SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934.

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CORNERSTONE BANCORP
(Name of Registrant as Specified In Its Charter)

(Name of Person(s) Filing Proxy Statement if other than the Registrant)

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previously. Identify the previous filing by registration statement number, or
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CORNERSTONE BANCORP

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS

TO OUR SHAREHOLDERS:

NOTICE IS HEREBY GIVEN THAT the 2007 Annual Meeting of the Shareholders of
Cornerstone Bancorp will be held at the offices of Cornerstone National Bank,
1670 East Main Street, Easley, South Carolina, on May 8, 2007, at 4:00 p.m., for
the following purposes:

(1) To elect three directors to each serve a three year term;

(2) To act upon other such matters as may properly come before the meeting
or any adjournment thereof.

Only shareholders of record at the close of business on March 27, 2007,
are entitled to notice of and to vote at the meeting. In order that the meeting
can be held, and a maximum number of shares can be voted, whether or not you
plan to be present at the meeting in person, please fill in, date, sign and
promptly return the enclosed form of proxy.

Returning the signed proxy will not prevent a record owner of shares
from voting in person at the meeting.

Included is the Company's 2007 Proxy Statement. Also included is the
Company's 2006 Annual Report to Shareholders.

By Order of the Board of Directors

April 4, 2007 J. Rodger Anthony
President and Chief Executive Officer

CORNERSTONE BANCORP
1670 East Main Street
Easley, South Carolina 29640
(864) 306-1444

PROXY STATEMENT

We are providing this proxy statement in connection with the
solicitation of proxies by the Board of Directors of Cornerstone Bancorp for use
at the Annual Meeting of Shareholders to be held at 4:00 p.m. on May 8, 2007, at
the offices of Cornerstone National Bank, 1670 East Main Street, Easley, South
Carolina. Throughout this Proxy Statement, we use terms such as "we", "us",
"our" and "our Company" to refer to Cornerstone Bancorp and terms such as "you"
and "your" to refer to our shareholders.

A Notice of Annual Meeting is attached to this Proxy Statement, and a
form of proxy is enclosed. We first began mailing this proxy statement to our
shareholders on or about April 4, 2007. We are paying the costs of this
solicitation. The only method of solicitation we plan to use, other than this
proxy statement, is personal contact, including contact by telephone or other
electronic means, by our directors and regular employees who will not be
specially compensated for their efforts.

ANNUAL REPORT

The Annual Report to Shareholders covering our fiscal year ended
December 31, 2006, including financial statements, is enclosed. Such Annual
Report to Shareholders does not form any part of the material for the
solicitation of proxies.

VOTING PROCEDURES

Voting

If you hold your shares of record in your own name you can vote your
shares by marking the enclosed proxy form, dating it, signing it, and returning
it to us in the enclosed postage-paid envelope. If you are a shareholder of
record, you can also attend the Annual Meeting and vote in person. If you hold
your shares in street name with a broker or other nominee you can direct their
vote by submitting voting instructions to the broker or nominee in accordance
with the procedure on the voting card provided by the broker or nominee. If you
hold your shares in street name you may attend the Annual Meeting, but you may
not vote in person without a proxy appointment from a shareholder of record.

Revocation of Proxy

If you are a record shareholder and execute and deliver a proxy, you
have the right to revoke it at any time before it is voted. You may revoke the
proxy by delivering to Jennifer M. Champagne, Chief Financial Officer,
Cornerstone Bancorp, 1670 East Main Street, Easley, South Carolina 29640, or by
mailing to Ms. Champagne at Post Office Box 428, Easley, South Carolina 29641,
an instrument which by its terms revokes the proxy. You may also revoke the
proxy by delivering or mailing to us a duly executed proxy bearing a later date.
Written notice of revocation of a proxy or delivery of a later dated proxy will
be effective when we receive it. Your attendance at the Annual Meeting will not
in itself constitute revocation of a proxy. However, if you are a record
shareholder and you desire to do so, you may attend the meeting and vote in
person in which case the proxy will not be used. If you hold your shares in
street name with a broker or other nominee you may change or revoke your proxy
instructions by submitting new voting instructions to the broker or other
nominee.

Quorum and Voting

At the close of business on March 27, 2007, there were outstanding
1,786,804 shares of our common stock (no par value). Each share outstanding will
be entitled to one vote upon each matter submitted at the meeting. You are only
entitled to notice of and to vote at the meeting if you were a stockholder of
record at the close of business on March 27, 2007 (the "Record Date").

A majority of the shares entitled to be voted at the annual meeting
constitutes a quorum. If a share is represented for any purpose at the annual
meeting by the presence of the registered owner or a person holding a valid
proxy for the registered owner, it is deemed to be present for purposes of

establishing a quorum. Therefore, valid proxies which are marked "Abstain" or
"Withhold" and shares that are not voted, including proxies submitted by brokers
that are the record owners of shares (so-called "broker non-votes"), will be
included in determining the number of votes present or represented at the annual
meeting. If a quorum is not present or represented at the meeting, shareholders
entitled to vote, present in person or represented by proxy, have the power to
adjourn the meeting from time to time. If the meeting is to be reconvened within
thirty days, no notice of the reconvened meeting will be given other than an
announcement at the adjourned meeting. If the meeting is to be adjourned for
thirty days or more, notice of the reconvened meeting will be given as provided
in the Bylaws. At any reconvened meeting at which a quorum is present or
represented, any business may be transacted that might have been transacted at
the meeting as originally noticed.

If a quorum is present at the Annual Meeting, directors will be elected
by a plurality of the votes cast by shares present and entitled to vote at the
annual meeting. "Plurality" means that, if there were more nominees than
positions to be filled, the individuals who receive the largest number of votes
cast for the positions to be filled will be elected as directors. Because the
number of nominees for election at the 2007 Annual Meeting is the same as the
number of positions to be filled, we expect that all three of the Board of
Directors' nominees will be elected. Cumulative voting is not permitted. Votes
that are withheld or that are not voted in the election of directors will have
no effect on the outcome of election of directors. If a quorum is present, all
other matters that may be considered and acted upon at the Annual Meeting will
be approved if the number of shares of Common Stock voted in favor of the matter
exceeds the number of shares of Common Stock voted against the matter.

