SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934.
(Amendment No. )
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Filed by a Party other than the Registrant [ ]
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14a-6(e)(2)
[x] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-12
CORNERSTONE BANCORP
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[x] No Fee Required.
Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
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pursuant to Exchange Act Rule 0-11:
4) Proposed maximum aggregate value of transaction:
5) Total fee paid
[ ] Fee paid previously with preliminary materials
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
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4) Date Filed:
<Page>
CORNERSTONE BANCORP
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO OUR SHAREHOLDERS:
NOTICE IS HEREBY GIVEN THAT the 2010 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 Tuesday, June 8, 2010, at 4:00
p.m., for the following purposes:
(1) To elect three directors to each serve a three year term; and
(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 April 15, 2010,
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 2010 Proxy Statement. Also included is the
Company's 2009 Annual Report to Shareholders.
By Order of the Board of Directors
April 27, 2010 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 Tuesday, June
8, 2010, 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 27, 2010. 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, 2009, 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. Because of recent changes in rules that relate to broker
voting, your broker or nominee is no longer permitted to vote your shares on
election of directors unless you provide voting instructions. Therefore, to be
sure your shares are voted, please instruct your broker or other nominee as to
how you wish it to vote.
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 Mrs. 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 April 15, 2010, there were outstanding
2,105,738 shares of our common stock (no par value). Each share outstanding will
1
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 April 15, 2010 (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 and that either choose not to vote or do
not have authority to vote (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 received the largest number of votes
cast for the positions to be filled would be elected as directors. Because the
number of nominees for election at the 2010 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 in the enclosed form of proxy 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 31, 2010, for all of our directors,
nominees 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.
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Name of Beneficial Owner Amount and Nature of % of Class
(and Address of 5% Owners) Beneficial Ownership
- ------------------------------------------- -------------------------------- -------------------------------
J. Rodger Anthony (1) 101,058 4.64%
Walter L. Brooks (2) 22,145 1.02
Jennifer M. Champagne(3) 12,149 .56
J. Bruce Gaston (4) 54,370 2.50
Susan S. Jolly (5) 21,975 1.01
S. Ervin Hendricks, Jr. (6) 58,742 2.70
Joe E. Hooper(7) 71,428 3.28
Robert R. Spearman (8) 11,904 .55
John M. Warren, Jr., M.D. (9) 37,067 1.70
George I. Wike, Jr. (10) 200,239 9.19
P. O. Box 98 Tigerville, South Carolina
Janice E. Childress (11) 204,022 9.37
P. O. Box 1367 -------
Easley, South Carolina 29641
All directors and executive
officers as a group (11 persons) (12) 795,099 36.50%
=======
- --------------------
Except as otherwise indicated, to the knowledge of management, all shares are
owned directly with sole voting power.
(1) Includes 6,563 shares owned by Mr. Anthony's spouse; and 12,653 shares
subject to currently exercisable options.
(2) Includes 11,840 shares owned by a partnership in which Mr. Brooks is a
partner; 3,237 shares owned by Mr. Brooks' spouse; and 6,325 shares subject
to currently exercisable options.
(3) Includes 7,911 shares subject to currently exercisable options.
(4) Includes 6,325 shares subject to currently exercisable options.
(5) Includes 7,911 shares owned by Mrs. Jolly's spouse; and 5,760 shares
subject to currently exercisable options.
(6) Includes 6,325 shares subject to currently exercisable options.
(7) Includes 6,325 shares subject to currently exercisable options.
(8) Includes 6,325 shares subject to currently exercisable options.
(9) Includes 6,325 shares subject to currently exercisable options.
(10) Includes 36,893 shares owned by Mr. Wike's spouse; and 6,325 shares subject
to currently exercisable options.
(11) Includes 99,301shares beneficially owned by the Estate of T. Edward
Childress, III , of which Mrs. Childress is the personal representative,
and 3,719 shares held by a trust of which she is the trustee.
(12) Includes 72,750 shares subject to currently exercisable options.
