UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
FORM 10-K/A
(Amendment No. 2)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 2003.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________________ to ________________.
Commission File #1-12609
COMMERCE BANCORP, INC
------------------------------------------------------
(Exact name of registrant as specified in its charter)
New Jersey 22-2433468
(State of other jurisdiction (I.R.S. Employee
of incorporation or organization) Identification Number)
Commerce Atrium
1701 Route 70 East 08034-5400
Cherry Hill, New Jersey (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code: 856-751-9000
Securities registered pursuant to Section 12(b) of the Act:
Common Stock New York Stock Exchange
-------------- ------------------------------------------
Title of Class Name of Each Exchange on Which Registered
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d)
of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such report(s), and
(2) has been subject to such filing requirements for the past 90 days. Yes X No
____.
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (ss. 229.405 of this chapter) is not contained herein, and
will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act).Yes X No __.
The aggregate market value of the voting stock held by non-affiliates of
the Registrant was approximately $2,497,629,542.(1)
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the last practicable date.
Common Stock $1.00 Par Value 77,907,957
------------------------------------ -------------------------
Title of Class No. of Shares Outstanding
DOCUMENTS INCORPORATED BY REFERENCE
None.
- - - - - - - - - -
(1) The aggregate dollar amount of the voting stock set forth equals the number
of shares of the Registrant's Common Stock outstanding reduced by the number of
shares of Common Stock held by officers, directors and shareholders owning 10%
or more of the Registrant's Common Stock, multiplied by $37.10, the last sale
price for the Registrant's Common Stock on June 30, 2003, the last business day
of the Registrant's most recently completed second fiscal quarter. The
information provided shall in no way be construed as an admission that any
person whose holdings are excluded from this figure is an affiliate of the
Registrant or that such person is the beneficial owner of the shares reported as
being held by him, and any such inference is hereby disclaimed. The information
provided herein is included solely for the recordkeeping purposes of the
Securities and Exchange Commission.
2
EXPLANATORY NOTE
This Amendment No. 2 to the Registrant's Annual Report on Form 10-K for
the year ended December 31, 2003, as filed with the Securities and Exchange
Commission on March 15, 2004 (the "2003 10-K"), is being filed to provide the
disclosure required by Items 10 through 14 of Form 10-K which the Registrant had
incorporated into the 2003 10-K by reference to its Proxy Statement for the
Registrant's 2004 Annual Meeting of Shareholders. Since the Registrant will not
file its definitive Proxy Statement within 120 days after the end of the fiscal
year covered by the 2003 10-K, the information required by Items 10 through 14
of Form 10-K is accordingly set forth below.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Directors
Directors of Commerce Bancorp, Inc. ("Bancorp" or the "Company") hold
office for one year and until their respective successors have been duly elected
and qualified. The following information regarding Bancorp's directors is based,
in part, on information furnished by the directors.
Name Age Positions with Bancorp and Subsidiaries
---------------------------------------- ---- -----------------------------------------------
Vernon W. Hill, II...................... 58 Chairman and President of Bancorp; Chairman and
President of Commerce NJ; Chairman of Commerce
PA, Commerce Shore, Commerce North and Commerce
Delaware
Robert C. Beck.......................... 68 Secretary and Director of Bancorp and Commerce
NJ
Jack R Bershad.......................... 73 Director of Bancorp and Commerce NJ
Joseph E. Buckelew...................... 75 Director of Bancorp, Commerce NJ and Commerce
Shore; President of Commerce Shore; Vice
Chairman of Commerce Insurance Services, Inc.
Donald T. DiFrancesco................... 59 Director of Bancorp and Commerce NJ
Morton N. Kerr.......................... 73 Director of Bancorp and Commerce NJ
Steven M. Lewis......................... 54 Director of Bancorp and Commerce NJ
George E. Norcross, III................. 48 Director of Bancorp and Commerce NJ; Chairman
and Chief Executive Officer of Commerce
Insurance Services, Inc.
Joseph J. Plumeri, II................... 60 Director of Bancorp and Commerce NJ
Daniel J. Ragone........................ 76 Director of Bancorp and Commerce NJ
William A. Schwartz, Jr................. 63 Director of Bancorp and Commerce NJ
Joseph T. Tarquini, Jr.................. 68 Director of Bancorp and Commerce NJ
Frank C. Videon ........................ 81 Director of Bancorp and Commerce NJ
------------------------------------------------------------------------------------------------------
Mr. Hill, a director of Commerce NJ since 1973 and Bancorp since 1982,
has been Chairman and/or President of Commerce NJ since 1973 and Chairman and
President of Bancorp since 1982. Mr. Hill has been Chairman of Commerce PA from
June 1984 to June 1986 and from January 1987 to the present, Chairman of
Commerce Shore since January 1989, Chairman of Commerce North since January 1997
and Chairman of Commerce Delaware since October 1999.
3
Mr. Beck, a director of Commerce NJ since 1973 and Bancorp since 1982,
has been Secretary of Commerce NJ since 1973 and Secretary of Bancorp since
1982. Mr. Beck has been of counsel to the law firm of Parker, McCay & Criscuolo,
Marlton, New Jersey, since 2000. Mr. Beck was a member of the law firm of
Parker, McCay & Criscuolo, Marlton, New Jersey from 1987 until 2000.
Mr. Bershad, a director of Bancorp and Commerce NJ since 1987, is a
retired partner of the law firm of Blank Rome LLP, Philadelphia, Pennsylvania
and Cherry Hill, New Jersey, and was a partner in such firm from 1964 to 2002.
Mr. Buckelew, a director of Bancorp since November 1996, Commerce Shore
since 1993 and Commerce NJ since June 1997, has been Vice Chairman of Commerce
Insurance Services, Inc. since November 2000 and President of Commerce Shore
since 1998. Mr. Buckelew was Chairman of Commerce Insurance Services, Inc. from
November 1996 through November 2000.
Mr. DiFrancesco, a director of Bancorp and Commerce NJ since March
2002, was the Acting Governor of New Jersey from January 31, 2001 through
January 8, 2002, served as the President of the New Jersey Senate from 1992
through January 31, 2001 and has been a partner in the law firm of DiFrancesco,
Bateman, Coley, Yospin, Kunzman, Davis & Lehrer, P.C., Warren, New Jersey, from
1992 through January 31, 2001 and from January 8, 2002 to present.
Mr. Kerr, a director of Commerce NJ since 1973 and Bancorp since 1982,
has been Chairman of Markeim-Chalmers, Inc., Realtors, Cherry Hill, New Jersey,
a real estate company, since 1965 and Markeim-Chalmers, Inc., Appraisal Firm,
Cherry Hill, New Jersey, from 1965 through August 1, 2002 on which date Mr. Kerr
resigned from the appraisal company and divested his interest in such company.
Mr. Lewis, a director of Bancorp and Commerce NJ since 1988, has been
President of U.S. Restaurants, Inc., Blue Bell, Pennsylvania, since 1985 and
President of S. J. Dining, Inc., Blue Bell, Pennsylvania, since 1986. Mr. Lewis
is also a director of Quality Dining Inc.
Mr. Norcross, a director of Bancorp and Commerce NJ since March 2002,
has been the Chairman and Chief Executive Officer of Commerce Insurance
Services, Inc. since November 2000. Mr. Norcross was the President and Chief
Executive Officer of Commerce Insurance Services, Inc. from November 1996
through November 2000.
Mr. Plumeri, who was appointed by the board as a director in January
2004, has been Chairman and Chief Executive Officer of Willis Group Holdings
Limited, New York, New York, an insurance broker and New York Stock Exchange
("NYSE") company, since October 2000. Mr. Plumeri served as Chairman and Chief
Executive Officer of Citigroup Inc.'s Primerica Financial Services from 1995 to
1999.
