UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
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Pennsylvania Commerce Bancorp
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Pennsylvania Commerce Bancorp
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NOTICE OF ANNUAL
MEETING OF SHAREHOLDERS
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Date: May 21, 2004
Time: 9:00 a.m.
Place: Radisson Penn Harris
1150 Camp Hill Bypass
Camp Hill, PA 17011
Matters to be voted on:
1. Election of Directors. Election of eight (8) directors to serve until the
2005 annual meeting.
2. Amendment to Employee Stock Option Plan. Approval of an amendment to the
1996 Employee Stock Option Plan to increase the number of shares of common
stock issuable under the 1996 Plan by 100,000 shares.
3. Other Business. Any other business properly brought before the shareholders
at the meeting.
You can vote your shares of common stock if our records show that you
owned the shares at the close of business on March 31, 2004 (the "Record Date").
Your vote at the annual meeting is very important to us. Please vote your shares
of common stock by completing the enclosed proxy card and returning it to us in
the enclosed prepaid envelope. This proxy will not be used if you are present at
the meeting and desire to vote in person.
BY ORDER OF THE BOARD OF DIRECTORS,
/s/ Peter J. Ressler
--------------------
Peter J. Ressler
Secretary
Camp Hill, Pennsylvania
May 3, 2004
PENNSYLVANIA COMMERCE BANCORP, INC.
PROXY STATEMENT
May 3, 2004
GENERAL INFORMATION
This proxy statement has information about the annual meeting of
shareholders of Pennsylvania Commerce Bancorp, Inc. ("Commerce"). The management
of Commerce and Commerce Bank/Harrisburg, N.A. (the "Bank") prepared this proxy
statement for the Board of Directors. We first mailed this proxy statement and
the enclosed proxy card to shareholders on or about May 3, 2004.
We will pay the costs of preparing, printing and mailing the proxy and all
related materials. In addition to sending you these materials, some of our
employees may contact you by telephone, by mail or in person.
Our executive offices are located at 100 Senate Avenue, Camp Hill,
Pennsylvania 17011, and our telephone number is (717) 975-5630. Our mailing
address is P. O. Box 8599, Camp Hill, Pennsylvania 17001-8599.
VOTING
Who can vote?
You can vote your shares of common stock if our records show that you
owned the shares at the close of business on March 31, 2004 (the "Record Date").
A total of 2,309,209 shares of common stock were outstanding on the Record Date
and can vote at the annual meeting. You get one vote for each share of common
stock you own. The enclosed proxy card shows the number of shares you can vote.
We will hold the annual meeting if the holders of a majority of the shares of
the common stock entitled to vote either sign and return their proxy cards or
attend the meeting in person.
As of the Record Date, there were 40,000 shares of Series A Non-Cumulative
Preferred Stock ("Preferred Stock") outstanding. Holders of Preferred Stock
cannot vote at the annual meeting.
How do I vote by proxy?
Follow the instructions on the enclosed proxy card to vote on each
proposal to be considered at the annual meeting. Sign and date the proxy card
and mail it back to our Transfer Agent in the enclosed prepaid envelope. The
proxy holders named on the proxy card will vote your shares as you instruct. If
you sign and return the proxy card but do not vote on a proposal, the proxy
holders will vote for you on that proposal. Unless you instruct otherwise, the
proxy holders will vote for the election of each of the eight director nominees
and for each of the other proposals to be considered at the meeting.
What vote is required?
A majority of the votes cast at a meeting at which a quorum is present is
required in order to approve any matter submitted to a vote of the shareholders,
except in the cases where the vote of a greater number of shares is required by
law or under the Articles of Incorporation or Bylaws. In the case of the
election of directors, the eight candidates receiving the highest number of
votes cast at the Annual Meeting shall be elected to the Board of Directors.
Abstentions and broker non-votes will be counted as shares for purposes of
determining whether there is a quorum, but will not be counted or voted in favor
of the election of directors.
What if other matters come up at the annual meeting?
The matters described in this proxy statement are the only matters we know
will be voted on at the meeting. If other matters are properly presented at the
annual meeting, the proxy holders named in the enclosed proxy card will exercise
their judgment to vote your shares in a manner that they deem to be in the best
interests of Commerce and its shareholders.
How are votes counted?
Our judges of election will manually count all votes which are cast in
person or by proxy at the annual meeting. Voting is an important right of
shareholders. If you abstain or otherwise fail to cast a vote on any matter, the
abstention or failure is not a vote and will not be counted. Broker non-votes
(shares of common stock held in record name by your broker or nominee for which
(i) you have not provided voting instructions, (ii) the broker or nominee does
not have discretion to vote on your behalf, and (iii) the broker or nominee has
indicated on the proxy that it does not have authority to vote on such matters)
will also not be counted as votes.
Can I change my vote after I return my proxy card?
Yes. At any time before the vote on a proposal, you can change your vote
either by:
o giving Commerce's secretary a written notice revoking your proxy card;
or
o signing, dating and returning to us a new proxy card.
We will honor the proxy card with the latest date.
Can I vote in person at the annual meeting?
Yes. We encourage you to complete and return the proxy card to ensure
that your vote is counted. However, you may attend the meeting and vote in
person whether or not you have previously returned a proxy card.
1
SECURITY OWNERSHIP OF MANAGEMENT AND
CERTAIN BENEFICIAL SHAREHOLDERS
The following table sets forth, as of March 31, 2004, the beneficial
ownership of Commerce's common stock by (i) each person who is known by Commerce
to be the beneficial owner of more than 5% of Commerce's common stock, (ii) each
director and nominee for director of Commerce, (iii) each of the executive
officers of Commerce named in the Summary Compensation Table and (iv) all the
directors and named executive officers of Commerce as a group. Unless otherwise
specified, all person listed below have sole voting power with respect to their
shares.
Percentage of
Name of Beneficial Number of Shares Common Stock
Owner or Identity of Group Beneficially Owned 1 Beneficially Owned 1
- ----------------------------------------- ------------------------- -----------------------
James R. Adair 7,668 2 *
John J. Cardello, CPA 210 *
Douglas S. Gelder 58,152 3 2.46%
Alan R. Hassman 115,172 4 4.95%
Howell C. Mette 61,750 5 2.60%
Gary L. Nalbandian 264,943 6 10.87%
Michael A. Serluco 82,618 5 3.55%
Samir J. Srouji, M.D. 74,828 7 3.22%
Rory G. Ritrievi 10,237 8 *
David B. Skerpon 2,045 9 *
Mark A. Zody 48,704 10 2.08%
All Directors and Executive Officers
of Commerce, as a group (12 Persons) 773,466 11 29.87%
Commerce Bancorp, Inc.
Commerce Atrium
1701 Route 70 East
Cherry Hill, NJ 08034 183,400 7.94%
- -----------------------------------------
* less than 1%
1 The securities "beneficially owned" by an individual are determined in
accordance with the definition of "beneficial ownership" set forth in
the regulations of the Securities and Exchange Commission.
Accordingly, they may include securities owned by or for, among
others, the wife and/or minor children of the individual and any other
relative who has the same home as such individual, as well as
securities as to which the individual has or shares voting or
investment power or has the right to acquire under outstanding stock
options within 60 days after March 31, 2004. Shares subject to
outstanding stock options, which an individual has the right to
acquire within 60 days after March 31, 2004, are deemed to be
outstanding for the purpose of computing the percentage of outstanding
securities of the class of stock owned by such individual or any group
including such individual only. Beneficial ownership may be disclaimed
as to certain of the securities.
2 Includes 3,590 shares of Commerce common stock issuable upon the
exercise of stock options granted under Commerce's 2001 Stock Option
Plan for Non-Employee Directors.
3 Includes 15,524 shares of Commerce common stock issuable upon the
exercise of stock options granted under Commerce's 1990 and 2001 Stock
Option Plans for Non-Employee Directors.
4 Includes 27,679 shares owned by Mr. Hassman's wife, Gloria Hassman.
Also includes 16,155 shares of Commerce common stock issuable upon the
exercise of stock options granted under Commerce's 1990 and 2001 Stock
Option Plans for Non-Employee Directors.
5 Includes 16,155 shares of Commerce common stock issuable upon the
exercise of stock options granted under Commerce's 1990 and 2001 Stock
Option Plans for Non-Employee Directors.
6 Includes 53,749 shares held by Mr. Nalbandian's individually directed
participant account in the NAI/CIR Profit Sharing Trust with respect
to which Mr. Nalbandian has sole voting power; 10,361 shares held in
trust by Mr. Nalbandian or Dorothy Nalbandian for the benefit of Mr.
Nalbandian's children; and 2,297 shares owned by Mr. Nalbandian's
wife, Jamie Nalbandian. Also includes 129,117
2
shares of Commerce common stock issuable upon the exercise of stock
options granted under Commerce's 1986 and 1996 Employee Stock Option
Plans.
7 Includes 10,355 shares owned by Dr. Srouji's wife, Gillian Srouji, 606
shares owned jointly by Dr. Srouji and his wife, and 12,392 shares
held by Dr. Srouji's self-directed participant account in the Plastic
Surgery P.C. Profit Sharing Plan. Also includes 16,155 shares of
Commerce common stock issuable upon the exercise of stock options
granted under Commerce's 1990 and 2001 Stock Option Plans for
Non-Employee Directors.
8 Includes 9,118 shares of Commerce common stock issuable upon the
exercise of stock options granted under Commerce's 1996 Employee Stock
Option Plan.
9 Includes 1,706 shares of Commerce common stock issuable upon the
exercise of stock options granted under Commerce's 1996 Employee Stock
Option Plan.
10 Includes 36,932 shares of Commerce common stock issuable upon the
exercise of stock options granted under Commerce's 1986 and 1996
Employee Stock Option Plans.
11 Includes an aggregate of 280,352 shares of Commerce common stock
issuable to directors and executive officers of Commerce under
Commerce's 1990 and 2001 Stock Option Plans for Non-Employee Directors
and Commerce's 1986 and 1996 Employee Stock Option Plans. This total
also includes 47,139 shares beneficially owned by Peter J. Ressler,
Corporate Secretary. Mr. Ressler has been Secretary of the Bank since
1985 and of Commerce since 1999. Mr. Ressler is a shareholder in the
law firm, Mette, Evans & Woodside in Harrisburg, PA.