ELECTION OF DIRECTORS
At the Annual Meeting, three directors have been nominated for election
to hold office for terms of three years, their terms expiring at the 2013 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
Janice E. Childress, J. Rodger Anthony and Walter L. Brooks 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, which is solicited by
our Board of Directors, intend to vote for the election as directors of Messrs.
Anthony and Brooks and Mrs. Childress. If you are a shareholder of record and do
not indicate a contrary specification, 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 or her 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.
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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 or she 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 2013
Janice E. Childress 46 Mrs. Childress, through her asset management company, 2009
Allegiant Carolinas, Inc. invests in real estate, nursing
homes, pharmacies and medical supply companies, and she
manages the newly formed Childress Foundation, a
philanthropic organization. Mrs. Childress also serves on
the Furman University Executive Advisory Council, and is
Chairperson of the Board of Directors of Pickens County
Meals on Wheels.
J. Rodger Anthony 64 Mr. Anthony has been our President and Chief Executive 1999
Officer and Chairman and Chief Executive Officer of our
Bank since 1999. Mr. Anthony served as Chief Executive
Officer, First National Bank of Pickens County, Easley, SC,
from 1996 to 1998. Mr. Anthony served on the Board of
Directors of the Pickens County Board of Disabilities and
Special Needs for 25 years, and is also a former member of
the Board of the Easley Chamber of Commerce and the Pickens
County YMCA.
Walter L. Brooks 83 Mr. Brooks is President of G&B Enterprises (real estate 1999
ownership) and Pullet Growing. Mr. Brooks is a past
Chairman and President of the South Carolina Egg Board.
Directors whose terms of office will continue until our Annual Meeting of Shareholders in 2012
Joe E. Hooper 71 Mr. Hooper is President of Pride Mechanical and Fabrication 1999
Company, Inc., and a real estate investor. He is a member
of the Foundation Board of Tri-County Technical College and
a former member of the Board of Directors of the Pickens
County YMCA. Mr. Hooper has also previously been named the
Small Business Man of the Year by the Easley Chamber of
Commerce.
Robert R. Spearman 70 Mr. Spearman is a real estate agent in the Company's market 1999
area and a retired surveyor.
John M. Warren, Jr., M.D. 60 Dr. Warren is a physician, and sole practitioner with 1999
Easley OB-GYN Associates, P.A., which he co-founded in
1980. Dr. Warren is a past Chairman of the Pickens County
School Board and a member and past president of the Easley
Rotary Club. He is also a former member of the Board of
Directors of the United Way of Pickens County.
4
Name Age Principal Occupation Director
- ---- --- -------------------- --------
George I. Wike, Jr. 65 Mr. Wike is a real estate investor and an investor in 1999
various financial companies. He is a retired optometrist,
formerly practicing in the Company's market area for
several years.
Directors whose terms of office will continue until our Annual Meeting of Shareholders in 2011
Jennifer M. Champagne 42 Mrs. Champagne has been our Senior Vice President and Chief 2006
Financial Officer since October 2002. She was formerly a
Senior Manager in the banking group of Elliott Davis, LLC
(registered public accounting firm) from August 2000 to
October 2002. She also served as Assistant Controller for
American Federal, FSB from 1995-1997, and was a manager in
the banking group of KPMG, LLP. Mrs. Champagne is a
certified public accountant.
Susan S. Jolly 50 Mrs. Jolly has been our Senior Vice President and Senior 2008
Lender of our Bank since 1999. She was formerly Vice
President and Commercial Lender, Carolina First Bank from
1998-1999, and Vice President and Commercial Lender First
National Bank of Pickens County from 1991-1998. Mrs. Jolly
is a former member of the Board of Directors of the Easley
Chamber of Commerce.
J. Bruce Gaston 53 Mr. Gaston is a Certified Public Accountant and real estate 1999
investor. He also serves as Chairman of the Community
Special Tax District and is a lifelong resident of Pickens
County.
S. Ervin Hendricks, Jr. 67 Mr. Hendricks has been President and Co-owner, of Nu-Life 1999
Environmental, Inc., Easley, SC, and President and Owner of
Advance Machine Works since 1995. Mr. Hendricks is a past
President of the Easley Chamber of Commerce, and a former
member of the Foundation Board of Tri-County Technical
College and the Foundation Board of Palmetto Baptist
Hospital- Easley.
