SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
WASHINGTON, D.C. 20549
SCHEDULE
14A INFORMATION
Proxy
Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
the Securities Exchange Act of 1934 (Amendment No. )
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Filed
by the Registrant |X| | |
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Filed
by a Party other than the
Registrant |_| | |
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Check
the appropriate box: | |
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Preliminary
Proxy Statement |
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Confidential,
for Use of the Commission Only
(as
permitted by Rule 14a-6(e)(2)) |
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Definitive
Proxy Statement |
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Definitive
Additional Materials |
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Soliciting
Material Pursuant to Rule 14a-12 |
CORNERSTONE
BANCSHARES, INC.
(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):
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No
fee required. | |
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Fee
computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11. | |
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Title
of each class of securities to which transaction
applies: |
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Aggregate
number of securities to which transaction applies: |
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Per
unit price or other underlying value of transaction computed pursuant to
Exchange Act Rule 0-11 (set forth the amount on which the filing fee is
calculated and state how it was determined): |
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Proposed
maximum aggregate value of transaction: |
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Total
fee paid: |
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Fee
paid previously with preliminary materials. | |
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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. | |
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Amount
Previously Paid: |
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Form,
Schedule or Registration Statement No.: |
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CORNERSTONE
BANCSHARES, INC.
5319
Highway 153
Chattanooga,
Tennessee 37343
March 18,
2005
Dear
Shareholder,
I am
pleased to invite you to attend our 2005 Annual Meeting of
Shareholders, which will be held at 6:00 p.m., on April 21, 2005, at the
Ooltewah branch of Cornerstone Bancshares, Inc. located at 8966 Old Lee Highway,
Ooltewah, Tennessee.
As
discussed in the accompanying proxy statement, you will be asked at the Annual
Meeting to elect
the Board of Directors, and to ratify the appointment of the auditors of
Cornerstone Bancshares, Inc.
Your vote
is important. Whether or not you are able to attend, it is important that your
shares be represented at the meeting. Accordingly, please sign, date and return
the enclosed proxy card at your earliest convenience.
Thank you
for your cooperation.
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Yours
Sincerely, | ||
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/s/ |
Gregory B. Jones |
| Gregory B.
Jones Chairman of the Board & Chief Executive Officer | ||
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CORNERSTONE
BANCSHARES, INC.
5319
Highway 153
Chattanooga,
Tennessee 37343
NOTICE
OF MEETING OF SHAREHOLDERS
TO
BE HELD ON APRIL 21, 2005
Notice is
hereby given that the Annual Meeting of Shareholders (the “Shareholders
Meeting”) of Cornerstone Bancshares, Inc., a Tennessee corporation and bank
holding company registered under the Bank Holding Company Act of 1956, as
amended (the “Company”), will be held at the Ooltewah branch of the Company
located at 8966 Old Lee Highway, Ooltewah, Tennessee, on April 21, 2005,
beginning at 6:00 p.m. local
time, for the following purposes:
1. Elect
Directors. To elect
thirteen (13) individuals to the Board of Directors;
2. Ratification
of Appointment of Independent Auditors. To
ratify the appointment of Hazlett, Lewis & Bieter, PLLC as independent
auditors of the Company for the fiscal year ending December 31, 2005;
and
3. Other
Business. To
transact such other or further business as may properly come before the
Shareholders Meeting or any adjournment or postponement thereof.
Information
regarding the matters to be acted upon at the Annual Meeting is contained in the
Proxy Statement attached to this Notice.
Only
shareholders of record at the close of business on February 28, 2005 are
entitled to notice of, and to vote at, the Shareholders Meeting or any
adjournment(s) thereof.
All
shareholders, whether or not they expect to attend the Shareholders Meeting in
person, are requested to complete, date, sign and return the enclosed proxy in
the accompanying envelope. The proxy may be revoked by the person executing the
proxy at any time before it is exercised by filing with the President of the
Company an instrument of revocation or a duly executed proxy bearing a later
date, or by electing to vote in person at the Shareholders Meeting.
| BY ORDER OF THE BOARD OF DIRECTORS | ||
| Chattanooga, Tennessee |
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| March 18, 2005 | By: | /s/ Gregory B. Jones |
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Gregory B. Jones | ||
| Chairman of the Board of Directors
and Chief Executive Officer | ||
YOU
ARE ENCOURAGED TO ATTEND THE ANNUAL MEETING IN PERSON. IF YOU ARE UNABLE TO
ATTEND THE ANNUAL MEETING, THE BOARD OF DIRECTORS REQUESTS THAT YOU, AT YOUR
EARLIEST CONVENIENCE, PLEASE COMPLETE, DATE, SIGN AND RETURN THE ACCOMPANYING
PROXY IN THE ENCLOSED REPLY ENVELOPE, WHICH NEEDS NO POSTAGE IF MAILED IN THE
UNITED STATES.
PROXY
STATEMENT
FOR
ANNUAL
MEETING OF SHAREHOLDERS
OF
CORNERSTONE
BANCSHARES, INC.
TO
BE HELD ON
APRIL
21, 2005
SOLICITATION
OF PROXIES
This
Proxy Statement is being furnished to the shareholders (the “Shareholders”) of
Cornerstone Bancshares, Inc., a Tennessee corporation (the “Company”) in
connection with the solicitation of proxies by the Board of Directors of the
Company (the “Board”) from holders of the outstanding shares of the common
stock, $1.00 par value per share, of the Company (the “Common Stock”) for use at
the annual meeting of the Shareholders to be held at the Company’s Ooltewah
branch located at 8966 Old Lee Highway, Ooltewah, Tennessee, on Thursday, April
21, 2005, beginning at 6:00p.m. local time, and at any adjournment or
postponement thereof (the “Shareholders Meeting”).
The Board
has fixed the close of business on February 28, 2005 as the record date for the
determination of Shareholders entitled to notice of, and to vote at, the
Shareholders Meeting. Each share of the Common Stock entitles the holder thereof
to one vote. As of February 28, 2005 there were issued and outstanding 2,988,784
shares of Common Stock.
Proxies
for the Shareholders Meeting are hereby being solicited on behalf of the
Company. In connection with the solicitation of proxies, the Board has
designated Mr. Gregory B. Jones or Mr. Earl Marler, Jr. as their proxies. Shares
represented by all properly executed proxy cards received in time for the
meeting (the “Proxy Shares”) will be voted at the Shareholders Meeting in
accordance with the directions on such proxies. If no directions are specified,
the Proxy Shares will be voted (a) “FOR” the election of the thirteen (13)
persons specified as nominees for directors of the Company; (b) “FOR” the
ratification of the Audit Committee’s appointment of Hazlett, Lewis &
Bieter, PLLC as independent auditors; and (c) in the best judgment of the person
named in the enclosed proxy in connection with the transaction of such other
business as may properly come before the Shareholders Meeting. The Board knows
of no other business that will be presented for consideration at the
Shareholders Meeting other than the matters described in this Proxy Statement.