ELECTION OF DIRECTORS OF COMMERCE
The Bylaws of Commerce provide as follows:
o the board of directors may, from time to time, fix the number of
directors;
o the board will consist of not less than five nor more than
twenty-five directors; and
o directors will be elected for a one-year term.
The Board has determined that there will be eight directors. Pursuant to
the Pennsylvania Business Corporation Act ("PBCA"), the election of directors
will be determined by a plurality vote and the eight nominees receiving the most
"FOR" votes will be elected. Shares may be voted "FOR" or withheld from each
nominee. Abstentions and broker non-votes will have no effect on the outcome of
the election because directors will be elected by a plurality of the shares
voted for the directors.
The Board of Directors unanimously recommends a vote "FOR" the election as
directors of the nominees named herein.
All of the nominees are currently members of the board and each of them
has consented to serve if elected. Commerce does not have separate classes of
Directors. Although we do not know of any reason why any of these nominees might
not be able to serve, we will propose a substitute nominee if any nominee is not
available for election
The proxy holders named in the proxy card intend to vote for the election
of the eight persons listed as director nominees to serve until the 2005 annual
meeting. Unless you indicate otherwise, your proxy will be voted in favor of the
election of those nominees. Each nominee is currently a director of Commerce and
the Bank. Pursuant to the power conferred on the Board by Commerce's Bylaws, Mr.
Cardello was appointed on January 23, 2004 by the Board to serve until elected
by the shareholders. All nominees for election were recommended by the Board of
Directors.
The following table shows the name and age of each nominee for election as
director. Following the table is a description of each nominee's business
experience for the past five years and the period of time that each nominee has
been a director of Commerce.
3
Position(s) with Commerce
Name Age and the Bank
------------------------- --------- ---------------------------------
Gary L. Nalbandian 61 Chairman, President and CEO of
Commerce and the Bank
James R. Adair 56 Director of Commerce and the Bank
John J. Cardello 43 Director of Commerce and the Bank
Douglas S. Gelder 54 Director of Commerce and the Bank
Alan R. Hassman 64 Director of Commerce and the Bank
Howell C. Mette 76 Director of Commerce and the Bank
Michael A. Serluco 63 Director of Commerce and the Bank
Samir J. Srouji, M.D. 67 Director of Commerce and the Bank
Mr. Nalbandian, a director of the Bank since 1985 and of Commerce since 1999,
has been Chairman of the Bank since 1985 and Commerce since 1999. Mr. Nalbandian
has been President/CEO of the Bank and Commerce since February 15, 2002. Mr.
Nalbandian has also been the co-owner of NAI/Commercial-Industrial Realty Co.
(NAI/CIR), Camp Hill, PA since 1969.
Mr. Adair, director of the Bank and of Commerce since 2001, has also been the
Owner of Adair Construction Services since 2003. Mr. Adair was also the
President/CEO of Alexander Constructors, Inc. 1997-2003.
Mr. Cardello, a director of the Bank and of Commerce since 2004, is a Partner at
Seligman, Friedman and Company, P.C. in York, PA, which engages in the
accounting and consulting business.
Mr. Gelder, a director of the Bank since 1987 and of Commerce since 1999, is the
President and Owner of Shaffer and Gelder Development Corporation in Hershey,
PA. Mr. Gelder is also the President and Owner of DSG Development in Hershey,
PA.
Mr. Hassman, a director of the Bank since 1985 and of Commerce since 1999, is
the owner and operator of ARH, Inc. in Harrisburg, PA, which engages in the
restaurant business.
Mr. Mette, a director of the Bank since 1985 and of Commerce since 1999, is a
shareholder in the law firm, Mette, Evans & Woodside in Harrisburg, PA.
Mr. Serluco, a director of the Bank since 1985 and of Commerce since 1999 is the
owner of Consolidated Properties in Wormleysburg, PA, which engages in the
business of real estate investment.
Dr. Srouji, a director of the Bank since 1985 and of Commerce since 1999 is a
Physician-Surgeon at Plastic Surgery, P.C. in Camp Hill, PA.
4
Independence of Directors
The Board of Directors of Commerce has determined that all the directors
with the exception of Mr. Nalbandian, Mr. Adair and Mr. Mette are independent as
defined in the NASDAQ Marketplace Rules. Pursuant to the NASD Listing Standards
Rule 4200, a company's Board of Directors is allowed to appoint one
non-independent member to serve up to two years as a member of its Compensation
Committee and/or Nominating Committee. To qualify as a non-independent member
under the exceptional and limited circumstances rule, among other things,
neither the member or their family members can currently be an officer or
employee of the company. Based upon this rule, Pennsylvania Commerce Bancorp,
Inc.'s Board of Directors determined that James R. Adair meets the
qualifications of the exceptional and limited circumstances rule and has
appointed him as Chairman of its Nominating and Governance Committee and a
member of its Compensation Committee. The Board, as well as its independent
directors, believes it was important to appoint Mr. Adair to these Committees
because he maintains a wealth of knowledge about Pennsylvania Commerce Bancorp,
Inc., its business objectives and goals and has expertise in the banking
industry. The Board of Directors believes that, because of his specific
experience, Mr. Adair is instrumental in helping articulate Pennsylvania
Commerce Bancorp's overall philosophy, culture and future direction to the
Committees. Commerce's independent directors intend to meet in Executive Session
at least two times annually.
Transactions with Officers and Directors
During 2003, the Bank had, and expects to have in the future, banking
transactions in the ordinary course of business with directors, officers, and
principal shareholders (and their associates) of Commerce on the same terms,
including interest rates and collateral on loans as those prevailing at the same
time for comparable transactions with others. Management believes that these
loans present no more than the normal risk of collectibility or other
unfavorable features. The loans to these persons and companies amounted to less
than 3% of total loans outstanding as of December 31, 2003.
Howell C. Mette, a director and 2.60% beneficial shareholder of Commerce,
is a shareholder in the law firm of Mette, Evans & Woodside, which Commerce
retained during 2003, and intends to retain during 2004. The law firm received
professional fees totaling $271,000 in 2003.
Michael A. Serluco, a director and 3.55% beneficial shareholder of
Commerce receives rental income from the Bank for land that contains an
advertising billboard, which is owned by the Bank. The Bank paid $25,000 on the
lease during 2003.
James R. Adair, a director and less than 1% beneficial shareholder of
Commerce, is the owner of Adair Construction Services, which the Bank paid $1.5
million in 2003 for construction services to build two branch offices.
NAI/Commercial-Industrial Realty Co. (NAI/CIR) is co-owned by Gary L.
Nalbandian, Chairman, President and CEO of Commerce and the Bank, and a 10.87%
beneficial shareholder of Commerce. In 2003, NAI/CIR received commissions
totaling $166,470 from independent third parties related to real estate
transactions conducted on behalf of Commerce's bank subsidiary, Commerce
Bank/Harrisburg, N.A.
As was previously indicated, Commerce Bancorp, Inc. ("Bancorp"), owns
7.94% of Commerce's common stock and 100% of Commerce's Series A preferred
stock. Bancorp, through its subsidiary, Commerce Bank, N.A., a national bank
located in Cherry Hill, New Jersey, provides various services to the Bank
including:
o maintaining the computer wide area network;
o proof and encoding;
o deposit account statement rendering;
o ATM/VISA Check Card services;
o data processing; and
o advertising support.
The Bank paid approximately $1.4 million to Bancorp for services provided
during 2003 and for the license to use Bancorp's name and logo. The Bank also
pays insurance premiums and commissions to a subsidiary of Bancorp, which we
included in this total. Additionally, the Bank routinely sells loan
participations to Commerce Bank, N.A. and at December 31, 2003, approximately
$2.6 million of these participations were outstanding.
5
Attendance at Annual Meeting
The Board of Directors has adopted a policy that all of its directors
shall be present at Commerce's Annual Meeting, absent extenuating circumstances.
All of the directors of Commerce were in attendance at the Annual Meeting of
Shareholders held May 16, 2003.
Directors' Compensation
Each Commerce director received an annual fee of $2,000 plus a fee of
$1,200 for each regular monthly meeting of the Board of Directors attended in
2003. Each director who is an active member of the Audit, Real Estate and/or
Compensation Committee received $150 for each committee meeting he attended. The
annual fee for 2004 will be $2,000 and the meeting fee will be $1,300. The
committee-meeting fees will be $300 for each Audit Committee and Executive
Committee meeting attended and $200 for each of the following committee-meetings
attended: Nominating and Corporate Governance, Real Estate and Compensation. In
addition, beginning in 2004, the Chairman of the Audit Committee and the
Chairman of the Executive Committee will each receive an additional fee of
$3,000 per quarter and the Chairman of the Nominating and Corporate Governance
Committee will receive an additional fee of $1,500 per quarter. Also, the
Chairman of the Compensation Committee will receive an additional fee of $500
for each meeting of this committee and the Chairman of the Real Estate Committee
will receive an additional fee of $300 for each meeting attended.
2001 Stock Option Plan for Non-Employee Directors
In 2000, the shareholders of Commerce adopted the 2001 Director's Stock
Option Plan.
A total of 121,550 shares (as adjusted for stock dividends) are subject to
the plan. The option price is generally the fair market value of the shares at
the time we grant the option. Options are not transferable other than by will or
laws of descent and distribution. A director can exercise the option only while
a director of Commerce or that period of time after he/she otherwise ceases so
to serve as determined by the Board of Directors. If a director dies within the
option period, the director's estate may exercise the option within three months
of his or her death.
A director cannot exercise an option before the earlier of (i) one year
from the date we grant the option, or (ii) a "change in control" of Commerce (as
defined in the plan) occurs. Options expire ten years after the date of grant.
The number of shares subject to options and the option price will be
appropriately adjusted if the number of issued shares is decreased or increased
by changes in par value, a combination, stock dividend and the like.
