areas, but no assurance can be given that it will be able to do so.
SERVICES OF CAROLINA NATIONAL BANK & TRUST COMPANY
The services of Carolina National Bank & Trust Company are described
below. Although this information is derived from the Bank's business plan and
represents the directors' current plans for operation of the Bank, these plans
are subject to change based on various factors, including, among others, changes
in local and national economic conditions, changes in competitive conditions,
changes in market demands, and actual operating experience of the Bank. The Bank
has begun offering many of the services described and plans to offer the others.
Deposits
Carolina National Bank & Trust Company offers and 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) are available. All deposit accounts are insured
by the FDIC up to the maximum amount permitted by law. Carolina National Bank &
Trust Company 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.
Lending Activities
Carolina National Bank & Trust Company intends to emphasize a range of
lending services, including real estate, commercial and consumer loans.
To address the risks inherent in making loans, management will maintain
an allowance for loan losses based on, among other things, an evaluation of
Carolina National Bank & Trust Company's loan loss experience, management's
experience at other financial institutions in the market area, the amount of
past due and nonperforming loans, current and anticipated economic changes and
the values of certain loan collateral. Based upon such factors, management will
make various assumptions and judgments about the ultimate collectibility of the
loan portfolio and provide an allowance for loan losses equal to the estimated
losses inherent in the loan portfolio. However, because there are certain risks
that cannot be precisely quantified, management's judgment of the allowance is
necessarily approximate and imprecise. The adequacy and methodology of the
allowance for loan losses will be subject to regulatory examination and compared
to a peer group of financial institutions identified by the regulatory agencies.
Real Estate Loans
The directors expect that one of the primary components of Carolina
National Bank & Trust Company's loan portfolio will be loans secured by first or
second mortgages on residential and commercial real estate. These loans will
generally consist of commercial real estate loans, construction and development
loans and residential real estate loans (including home equity and second
mortgage loans). Interest rates may be fixed or adjustable and Carolina National
Bank & Trust Company will generally charge an origination fee. Fixed rate
residential loans are expected to be sold into the secondary market and not held
in the portfolio. The Bank will seek to manage credit risk in the commercial
real estate portfolio by emphasizing loans on owner-occupied office and retail
buildings where the loan-to-value ratio, established by independent appraisals,
does not exceed 80%. The directors presently anticipate that the loan-to-value
ratio for first and second mortgage loans and for construction loans generally
will not exceed 80%. In addition, the Bank may require personal guarantees of
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the principal owners of the property. The Bank may also originate mortgage loans
for sale into the secondary market, earning a fee, but avoiding the interest
rate risk of holding long-term, fixed-rate loans.
The principal economic risk associated with all loans, including real
estate loans, is the creditworthiness of Carolina National Bank & Trust
Company's borrowers. The ability of a borrower to repay a real estate loan will
depend upon a number of economic factors, including employment levels and
fluctuations in the value of real estate. In the case of a real estate
construction loan, there is generally no income from the underlying property
during the construction period, and the developer's personal obligations under
the loan are typically limited. Each of these factors increases the risk of
nonpayment by the borrower. In the case of a real estate purchase loan, the
borrower may be unable to repay the loan at the end of the loan term and may
thus be forced to refinance the loan at a higher interest rate, or, in certain
cases, the borrower may default as a result of its inability to refinance the
loan. In either case, the risk of nonpayment by the borrower is increased.
Carolina National Bank & Trust Company will also face additional credit
risks to the extent that it engages in making adjustable rate mortgage loans
("ARMs"). In the case of an ARM, as interest rates increase, the borrower's
required payments increase, thus increasing the potential for default. The
marketability of all real estate loans, including ARMs, is also generally
affected by the prevailing level of interest rates.
Commercial Loans
Carolina National Bank & Trust Company will make loans for commercial
purposes in various lines of business. The commercial loans will include both
secured and unsecured loans for working capital (including inventory and
receivables), loans for business expansion (including acquisition of real estate
and improvements), Small Business Administration ("SBA") loans for new
businesses (as well as other governmentally guaranteed business loans), and
loans for purchases of equipment and machinery. The directors anticipate that
equipment loans will typically be made for a term of five years or less at
either fixed or variable rates, with the loan fully amortized over the term and
secured by the financed equipment. Working capital loans will typically have
terms not exceeding one year and will usually be secured by accounts receivable,
inventory or personal guarantees of the principals of the business. Commercial
loans will vary greatly depending upon the circumstances and loan terms will be
structured on a case-by-case basis to better serve customer needs.
The risks associated with commercial loans vary with many economic
factors, including the economy in the Bank's market area. The well-established
banks in the Bank's market area will make proportionately more loans to medium-
to large-sized businesses than Carolina National Bank & Trust Company. Many of
Carolina National Bank & Trust Company's anticipated commercial loans will
likely be made to small- to medium-sized businesses, which typically have
shorter operating histories, and less sophisticated record keeping systems than
larger entities. As a result, these smaller entities may be less able to
withstand adverse competitive, economic and financial conditions than larger
borrowers. In addition, because payments on loans secured by commercial property
generally depend to a large degree on the results of operations and management
of the properties, repayment of such loans may be subject, to a greater extent
than other loans, to adverse conditions in the real estate market or the
economy.
Consumer Loans
Carolina National Bank & Trust Company will make a variety of loans to
individuals for personal and household purposes, including secured and unsecured
installment and term loans, home equity loans and lines of credit and unsecured
revolving lines of credit such as credit cards. The secured installment and term
loans to consumers will generally consist of loans to purchase automobiles,
boats, recreational vehicles, mobile homes and household furnishings, with the
collateral for each loan being the purchased property. The underwriting criteria
for home equity loans and lines of credit will generally be the same as applied
by Carolina National Bank & Trust Company when making a first mortgage loan, as
described above, and home equity lines of credit will typically expire 15 years
or less after origination, unless renewed or extended.
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Consumer loans generally involve more credit risks than other loans
because of the type and nature of the underlying collateral or because of the
absence of any collateral. Consumer loan repayments are dependent on the
borrower's continuing financial stability and are likely to be adversely
affected by job loss, divorce and illness. Furthermore, the application of
various federal and state laws, including federal and state bankruptcy and
insolvency laws, may limit the amount which can be recovered on such loans in
the case of default. In most cases, any repossessed collateral will not provide
an adequate source of repayment of the outstanding loan balance. Although the
underwriting process for consumer loans includes a comparison of the value of
the security, if any, to the proposed loan amount, Carolina National Bank &
Trust Company cannot predict the extent to which the borrower's ability to pay,
and the value of the security, will be affected by prevailing economic and other
conditions.
Loan Approval and Review
Carolina National Bank & Trust Company's loan approval policies provide
for various levels of officer lending authority. When the amount of aggregate
loans to a single borrower exceeds an individual officer's lending authority,
the loan request will be considered and approved by an officer with a higher
lending limit or by the Loan Committee of the Board of Directors. The Loan
Committee will set the lending limits for the Bank's loan officers, and any loan
in excess of such lending limits must be approved by the Loan Committee.
Carolina National Bank & Trust Company will not make any loans to any director,
officer or employee of the Bank unless the loan is approved by the Bank's Board
of Directors, or a committee thereof, and is made on terms not more favorable to
such person than would be available to a person not affiliated with the Bank
Other Services
Carolina National Bank & Trust Company participates in a regional
network of automated teller machines that may be used by Bank customers in major
cities throughout the Southeast. The Bank offers 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.
Carolina National Bank & Trust Company provides safe deposit boxes,
travelers checks, direct deposit of payroll and social security checks, banking
by mail, 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 Carolina National Bank & Trust Company
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 Carolina National Bank & Trust Company'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.
Long-term fixed rate loans are not expected to be held in the portfolio, but,
rather, are expected to be sold in the secondary market.
Deposit accounts will represent the majority of the liabilities of
Carolina National Bank & Trust Company. These will include transaction accounts,
time deposits and certificates of deposit. The maturities of the majority of
interest-sensitive accounts are expected to be 12 months or less.
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Premises
The main offices of Carolina National Bank & Trust Company and Carolina
National Corporation are located at 1350 Main Street, on the corner of Main and
Washington Streets, in downtown Columbia. The space, which comprises
approximately 9,718 square feet on three floors, was previously used as a bank,
and the directors, therefore, believe it is well-suited for its purpose. The
Bank has also opened a branch office at 4840 Forest Drive in a building which
comprises approximately 2,600 square feet, and which was previously used as a
bank branch. This branch facility has ample parking and four drive-through
teller stations. Both properties have been leased pursuant to long term leases.
Employees
The president and chief executive officer of Carolina National Bank &
Trust Company is Roger B. Whaley. Mr. Whaley, age 55, has over 29 years of
experience in the banking industry. Mr. Whaley began his banking career in
Columbia, South Carolina with Bankers Trust Company of South Carolina. He
remained with Bankers Trust in various positions, which included Columbia
Regional Executive with responsibility for loans and deposits in half of the
state of South Carolina, until Bankers Trust was acquired by NCNB in 1986. He
then became the NCNB Consumer and Community Banking Division Executive for South
Carolina. In 1992 NCNB, which had been renamed NationsBank, promoted him to
Executive Vice President. In 1997 he was promoted to President of NationsBank
Oklahoma and, following the merger of NationsBank with Bank of America, he also
became the Small Business Banking Executive for the Midwest (Arkansas, Illinois,
Iowa, Kansas, Missouri and Oklahoma). Upon his retirement in 2000 he returned to
his home state of South Carolina. See also "DIRECTORS AND EXECUTIVE OFFICERS."
At the opening of Carolina National Bank & Trust Company, it had 18
employees. The Bank expects to hire additional employees as it grows. The Bank
seeks to provide its employees with competitive benefits, which should enable
the Bank to attract and retain quality employees.
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 Carolina National Bank & Trust Company will
be profitable during its first 3 years of operation or at any time thereafter.
The directors of Carolina National Bank & Trust Company, who are local
residents of the Bank's market area, believe that the existing and future bank
market in the Greater Columbia area 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 Mr. Whaley in the banking
industry.