Mr. Ragone, a director of Commerce NJ since 1981 and Bancorp since
1982, was the former Chairman and/or President of Ragone, Raible, Lacatena &
Beppel, C.P.A., Haddonfield, New Jersey, and its predecessor firms from 1960 to
1996.
Mr. Schwartz, a director of Bancorp and Commerce NJ since June 1997,
has been Chairman, President and Chief Executive Officer of U.S. Vision, Inc.,
Glendora, New Jersey, an optical retailer, or its predecessor firms, since 1967.
Mr. Schwartz is also a director of Mothers Work, Inc.
Mr. Tarquini, a director of Commerce NJ since 1973 and Bancorp since
1982, was the Chairman and/or President of The Tarquini Organization, A.I.A.,
Camden, New Jersey, from 1980 to 2000.
4
Mr. Videon, a director of Bancorp and Commerce NJ since June 1997, was
the owner of Frank C. Videon Funeral Home, Broomall, Pennsylvania, from 1982 to
2002. Mr. Videon currently serves as a consultant to the Frank C. Videon Funeral
Home.
Audit Committee
The board of directors of Bancorp has established an Audit Committee.
Daniel J. Ragone, Chairman, Frank C. Videon, Sr. and Joseph T. Tarquini, Jr. are
the current members of the Audit Committee. Each member of the Audit Committee
is independent under applicable NYSE listing standards and Securities and
Exchange Commission ("SEC") regulations. In addition, the board has determined
that Daniel J. Ragone qualifies as an "audit committee financial expert" as
defined by the SEC and, is independent within the meaning of applicable NYSE
listing standards and SEC regulations.
Consideration of Director Candidates Recommended or Nominated by Shareholders
The Nominating and Governance Committee of the board of directors of
Bancorp will consider properly submitted shareholder recommendations for
director candidates. According to Bancorp's Bylaws, nominations by shareholders
for directors to be elected at a meeting of shareholders which have not
previously been approved by the board of directors must be submitted to the
Secretary of Bancorp, not later than (i) the latest date upon which shareholder
proposals must be submitted to Bancorp for inclusion in Bancorp's proxy
statement relating to such meeting pursuant to Rule 14a-8 under the Securities
Exchange Act of 1934, as amended ("Exchange Act"), or other applicable rules or
regulations under the federal securities laws or, if no such rules apply, at
least 90 days prior to the date one year from the date of the immediately
preceding annual meeting of shareholders, and (ii) with respect to an election
to be held at a special meeting of shareholders, 30 days prior to the printing
of Bancorp's proxy materials with respect to such meeting or if no proxy
materials are being distributed to shareholders, at least the close of business
on the fifth day following the date on which notice of such meeting is first
given to shareholders. Each nomination is required to set forth:
o the name and address of the shareholder making the nomination and the
person or persons nominated;
o a representation that the shareholder is a holder of record of capital
stock of Bancorp entitled to vote at such meeting and intends to appear in
person or by proxy at the meeting to vote for the person or persons
nominated;
o a description of all arrangements and understandings between the
shareholder and each nominee and any other person or persons (naming such
person or persons) pursuant to which the nomination was made by the
shareholder;
o such other information regarding each nominee proposed by such shareholder
as would be required to be included in a proxy statement filed pursuant to
the proxy rules of the SEC had the nominee been nominated by the Nominating
and Governance Committee; and
o the consent of each nominee to serve as a director of Bancorp if so
elected.
Senior Officers
The senior officers of Bancorp and its subsidiaries, as of April 23,
2004, are set forth below.
5
Positions with Bancorp and/or its subsidiaries
Name Age Principal Occupation
-------------------------------------------- ----- ---------------------------------------------------
Vernon W. Hill, II.......................... 58 Chairman and President of Bancorp since 1982;
Chairman and/or President of Commerce NJ since 1973;
Chairman of Commerce PA from June 1984 to June 1986
and from January 1987 to present; Chairman of
Commerce Shore since 1989, Commerce North since 1997,
and Commerce Delaware since 1999.
Peter M. Musumeci, Jr. ..................... 53 Executive Vice President and Senior Credit Officer of
Bancorp and Commerce NJ since 1986; Treasurer and
Assistant Secretary of Bancorp since 1984; Director
of Commerce Shore since 1989.
Robert D. Falese, Jr........................ 57 Executive Vice President and Senior Loan Officer of
Bancorp and Commerce NJ since 1992.
Dennis M. DiFlorio.......................... 50 Executive Vice President of Bancorp and Commerce NJ
since January 1996; Director of Commerce North since
1997.
C. Edward Jordan, Jr........................ 60 Executive Vice President of Bancorp and Commerce NJ
since 1982.
Douglas J. Pauls............................ 45 Chief Financial Officer of Bancorp since March 2002;
Senior Vice President of Bancorp since January 1999.
Prior thereto Mr. Pauls was the Chief Accounting
Officer of Bancorp from October 1995 to March 2002.
-------------------------------------------------------------------------------------------------------------------
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires Bancorp's directors and
executive officers, and persons who own more than 10% of a registered class of
Bancorp's equity securities, to file with the SEC reports about their beneficial
ownership of Bancorp common stock and other equity securities of Bancorp. All
such persons are required by SEC regulation to furnish Bancorp with copies of
all Section 16(a) reports they file.
Based solely on review of the copies of such reports furnished to Bancorp
and written representations that no other reports were required during the
fiscal year ended December 31, 2003, Bancorp believes all Section 16(a) filing
requirements applicable to its executive officers, directors and greater than
10% beneficial owners were timely complied with, except that the following
persons filed reports that were inadvertently late: (a) Daniel Ragone filed a
Form 4 in connection with a disposition of common stock which was not timely;
(b) William Schwartz filed a Form 4 in connection with a purchase of common
stock which was not timely; and (c) Edward Jordan, Douglas Pauls, David Wojcik
and the individuals (other than Joseph J. Plumeri) listed on the Security
Ownership of Management and Certain
6
Beneficial Owners table on pages 16 and 17 of this Amendment 2, each filed a
Form 4 in connection with the grant of stock options which was not timely.
Code of Ethics
Bancorp has adopted a Code of Ethics for Senior Financial Officers that
applies to its principal executive officer, principal financial officer,
principal accounting officer, controller and any other person performing similar
functions and a Code of Business Conduct and Ethics that applies to all of its
directors and employees including, without limitation, its principal executive
officer, principal financial officer, principal accounting officer and all of
its employees performing financial or accounting functions. Bancorp's Code of
Ethics for Senior Financial Officers and Code of Business Conduct and Ethics are
posted on its website, www.yesbank.com. Bancorp intends to satisfy the
disclosure requirement under Item 10 of Form 8-K regarding an amendment to, or
waiver from, a provision of its Code of Ethics for Senior Financial Officers by
posting such information on its website at the location specified above.
ITEM 11. 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, Bancorp's chief executive officer and each of Bancorp and/or its
subsidiaries' other four most highly compensated executive officers during 2003.