Actions to be taken by the Proxies

The persons named as proxies were selected by our Board of Directors.
When the form of proxy enclosed is properly executed and returned, the shares
that it represents will be voted at the meeting. Unless the record shareholder
specifies otherwise, each proxy will be voted "FOR" the election of the persons
named in this Proxy Statement as the Board of Directors' nominees for election
to the Board of Directors. In each case where the record shareholder has
appropriately specified how the proxy is to be voted, it will be voted in
accordance with such specifications. Our Board of Directors is not aware of any
other matters that may be presented for action at the Annual Meeting of
Shareholders, but if other matters do properly come before the meeting, the
persons named in the proxy intend to vote on such matters in accordance with
their best judgment.

SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT

The number of shares owned and the percentage of outstanding common
stock such number represents at March 1, 2007, for all of our directors and the
executive officers named in the Summary Compensation Table and for all persons
who are currently beneficial owners of 5% or more of our common stock is set
forth below.

Name of Beneficial Owner Amount and Nature of % of Class
(and Address of 5% Owners) Beneficial Ownership (1)
- ------------------------------------- ------------------------ ----------
J. Rodger Anthony (2) 76,838 4.09%
Walter L. Brooks (3) 23,453 1.25
Jennifer M. Champagne 6,074 .32
T. Edward Childress, III 152,667 8.13
100 McAlister Lake Drive
Easley, South Carolina 29642
Ben L. Garvin 38,430 2.04
J. Bruce Gaston 44,912 2.39
S. Ervin Hendricks, Jr. 55,320 2.95
Joe E. Hooper 66,122 3.52
Robert R. Spearman 14,586 .78
John M. Warren, Jr., M.D. 29,930 1.59
George I. Wike, Jr. (4) 171,242 9.12
P. O. Box 98
Tigerville, South Carolina
All directors and executive ------- -----
officers as a group (11 persons) (5) 679,574 36.18%
======= =====

- --------------------
Except as otherwise indicated, to the knowledge of management, all shares are
owned directly with sole voting power.

(1) Includes for each individual, except Messrs. Childress and Garvin and Ms.
Champagne, 6,442 vested and currently exercisable Organizers' stock
options. Also includes 3,313 currently exercisable options granted under
the 2003 option plan for each individual, except Messrs. Garvin and
Anthony, who each have 6,626 currently exercisable options outstanding
under the 2003 Plan. Options that are neither currently exercisable nor
exercisable within 60 days are omitted.
(2) Includes 4,455 shares owned by Mr. Anthony's wife.
(3) Includes 10,252 shares owned by a partnership in which Mr. Brooks is a
partner; and 2,803 shares owned by Mr. Brooks' wife.
(4) Includes 37,137 shares owned by Mr. Wike's wife; and 97,686 shares pledged
as collateral.
(5) Includes options to purchase 94,605 shares that are currently exercisable
or that become exercisable within 60 days.

ELECTION OF DIRECTORS

At the Annual Meeting, three directors are to be elected to hold office
for terms of three years, their terms expiring at the 2010 Annual Meeting of
Shareholders. Our directors serve until the end of their terms or until their
successors are duly elected and qualified. The Board has nominated J. Rodger
Anthony, Walter L. Brooks and T. Edward Childress, III to each serve a three
year term. Each nominee is currently one of our directors. Any other nominations
must be made in writing and given to our Secretary in accordance with the
procedures set forth below under "Governance Matters - Director Nomination
Process."

The persons named in the enclosed form of proxy intend to vote for the
election as directors of Messrs. Anthony, Brooks and Childress. Unless a
contrary specification is indicated, the enclosed form of proxy will be voted
FOR such nominees. In the event that any such nominee is not available by reason
of any unforeseen contingency, the persons acting under the proxy intend to vote
for the election, in his stead, of such other person as our Board of Directors
may recommend. Our Board of Directors has no reason to believe that any of the
nominees will be unable or unwilling to serve if elected.

MANAGEMENT OF THE COMPANY

Directors

The table below shows, as to each director and nominee, his or her
name, age, positions held with us and principal occupation for the past five
years and the period during which he has served as one of our directors.

Name Age Principal Occupation Director Since
- ---- --- -------------------- --------------

Nominees for the Board of Directors whose terms of office will continue
until our Annual Meeting of Shareholders in 2010 are:

J. Rodger Anthony 61 Our President and Chief Executive Officer since 1999
1999; Chairman and Chief Executive Officer of the
Bank since 1999; Chief Executive Officer, First
National Bank of Pickens County, Easley, SC, 1996
to 1998.

Walter L. Brooks 79 President, G&B Enterprises (real estate ownership) 1999
and Pullet Growing.

T. Edward Childress, III 61 Registered pharmacist and shareholder of Health 1999
Management Resources, Inc., and long term care
facility owner; Chairman Cornerstone Bancorp since
1999.

Directors whose terms of office will continue until our Annual Meeting
of Shareholders in 2009 are:

Joe E. Hooper 68 President, Pride Mechanical and Fabrication 1999
Company, Inc.

Robert R. Spearman 67 Retired surveyor. 1999

John M. Warren, Jr., M.D. 57 Physician, Easley OB-GYN Associates, P.A. 1999

George I. Wike, Jr. 62 Investor; retired Optometrist. 1999

Directors whose terms of office will continue until our Annual Meeting
of Shareholders in 2008 are:

Jennifer M. Champagne 39 Our Senior Vice President and Chief Financial 2006
Officer since October 2002; Senior Manager,
Elliott Davis, LLC (registered public accounting
firm) from August 2000 to October 2002; certified
public accountant.

Ben L. Garvin 62 President of Cornerstone National Bank since 2001; 2001
our Secretary and Treasurer since 2003; Senior
Vice President of Central Carolina Bank, 1983-2001.

J. Bruce Gaston 50 Certified Public Accountant. 1999

S. Ervin Hendricks, Jr. 64 President and Co-owner, Nu-Life Environmental, 1999
Inc., Easley, SC; President and Owner of Advance
Machine Works since 1995.

None of our principal executive officers nor any director nominees are
related by blood, marriage or adoption in the degree of first cousin or closer.

Executive Officers

J. Rodger Anthony is our President and Chief Executive Officer and
Jennifer M. Champagne is our Senior Vice President and Chief Financial Officer.
The age and business experience of Mr. Anthony and Ms. Champagne are set forth
in the table above.