Materials filed with the Securities and Exchange Commission and Reports to
Shareholders.
Carolina National Corporation is required to file annual, quarterly and
periodic reports with the Securities and Exchange Commission (the "SEC"). You
may read or obtain copies of reports filed by Carolina National Corporation 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. Carolina National
Corporation's filings with the SEC are made electronically. The SEC maintains an
internet site that contains the reports and other information filed by Carolina
National Corporation with the SEC. The address of the SEC's internet site is
http://www.sec.gov.
Carolina National Corporation 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
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statement and the exhibits thereto. For further information about Carolina
National Corporation 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.
Carolina National Corporation will furnish shareholders with annual
reports containing audited financial information.
DIRECTORS AND EXECUTIVE OFFICERS
The directors of Carolina National Corporation are also the directors
of Carolina National Bank & Trust Company. The initial directors of Carolina
National Corporation will serve until the first meeting of the shareholders of
Carolina National Corporation at which time directors will be elected by the
shareholders.
Set forth below is information about the recent business experience and
community activities of the directors and executive officers of Carolina
National Corporation. All of the persons listed below except Mr. Hobbs are
directors of Carolina National Corporation.
Charlotte J. Berry, age 70, is active in numerous local and national
charitable organizations. She is presently serving as Founding Chairman of the
American Red Cross National Museum Committee (History and Education Center), and
has previously served in many capacities with the American Red Cross, including
among others, Vice-Chairman of the Board of Governors; Chairman, Disaster and
Community Services; National Chairman, Volunteer American Red Cross; Chairman,
Eastern Operation Headquarters; Chairman SEFO Advisory Council; Financial
Development Committee; Regional Blood Services Committee; Chapter Chairman; Vice
Chairman, Building Fund Steering Committee; Executive Committee; and Long Range
Planning Committee. Mrs. Berry was recently a member of the South Carolina
Regional Advisory Board of Wachovia Bank, and a member of the Board of Directors
of each of: the Central Carolina Community Foundation; United Way of the
Midlands; Cultural Council of Lexington and Richland Counties; South Carolina
Independent Colleges and Universities; South Carolina State Museum Foundation;
Columbia Museum of Art; and the Capital Senior Center. She also serves as a
member of: the Advisory Board of the Nurturing Center; the Board of Trustees of
Mary Baldwin College; the Board of Trustees of College of Charleston; the
National Leadership Council, Alexis de Tocquiville Society, United Way of
America; Advisory Board of Benedict College; and National Board of Directors,
Volunteers of America. Mrs. Berry has previously served as Chair of United Way
of South Carolina and Chair of United Way of the Midlands. Mrs. Berry is the
recipient of numerous awards, including: Greater Columbia Chamber of Commerce
Ambassador of the Year; National Society of Fund Raising Executives Philanthropy
Award; Columbia Urban League Humanitarian Award; Sertoma Service to Mankind
Award (local and district); Leadership Award, American Red Cross-Central South
Carolina Chapter; Harriman Award, American National Red Cross; and BellSouth
"Neighbor to Neighbor" Award. Mrs. Berry is a graduate of Mary Baldwin College
with a B.A. in psychology.
William P. Cate, age 58, was General Manager of South Carolina
operations for Snider Tire, Inc., Greensboro, North Carolina, from 2000 until
his retirement January 1, 2002. From 1968 until sale of the Company to Snider
Tire in 2000, Mr. Cate was Chairman, Chief Executive Officer and an owner of
Cate-McLaurin Co., Inc., a commercial tire sales and retreading business. Mr.
Cate presently represents Milliken Forestry Co. in timberland and farm land
sales. Mr. Cate is also a farmer and is a past Chairman of the South Carolina
Forestry Association. Mr. Cate has served on the Clemson University Board of
Visitors and the Clemson University Forestry School Advisory Board, the Board of
Directors of the Richland County Cattleman's Association, and the Congaree Land
Trust. Mr. Cate is a graduate of Clemson University with a B.S. in Agricultural
Economics.
Kirkman Finlay, III, age 31, has been Vice President, Chief Executive
Officer and an owner of Rising High Natural Bread Co., a bakery and restaurant,
since 1996. Mr. Finlay is also Managing Member or an officer and an owner of a
number of companies involved in the real estate business, farming or investment.
Mr. Finlay serves on the Board of the Central Carolina Community Fund and on the
Board of the Five Points Merchants Association, is Chairman and Co-Founder of
the Gray Horton Scholarship at the University of Virginia, is a member of the
Cultural Council of Richland and Lexington Counties, and is prior Chairman of
the Columbia Ducks Unlimited Corporate Sponsor Program. Mr. Finlay is a graduate
of the University of Virginia.
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John W. Hobbs, age 40, is the Chief Operations Officer and Chief
Financial Officer of Carolina National Corporation, a position he has held since
January, 2002. Mr. Hobbs is a certified public accountant. From August, 1996 to
January, 2002 he was the Chief Financial Officer and Senior Vice President of
FNB Bancshares, Inc., a bank holding company located in Gaffney, South Carolina.
Prior to that, Mr. Hobbs held positions as General Auditor and Vice President of
First United Bancorporation, Controller and Vice President of Standard Federal
Savings Bank and Senior Accountant with KPMG Peat Marwick. Mr. Hobbs is a
graduate of the University of South Carolina with a Bachelor of Science in
Accounting.
I. S. Leevy Johnson, age 60, has been an attorney with Johnson, Toal &
Battiste, P.A. since 1976. Mr. Johnson is also an owner of Leevy Funeral Home.
Mr. Johnson is a recipient of the Durant Award from the South Carolina Bar, the
Compleat Lawyer Award from the University of South Carolina School of Law, the
John W. Williams Award from the Richland County Bar, and the Matthew J. Perry
Medallion from the Columbia Lawyers Association. Mr. Johnson was one of the
first three African-Americans elected to the South Carolina General Assembly
since Reconstruction, and the first African-American elected President of the
South Carolina Bar. Mr. Johnson has been inducted as a Fellow of the American
Bar Association and as a member of The American College of Trial Lawyers. Mr.
Johnson is a former Chairman of the Board of Trustees of South Carolina State
College. Mr. Johnson is a recipient of the Order of the Palmetto award, and has
been recognized for Outstanding Leadership as a Director of the Columbia
Development Corporation and has been recognized by the Committee of 100 for
enhancing economic development. Mr. Johnson has served as a director of First
Union Bank of the Carolinas, First Union National Bank of South Carolina,
Southern Bank & Trust Company and Victory Savings Bank. Mr. Johnson has also
served as a member of the Executive Committee of the Board of Directors of First
Union National Bank of South Carolina. Mr. Johnson is a graduate of Benedict
College with a B.S. and a graduate of the University of South Carolina School of
Law with a Juris Doctor. Mr. Johnson also has an Associate Degree in Mortuary
Science from the University of Minnesota.
Angus B. Lafaye, age 58, has been President of Milliken Forestry Co.,
Inc., a forestry consulting business, since 1998. Mr. Lafaye was Vice President
and Treasurer of Milliken Forestry Co. from 1985 to 1998. Mr. Lafaye is also a
licensed realtor and a registered forester. Mr. Lafaye is a Director of the
South Carolina Forestry Association. Mr. Lafaye is also a member of the Society
of American Foresters and is Chairman of the Insurance Committee of the
Association of Consulting Foresters. He is also a member of the Rural Appraiser
and Farm Managers Association, the Congaree Land Trust, and the Forest Land
Owners Association. Mr. Lafaye is a graduate of Clemson University with a B.S.
in Forest Management.
R. C. McEntire, Jr., age 58, has been President and operator of each of
R. C. McEntire & Co., Inc. (produce processing and sales), R. C. McEntire
Trucking, Inc. (produce hauling), Lands Inn, Inc. (hotels) and Long Branch Farm,
Inc. (waste management) since 1996. Mr. McEntire is founder and a current and
former member of the Board of the International Fresh Cut Produce Association; a
former President and member of the Board of the South Carolina Fresh Fruit and
Vegetable Association; and a former member of the Board of W. B. Guimarin & Co.,
Inc. (mechanical contractor). Mr. McEntire has previously served as a member of
the Board of Heathwood Hall Episcopal School, and is a Lifetime Member of the
Coastal Conservation Association. Mr. McEntire is a graduate of the University
of South Carolina with a B.S. degree.
C. Whitaker Moore, age 54, has been a real estate broker with Coldwell
Banker Tom Jenkins Realty since 1970. Mr. Moore has also been an owner of the
firm since 1994. Mr. Moore was recognized as the Number 1 producer in the nation
for The Gallery of Homes franchise in 1977, and has been recognized as top
producer in the Southeastern United States for Coldwell Banker for three
consecutive years, and as top producer in Columbia for the past 25 years. Mr.
Moore is currently the President of the Columbia Kiwanis Club, Vice-President of
the Palmetto Club, and on the board of the Salvation Army. He is a former
director of each of Heathwood Hall Episcopal School, the Central Carolina
Community Foundation, the Columbia YMCA and the Columbia Museum of Art. Mr.
Moore has also served on the Vestry of Trinity Episcopal Cathedral. Mr. Moore is
a graduate of the University of South Carolina with a B. S. degree.
Leon Joseph Pinner, Jr., age 67, has been in radio and television since
1950 and has been with WIS-TV since 1963. In January 2001, he semi-retired from
WIS and became a free lance broadcaster. Mr. Pinner serves on the Board of South
Carolina Safe Kids Coalition, the Juvenile Diabetes Research Foundation -
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Palmetto Chapter, the Power of Positive Students Foundation - Myrtle Beach, Camp
Agape International with ties to Japan, and the Dance Theater of Columbia, and
is a member of the Friday the 13th Club, the Media Club and the Trinity UMC
Choir in Blythewood. Mr. Pinner continues to be actively involved in events
around the state and nation, primarily as an emcee, speaker and promoter of many
causes, and has been the recipient of numerous honors in recognition of his
achievements including: the 1967 Peabody Award for Excellence in Broadcasting,
the Order of the Palmetto for service to the state, the 1997 United Way of the
Midlands Humanitarian of the Year Award, the 1993 South Carolina Broadcasters
Masters Award and 2001 Honorary Lifetime Member Award, the Cultural Council 2001
Kirkman Finlay Award, and the Cooperative Ministry 2002 Outstanding Community
Service Award. He is also a Rotary Club Paul Harris Fellow, a 1998 South
Carolina Entertainment Hall of Fame Inductee, a 1998 USC School of Journalism
and Mass Communication "Diamond Circle" inductee, Emperor of Little Mountain,
and Honorary Colonel of Fort Jackson. Since 1965, he has served as
emcee/narrator for the South Carolina Philharmonic Orchestra Youth concerts. Mr.