For the year ended December 31, 2003, each non-employee director was
granted options to purchase 1,795 shares (as adjusted for stock dividends) of
Commerce common stock. These options were not exercisable in 2003.
Meetings and Committees of the Board of Directors
The Board of Directors met twelve (12) times during 2003. In 2003 each
director attended more than 75% of the total number of meetings of the Board of
Directors including all Commerce and the Bank Committees of which they are
members.
The Board of Directors of Commerce has established five (5) committees:
o the Audit Committee
o the Compensation Committee
o the Real Estate Committee;
o the Executive Committee; and
o the Nominating and Corporate Governance Committee.
6
Information with respect to the Audit, Compensation and Nominating and
Corporate Governance Committees is listed below.
Audit Committee
The members of the Audit Committee are John J. Cardello (Chairman),
Douglas S. Gelder, Alan R. Hassman, Michael A. Serluco and Dr. Samir J. Srouji.
The Committee met four times in 2003. The Board has adopted a charter for the
Committee, which is attached to this proxy statement as Appendix A. Each member
of the Committee is independent, as defined by the NASDAQ Marketplace Rules and
the applicable rules of the Securities and Exchange Commission (SEC). The Board
has determined that Mr. Cardello is an audit committee financial expert, as
defined by the SEC.
Report of the Audit Committee
The general functions performed by the Audit Committee include supervising
and recommending to the Board changes in audit procedures, the hiring of
independent certified public accountants, reviewing the complete audit of the
books and financial statements of Commerce and its subsidiaries, reviewing and
making recommendations to the Board regarding the internal auditor's report and
the certified public accountants' audit report, reviewing examination reports by
state and federal banking regulators, and the monitoring of risks, which
includes reviewing the adequacy of internal controls and assessing the extent to
which audit recommendations have been implemented.
With respect to fiscal year 2003, the Audit Committee has reviewed and
discussed the audited financial statements of Commerce with management.
Additionally, the Audit Committee has discussed with the independent accountants
the matters required to be discussed by Statement on Auditing Standards No. 61,
as may be modified or supplemented, has received the written disclosures and the
letter from the independent accountants required by Independence Standards Board
Standard No. 1, Independence Discussions with Audit Committees, as may be
modified or supplemented, and has discussed with the independent accountant the
independent accountant's independence. Based on these discussions, the Audit
Committee has recommended to the Board of Directors that the audited financial
statements be included in Commerce's Annual Report on Form 10-K.
By: John J. Cardello (Chairman), Douglas S. Gelder, Alan R. Hassman,
Michael A. Serluco and Dr. Samir J. Srouji.
Nominating and Corporate Governance Committee
The Board has established a Nominating and Corporate Governance Committee,
whose members are James R. Adair (Chairman), Douglas S. Gelder and Dr. Samir J.
Srouji. Each member of the Committee is independent, as defined by the NASDAQ
Marketplace Rules with the exception of Mr. Adair. Please refer to the section
titled "Independence of Directors" on page 6 for further discussion regarding
director independence. The functions of the Committee are to provide
assistance to the Board of Directors in fulfilling its responsibility to the
shareholders, potential shareholders and investment community by identifying
individuals qualified to become directors and recommending that the Board of
Directors select the candidates for directorship to be filled by the Board of
Directors or by the shareholders; developing and recommending to the Board a set
of corporate governance principles applicable to Commerce and otherwise taking a
leadership role in shaping the corporate governance of Commerce. A copy of the
charter that the Committee has adopted is attached to this proxy statement as
Appendix B and can be found under the Investor Relations tab on Commerce's
website, at www.commercepc.com. Because the Committee was formed by the Board of
Directors at its meeting in February 2004, it did not meet in 2003. Before
recommending candidates for election to the Board, the Committee will consider
the candidate's character, judgment, business experience, expertise and acumen,
as well as any other criteria contained in the Bylaws for membership on the
Board.
7
Process for Identifying and Evaluating Nominees for Director
The Committee will utilize current board members, management and other
appropriate sources to identify potential nominees. The Committee will conduct
any appropriate and necessary inquiries into the backgrounds and qualifications
of possible candidates after considering the function and needs of the Board of
Directors, and recommend nominees for approval by the Board of Directors and
Shareholders. The Committee's process for the consideration of potential
nominees will be the same for nominees identified by shareholders, as well as
the other sources identified above.
The Nominating Committee will receive and consider nominee recommendations
that shareholders address to the Secretary of Commerce at the address listed on
the first page of this proxy statement. If shareholders wish to nominate
candidates for election at Commerce's Annual Meeting of Shareholders, however,
they must comply with additional procedures contained in Commerce's Bylaws. To
nominate someone at the annual meeting, you must deliver or mail a notice to the
Secretary of Commerce no less than 45 days prior to the date of the annual
meeting. Your notice must state your name and residence address and the number
of shares of Commerce that you own. Your notice must also contain the following
information on each proposed nominee:
o the name, address and age of the nominee;
o the principal occupation of the nominee;
o the number of shares of Commerce's common stock owned by the
nominee; and
o the total number of shares that, to your knowledge, will be voted
for the nominee.
If you do not follow this procedure, the Chairman of the meeting will
disregard a nomination made at the annual meeting, and the judges of election
will disregard any votes cast for your nominees.
Compensation Committee
The members of the Compensation Committee are Alan R. Hassman (Chairman),
James R. Adair, Douglas S. Gelder, and Michael A. Serluco. The Committee met one
time in 2003. The functions of the Committee are to evaluate Commerce's
compensation policies and plans, review and evaluate the individual performance
of executive officers, establish the compensation of the President/CEO,
recommend to the Board the compensation of Commerce's other executive officers
and review recommendations on the compensation of the remaining officers of the
Bank. Each of the members of the Committee is independent, as defined in the
NASDAQ Marketplace Rules with the exception of Mr. Adair. Please refer to the
section titled "Independence of Directors" on page 6 for further discussion
regarding director independence. The report of the Compensation Committee
appears in this Proxy Statement following the section titled "EXECUTIVE
COMPENSATION".
Compensation Committee Interlocks and Insider Participation
None of the Committee members has been an officer or employee of Commerce
or any of its subsidiaries at any time. James R. Adair, a director and less than
1% beneficial shareholder of Commerce, is the owner of Adair Construction
Services, which the Bank paid $1.5 million in 2003 for construction services to
build two branch offices. Michael A. Serluco, a director and 3.55% beneficial
shareholder of Commerce receives rental income from the Bank for land that
contains an advertising billboard, which is owned by the Bank. The Bank paid
$25,000 on the lease during 2003. As is the case with other Board members, any
indebtedness to the Bank, of the members of the Compensation Committee, is on
the same terms, including interest rate and collateral on loans, as those
prevailing at the time of comparable transactions with others and does not
involve more than the normal risk of collectibility or present other unfavorable
features.
Shareholder Communications with the Board
Shareholders who wish to communicate directly with the Board may direct
such communications in writing, via letter to the Audit Committee Chairman, c/o
Pennsylvania Commerce Bancorp, Inc., 100 Senate Avenue, Camp Hill, PA 17011. The
Audit Committee Chairman will convey any and all such communications to the full
Board for consideration and review or, if requested by the shareholder, to an
individual Board member.
8
EXECUTIVE OFFICERS
The following table shows name, age, position, and business experience for
the past five years of each of its executive officers included in the Summary
Compensation Table determined in accordance with the rules and regulations of
the SEC.
Positions with Commerce and/or its Subsidiaries
Name Age Principal Occupation
- ------------------- -------- -------------------------------------------------
Gary L. Nalbandian 61 Chairman, President and CEO of Commerce and
the Bank
Rory G. Ritrievi 40 Executive Vice President and Chief Lending Officer
of Commerce and the Bank1
David B. Skerpon 43 Executive Vice President and Chief Retail Officer
of Commerce and the Bank2
Mark A. Zody 40 Chief Financial Officer and Treasurer of Commerce
and the Bank
1 Prior to joining Commerce in 1999, Mr. Ritrievi served as
Executive Vice President/Regional Director of Commercial Lending
of Keystone Financial, Inc.
2 Mr. Skerpon became Executive Vice President/Chief Retail Officer
of Commerce Bank on March 4, 2002. Mr. Skerpon served as Senior
Vice President of Commerce Bank from September 2000 to August
2001. Prior to joining Commerce in September 2000, Mr. Skerpon
served as President of the Commonwealth Region of Mellon Bank.
Code of Ethics
Commerce has adopted a Code of Ethics that is applicable to its Chief
Executive Officer, Chief Financial Officer, Principal Accounting Officer and
other designated senior officers. A copy of the Code of Ethics can be found
under the Corporate Governance section of Commerce's website at
www.commercepc.com.
9
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table is a summary of certain information concerning the
compensation during the last three fiscal years awarded or paid to, or earned by
Commerce's Chief Executive Officer and each of Commerce's other most highly
compensated executive officers who earned more than $100,000 in salary and bonus
during Commerce's last fiscal year ("Named Executive Officers").
Long Term
Annual Compensation Compensation
---------------------------------------------------------- -------------------------
Name and Other Annual Securities All Other
Principal Position Year Salary Bonus Compensation Underlying Options 1 Compensation 2
- --------------------------- -------- ------------- ------------ ----------------- ------------------------- --------------
Gary L. Nalbandian 2003 $ 215,000 $ 40,000 - 15,750 $ 19,400
Chairman, President and 2002 150,000 40,000 - - 17,584
CEO of Commerce 2001 120,000 25,000 - 17,363 16,088
and the Bank3
Rory G. Ritrievi 2003 $ 175,000 $ 15,000 $11,440 4 5,250 $ 2,294
Executive Vice President 2002 167,000 15,000 11,440 - 2,053
and Chief Lending Officer 2001 152,000 15,000 11,440 5,787 2,014
of Commerce and the Bank
David B. Skerpon 2003 $ 168,000 $ 10,000 - 6,825 $ 2,146
Executive Vice President 2002 160,000 9,000 - - -
and Chief Retail Officer 2001 100,000 - - - -
of Commerce and the Bank5
Mark A. Zody 2003 $ 132,500 $ 10,000 - 4,200 $ 6,086
Chief Financial Officer and 2002 118,000 10,000 - - 5,674
Treasurer of Commerce 2001 103,000 8,500 - 4,050 5,527
and the Bank
1 Adjusted to reflect the 5% common stock dividend paid on February
24, 2004. In 2002, Commerce changed its policy for granting
Incentive Stock Options to executive officers so that all such
options are now granted in the first quarter of each year. As a
result, there were no stock options granted to executive officers
in 2002.