GOVERNANCE MATTERS

Director Independence

Our Board of Directors has determined that none of Messrs. Brooks,
Childress, Hooper, Spearman, Warren, Wike, Gaston or Hendricks has a
relationship which, in the opinion of our Board of Directors, would interfere
with the exercise of independent judgment in carrying out the responsibilities
of a director, and that each such director is independent as defined in The
Nasdaq Stock Market Marketplace Rules, as modified or supplemented (the "Nasdaq
Rules"). As disclosed under "Certain Relationships and Related Transactions"
some of our independent directors and some of their affiliates have loan and
deposit relationships with our Bank. These relationships are not considered by
our Board to compromise their independence.

Meetings of the Board of Directors and Director Attendance at the Annual Meeting
of Shareholders

During the last full fiscal year, ending December 31, 2006, our Board
of Directors met seven times, including regular and special meetings. No
director attended fewer than 75% of the total number of meetings of the Board of
Directors and committees of which he was a member. We encourage, but do not
require, directors to attend the Annual Meeting of Shareholders. All directors
attended the Annual Meeting of Shareholders in 2006. The majority of members of
our Board of Directors are also members of the Board of Directors of the Bank.

Committees of the Board of Directors

Nominating Committee

Our Board of Directors does not have a separate nominating committee.
Rather, our entire Board of Directors acts as nominating committee. Based on our
size, the small geographic area in which we do business and the desirability of
directors' being a part of the communities we serve and familiar with our
customers, our Board of Directors does not believe we would derive any
significant benefit from a separate nominating committee. The members of our
Board of Directors are not all independent as defined in the Nasdaq Rules. We do
not have a Nominating Committee charter.

Audit Committee

We have a separately-designated standing Audit Committee established in
accordance with Section 3(a)(58)(A) of the Securities Exchange Act of 1934. The
Audit Committee is responsible for seeing that audits of our Company are
conducted annually. An independent registered public accounting firm is employed
for that purpose by the Board of Directors upon recommendation of the Audit
Committee. Reports on these audits are reviewed by the Committee upon receipt
and a report thereon is made to the Board at its next meeting. The Audit
Committee is comprised of Messrs. Gaston, Hooper, Hendricks, Spearman and Wike,
each of whom is independent as defined in the Nasdaq Rules. The Audit Committee
met five times in 2006. The Audit Committee operates pursuant to a written
charter, a copy of which is attached to this proxy statement as Appendix A.

Human Resources Committee

The Human Resources Committee is responsible for recruiting senior
level management personnel as well as for recommending the compensation and
benefits of such persons. The Human Resources Committee reviews our compensation
policies and recommends to the Board the compensation levels and compensation
programs for executive officers and directors. The ultimate decisions about
compensation levels and compensation programs are made by our full Board, which
may accept or reject the recommendations of the Committee. The Human Resources
Committee may not delegate its authority to make recommendations to any other
person or persons. However, the Committee does delegate responsibility for
administering parts of our compensation programs to our Chief Financial Officer
and our Human Resources Department. Our Chief Executive Officer makes
recommendations relating to the elements and amounts of his compensation and
that of the other executive officers, as well as recommendations with respect to
the elements and amounts of director compensation. The Committee may take these
recommendations into consideration in its deliberations. Neither the Committee
nor management uses compensation consultants to determine or recommend the
amount or form of executive officer or director compensation. The Human
Resources Committee is comprised of Messrs. Childress, Wike, Warren and Brooks,
each of whom is independent as defined in the Nasdaq Rules. The Human Resources
Committee met once in 2006. The Human Resources Committee does not have a
charter.

Director Nomination Process

In recommending director candidates, the Board takes into consideration
such factors as it deems appropriate based on our current needs. These factors
may include diversity, age, skills such as understanding of banking and general
finance, decision-making ability, inter-personal skills, experience with
businesses and other organizations of comparable size, community activities and
relationships, and the interrelationship between the candidate's experience and
business background, and other Board members' experience and business
background, as well as the candidate's ability to devote the required time and
effort to serve on the Board.

The Board will consider for nomination by the Board director candidates
shareholders recommend if you comply with the following requirements. If you
wish to recommend a director candidate to the Board for consideration as a Board
of Directors' nominee, you must submit in writing to the Board the recommended
candidate's name, a brief resume setting forth the recommended candidate's
business and educational background and qualifications for service, and a
notarized consent signed by the recommended candidate stating the recommended
candidate's willingness to be nominated and to serve. This information must be
delivered to our Chairman at our address and must be received no later than
January 15 in any year for such person to be considered as a potential Board of
Directors' nominee at the Annual Meeting of Shareholders for that year. The
Board may request further information if it determines a potential candidate may

be an appropriate nominee. Director candidates you recommend that comply with
these requirements will receive the same consideration that the committee's
candidates receive.

Director candidates you recommend will not be considered for
recommendation by the Board as potential Board of Directors' nominees if your
recommendations are received later than January 15 in any year. A shareholder
may also personally nominate director candidates for election at the annual
meeting, but no person who is not already a director may be elected at an annual
meeting of shareholders unless that person is nominated in writing not less than
90 days prior to the meeting. Such nominations, other than those made by or on
behalf of our existing management, must be made in writing and must be delivered
or mailed to our President, not less than 90 days prior to any meeting of
Shareholders called for the election of Directors. Such notification must
contain the following information to the extent known to the notifying
shareholder: (a) the name and address of each proposed nominee; (b) the
principal occupation of each proposed nominee; (c) the total number of shares of
our capital stock that will be voted for each proposed nominee; (d) the name and
residence address of the notifying shareholder; and (e) the number of shares of
our capital stock owned by the notifying shareholder. The presiding officer of
the meeting may disregard nominations not made in accordance with these
requirements, and upon his instructions, the vote tellers shall disregard all
votes cast for each such nominee.

Shareholder Communications with the Board of Directors

If you wish to send communications to the Board of Directors you should
mail them addressed to the intended recipient by name or position in care of:
Corporate Secretary, Cornerstone Bancorp, 1670 East Main Street, Easley, South
Carolina 29640. Upon receipt of any such communications, the Corporate Secretary
will determine the identity of the intended recipient and whether the
communication is an appropriate shareholder communication. The Corporate
Secretary will send all appropriate shareholder communications to the intended
recipient. An "appropriate shareholder communication" is a communication from a
person claiming to be a shareholder in the communication the subject of which
relates solely to the sender's interest as a shareholder and not to any other
personal or business interest.