Should any director nominee named herein become unable or unwilling to serve if
elected, it is intended that the Proxy Shares will be voted for the election, in
his or her stead, of such other person as the Board may recommend.
The proxy
is revocable by you by providing written notice to the President of the Company
at any time prior to the exercise of the authority granted thereby or by
attending the meeting and electing to vote in person.
This
Proxy Statement is dated March 18, 2005 and it and the accompanying notice and
form of proxy are first being mailed to the Shareholders on March 18, 2005. All
costs of preparing, printing, assembling and mailing the form of proxy and the
material used in the solicitation will be paid by the Company.
The
presence in person or by proxy of the holders of a majority of the shares of the
Common Stock will constitute a quorum for the transaction of business at the
Shareholders Meeting. Votes cast by proxy or in person at the Shareholders
Meeting will be counted by the persons appointed by the Company to act as
election inspectors for the meeting. The election inspectors will treat Proxy
Shares that reflect abstentions as shares that are present and entitled to vote
for purposes of determining the presence of a quorum but are not counted as for
or against any proposal. In those instances where shares are held by brokers who
are prohibited from exercising discretionary authority for beneficial owners who
have not given voting instructions (“broker nonvotes”), those shares will be
counted as present for quorum purposes. Broker nonvotes will not be counted as
votes for or against any proposal.
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS
AND MANAGEMENT
Set forth
below is information, as of February 28, 2005, with respect to beneficial
ownership by (a) each person who is known to the Company to be the beneficial
owner of more than 5% of the outstanding shares of Common Stock, (b) each
director and nominee of the Company, (c) each executive officer named in the
compensation tables below and the Company’s chief executive officer and (d) all
directors and executive officers of the Company as a group. Unless otherwise
indicated below, to the Company’s knowledge, all persons listed below have the
sole voting and investment power with respect to their shares of Common Stock
(except to the extent that authority is shared by spouses under applicable law)
and all shares of Common Stock are held directly.
Directors
and Nominees
|
Name
and Address of Beneficial Owner |
Description |
Amount
and Nature of Beneficial Ownership |
Percent
of Outstanding Common Stock (1) |
|
B.
Kenneth Driver
5319
Highway 153
Chattanooga,
Tennessee 37343 |
Director |
54,172
(2)(5) |
1.63% |
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Karl
Fillauer
5319
Highway 153
Chattanooga,
Tennessee 37343 |
Director |
71,880
(2)(6) |
2.17% |
|
Nathaniel
F. Hughes
5319
Highway 153
Chattanooga,
Tennessee 37343 |
President
and
Chief
Operating Officer
And
Director |
85,000
(3)(7) |
2.56% |
|
Gregory
B. Jones
5319
Highway 153
Chattanooga,
Tennessee 37343 |
Chairman
of the Board and
Chief
Executive Officer
And
Director |
92,100
(4)(8) |
2.78% |
|
James
H. Large
5319
Highway 153
Chattanooga,
Tennessee 37343 |
Director |
88,570
(2)(9) |
2.67% |
|
Jerry
D. Lee
5319
Highway 153
Chattanooga,
Tennessee 37343 |
Executive
Vice President
Senior
Loan Officer and
Director |
85,200
(3)(10) |
2.57% |
|
Lawrence
D. Levine
5319
Highway 153
Chattanooga,
Tennessee 37343 |
Director |
35,370
(2)(11) |
1.07% |
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Russell
W. Lloyd
5319
Highway 153
Chattanooga,
Tennessee 37343 |
Director |
75,180
(2)(12) |
2.27% |
|
Earl
A. Marler, Jr.
5319
Highway 153
Chattanooga,
Tennessee 37343 |
Director |
74,630
(2)(13) |
2.25% |
|
Doyce
G. Payne, M.D.
5319
Highway 153
Chattanooga,
Tennessee 37343 |
Director |
83,180
(2)(14) |
2.51% |
|
G.
Turner Smith
5319
Highway 153
Chattanooga,
Tennessee 37343 |
Director |
60,500
(2) |
1.83% |
|
Billy
O. Wiggins
5319
Highway 153
Chattanooga,
Tennessee 37343 |
Director |
84,420
(2)(15) |
2.55% |
|
Marsha
Yessick
5319
Highway 153
Chattanooga,
Tennessee 37343 |
Director |
62,800
(2) |
1.89% |
|
Robert
B. Watson
5319
Highway 153
Chattanooga,
Tennessee 37343 |
Senior
Vice President |
2,200
(16) |
0.07% |
|
All
directors and executive officers as a group (14) persons |
955,202 |
28.82% |
Notes
|
(1) |
Unless
otherwise indicated, beneficial ownership consists of sole voting and
investing power based on 2,988,784 shares
issued and outstanding on February 28, 2005. Options to purchase 325,300
shares are exercisable or become exercisable within 60 days of February
28, 2005. Such shares are deemed to be outstanding for the purpose of
computing the percentage of outstanding shares owned by each person to
whom a portion of such options relate, but are not deemed to be
outstanding for the purpose of computing the percentage owned by any other
person. |
| (2) | Includes 20,500 shares issuable within 60 days of February 28, 2005 upon exercise of options issued pursuant to the 1996 Cornerstone Statutory and Non-statutory Stock Option Plan. |
| (3) |
Includes
38,500 shares issuable within 60 days of February 28, 2005 upon exercise
of options issued pursuant to the 1996 Cornerstone Statutory and
Non-statutory Stock Option Plan and the Cornerstone 2002 Long Term
Incentive Plan. |
| (4) |
Includes
42,100 shares issuable within 60 days of February 28, 2005 upon exercise
of options issued pursuant to the 1996 Cornerstone Statutory and
Non-statutory Stock Option Plan and the Cornerstone 2002 Long Term
Incentive Plan. |
|
(5) |
Includes 33,672 shares held jointly with Mr. Driver’s spouse. |
|
(6) |
Includes
51,380 shares held jointly with Mr. Fillauer’s spouse, as to which Mr.
Fillauer disclaims beneficial ownership. |
|
(7) |
Includes
1,500 shares held as custodian for Mr. Hughes’ children, as to which Mr.
Hughes disclaims beneficial ownership. |
|
(8) |
Includes
14,500 shares held jointly with Mr. Jones’ spouse, and 2,800 shares held
in an IRA account by Mr. Jones’ spouse, as to which Mr. Jones disclaims
beneficial ownership. |
|
(9) |
Includes
17,000 shares held jointly with Mr. Large’s spouse and 44,340 shares held
by Key James Brick Company trust PSP, as to which Mr. Large disclaims
beneficial ownership. |
|
(10) |
Includes
2,500 shares held jointly with Mr. Lee’s spouse, 19,000 shares in spouse’s
name and 1,200 shares held as custodian for a child, as to which Mr. Lee
disclaims beneficial ownership. |
|
(11) |
Includes
200 shares held by Mr. Levine’s spouse and 14,870 shares held in a
Charitable Remainder Trust as to which Mr. Levine disclaims beneficial
ownership. |
|
(12) |
Includes
47,800 shares held jointly with Mr. Lloyd’s spouse and 200 shares held as
custodian for grandchild, as to which Mr. Lloyd disclaims beneficial
ownership. |
|
(13) |
Includes
24,130 shares held jointly with Mr. Marler’s spouse, as to which Mr.