Annual Compensation Long Term Compensation
--------------------------------------------------------- -----------------------------
Securities
Other Annual Underlying All Other
Compensation Stock Option Compensation
Name/Title Year Salary Bonus (1) Grants (2) (3)
--------------------------------- ---- ---------- ---------- ---------- ------------ ------------
Vernon W. Hill, II............... 2003 $2,000,000 $1,000,000 $205,325 150,000 $16,734
Chairman and President 2002 1,500,000 750,000 154,339 150,000 16,249
of Bancorp and Commerce NJ; 2001 1,250,000 500,000 123,614 200,000 33,116
Chairman of Commerce PA,
Commerce Shore, Commerce North,
and Commerce Delaware
Peter M. Musumeci............... 2003 $ 450,000 $100,000 40,000 $12,220
Executive Vice President and 2002 400,000 100,000 40,000 11,206
Senior Credit Officer of Bancorp 2001 360,000 100,000 50,000 22,167
and Commerce NJ; Treasurer and
Assistant Secretary of Bancorp
Robert D. Falese, Jr............. 2003 $ 650,000 $150,000 75,000 $21,623
Executive Vice President and 2002 550,000 150,000 75,000 21,527
Senior Loan Officer of Bancorp 2001 500,000 150,000 100,000 17,901
and Commerce NJ
Dennis M. DiFlorio............... 2003 $ 650,000 $150,000 75,000 $10,112
Executive Vice President of 2002 550,000 150,000 75,000 9,843
Bancorp and Commerce NJ 2001 500,000 150,000 100,000 8,174
7
George E. Norcross, III.......... 2003 $ 850,000 $300,000 $ 89,592 100,000 $16,320
Chairman and Chief Executive 2002 750,000 300,000 76,127 100,000 14,130
Officer of Commerce Insurance 2001 600,000 200,000 100,000 7,004
Services, Inc.
_____________________________________
(1) The total in this column reflects personal use of a company car (for 2003,
Mr. Hill, $5,924; Mr. Norcross, $4,800; for 2002, Mr. Hill, $3,020; Mr.
Norcross, $4,800; and for 2001, Mr. Hill, $4,518), expense allowances (for
2003, Mr. Hill, $195,837; Mr. Norcross, $82,470; for 2002, Mr. Hill,
$147,917; Mr. Norcross, $69,167; and for 2001, Mr. Hill, $117,086) and
country club dues (for 2003, Mr. Hill, $3,564; Mr. Norcross, $2,322; for
2002, Mr. Hill, $3,402; Mr. Norcross, $2,160; and for 2001, Mr. Hill,
$2,010). The value of such other annual compensation did not exceed the
lesser of $50,000 or 10% of salary and bonus for any individual in any year
except for Mr. Hill and Mr. Norcross in 2002 and 2003.
(2) The stock option grants reflected in this column have been adjusted for the
2 for 1 stock split declared on November 21, 2001. The original grant was
adjusted based on the unexercised option shares outstanding on the date of
the stock split.
(3) The totals in this column reflect (i) premiums on life insurance (for 2003,
Mr. Hill, $3,494; Mr. Musumeci, $1,472; and Mr. Norcross, $10,030; for
2002, Mr. Hill, $3,096; Mr. Musumeci, $1,383; and Mr. Norcross, $9,130; and
for 2001, Mr. Hill, $21,446; Mr. Musumeci, $12,540; and Mr. Norcross,
$3,130); (ii) long-term disability policies (for 2003, Mr. Hill, $8,240;
Mr. Musumeci, $6,330; Mr. Falese, $16,623; and Mr. DiFlorio $5,112; for
2002, Mr. Hill, $8,153; Mr. Musumeci, $6,208; Mr. Falese, $16,527; and Mr.
DiFlorio, $4,843; and for 2001, Mr. Hill, $7,796; Mr. Musumeci, $5,800; Mr.
Falese, $14,027; and Mr. DiFlorio, $4,300); (iii) contributions to
Bancorp's ESOP (in 2001, $165 each for all five individuals); and (iv)
contributions to Bancorp's 401(k) (for 2003, Mr. Hill, $5,000; Mr.
Musumeci, $4,418; Mr. Falese, $5,000; Mr. DiFlorio, $5,000; and Mr.
Norcross, $5,000; for 2002, Mr. Hill, $5,000; Mr. Musumeci, $3,615; Mr.
Falese, $5,000; Mr. DiFlorio, $5,000; and Mr. Norcross, $5,000; and for
2001, Mr. Hill, $3,709; Mr. Musumeci, $3,662; Mr. Falese, $3,709; Mr.
DiFlorio, $3,709; and Mr. Norcross, $3,709).
Employment Agreements
Mr. Hill's employment agreement provides that he will be employed by
Bancorp and Commerce NJ as Chairman of the Board, President and Chief Executive
Officer for a term of five years effective January 1, 1992, provided that on
each January 1 thereafter Mr. Hill's employment agreement shall be automatically
renewed and extended for a new five year term unless either Bancorp or Mr. Hill
gives the other at least 90 days prior written notice of their desire to
terminate Mr. Hill's employment agreement, in which event the term will have
four years remaining.
Under the terms of Mr. Hill's employment agreement, Mr. Hill's "base
salary" shall not be less than $2,000,000. Mr. Hill's employment agreement
provides that Mr. Hill will participate in any benefit or compensation programs
in effect which are generally made available from time to time to executive
officers of Bancorp and provides for all other fringe benefits as in effect from
time to time which are generally available to Bancorp's salaried officers
including, without limitation, medical and hospitalization coverage, life
insurance coverage and disability coverage.
Mr. Hill's employment agreement requires Bancorp to compensate Mr. Hill
for the balance of the term of his employment agreement at a rate equal to
seventy percent of his annual base salary if he
8
becomes permanently disabled (as defined in Mr. Hill's employment agreement)
during the term and to pay Mr. Hill's designated beneficiary a lump sum death
benefit if he dies during the term in an amount equal to three times his average
annual base salary in effect during the 24 months immediately preceding his
death.
Mr. Hill's employment agreement allows Mr. Hill to terminate his
employment with Bancorp upon a change in control of Bancorp (as defined in Mr.
Hill's employment agreement) and if within three years of such change in
control, without Mr. Hill's consent, among other things, the nature and scope of
his authority with Bancorp or a surviving or acquiring person are materially
reduced to a level below that which he enjoyed on January 1, 1992. If Mr. Hill
terminates his employment because of a change in control, he will be entitled to
a lump sum severance payment equal to four times his average annual base salary
in effect during the 24 month period immediately preceding such termination
(provided that such payment does not constitute a "parachute payment" under
Section 280G of the Internal Revenue Code of 1986, as amended (the "Code"), and
in the event such payment would constitute a "parachute payment," such lump sum
severance payment shall be reduced so as to not constitute a "parachute
payment"), and the continuation of certain benefits including medical,
hospitalization and life insurance. Mr. Hill's employment agreement contains a
non-competition covenant for Mr. Hill should his employment with Bancorp be
terminated under certain circumstances.
The employment agreements for Messrs. Musumeci, Falese, DiFlorio and
Norcross are substantially similar to that of Mr. Hill's except that: Mr.
Musumeci will serve as Executive Vice President and Senior Credit Officer of
Bancorp and Commerce NJ, Mr. Falese will serve as Executive Vice President and
Senior Loan Officer of Bancorp and Commerce NJ, Mr. DiFlorio will serve as
Executive Vice President of Bancorp and Commerce NJ, and Mr. Norcross will serve
as Chief Executive Officer of Commerce Insurance Services, Inc. The term of each
employment agreement is three years and the lump sum death benefit is in each
case equal to two times the respective average annual base salary in effect
during the 24 month period preceding death. Mr. Musumeci's "base salary" under
his employment agreement is $450,000, Mr. Falese's "base salary" under his
employment agreement is $650,000, Mr. DiFlorio's "base salary" under his
employment agreement is $650,000, Mr. Norcross' "base salary" under his
employment agreement is $850,000.
Employee Stock Option Plans
Effective May 1994, Bancorp adopted the Commerce Bancorp, Inc. 1994
Employee Stock Option Plan (the "1994 Plan") which provided for the purchase of
a total of not more than 3,348,579 shares of Bancorp common stock (as adjusted
for all stock splits and stock dividends through April 23, 2004) by officers and
key employees of Bancorp or its subsidiary corporations. Pursuant to the 1994
Plan, stock options may be granted which qualify under the Code as incentive
stock options as well as stock options that do not qualify as incentive stock
options. No further options may be granted under the 1994 Plan. As of April 23,
2004, options to purchase 972,655 shares of Bancorp common stock (as adjusted
for all stock splits and stock dividends through April 23, 2004) were
outstanding under the 1994 Plan.