2 Includes (a) annual retainer fee and monthly director meeting
fees for Mr. Nalbandian of $16,400 in 2003, $15,900 in 2002, and
$14,200 in 2001; (b) contributions by the Bank to the 401(k)
Retirement Savings Plan for (i) Mr. Nalbandian - $3,000 in 2003,
$1,684 in 2002, and $1,888 in 2001; (ii) Mr. Ritrievi - $2,294 in
2003, $2,053 in 2002 and $2,014 in 2001; (iii) Mr. Skerpon -
$2,146 in 2003 and (iv) Mr. Zody - $1,801 in 2003, $1,481 in
2002, and $1,418 in 2001; (c) life insurance premiums for Mr.
Zody - $2,343 in 2003, 2002, and 2001; and (d) long-term
disability premiums for Mr. Zody - $1,942 in 2003, $1,850 in
2002, $1,766 in 2001.
3 Mr. Nalbandian served as Chairman of the Board of Commerce and
the Bank during 2001 and the salary and bonus shown for him for
that year were for his services as Chairman of the Board. On
February 15, 2002 he was appointed to the additional position of
President/CEO of both Commerce and the Bank.
4 Represents tuition reimbursement for Mr. Ritrievi of $11,440 in
2003, 2002 and 2001.
5 Mr. Skerpon became Executive Vice President/Chief Retail Officer
of Commerce and the Bank on March 4, 2002. Mr. Skerpon served as
Senior Vice President of the Bank from September 2000 to August
2001. The amounts listed reflect his annualized salary for the
years 2002 and 2001. Prior to joining Commerce, Mr. Skerpon
served as President of the Commonwealth Region of Mellon Bank.
10
Employee Stock Options
In 1996, Commerce shareholders adopted the 1996 Employee Stock Option
Plan. The plan replaced the 1986 Incentive Stock Option Plan, which expired
December 31, 1995. We reserved 527,369 shares of common stock for issuance under
the plan. The plan will expire on December 31, 2005. The plan allows us to grant
incentive stock options (ISO's) and nonqualified stock options (NQSO's). The
Board of Directors will fix the option price for options granted under the plan.
The option price for ISOs will not be less than the fair market value of the
stock at the date of grant. The option price for NQSOs may be less than 100% of
the fair market value of the stock at the date of grant. Options are generally
exercisable one year after the date of grant subject to the vesting schedule
outlined below, and expire ten years after the date of grant.
Optionees may exercise options only to the extent the options are vested.
Options vest based either on years of service or upon the period of time the
options have been issued, whichever is faster. The vesting schedule is as
follows:
Years of service:
o up to three (3) years of service - 25% vested;
o more than three (3) years but less that six (6) years of service
- 50% vested;
o more than six (6) years but less than eight (8) years of service
- 75% vested; and
o more than eight (8) years of service - 100% vested.
Period of time after grant:
o more than one (1) year but less than two (2) years - 25% vested;
o more than two (2) years but less than three (3) years - 50%
vested;
o more than three (3) years but less than four (4) years - 75%
vested; and
o more than four (4) years - 100% vested.
The plan requires that we adjust the number of shares subject to
options and the option price to reflect changes in the number of outstanding
shares caused by events such as stock dividends and splits.
EXECUTIVE STOCK OPTION GRANTS
IN FISCAL YEAR 2003
The following table shows the stock options granted to Named
Executive Officers in 2003.
Number of Securities % of Total Options
Underlying Options Granted to Employees Exercise or Base Grant Date
Name Granted1 in Fiscal Year Price ($/Share)1 Expiration Date Present Value2
- --------------------- ---------------------- --------------------- --------------------- ------------------- --------------
Gary L. Nalbandian 15,750 19.81% $35.96 2/21/2013 $215,056
Rory G. Ritrievi 5,250 6.60% 35.96 2/21/2013 67,115
David B. Skerpon 6,825 8.59% 35.96 2/21/2013 84,278
Mark A. Zody 4,200 5.28% 35.96 2/21/2013 57,348
1 Adjusted to reflect the 5% common stock dividend paid on February
24, 2004.
2 We used the Black-Scholes option-pricing model to estimate the
grant date present value of the options. We are not endorsing the
accuracy of this model. All stock option valuation models,
including the Black-Scholes model, require a prediction about
future stock prices. The assumptions used in calculating the
values shown above were expected volatility of .207, a risk free
rate of return of 3.47%, weighted-average life of ten years and
no cash dividends. The real value of the options will depend upon
the actual performance of Commerce common stock during the
applicable period.
11
Stock Option Exercises
The following table shows:
o all options exercised by each Named Executive Officer of Commerce
during 2003;
o the number of shares acquired on exercise;
o the value realized by the Named Executive Officer upon exercise;
and
o the number of exercisable and unexercisable options outstanding
for each Named Executive Officer, and the value of those options,
as of December 31, 2003:
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options
Shares Acquired Options at End Year 20032 at End Year 20033
Name on Exercise Value Realized1 Exercisable Unexercisable Exerciseable Unexercisable
- ------------------ ------------------- ------------------- ---------------------------------- -----------------------------------
Gary L. Nalbandian 16,761 $ 617,289 113,368 15,749 $ 3,479,371 $ 198,595
Rory G. Ritrievi - - 6,994 9,511 150,195 149,990
David B. Skerpon - - - 6,824 - 86,050
Mark A. Zody 2,394 76,985 32,733 4,199 994,991 52,949
1 Represents the number of shares acquired upon exercise multiplied
by the difference between the fair market value of Commerce's
common stock on the date of exercise less the exercise price paid
by the executive officer.
2 Exercisable stock options are fully vested. Stock options to vest
in the future are reported as unexercisable.
3 The dollar values were calculated by determining the difference
between the closing trading price of Commerce common stock at
December 31, 2003, which was $48.57 per share (adjusted for the
5% common stock dividend paid on February 24, 2004), and the
exercise price of each stock option as of December 31, 2003.
REPORT OF THE COMPENSATION COMMITTEE
Only outside non-employee directors serve on the Compensation Committee.
Through our executive compensation policy, we seek to achieve the following
goals in determining compensation of our executive officers:
o Integrate compensation with Commerce's and the Bank's annual and
long-term performance goals;
o Reward exceptional performance;
o Recognize individual initiative and achievements;
o Attract and retain qualified executives;
o Provide compensation packages competitive with those offered by
other similar bank holding companies and banks; and
o Encourage stock ownership by executive officers.
We seek to attract and retain superior talent, reward performance and
align the interests of our executive officers with the long-term interests of
our shareholders. Our executive officers receive compensation packages
consisting of base salary, annual performance bonus, stock option grants and
various employee benefits including contributions under Commerce's 401(k)
Retirement Savings Plan. The Compensation Committee bases its recommendations
for compensation on objective factors and its subjective evaluation of the
individual's performance.
12
We award annual performance bonuses to provide direct cash incentives to
executive officers and other key employees. In evaluating Commerce's financial
performance, the Compensation Committee considers budgets set by the board as
well as the performance of a peer group of institutions similar to Commerce. We
award stock options to encourage officers and other key employees to remain
employed with Commerce by providing them with a long term interest in Commerce's
overall performance. Among other things, the Committee considers data from the
SNL Executive Compensation Review and data compiled by Human Resource Partners,
which used a peer analysis of similarly sized Pennsylvania bank holding
companies. The SNL Executive Compensation Review compares:
o asset size;
o the salaries of the chief executive officer and other executive
officers;
o return on average assets; and
o return on average equity.
The Compensation Committee also considers the performance of Commerce's
common stock on the NASDAQ Small Cap Stock Market, particularly compared with
the performance of the stock of other comparable bank holding companies. The
Compensation Committee does not make its recommendations based solely on
corporate performance. The committee also considers subjective factors. However,
the Committee considers peer group information and corporate performance to be
significant factors in determining executive compensation.
Mr. Nalbandian
For 2003, Mr. Nalbandian received an annual salary of $215,000. He was
also a participant in the Pennsylvania Commerce Bancorp, Inc. Employee Stock
Option Plan and Commerce's Bonus Plan. Mr. Nalbandian earned a bonus of $40,000.
Pursuant to Commerce's Employee Stock Option Plan, Mr. Nalbandian received stock
options to purchase 15,000 shares of Commerce's common stock at an exercise
price of $50.75 per share. These options, granted in February of 2004, were
based on 2003 performance.
Other Executive Officers
With respect to the compensation of Commerce's other Named Executive
Officers, the Compensation Committee considers information provided by the Chief
Executive Officer about each one including:
o level of individual performance;
o contribution to the organization; and
o salary history.
The Compensation Committee also considers:
o the earnings of Commerce and the Bank;
o the peer group compensation information discussed above;
o individual performance factors; and
o its subjective evaluation of the services provided by each
Named Executive Officer.
You can see more information about the compensation paid to Commerce's
Named Executive Officers in the Summary Compensation Table on page 11 of this
proxy statement.
13
COMPENSATION COMMITTEE
Alan R. Hassman, Chairman
James R. Adair
Douglas S. Gelder
Michael A. Serluco
Financial Performance
The following graph shows the yearly percentage change in Commerce's
cumulative total shareholder return on its common stock from December 31, 1998
to December 31, 2003 compared with the cumulative total return of a NASDAQ Bank
Index and the NASDAQ Composite Market Index.
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN
Pennsylvania Commerce Bancorp ("COBH") NASDAQ Bank Index
NASDAQ Composite Market Index
Year-End 1998 to Year-End 2003
[CHART OMITTED]
14
SECTION 16 (a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Our directors and executive officers must file reports with the SEC indicating:
o the number of shares of Commerce common stock they beneficially
own; and
o changes in their beneficial ownership.