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.
Additional Information About our Directors' Qualifications for Service on our
Board
Our Board, which acts as our nominating committee, believes the
combined business and professional experience of the Company's directors, and
their various areas of expertise make them a useful resource to management and
qualify them for service on the Board. Most of our Board members have served on
the Board, or been with our Bank, since our organization, and Mr. Anthony has
been our Chief Executive Officer, and Chairman and Chief Executive Officer of
our Bank, since our organization. As significant share owners, our Board members
have also shown strong financial support for our Company. During their tenures,
these directors have gained considerable institutional knowledge about the
Company and its operations, which has made them effective board members. Because
the Company's operations are complex and highly regulated, continuity of service
and this development of institutional knowledge help make the Board more
efficient and more effective at developing long-range plans than it would be if
there were frequent turnover in Board membership. Additionally, our Board
members all live, own businesses or work, and are active leaders in the
communities we serve. As a result, they are valuable liaisons between us and our
customers and shareholders. When Board members retire from the Board, the Board
seeks out replacements who it believes will make significant contributions to
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the Board for a variety of reasons, including among others, business and
financial experience and expertise, business and government contacts,
relationship skills, knowledge of the Company, and diversity.
Mrs. Childress has extensive business and social contacts in our market
areas, and she is a life-long resident of our area and the widow of our founding
chairman. She has been a liaison between our customers and the Board since our
inception.
Mr. Anthony has served as our President and Chief Executive Officer
since our organization. He has over 39 years of experience in the financial
services industry, and over that period of time he has developed significant
banking acumen, and a network of individual, business, and banking contacts
throughout the state of South Carolina. As a result of his community activities,
he has also developed relationships with many customers and potential customers
of our Bank.
Mr. Brooks' long and successful career as a business owner has provided
him with insights into the real estate market in the area, which we use in
developing our long range strategy, as well as in understanding individual loans
requiring board approval. As a result of his long and successful career in
agribusiness, he has also developed relationships with many customers and
potential customers of our Bank.
Mr. Hooper's long and successful career as a small business owner have
provided him with skills required to develop and implement a successful long
range business and marketing strategy for an organization. As a member of our
Board, he translates this knowledge and skill set to the financial services
industry in providing guidance to the Board on long range strategy and short
term implementation of that strategy. Mr. Hooper's experience on various civic
boards and community involvement give him insights into the financial needs of
the communities we serve as well as extensive contacts with potential customers.
As a result of his long and successful career as a surveyor and
business owner, Mr. Spearman provides the Board with insights into the real
estate market in the area, which we use in developing our long range strategy,
as well as in understanding individual loans requiring board approval.
As a physician and small business owner, Dr. Warren has developed
business and financial skills required to develop and implement a successful
long range business strategy, which are useful to us in developing and
implementing our long range strategy. Dr. Warren also has business and
professional contacts with many of our customers and potential customers.
Mr. Wike's real estate investment activities have provided him with
insights into the real estate market in the area, which we use in developing our
long range strategy. His investments in financial companies have provided him
with financial expertise that is particularly tailored to our needs, as well as
insights into the banking industry and the issues facing it. As a result of his
optometry practice, he also has business and professional contacts with many of
our customers and potential customers.
Mrs. Champagne's experience as a certified public accountant with a
registered public accounting firm, with a practice focused on the banking
industry, provided her with financial expertise that is particularly tailored to
our needs, as well as extensive insights into the banking industry and the
issues facing it.
Mrs. Jolly's extensive experience as commercial lender has provided her
with insights into the fundamentals of our business, and make her a valuable
resource to our Board. She is also a liaison between our customers and the
Board.
As a certified public accountant, Mr. Gaston has an understanding of
financial and accounting issues that face our Company. His real estate
background has also provided him with insights into the real estate markets in
the communities we serve.
As an executive and owner of a small business that manufactures and
supplies environmental equipment for refuse and solid waste handling, Mr.