Effective May 1997 (and as amended in 2000), Bancorp adopted the
Commerce Bancorp, Inc. 1997 Employee Stock Option Plan (the "1997 Plan") which
provides for the purchase of a total of not more than 17,234,000 shares of
Bancorp common stock (as adjusted for all stock splits and stock dividends
through April 23, 2004) by officers and key employees of Bancorp or its
subsidiary corporations. Pursuant to the 1997 Plan, stock options may be granted
which qualify under the Code as incentive stock options as well as stock options
that do not qualify as incentive stock options. All officers and key employees
of Bancorp or any current or future subsidiary corporation are eligible to
receive options under the 1997 Plan. As of April 23, 2004, options to purchase
17,051,706 shares of Bancorp common stock (as adjusted for all stock splits and
stock dividends through April 23, 2004) had been
9
granted under the 1997 Plan and 183,450 shares of Bancorp common stock (as
adjusted for all stock splits and stock dividends through April 23, 2004) were
available for issuance under the 1997 Plan.
The 1994 Plan and 1997 Plan are collectively referred to as the
"Employee Plans."
The purpose of the Employee Plans is to provide additional incentive to
employees of Bancorp and its subsidiary corporations by encouraging them to
invest in Bancorp's common stock and thereby acquire a proprietary interest in
Bancorp and an increased personal interest in Bancorp's continued success and
progress.
The Employee Plans are administered by the Compensation Committee which
is appointed by the board of directors and consists only of directors who are
not eligible to receive options under the Employee Plans. The Compensation
Committee determines in concert with senior management, among other things,
which officers and key employees receive an option or options under the Employee
Plans, the type of option (incentive stock options or non-qualified stock
options, or both) to be granted, the number of shares subject to each option,
the rate of option exercisability, and, subject to certain other provisions to
be discussed below, the option price and duration of the option. Under the 1997
Plan, no individual may be granted a number of options that is more than 50% of
the total number of shares of Bancorp common stock authorized for issuance under
the 1997 Plan. In addition, incentive stock options first exercisable by an
employee in any one year under the 1997 Plan (and all other Employee Plans of
Bancorp) may not exceed $100,000 in value (determined at the time of grant). The
Compensation Committee may, in its discretion, modify or amend any of the option
terms herein described, provided that if an incentive stock option is granted,
the option as modified or amended continues to be an incentive stock option.
In the event of any change in the capitalization of Bancorp, such as by
stock dividend, stock split or what the board of directors deems in its sole
discretion to be similar circumstances, the aggregate number and kind of shares
which may be issued under the Employee Plans will be appropriately adjusted in a
manner determined in the sole discretion of the board of directors. Reacquired
shares of Bancorp's common stock, as well as unissued shares, may be used for
the purpose of the 1997 Plan. The option price for options issued under the 1997
Plan must be at least equal to 100% of the fair market value of the Bancorp
common stock as of the date the option is granted.
Options granted prior to January 1, 2003 pursuant to the Employee Plans
are not exercisable until one year after the date of grant and then are
exercisable pursuant to a schedule based on years of service or option holding
period. Options granted after January 1, 2003 pursuant to the Employee Plans are
not exercisable until one year after the date of grant and then are exercisable
ratably over four years. Under the Employee Plans, in the event of a "change in
control" of Bancorp, as defined in the Employee Plans, each optionee may
exercise the total number of shares then subject to the option. The Compensation
Committee has the authority to provide for a different rate of option
exercisability for any optionee.
Options granted under the 1994 Plan are not transferable other than by
will or by the laws of descent and distribution. Except as otherwise authorized
by the Compensation Committee with respect to non-qualified stock options only,
options granted pursuant to the 1997 Plan are not transferable, except by will
or the laws of descent and distribution in the event of death.
Under the 1994 Plan and 1997 Plan, unless terminated earlier by the
option's terms, both incentive stock options and non-qualified stock options
expire ten years after the date they are granted. Options terminate three months
after the date on which employment is terminated (whether such termination be
voluntary or involuntary), other than by reason of death or disability. The
option terminates one year from the date of termination due to death or
disability (but not later than the
10
scheduled termination date). During an optionee's lifetime, the option is
exercisable only by the optionee including, for this purpose, the optionee's
legal guardian or custodian in the event of disability, except that under the
1997 Plan, if specifically permitted by the Compensation Committee or the board
of directors, non-qualified stock options are transferable.
During 2003, Bancorp granted stock options to purchase an aggregate of
2,547,210 shares of Bancorp common stock (as adjusted for all stock splits and
stock dividends through April 23, 2004) at an average exercise price of $42.51
per share (as adjusted for all stock splits and stock dividends through April
23, 2004) under the 1997 Plan. During 2003, a total of 1,530,804 options were
exercised under the Employee Plans.
Stock Option Tables
The following table sets forth certain information regarding options
granted during 2003 to each of the executive officers named in the Summary
Compensation Table.
Individual Option Grants in Fiscal 2003 Grant Date Value
------------------------------------------------------------ --------------------------
Number of % of Total
Securities Options Black-Scholes
Underlying Granted to Grant Date
Options Employees in Exercise Present Black-Scholes
Name Granted Fiscal Year Price Expiration Date Value(1) Value(1)
----------------------------- ---------- -------------- ---------- ----------------- ------------ ------------
Vernon W. Hill, II.......... 150,000 5.9% $ 42.80 February 18, 2013 $1,786,500 $11.91
Peter M. Musumeci, Jr....... 40,000 1.6% 42.80 February 18, 2013 476,400 11.91
Robert D. Falese, Jr........ 75,000 2.9% 42.80 February 18, 2013 893,250 11.91
Dennis M. DiFlorio.......... 75,000 2.9% 42.80 February 18, 2013 893,250 11.91
George E. Norcross, III..... 100,000 3.9% 42.80 February 18, 2013 1,191,000 11.91
----------------------------
(1) In accordance with SEC rules, the Black-Scholes option pricing model was
chosen to estimate the grant date present value of the options set forth in
this table. Bancorp's use of this model should not be construed as an
endorsement of its accuracy at valuing options. All stock option valuation
models, including the Black-Scholes model, require a prediction about
future movement of the stock price. The assumptions used in the model were
expected volatility of .304, risk-free rate of return of 3.00%, dividend
yield of 1.50%, and weighted average expected life of 5.22 years. The real
value of the options in this table depends upon the actual performance of
Bancorp's common stock during the applicable period.
The following table sets forth certain information regarding individual
exercises of stock options during 2003 by each of the executive officers named
in the Summary Compensation Table.
AGGREGATED STOCK OPTION EXERCISES IN 2003 AND
YEAR-END STOCK OPTION VALUES
Shares Number of Securities Underlying Value of Unexercised In-the-
Acquired on Value Unexercised Stock Options at Money Stock Options at Year-End
Name Exercise Realized Year-End 2003(1) 2003(2)
---------------------------- ----------- -------- ------------------------------- ---------------------------------
Exercisable Unexercisable Exercisable Unexercisable
----------- ------------- ------------ -------------
Vernon W. Hill, II 175,862 $8,160,220 1,883,092 112,500 $62,179,885 $1,111,500
Peter M. Musumeci, Jr. 51,672 1,901,530 196,594 30,000 4,818,113 296,400
Robert D. Falese, Jr. 222,182 5,721,984 298,816 56,250 6,844,285 555,750
Dennis M. DiFlorio 82,000 2,698,005 580,806 56,250 18,078,307 555,750
George E. Norcross, III 274 4,850 541,534 75,000 14,321,994 741,000
----------------------------
11
(1) Includes stock options held as of December 31, 2003 and which were
exercisable on or within 60 days of December 31, 2003.