Marler disclaims beneficial ownership. |
|
(14) |
Includes
26,680 shares held jointly with Dr. Payne’s spouse and 6,000 shares held
by Dr. Payne’s spouse as to which Dr. Payne disclaims beneficial
ownership. |
|
(15) |
Includes
6,000 shares held as custodian for a child, as to which Mr. Wiggins
disclaims beneficial ownership. |
|
(16) |
Includes
1,200 shares issuable within 60 days of February 28, 2005 upon exercise of
options issued pursuant to the Cornerstone 2002 Long Term Incentive
Plan. |
Voting
Securities and Principal Shareholders
The
Company is not aware of any "person" (as defined by the Securities Exchange
Commission) who is the "beneficial owner" of more than 5% of the outstanding
shares of the Company's common stock, as of February 28, 2005.
PROPOSALS
I. ELECTION
OF DIRECTORS
Pursuant
to the Company’s bylaws, the Board has set the number of directors of the
Company to be between nine and fifteen. The Board has named B. Kenneth Driver,
Karl Fillauer, Nathaniel F. Hughes, Gregory B. Jones, James H. Large, Jerry D.
Lee, Lawrence D. Levine, Russell W. Lloyd, Earl A. Marler, Jr., Doyce G. Payne,
M.D., G. Turner Smith, Billy O. Wiggins and Marsha Yessick to stand for election
as directors at the Shareholder’s Meeting. Should any one or more of these
nominees become unable to serve for any reason, or choose not to serve, the
Board may designate a substitute nominee or nominees (in which event the persons
named in the enclosed proxy card will vote all valid proxy cards for the
election of such substitute nominee or nominees), allow the vacancy or vacancies
to remain open until a suitable candidate or candidates are located or by
resolution provide for a lesser number of directors.
Each
director elected at the Shareholders Meeting will serve until the next Annual
Meeting of Shareholders and until his or her successor has been duly elected and
qualified or until his or her earlier resignation or removal. Directors will be
elected by a plurality of the votes cast.
NOMINEES
Set forth
below with respect to the directors and nominees for director of the Company is
information regarding their business experience during the past five years and
other information. THE
BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE “FOR”
THE ELECTION OF THESE NOMINEES AS DIRECTORS OF THE
COMPANY.
|
Name |
Age |
Principal
Occupation |
|
B.
Kenneth Driver |
69 |
President
and Chief Operating Officer of Fillauer Companies, Inc., a Chattanooga
based prosthetic manufacturer. He has been a director of the Company since
1997 and of the Bank since 1996. |
|
Karl
Fillauer |
57 |
Chairman
of Fillauer Companies, Inc., a Chattanooga based prosthetic manufacturer.
He has been a director of the Company since 1997 and of the Bank since
1996. |
|
Nathaniel
F. Hughes |
46 |
President
and Chief Operating Officer of the Company and the Bank since June 2004.
Mr.
Hughes was President and chief financial Officer of the Bank and the
Company From
April 2003 to June 2004. Mr. Hughes was Executive Vice President and Chief
Financial
Officer from February 1999 to April 2003. Mr. Hughes has been a director
of
the Bank and the Company since April 2003. Mr. Hughes was Vice President
and Investment
Officer with Pioneer Bank from 1998 to February 1999. |
|
Gregory
B. Jones |
52 |
Chairman
of the Board and Chief Executive Officer since April 2003. President and
Chief Executive Officer of the Company and the Bank from January 1999 to
April 2003. He has been a director of the Company and the Bank since 1999.
Mr. Jones was Executive Vice President and Chief Financial Officer with
Pioneer Bancshares, Inc. from 1998 to January 1999. |
|
James
H. Large |
61 |
President
of Key-James Brick & Supply Company, Inc., a Chattanooga based
supplier of building supplies. He has been a director of the Company since
1997 and of the Bank since 1996. |
|
Jerry
D. Lee |
43 |
Executive
Vice President and Senior Loan Officer of the Bank since April 1999. Mr.
Lee
has been a director of the Bank and the Company since April 2003. Mr. Lee
was Vice
President with Northwest Georgia Bank from 1998 to April
1999. |
|
Lawrence
D. Levine |
75 |
Retired
insurance executive since 2002. Prior to 2002 he was President of
Financial Management Corp., a Chattanooga based insurance and financial
management company. He has been a director of the Company since 1997 and
of the Bank since 1996. |
|
Russell
W. Lloyd |
64 |
Retired
President of MPL Construction Company, a Chattanooga based commercial
building construction company since August 2004. He has been a director of
the Company since 1997 and of the Bank since 1996. |
|
Earl
A. Marler, Jr. |
68 |
Previously
served as Chairman of the Board of the Company from 1997 to April 2003 and
of the Bank from 1996 to April 2003. He served as Chief Executive Officer
of the Company from 1997 to 1998, and of the Bank from 1996 to 1998. He
has been a director of the Company since 1997 and of the Bank since
1996. |
|
Doyce
G. Payne, M.D. |
54 |
Retired
physician of obstetrics and gynecology in the Chattanooga area. He has
been a director of the Company since 1997 and of the Bank since
1996. |
|
G.
Turner Smith |
64 |
Director
of Southeast Energy Services, Inc., a Chattanooga based consulting company
to the construction industry. He has been a director of the Company since
1997 and of the Bank since 1996. |
|
Billy
O. Wiggins |
62 |
President
of Checks, Inc., a Chattanooga based specialty check printing company. He
has been a director of the Company since 1997 and of the Bank since
1996. |
|
Marsha
Yessick |
57 |
Owner
of Yessick’s Design Center, a Chattanooga based interior design company,
and owner of Yessica’s a local manufacturer of various interior design
products. She has been a director of the Company since 1997 and of the
Bank since 1996. |
II. RATIFICATION
OF AUDIT COMMITTEE’S SELECTION OF INDEPENDENT ACCOUNTANTS
The
Company’s Audit Committee has appointed Hazlett, Lewis & Bieter, PLLC
("HLB"), independent certified public auditors for the Company and its
subsidiaries for the year ending December 31, 2005. HLB has served as
independent auditor for the Company since 1997 and the Bank since 1996. HLB has
advised the Company that neither HLB nor any of its partners have any direct or
material interest in the Company and its subsidiaries except as auditors and
independent certified public accountants of the Company and its
subsidiaries.
A
representative of HLB will be present at the Shareholders Meeting and will be
given the opportunity to make a statement on behalf of HLB if he or she so
desires. The HLB representative is also expected to respond to appropriate
questions from the shareholders.
The
affirmative vote of the holders of a majority of the shares present in person or
proxy at the Shareholder’s Meeting, at which a quorum is present, is required to
ratify the appointment of HLB as independent auditors.