To the best of our knowledge, our directors and executive officers filed
all required reports in 2003.
APPROVAL OF THE AMENDMENT TO THE 1996 EMPLOYEE STOCK OPTION PLAN
In 1996, Commerce adopted, and the shareholders approved, the 1996
Employee Stock Option Plan ("the Plan"). The Board believes that in order to
enable Commerce to continue to attract and retain personnel of the highest
caliber and provide incentive for officers and key employees to continue to
promote the well-being of Commerce, it is in the best interest of Commerce and
its shareholders to provide to officers and key employees, through the granting
of stock options, the opportunity to participate in the value and/or
appreciation in value of Commerce's common stock. The Board has found that the
grant of options under the Plan has proven to be a valuable tool in attracting
and retaining officers and key employees. It believes that such authority, in
view of the substantial growth of Commerce and the need to continue to grow,
should be expanded to increase the number of options which may be granted under
the Plan. The Board believes that such authority will provide Commerce with
significant means to attract and retain talented personnel and maintain current
officers and key employees. Approximately 110 officers and employees will be
eligible to participate in the Plan in 2004.
The Plan originally covered 100,000 authorized shares of Commerce common
stock ($1.00 par value) and the shareholders approved an additional 100,000
authorized shares and 200,000 authorized shares in 1998 and in 2001
respectively. The number of authorized shares covered by the Plan has been
adjusted to an aggregate total of 527,369 shares (as adjusted for all stock
dividends through March 31, 2004). Currently, only 22,861 shares are available
for issuance under the Plan. The Plan is administered by the Directors of
Commerce.
The Plan provides all options shall be granted at an option price not less
than 100% of the fair market value of the common stock on the date of the grant.
As of April 28, 2004, the market value of Commerce common stock was $50.53 per
share. Any option granted may be exercised by an optionee at any time between
the first and tenth anniversaries of the date of grant of the option, except
where limited by the terms of the Plan with respect to death or other
termination of employment. The options are subject to a vesting schedule, which
is described on page 12 of this Proxy Statement. At this time, the number of
shares underlying options to be received by executive officers and employees
under the Plan is not readily determinable. The number of options that were
granted to Named Executive Officers under the Plan in 2003 is set forth in the
"Executive Stock Option Grants" table on page 12. The number of options granted
in 2003 to all eligible employees under the Plan, including the Named Executive
Officers, was 77,285.
The Board of Directors has approved, subject to approval by the
shareholders, an amendment to increase the number of shares issuable under the
Plan by 100,000 to provide sufficient shares to fund future awards.
The Board of Directors recommends that you vote "FOR" approval of the
Amendment to the Plan. The Named Executive Officers will benefit from the
proposed amendment, because it will enable Commerce to award the officers
additional options. The number of options to be awarded is not based on any
executive officer's existing share ownership. A copy of the Plan is attached to
this proxy statement as Appendix C.
15
Tax Consequences - Generally
The following is a summary of federal income tax consequences
pertaining to Plan options. It is not intended to constitute a detailed analysis
of tax consequences. State and local tax consequences are not addressed.
Tax Consequences of Incentive Stock Options
If an employee is granted an ISO, exercises the ISO, and subsequently
holds stock received upon exercise of the ISO for at least one (1) year after
the stock was received and for at least two (2) years from the date the ISO was
granted, he or she will recognize no taxable income upon either the grant or the
exercise of the ISO. When the employee sells the stock, he or she will recognize
capital gain or capital loss equal to the difference between the sale price and
the option price.
The amount by which the fair market value of the stock at the time of
the exercise of the ISO exceeds the option price is a tax preference item, and
may result in the employee having to pay an alternative minimum tax. However,
the gain or loss from disposition of stock acquired pursuant to an ISO differs
for purposes of regular tax and minimum tax computations. For minimum tax
purposes, the basis of the stock is increased by the amount of the tax
preference.
Commerce will not be entitled to a federal income tax deduction with
respect to the grant of an ISO or the issuance of stock upon exercise of the
ISO.
If the holder of an ISO fails to hold stock received upon exercise of
the ISO for the periods described above, he or she will recognize ordinary
income in the year he or she disposes of the stock in violation of the holding
period requirements. The income recognized will generally be the lesser of (i)
the excess of the fair market value of the stock on the date the ISO was
exercised over the option price, or (ii) the gain recognized on disposition of
the stock. Commerce will ordinarily be entitled to take a deduction for federal
income tax purposes equal to the ordinary income recognized by the employee for
the year in which the disposition occurs.
Tax Consequences of Non-Qualified Stock Options
If an employee is granted an NQSO under the Plan, he or she will
generally recognize no taxable income at the date the NQSO is granted. However,
the employee will usually recognize ordinary income at the time the employee
exercises the NQSO in an amount equal to the excess of the fair market value of
the stock on the date of the exercise over the option price. Commerce will be
entitled to a federal tax deduction in an amount equal to the ordinary income
recognized by the employee.
16
Equity Compensation Plan Information
The following table contains information about Commerce's equity
compensation plans as of December 31, 2003:
Number of securities
remaining available for
Number of securities to Weighted average future issuance under equity
be issued upon exercise of exercise price of compensation plans
outstanding options, warrants oustanding options, (excluding securities reflected
and rights warrants and rights in column (a))
Plan Category (a) (b) (c)
- ---------------------------- ----------------------------------- ----------------------- ---------------------------------
Equity compensation 474,134 $22.67 429,9031
plans approved by
security holders
Equity compensation
plans not approved
by security holders N/A N/A N/A
----------------------------------------------------------------------------------------------------
TOTAL 474,134 $22.67 429,903
1 Includes total shares available for employees through the Employee Stock
Purchase Plan and also shares available for all shareholders under the
Company's Dividend Reinvestment and Stock Purchase Plan, but does not
include the 100,000 shares that are the subject of the proposed amendment.
OTHER BUSINESS
At the date of mailing of this proxy statement, we are not aware of
any business to be presented at the annual meeting other than the election of
directors and the approval of the amendment to the 1996 Employee Stock Option
Plan. If other proposals are properly brought before the meeting, any proxies
returned to us will be voted as the proxy holders see fit.
INDEPENDENT PUBLIC ACCOUNTANTS
Our principal accountant during 2003 was Beard Miller Company LLP, 320
East Market Street, Harrisburg, PA 17101. The Audit Committee has selected Beard
Miller Company LLP to be our principal accountant for 2004. We expect a
representative of Beard Miller Company LLP to attend the annual meeting, to have
the opportunity to make a statement, if he or she so desires, and to be
available to respond to appropriate questions.
The Sarbanes Oxley Act of 2002 and the auditor independence rules of
the United States Securities and Exchange Commission require all public
accounting firms who audit public companies to obtain authority from their
respective Audit committees in order to provide professional services without
impairing independence. Before Beard Miller performs any services for Commerce,
the Audit Committee is informed that such services are necessary and is advised
of the estimated costs of such services. The Audit Committee then decides
whether to approve Beard Miller's performance of the services. In 2003, all
services performed by Beard Miller were approved in advance pursuant to these
procedures. The Audit Committee has determined that the performance by Beard
Miller of tax services is compatible with maintaining that firm's independence.
Beard Miller Company LLP, has previously issued engagement letters to
or obtained formal approval from Commerce's Audit Committee for certain
services. These services are summarized below.
17
Fees Billed by Independent Public Accountants
Fees for professional services provided by Beard Miller Company, LLP
were as follows for the last two fiscal years:
2003 2002
---------------- -----------------
Audit Fees1 $ 86,955 $ 76,937
Audit-Related Fees2 8,000 5,648
Tax Fees3 5,500 10,725
All Other Fees4 - 10,265
---------------- -----------------
$ 100,455 $ 103,575
================ =================
1 Includes professional services rendered for the audit of the
Corporation's annual financial statements and review of financial
statements included in Forms 10-Q, or services normally provided
in connection with statutory and regulatory filings (i.e., attest
services required by FDICIA and student loan audits), including
out-of-pockets expenses.
2 Assurance and related services reasonably related to the
performance of the audit or review of financial statements,
including employee benefit plan audits. 3 Tax fees include the
preparation of state and federal tax returns and assistance with
IRS notices and payroll tax matters. 4 Other fees during 2002
included assisting the Commerce's internal audit department with
FDICIA implementation.
The 2003 fees were approved in accordance with the Audit Committee's
policy. The de minimus exception (as defined in Rule 202 of the Sarbanes-Oxley
Act) was not applied to any of the 2003 total fees.
Shareholder Proposals for the 2005 Annual Meeting of Shareholders
Under Commerce's Bylaws, no shareholder proposals may be brought before
an annual meeting of shareholders unless a proposal is specified in the notice
of the meeting or is otherwise brought before the meeting by the Board of
Directors or by a shareholder entitled to vote who has delivered notice to
Commerce (containing information specified in the Bylaws) not less than 120 days
prior to the anniversary of the mailing of the previous year's proxy statement.
These requirements are separate from and in addition to the SEC's requirements
that a shareholder must meet in order to have a shareholder proposal included in
Commerce's proxy statement. A shareholder wishing to submit a proposal for
consideration at the 2005 Annual Meeting of Shareholders, either under SEC Rule
14a-8, or otherwise, should do so no later than January 3, 2005.
If the corporate secretary of Commerce receives notice of a
shareholder proposal that complies with the governing Bylaw provision on or
prior to the required date and if such proposal is properly presented at the
2005 annual meeting of shareholders, the proxies appointed by Commerce may
exercise discretionary authority in voting on such proposal if, in Commerce's
proxy statement for such meeting, Commerce advises shareholders of the nature of
such proposal and how the proxies appointed by Commerce intend to vote on such
proposal, unless the shareholder submitting the proposal satisfies certain SEC
requirements, including the mailing of a separate proxy statement to Commerce's
shareholders.
The presiding officer of the meeting may refuse to permit any proposal
to be made at an annual meeting by a shareholder who has not complied with all
of the governing Bylaw procedures, including receipt of the required notice by
the corporate secretary for Commerce by the date specified. If a shareholder
proposal is received by Commerce after the required notice date but the
presiding officer of the meeting nevertheless permits such proposal to be made
at the 2005 annual meeting of shareholders, the proxies appointed by Commerce
may exercise discretionary authority when voting on such proposal.