(2) Represents the difference between $52.68, the closing price of Bancorp
common stock on December 31, 2003, as reported on the NYSE, and the
exercise price of in-the-money options, multiplied by the number of
exercisable or unexercisable options held, as applicable.
Employee Stock Ownership Plan
Effective January 1, 2002, the Commerce Bancorp, Inc. Employee Stock
Ownership Plan ("ESOP") was merged into the Commerce Bancorp, Inc. 401(k)
Retirement Plan ("401(k) Plan").
As of December 31, 2003, the ESOP Trust held of record 1,533,000 shares
of Bancorp common stock (as adjusted for all stock splits and stock dividends
through April 23, 2004). In connection with the merger, shares of Bancorp common
stock were allocated to each of the individual participant accounts in the
401(k) Plan.
For the Plan Year ended December 31, 2003, Bancorp made no contribution
to the ESOP.
Supplemental Executive Retirement Plan
Effective January 1, 2004, Bancorp established a Supplemental Executive
Retirement Plan ("SERP") for certain designated executives in order to provide
supplemental retirement income. The 2004 SERP replaces the Supplemental
Executive Retirement Plan previously approved by the board of directors
effective January 1, 1992. The SERP is a defined contribution plan, and
contributions will be made at Bancorp's discretion. For the year ended December
31, 2003, Bancorp made no contributions to the SERP. The SERP is unfunded, is
not a "qualified plan" under the Code and benefits are paid directly by Bancorp.
Messrs. Hill, Musumeci, Falese, DiFlorio and Norcross have been designated to
participate in the SERP.
Director Compensation
Directors of Bancorp and Commerce NJ were paid an annual fee of $25,000
plus $1,000 for each meeting of the board of directors and committee meeting
attended in 2003 and will be paid an annual fee of $30,000 and a meeting fee of
$1,000 for each meeting of the board of directors and committee meeting attended
in 2004. When meetings of the board of directors of Bancorp and Commerce NJ
occur on the same day, only one fee is paid. In addition, in 2003, the Chairman
of the Audit Committee and the Chairman of the Nominating and Governance
Committee each received an additional annual fee of $25,000 and will receive an
additional annual fee of $30,000 in 2004, and, in 2003, the Chairman of the
Compensation Committee received an additional annual fee of $12,500 and will
receive an additional annual fee of $15,000 in 2004. Directors of Commerce PA,
Commerce Shore, Commerce North and Commerce Delaware were paid a fee of $500 for
each meeting of the board of directors and committee meeting attended in 2003
and will be paid the same meeting fee for each meeting of the board of directors
and committee meeting attended in 2004. No fees are paid to directors who are
also officers of Bancorp or its subsidiaries. Each director of Bancorp is
provided with $100,000 of permanent life insurance.
A retirement plan for Bancorp's directors who are not officers or
employees of Bancorp on the date their service as a Bancorp director ends
("outside director"), provides that outside directors with five or more years of
service as a Bancorp director are entitled to receive annually, for ten years or
the number of years served as a director, whichever is less, commencing upon
such director's attainment of age 65 and retirement from the Bancorp board or
upon such director's disability, payments equal to the highest
12
1099 Compensation (as such term is defined in the plan) in effect at any time
during the five year period immediately preceding such director's retirement or,
if earlier, death or disability. This plan further provides that, in the event a
director dies before receiving all benefits to which he or she is entitled, such
director's surviving spouse is entitled to receive all benefits not received by
the deceased director commencing upon such director's death. Upon a change in
control of Bancorp, the plan provides that each director then sitting on the
Bancorp board, notwithstanding the length of time served as a director, becomes
entitled to receive annually, for ten years, or twice the number of years served
as a director, whichever is less, payments equal to the higher of the director's
1099 Compensation at the time of the director's termination of board service and
the highest 1099 Compensation in effect at any time during the five year period
immediately preceding the change in control commencing on the latest to occur of
the termination of the director's board service, attainment of age 65 or any
date designated by the director at any time and from time to time. The
definition of "change in control" for purposes of this plan parallels the
definition of that term contained in the Employment Agreements. See "EXECUTIVE
COMPENSATION-Employment Agreements." This plan became effective January 1, 1993,
as amended.
1989 and 1998 Stock Option Plans For Non-Employee Directors
Effective April 24, 1989 (and as amended in 1994), Bancorp adopted the
1989 Stock Option Plan for Non-Employee Directors (the "1989 Plan") which
provides for the purchase of a total of not more than 641,379 shares of Bancorp
common stock (as adjusted for all stock splits and dividends through April 23,
2004) by members of the boards of directors of Bancorp and its subsidiary
corporations. Options granted pursuant to the 1989 Plan may be exercised
beginning on the earlier to occur of (i) one year after the date of their grant
or (ii) a "change in control" of Bancorp, as such term is defined in the 1989
Plan. No further options may be granted under the 1989 Plan. As of April 23,
2004, options to purchase 62,102 shares of Bancorp common stock (as adjusted for
all stock splits and stock dividends through April 23, 2004) were outstanding
under the 1989 Plan.
Effective June 29, 1998 (and as amended in 2003), Bancorp adopted the
1998 Stock Option Plan for Non-Employee Directors (the "1998 Plan") which
provides for the purchase of a total of not more than 1,602,500 shares of
Bancorp common stock (as adjusted for all stock splits and dividends through
April 23, 2004) by members of the boards of directors of Bancorp or its
subsidiary corporations and other persons who are not employees of Bancorp or
its subsidiary corporations. Options may be granted under the 1998 Plan through
June 29, 2008. Under the 1998 Plan, members of the boards of directors of
Bancorp or its current and future subsidiary corporations (i.e., any corporation
in which Bancorp owns, directly or indirectly, fifty percent or more of the
outstanding voting power of all classes of stock of such corporation at the time
of election or reelection of such director) who are not also employees of
Bancorp or its subsidiary corporations and other persons who are not employees
of Bancorp or its subsidiary corporations are entitled to receive options to
purchase Bancorp common stock. Options granted prior to January 1, 2003 pursuant
to the 1998 Plan may be exercised in whole, or from time to time in part,
beginning on the earlier to occur of (i) one year after the date of their grant
or (ii) a "change in control" of Bancorp, as such term is defined in the 1998
Plan. Options granted after January 1, 2003 pursuant to the 1998 Plan may be
exercised in whole, or from time to time in part, beginning on the earlier to
occur of (i) one year after the date of their grant and then are exercisable
ratably over four years or (ii) a "change in control" of Bancorp. As of April
23, 2004, options to purchase 1,239,124 shares of Bancorp common stock (as
adjusted for all stock splits and stock dividends through April 23, 2004) had
been granted under the 1998 Plan and 363,376 shares of Bancorp common stock (as
adjusted for all stock splits and stock dividends through April 23, 2004) were
available for issuance under the 1998 Plan.
Both the 1989 Plan and 1998 Plan are administered by the board of
directors of Bancorp, including non-employee directors. Options granted under
the 1989 Plan and/or 1998 Plan are not "incentive stock options" as defined in
Section 422 of the Code. Option prices are intended to equal 100% of the fair
13
market value ofBancorp's common stock on the date of option grant. The board of
directors of Bancorp, in their sole discretion, may grant options under the 1998
Plan to non-employee directors or to other persons who are not employees of
Bancorp or its subsidiaries and determine the number of shares subject to each
option, the rate of option exercisability, and subject to certain limitations,
the option price and the duration of the options. Unless terminated earlier by
the option's terms, options granted under the 1989 Plan and/or 1998 Plan expire
ten years after the date they are granted. For the year ended December 31, 2003,
options to purchase the following shares of Bancorp common stock were granted to
the following Bancorp directors under the 1998 Plan: Messrs. Beck, 5,000;
Bershad, 5,000; DiFrancesco, 5,000; Kerr, 5,000; Lewis, 5,000; Ragone, 5,000;
Schwartz, 5,000; Tarquini, 5,000; and Videon, 5,000. Such options were not
exercisable in 2003.