Pinner attended the University of North Carolina, Chapel Hill to major in radio
and television.
Joel A. Smith, III, age 56, has been Dean of the Darla Moore School of
Business since October of 2000. From June of 1998 until August of 2000, Mr.
Smith was President of the East Region of Bank of America. Prior to that time,
from 1991 until acquisition of the Bank by Bank of America in June of 1998, Mr.
Smith was President of NationsBank Carolinas. Mr. Smith serves on the following
boards: South Carolina Business Center for Excellence in Education; and South
Carolina ETV Endowment. He is a member of the Board of Regents for the
University of the South, Sewanee, Tennessee. He is also a member of the Board of
Spoleto Festival USA and co-chairs the 25th Anniversary Campaign. Additionally
he serves on the Board of Avanex Corporation, chairing the Audit Committee, and
the Board of Directors for NETBANK, Inc. In May 2001, Mr. Smith was inducted
into the South Carolina Business Hall of Fame and for 2000, Mr. Smith was named
Humanitarian of the Year by the United Way. During 1997 he was named the South
Carolina Economic Development Volunteer of the Year by the Central Carolina
Midlands Economic Development Alliance, Committee of 100. He received the "Tree
of Life" award from the National Jewish Fund, and was awarded Honorary Degrees
from South Carolina State University, Fayetteville State University and the
University of South Carolina, Aiken. In 1994, he received the Businessman of the
Year award from the South Carolina Chamber of Commerce. Mr. Smith is a graduate
of the University of the South, the National Commercial School of Lending at the
University of Oklahoma and the School of Banking of the South of Louisiana State
University.
Robert E. Staton, Sr., age 55, was Chairman, President and Chief
Executive Officer of Colonial Life & Accident Insurance Company from 1994 until
his retirement in July of 2001. Mr. Staton is a member of the Education
Oversight Committee and chairs its EIA subcommittee. He is Chairman of the River
Alliance and Chairman of the deToqueville Society Campaign of United Way of the
Midlands. Mr. Staton is a member of the Board of Trustees of Presbyterian
College, serves on the Executive Committee of the Board of Directors and chairs
the college's Capital Campaign. Mr. Staton has previously served as Chairman of
each of: the Palmetto Business Forum; Courage to Compromise; Alliance for
Excellence in Education; the Greater Columbia Chamber of Commerce; the South
Carolina Chamber of Commerce Education Council; United Way of the Midlands; the
Cultural Council of Lexington and Richland Counties; and the Columbia Urban
League. Mr. Staton has also served as an Elder and Clerk of Session at Saxe
Gotha Presbyterian Church. In 2001, Mr. Staton received the Humanitarian of the
Year award from United Way of the Midlands, and in 2000, he received the
Ambassador of the Year award from the Greater Columbia Chamber of Commerce, and
the Outstanding Volunteer Fundraiser award from the National Society of Fund
Raising Executives. In 1998, Mr. Staton was named South Carolina Business Leader
of the Year by the South Carolina Chamber of Commerce. Mr. Staton graduated from
Presbyterian College with a B.A. in economics and from the University of South
Carolina School of Law with a Juris Doctor.
William H. Stern, age 45, has been President of Stern & Stern and
Associates, a commercial real estate development company, since 1984. Mr. Stern
has served as a Commissioner on the South Carolina Commission on Higher
Education, and is a past Chairman and current member of the Board of the South
Carolina Council on the Holocaust. Mr. Stern is a member of Beth Shalom
Synagogue. Mr. Stern attended the University of Miami and the University of
South Carolina.
Joe E. Taylor, Jr. age 43, has been President and owner of Southland
Log Homes, Inc. since 1980. Mr. Taylor is a member of the Board of each of the
Columbia Museum of Art, the Cultural Council of Richland and Lexington Counties,
the Central Carolina Community Foundation, and the Presidential Advisory Board
of Wofford College, and is a past member of the Board of the Greater Columbia
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Chamber of Commerce. Mr. Taylor is also a member of the Board of Advisors of the
Indian Waters Council of the Boy Scouts of America. Mr. Taylor is a past
Chairman of the Building Systems Council, Washington, D.C., and a past member of
the Executive Committee of the National Association of Home Builders. He is also
past president of the Log Home Council. Mr. Taylor attended Wofford College.
Roger B. Whaley, age 55, has served as President and Chief Executive
Officer of Carolina National Corporation since November, 2001. Mr. Whaley was
Chief Operating Officer of Southern Financial Group, an investment firm, from
November of 2000 until November, 2001. From 1971 until his retirement in August
of 2000, Mr. Whaley was with Bank of America, where for the last four years of
employment he served as President of Bank of America, Oklahoma, and, in 1999,
also assumed responsibilities as Small Business Banking Executive for the
Midwest (Arkansas, Illinois, Iowa, Kansas, Missouri and Oklahoma). Prior to
employment in Oklahoma, Mr. Whaley was with Bank of America and its predecessors
in South Carolina for 29 years, where he held progressive positions from Branch
Manager to Executive Vice President and Consumer and Community Banking Division
Executive for South Carolina. Mr. Whaley has served as a Director of the South
Carolina Chamber of Commerce, the South Carolina State Museum, Coker College and
the South Carolina Bankers Association (Vice Chairman and Treasurer). Mr. Whaley
is former Chairman of the River Alliance, former Campaign Chairman of the United
Way of the Midlands, former Chairman of the South Carolina Business in
Partnership Political Education Committee, former Vice-Chairman of a Joint
Legislative Committee to Study Higher Education, and former Vice Chairman of the
South Carolina Commission on Higher Education. Mr. Whaley is a recipient of the
Order of the Palmetto. Mr. Whaley is a graduate of the University of South
Carolina with a B.S. in Banking, Finance and Insurance. Mr. Whaley also
graduated from undergraduate and graduate Commercial Lending School at the
University of Oklahoma as a Certified Commercial Lender.
Principal Security Holders
There are presently no persons who beneficially own 5% or more of
Carolina National Corporation's Common Stock.
Stock Ownership of Directors
The table below sets forth information about the shares of Carolina
National Corporation's Common Stock beneficially owned by the directors and
members of their immediate families at July 15, 2002, and the percent of total
shares outstanding such shares presently represent and will represent assuming
sale of a total of 150,000 shares in this offering.
Prior to Carolina National Corporation's initial offering, to fund its
organizational expenses, each director, except I. S. Leevy Johnson and Leon
Joseph Pinner, Jr., purchased 10,000 shares of Carolina National Corporation's
common stock at $10.00 per share. One organizer of Carolina National Bank &
Trust Company who is not a director of Carolina National Corporation also
purchased 10,000 shares at $10.00 per share. Another 1,500 shares were issued to
Mr. Pinner in consideration for services provided to Carolina National
Corporation. All of these shares are restricted as to resale and may only be
sold by the holders pursuant to an effective registration statement or an
exemption from registration. No commissions or fees were charged in connection
with issuance of the shares. These shares are reflected in the numbers of shares
beneficially owned in the table below.
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<Table>
<Caption>
% of Common Stock
Outstanding
-----------
Number of Shares At Upon Completion of
Name Beneficially Owned(1) July 15, 2002 this Offering(2)
- ---- ------------- ----------------
Charlotte J. Berry 10,500(3) * *
William P. Cate 15,000 1.2 1.0
Kirkman Finlay, III 50,000 3.9 3.5
I. S. Leevy Johnson 10,000(4) * *
Angus B. Lafaye 10,000 * *
R. C. McEntire, Jr. 27,000(5) 2.1 1.9
C. Whitaker Moore 15,000 1.2 1.0
Leon Joseph Pinner, Jr. 4,000(6) * *
Joel A. Smith, III 15,000 1.2 1.0
Robert E. Staton, Sr. 12,500(7) * *
William H. Stern 50,000(8) 3.9 3.5
Joe E. Taylor, Jr. 50,000 3.9 3.5
Roger B. Whaley 20,000 1.5 1.4
------- ---- ----
All directors and executive
officers as a group (14 persons) 289,000 22.3 20.0
</Table>
- ----------------------
*less than 1%
(1) Does not include for each director warrants to purchase two shares for
every three shares purchased in this offering because none of such warrants
becomes exercisable prior to July 15, 2003. See" - Compensation of
Executive Officers and directors -- Director Compensation."
(2) Assuming sale of all 150,000 shares offered in this offering.
(3) Includes 500 shares held by Mrs. Berry as custodian for her grandchildren.
(4) Includes 2,000 shares owned by Mr. Johnson's wife.
(5) Includes 4,208 shares owned in an IRA for the benefit of Mr. McEntire's
wife and 1,000 shares owned by each of Mr. McEntire's daughters.
(6) Includes 1,000 shares owned jointly with Mr. Pinner's wife.
(7) Includes 2,500 shares owned jointly with Mr. Staton's wife.
(8) Includes 7,500 shares held by Mr. Stern as custodian for his sons.
MANAGEMENT COMPENSATION
Executive Officer Compensation
The following table sets forth information about compensation paid to
the Chief Executive Officer and the former Chief Executive Officer in 2001. No
other executive officers earned $100,000 or more during the year ended December
31, 2001.