Hendricks not only has skills required to develop and implement a successful
long range business and marketing strategy for an organization, but also has
insights into the myriad of environmental issues that currently face consumers,
businesses, and industries. Mr. Hendricks' experience on various civic and
educational boards, and his community involvement also give him insights into
the communities we serve as well as extensive contacts with potential customers.
6
Executive Officers
J. Rodger Anthony is our President and Chief Executive Officer,
Jennifer M. Champagne is our Senior Vice President and Chief Financial Officer,
and Susan S. Jolly is our Corporate Secretary and Senior Vice President and
Senior Lender for Cornerstone National Bank. The age and business experience of
Mr. Anthony, Mrs. Champagne and Mrs. Jolly are set forth in the table above.
GOVERNANCE MATTERS
Director Independence
Our Board of Directors has determined that none of Mrs. Childress nor
Messrs. Brooks, 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, 2009, our Board
of Directors met seven times, including regular and special meetings. All of our
directors attended at least 75% of the total number of meetings of the Board of
Directors and committees of which he or she 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 2009. The 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 2009. 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
7
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. Wike, Warren and Brooks, each of
whom is independent as defined in the Nasdaq Rules. The Human Resources
Committee met once in 2009. The Human Resources Committee does not have a
charter.
Board Leadership Structure and Board's Role in Risk Oversight
Our Bylaws provide that the Board may appoint a Chairman of the Board
of Directors, and may designate him or her as an executive officer. Our Bylaws
further provide that, if the Chairman is so designated, the Board shall also
designate whether the Chairman or the President will serve as our Chief
Executive Officer. Our Bylaws also make it clear that the business and affairs
of the Company are managed under the direction of the Board of Directors, and
that management control is subject to the authority of the Board of Directors to
appoint and remove any of our officers at any time. Although our Board does not
have a policy as to whether the role of Chairman and Chief Executive Officer
should be held by separate persons, since our organization, the roles have been
separated. We believe this leadership structure is appropriate for our current
purposes because it has served us well for over ten years. Our Chairman presides
over all meetings of the full Board. Additionally, meetings of our directors may
be called by our Chairman or our President or by 25% or more of our directors,
and a majority of our directors are independent.
We also believe our Board leadership is enhanced by the fact that all
of our directors live, work, and have substantial business interests in our
service area, and, therefore, have access to information about us and our
operations from sources other than our management's presentations to the Board.
As a financial institution, our regulators also communicate directly with our
directors on a regular basis.
Our Board is actively involved in oversight of risks that could affect
our Company. The Board receives regular reports from members of senior
management on areas of material risk to us, including operational, financial,
legal and regulatory, and strategic risks. These reports are reviewed by the
full Board, or, where responsibility for a particular area of risk oversight is
delegated to a committee of the Board, that committee reviews the report and
then reports to the full Board. Our regulators also send periodic reports of
examination to our directors, which contain the regulators' assessments of
various risks facing our Company and our Bank, as well as their assessments of
our handling of those risks. Accordingly, oversight of risk is a constant
element of the functioning of our Board.
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 does not have a specific policy with
regard to the consideration of diversity in identifying director nominees, but,
as noted above, diversity is one factor the Board considers as part of the total
mix of information it takes into account in identifying nominees.
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
8
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:
Jennifer M. Champagne, Senior Vice President and Chief Financial Officer,
Cornerstone Bancorp, 1670 East Main Street, Easley, South Carolina 29640. Upon
receipt of any such communications, Mrs. Champagne will determine the identity
of the intended recipient and whether the communication is an appropriate
shareholder communication. Mrs. Champagne 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, Mrs.