Compensation Committee Interlocks and Insider Participation
The Compensation Committee members are Morton N. Kerr, Daniel J. Ragone
and Jack R Bershad. No person who served as a member of the Compensation
Committee during 2003 was a current or former officer or employee of Bancorp or,
except as disclosed below, engaged in certain transactions with Bancorp required
to be disclosed by regulations of the SEC. Additionally, there were no
compensation committee "interlocks" during 2003, which generally means that no
executive officer of Bancorp served as a director or member of the compensation
committee of another entity, one of whose executive officers served as a
director or member of the Compensation Committee of Bancorp.
Report of the Compensation Committee
The Compensation Committee of the board of directors of Bancorp is
composed of independent non-employee directors. Bancorp's compensation package
for its executive officers consists of base salary, annual performance bonus,
annual stock option grants and various broad based employee benefits. Management
recommendations of base salary levels, annual performance bonuses and stock
option grants are reviewed by the Compensation Committee and submitted to the
full board of directors for approval.
The objective of Bancorp's executive compensation is to enhance
Bancorp's long-term profitability by providing compensation that will attract
and retain superior talent, reward performance and align the interests of the
executive officers with the long term interests of the shareholders of Bancorp.
Bancorp has employment agreements with Messrs. Hill, Musumeci, Falese,
DiFlorio and Norcross which were effective January 1, 1992 for Messrs. Hill, and
Musumeci, January 1, 1998 for Messrs. Falese and DiFlorio, and October 1, 1996
for Mr. Norcross. See "EXECUTIVE COMPENSATION - Employment Agreements."
Base salary levels for Bancorp's executive officers are competitively
set relative to companies in peer businesses. In reviewing base salaries, the
Compensation Committee also takes into account individual experience and
performance.
Bancorp's annual performance bonuses are intended to provide a direct
cash incentive to executive officers and other key employees to maximize
Bancorp's profitability. Financial performance is compared against budgets as
well as peer businesses.
Stock options are intended to encourage officers and other key
employees to remain employed by Bancorp by providing them with a long term
interest in Bancorp's overall performance as reflected by the performance of
Bancorp's common stock. In granting stock options, the Compensation Committee
takes
14
into account prior stock option grants and considers the executive's level of
compensation and past contributions to Bancorp.
Vernon W. Hill, II was Bancorp's Chairman and President (chief
executive officer) for 2003. Mr. Hill's base salary is set competitively
relative to other chief executive officers in financial service companies in
Bancorp's market area. In determining Mr. Hill's base salary as well as annual
performance bonus, the Compensation Committee reviewed independent compensation
data and Bancorp's performance as compared against budgets and peer businesses.
As with Bancorp's other executive officers, Mr. Hill's total compensation
involves certain subjective judgments and is not based solely upon any specific
objective criteria or weighting.
COMPENSATION COMMITTEE
Morton N. Kerr, Chairman
Daniel J. Ragone
Jack R Bershad
Financial Performance
The graph below shows a comparison of the cumulative return experienced
by Bancorp's shareholders over the years 1998 through 2003, the S&P Mid 400 Fin
Index and the S&P 500 Index assuming an investment of $100 in each at December
31, 1998 and the reinvestment of dividends.
[OBJECT OMITTED]
15
The beginning and end data points used for the performance graph are
listed below.
S&P Mid
400
Fin
December 31, CBH Index S&P 500
------------ ------ ------- -------
1998 100.0 100.0 100.0
1999 82.5 87.6 121.0
2000 149.6 106.5 110.0
2001 174.9 107.3 97.0
2002 194.6 99.7 75.5
2003 241.0 134.0 97.2
Previously, Bancorp used the S&P Mid-Cap Bank Index for comparison
purposes. However, the S&P Mid-Cap Bank Index is no longer available. As a
result, Bancorp replaced the S&P Mid-Cap Bank Index with the S&P Mid 400 Fin
Index.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS.
The following table sets forth, as of April 23, 2004, the beneficial
ownership of Bancorp's common stock by (i) each person who is known by Bancorp
to be the beneficial owner of more than 5% of Bancorp's common stock, (ii) each
director of Bancorp, (iii) each of the executive officers of Bancorp named in
the Summary Compensation Table and (iv) all the directors and executive officers
of Bancorp as a group. Unless otherwise specified, all persons listed below have
sole voting and investment power with respect to their shares. The address of
Mr. Hill is c/o Commerce Bancorp, Inc., Commerce Atrium, 1701 Route 70 East,
Cherry Hill, New Jersey 08034.
Number of Shares Percent of Class
Name of Beneficial Owner or Identity of Beneficially Beneficially
Group Owned(1)(2) Owned(1)(2)
--------------------------------------- ---------------- -----------------
Robert C. Beck 387,762(3) *
Jack R Bershad 136,869 (4) *
Joseph E. Buckelew 648,372 (5) *
Donald T. DiFrancesco 10,082 (6) *
Vernon W. Hill, II 3,575,971 (7) 4.48%
Morton N. Kerr 8,231 (8) *
Steven M. Lewis 520,672 (9) *
George E. Norcross, III 1,058,129 (10) 1.35%
Joseph J. Plumeri, II 1,000 *
Daniel J. Ragone 197,409 (11) *
William A. Schwartz, Jr. 92,445 (12) *
Joseph T. Tarquini, Jr. 552,400 (13) *
16
Number of Shares Percent of Class
Name of Beneficial Owner or Identity of Beneficially Beneficially
Group Owned(1)(2) Owned(1)(2)
--------------------------------------- ---------------- -----------------
Frank C. Videon, Sr. 203,081 (14) *
Dennis M. DiFlorio 813,293 (15) 1.04%
Robert D. Falese, Jr. 249,626 (16) *
Peter M. Musumeci, Jr. 436,260 (17) *
All Directors and Executive Officers of 9,400,428 (18) 11.41%
Bancorp as a Group (19 Persons)
Putnam, LLC 5,921,332 (19) 7.60%
One Post Office Square
Boston, MA 02109
Gilder, Gangon, Howe & Co. LLC 9,046,104 (20) 11.61%
1775 Broadway, 26th Floor
NY, NY 10019
-----------------------------
* less than 1%
(1) The securities "beneficially owned" are determined in accordance with the
definitions of "beneficial ownership" as set forth in the regulations of the
Securities and Exchange Commission ("SEC") and, accordingly, 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 residence as such individual
as well as other 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 April 23, 2004. Shares subject to outstanding stock options
which an individual has the right to acquire within 60 days after April 23, 2004
are deemed to be outstanding for the purpose of computing the percentage of
outstanding securities of the class owned by such individual or any group
including such individual only. Beneficial ownership may be disclaimed as to
certain of the securities.
(2) The figures in these columns reflect the shares of Bancorp common stock
issuable upon the conversion of the 5.95% Convertible Trust Capital Securities
(the "trust capital securities") issued by Commerce Capital Trust II on March
11, 2002. Messrs. Bershad, Buckelew, DiFlorio, Hill, Ragone and Videon
beneficially own 3,000, 10,000, 2,000, 8,000, 2,000 and 8,000 trust capital
securities, respectively, and the directors and executive officers of Bancorp,
as a group (19 persons), beneficially own 35,000 trust capital securities. Each
trust capital security is convertible, at the option of the holder thereof, into
shares of Bancorp common stock at an initial conversion ratio of 0.9478 shares
of Bancorp common stock for each trust capital security, subject to adjustment
under certain circumstances. As of April 23, 2004, the trust capital securities
are convertible at the election of the holder.
(3) Includes 1,108 shares of Bancorp common stock held by Mr. Beck's wife and
93,376 shares of Bancorp common stock issuable upon the exercise of stock
options granted under Bancorp's 1989 and 1998 Stock Option Plans for
Non-Employee Directors.