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Summary Compensation Table
<Table>
<Caption>
Long Term
Compensation
------------
Annual Compensation Awards
------------------- ------
Number of
Securities
Underlying All Other
Options Compen-
Name and Principal Position Year Salary Bonus Awarded sation(1)
---- ------ ----- ----------- ---------
Roger B. Whaley 2001 $ 21,548 -0- -0- $1,350
President and Chief
Executive Officer
James A. Gunter 2001 135,000 -0- -0- 9,585
Former President 2000 101,250 -0- -0- 2,177
</Table>
- -------------------
(1) Includes $6,787 and $1,131 of automobile lease payments for Mr. Gunter in
2001 and 2000, respectively, and $1,350 of car allowance for Mr. Whaley in
2001. Carolina National also paid insurance for Mr. Gunter. The total
benefits paid for each of Messrs. Gunter and Whaley was less than 10% of
their annual salary and bonus payments.
Executive Officer's Employment Agreement
Carolina National Corporation has entered into an employment agreement
with Mr. Whaley, which provides for his employment as President and Chief
Executive Officer of Carolina National Corporation and Carolina National Bank &
Trust Company. The agreement commenced on the date of opening of the Bank and is
for a term of two years. Beginning on the first anniversary of opening of the
Bank, and on each day thereafter, the term of the Agreement will automatically
be extended for an additional day unless, prior to such extension, Mr. Whaley,
the Company or the Bank gives written notice to the other parties that the
Agreement will not be extended.
The Agreement provides for payment to Mr. Whaley of an initial base
salary of $135,000 per year, which the Board of Directors of the Bank will
periodically review and may (but is not required to) increase. Mr. Whaley will
also be entitled to receive an annual cash bonus if Carolina National
Corporation and Carolina National Bank & Trust Company achieve certain
performance levels established by the Board of Directors from time to time.
Carolina National Corporation will also provide Mr. Whaley with stock options
for a number of shares of the Company's common stock equal to 5% of the common
stock subscribed for in the initial public offering (57,951 shares). The options
will provide for an exercise price of $10.00 per share, termination ten years
after the date of grant, and vesting one-fifth at the time of grant and
one-fifth on each anniversary thereafter. If Mr. Whaley terminates his
employment without Good Reason (as defined in the Agreement) or is terminated by
the Bank with Cause (as defined in the agreement) the options will terminate 30
days after the date of termination of employment. The Bank also provides Mr.
Whaley with group medical, dental, disability and life insurance; an automobile
allowance; dining club dues and, with approval of the Board of Directors in the
future, country club dues; and such other benefits as the Bank provides to its
employees generally.
If Mr. Whaley's employment is terminated by the Company or the Bank for
Cause during the term of the Agreement, by Mr. Whaley's action not for Good
Reason or as a result of Mr. Whaley 's death, disability or retirement, Mr.
Whaley will be paid his base salary through the last day of the month in which
termination occurs at the annual rate then in effect, together with any bonus
that has been awarded prior to the date of termination, any benefits to which he
may be entitled as a result of the termination under terms and conditions of
plans or arrangements then in effect, and any automobile expenses or club dues
due to him as of the date of termination of the Agreement. If Mr. Whaley 's
employment is terminated during the term of the Agreement other than by death,
disability or retirement, and (i) by action of Mr. Whaley for Good Reason, or
(ii) by action of the Bank other than for Cause, Mr. Whaley will be paid all of
the foregoing compensation. In addition, for a period of two years after the
date of termination, the Bank will continue to pay Mr. Whaley his base salary in
effect at the date of termination; the Bank will continue to provide Mr. Whaley
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with insurance coverage; and all unexercised stock options granted to Mr. Whaley
will immediately vest and become exercisable.
The provisions of the Agreement are subject to certain limitations if
required by the provisions of the Federal Deposit Insurance Act. Mr. Whaley
agrees to abide by the Bank's and Carolina National Corporation's rules and
procedures designed to protect their Confidential Information (as defined in the
Agreement) and to preserve and maintain such information in strict confidence
during his employment and as long thereafter as the Confidential Information
remains, in the sole opinion of the Bank or the Company, proprietary and
confidential.
Mr. Whaley agrees that (i) for a period of 12 months after termination
of the agreement by him other than for Good Reason, or (ii) during the
continuation of any base salary payments to him, whichever is later, he will not
manage, operate or be employed by, participate in, or be connected in any manner
with the management, operation, or control of any banking business conducted
within a 25 mile radius of any operating office of Carolina National Corporation
or any of its subsidiaries. Mr. Whaley further agrees that for a period of 12
months after termination of his employment by him other than for Good Reason or
the completion of base salary payments, whichever is later, he will not solicit
the business of, or patronage from, any customers of Carolina National
Corporation or its subsidiaries, and he will not seek to, or assist others to,
persuade any employee of the Bank to discontinue employment with the Bank or
seek employment or engage in any business of the Bank. Any controversies or
claims arising out of or relating to the Employment Agreement are required to be
settled by binding arbitration.
The foregoing is merely a summary of certain provisions of the
Employment Agreement, and is qualified in its entirety by reference to such
Agreement. In addition to the foregoing Employment Contract, Carolina National
Corporation has agreed to pay Mr. Whaley $50,000.00 to cover costs and expenses
associated with his relocating from Charleston, South Carolina to Columbia,
South Carolina.
Severance Agreement with Former Chief Executive Officer
On November 5, 2001, James A. Gunter, who had served as Chief Executive
Officer of Carolina National Corporation since its organization, resigned as an
officer and director. Carolina National Corporation and Mr. Gunter entered into
a Severance Agreement pursuant to which the Company will, for a period of one
year from November 5, 2001, continue to pay Mr. Gunter's salary and benefits,
which payments will total approximately $145,000. The agreement also provided
for Carolina National Corporation to redeem 5,000 shares of its common stock
from Mr. Gunter for an aggregate of $50,000, which is the amount Mr. Gunter paid
for the shares. The agreement releases Mr. Gunter from his obligations not to
compete with Carolina National Corporation or Carolina National Bank & Trust
Company, but requires him to maintain in confidence all non-public information
about Carolina National Corporation, the Bank and its directors.
Director Compensation and Stock Warrants
Directors of Carolina National Corporation are not presently
compensated for their service as directors, though they may be reimbursed for
reasonable expenses. Carolina National Corporation has granted stock warrants to
the directors to compensate them for: (a) their time and efforts as organizers
and directors; (b) their purchase of and subscription to purchase the Company's
common stock to fund the operating expenses during the organizational period of
Carolina National Bank & Trust Company and to provide capital for the Bank; and
(c) their continued service as directors. Directors received two stock warrants
for every three shares they purchased prior to the opening of Carolina National
Bank & Trust Company. One-third of the warrants vest and become exercisable on
each of the first three anniversaries of the opening of the Bank. Vested
warrants expire on the earlier of 90 days after termination of the director's
status as a director (one year after death or disability) or ten years after
opening of the Bank and have an exercise price of $10.00 per share. Carolina
National Corporation may, in the future and by act of the Board of Directors,
compensate directors with cash payments, grants of stock or stock options.
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Stock Option Plan
At the first annual meeting of shareholders of Carolina National
Corporation, the directors intend to submit a stock option plan to shareholders
for their approval. The directors anticipate that the plan would reserve up to
173,853 shares for issuance pursuant to exercise of options. Options could be
issued to employees, executive officers and directors under this plan.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
To the extent permitted by law, Carolina National Bank & Trust Company
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.
Carolina National Corporation has entered into an agreement with Leon
Joseph Pinner, Jr., one of its directors and an organizer of the Bank, pursuant
to which Mr. Pinner is available to market, serve as spokesperson for, and make
promotional appearances on behalf of, Carolina National Bank & Trust Company.
For his services, Mr. Pinner was paid $200.00 per month for the first four
months, and $1,500 per month thereafter for the following 20 months, and is
reimbursed for his expenses. The Company also agreed to issue Mr. Pinner 1,500
shares of its common stock in lieu of the first $15,000 of payments due under
the agreement. These shares have been issued to Mr. Pinner.
Carolina National Corporation granted stock warrants to purchase 6,666
and 2,222 shares of common stock to David A. Ward and Harold Hunt, respectively.
Both of Messrs. Ward and Hunt were organizers of the Bank and Mr. Hunt was a
director of Carolina National Corporation. These warrants were granted to
Messrs. Ward and Hunt to compensate them for: (a) their time and efforts as
organizers; and (b) their purchase of and subscription to purchase the Company's
common stock to fund the operating expenses during the organizational period of
the Bank and to provide capital for the Bank. The warrants expire ten years
after opening of the Bank and have an exercise price of $10.00 per share.
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 Carolina National
Corporation and Carolina National Bank & Trust Company.
General
As a bank holding company registered under the Bank Holding Company Act
("BHCA"), Carolina National Corporation is subject to the regulations of the
Federal Reserve. Under the BHCA, Carolina National Corporation's activities and
those of its subsidiaries are limited to banking, managing or controlling banks,
furnishing services to or performing services for its subsidiaries or engaging
in any other activity which the Federal Reserve determines to be so closely
related to banking or managing or controlling banks as to be a proper incident
thereto. The BHCA prohibits Carolina National Corporation 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 Carolina National Corporation from acquiring control of
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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 Carolina National Corporation 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.
Carolina National Corporation is also subject to regulation and
supervision by the State Board of Financial Institutions.
Obligations of Carolina National Corporation 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 Carolina National Bank & Trust Company.
Any capital loans by a bank holding company to any of its subsidiary
banks are subordinate in right of payment to deposits and to certain other
indebtedness of such subsidiary bank. In the event of a bank holding company's
bankruptcy, any commitment by the bank holding company to a federal bank
regulatory agency to maintain the capital of a subsidiary bank will be assumed
by the bankruptcy trustee and entitled to a priority of payment.
Capital Adequacy Guidelines for Bank Holding Companies and National Banks
The Federal Reserve has adopted risk-based and leverage capital
adequacy guidelines for bank holding companies that are generally the same as
the capital requirements for national banks. For bank holding companies with
consolidated assets of less than $150 million, as Carolina National Corporation
is initially, compliance is measured on a bank only basis. The Comptroller of
the Currency's regulations establish two capital standards for national banks: a
leverage requirement and a risk-based capital requirement. In addition, the
Comptroller of the Currency may establish individual minimum capital
requirements for a national bank that are different from the general
requirements.