Champagne will send appropriate shareholder communications to the Chairman of
the Board. In the case of communications addressed to the independent or outside
directors, Mrs. Champagne will send appropriate shareholder communications to
the Chairman of the Audit Committee. In the case of communications addressed to
committees of the board, Mrs. Champagne 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
9
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 2009, executive compensation consisted primarily of three key
components: base salary, board fees, and stock options. We did not award
discretionary bonuses for the years ended December 31, 2009 or 2008. 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 basis to all of our employees. We also provide a split
dollar life insurance benefit and very limited perquisites to our executive
officers. For 2009, base salary comprised approximately 84% of total executive
officer compensation, board fees comprised approximately 6% of total executive
officer compensation, option awards comprised approximately 7% of total
executive officer compensation, plan benefits comprised approximately 3% of
total executive officer compensation, and perquisites comprised less than 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.
10
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 may recommend 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 for our executives in 2009 approximately
9% higher than annualized 2008 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. No discretionary bonuses were awarded for 2009 performance.
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
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 2009 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 provide our Chief Executive
Officer with an automobile for business use. The automobile belongs to us and
our executive officer reimburses us for any personal use.
All of the foregoing other elements of compensation awarded to our
executives in 2009 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 Mr. Anthony,
Mrs. Champagne and Mrs. Jolly. 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
11
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 Mr. Anthony, Mrs. Champagne and Mrs. Jolly. 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, our Senior
Vice President and Chief Financial Officer, and our Senior Vice President and
Senior Lender for the year ended December 31, 2009.
Name Year Salary Bonus Option All Total
and ($) ($) Awards Other ($)
Principal ($)(1) Compen-
Position sation
($)(2)
----------------- ---- -------- ------- ------- ------- --------
J. Rodger Anthony 2009 $200,750 $ - $12,528 $21,027 $234,305
President and Chief 2008 $182,500 $ - $14,037 $20,064 $216,601
Executive Officer
Jennifer M. Champagne 2009 $134,000 $ - $12,528 $16,353 $162,881
Senior Vice President 2008 $124,000 $ - $14,037 $15,229 $153,266
and Chief Financial
Officer
Susan S. Jolly 2009 $133,000 $ - $12,528 $16,541 $162,069
Senior Vice President 2008 $123,000 $ - $14,037 $14,696 $151,733
and Senior Lender
(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, 2009, which are included in our Form 10-K for the year
ended December 31, 2009 and in our 2009 Annual Report to Shareholders.
The amounts shown in this column are the aggregate grant date fair
value computed in accordance with FASB ASC Topic 718, and do not
represent dollar amounts payable to the directors. 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 2009 contributions to the Bank's SIMPLE IRA, directors'
fees and imputed premiums for split dollar life insurance policies.
Perquisites were less than $10,000 for each executive officer named
above. Does not include medical, disability or life insurance premiums
paid pursuant to plans that do not discriminate in favor of our
executive officers and that are available generally to all salaried
employees. Also does not include any compensation related to business
use of a bank-owned automobile by Mr. Anthony because we believe such
use is directly and integrally related to performance of his duties.
12
Outstanding Equity Awards at 2009 Fiscal Year-End
The following table sets forth information about options outstanding
for our President and Chief Executive Officer, our Senior Vice President and
Chief Financial Officer, and our Senior Vice President and Senior Lender, at
December 31, 2009. We have not granted any other equity-based awards.
Number
Of Securities Number of Securities
Underlying Underlying
Unexercised Unexercised Options Option Option
Options (#) (#) Exercise Expiration
Name Exercisable(1) Unexercisable(1)(2) Price ($)(1) Date
---- -------------- ------------------- ------------ ----
J. Rodger Anthony 3,688 - $ 8.13 4/9/2014
3,353 - 9.30 1/4/2015
1,829 1,220 10.63 1/4/2016
1,108 1,664 13.85 1/2/2017
504 2,016 11.90 1/2/2018
- 2,520 9.52 1/12/2019
------ -----
10,482 7,420
====== =====
Jennifer M. Champagne 1,843 - $ 8.13 4/9/2014
1,676 - 9.30 1/4/2015
914 610 10.63 1/4/2016
1,108 1,664 13.85 1/2/2017
504 2,016 11.90 1/2/2018
- 2,520 9.52 1/12/2019
------ -----
6,045 6,810
====== =====
Susan S. Jolly 1,843 - $ 8.13 4/9/2014
1,676 - 9.30 1/4/2015
914 610 10.63 1/4/2016
1,108 1,664 13.85 1/2/2017
504 2,016 11.90 1/2/2018
- 2,520 9.52 1/12/2019
------ -----
6,045 6,810
====== =====
(1) Adjusted to reflect stock dividends as discussed below under the caption
"2003 Stock Option Plan."