In the case of communications addressed to the Board of Directors, the
Corporate Secretary will send appropriate shareholder communications to the
Chairman of the Board. In the case of communications addressed to the
independent or outside directors, the Corporate Secretary will send appropriate
shareholder communications to the Chairman of the Audit Committee. In the case
of communications addressed to committees of the board, the Corporate Secretary
will send appropriate shareholder communications to the Chairman of such
committee.

MANAGEMENT COMPENSATION

Processes and Procedures for Determination of Executive Officer Compensation

As noted above under "Management - Committees of the Board of Directors
- - Human Resources Committee," our Board of Directors sets executive officer
compensation based on recommendations of our Human Resources Committee. We have
historically followed an informal policy of providing our executive officers
with a total compensation package consisting of salary, bonuses, insurance and
other benefits, and stock options. The committee's objectives in recommending
executive compensation are:

o to set salaries and benefits and, from time to time, award
options, at competitive levels designed to encourage our
executive officers to perform at their highest levels in order to
increase earnings and value to shareholders;

o where appropriate, to award discretionary bonuses and increase
salaries to reward our executive officers for performance; and

o to retain our key executives.

Compensation is designed to reward our individual executive officers
both for their personal performance and for performance of our Company with
respect to growth in assets and earnings, expansion and increases in shareholder
value. Although the Committee sets advance corporate goals which must be met for
our executive officers to receive bonus compensation, it has historically
assessed personal performance on a case by case basis rather than recommending

specific advance goals for personal performance. The committee makes its
recommendations about allocations between long-term and current compensation,
allocations between cash and non-cash compensation, and allocations among
various forms of compensation, in its discretion based on its subjective
assessment of how these allocations will best meet our overall compensation
goals outlined above.

Components of Executive Compensation

During 2006, executive compensation consisted primarily of three key
components: base salary, short term discretionary bonus awards and stock
options. We provide various additional benefits to executive officers, including
health, life and disability plans, and a SIMPLE Individual Retirement Plan, all
of which we provide on the same bases to all of our employees. We also provide a
split dollar life insurance benefit, and very limited perquisites to our
executive officers. For 2006, base salary comprised approximately 71% of total
executive officer compensation, bonuses comprised approximately 13% of total
executive officer compensation, option awards comprised approximately 6% of
total executive officer compensation, plan benefits comprised approximately 9%
of total executive officer compensation, and perquisites comprised approximately
1% of total executive officer compensation. The Board of Directors based its
decision to allocate executive officer compensation in this manner on its
subjective assessment of how such allocation would meet our goals of remaining
competitive and of linking compensation to our corporate performance and
individual executive officer performance.

Factors Considered in Setting Compensation

Use of Market Surveys and Peer Group Data

To remain competitive in the executive workforce marketplace, we
believe it is important to consider comparative market information about
compensation paid to executive officers of other financial institutions in our
Upstate South Carolina market area. We want to be able to attract and retain
highly skilled and talented executive officers who have the ability to carry out
our short- and long-term goals. To do so, we must be able to compensate them at
levels that are competitive with compensation offered by other financial
institutions in our business and geographic marketplace that seek similarly
skilled and talented executives. However, although we consider such information
in making our decisions about compensation, we do not attempt to maintain a
certain target percentile within a peer group or otherwise rely on that
information to determine executive compensation. The informal market survey
information we have considered in recent years is derived from proxy statements
of five other publicly held financial institutions in our area.

Other Factors Considered

In addition to considering informal market comparisons, in setting
compensation we consider each executive's knowledge and experience, skills,
scope of authority and responsibilities, job performance and tenure with us as
an executive officer, as well as our perception of the fairness of the
compensation paid to each executive in relation to what we pay our other
executive officers. The Human Resources Committee and our Board also consider
recommendations from our Chief Executive Officer in setting his compensation and
compensation for the other executive officers.

We review our compensation program and levels of compensation paid to
all of our executive officers annually and make adjustments based on the
foregoing factors as well as other subjective factors.

Timing of Executive Compensation Decisions

Annual salary reviews and adjustments and bonus and option awards are
routinely made in December of each year for the following year. The Committee's
recommendations are presented and ratified at the next regularly scheduled Board
meeting. Compensation determinations may also be made at other times during the
year in the case of newly hired executives or promotions of existing employees
that could not be deferred until the next annual meeting. We do not time any
form of compensation award, including equity-based awards, to coincide with the
release of material non-public information. Equity-based awards are generally
effective on the first business day of the new year.

Base Salaries and Bonuses

We believe it is appropriate to set base salaries at a reasonable level
that will provide our executives with a predictable income base on which to
structure their personal budgets. As noted above, in setting salaries, the Human
Resources Committee reviews market data about salaries paid to executives of
other financial institutions in our market area. The Committee also takes into
consideration the overall condition of our Company, its level of success in
recent years and its goals and budget for the current year. The Board then makes
a subjective determination of the salary level for each executive officer.

The Committee recommends discretionary bonuses, as appropriate, for all
employees taking into account our overall success, increase in market share,
performance relative to budget and the individual executive's contribution to
our success.

The Board set total salaries and discretionary bonuses for our
executives in 2006 approximately 5.5% higher than annualized 2005 levels
reflecting the executives' increased responsibility for a growing company
operating in a more complex environment, coupled with the demonstrated ability
of the executives to deliver a high level of success. For 2006, the Human
Resources Committee approved a bonus pool to be distributed among all employees,
as well as a breakdown of the percentages of the total pool to be distributed
among the groups of employees at the executive officer, officer and employee
levels. The actual bonus for each employee was then based on the amount of the
employee's annual salary relative to the salaries of the other employees at his
or her level.

Stock Options

Our Board also sets stock option awards at levels believed to be
competitive with other financial institutions and other companies of similar
size in our market area and to advance our goal of retaining key executives, as
well as levels believed to appropriately align the interests of management with
the interests of shareholders. Since options are granted with exercise prices
set at fair market value of our common stock on the date of grant, executives
can only benefit from the options if the price of our stock increases. We
believe the costs to our Company of granting options as opposed to paying
additional cash compensation, both in terms of the impact on earnings under the
new accounting rules for options and potential dilution of the outstanding
common stock, are far-outweighed by the benefits provided to us in terms of
providing incentives to our executive officers to increase earnings and
shareholder value. We do not award options every year. In awarding options, we
assess how they fit with the overall mix of compensation, and the extent to
which granting them in a given year will enhance our goals of providing our
employees appropriate incentives to meet our long-range goals.