Failure to meet capital requirements could subject Carolina National
Bank & Trust Company to a variety of enforcement remedies, including the
termination of deposit insurance by the FDIC and a prohibition on the taking of
brokered deposits.
The risk-based capital standards of both the Federal Reserve Board and
the Comptroller of the Currency explicitly identify concentrations of credit
risk and the risk arising from non-traditional activities, as well as an
institution's ability to manage these risks, as important factors to be taken
into account by the agencies in assessing an institution's overall capital
adequacy. The capital guidelines also provide that an institution's exposure to
a decline in the economic value of its capital due to changes in interest rates
should be considered by the agencies as a factor in evaluating a bank's capital
24
<Page>
adequacy. The Federal Reserve also has recently issued additional capital
guidelines for bank holding companies that engage in certain trading activities.
Carolina National Corporation and Carolina National Bank & Trust
Company initially exceed all applicable capital requirements by a wide margin.
Payment of Dividends
Carolina National Corporation is a legal entity separate and distinct
from its bank subsidiary. Most of the revenues of Carolina National Corporation
are expected to result from dividends paid to Carolina National Corporation by
Carolina National Bank & Trust Company. There are statutory and regulatory
requirements applicable to the payment of dividends by subsidiary banks as well
as by Carolina National Corporation to its shareholders. It is not anticipated
that Carolina National Corporation will pay cash dividends in the near future.
"DESCRIPTION OF CAPITAL STOCK -- Dividends" and "DIVIDENDS."
Certain Transactions by Carolina National Corporation with its Affiliates
Federal law regulates transactions among Carolina National Corporation
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 Carolina National Bank & Trust Company's deposits are insured
by the BIF, Carolina National Bank & Trust Company is subject to insurance
assessments imposed by the FDIC. The FDIC equalized the assessment rates for
BIF-insured and SAIF-insured deposits effective January 1, 1997. Currently, the
assessments imposed on all FDIC deposits for deposit insurance have an effective
rate ranging from 0 to 27 basis points per $100 of insured deposits, depending
on the institution's capital position and other supervisory factors. However,
because legislation enacted in 1996 requires that both SAIF-insured and
BIF-insured deposits pay a pro rata portion of the interest due on the
obligations issued by the Financing Corporation ("FICO"), for the third quarter
of 2002, the FDIC is assessing BIF-insured deposits and SAIF-insured deposits an
additional 1.72 basis points per $100 of deposits, to cover those obligations.
The FICO assessment is 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 Carolina National Bank & Trust Company
Carolina National Bank & Trust Company is also subject to various other
state and federal laws and regulations, including state usury laws, laws
relating to fiduciaries, consumer credit laws, and laws relating to branch
banking. Carolina National Bank & Trust Company's loan operations are subject to
certain federal consumer credit laws and regulations promulgated thereunder,
including, but not limited to: the federal Truth-In-Lending Act, governing
disclosures of credit terms to consumer borrowers; the Home Mortgage Disclosure
Act, requiring financial institutions to provide certain information concerning
their mortgage lending; the Equal Credit Opportunity Act and the Fair Housing
Act, prohibiting discrimination on the basis of certain prohibited factors in
extending credit; the Fair Credit Reporting Act, governing the use and provision
of information to credit reporting agencies; the Bank Secrecy Act, dealing with,
among other things, the reporting of certain currency transactions; and the Fair
Debt Collection Act, governing the manner in which consumer debts may be
collected by collection agencies. The deposit operations of Carolina National
Bank & Trust Company are subject to the Truth in Savings Act, requiring certain
disclosures about rates paid on deposit 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.
25
<Page>
Carolina National Bank & Trust Company is also 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 the 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 Carolina National Bank
& Trust Company.
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 Carolina National Corporation and any other bank holding company
located in South Carolina can acquire a bank located in any other state, and a
bank holding company located outside South Carolina can acquire any South
Carolina-based bank, in either case subject to certain deposit percentage and
other restrictions. Unless prohibited by state law, since June 1,1997,
Riegel-Neal has permitted adequately capitalized and managed bank holding
companies to consolidate their multistate bank operations into a single bank
subsidiary and to branch interstate through acquisitions. De novo branching by
an out-of-state bank is permitted only if the laws of the host state expressly
permit it. The authority of a bank to establish and operate branches within a
state continue to be subject to applicable state branching laws. South Carolina
law was amended, effective July 1, 1996, to permit such interstate branching but
not de novo branching by an out-of-state bank. Although this legislation has
resulted in additional acquisitions of South Carolina financial institutions by
out-of-state financial institutions, Carolina National Corporation does not
presently anticipate that such legislation will have a material adverse impact
on its operations or future plans.
Legislative and Regulatory Proposals
As a result of recent allegations against several large corporations of
accounting irregularities, corporate mismanagement, and director and executive
officer misconduct, new legislation has been adopted and regulations have been
proposed by the SEC. The legislation and regulations relate generally to
auditing and accounting matters, relationships of independent auditors and
issuers of stock, reporting and permissibility of transactions between issuers
and their affiliates, reporting of certain events by issuers, and timing of
filing reports under the Securities Exchange Act of 1934. As finally adopted and
implemented, the legislation and regulations are expected to increase the cost
of doing business for all issuers subject to SEC regulation. Carolina National
26
<Page>
Corporation currently is, and expects to continue to be, subject to SEC
regulation, and anticipates that the proposed legislation and regulations will
increase its business expenses.
Other proposed legislation and regulations, which could significantly
affect the business of banking, has been introduced or may be introduced in
Congress and by regulators from time to time. Management of Carolina National
Bank & Trust Company cannot predict the future course of such legislative or
regulatory proposals or their impact on Carolina National Corporation and
Carolina National Bank & Trust Company 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 Carolina National Corporation and
Carolina National Bank & Trust Company 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 Carolina National Corporation and Carolina National
Bank & Trust Company cannot be predicted.
DESCRIPTION OF CAPITAL STOCK
Carolina National Corporation is a South Carolina corporation. As such,
South Carolina law controls the rights of shareholders and other matters
relating to the stock of Carolina National Corporation. 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. Carolina National Corporation is authorized to issue
20,000,000 shares of common stock (no par value). Carolina National Corporation
may also issue options or warrants to purchase some of these authorized shares
of common stock, including the warrants to be issued to directors and organizers
of the corporation. See "MANAGEMENT COMPENSATION -- Director Compensation and
Stock Warrants." The common stock has unlimited voting rights and is entitled to
receive the net assets of Carolina National Corporation upon dissolution.
Carolina National Corporation 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.
Quorum. A majority of the shares entitled to vote constitutes a quorum
at any meeting of shareholders.
Voting Rights; No Cumulative Voting. In general, each holder of
Carolina National Corporation's common stock is entitled to one vote per share
and to the same and identical voting rights as other holders of Carolina
National Corporation's common stock. In the election of directors, each
shareholder has 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 is not 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 Carolina National
Corporation or any resolution to dissolve Carolina National 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
Carolina National Corporation. 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
27
<Page>
shares of Carolina National Corporation. 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 two or more directors. The Articles provide further that, when the number of
directors is set at six or more, the board of directors shall be divided into
three classes, each class to be as nearly equal in number as possible. The terms
of directors in the first group expire at the first annual shareholders' meeting
after their election; the terms of the second group expire at the second annual
shareholders' meeting after their election; and the terms of the third group
expire at the third annual shareholders' meeting after their election. At each
annual shareholders' meeting held thereafter, directors are chosen for a term of
three years to succeed those directors whose terms expire. Existence of a
classified board makes it more difficult to effect a change in control because
it would normally require at least two elections to gain a majority
representation on the board, and three elections to change the entire board.
Nomination of Directors. The Articles provide that no person shall be
eligible to be elected a director of Carolina National Corporation 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 Carolina National 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 Carolina National Corporation.
Removal of Directors. The Articles provide that an affirmative vote of
80% of the outstanding shares of Carolina National Corporation 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 Carolina National Corporation, the board of
directors shall consider the interests of the employees of Carolina National
Corporation and the community or communities in which Carolina National
Corporation and its subsidiaries, if any, do business in addition to the
interests of Carolina National Corporation'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
Carolina National Corporation will not be personally liable to Carolina National
Corporation 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 Carolina National 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 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 Carolina National Corporation do
not have preemptive rights with respect to the issuance of additional shares,
options or rights of any class of Carolina National Corporation stock. As a
result, the directors may sell additional authorized shares of Carolina National
Corporation'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.
Resolution of Disputes. The Articles provide that the Bylaws of
Carolina National Corporation may require binding arbitration of disputes
arising out of or related to share ownership. The Bylaws do contain a provision
requiring that any dispute between a shareholder and (a) Carolina National
Corporation, (b) any officer of Carolina National Corporation, or (c) any other
shareholder of Carolina National Corporation that arises out of the aggrieved
shareholder's status as a shareholder, shall be resolved by binding arbitration
held in Columbia, South Carolina, pursuant to the rules of the American
Arbitration Association. This provision of the Articles precludes shareholders
from seeking resolution of any disputes involving the Company, its officers or
other shareholders in front of a judge or a jury. Furthermore, the decision of
arbitrators in a binding arbitration may ordinarily not be appealed. Carolina
28
<Page>
National Corporation believes that arbitration is usually significantly less
expensive and more efficient than trial by a judge or jury and, therefore, more
likely to be in the best interests of the Company under most circumstances.
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 this
paragraph or 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 Carolina National Corporation. 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 Carolina National
Corporation. Amendments to change the number and classes of shares authorized to
be issued by Carolina National Corporation and to change the name of Carolina
National Corporation 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. Carolina National Corporation's common stock will be
entitled, pro rata, to dividends paid by Carolina National Corporation 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 Carolina
National Corporation's financial condition, results of operations and other
relevant factors. No assurances can be given that any future dividends will be
declared or, if declared, what the amount of such dividends will be or whether
such dividends will continue for future periods. Carolina National Corporation
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 Carolina National
Corporation issues preferred stock, the terms of the preferred stock may require
Carolina National Corporation 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 is
convertible, has any redemption rights or is 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. Carolina National Corporation'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
Carolina National Corporation has a class of securities registered under Section
12 of the Securities Exchange Act of 1934, this statute would not ordinarily
apply to Carolina National Corporation. However, Carolina National Corporation
has elected in its Articles of Incorporation to make the provisions of the
statute applicable to it.