THE
BOARD UNANIMOUSLY RECOMMENDS A VOTE “FOR”
RATIFICATION OF THE APPOINTMENT OF HAZLETT, LEWIS & BIETER, PLLC AS
INDEPENDENT AUDITORS FOR THE FISCAL YEAR ENDING DECEMBER 31,
2005.
EXECUTIVE
COMPENSATION
Under
rules established by the Securities and Exchange Commission, the Company is
required to provide certain data and information regarding the compensation and
benefits provided to its chief executive officer and other executive officers,
including the four other most highly compensated executive officers who receive
more than $100,000 in annual compensation (the “Executive Officers”). The
disclosure requirements for the Executive Officers include the use of tables and
a report explaining the rationale and considerations that led to fundamental
executive compensation decisions affecting these individuals. In addition to the
following, the Human Resource committee has prepared a report that is included
elsewhere in this Proxy.
Compensation
Table
The table
below sets forth certain elements of compensation for the named executive
officer of the Company and the Bank for the periods indicated.
|
SUMMARY
COMPENSATION TABLE |
|||||||||||||||||||||||||
|
Annual
Compensation |
Long
Term (1) Compensation |
||||||||||||||||||||||||
|
Awards |
Payouts |
||||||||||||||||||||||||
|
Other |
Restricted |
Securities |
|||||||||||||||||||||||
|
|
Annual |
Stock |
Underlying |
LTIP |
All
Other |
||||||||||||||||||||
Name
and |
Salary |
Bonus |
Comp. |
Awards |
Options/SARs |
Payouts |
Comp. |
||||||||||||||||||
|
Principal
Position |
Year |
( $
) |
( $
) |
( $
) |
( $
) |
( #
) (2) |
($) |
( $
) (3) |
|||||||||||||||||
|
Gregory
B. Jones |
2004 |
$ |
175,000 |
$ |
30,000 |
0 |
0 |
17,400 |
0 |
$ |
7,800 |
||||||||||||||
|
Chairman
& CEO |
2003 |
155,000 |
10,000 |
0 |
0 |
17,000 |
0 |
7,200 |
|||||||||||||||||
|
Company
& Bank |
2002 |
145,000 |
5,000 |
0 |
0 |
16,000 |
0 |
7,200 |
|||||||||||||||||
|
Jerry
D. Lee |
2004 |
$ |
125,000 |
$ |
18,000 |
0 |
0 |
13,000 |
0 |
$ |
7,800 |
||||||||||||||
|
Ex.
Vice President |
2003 |
117,700 |
7,000 |
0 |
0 |
11,000 |
0 |
5,400 |
|||||||||||||||||
|
Sr.
Loan Officer |
2002 |
110,000 |
0 |
0 |
0 |
10,000 |
0 |
0 |
|||||||||||||||||
|
Bank |
|||||||||||||||||||||||||
|
Nathaniel
F. Hughes |
2004 |
$ |
125,000 |
$ |
18,000 |
0 |
0 |
13,000 |
0 |
$ |
7,800 |
||||||||||||||
|
President
& COO |
2003 |
115,200 |
7,000 |
0 |
0 |
11,000 |
0 |
5,400 |
|||||||||||||||||
|
Company
& Bank |
2002 |
96,000 |
0 |
0 |
0 |
10,000 |
0 |
0 |
|||||||||||||||||
|
Robert
B. Watson |
2004 |
$ |
91,800 |
$ |
15,000 |
0 |
0 |
5,000 |
0 |
0 |
|||||||||||||||
|
Sr.
Vice President |
2003 |
85,000 |
3,000 |
0 |
0 |
4,000 |
0 |
0 |
|||||||||||||||||
|
Bank |
2002 |
80,000 |
0 |
0 |
0 |
0 |
0 |
0 |
|||||||||||||||||
| (1) |
The
Company maintains a “1996 Cornerstone Statutory and Non-statutory Stock
Option Plan” which was approved by the shareholders in 1996 and a “2002
Long Term Incentive Plan” which was approved by the shareholders in 2002.
There were no shares of restricted stock held by any executive officers on
December 31, 2004. |
| (2) |
Options
acquired pursuant to option grants must generally be held at least two
years before partial vesting is possible. The Company has not granted any
SAR’s, and stock option grants have been adjusted for the 2 for 1 stock
split effective September 2004. |
| (3) |
Includes
$7,200 in 2002 and 2003 and $7,800 in 2004 for Bank Board director’s fees
to Mr. Jones. Includes $5,400 in Bank Board director’s fees for Mr. Hughes
and Mr. Lee for 2003, and $7,800 in Bank Board director’s fees for Mr.
Hughes and Mr. Lee for 2004. |
Options/SAR
Grants in Last Fiscal Year
The following table contains information about option
awards made to the named executive officer during the Company’s fiscal year
ended December 31, 2004.
|
STOCK
OPTION GRANTS IN 2004 |
|||||||||||||||||||
|
Individual
Grants |
|||||||||||||||||||
|
|
|
|
Number of
Securities
Underlying
Options/SAR’s |
|
|
%
of Total Options/SAR’sGranted to Employees in |
|
|
|
Exercise
or
Base
Price |
Expiration |
Potential
Realizable Value at Assumed Annual Rates of Stock
Price Appreciation for The OptionTerm (4) |
| |||||||
|
Name |
Granted (#)(1) |
Fiscal Year |
($/share)(2) |
Date
(3) |
5%($) |
10%($) |
||||||||||||||
|
Gregory
B. Jones |
17,400 |
25.40 |
% |
$ |
10.87 |
03/01/14 |
$ |
118,950 |
$ |
301,440 |
||||||||||
|
Jerry
D. Lee |
13,000 |
18.98 |
% |
$ |
10.87 |
03/01/14 |
$ |
88,870 |
$ |
225,210 |
||||||||||
|
Nathaniel
F. Hughes |
13,000 |
18.98 |
% |
$ |
10.87 |
03/01/14 |
$ |
88,870 |
$ |
225,210 |
||||||||||
|
Robert
B. Watson |
5,000 |
7.30 |
% |
$ |
10.87 |
03/01/14 |
$ |
34,180 |
$ |
86,620 |
||||||||||
| (1) |
These
options are granted under the “2002 Long Term Incentive
Plan”. |
| (2) |
These
options were granted at fair market value at the time of the grant, are
generally 100% exercisable five years from the date of the grant, with a
vesting schedule of 30% the third year, 60% the fourth year and 100% the
fifth year, and have been adjusted for the 2 for 1 stock split effective
September 2004. |
| (3) | These options could expire earlier in certain situations. |
|
(4) |
The
potential realizable value of the options granted in 2004 to the Executive
Officers named above was calculated by multiplying those options by the
excess of (a) the assumed market value at March 1, 2014 of common stock if
the estimated market value of common stock were to increase 5% or 10% in
each year of the option’s 10-year term over (b) the base price shown. This
calculation does not take into account any taxes or other expenses, which
might be owed. The 5% and 10% appreciation rates are set forth in the SEC
rules and no representation is made that the common stock will appreciate
at those assumed rates, or at all. |
|
AGGREGATED
OPTION EXERCISES IN 2004 AND DECEMBER 31, 2004 OPTION
VALUES |
|||||||||||||||||||
|
Shares
Acquired |
Value |
Number
of Securities Underlying Unexercised Options as of
12/31/04 |
Value
of Unexercisable, In-the Money Options at
12/31/04 |
||||||||||||||||
|
On
Exercise |
Realized |
( #
) |
( $
) |
||||||||||||||||
|
Name |
( #
) |
( $
) |
Exercisable |
Unexercisable |
Exercisable |
Unexercisable |
|||||||||||||
|
Gregory
B. Jones |
0 |
$ |
0 |
32,920 |
49,680 |
$ |
289,910 |
$ |
362,265 |
||||||||||
|
Jerry
D. Lee |
0 |
$ |
0 |
31,120 |
35,080 |
$ |
274,610 |
$ |
254,115 |
||||||||||
|
Nathaniel
F. Hughes |
0 |
$ |
0 |
31,120 |
35,080 |
$ |
274,610 |
$ |
254,115 |
||||||||||
|
Robert
B. Watson |
0 |
$ |
0 |
0 |
9,000 |
$ |
0 |
$ |
58,375 |
||||||||||
| (1) |
Shares
acquired pursuant to option grant must generally be held five years for
100% vestment, with a vesting schedule of 30% the third year, 60% the
fourth year and 100% the fifth year adjusted for the 2 for 1 stock split
effective September 2004. |
| (2) |
Value
is calculated as the difference between the estimated price of a share of
common stock on December 31, 2004 ($15.75 per share) and the exercise
price of the options. No value is reported if the exercise price of the
options exceeded, or is equal to, the estimated market price of a share of
common stock on December 31, 2004. |
401(k)
Plan
The
Company has a 401(k) plan covering employees meeting certain age requirements.