(2) These options vest in 20% increments over five years, beginning in January
of the year following the grant date. The grant dates for the options were
ten years prior to the expiration dates shown above.
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 2009,
options to purchase 15,600 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 $9.52 per share. During 2009, 3,866 of the options granted in previous
years were forfeited. The Board of Directors declared a 5% stock dividend in
2009 and 10% stock dividends in May 2007, 2006, 2005 and 2004, which increased
the number of shares reserved for issuance under the 2003 Plan to 192,162. Stock
dividends also increased the number of shares subject to then outstanding
options, net of exercises, under the 2003 Plan. The total number of options
outstanding at December 31, 2009 was 106,255, and the weighted average exercise
price was $10.49 per share. Currently exercisable options outstanding at
December 31, 2009 totaled 59,254, and were exercisable at a weighted average
exercise price of $9.82 per share.
13
Change of Control Agreements
We have entered into Change of Control Agreements with J. Rodger
Anthony, our President and Chief Executive Officer, Jennifer M. Champagne, our
Senior Vice President and Chief Financial Officer, and Susan S. Jolly, our
Senior Vice President and Senior Lender (each referred to as an "Executive").
The agreements automatically renew each year unless, at least 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, 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 annual salary then in effect; and for each of Mrs. Champagne and Mrs. Jolly,
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 more than 50% of the common stock 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, unless our shareholders immediately prior to the merger continue
to own more than 50% of the voting power of the stock of the surviving company,
(iii) voting control of more than 50% of the common stock 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, unless immediately after the merger our Company
owns more than 50% of the voting power of the surviving company.
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 Mr.
Anthony, Mrs. Champagne and Mrs. Jolly, 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 Mr. Anthony, Mrs. Champagne and Mrs. Jolly. 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 age
sixty-five, 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, Mrs. Champagne or Mrs. Jolly is currently
employed by us, retired from employment with us, or has been terminated from
employment with us as a result of disability before age sixty-five, her
beneficiary will be entitled to an amount equal to two times her final base
salary if the death occurs on or before the insured's sixty-fifth birthday or
one and one-half times her final base salary if the death occurs after the
insured's sixty-fifth birthday, we will receive the remainder of the proceeds
(which will be at least the policy surrender value), and we and her beneficiary
will share any interest due on the death proceeds on a pro rata basis. The
executive's interest fully vests upon completion of five years continuous
service, or immediately upon a change of control. Mr. Anthony, Mrs. Champagne
and Mrs. Jolly are already fully vested.
14
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 $1,000 per board meeting in 2009, except our chairman, who was
paid $1,100 per meeting. Non-management Directors were also paid $100 for each
committee meeting attended in person and $25 for each committee meeting attended
by telephone. Total director fees were $138,475 in 2009. See also "Organizers
Stock Options" below for information about stock options granted to our original
directors. Information about fees paid and options awarded to Mr. Anthony, Mrs.
Champagne and Mrs. Jolly is included in the "Option Awards" and "All Other
Compensation" columns of the Summary Compensation Table.
2009 Director Compensation
Fees Earned Option
or Paid in Awards
Name Cash ($) ($)(1)(2) Total ($)
---- -------- --------- ---------
Walter L. Brooks $11,350 $6,264 $17,614
J. Bruce Gaston 14,775 6,264 21,039
S. Ervin Hendricks, Jr. 12,800 6,264 19,064
Joe E. Hooper 14,225 6,264 2,489
Robert R. Spearman 14,925 6,264 21,189
John M. Warren, Jr., M.D. 12,200 6,264 18,464
George I. Wike, Jr. 11,400 6,264 17,664
Janice E. Childress 8,200 - 8,200
(1) These options were awarded under the 2003 Stock Option Plan. The amounts
shown in this column are the aggregate grant date fair value computed in
accordance with FASB ASC Topic 718, 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, 2009, which are included in our Form 10-K for the
year ended December 31, 2009 and in our 2009 Annual Report to Shareholders.