Control Share Acquisitions. The South Carolina corporations law also
contains provisions that, under certain circumstances, would preclude an
acquiror of the shares of a South Carolina corporation who crosses one of three
voting thresholds (20%, 33-1/3% or 50%) from obtaining voting control with
respect to such shares unless a majority in interest of the disinterested
shareholders of the corporation votes to accord voting power to such shares.
29
<Page>
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. Carolina National Corporation 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
Carolina National Corporation 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. Carolina
National Corporation'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 Carolina National Corporation pursuant to the foregoing provisions,
or otherwise, Carolina National Corporation has been advised that in the opinion
of the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable.
General. Taken together, the foregoing provisions of the proposed
Articles of Incorporation and South Carolina law favor maintenance of the status
quo and may make it more difficult to change current management, and may impede
a change of control of Carolina National Corporation even if desired by a
majority of its shareholders.
LEGAL MATTERS
Haynsworth Sinkler Boyd, P.A., Columbia, South Carolina has passed upon
certain matters relating to this offering of common stock for Carolina National
Corporation.
ACCOUNTING MATTERS
The financial statements of Carolina National Corporation at December
31, 2001, and for the period from February 14, 2000 (inception) to December 31,
2001, have been audited by Elliott Davis, LLP, Certified Public Accountants, as
stated in their report appearing elsewhere herein, and have been so included in
reliance on the report of such firm given upon their authority as certified
public accountants.
30
<Page>
INDEX TO FINANCIAL STATEMENTS
<Table>
<Caption>
Report of Independent Certified Public Accountants........................................................... F-2
Balance Sheet as of December 31, 2001........................................................................ F-3
Statements of Operations for the period from February 14, 2000 through December 31, 2000,
for the year ended December 31, 2001, and for the period from February 14, 2000
through December 31, 2001............................................................................. F-4
Statements of Changes in Stockholders' Equity for the period from February 14, 2000 through
December 31, 2001..................................................................................... F-5
Statements of Cash Flows for the period from February 14, 2000 through December 31, 2000,
for the year ended December 31, 2001, and for the period from February 14, 2000
through December 31, 2001............................................................................. F-6
Notes to Financial Statements................................................................................ F-7
Balance Sheet as of June 30, 2002 (unaudited)................................................................F-10
Statements of Operations for the three and six months periods ended June 30, 2002 and 2001
and for the period from February 14, 2000 through June 30, 2002 (unaudited)...........................F- 11
Statements of Cash Flows for the six months periods ended June 30, 2002 and 2001, and for
the period from February 14, 2000 through June 30, 2002 (unaudited)...................................F- 12
Notes to Unaudited Financial Statements......................................................................F- 13
</Table>
F-1
<Page>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Directors
Carolina National Corporation
Columbia, South Carolina
We have audited the accompanying balance sheet of Carolina National
Corporation (a development stage enterprise) as of December 31, 2001 and the
related statements of operations, changes in stockholders' equity and cash flows
for the year ended December 31, 2001 and for the periods from February 14, 2000
(inception) through December 31, 2000 and the period February 14, 2000
(inception) through December 31, 2001. 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 audits.
We conducted our audits in accordance with auditing standards
generally accepted in the United States of America. Those standards require that
we plan and perform the audits 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
audits provide 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 Carolina National
Corporation (a development stage enterprise) as of December 31, 2001 and the
results of its operations and its cash flows for the year ended December 31,
2001 and for the periods from February 14, 2000 (inception) through December 31,
2000 and from February 14, 2000 (inception) through December 31, 2001 in
conformity with accounting principles generally accepted in the United States of
America.
Elliott Davis, LLP
January 2, 2002
Greenville, South Carolina
F-2
<Page>
CAROLINA NATIONAL CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
BALANCE SHEET
DECEMBER 31, 2001
<Table>
<Caption>
ASSETS
ASSETS
Cash and cash equivalents ...................................... $ 103,427
Prepaid expenses ............................................... 12,947
Miscellaneous accounts receivable .............................. 13,007
Office equipment ............................................... 4,560
Deferred stock offering costs .................................. 23,443
---------
Total assets ............................................... $ 157,384
=========
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Accrued salaries ............................................... $ 11,795
Accrued expenses ............................................... 60,704
---------
Total liabilities .......................................... 72,499
COMMITMENTS AND CONTINGENCIES - Note 5
STOCKHOLDERS' EQUITY
Preferred stock, 10,000,000 shares authorized, none issued ..... -
Common stock, no par value, 20,000,000 shares
authorized, 86,000 shares issued, 85,330 shares outstanding .. 860,000
Unearned stock compensation .................................... (6,700)
Deficit accumulated during the development stage ............... (768,415)
---------
Total stockholders' equity ........................................ 84,885
---------
Total liabilities and stockholders' equity ................. $ 157,384
=========
</Table>
The accompanying notes are an integral part of this financial statement.
F-3
<Page>
CAROLINA NATIONAL CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF OPERATIONS
<Table>
<Caption>
For the period from For the period from
February 14, 2000 February 14, 2000
(inception) through For the year ended (inception) through
December 31, 2000 December 31, 2001 December 31, 2001
-------------------- ------------------- --------------------
EXPENSES
Consulting fees $ 57,500 $ 34,629 $ 92,129
Salaries and benefits 123,189 179,388 302,577
Severance - 145,000 145,000
Relocation - 50,000 50,000
Other professional fees 25,000 - 25,000
Occupancy 7,878 44,793 52,671
Advertising and promotion - 17,185 17,185
Legal fees 10,000 38,415 48,415
Bank charges 597 9,633 10,230
Insurance - 6,572 6,572
Other 2,157 16,479 18,636
-------------- ----------- ----------
Total expenses and loss
from pre-operating activities $ 226,321 $ 542,094 $ 768,415
============== =========== ==========
</Table>
The accompanying notes are an integral part of these financial statements.
F-4
<Page>
CAROLINA NATIONAL CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
For the period from February 14, 2000 (inception)
through December 31, 2001
<Table>
<Caption>
Deficit
accumulated
Common stock Unearned during the Total
------------------------- stock development stockholders'
Shares Amount compensation stage equity
------ ------ ------------ ----- ------
Proceeds from the sale of stock ............... 22,000 $ 220,000 $ - $ - $ 220,000
Loss from pre-operating activities ......... - - - (226,321) (226,321)
--------- --------- --------- --------- ---------
Balance, December 31, 2000 .................... 22,000 220,000 - (226,321) (6,321)
Proceeds from the sale of stock ............ 74,000 740,000 - - 740,000
Redemption of stock (10,000
shares at $10.00 per share) .............. (10,000) (100,000) - - (100,000)
Unearned stock compensation ................ (670) - (6,700) - (6,700)
Loss from pre-operating activities ......... - - - (542,094) (542,094)
--------- --------- --------- --------- ---------
Balance, December 31, 2001 .................... 85,330 $ 860,000 $ (6,700) $(768,415) $ 84,885
========= ========= ========= ========= =========
</Table>
The accompanying notes are an integral part of these financial statements.
F-5
<Page>
CAROLINA NATIONAL CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF CASH FLOWS
<Table>
<Caption>
For the period from For the year For the period from
February 14, 2000 ended February 14, 2000
(inception) through December 31, (inception) through
December 31, 2000 2001 December 31, 2001
-------------------- ------------ -------------------
NET CASH USED FOR PRE-
OPERATING ACTIVITIES
Net loss $ (226,321) $ (542,094) $ (768,415)
Services rendered for common stock - 15,000 15,000
Deferred stock offering costs - (23,443) (23,443)
Prepaid expenses - (12,947) (12,947)
Miscellaneous accounts receivable - (13,007) (13,007)
Accrued salaries - 11,795 11,795
Accrued expenses 26,889 27,115 54,004
---------------- ------------- ----------------
Net cash used for pre-
operating activities (199,432) (537,581) (737,013)
---------------- ------------- ----------------
INVESTING ACTIVITIES
Purchase of office equipment - (4,560) (4,560)
---------------- ------------- ----------------
FINANCING ACTIVITIES
Proceeds from sale of stock 220,000 725,000 945,000
Redemption of stock - (100,000) (100,000)
---------------- ------------- ----------------
Net cash provided by
financing activities 220,000 625,000 845,000
---------------- ------------- ----------------
Net increase in cash 20,568 82,859 103,427
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD - 20,568 -
---------------- ------------- ----------------
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 20,568 $ 103,427 $ 103,427
================ ============= ================
</Table>
The accompanying notes are an integral part of these financial statements.
F-6
<Page>
CAROLINA NATIONAL CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ACTIVITIES
Carolina National Corporation (the "Company") is a South Carolina
corporation organized for the purpose of owning and controlling all of the
capital stock of Carolina National Bank & Trust Company (in organization) (the
"Bank"). The Bank is being organized as a national bank under the laws of the
United States of America with the purpose of becoming a new bank to be located
in Columbia, South Carolina. The Company has filed a charter application with
the Office of the Comptroller of the Currency ("OCC") and an application for
deposit insurance with the Federal Deposit Insurance Corporation ("FDIC").
Provided that the applications are timely approved and the necessary capital is
raised, it is expected that banking operations will commence in the second
quarter of 2002.
The ultimate formation of the Bank is based on obtaining approval
from the OCC and FDIC. If such approval is not received, the Company will be
unable to open the Bank.
The Company is a development stage enterprise as defined by Statement
of Financial Accounting Standards (SFAS) 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 Directors have purchased 86,000 shares of common stock at $10 per
share.
The Company intends to sell a minimum of 1,000,000 shares and up to a
maximum of 1,300,000 shares of its common stock at $10 per share. The directors
and executive officers of the Company plan to purchase approximately 133,500
shares of common stock at $10 per share, for a total of $1,335,000. The
offering, including the shares subscribed by directors, will raise between
$10,000,000 (minimum) and $13,000,000 (maximum).