Stock options awarded to our executive officers in 2006 were at levels
believed by our Board to be appropriate to keeping the interests of the
executives aligned with those of the shareholders. The total number of options
held by our executives is small.

Other Benefits

We provide our executive officers with the same health, life and long
term disability insurance benefits provided to all other employees, and we make
contributions to our Simple IRA plan on their behalf on the same basis as
contributions are made for all other employees. We pay country club dues for one
of our executive officers and provide our Chief Executive Officer and the
President of the Bank each with an automobile for business use. The automobiles
belong to us and our executive officers reimburse us for any personal use.

All of the foregoing other elements of compensation awarded to our
executives in 2006 were set at levels believed to be competitive with other
financial institutions in South Carolina.

Employment Agreements and Split Dollar Life Insurance

We have entered into change of control agreements with Messrs. Anthony
and Garvin and Ms. Champagne. These agreements are described under - "Change of
Control Agreements." As discussed in that section, the agreements provide, among
other things, for payments to our executive officers upon termination of their
employment after a change of control. The events set forth as triggering events
for the payments were selected because they are events similar to those provided

for in many employment agreements for executive officers of financial
institutions throughout South Carolina. It has become increasingly common in
South Carolina for community financial institutions to provide for such payments
under such conditions. We believe these types of arrangements are an important
factor in attracting and retaining our executive officers by assuring them
financial and employment status protections in the event control of our Company
changes. We believe such assurances of financial and employment protections help
free executives from personal concerns over their futures, and, thereby, can
help to align their interests more closely with those of shareholders in
negotiating transactions that could result in a change of control.

We have also entered into agreements relating to split dollar life
insurance with each of Messrs. Anthony and Garvin and Ms. Champagne. These
agreements are described under - "Split Dollar Life Insurance." These agreements
provide benefits to us and to the executives' beneficiaries upon their deaths.
We believe this type of agreement is an important factor in retaining our
executive officers because they are required to be employed by us at death or
disability, or remain employed by us until retirement, for their beneficiaries
to receive benefits under the policies without having to make payments for such
benefits.

Security Ownership Guidelines and Hedging

We do not have any formal security ownership guidelines for our
executive officers or any policies regarding our executive officers' hedging the
economic risk of ownership of our shares.

Executive Officer Compensation

Summary Compensation Table

The following table sets forth information about compensation paid to,
awarded to or earned by our President and Chief Executive Officer, the President
of our Bank and our Senior Vice President and Chief Financial Officer for the
year ended December 31, 2006.

Name Year Salary Bonus Option All Total
and ($) ($) Awards Other ($)
Principal ($)(1) Compen-
Position sation
($)(2)
--------- ---- ------ ----- ------ -------- -----

J. Rodger Anthony 2006 150,000 27,143 2,638 13,888 193,669
President and Chief
Executive Officer
Ben L. Garvin 2006 125,212 22,657 2,638 12,870 163,377
President of Cornerstone
National Bank
Jennifer M. Champagne 2006 106,000 19,181 1,319 8,871 135,371
Senior Vice President and
Chief Financial Officer

(1) The assumptions made in valuation of option awards are set forth in Note 1
to the Company's audited financial statements for the year ended December
31, 2006, which are included in our Form 10-KSB for the year ended December
31, 2006 and in our 2006 Annual Report to Shareholders. The amounts shown
in this column are the dollar amounts recognized for financial statement
reporting purposes with respect to the fiscal year in accordance with SFAS
No. 123(R), and do not represent dollar amounts payable to the executives.
The exercise price of these options was the fair market value of our common
stock on the date of grant. The options vest in 20% increments over five
years and are exercisable for a period of ten years.
(2) Includes our 2006 contributions to the Bank's SIMPLE IRA, directors' fees
and imputed premiums for split dollar life insurance policies. Perquisites
were less than $10,000 for each executive officer named above. Does not
include medical, disability or life insurance premiums paid pursuant to
plans that do not discriminate in favor of our executive officers and that
are available generally to all salaried employees. Also does not include
any compensation related to business use of bank-owned automobiles by
Messrs. Anthony and Garvin because we believe such use is directly and
integrally related to performance of their duties.

Outstanding Equity Awards at 2006 Fiscal Year-End

The following table sets forth information about options outstanding
for our President and Chief Executive Officer, the President of our Bank and our
Senior Vice President and Chief Financial Officer at December 31, 2006. We have
not granted any other equity-based awards.

Name Number Number Option Option
of of Exercise Expiration
Securities Securities Price Date
Underlying Underlying ($)
Unexercised Unexercised
Options Options
(#) (#)
Exercisable Unexercisable(1)
---- ----------- ---------------- -------- ------------

J. Rodger Anthony 6,442 6.21 12/15/2009
3,194 9.39 4/9/2014
2,904 10.74 1/4/2015
2,640 12.27 1/4/2016
Ben L. Garvin 3,194 9.39 4/9/2014
2,904 10.74 1/4/2015
2,640 12.27 1/4/2016
Jennifer M. Champagne 1,597 9.39 4/9/2014
1,452 10.74 1/4/2015
1,320 12.27 1/4/2016

(1) These options vest in 20% increments over five years, beginning in January
2007.

2003 Stock Option Plan

In 2003 our shareholders approved a stock option plan for the benefit
of our employees and directors (the "2003 Plan"). The 2003 Plan reserved 125,000
shares of common stock for issuance upon exercise of options. During 2006
options to purchase 18,000 shares of common stock were granted under the 2003
Plan. These options vest over a five year period and are exercisable for a
period of ten years at the estimated fair market value on the date of grant,
which was $13.50 per share. The Board of Directors declared 10% stock dividends
in May 2006, 2005 and 2004, which increased the number of shares reserved for
issuance under the 2003 Plan to 166,375, increased the number of shares subject
to outstanding options under the 2003 Plan to 65,531 shares, and changed the
weighted average exercise price to $11.43 per share, all in accordance with the
provisions of the 2003 Plan.

Change of Control Agreements

We have entered into Change of Control Agreements with J. Rodger
Anthony, our President and Chief Executive Officer, Ben L. Garvin, President of
the Bank and our Corporate Secretary, and Jennifer M. Champagne, our Senior Vice
President and Chief Financial Officer (each referred to as an "Executive"). The
agreements automatically renew each year unless, 30 days prior to an annual
anniversary date, we give notice that the agreements will not renew.