(2) Information about the aggregate number of options outstanding for each
director is included in the footnotes to the "Security Ownership of Certain
Beneficial Owners and Management" 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 organizing director's personally guaranteeing a portion of the
organizational expenses, granted options to each organizing 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 expired on December 14, 2009. As described in Note 19
to our Consolidated Financial Statements, our Board of Directors declared a five
percent stock dividend payable to shareholders of record on May 12, 2009 and 10
percent stock dividends to shareholders of record on May 8, 2007, May 9, 2006,
May 10, 2005, May 11, 2004, March 17, 2003 and April 30, 2002. Our stock option
agreements provided for appropriate adjustments of the number of outstanding
stock options in the event of stock dividends and other similar stock
transactions. The agreements also provided for the aggregate consideration to be
paid upon exercise of the options to be proportionately adjusted following a
stock dividend. Messrs. Childress, Wike, Warren, Gaston and Anthony have
exercised all of their organizer's options. On December 14, 2009 the remaining
unexercised Organizers' options expired.
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
15
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. All loans
on which a director is a borrower or guarantor must be approved by our Board of
Directors. 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 each of December 31, 2009 and 2008 was $7.6 million and $6.0
million, respectively. None of such loans have at any time been classified as
nonaccrual, past due, restructured or problem loans. During 2009, $2.6 million
of new loans were made, or were deemed to be related for the first time, and
repayments totaled $.9 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 reports were filed in a timely fashion
for 2009, except one report for Mr. Wike, who inherited 5,957 shares upon the
death of his mother in November 2009. A Form 5 was filed for Mr. Wike promptly
after the oversight was discovered.
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 2010. 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, 2009 and 2008, 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, 2009 December 31, 2008
----------------- -----------------
Audit Fees .................... $ 50,200 $ 46,400
Audit-Related Fees ............ 0 0
Tax Fees ...................... 8,045 11,635
All Other Fees ................ 0 0
Total .................. $ 58,245 $ 58,035
======== ========
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.
16
All Other Fees
All other fees include fees for all services other than those reported
above.
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 2009, 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, 2009. Our Audit Committee has discussed with our independent
auditors, Elliott Davis, LLC, the matters required to be discussed by Statement
on Auditing 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 applicable requirements of the
Public Company Accounting Oversight Board regarding Elliott Davis, LLC's
communications with the Committee concerning independence, 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-K for fiscal year 2009, 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.
17
SHAREHOLDER PROPOSALS
If you wish to submit proposals for the consideration of the
shareholders at the 2011 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 28,
2010, 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 March 13, 2011, 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-K
You may obtain copies of our annual report on Form 10-K required to be
filed with the Securities and Exchange Commission for the year ended December
31, 2009, 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-K is also available on the Securities
and Exchange Commission's website at www.sec.gov.
NOTICE OF INTERNET AVAILABILITY OF PROXY MATERIALS
IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS
FOR THE SHAREHOLDERS MEETING TO BE HELD ON TUESDAY JUNE 8, 2010
The Company's 2009 Annual Report and 2010 Proxy Statement are available
via the Internet at:
http://www.cornerstonenatlbank.com.
18
APPENDIX A
Audit Committee Charter
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 l 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
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.
19
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.
20
PROXY
CORNERSTONE BANCORP
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR ANNUAL MEETING OF SHAREHOLDERS - Tuesday, June 8, 2010
George I. Wike, Jr. and Jennifer M. Champagne, 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 Tuesday, June 8, 2010, and at any adjournment thereof, as follows:
1. ELECTION OF FOR all nominees listed WITHHOLD AUTHORITY
DIRECTORS below (except any I have to vote for all nominees listed
written below) [ ] below [ ]
Three-year terms: J. Rodger Anthony, Walter L. Brooks, and Janice E.
Childress
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: ____________, 2010 _______________________________________________
_______________________________________________