The plan is structured such that employees can contribute to the plan on a
tax-deductible basis and have their contributions invested in various investment
funds offered under the plan. The plan permits, but does not require, the
Company to make an employer matching contribution during the plan year. Employer
contributions, which represent 100% of the first 6% of an employee's salary
contributed to the plan, totaled $130,423 in 2004.
1996
Cornerstone Statutory and Non-statutory Stock Option Plan
The
Company established the 1996 Cornerstone Statutory and Non-statutory Stock
Option Plan (the "Plan") during 1996 as a long-term incentive for eligible
employees and directors. The total number of shares that may be issued under the
plan, as adjusted for the 2 for 1 stock split effective September 2004, may not
exceed 410,000. Of such shares, 110,000 may be incentive stock options and the
remaining 300,000 shares of stock may be nonqualified stock options. The persons
eligible to receive incentive stock options under the plan are key Company
employees and officers selected by the Human Resource Committee of the Board.
Persons designated by the Committee who are eligible to receive nonqualified
options need not be employees of the Company and generally will be
non-management directors of the Company. The nonqualified stock options are
issued at the market value of the Company's stock and are exercisable upon
issue. The term of all options issued under the Plan is for 10 years. As of
December 31, 2004 there have been 108,200 incentive stock options issued with
400 incentive stock options available for issue. There are 93,560 incentive
stock options exercisable, 14,640 unexercisable and 1,400 incentive stock
options have been exercised. There have been 250,000 nonqualified stock options
granted under the Plan with 30,000 non-management stock options available for
issue. There are 240,000 nonqualified stock options exercisable, 10,000
unexercisable and 20,000 nonqualified stock options have been exercised.
Cornerstone
2002 Long Term Incentive Plan
The
Company established the 2002 Long Term Incentive Plan (the "Incentive Plan")
with shareholder approval in April 2002 as long-term incentive for eligible
employees and directors. The total number of shares, as adjusted for the 2 for 1
stock split effective September 2004, that may be issued under the Incentive
Plan may not exceed 600,000. The Incentive Plan allows for the issuance of
restricted stock, stock appreciation rights, performance awards, non-qualified
stock options and incentive stock options. The persons eligible to receive
grants under the Incentive Plan are key Company officers, employees and
directors selected by the Human Resource Committee of the Board. The incentive
stock options are issued at the market value of the Company's stock and are
exercisable after two (2) years from issuance plus a three (3) year vesting
period. The term of all grants are determined by the Human Resource Committee,
but will not exceed ten (10) years. As of December 31, 2004 there have been
174,000 incentive stock options granted only to Company employees under the
Incentive Plan through December 31, 2004. There are 425,850 stock options
available for issue with 150 incentive stock options exercised. There are 14,550
stock options exercisable and 159,450 unexercisable. There has not been any
other stock awards granted under the Incentive Plan.
Cornerstone
Bancshares, Inc. 2004 Non-Employee Director Compensation
Plan
The
Company’s Board of Directors established the 2004 Non-Employee Director
Compensation Plan (the “Director Plan”) to provide to non-employee directors the
option to receive all or part of their compensation for serving on the Board and
on any committee of the Board in shares of common stock of the Company. The
total number of shares that may be issued under the Director Plan may not exceed
40,000, as adjusted for the 2 for 1 stock split effective September 2004. Shares
of common stock received under the Director Plan will be issued within
forty-five days of the calendar quarter in which they were earned. The number of
shares delivered pursuant to the Director Plan will equal the amount of the
applicable director compensation divided by the average closing price of the
common stock for the five trading days immediately preceding the date on which
such director compensation was earned. There have not been any shares of Company
common stock issued under the Director Plan.
Equity
Compensation Plan Information as of December 31, 2004
|
Plan
category |
Number
of securities to be issued upon exercise of outstanding
options |
Weighted
average exercise price of outstanding options |
Number
of securities remaining available for future issuance |
|
Equity
compensation plans approved by security holders: |
532,200 |
$ |
6.67 |
456,250 |
||||||
|
Equity
compensation plans not approved by security holders: |
0 |
$ |
0.00 |
0 |
||||||
|
Total |
532,200 |
$ |
6.67 |
456,250 |
||||||
Employment Agreements
The
Company has entered into "Executive Agreements" with three members of senior
management: Gregory B. Jones, Chief Executive Officer and Chairman of the Board;
Nathaniel F. Hughes, President and Chief Operating Officer and Jerry D. Lee,
Executive Vice President and Senior Loan Officer. The original agreements were
in effect for a period of three years and expired on March 2, 2002. The
expiration date of each agreement has been extended until March 2,
2008.
Each
agreement contains change-in-control provisions requiring a potential successor
to negotiate with the employee as a condition to acquisition. The final
employment agreement between the successor entity and the employee must be for a
period of at least two years with a similar compensation package. If the
employee is terminated, he must receive all compensation due at that time plus
two years base salary. In addition all unexercised incentive stock options will
become 100% vested. If such termination payment is made to the employee, he will
agree not to engage in any business or activity within the Chattanooga Standard
Metropolitan Statistical Area for a period of one-year, which is directly or
indirectly in competition with the successor entity.