(4) Includes 31,745 shares of Bancorp common stock held by Mr. Bershad's wife
and 62,112 shares of Bancorp common stock issuable upon the exercise of stock
options granted under Bancorp's 1989 and
17
1998 Stock Option Plans for Non-Employee Directors and 2,843 shares issuable
upon the conversion of the trust capital securities.
(5) Includes 158,488 shares of Bancorp common stock held by Mr. Buckelew's wife,
4,778 shares of Bancorp common stock held by Buckelew & Lane Investments, 3,327
shares of Bancorp common stock allocated to Mr. Buckelew's account under
Bancorp's 401(k) Plan, 162,500 shares of Bancorp common stock issuable upon the
exercise of stock options granted under Bancorp's Employee Plans, as defined on
page 10 and 9,478 shares issuable upon the conversion of the trust capital
securities. Mr. Buckelew is a partner of Buckelew & Lane Investments.
(6) Includes 1,826 shares of Bancorp common stock held jointly with Mr.
DiFrancesco's wife, 731 shares of Bancorp common stock held by Mr. DiFrancesco's
wife and 6,250 shares of Bancorp common stock issuable upon the exercise of
stock options granted under Bancorp's 1998 Stock Option Plan for Non-Employee
Directors.
(7) Includes 103,680 shares of Bancorp common stock held by Site Development
Inc., 43,936 shares of Bancorp common stock held by Mr. Hill's wife, 145,542
shares of Bancorp common stock held by S. J. Dining, Inc., 148,666 shares of
Bancorp common stock held by U.S. Restaurants, Inc., 145,018 shares of Bancorp
common stock held by J.V. Properties, 35,748 shares of Bancorp common stock held
by InterArch, Inc., 154,904 shares held by InterArch, Inc. Profit Sharing Plan,
122,786 shares of Bancorp common stock held by the Hill Family Trust, 139,798
shares held by the Hill Family Foundation, 4,473 shares of Bancorp common stock
held by Galloway National Golf Club and 37,146 shares of Bancorp common stock
allocated to Mr. Hill's account under Bancorp's 401(k) Plan. Mr. Hill is the
Chairman of the Board of Site Development, Inc., a shareholder of S. J. Dining,
Inc., a shareholder of U.S. Restaurants, Inc., a partner in J.V. Properties, a
co-trustee and beneficiary of the Hill Family Trust, a trustee of the Hill
Family Foundation, and a principal equity holder of Galloway National Golf Club.
InterArch, Inc., is a company owned by Mr. Hill's wife and Mrs. Hill is a
trustee of InterArch, Inc. Profit Sharing Plan. This amount also includes
1,883,092 shares of Bancorp common stock issuable upon the exercise of stock
options granted to Mr. Hill under Bancorp's Employee Plans and 7,582 shares
issuable upon conversion of the trust capital securities.
(8) Includes 8,131 shares of Bancorp common stock. held by the Markeim-Chalmers,
Inc. Pension Plan. Mr. Kerr is a trustee of the Markeim-Chalmers, Inc. Pension
Plan.
(9) Includes 18,432 shares of Bancorp common stock held jointly with Mr. Lewis'
wife, 145,542 shares of Bancorp common stock held by S. J. Dining, Inc., 148,666
shares of Bancorp common stock held by U.S. Restaurants, Inc. and 64,076 shares
of Bancorp common stock issuable upon the exercise of stock options granted to
Mr. Lewis under Bancorp's 1989 and 1998 Stock Option Plans for Non-Employee
Directors. Mr. Lewis is President of S. J. Dining, Inc. and President of U.S.
Restaurants, Inc. This amount also includes 14,796 shares of Bancorp common
stock held in trust for Mr. Lewis' minor children.
(10) Includes 338,348 shares of Bancorp common stock held jointly with Mr.
Norcross' wife, 1,271 shares of Bancorp common stock held by Mr. Norcross' wife,
709 shares of Bancorp common stock held as custodian for Mr. Norcross' minor
children, 159,905 shares of Bancorp common stock held under a grantor trust for
Mr. Norcross' minor children, 3,386 shares of Bancorp common stock allocated to
Mr. Norcross' account under Bancorp's 401(k) Plan and 541,534 shares of Bancorp
common stock issuable upon the exercise of stock options granted to Mr. Norcross
under Bancorp's Employee Plans.
(11) Includes 50,222 shares of Bancorp common stock held by Mr. Ragone's wife,
17,025 shares of Bancorp common stock held jointly with Mr. Ragone's wife and
65,402 shares of Bancorp common
18
stock issuable upon the exercise of stock options granted to Mr. Ragone under
Bancorp's 1989 and 1998 Stock Option Plans for Non-Employee Directors and 1,896
shares issuable upon conversion of the trust capital securities.
(12) Includes 6,724 shares of Bancorp common stock held by Mr. Schwartz's wife,
36,398 shares of Bancorp common stock held jointly with Mr. Schwartz's wife and
46,882 shares of Bancorp common stock issuable upon the exercise of stock
options granted to Mr. Schwartz under Bancorp's 1989 and 1998 Stock Option Plans
for Non-Employee Directors.
(13) Includes 454,328 shares of Bancorp common stock held by JCT Associates,
L.P., 4,696 shares of Bancorp common stock held by The Tarquini Foundation and
93,376 shares of Bancorp common stock issuable upon the exercise of stock
options granted to Mr. Tarquini under Bancorp's 1989 and 1998 Stock Option Plans
for Non-Employee Directors. Mr. Tarquini is the General Partner of JCT
Associates, L.P., and a trustee of The Tarquini Foundation.
(14) Includes 49,545 shares of Bancorp common stock held jointly with Mr.
Videon's wife, 18,489 shares of Bancorp common stock held by Mr. Videon's wife,
16,066 shares held by the Frank C. Videon, Inc., Profit Sharing Trust, 9,287
shares of Bancorp common stock held by the Videon Chevrolet Profit Sharing Plan,
31,516 shares of Bancorp common stock held by the Videon Dodge, Inc. Employee
Profit Sharing Trust, 4,327 shares of Bancorp common stock held by the Frank C.
Videon Funeral Home Profit Sharing Plan, 29,035 shares of Bancorp common stock
held in Trust for Mr. Videon's grandchildren, 37,234 shares of Bancorp common
stock issuable upon the exercise of stock options granted to Mr. Videon under
Bancorp's 1989 and 1998 Stock Option Plans for Non-Employee Directors and 7,582
shares issuable upon conversion of the trust capital securities. Mr. Videon is a
trustee for each of the above-referenced Plans and/or Trusts.
(15) Includes 25,638 shares held by Mr. DiFlorio's wife, 580,806 shares of
Bancorp common stock issuable upon the exercise of stock options granted to Mr.
DiFlorio under Bancorp's Employee Plans, 17,473 shares of Bancorp common stock
allocated to Mr. DiFlorio's account under Bancorp's 401(k) Plan and 1,896 shares
issuable upon conversion of the trust capital securities.
(16) Includes 97,120 shares of Bancorp common stock issuable upon the exercise
of stock options granted to Mr. Falese under Bancorp's Employee Plans, 10,146
shares of Bancorp common stock allocated to Mr. Falese's account under Bancorp's
401(k) Plan, 1,956 shares of Bancorp common stock held by Mr. Falese's wife and
903 shares of Bancorp common stock held jointly with Mr. Falese's wife.
(17) Includes 203,380 shares of Bancorp common stock held jointly with Mr.
Musumeci's wife, 5,450 shares held by the Peter/Linda Musumeci Foundation,
196,594 shares of Bancorp common stock issuable upon the exercise of stock
options granted to Mr. Musumeci under Bancorp's Employee Plans and 30,182 shares
of Bancorp common stock allocated to Mr. Musumeci's account under Bancorp's
401(k) Plan. Mr. Musumeci is a trustee of the Peter/Linda Musumeci Foundation.