If the date of our next annual meeting is advanced or delayed by more
than 30 days from May 20, 2005, we will promptly inform you of the change of the
annual meeting and the date by which shareholder proposals must be received.
18
ANNUAL REPORT
Commerce sends only one annual report to shareholders sharing the same
address. We will promptly deliver a separate copy of the annual report to a
security holder at a shared address to which we sent a single copy, upon our
receipt of a written request sent to the address below. If you wish to receive a
separate copy of the annual report in the future, notify Commerce at the phone
number or address below. You can also request that we send only a single copy of
the proxy statement to security holders at a shared address, by sending written
notice to the address below.
Additionally, you can obtain a copy of the Commerce Annual Report or Form
10-K for the year ended December 31, 2003 at no charge by writing to:
Sherry Richart, Shareholder Relations
Pennsylvania Commerce Bancorp, Inc.
P.O. Box 8599 Camp Hill, PA 17001-8599
717-975-5630
RETURN OF PROXY
You should sign, date and return the enclosed proxy card as soon as
possible whether or not you plan to attend the meeting in person. If you do
attend the meeting, you may then withdraw your proxy.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Peter J. Ressler
--------------------
PETER J. RESSLER
Secretary
Camp Hill, Pennsylvania
May 3, 2004
19
PROXY
PENNSYLVANIA COMMERCE BANCORP, INC.
100 Senate Avenue
Camp Hill, PA 17011
Telephone: (717) 975-5630
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF
DIRECTORS OF PENNSYLVANIA COMMERCE BANCORP, INC.
The undersigned hereby appoints James R. Adair and Howell C. Mette as Proxies,
each with the power to appoint his substitute, and authorizes them to represent
and vote, as designated below, all the shares of common stock of Pennsylvania
Commerce Bancorp, Inc. held of record by the undersigned on March 31, 2004 at
the Annual Meeting of Shareholders to be held on May 21, 2004.
1. ELECTION OF DIRECTORS:
For all Nominees Listed Below ________ Withhold Authority_________
(except as indicated below)
Gary L. Nalbandian, James R. Adair, John C. Cardello, Douglas S. Gelder,
Alan R. Hassman, Michael A. Serluco, Howell C. Mette, Samir J. Srouji,
M.D.
INSTRUCTION: To withhold authority to vote for any individual
nominee(s), write that nominee's name(s) in the
space immediately below.
2. ADMENDMENT TO 1996 EMPLOYEE STOCK OPTION PLAN
FOR_____ AGAINST_____ ABSTAIN_____
3. OTHER BUSINESS:
Take action on other business, which may properly come before the meeting.
FOR_____ AGAINST_____ ABSTAIN_____
The shares represented by this proxy will be voted as specified. If no
specification or direction is made, they will be voted for the election of the
directors and for any other business in accordance with the recommendations of
management. This proxy may be revoked prior to its exercise.
Dated this day of , 2004.
(SEAL)
-----------------------
Signature
(SEAL)
-----------------------
Signature
When shares are held by
joint tenants, both
should sign. If signing
as attorney, executor,
administrator, trustee,
guardian, custodian,
corporate official or
in any other fiduciary
or representative
capacity, please give
your full title as
such.
Please sign your name exactly as it appears on this proxy, and mark, date
and return this proxy as soon as possible in the enclosed envelope. No postage
is necessary if mailed in the United States in the enclosed self-addressed
envelope.
APPENDIX A
PENNSYLVANIA COMMERCE BANCORP, INC.
AUDIT COMMITTEE CHARTER
Composition
-----------
There will be a committee of Pennsylvania Commerce Bancorp, Inc's ("Commerce")
Board of Directors (the "Board") to be known as the Audit Committee, which will
be composed of at least three directors, each of whom will satisfy the
independence and financial literacy requirements of the NASDAQ and all other
applicable regulatory requirements. In addition, at least one member of the
Audit Committee will have the required accounting or related financial
management expertise, as the Board interprets such qualification in its business
judgment.
No member of the Audit Committee will simultaneously serve on the Audit
Committee of more than two public companies unless the Board determines that
such simultaneous service would not impair the ability of such Audit Committee
member to effectively serve on this Audit Committee and discloses such
determination in Commerce's annual proxy statement or, if Commerce does not file
an annual proxy statement, in the annual report on Form 10-K filed with the SEC.
The Board on the recommendation of the Nominating and Corporate Governance
Committee will elect the members of the Audit Committee; members will serve in
accordance with Commerce's Bylaws and until their successors will be duly
elected and qualified. Audit Committee members may be removed and replaced by
the Board at any time and the Board may fill any vacancies.
Purpose
-------
The Audit Committee's purpose is to (A) assist Board oversight of (1) the
integrity of Commerce's financial statements, (2) Commerce's compliance with
legal and regulatory requirements, (3) the independent auditor's qualifications
and independence, and (4) the performance of Commerce's internal audit function
and independent auditors, and (B) to prepare an audit committee report as
required by the SEC's rules to be included in Commerce's annual proxy statement,
or, if Commerce does not file a proxy statement, in Commerce's annual report
filed on Form 10-K with the SEC.
Authority, Duties and Responsibilities
--------------------------------------
The authority, duties and responsibilities of the Audit Committee will be as
follows:
(A) be directly responsible for the appointment, compensation, retention
and oversight of the work of any registered public accounting firm
engaged (including resolution of disagreements between management and
the auditor regarding financial reporting) for the purpose of
preparing or issuing an audit report or performing other audit, review
or attest services for Commerce, and each such registered public
accounting firm must report directly to the Audit Committee;
(B) establish procedures for (i) the receipt, retention and treatment of
complaints received by Commerce regarding accounting, internal
accounting controls or auditing matters, and (ii) the confidential,
anonymous submissions by employees of concerns regarding questionable
accounting or auditing matters;
(C) have the authority to engage independent counsel and other advisers,
as it determines necessary to carry out its duties;
A-1
(D) at least annually, obtain and review a report by the independent
auditor describing: the firm's internal quality-control procedures;
any material issues raised by the most recent internal quality-control
review, or peer review, of the firm, or by any inquiry or
investigation by governmental or professional authorities, within the
preceding five years, respecting one or more independent audits
carried out by the firm, and any steps taken to deal with any such
issues; and (to assess the auditor's independence) all relationships
between the independent auditor and Commerce;
(E) review and discuss Commerce's annual audited financial statements and
quarterly financial statements with management and the independent
auditor, including Commerce's disclosures under "Management's
Discussion and Analysis of Financial Condition and Results of
Operations;"
(F) discuss Commerce's earnings press releases, as well as financial
information and earnings guidance provided to analysts and rating
agencies;
(G) discuss policies with respect to risk assessment and risk management;
(H) meet separately, periodically, with management, with internal auditors
(or other personnel or independent contractors responsible for the
internal audit function) and with independent auditors;
(I) review with the independent auditor any audit problems or difficulties
and management's response;
(J) set clear hiring policies for employees or former employees of the
independent auditors;
(K) report regularly to the Board;
(L) make an annual performance evaluation of the Audit Committee;
(M) review and assess the adequacy of the Audit Committee's charter
annually;
(N) comply with all preapproval requirements of Section 10A(i) of the
Securities Exchange Act of 1934 and all SEC rules relating to the
administration by the Audit Committee of the auditor engagement to the
extent necessary to maintain the independence of the auditor as set
forth in 17 CFR Part 210.2-01(c)(7);
(O) act as a "qualified legal compliance committee" as defined in 17 CFR
Part 205.2; and
(P) make such other recommendations to the Board on such matters, within
the scope of its function, as may come to its attention and which in
its discretion warrant consideration by the Board.
While the fundamental responsibility for Commerce's financial statements and
disclosures rests with management and the independent auditor, the Audit
Committee will review (A) major issues regarding accounting principles and
financial statement presentations, including any significant changes in
Commerce's selection or application of accounting principles, and major issues
as to the adequacy of Commerce's internal controls and any special audit steps
adopted in light of material control deficiencies; (B) analyses prepared by
management and/or the independent auditor setting forth significant financial
reporting issues and judgments made in connection with the preparation of the
financial statements, including analyses of the effects of alternative generally
accepted accounting principles ("GAAP") methods on the financial statements; (C)
the effect of regulatory and accounting initiatives, as well as off-balance
sheet structures, on the financial statements of Commerce; and (D) the type and
presentation of information to be included in earnings press releases (paying
particular attention to any use of "pro forma," or "adjusted" non-GAAP,
information), as well as review any financial information and earnings guidance
provided to analysts and rating agencies.
A-2
Delegation
---------
Any duties and responsibilities of the Audit Committee, including, but not
limited to, the authority to pre-approve all audit and permitted non-audit
services, may be delegated to one or more members of the Audit Committee or to a
subcommittee of the Audit Committee, as the Committee may deem appropriate in
its sole discretion.
Structure and Meetings
----------------------
The Audit Committee will meet on a quarterly basis, or more frequently as
circumstances require. One or more meetings may be conducted in whole or in part
by telephone conference call or similar means if it is impracticable to obtain
the personal presence of each Audit Committee member. Commerce will make
available to the Audit Committee, at its meetings and otherwise, such
individuals and entities as may be designated from time to time by the Audit
Committee, such as members of management including (but not limited to) the
internal audit and accounting staff, the independent auditors, counsel, and
other individuals or entities (whether or not employed by Commerce and including
any corporate governance employees and individuals or entities performing
internal audit services as independent contractors).
The Board will elect or appoint a chairperson of the Audit Committee (or, if it
does not do so, the Audit Committee members will elect a chairperson by vote of
a majority of the full Committee); the chairperson will have authority to
preside at all meetings of the Audit Committee and to act on behalf of the Audit
Committee between meetings.
Operating Policies
------------------
1. The Committee will take the minutes of all Committee meetings
(designating in its discretion individuals to record the minutes) and
approve them by subsequent action. The Committee will circulate the
minutes of its meetings to the full Board for review.