The agreements provide that, if there is a "change of control" of our
Company within five years of the date of the agreements, and the Executive
terminates his or her employment with us or we terminate his or her employment
within six months of such change of control, the Executive will be entitled to a

lump sum payment equal to a multiple of his annual salary in effect at the date
of termination. For Mr. Anthony, this multiple is three times his or her annual
salary then in effect; for Mr. Garvin, this multiple is two times his annual
salary then in effect; and for Ms. Champagne, this multiple is one and one-half
times her annual salary then in effect. If, however, the amount of any such
lump-sum payment, plus any other amount treated as a parachute payment under
Section 280G of the Internal Revenue Code equals or exceeds three times the base
amount described in Section 280G of the Internal Revenue Code, then the amount
due under the agreements will be adjusted to have a value for purposes of
Section 280G of three times the base amount less $100. The executive will also
be entitled to any vested benefits under any retirement or benefit plan.

Any amounts paid pursuant to the agreements will be deemed severance
pay, and the Executive will not be under any duty to mitigate damages and no
income received by the Executive thereafter will reduce the amount we owe the
Executive.

A "change of control" is deemed to occur under the agreements if
either (i) voting control of our Company is acquired, directly or indirectly, by
any person or group acting in concert, (ii) we are merged with or into any other
entity and we are not the surviving entity of the merger, (iii) voting control
of any of our subsidiaries by which Executive is principally employed is
acquired, directly or indirectly, by any person or group acting in concert, or
(iv) any of our subsidiaries by which Executive is principally employed is
merged with or into another entity which is not also our subsidiary and such
subsidiary is not the surviving entity of the merger.

The foregoing is merely a summary of the Change of Control Agreements
and is not intended to create any rights in any person, and is qualified in its
entirety by reference to such agreements, which are filed with the Securities
and Exchange Commission.

Split Dollar Life Insurance

We have purchased split dollar life insurance policies covering Messrs.
Anthony and Garvin and Ms. Champagne and entered into agreements with each of
them relating to these policies. We own these life insurance policies and paid
for them in full when we purchased them in 2004. The agreements provide that
death proceeds under the policies will be divided between us and the respective
beneficiaries of Messrs. Anthony and Garvin and Ms. Champagne. If, at the time
of death, Mr. Anthony is either employed by us, retired from employment with us,
or has been terminated from employment with us as a result of disability before
normal retirement, his beneficiary will receive the total death proceeds under
the policy, less the policy surrender value, we will receive the remainder of
the proceeds (which will be at least the surrender value), and we and his
beneficiary will share any interest due on the death proceeds on a pro rata
basis. If, at the time of death, Mr. Garvin or Ms. Champagne is currently
employed by us, retired from employment with us, or has been terminated from
employment with us as a result of disability before normal retirement, his or
her beneficiary will be entitled to an amount equal to two times his or her base
salary while actively at work and one and one-half times his or her base salary
at normal retirement, we will receive the remainder of the proceeds (which will
be at least the surrender value), and we and his or her beneficiary will share
any interest due on the death proceeds on a pro rata basis. Under the agreement,
"normal retirement" means retirement following the month in which the executive
reaches age 65 and has completed at least ten years of service with us, or such
later date as the executive actually retires. The executive's interest fully
vests upon completion of five years continuous service. If, however, there is a
change of control and the executive's employment is terminated other than for
cause, the executive will be fully vested. Messrs. Anthony and Garvin are both
already fully vested.

COMPENSATION OF DIRECTORS

Directors are not paid for service as our directors. However, our
directors also serve as directors of our Bank and receive fees for meetings of
the Bank Board of Directors and committee meetings of the Bank Board. Our Bank
paid directors $700 per board meeting in 2006. Non-management Directors were
paid $100 for each committee meeting attended in person and $25 for each
committee meeting attended by telephone. Total director fees were $105,850 in
2006. See also "Organizers Stock Options" below for information about stock
options granted to our original directors. In December 2006, our Bank increased
director fees to be paid for 2007 to $800 per meeting, and approved the grant as
of January 2, 2007 of options to purchase 1,200 shares of our common stock to
each of our directors. Information about fees paid and options awarded to
Messrs. Anthony and Garvin and Ms. Champagne is included in the "Option Awards"
and "All Other Compensation" columns of the Summary Compensation Table.

2006 Director Compensation

Name Fees Option Total
Earned Awards ($)
or ($)(1)(2)
Paid in
Cash
($)
---- ---- ------ -----
Walter L. Brooks $10,125 $1,319 $16,719
T. Edward Childress, III 8,100 1,319 14,694
J. Bruce Gaston 10,775 1,319 17,369
S. Ervin Hendricks, Jr. 9,100 1,319 15,694
Joe E. Hooper 11,475 1,319 18,069
Robert R. Spearman 11,575 1,319 18,169
John M. Warren, Jr., M.D. 8,500 1,319 15,094
George I. Wike, Jr. 8,900 1,319 15,494

(1) The amounts shown in this column are the dollar amounts recognized for
financial statement reporting purposes with respect to the fiscal year
in accordance with SFAS No. 123(R), and do not represent dollar amounts
payable to the directors. The assumptions made in valuation of option
awards are set forth in Note 1 to our audited financial statements for
the year ended December 31, 2006, which are included in our Form 10-KSB
for the year ended December 31, 2006 and in our 2006 Annual Report to
Shareholders.
(2) For each of Messrs. Brooks, Childress, Gaston , Hendricks, Hooper,
Spearman, Warren, and Wike, options to purchase 10,811 shares were
outstanding (of which 9,491 for each person were exercisable) at
December 31, 2006. Mr. Childress subsequently exercised options to
purchase 6,442 shares in 2007. Information about options outstanding
for each of Messrs. Anthony and Garvin and Ms. Champagne at December
31, 2006 is included in the "Outstanding Equity Awards at 2006 Fiscal
Year-End" table.