INFORMATION
ABOUT THE BOARD OF DIRECTORS AND ITS COMMITTEES
The Board
of Directors held fourteen meetings during 2004 and all of the directors
attended at least 75%, with the exception of Mr. Smith who attended 71%, of the
aggregate total number of meetings of the Board and meetings of the Board
committees on which they served. The Company does not have a policy for director
attendance at annual meetings. Of the thirteen directors of the Board, the Board
has determined that nine directors are independent under the requirements of
Rule 10A-3 of the Securities Exchange Act of 1934. The Company has four standing
committees: the Audit Committee, the Asset/Liability Management and Strategic
Planning Committee, the Human Resource Committee and the Nominating and Board
Governance Committee. These committees advise on policy origination and plan
administrative strategy and assure policy compliance through management
reporting from areas under their supervision. These same four committees also
serve the Company's only bank subsidiary, Cornerstone Community Bank. In
addition, the Bank has a Directors Loan Committee.
The Audit
Committee historically has recommended annually to the Board the accounting firm
to be engaged as independent auditors for the Company for the next fiscal year
and after the enactment of the Sarbanes-Oxley Act of 2002 now selects and
engages the Company’s independent auditors. Pursuant to its Amended and Restated
Audit Committee Charter, the Audit Committee, among other things, reviews
financial statements, plans and results of internal auditing, financial
reporting procedures, reports of regulatory authorities, compliance with
internal controls required by the Federal Deposit Insurance Corporation
Improvement Act and periodically reports to the Board. Mr. Smith, Mr. Levine,
Dr. Payne, and Mr. Large constitute the members of this Committee. This
Committee held six meetings for the Company and the Bank during
2004.
The
Asset/Liability Management and Strategic Planning Committee oversees and reviews
the Company's investment portfolio, risk management process, development and
implementation of the Company’s strategic plan and interest risk positions. The
members of this Committee are Mr. Lloyd, Mr. Levine, Mr. Marler and Mr. Wiggins.
This Committee held seven meetings for the Company and the Bank during
2004.
The Human
Resource Committee makes recommendations to the Board with respect to the
compensation of executive officers and employees of the Company and the Bank.
The Company's Human Resource committee administers the 401-(k) plan, the 1996
Cornerstone Statutory and Non-statutory Stock Option Plan and the 2002 Long Term
Incentive Plan and the 2004 Non-Employee Director Compensation Plan. In
addition, the Committee oversees the Company's employee benefit and salary
administration functions. Dr. Payne, Mr. Levine, Mr. Smith and Ms. Yessick
constitute the members of this Committee. This Committee held three meetings for
the Company and the Bank during 2004.
The
Nominating and Board Governance Committee identifies, investigates and
recommends prospective directors to the Board with the goal of creating a
balance of knowledge, experience and diversity. Candidates for director nominees
are reviewed in the context of the current composition of the Board, the
operating requirements of the Company and the Bank and the long-term interest of
the shareholders. The Committee develops and maintains a list of potential
candidates for the Board. In conducting this assessment, the Committee considers
diversity, age, skills and such other factors as it deems appropriate given the
current needs of the Board, the Company and the Bank, to maintain a balance of
knowledge, experience and capability. This Committee also reviews the
performance and contribution of independent members of the Board and determines
the need for any corporate officer to be considered a candidate for nomination.
The Committee will not consider nominees for directors recommended by
Shareholders. The Committee has a charter approved by the Board annually, which
charter is attached hereto as Exhibit A. Each member of the Committee, with the
exception of Mr. Marler, would be independent as required by Nasdaq or the New
York Stock Exchange. Mr. Fillauer, Mr. Marler, Mr. Driver and Ms. Yessick
constitute the members of this Committee. This Committee held two meetings in
2004.
Compensation
of Directors
The
directors of the Company are not compensated for their attendance at Board
meetings or committee meetings. However, in 2004 the Board formed an
ad
hoc
committee to perform due diligence on a possible acquisition of a non-bank
transaction processing company. The ad
hoc committee
met three times during the second and third quarters of 2004. After careful
consideration the Company was unable to reach a conclusion of the acquisition
and the committee was terminated. The members of this committee were Mr. Driver,
Mr. Large, Mr. Marler, Mr. Wiggins and Ms. Yessick. Each member was paid $150
per meeting attended. Company directors are eligible to receive an annual
retainer as compensation for their services on the Board if the Company meets
certain financial performance goals set forth in the Company’s annual profit
plan, as from time to time amended. These payments, if any, can be paid in cash
or stock. The 2004 Non-Employee Director Compensation Plan provides the
opportunity for director compensation paid by the Company to be in the form of
Company common stock. Company non-management directors were compensated
$3,500.00 each in 2004. Total director fees paid by the Company for services
rendered on behalf of the Company in 2004 were $40,750. Non-management Company
directors are eligible to participate in the 1996 Cornerstone Statutory and
Non-statutory Stock Option Plan and the 2002 Long Term Incentive Plan. There
were 1,000 options granted, adjusted for the 2 for 1 stock split issued in
September 2004, to Company non-management directors in 2004. These options were
granted to non-management directors under the 1996 Cornerstone Statutory and
Non-statutory Stock Option Plan. These options expire in ten years, were issued
at market price and are vested 50% after the first anniversary date and 50%
after the second anniversary date. (See “Security Ownership of Certain
Beneficial Owners and Management”)
The
directors for the Company’s wholly owned subsidiary Bank, Cornerstone Community
Bank, received $650 for each Board meeting of the Bank. Each non-management
director received $175 for each Bank Audit Committee meeting attended. Each
non-management director received $150 for all other committee meetings attended.
The Chairperson of the Bank Audit Committee received $200 for each meeting
attended. The Chairpersons of all other Bank committees received $175 for each
meeting attended. Total director fees paid by the Bank for services rendered on
behalf of the Bank in 2004 were $121,675.
Communications
with Directors
Shareholders
are encouraged to communicate with directors either in person or in writing at
any time. Communications are not screened and written communications are passed
on to the Board for their review and consideration. Written communications
should be sent to the Company at 5319 Highway 153, Chattanooga, Tennessee
37343.
HUMAN
RESOURCE COMMITTEE COMPENSATION REPORT
The Human
Resource Committee either approves or recommends to the Board payment amounts
and award levels for the Executive Officers of the Company and its subsidiary.
The report reflects the Company’s philosophy as endorsed by the Company’s Board
and the Human Resource Committee and resulting actions taken by the Company for
the reporting periods shown in the compensation tables supporting the
report.
General
The Human
Resource Committee is composed of four independent, non-management directors who
have no "interlocking" relationships as defined by the Securities and Exchange
Commission. The Human Resource Committee fully supports the Company's philosophy
that the relationship between compensation and individual performance is the
cornerstone of the salary administration program, and the reward of consistent,
superior performance is equally important to the control of salary expense in
the management of the Company's operating overhead. Executive Officer
compensation is comprised of: base pay, annual cash incentives and long-term
non-cash incentives. The administration of Executive Officer compensation in
these areas is based not only on individual performance and contributions, but
also on total Company performance relative to profitability and shareholder
interests. The Human Resource Committee makes recommendations to the Board with
a view to: (i) ensuring that a competitive and fair total compensation package
is provided the directors, officers and employees in order to recruit and retain
quality personnel; (ii) ensuring that written performance evaluations are made
not less frequently than annually; and, (iii) periodically reviewing and
revising salary ranges and total compensation programs for directors, officers
and employees.