2. The Committee will determine its rules of procedure in accordance with
Commerce's principles of corporate governance and Commerce's Bylaws.
3. At each regular Board meeting held immediately following a Committee
meeting, the Committee will report to the Board regarding the actions
taken by and the activities and finding of the Committee since the
last Board meeting, as well as any recommendations for action by the
Board when appropriate.
Committee Resources
-------------------
The Committee will have the authority without Board approval to obtain advice
and seek assistance from internal and external legal, accounting and other
advisors. The Committee will determine the extent of funding necessary for the
payment of (1) compensation to any registered public accounting firm engaged for
the purpose of preparing or issuing an audit report or performing other audit,
review or attest services for Commerce; (2) compensation to any such advisors so
retained and (3) the ordinary administrative and operating expenses of the
Committee that are necessary or appropriate in carrying out its duties, all of
which will be provided by Commerce.
Disclosure of Charter
---------------------
This Charter will be made available on Commerce's website, www.commercepc.com.
A-3
Limitations
-----------
The Audit Committee is responsible for the duties and responsibilities set forth
in this charter, but its role is oversight and therefore it is not responsible
for either the preparation of Commerce's financial statements or the auditing of
Commerce's financial statements. Management has the responsibility for preparing
the financial statements and implementing internal controls and the independent
auditors have the responsibility for auditing the financial statements and
monitoring the effectiveness of the internal controls, subject, in each case, to
the oversight of the Audit Committee described in this charter. The review of
the financial statements by the Audit Committee is not of the same character or
quality as the audit performed by the independent auditors.
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APPENDIX B
PENNSYLVANIA COMMERCE BANCORP, INC.
NOMINATING AND CORPORATE GOVERNANCE COMMITTEE CHARTER
Composition
There will be a committee of Pennsylvania Commerce Bancorp, Inc.'s ("Commerce")
Board of Directors ("Board") to be known as the Nominating and Corporate
Governance Committee, which will be composed of at least three members, each of
whom will , except under unusual and limited circumstances, satisfy the
independence requirements of NASDAQ and other applicable regulatory
requirements.
The Board will determine the qualifications for directors serving on the
Committee, and will elect the members of the Committee. Members will serve in
accordance with Commerce's Bylaws and until their successors will be duly
elected and qualified. Committee members may be removed and replaced by the
Board at any time and the Board will fill any vacancies or additions.
Purpose
The Nominating and Corporate Governance Committee's purpose is to assist the
Board in carrying out the Board's responsibilities relating to (i) identifying
and selecting qualified individuals to be nominees to become Board members at
the annual meetings of shareholders and to be members of Board committees,
consistent with criteria approved by the Board, and in determining the
composition of the Board and its committees, (ii) the development,
recommendation to the Board and implementation of Corporate Governance
Guidelines applicable to Commerce, (iii) the oversight, evaluation and
assessment of the effectiveness of the Board and Commerce's management, and (iv)
other matters assigned to it by the Board.
The Committee is also responsible for producing an annual report to enable
Commerce to make the required disclosures in Commerce's proxy statement, in
accordance with applicable rules and regulations, regarding the nominations
process and the work of the Committee.
Authority, Duties and Responsibilities
The authority, duties and responsibilities of the Nominating and Corporate
Governance Committee will be as follows:
1. Identify individuals qualified to become Board members and members of
Board committees, consistent with criteria approved by the Board, and
to select, or to recommend that the Board select, the director
nominees to be presented for shareholder approval at the annual
meetings of shareholders, except if and to the extent Commerce is
legally required by contract or otherwise to provide third parties
with the ability to nominate directors (in which case the selection
and nomination of such directors need not be subject to action by this
Committee). The Committee will have the sole authority to retain and
terminate any search firm to be used to assist the Committee, and will
have authority to approve such firm's fees and other retention terms.
The Committee will also have authority to obtain advice and assistance
from legal or other advisors and to approve such firm's fees and other
retention terms.
2. Develop and recommend to the Board for its approval a set of corporate
governance guidelines applicable to Commerce, which may include,
without
B-1
limitation, (i) a requirement that Commerce's non-management directors
meet at regularly scheduled executive sessions without Commerce
management, and that a meeting of only Commerce's independent
directors take place at least annually, (ii) director qualification
standards, including independence, (iii) director responsibilities,
including attendance at meetings and advance review of materials, (iv)
director access to senior management and independent advisors, (v)
director compensation, including general principles for determining
the form and amount thereof, (vi) director orientation and continuing
education; (vii) senior management succession, including principles of
a President selection and performance review; and (viii) annual
evaluation of Board performance.
3. To develop and recommend to the Board for its approval an annual
self-evaluation process, and to implement and oversee the evaluation
of the Board, its members and the Corporation's senior management.
4. Review any shareholder nominations for director and shareholder
proposals for inclusion in Commerce's proxy statement to determine
whether such nominations or proposals comply with applicable
requirements.
5. To review the Board's committee structure and to consider and make
recommendations to the Board for its approval of directors to serve as
members of Board committees.
6. Review senior management succession plans.
7. Review and reassess annually the adequacy of this Charter and
recommend to the Board for approval any proposed changes to this
Charter.
8. Evaluate annually its own performance and present the evaluation to
the Board.
9. Perform such other duties and responsibilities as may be assigned to
the Committee from time to time by the Board of Directors.
Delegation
The Committee may form and delegate its authority and responsibilities to
subcommittees of this Committee as it may deem appropriate.
Structure and Meetings
The Committee's chairperson will be designated by the Board or, if it does not
do so, the Committee members will elect a chairperson by a vote of a majority of
the Committee.
The chairperson of the Committee will preside at each meeting of the Committee,
and in consultation with the other members of the Committee, will determine the
dates, times and places for meetings of the Committee, and will set the
frequency and length of each meeting and the agenda of items to be addressed at
each meeting. One or more meetings may be conducted in whole or in part by
telephone conference call or similar means if it is impracticable to obtain the
personal presence of each Committee member.
Operating Policies
1. The Committee will take the minutes of all Committee meetings
(designating in its discretion individuals to record the minutes) and
approve them by subsequent action. The Committee will circulate the
minutes of its meetings to the Board for review.
B-2
2. The Committee will determine its rules of procedure in accordance with
Commerce's Corporate Governance Guidelines and Commerce's Bylaws.
3. At each regular Board meeting held immediately following a Committee
meeting, the Committee will report to the Board regarding the actions
taken by and the activities and findings of the Committee since the
last Board meeting, as well as any recommendations for action by the
Board.
Committee Resources
The Committee will have the authority without Board approval to obtain advice
and seek assistance from internal and external legal, accounting and other
advisors. The Committee will determine the extent of funding necessary for the
payment of (1) compensation to any such advisors so retained and (2) for the
ordinary operating expenses of the Committee that are necessary or appropriate
to carry out its duties, all of which will be provided by the Corporation.
Disclosure of Charter
This Charter will be made available on Commerce's website, www.commercepc.com.
B-3
APPENDIX C
1996 EMPLOYEE STOCK OPTION PLAN OF PENNSYLVANIA COMMERCE BANCORP, INC.
AS APPROVED IN 2001
1. Purpose of Plan
---------------
The purpose of this Plan is to enable Pennsylvania Commerce Bancorp,
Inc. (hereinafter referred to as "Commerce") to continue to compete
successfully in attracting and retaining key employees with outstanding
abilities by making it possible for them to purchase shares of
Commerce's Common Stock on terms which will give them a more direct and
continuing interest in the future success of Commerce.
2. Definitions
-----------
"Commerce" means Pennsylvania Commerce Bancorp, Inc., a Pennsylvania
corporation and bank holding company.
"Board" means the Board of Directors of Commerce.
"Committee" means a committee established by the Board. The Committee
shall consist of three or more members of the Board. No member of the
Committee may receive Options under the Plan. The Personnel Committee
may be the Committee if it meets these qualifications.
"Employees" means employees, including officers, regularly employed on
a salary basis by Commerce. "Employment with Commerce", or words to
that effect, shall include employment by any subsidiary or affiliate of
Commerce.
"Fair Market Value" of a share of Commerce's Common Stock shall mean
its closing sale price on the principal stock exchange on which the
stock is traded on the date as of which the value is being determined.
If there is no reported sale on that date, the Fair Market Value shall
be the closing sale on the next preceding day for which a sale was
reported. However, the Committee, in the good faith exercise of its
discretion, may determine that the closing sale price does not reflect
the true Fair Market Value of a share of Common Stock. If it so
determines, the Fair Market Value shall be the average closing sale
price on the principal stock exchange on which Commerce's Common Stock
is traded during the twenty (20) day period immediately preceding the
date on which Fair Market Value is being determined. "ISO" means an
incentive stock option described in Section 422 of the Internal Revenue
Code of 1986, as amended.
"NQSO" means a stock option which is not described in Section 422 of
the Internal Revenue Code of 1986, as amended.
"Option" means an option, either in the form of an ISO or NSQO, granted
in accordance with the terms of this Plan.
"Optionee" means a person to whom an option has been granted under this
Plan which has not expired or been fully exercised or surrendered.
"Shares" means shares of Common Stock of Commerce.
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3. Limits on Number of Shares
--------------------------
The total number of Shares for which Options may be granted under this
Plan shall not exceed in the aggregate 527,369 Shares. This number
shall be appropriately adjusted if the number of issued Shares shall be
increased or reduced by change in par value, combination, or split-up,
reclassification, distribution of a dividend payable in stock, or the
like. Shares covered by Options, which have expired, or which have been
surrendered may again be optioned under this Plan. Options may be
granted in the form of ISOs or NQSOs.
4. Adjustment of Options
The number of Shares optioned from time to time to individual Optionees
under the Plan, and the Option prices therefor, shall be appropriately
adjusted to reflect any changes in par value, combination, split-up,
reclassification, distribution of dividend payable in stock, or the
like.