Organizers' Stock Options

On December 14, 1999, our Board of Directors, in consideration of the
time and efforts of our directors in organizing our Company and our subsidiary
bank and each director's personally guaranteeing a portion of the organizational
expenses, granted options to each director to purchase up to 4,000 shares of our
common stock for a purchase price of $10.00 per share, which was the price at
which the common stock was sold to the public in 1999. The options became
exercisable for each director one-third each year beginning on December 14, 2000
and expire on December 14, 2009, unless they terminate sooner as the result of
the director's ceasing to be one of our directors, in which case the options
expire six months after the holder ceases to be a director. As described in Note
17 to our Consolidated Financial Statements, our Board of Directors declared 10
percent stock dividends to shareholders of record on May 9, 2006, May 10, 2005,
May 11, 2004, March 17, 2003 and April 30, 2002. Our stock option agreements
provide for appropriate adjustments of the number of outstanding stock options
in the event of stock dividends and other similar stock transactions. The
agreements also provide for the aggregate consideration to be paid upon exercise
of the options to be proportionately adjusted following a stock dividend.
Therefore, at December 31, 2006, each of the organizing directors held adjusted
organizers' options to purchase 6,442 shares with an exercise price of $6.21 per
share.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Our Bank, in the ordinary course of its business, makes loans to and
has other transactions with our directors, officers, principal shareholders, and
their immediate family members and associates. Loans are made on substantially
the same terms, including rates and collateral, as those prevailing at the time
for comparable transactions with other persons and do not involve more than the
normal risk of collectibility or present other unfavorable features. Our Bank
expects to continue to enter into transactions in the ordinary course of
business on similar terms with directors, officers, principal stockholders, and
their associates. The aggregate dollar amount of such loans outstanding at
December 31, 2006 was $5.8 million. None of such loans are classified as
nonaccrual, past due, restructured or problem loans. During 2006, $4.3 million
of new loans were made and repayments totaled $4.8 million.

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

As required by Section 16(a) of the Securities Exchange Act of 1934,
our directors, executive officers and certain individuals are required to report
periodically their ownership of our Common Stock and any changes in ownership to
the Securities and Exchange Commission. Based on a review of Section 16(a)
reports available to us and representations made to us by our directors and
executive officers, it appears that all such reports for these persons were
filed in a timely fashion during 2006, except the Form 3 Initial Statement of
Beneficial Ownership filed by Mr. Hendricks was not filed on a timely basis.

REGISTERED PUBLIC ACCOUNTING FIRM

The Board has selected Elliott Davis, LLC, Certified Public
Accountants, with offices in Greenville, South Carolina, to serve as our
independent registered public accounting firm for 2006. It is not expected that
representatives from this firm will be present at the annual meeting.

Set forth below is information about fees billed by our independent
registered public accounting firm for audit services rendered in connection with
the consolidated financial statements and reports for the years ended December
31, 2006 and 2005, and for other services rendered during such years, on our
behalf and on behalf of the Bank, as well as all out-of-pocket expenses incurred
in connection with these services, which have been billed to us.

Year Ended Year Ended
December 31, 2006 December 31, 2005
----------------- -----------------

Audit Fees ...................... $34,100 $27,600
Audit-Related Fees .............. 0 0
Tax Fees ........................ 3,750 3,605
All Other Fees .................. 0 7,200
................................ ------- -------
Total ......................... $37,850 $38,405
======= =======

Audit Fees

Audit fees include fees billed for professional services rendered for
the audit of our consolidated financial statements and review of the interim
condensed consolidated financial statements included in quarterly reports, and
services that are normally provided by our independent registered public
accounting firm in connection with statutory and regulatory filings or
engagements, and attest services, except those not required by statute or
regulation.

Audit-Related Fees

Audit-related fees include fees billed for assurance and related
services that are reasonably related to the performance of the audit or review
of our consolidated financial statements and that are not reported under "Audit
Fees." Tax Fees

Tax fees include fees for tax compliance/preparation and other tax
services. Tax compliance/preparation include fees billed for professional
services related to federal and state tax compliance. Other tax services include
fees billed for filing of Form 5500 for our Section 125 Flexible Spending
Account benefit plan.

All Other Fees

All other fees include fees for all services other than those reported
above. For the year ended December 31, 2005, "All Other Fees" included fees
related to our public offering of common stock, including review of and consents
in connection with a registration statement on Form SB-2 filed with the
Securities and Exchange Commission.

Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services of
Independent Auditors

The Audit Committee pre-approves all audit and permitted non-audit
services (including the fees and terms thereof) provided by the independent
registered public accounting firm, subject to possible limited exceptions for
non-audit services described in Section 10A of the Securities Exchange Act of
1934, which are approved by the Audit Committee prior to completion of the
audit. The Committee may delegate to one or more designated members of the
Committee the authority to pre-approve audit and permissible non-audit services,
provided such pre-approval decision is presented to the full Committee at its
next scheduled meeting. Prior to the performance of any services by our
independent registered public accounting firm, executive management requests an
estimate of the fees and an outline of the proposed services. The estimated fees
are submitted in advance to the audit committee via letter directly from Elliott
Davis to the chairman of the Audit Committee. At its next scheduled meeting, the
Audit Committee approves the estimated fees and services expected to be provided
and advises management of their decision. During 2006, all audit and permitted
non-audit services were pre-approved by the Committee.

AUDIT COMMITTEE REPORT

The Audit Committee of our Board of Directors has reviewed and
discussed with our management our audited financial statements for the year
ended December 31, 2006. Our Audit Committee has discussed with our independent
auditors, Elliott Davis, LLC, the matters required to be discussed by Statement
on Accounting Standards No. 61, as amended (AICPA, Professional Standards, Vol.
1 AU section 380), as adopted by the Public Company Accounting Oversight Board
in Rule 3200T. Our Audit Committee has also received the written disclosures and
the letter from Elliott Davis, LLC, required by Independence Standards Board
Standard No. 1, (Independence Standards Board Standard No. 1, Independence
Discussions with Audit Committees), as adopted by the Public Company Accounting
Oversight Board in Rule 3600T, and has discussed with Elliott Davis, LLC, their
independence.

Based on their review of the consolidated financial statements and
discussions with and representations from management and Elliott Davis, LLC
referred to above, our Audit Committee recommended to the Board of Directors
that the audited financial statements be included in our Annual Report on Form
10-KSB for fiscal year 2006, for filing with the Securities and Exchange
Commission.

Joe E. Hooper George I. Wike, Jr.
J. Bruce Gaston S. Ervin Hendricks, Jr.
Robert R. Spearman

The Audit Committee Report shall not be deemed to be incorporated by
reference into any filing under the Securities Act of 1933 or the Securities
Exchange Act of 1934 unless we specifically incorporate it by reference into any
such filing.