Base
Salary and Increases
In
establishing Executive Officer base salaries and increases, the Human Resource
Committee considers individual annual performance and the relationship of total
compensation to the defined salary market. The decision to increase base pay is
recommended by the chief executive officer and approved by the Human Resource
Committee using performance results documented and measured annually.
Information regarding salaries paid by other financial institutions is obtained
and is used in the decision process to ensure competitiveness with the Company's
peers and competitors.
The
Company's philosophy is to provide base pay competitive with other banks and
bank holding companies of similar size located in the southeast.
Executive
Officer Pay
The Human
Resource Committee formally reviews the compensation paid to the Executive
Officers in January each year. Changes in base salary and the awarding of cash
incentives are based on overall financial performance and profitability related
to objectives stated in the Company's strategic performance plan and the
initiatives taken to direct the Company. Salary information is gathered and used
in formulating recommendations regarding changes in the chief executive
officer's compensation to ensure that the chief executive officer's total
compensation is comparable with industry peers. The Board makes the final
approval.
After a
review of market information, the Human Resource Committee established Mr.
Jones' base salary for the year 2004 at $175,000. This salary level represents a
12.90% increase or $20,000 from the year 2003 base salary. This salary level
reflects an appropriate compensation level based in part on his past
accomplishments with the Company.
Annual
Cash Incentives
From time
to time the Company uses annual cash incentives for specific short-term results.
For the year 2004 the Company used the plan for a cash incentive to the Chief
Executive Officer of $30,000.
Long-Term
Incentives
The
Company and its shareholders have previously approved the 1996 Cornerstone
Statutory and Non-statutory Stock Option Plan, and 110,000 shares of Company
stock have been reserved for issue under this plan as employee incentive stock
options. In addition the shareholders approved the 2002 Long Term Incentive
Plan, and 600,000 shares of Company stock have been reserved for issue under
this plan as statutory and non-statutory stock options. In 2004 the Human
Resource Committee recommended and the Board of Directors approved the issuance
of stock options to purchase 17,400 shares of Company Stock at an exercise price
of $10.875 per share to Mr. Jones as an additional long-term incentive. (See
"Stock Option Grants in 2004")
Employment
and Severance Contracts
The
Company has entered into "Executive Agreements" with key Executive Officers,
including Mr. Jones, Mr. Hughes and Mr. Lee. These agreements, among other
things, provide Mr. Jones, Mr. Hughes and Mr. Lee, under certain circumstances,
with two years of salary and immediate vesting of any unexercised stock options
in the event of a change in control of the Company or the Bank through a merger,
sale or acquisition. The original agreements expired in 2002, but were extended
in 2002 and again in 2005 with new expiration dates in 2008. If there is no
change of control of the Company or the Bank, no such benefits will be paid to
Mr. Jones, Mr. Hughes or Mr. Lee.
$l
Million Deduction Limit
At this
time the Company does not appear to be at risk of losing deductions under the $1
million deduction limit on executive pay established under Section 162(m) of the
Internal Revenue Code of 1986, as amended. As a result, the Company has not
established a policy regarding this limit.
Summary
In
summary the Company's overall executive compensation program is designed to
reward managers for individual, Company and share-value performance. The
executive compensation program incorporates a shareholder point of view in
several different ways and contains significant protections for shareholders.
The Human Resource Committee monitors the various program guidelines and may
adjust these as it deems appropriate. The Human Resource Committee believes that
the compensation of the Company's officers and employees, including the
Executive Officers, is reasonable and competitive with compensation paid by
other financial institutions of similar size. The Company's total personnel
expense, as a percentage of average assets was 1.78% on December 31,
2004.
This
concludes the report of the Human Resource Committee.
Doyce G.
Payne Lawrence D.
Levine G. Turner Smith Marsha
Yessick
AUDIT
COMMITTEE REPORT
Identification
of Members and Functions of Committee
The Audit
Committee of the Company's Board of Directors is currently comprised of four
non-employee directors: (1) G. Turner Smith, (2) Lawrence D. Levine, (3) Doyce
G. Payne, and (4) James H. Large. Each member of the Audit Committee is
“independent” as defined by Rule 4200(a)(15) of the National Association of
Securities Dealer, Inc.’s listing standards and meets the criteria for
independence set forth in Rule 10A-3(b)(1) under the Securities Exchange Act of
1934, as amended (the “Securities and Exchange Act”). The Audit Committee does
not have a financial expert, “as defined in 17 CFR 229.401(e), because no
director on the Board of Directors satisfies the criteria of a financial expert
and the Company has not been able to find a suitable board member who is a
financial expert.
Committee
Charter
The Audit
Committee and the Board has approved and adopted an Amended and Restated Audit
Committee Charter for the Audit Committee. In accordance with the Audit
Committee Charter, the Audit Committee assists the Board in fulfilling its
responsibility for overseeing the accounting, auditing and financial reporting
processes of the Company. The Audit Committee met six times in fiscal year 2004.
Prior to the release of quarterly reports in fiscal year 2004, the Audit
Committee or a member of the Committee also reviewed and discussed the interim
financial information contained therein with HLB.
Audit
Fees
The
aggregate fees billed for professional services rendered by HLB for the fiscal
years ended December 31, 2003 and December 31, 2004 were:
|
Services |
Fiscal
Year |
Amount |
|||||
| Audit Fees (1): | 2003 | $ | 45,100 | ||||
|
2004 |
$ |
52,836 |
|||||
| Audit Related Fees (2): | 2003 | $ | 16,940 | ||||
|
|
2004 |
$ |
17,500 |
||||
| Tax Fees (3): | 2003 | $ | 10,850 | ||||
|
2004 |
$ |
7,400 |
|||||
| All Other Fees (4): | 2003 | $ | 780 | ||||
|
2004 |
$ |
1,326 |
|||||
|
(1) |
Audit fees consist of services rendered for the audit of the annual financial statements, including required quarterly reviews, statutory and regulatory filings or engagements and services that generally only the auditor can reasonably be expected to provide. | |
|
(2) |
Audit-related
services are assurance and related services that are reasonably related to
the performance of the audit or review of the financial statements or that
are traditionally performed by the independent auditor. | |
|
(3) |
Tax
fees are for professional services rendered for tax compliance, tax advice
and tax planning. | |
|
(4) |
All
other fees are for services other than those in the previous categories
such as permitted corporate finance assistance and permitted advisory
services. |
The Audit
Committee’s pre-approval policies and procedures related to products and
services provided by its principal accountants are set forth in the Company’s
Amended and Restated Audit Committee Charter. In fiscal years 2003 and 2004, the
Audit Fees, Audit Related Fees, Tax Fees and All Other Fees were pre-approved by
the Audit Committee.