Upon completion of the stock offering, the Company plans to issue, to
directors, warrants to purchase two shares for every three shares purchased at
$10 per share. Warrants expire in ten years. The Company plans to capitalize the
Bank with $9,000,000 of proceeds from the sale of stock.
Year-end
The Company has adopted December 31 as its fiscal year end, effective for the
period ending December 31, 2000.
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 cash
deposits with high credit quality financial institutions. At times, the
Company's cash deposits may be in excess of FDIC insurance limits.
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.
(Continued)
F-7
<Page>
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ACTIVITIES, Continued
Income taxes
At December 31, 2000, no taxable income has been generated and therefore, no
tax provision has been included in these financial statements. A net
operating loss of $768,415 is available for carryforward to offset future
taxable income.
NOTE 2 - SEVERANCE AGREEMENT
On November 5, 2001, the Company entered into a severance agreement
with its former President and CEO. The agreement provides for continued salary,
benefits and car lease payments for one year. The total estimated cost of
$145,000 has been deposited into a trust account, and is no longer included in
the Company's assets.
NOTE 3 - UNEARNED STOCK COMPENSATION
In April 2001, the Company entered into an agreement with a director
to provide marketing and promotional consulting services to the Company. In
exchange for these services, the Company agreed to pay $30,800 over a 20-month
period. Under the agreement, the first $15,000 of payments for these services
are to be paid in stock. The stock was placed in escrow at the inception of the
agreement, to be released from escrow as services are provided. Through December
31, 2001, 830 shares have been released from escrow and 670 shares remain. The
agreement provides that the director may vote all of the 1,500 shares of stock,
including any shares in escrow.
NOTE 4 - OPERATING LEASES
Minimal future rental payments under non-cancelable operating leases
having remaining terms in excess of one year, for each of the next five years in
the aggregate are:
2002 $ 136,460
2003 142,249
2004 145,823
2005 145,180
2006 145,180
Thereafter 284,597
-------------
Total minimum future rental payments $ 999,489
=============
NOTE 5 - COMMITMENTS AND CONTINGENCIES
The Company has engaged a law firm to assist in preparing stock
offering documents and consummating the Company's initial offering and to assist
in preparing and filing all organizational, incorporation, and bank
applications. The aggregate cost of the services is expected to approximate
$70,000 of which $24,000 has been expensed through December 31, 2001.
The Company has entered into a 60-month operating lease for a
building to serve as its main commercial bank office. The lease requires monthly
payments of approximately $7,000, beginning in February 2002. Advance rental of
$3,000 was paid in 2001. The Company has also entered into a 12 year lease for a
branch office. The lease requires monthly payments of approximately $4,000
beginning in December 2001.
F-8
<Page>
NOTE 5 - COMMITMENTS AND CONTINGENCIES (Continued)
The Company engaged a bank consultant to assist in establishing the Bank
and bank holding company. The aggregate cost of the services is expected to
approximate $90,000, plus expenses. The majority of the costs expected to be
incurred under the contract have been expensed through December 31, 2001.
The Company entered into a two-year employment agreement in November
2001 with an individual to serve as President and Chief Executive Officer.
Compensation includes a base salary of $135,000, benefits, automobile allowance
and club dues. The employment agreement also provides for granting stock options
(at $10 per share) equal to 5 percent of common stock subscribed in the public
offering and for bonuses at the discretion of the Board of Directors.
NOTE 6 - REDEMPTION OF STOCK
In conjunction with the severance agreement described in Note 2, the
Company repurchased shares of stock held by the former President and CEO. The
Company repurchased 5,000 shares at $10.00 per share, which was equal to the
original sale price.
Earlier in the year, the Company redeemed the shares of a former
organizer. The Company redeemed 5,000 shares, also at $10.00 per share.
F-9
<Page>
CAROLINA NATIONAL CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
BALANCE SHEET
JUNE 30, 2002
(UNAUDITED)
ASSETS
ASSETS
Cash and cash equivalents ................................... $ 73,733
Prepaid expenses ............................................ 39,896
Miscellaneous accounts receivable ........................... 12,441
Office equipment ............................................ 48,648
Deferred stock offering costs ............................... 256,262
-----------
Total assets ............................................ $ 430,980
===========
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Accrued expenses ............................................ $ 157,804
Line of credit .............................................. 50,000
-----------
Total liabilities ....................................... 207,804
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Preferred stock, 10,000,000 shares authorized, none issued .. -
Common stock, no par value, 20,000,000 shares
authorized, 135,000 shares issued and outstanding ......... 1,350,000
Deficit accumulated during the development stage ............ (1,126,824)
-----------
Total stockholders' equity .............................. 223,176
-----------
Total liabilities and stockholders' equity .............. $ 430,980
===========
F-10
<Page>
CAROLINA NATIONAL CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF OPERATIONS
(UNAUDITED)
<Table>
<Caption>
For the period
from February 14,
For the three For the three For the six For the six 2000 (inception)
months ended months ended months ended months ended through
June 30, 2002 June 30, 2001 June 30, 2002 June 30, 2001 June 30, 2002
------------- ------------- ------------- ------------- -------------
INCOME
Interest on escrow $ 16,365 $ 16,365 $ 16,365
EXPENSES
Consulting fees ............................ - $ - - $ - 92,129
Salaries and benefits ...................... 137,834 42,343 209,006 86,485 511,583
Severance .................................. - - - - 145,000
Relocation ................................. - - - - 50,000
Other professional fees .................... 1,000 306 13,975 9,306 38,975
Occupancy .................................. 39,743 6,555 63,645 9,383 116,316
Advertising and promotion .................. - 15,439 - 15,439 17,185
Legal fees ................................. 31,500 - 37,965 - 86,380
Bank charges ............................... 97 564 172 860 10,402
Insurance .................................. (486) - 3,229 - 9,801
Other ...................................... 28,624 3,401 46,782 4,025 65,418
---------- ---------- ---------- ---------- ----------
Total expenses ........................... 238,312 68,608 374,774 125,498 1,143,189
---------- ---------- ---------- ---------- ----------
Loss from pre-operating activities ........... $ 221,947 $ 68,608 $ 358,409 $ 125,498 $1,126,824
========== ========== ========== ========== ==========
</Table>
F-11
<Page>
CAROLINA NATIONAL CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF CASH FLOWS
<Table>
<Caption>
For the period from
For the six For the six February 14, 2000
Months ended Months ended (inception) through
June 30,2002 June 30, 2001 June 30, 2002
------------ ------------- --------------------
NET CASH USED FOR PRE-
OPERATING ACTIVITIES
Net loss ......................................................... $ (358,409) $ (125,498) $(1,126,824)
Services rendered for common stock ............................... - 15,000 15,000
Deferred stock offering costs .................................... (232,819) - (256,262)
Prepaid expenses ................................................. (26,949) - (39,896)
Miscellaneous accounts receivable ................................ 566 - (12,441)
Accrued salaries and expenses .................................... 92,005 (31,895) 157,804
----------- ----------- -----------
Net cash used for pre-operating activities .................... (525,606) (142,393) (1,262,619)
----------- ----------- -----------
INVESTING ACTIVITIES
Purchase of office equipment ..................................... (44,088) - (48,648)
----------- ----------- -----------
FINANCING ACTIVITIES
Proceeds from sale of stock ...................................... 490,000 250,000 1,435,000
Redemption of stock .............................................. - - (100,000)
Proceeds from line of credit ..................................... 50,000 - 50,000
----------- ----------- -----------
Net cash provided by financing activities ..................... 540,000 250,000 1,385,000
=========== =========== ===========
Net increase (decrease) in cash ............................ (29,694) 107,607 73,733
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD .............................................. 103,427 20,568 -
----------- ----------- -----------
CASH AND CASH EQUIVALENTS,
END OF PERIOD .................................................... $ 73,733 $ 128,175 $ 73,733
=========== =========== ===========
</Table>
F-12
<Page>
CAROLINA NATIONAL CORPORATION
(A DEVELOPMENTAL STAGE ENTERPRISE)
NOTES TO UNAUDITED FINANCIAL STATEMENTS
Summary of Significant Accounting Policies and Activities
A summary of these policies is included in the registration statement
filed under the Securities Act of 1933 and declared effective by the Securities
and Exchange Commission on March 11, 2002 and is incorporated herein by
reference.
Basis of Presentation
The accompanying unaudited financial statements at June 30, 2002 and for the
three-month and six-month periods ending June 30, 2002 and for the period from
inception (February 14,2000) through June 30, 2002 have been prepared in
accordance with generally accepted accounting principles ("GAAP") for interim
financial information and with the instructions to Form 10-QSB and Item 310(b)
of Regulation S-B of the Securities and Exchange Commission. Accordingly, they
do not include all information and footnotes required by GAAP for complete
financial statements. However, in the opinion of management, all adjustments
(consisting of normal recurring adjustments) considered necessary for a fair
presentation have been included.
Operating results for the three-month period ended June 30, 2002 or for
the period from inception through June 30, 2002 are not necessarily indicative
of the results that may be expected for the year ending December 31, 2002 or for
any other period.
NOTE 1
The Company completed its public stock offering on July 12, 2002 and
sold 1,159,021 shares at $10 per share in the stock offering. The Company
received the proceeds of $11,333,948 net of offering costs of $256,262.
Additionally, the organizers and directors of the Company have purchased 135,000
shares of common stock at $10 per share, with a capital of investment of
$1,350,000 (1,500 shares were issued for services valued at $15,000). The
Company capitalized the Bank with $9,000,000.
Upon receiving approval from the Office of Comptroller Currency and the
Federal Deposit Insurance Corporation, the Bank opened for business on July 15,
2002.
The Company intends to sell an additional 150,000 shares at $10 per
share in a public offering. The offering is anticipated to be completed by
September 30, 2002 and the Company plans to use the proceeds for general
corporate purposes.
NOTE 2
The Company established a $500,000 line of credit with a bank. This
line is uncollateralized and guaranteed by the directors, jointly and severally.