OTHER MATTERS

Our Board of Directors does not know of any other business to be
presented at the meeting of stockholders. If matters other than those described
herein should properly come before the meeting, the persons named in the
enclosed form of proxy intend to vote at such meeting in accordance with their
best judgment on such matters. If you specify a different choice on the Proxy,
your shares will be voted in accordance with your specifications.

Unless contrary instructions are indicated on the Proxy, all shares of
stock represented by valid proxies received pursuant to this solicitation, and
not revoked before they are voted, will be voted FOR the election of any or all
of the nominees for directors named herein.

SHAREHOLDER PROPOSALS

If you wish to submit proposals for the consideration of the
shareholders at the 2008 Annual Meeting, you may do so by mailing or delivering
them in writing to Jennifer M. Champagne, Senior Vice President and Chief
Financial Officer at our main office, 1670 East Main Street, Easley, South
Carolina 29640. We must receive such written proposals prior to December 5,
2007, if you want us to include them, if otherwise appropriate, in our proxy
statement and form of proxy relating to that meeting. If we do not receive

notice of a shareholder proposal prior to February 18, 2008, the persons named
as proxies in the proxy materials relating to that meeting will use their
discretion in voting the proxies when the proposal is raised at the meeting.

AVAILABILITY OF ANNUAL REPORT ON FORM 10-KSB

You may obtain copies of our annual report on Form 10-KSB required to
be filed with the Securities and Exchange Commission for the year ended December
31, 2006, free of charge by requesting such form in writing from Jennifer M.
Champagne, Chief Financial Officer, Cornerstone Bancorp, Post Office Box 428,
Easley, South Carolina 29641. The Form 10-KSB is also available on the
Securities and Exchange Commission's website at www.sec.gov.

PROXY

CORNERSTONE BANCORP

PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR ANNUAL MEETING OF SHAREHOLDERS - May 8, 2007

Jennifer M. Champagne and Ben L. Garvin, or either of them, with full
power of substitution, are hereby appointed as agent(s) of the undersigned to
vote as proxies for the undersigned at the Annual Meeting of Shareholders to be
held on May 8, 2007, and at any adjournment thereof, as follows:

1. ELECTION OF FOR all nominees listed WITHHOLD
DIRECTORS below (except any I have AUTHORITY
written below) [ ] to vote for all
nominees listed
below [ ]

Three-year terms: J. Rodger Anthony, Walter L. Brooks,
T. Edward Childress,
III

INSTRUCTIONS: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL(S) WRITE THE
NOMINEE'S(S') NAME(S) ON THE LINE BELOW.

- --------------------------------------------------------------------------------

2. And, in the discretion of said agents, upon such other business as may
properly come before the meeting, and matters incidental to the conduct of
the meeting. (Management at present knows of no other business to be
brought before the meeting.)

THE PROXIES WILL BE VOTED AS INSTRUCTED. IF NO CHOICE IS INDICATED WITH RESPECT
TO A MATTER WHERE A CHOICE IS PROVIDED, THIS PROXY WILL BE VOTED "FOR" SUCH
MATTER.

Please sign exactly as name appears below. When signing as attorney, executor,
administrator, trustee, or guardian, please give full title. If more than one
trustee, all should sign. All joint owners must sign.

Dated: , 2007 ------------------------------------
-----------------

------------------------------------

Appendix A
Audit Committee Charter of
Cornerstone Bancorp and
Cornerstone National Bank

Organization

There shall be a committee of the board of directors of Cornerstone National
Bank to be known as the audit committee. The audit committee shall be composed
of directors who are independent of the management of the corporation and are
free of any relationship that, in the opinion of the board of directors, could
interfere with their exercise of independent judgment as a committee member.

Statement of Policy

The audit committee shall provide assistance to the corporate directors in
fulfilling their responsibility to the shareholders, potential shareholders, and
investment community relating to corporate accounting, reporting practices of
the corporation, and the quality and integrity of the financial reports of the
corporation. In so doing, it is the responsibility of the audit committee to
maintain free and open means of communication between the directors, the
independent auditors, the internal auditors, and the financial management of the
corporation.

Responsibilities

In carrying out its responsibilities, the audit committee believes its policies
and procedures should remain flexible, in order to best react to changing
conditions and to ensure to the directors and shareholders that the corporate
accounting and reporting practices of the corporation are in accordance with all
requirements and are of the highest quality.

In carrying out these responsibilities, the audit committee will:

o Review and recommend to the directors the independent auditors to be
selected to audit the financial statements of the corporation and its
divisions and subsidiaries.

o Coordinate with the independent auditors and financial management of
the corporation to review the scope of the proposed audit for the
current year and the audit procedures to be utilized, and at the
conclusion thereof review such audit, including any comments or
recommendations of the independent auditors.

o Review with the independent auditors, the company's internal auditor,
and financial and accounting personnel, the adequacy and effectiveness
of the accounting and financial controls of the corporation, and
elicit any recommendations for the improvement of such internal
control procedures or particular areas where new or more detailed
controls or procedures are desirable. Particular emphasis should be
given to the adequacy of such internal controls to expose any
payments, transactions, or procedures that might be deemed illegal or
otherwise improper. Further, the committee periodically should review
company policy statements to determine their adherence to the code of
conduct.

o Review the internal audit function of the corporation including the
independence and authority of its reporting obligations, the proposed
audit plans for the coming year, and the coordination of such plans
with the independent auditors.

o Receive prior to each meeting, a summary of findings from completed
internal audits and a progress report on the proposed internal audit
plan, with explanations for any deviations from the original plan.

o Review the financial statements contained in the annual report to
shareholders with management and the independent auditors to determine
that the independent auditors are satisfied with the disclosure and
content of the financial statements to be presented to the
shareholders. Any changes in accounting principles should be reviewed.

o Provide sufficient opportunity for the internal and independent
auditors to meet with the members of the audit committee without
members of management present. Among the items to be discussed in

A-1

these meetings are the independent auditors' evaluation of the
corporation's financial, accounting, and auditing personnel, and the
cooperation that the independent auditors received during the course
of the audit.

o Review accounting and financial human resources and succession
planning within the company.

o Submit the minutes of all meetings of the audit committee to, or
discuss the matters discussed at each committee meeting with, the
board of directors.

o Investigate any matter brought to its attention within the scope of
its duties, with the power to retain outside counsel for this purpose
if, in its judgment, that is appropriate.

Meetings

The audit committee shall meet four times annually, or more frequently as
circumstances dictate.

A-2