5. Granting of Options
The Board, or if the Board so determines, the Committee, is authorized
to grant Options to selected employees pursuant to this Plan during the
calendar year 1996 and in any calendar year thereafter to December 31,
2005. The number of Shares, if any, optioned in each year, the
employees to whom Options are granted, and the number of Shares
optioned to each employee selected shall be wholly within the
discretion of the Board or the Committee. The Board may grant both ISOs
and NQSOs to the same employee. Board action on Options and
administration of this Plan shall be only upon the advice and
recommendation of the Committee if the Board has appointed a Committee.
6. Terms of ISOs
ISOs granted under this Plan shall contain the following terms:
(a) The ISO price shall be fixed by the Board or the Committee but
shall in no event be less than 100% of the fair market value
of the Shares subject to the ISO on the date the ISO is
granted. The ISO price, in the case of an Optionee who, at the
time the Option is granted, owns more than 10% of the
outstanding Shares of Commerce's Common Stock shall be at
least 110% of the fair market value of the Shares subject to
the ISO on the date the ISO is granted.
(b) ISOs shall not be transferable otherwise than by will or by
the laws of descent and distribution. No ISO shall be subject,
in whole or in part, to attachment, execution or levy of any
kind.
(c) Each ISO shall expire and all rights under the ISO shall end
at the expiration of the exercise period for the ISO, which
shall not be more than ten years after the date on which it
was granted. Provided, however, that in the case of an
Optionee who, at the time the Option is granted, owns more
than 10% of the outstanding shares of Commerce's Common Stock,
ISOs shall expire no more than five years after the date on
which the ISO was granted.
(d) ISOs shall be exercisable only by the Optionee during the
Optionee's lifetime. ISOs may be exercised only while employed
by Commerce or within (i) three years after retirement, or
(ii) three months after termination of employment (but in any
event not later than the end of the period fixed by the Board
or the Committee of the Board in accordance with the
provisions of paragraph (c) of Section 6. An ISO is
exercisable by retired or terminated Optionees only to the
extent the ISO was exercisable by the Optionee on the last day
of his or her employment with Commerce. For purposes of this
paragraph (d), retirement shall mean termination of employment
by an Optionee who has attained age 62. If an Optionee retires
due to disability, the ISOs granted to the Optionee shall be
exercisable within 12 months of the date of retirement (but in
any event not later than the end of the period fixed by the
Board or the Committee of the Board in accordance with the
provisions of paragraph (c) of this Section 6.
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(e) If an Optionee dies within a period during which an ISO could
have been exercised by the Optionee, the ISO may be exercised
within three years after the Optionee's death (but not later
than the end of the period fixed by the Board or the Committee
of the Board in accordance with the provisions of paragraph
(c) of this Section 6) by those entitled under the Optionee's
will or the laws of descent and distribution, but only if and
to the extent the ISO was exercisable by the Optionee
immediately prior to the Optionee's death.
(f) If Optionee's employment with Commerce is terminated by
Commerce for the misconduct of Optionee, all ISOs granted to
the Optionee prior to termination shall be forfeited by
Optionee and rendered unexercisable.
(g) ISOs may be exercised in whole or in part from time to time,
subject to the provisions of this Plan and to such additional
or different terms regarding the exercise of the ISOs as the
Board or the Committee of the Board may fix at the time of
grant.
(h) ISOs shall not be granted to any individual pursuant to this
Plan, the effect of which would be to permit that individual
first to exercise ISOs, in any calendar year, for the purchase
of Shares having a fair market value in excess of $100,000
(determined at the time of the grant of the ISOs. Any Optionee
may exercise ISOs for the purchase of Shares valued in excess
of $100,000 (determined at the grant of the ISOs) in any
calendar year, but only if the right to exercise the ISOs
shall have first become available in prior calendar years.
7. Terms of NQSOs.
- ------------------
NQSOs granted under this Plan shall contain the following
terms:
(a) The NQSO price shall be fixed by the Board or the
Committee, and may be less than 100% of the fair
market of the Shares subject to the NQSO on the date
the NQSO is granted.
(b) NQSOs shall not be transferable otherwise than by
will or by the laws of descent and distribution. No
NQSO shall be subject, in whole or in part, to
attachment, execution or levy of any kind.
(c) Each NQSO shall expire and all rights under the NQSO
shall end at the expiration of the exercise period
for the NQSO, which shall not be more than ten years
after the date on which it was granted. The Board or
the Committee shall establish the exercise period for
each NQSO, subject in all cases to paragraphs (d),
(e) and (f) of this Section 7.
(d) NQSOs shall be exercisable only by the Optionee
during the Optionee's lifetime. NQSOs may be
exercised only while employed by Commerce or within
(i) three years after retirement, or (ii) three
months after termination of employment (but in any
event not later than the end of the period fixed by
the Board or the Committee of the Board in accordance
with the provisions of paragraph (c) of Section 7).
An NQSO is exercisable by retired or terminated
Optionees only to the extent the NQSO was exercisable
by the Optionee on the last day of his or her
employment with Commerce. For purposes of this
paragraph (d), retirement shall mean termination of
employment by an Optionee who has attained age 62. If
an Optionee retires due to disability, the NQSOs
granted to the Optionee shall be exercisable within
12 months of the date of retirement (but in any event
not later than the end of the period fixed by the
Board or the Committee of the Board in accordance
with the provisions of paragraph (c) of this Section
7).
(e) If an Optionee dies within a period during which an
NQSO could have been exercised by the Optionee, the
NQSO may be exercised within three years after the
Optionee's death (but not later than the end of the
period fixed by the Board or the Committee of the
Board in accordance with the provisions of paragraph
(c) of this Section 7) by those entitled under the
Optionee's will or the laws of descent and
distribution, but only if and
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to the extent the NQSO was exercisable by the
Optionee immediately prior to the Optionee's death.
(f) If Optionee's employment with Commerce is terminated
by Commerce for the misconduct of Optionee, all NQSOs
granted to the Optionee prior to termination shall be
forfeited by Optionee and rendered unexercisable.
(g) NQSOs may be exercised in whole or in part from time
to time, subject to the provisions of this Plan and
to such additional or different terms regarding the
exercise of the NQSOs as the Board or the Committee
of the Board may fix at the time of grant.
8. Vesting of Options
-------------------
No Option granted under this Plan may be exercised within one year from
the date of the grant of the Option. Options held more than one year
may be exercised based upon years of service or upon the Option holding
period, whichever is sooner, pursuant to the following schedule:
Years of Service Percent Vested
---------------- --------------
Less than 3 years 25%
More than 3 years and less than 6 years 50
More than 6 years and less than 8 years 75
More than 8 years 100
Option Holding Period Percent Vested
--------------------- --------------
Less than 1 year 0%
More than 1 year and less than 2 years 25
More than 2 years and less than 3 years 50
More than 3 years and less than 4 years 75
More than 4 years 100
9. Exercise Eligibility Period Following Termination of Employment
---------------------------------------------------------------
Options granted under this Plan less than one year prior to date of
termination of employment are not exercisable under any circumstances.
Options granted at least one year prior to termination of employment
must be exercised prior to the expiration date of the Option and within
the period set forth below depending upon the reason for termination:
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Exercise Eligibility
Options Eligible Period for Option
Termination Reason for Exercise Tax Treatment
------------------ ------------------ --------------------
Retirement 100% of outstanding 3 years from
Options retirement date
Death while employed 100% of outstanding 3 years from
Options date of death
Total & permanent 100% of outstanding 1 year from term-
disability Options ination date
Misconduct None Not applicable
Any other reason Any Option 100% vest- 3 months from
ed plus the vested termination date
portion of the next
oldest Option
10. Reorganization of Commerce
--------------------------
In the event that Commerce is succeeded by another corporation or bank
in a reorganization, merger, consolidation, acquisition of property or
stock, separation or liquidation, the successor corporation or bank
shall assume the outstanding Options granted under this Plan or shall
substitute new Options for them.
11. Delivery of Shares
------------------
No Shares shall be delivered upon the exercise of an Option until the
Option price has been paid in full in cash or, at the discretion of the
Board or the Committee, in whole or in part in Commerce's Common Stock
owned by the Optionee valued at fair market value on the date of
exercise. If required by the Board, no Shares will be delivered upon
the exercise of an Option until the Optionee has given Commerce a
satisfactory written statement that he is purchasing the Shares for
investment and not with a view to the sale or distribution of Shares.
12. Continuation of Employment
--------------------------
Neither this Plan nor any Option granted under this Plan shall confer
upon any employee any right to continue in the employ of Commerce or
limit in any respect the right of Commerce or to terminate the
employee's employment at any time.
13. Administration
--------------
The Board or the Committee may make rules and regulations and establish
procedures as it deems appropriate for the administration of this Plan.
In the event of a disagreement as to the interpretation of this Plan,
any amendment thereto, any rule, regulation or procedure thereunder, or
as to any right or obligation arising from or related to this Plan, the
decision of the Board or the Committee shall be final and binding upon
all persons in interest, including Commerce, Optionees, and
shareholders of Commerce.
14. Reservation of Shares
---------------------
Shares delivered upon the exercise of an Option shall, in the
discretion of the Board or the Committee, be either authorized but
unissued Shares, or previously issued Shares acquired by Commerce
through purchase in the open market or otherwise, or a combination of
both. Commerce shall be under no obligation to reserve or to retain in
its treasury any particular number of Shares at any time, and no
particular Shares, whether unissued or held as treasury Shares, shall
be identified as those optioned under this Plan.
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15. Amendment of Plan
------------------
The Board without further action by the shareholders may amend this
Plan from time to time as it deems desirable. However, no amendment
shall increase the maximum number of Shares for which Options may be
granted, reduce the minimum Option price, extend the maximum Option
period, or permit the granting of Options after December 31, 2005.
16. Termination of the Plan
-----------------------
The Board may, in its discretion, terminate this Plan at any time prior
to December 31, 2005. Termination of the Plan shall not deprive
Optionees of Options granted prior to termination of the Plan.
17. Effective Date - Shareholder Approval
-------------------------------------
This Plan shall become effective as of January 2, 1996, and Options may
be granted at any time on or after that date. However, no Option may be
exercised unless this Plan is approved by a vote of the holders of a
majority of the outstanding Shares of Commerce's Common Stock at a
meeting of shareholders of Commerce held within twelve months after
January 2, 1996.
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