The line bears interest at prime rate. As of June 30, 2002, and December 31,
2001, the Company had $50,000 and $0 outstanding borrowings on this line of
credit. Subsequent to June 30, 2002, the Company paid off this line of credit.
NOTE 3
The Company entered into a long term contract with a data processor
which requires an initial investment of approximately $265,000 and monthly fees
based on volume with a minimum charge of $1,950.
F-13
<Page>
(This Page Intentionally Left Blank)
<Page>
THIS AGREEMENT IS SUBJECT TO ARBITRATION PURSUANT TO THE SOUTH CAROLINA
UNIFORM ARBITRATION ACT, SECTION 15-48-10, ET.
SEQ., CODE OF LAWS OF SOUTH CAROLINA, 1976 (AS AMENDED).
THIS AGREEMENT IS ALSO SUBJECT TO ARBITRATION PURSUANT TO THE FEDERAL
ARBITRATION ACT TITLE 9, SECTION 1 ET. SEQ., UNITED
STATES CODE (AS AMENDED) .
CAROLINA NATIONAL CORPORATION APPENDIX A
SUBSCRIPTION AGREEMENT
The undersigned, having received and reviewed the Prospectus (the
"Prospectus") dated August __, 2002, of Carolina National Corporation (the
"Company"), subject to the terms and conditions of the Prospectus, hereby
subscribes for the number of shares of Common Stock of Carolina National
Corporation (the "Common Stock"), shown below. The undersigned tenders herewith
the purchase price of $10.00 per share to Carolina National Corporation. All
payments shall be in United States dollars in cash or by check, draft or money
order drawn to the order of "Carolina National Corporation."
Your Properly Completed Subscription Form and Payment Must Be Returned To:
CAROLINA NATIONAL CORPORATION
1350 Main Street
Columbia, South Carolina 29201
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 December 31, 2002. Upon acceptance in writing by Carolina
National Corporation, the Subscription Agreement will be binding and legally
enforceable against the undersigned until December 31, 2002. This subscription
will only be deemed accepted upon agreement thereto by the President of Carolina
National Corporation. No other person has authority to accept or reject a
subscription on behalf of Carolina National Corporation.
(2) Carolina National Corporation 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) Carolina National Corporation reserves the right to cancel this
subscription after acceptance until the date of issue of the Common Stock.
(4) 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.
(5) This subscription is nonassignable and nontransferable, except with the
written consent of Carolina National Corporation.
(6) Subscription funds will not be held in escrow.
(7) Subscription funds relating to any portion of a subscription that is
not accepted or is cancelled will be returned to the subscriber without any
interest thereon.
(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 Carolina National Corporation) 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.
(10)Any dispute arising pursuant to this subscription agreement, or
relating to the ownership, purchase or sale of the Common Stock, the Prospectus
or the Registration Statement on Form SB-2 shall be resolved by binding
arbitration in Columbia, South Carolina pursuant to the rules of the American
Arbitration Association.
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:
Carolina National Corporation.
<Page>
*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.
<Page>
PART II - INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers.
Under South Carolina law, a corporation has the power to indemnify
directors and officers who meet the standards of good faith and reasonable
belief that their conduct was lawful and in the corporate interest (or not
opposed thereto) set forth by statute. A corporation may also provide insurance
for directors and officers against liability arising out of their positions
although the insurance coverage is broader than the power of the corporation to
indemnify. Unless limited by its articles of incorporation, a corporation must
indemnify a director or officer who is wholly successful, on the merits or
otherwise, in the defense of any proceeding to which he was a party because he
is or was a director against reasonable expenses incurred by him in connection
with the proceeding. The Company's Articles of Incorporation do not limit such
indemnification.
The Company's Articles of Incorporation provide that no director of the
Company shall be personally liable to the Company or its shareholders for
monetary damages for breach of fiduciary duty as a director; provided, however,
the Articles of Incorporation do not eliminate or limit the liability of a
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 Section 33-8-330 of the South
Carolina 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 of the Articles of Incorporation
eliminates or limits 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 this protection by the
shareholders of the Company shall not adversely affect any right or protection
of a director of the Company existing at the time of such repeal or
modification.
Item 25. Other Expenses of Issuance and Distribution.
SEC registration fee...................... $ 138.00
Blue Sky filing fees...................... 500.00*
Accounting fees........................... 2,500.00*
Legal fees and expenses................... 20,000.00*
Printing and Mailing Costs................ 5,000.00*
Miscellaneous............................. 1,862.00*
-----------
Total............................... 30,000.00
*Estimated
Item 26. Recent Sales of Unregistered Securities:
Prior to the Registrant's initial public offering, to fund
organizational expenses of the Registrant, each director, except I. S. Leevy
Johnson and Leon Joseph Pinner, Jr., purchased 10,000 shares of the Registrant's
common stock at $10.00 per share. Mr. Johnson purchased 2,500 shares and Mr.
Pinner purchased 1,000 shares. A total of 123,500 shares were purchased by the
directors in this exempt offering for an aggregate price of $1,235,000.
Additionally, an organizer of Carolina National Bank & Trust Company who is not
a director of the Registrant purchased 10,000 shares at $10.00 per share. No
commission or fees were charged in connection with issuance of any of the
foregoing shares. Another 1,500 shares were issued to Mr. Pinner in
consideration for services rendered to the Registrant. Issuance of all of the
foregoing shares was not registered under the Securities Act of 1933 in reliance
upon the exemption provided by Section 4(2) because no public offering was
involved.
Item 27. Exhibits.
See Exhibit Index.
<Page>
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 a
prospectus filed with the Commission pursuant to 17 C.F.R. ss.
230.424(b) if, in the aggregate, the changes in the volume and price
represent no more than a 20% change in the maximum aggregate offering
price set forth in the "Calculation of Registration Fee" table in the
effective registration statement.
(iii) Include any additional or changed material information on
the plan of distribution.
(2) For determining liability under the Securities Act, to treat each
post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial bona
fide offering.
(3) To file a post-effective amendment to remove from registration any of
the securities that remain unsold at the end of the offering.
(e) Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the small business issuer pursuant to the foregoing provisions, or
otherwise, the small business issuer has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities (other
than the payment by the small business issuer of expenses incurred or paid by a
director, officer or controlling person of the small business issuer in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the small business issuer will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
<Page>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form SB-2 and authorized this registration
statement to be signed on its behalf by the undersigned, in the City of
Columbia, State of South Carolina, on July 24, 2002.
CAROLINA NATIONAL CORPORATION
By: s/Roger B. Whaley
-------------------------------------------
Roger B. Whaley, President and Chief
Executive Officer
By: s/John W. Hobbs
-------------------------------------------
John W. Hobbs, Chief Operations Officer and
Chief Financial Officer
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and
appoints Roger B. Whaley and John W. Hobbs, and each of them, the true and
lawful attorneys-in-fact and agents of the undersigned, with full power of
substitution and resubstitution, for and in the name, place and stead of the
undersigned, in any and all capacities, to sign any and all amendments
(including post-effective amendments) to this Registration Statement and to file
the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, and hereby grants to
such attorneys-in-fact and agents, and each of them, full power and authority to
do and perform each and every act and thing requisite and necessary to be done,
as fully to all intents and purposes as the undersigned might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or any of them, or their or his substitute or substitutes, may lawfully
do or cause to be done by virtue hereof.
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.
<Table>
<Caption>
Signature Title Date
- --------- ----- ----
s/Roger B. Whaley President, Chief Executive July 24, 2002
- -------------------------------------- Officer, Director
Roger B. Whaley
s/John W. Hobbs Chief Operations Officer July 24, 2002
- -------------------------------------- and Chief Financial Officer
John W. Hobbs
s/Charlotte J. Berry Director July 24, 2002
- --------------------------------------
Charlotte J. Berry
s/William P. Cate Director July 24, 2002
- --------------------------------------
William P. Cate
s/Kirkman Finlay, III Director July 24, 2002
- --------------------------------------
Kirkman Finlay, III
s/I. S. Leevy Johnson Director July 24, 2002
- --------------------------------------
I. S. Leevy Johnson
<Page>
s/Angus B. Lafaye Director July 24, 2002
- --------------------------------------
Angus B. Lafaye
s/R. C. McEntire, Jr. Director July 24, 2002
- --------------------------------------
R. C. McEntire, Jr.
s/C. Whitaker Moore Director July 24, 2002
- --------------------------------------
C. Whitaker Moore
Director July __, 2002
- --------------------------------------
Leon Joseph Pinner, Jr.
s/Joel A. Smith, III Director July 24, 2002
- --------------------------------------
Joel A. Smith, III
Director July __, 2002
- --------------------------------------
Robert E. Staton, Sr.
Director July __, 2002
- --------------------------------------
William H. Stern
s/Joe E. Taylor, Jr.
- -------------------------------------- Director July 24, 2002
Joe E. Taylor, Jr.
</Table>
<Page>
EXHIBIT INDEX
Exhibit No. in
Item 601 of
Regulation S-B) Description
- --------------- -----------
*3.1 Articles of Incorporation of Carolina National
Corporation
*3.2 Bylaws of Carolina National Corporation
*4 Form of stock certificate
5 Opinion of Haynsworth Sinkler Boyd, P.A.
10.1 Form of Stock Warrant Agreement (revised)
*10.2 Employment Agreement between Carolina National
Corporation and Roger B. Whaley
*10.3 Memorandum of Understanding between Carolina National
Corporation and Joe Pinner
*10.4 Severance Agreement between Carolina National
Corporation and James A. Gunter
*10.5 Lease between Carolina National Bank & Trust Company
(Proposed) and HHB Associates, LLC.
*10.6 Lease between Carolina National Bank & Trust Company
(Proposed) and Carolina First Bank
21 Subsidiaries of Carolina National Corporation
23.1 Consent of Haynsworth Sinkler Boyd, P.A. (included in
Exhibit 5)
23.2 Consent of Elliott Davis, LLP, Certified Public
Accountants
24 Power of Attorney (included on signature page)
*Incorporated by reference to Exhibits to Registrant's Registration Statement on
Form SB-2 (File No. 333-76512)