Auditor
Independence
The Audit
Committee received from HLB written disclosures and a letter regarding its
independence as required by Independence Standards Board Standard No. 1,
describing all relationships between the auditors and the Company that might
bear on the auditors' independence, and discussed this information with HLB. The
Audit Committee also reviewed and discussed with management and with HLB the
quality and adequacy of the Company's internal controls. The Audit Committee
also reviewed with HLB and financial management of the Company the audit plans,
audit scope and audit procedures. The discussions with HLB also included the
matters required by generally accepted auditing standards, including those
described in Statement on Auditing Standards No. 61, as amended. The Audit
Committee has also considered, and concluded, that the provision of services by
HLB described under the caption “All Other Fees” are compatible with maintaining
the independence of HLB.
Review
of Audited Financial Statements
The Audit
Committee has reviewed the audited financial statements of the Company as of and
for the fiscal year ended December 31, 2004 and has discussed the audited
financial statements with management and with HLB. Based on all of the foregoing
reviews and discussions with management and HLB, the Audit Committee recommended
to the Board of Directors that the audited financial statements be included in
the Company's Annual Report on Form 10-KSB for the year ended December 31, 2004,
to be filed with the Securities and Exchange Commission.
The
foregoing report is submitted by the Audit Committee, consisting
of:
Doyce G.
Payne Lawrence
D. Levine G. Turner
Smith James H.
Large
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS
Various
Company directors, executive officers and their affiliates, including
corporations and firms of which they are officers or in which they and/or their
families have an ownership interest, are customers of the Company and its
subsidiary. These persons, corporations and firms have had transactions in the
ordinary course of business with the Company and its subsidiary, including
borrowings, all of which, in the opinion of management, were on substantially
the same terms including interest rates and collateral as those prevailing at
the time for comparable transactions with unaffiliated persons and did not
involve more than the normal risk of collectibility or present other unfavorable
features. The Company and its subsidiary expect to have such transactions on
similar terms with directors, executive officers and their affiliates in the
future. The aggregate amount of loans outstanding by Cornerstone Community Bank
to directors, executive officers and related parties as of December 31, 2004 was
approximately $1,133,316 which represented 4.57% of the Company’s consolidated
shareholders’ equity on that date.
OTHER
MATTERS
Section
16(a) Beneficial Ownership Reporting Compliance
Under
federal securities laws, the Company’s directors, executive officers and holders
of 10% or more of shares of Common Stock are required to report, within
specified due dates, their initial ownership of the Common Stock and all
subsequent acquisitions, dispositions or other transfers of beneficial interests
therein, if and to the extent reportable events occur which require reporting by
such due dates. Based solely on representations and information provided to the
Company by the persons required to make such filings, the Company believes that
all filing requirements were complied with during the last fiscal
year.
Shareholder
Proposals for the 2006 Annual Meeting
Proposals
of shareholders of the Company intended to be presented at the 2006 Annual
Meeting of Shareholders must be received by the Company at its principal
executive offices on or before November 18, 2005. Proposals received before the
deadline will be included in the Company's Proxy Statement and Proxy relating to
the 2006 Annual Meeting of Shareholders. Only proper proposals which are timely
received will be included in the Proxy Statement and Proxy.
Available
Information
The
Company is subject to the informational requirements of the Securities Exchange
Act and, in accordance therewith, is required to file reports, proxy statements
and other information with the Securities and Exchange Commission. Shareholders
may inspect and copy such reports, proxy statements and other information at the
Public Reference Section of the Securities and Exchange Commission at Room 1024,
450 Fifth Street, N.W., Washington, D.C. 20549, and at the Securities and
Exchange Commission’s regional offices at CitiCorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661. Shareholders may also obtain copies
of the reports, proxy statements and other information from the Public Reference
Section of the Securities and Exchange Commission, Washington, D.C. at
prescribed rates. The Securities and Exchange Commission maintains a World Wide
Web site on the internet at http://www.sec.gov that
contains reports, proxies, information statements, registration statements and
other information filed with the Securities and Exchange Commission through the
EDGAR system.
Annual
Report on Form 10-KSB
A copy of
the Company's Annual Report on Form 10-KSB is being mailed with this proxy
statement to each shareholder of record.
Exhibit
A
CORNERSTONE
BANCSHARES, INC.
CHARTER
OF THE NOMINATING AND BOARD GOVERNANCE COMMITTEE
1. Purpose.
The
purpose of the Nominating and Board Governance Committee (the “Committee”) is to
assist the Board of Directors (the “Board”) of Cornerstone Bancshares, Inc. (the
“Company”) in fulfilling its responsibility of identifying, investigating and
recommending prospective directors to the Board and to establish, maintain and
monitor proper rules of process for Board conduct. Proper Board conduct will
ensure that processes are in place for maintaining (1) the integrity of the
Company, (2) the integrity of the financial statements, (3) the integrity of
compliance with law and ethics, (4) the integrity of relationships with our
clients, and (5) the integrity of the relationships with our
shareholders.
2. Composition
of the Committee.
The
Committee shall be comprised of not less than (4) directors, each of whom will
be independent as required by Rule 4200(a)(15) of the National Association of
Securities Dealer, Inc.’s listing standards and meets the criteria for
independence set forth in Rule 10A-3(b)(1) under the Securities Exchange Act of
1934, as amended. Each appointed Committee member shall be subject to annual
reconfirmation and may be removed by the Board at any time.
3. Responsibilities
and Duties.
To
fulfill its responsibilities and duties, the Committee shall:
|
A. |
Establish
Board member qualifications and attributes that encourages the Board’s
diversity and broadens its experience and
knowledge. |
| B. | Develop and maintain a list of potential Board member candidates. |
| C. | Identify, investigate and recommend prospective directors to the Board with the goal of creating a balance of knowledge, experience and diversity. |
|
D. |
Establish,
maintain and monitor proper rules of process for Board conduct including
the following: |
| a. |
Annual
review of the Board’s compensation with similarly sized banking
institutions in the state of Tennessee, and recommends adjustment if
necessary. |
| b. |
Establish
the requirement for director continuing education and the minimum CPE to
be attained over a two-year period. |
| c. |
Conduct
the annual self-review for director
performance. |
| d. |
Establish
the Company’s ethics and conflict of interest policy and annually review
it for recommendation to the Board for
approval. |
| e. |
Establish
and maintain a Director’s Manual to be used both as a policy and
procedures workbook for each director. |
| E. | Establish and periodically review of the Company and Board’s succession plan. |
|
F. |
Evaluate
the effectiveness of the Board’s committee structure and recommend changes
if required. |
|
G. |
Evaluate
the effectiveness of the Advisory Board’s effectiveness and recommend
changes if required. |
4. Committee
Meetings.
The
Committee will meet on a regular basis at least two times each year, and will
hold special meetings, as circumstances require. The Committee shall determine
the timing of the meetings. At all Committee meetings a majority of the total
number of members shall constitute a quorum. A majority of the members of the
Committee present at each meeting shall be empowered to act on behalf of the
entire Committee. Minutes shall be kept of each meeting of the
Committee.