(18) Includes an aggregate of 4,450,856 shares of Bancorp common stock issuable
upon the exercise of stock options granted to directors and executive officers
of Bancorp under Bancorp's 1989 and 1998 Stock Option Plans for Non-Employee
Directors and Bancorp's Employee Plans and 33,173 shares issuable upon
conversion of the trust capital securities.
(19) Based upon a Schedule 13G filed with the SEC on February 13, 2004, the
shares of Bancorp common stock shown in the table as beneficially owned by
Putnam, LLC are beneficially owned as follows: Putnam Investment Management,
LLC, 3,400,681 shares; The Putnam Advisory Company, LLC, 2,520,651 shares.
According to the Schedule 13G, Putnam, LLC and related entities have shared
voting
19
power over 1,647,784 shares and shared dispositive power over 5,921,332 shares
of the shares reported as beneficially owned.
(20) Based upon a Schedule 13G filed with the SEC on February 10, 2004, the
shares of Bancorp common stock shown in the table as beneficially owned by
Gilder, Gagnon, Howe & Co. LLC are beneficially owned as follows: shares held in
customer accounts, 6,284,404; shares held in accounts owned by the partners and
their families, 2,666,749, and shares held in the profit-sharing plan, 94,951.
According to the Schedule 13G, Gilder, Gagnon, Howe & Co. has the sole voting
power over 94,951 shares and shared dispositive power over 9,046,104 shares of
the shares reported as beneficially owned.
EQUITY COMPENSATION PLAN INFORMATION
The following table details information regarding Bancorp's existing equity
compensation plans as of December 31, 2003:
(a) (b) (c)
Number of securities remaining
Number of securities to be Weighted-average available for future issuance
issued upon exercise of exercise price of under equity compensation plans
Plan Category outstanding options, outstanding options, (excluding securities reflected
warrants and rights warrants and rights in column (a))(1)
---------------------------- ------------------------- ---------------------------------
Equity compensation plans approved by 11,957,602 $28.76 3,318,280
security holders
---------------------------- ------------------------- ---------------------------------
Equity compensation plans not approved
by security holders N/A N/A N/A
---------------------------- ------------------------- ---------------------------------
Total 11,957,602 $28.76 3,318,280
============================ ========================= =================================
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Certain directors and executive officers of Bancorp and its
subsidiaries and certain of their immediate family members and certain
corporations or organizations with which they are affiliated have had and expect
to continue to have loan and other banking transactions with Bancorp's
subsidiary banks. All such loans and other banking transactions were made in the
ordinary course of business, were made on substantially the same terms,
including interest rates and collateral, as those prevailing at the time for
comparable transactions for unrelated parties, and did not involve more than the
normal risk of uncollectibility or present other unfavorable features.
Currently, the board of directors of Bancorp approves all related party
transactions in which an officer or director of Bancorp or any of its
subsidiaries has an interest. In the case of a transaction involving a director
of Bancorp, such director does not vote on the transaction. Bancorp complies
with any and all approval requirements of the NYSE related to transactions
between Bancorp and its officers, directors and other affiliates.
Mr. DiFrancesco is a member of and Mr. Beck is of counsel to law firms
which Bancorp and its subsidiaries have retained during Bancorp's last fiscal
year and which Bancorp and its subsidiaries intend to retain during its current
fiscal year.
Management believes that the legal fees paid for the foregoing services
are comparable to those which they would have paid to non-affiliated parties for
similar services.
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Bancorp leases the land on which it has constructed seventeen branch
offices from limited partnerships in which Mr. Hill is a partner or in which a
corporation owned by Mr. Hill is a partner, or from the Hill Family Trust under
separate operating lease agreements (with purchase options). The aggregate
annual rental under these leases for 2003 was approximately $1.1 million. These
leases expire periodically beginning 2004 but are renewable through 2040. In
August 2002, Mr. Hill agreed not to participate in any future real estate
leasing transactions involving Bancorp and its subsidiaries.
Management believes that the rental paid or received for each of the
foregoing leases is and was comparable to the rental which they would have to
pay to or would have received from, as the case may be, non-affiliated parties
in similar commercial transactions for similar locations, assuming that such
locations were available.
Bancorp has obtained architectural design and facilities management
services for over twenty-five years from a business owned by the spouse of Mr.
Hill. Bancorp spent $6.4 million in 2003 for such services and related costs.
Additionally, the business received additional revenues for project management
of approximately $3.8 million in 2003 on furniture and facility purchases made
directly by Bancorp. In 2003, the board approved the transfer, without cost,
into Bancorp of the project management services. The business will continue to
provide architectural and design services to Bancorp. Management believes these
disbursements were substantially equivalent to those that would have been paid
to unaffiliated companies for similar services. The board of directors believes
this arrangement has been an important factor in the success of the Commerce
brand.
During 2003, Bancorp and its subsidiaries utilized the facilities of
Galloway National Golf Club in the amount of approximately $448,000. Mr. Hill is
a principal equity holder of Galloway National Golf Club. Management believes
such expenses were substantially equivalent to those that would have been paid
to unaffiliated companies for utilization of their facilities.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Aggregate fees (1) for professional services rendered for Bancorp by Ernst &
Young LLP as of or for the years ended December 31, 2003 and 2002 were:
2003 2002
---------- ---------
Audit Fees................................ $1,210,500 $ 817,000
Audit Related fees........................ 38,000 17,500
Tax Fees.................................. 39,386 61,500
All Other Fees............................ 30,248 45,000
---------- ---------
Total..................................... $1,318,134 $941,000
========== =========
The Audit fees for the years ended December 31, 2003 and 2002, respectively,
were for professional services rendered for the audits of the consolidated
financial statements of Bancorp, quarterly reviews, issuance of consents, review
of registration statements filed with the SEC, and required regulatory reporting
under FDICIA.
Audit Related fees for the years ended December 31, 2003 and 2002, were for
employee benefit plan audits and other attest services not required by statute
or regulation.
Tax fees for the years ended December 31, 2003 and 2002, were for services
performed in connection with tax compliance, tax advice and tax planning and
other corporate tax services other than those directly related to the audit of
the income tax accrual.
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All other fees for the year ended December 31, 2003 and 2002 were for licensing
fees associated with cash management services and for an asset/liability review
project.
The Audit Committee has considered and determined that the services provided by
Ernst & Young LLP are compatible with maintaining Ernst & Young LLP's
independence.
The Audit Committee has adopted a policy that requires advance approval of all
audit, audit-related, tax services and other services performed by the
independent auditor. The policy provides for pre-approval by the Audit Committee
of specifically defined audit and non-audit services. Unless the specific
service has been previously pre-approved with respect to that year, the Audit
Committee must approve the permitted service before the independent auditor is
engaged to perform it. The Audit Committee pre-approved all of the audit and
non-audit services provided to Bancorp by Ernst & Young LLP in fiscal year 2003.
----------------------------
(1) The aggregate fees included in Audit are fees billed for the fiscal
years for the audit of the registrant's annual financial statements and
reviews of financial statements and statutory and regulatory filings or
engagements. The aggregate fees included in each of the other
categories are fees billed in the fiscal years.
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a)(3) Exhibits
Exhibit
Number Description of Exhibit
--------- ----------------------
31.1 Certification of the Company's Chief Executive Officer
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 Certification of the Company's Chief Financial Officer
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
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SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange of 1934, the Registrant has duly caused this Amendment No. 2 to its
Annual Report of Form 10-K for the year ended December 31, 2003 to be signed on
its behalf by the undersigned thereunto duly authorized.
COMMERCE BANCORP, INC.
Date: April 29, 2004 By: /s/ Douglas J. Pauls
---------------------------------
Douglas J. Pauls
Senior Vice President and Chief
Financial Officer
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