COMMERCIAL BANCSHARES, INC.

 

COMPENSATION COMMITTEE CHARTER

(As adopted on March 8, 2012)

Purpose.  The Compensation Committee (Committee) shall recommend to the Board an overall philosophy and strategy with respect to the compensation of Commercial Bancshares, Inc.‘s (Company) Chief Executive Officer (CEO) and other senior executives to attract and retain highly qualified individuals and shall provide oversight of Company’s executive compensation plans. The Committee will also provide overall strategic leadership to the Company in other critical Human Resource disciplines including succession planning, talent development, benefits, and total compensation.

Responsibilities.  The Committee shall have the following responsibilities:

Executive Compensation

• To review Company’s executive compensation philosophy and strategy at least annually;
• To establish corporate individual goals and objectives at least annually relating to the compensation of the CEO and other senior executives under Company’s incentive compensation and equity-based plans;
• To evaluate the performance of the CEO and other senior executives at least annually and to approve their compensation or compensation levels, including base salaries, incentive compensation and equity-based compensation. It is recognized that the CEO will have primary responsibility for evaluating the performance of other executive officers.
• To consider, among other things, in determining long-term incentive compensation for these executives, Company’s performance and relative shareholder return, the awards the executives received in past years and the value of similar incentive awards to executives at comparable companies; and
• To approve or, as required, to recommend to the Board employment or consulting agreements, severance arrangements, change in control arrangements, stock ownership guidelines, perquisites and special, supplemental or non-qualified benefits for the CEO and other senior executives.

Incentive Compensation and Equity-Based Plans

• To approve or, as required, to recommend to the Board the establishment of new incentive compensation and equity-based plans for the CEO and other senior executives, as well as changes to and the termination of existing plans; and
• To administer or, as applicable, to oversee the administration of, the plans in accordance with their terms and to perform such functions with respect to the plan as the Committee is authorized or permitted to perform thereunder.
• To develop and periodically review and revise as appropriate, a management succession plan and related procedures. Consider and recommend to the Board candidates for successor to the CEO of the Company and, with appropriate consideration of the CEO’s recommendations, candidates for successors to other executive officers, in each case when vacancies shall occur in those offices.

General

• To insure appropriate Human Resource strategies are in place to create a “winning” organization. These areas include but are not limited to; compensation and benefits planning, performance measurement and evaluation systems, and talent development processes.
• To produce the report on executive compensation required by the rules of the SEC to be included in Company’s annual proxy statement;
• To review the performance of this Committee and the adequacy of this Charter annually and to recommend any proposed changes to the Board; and
• To report its activities regularly to the Board.

Outside Advisors.  The Committee may, at Company’s expense and without Board approval, retain outside advisors to assist it in performing its functions, approve the advisors’ fees and other terms of engagement, and terminate the advisors at its sole discretion.

Organization.  The Committee shall have at least three members, including the Chairman or Vice Chairman, who are appointed by the Board.  All members shall be outside directors and shall meet such independence requirements as may be applicable under U.S. law and the rules of the Securities and Exchange Commission (SEC) and the Nasdaq.  All members shall also qualify as “non-employee directors” within the meaning of Rule 16b-3 of the Securities Exchange Act of 1934 and as “outside directors” for purposes of Section 162(m) of the Internal Revenue Code.

Meetings. The majority of the members of the Committee constitute a quorum.  The Committee may act by a majority vote at a meeting of the Committee or by a writing or writings signed by all of its members without a meeting.  Meetings of the Committee will be held as often as may be necessary or appropriate at such times and places as the Committee determines.  Such meetings may be held through any communications equipment if all persons participating can hear each other.

 

 

 

Commercial Bancshares, Inc. and Affiliates

Audit Committee Charter

 

Adopted by the Board of Directors on November, 2011.

 

            The Audit Committee (“Committee”) shall provide assistance to the Board of Directors of Commercial Bancshares, Inc. and its affiliated companies (collectively the “Company”) in fulfilling certain of the Board’s oversight responsibilities. The Board hereby adopts this Charter to establish the governing principles of the Committee.

 

I.          PURPOSE

 

            The primary function of the Committee is to serve as an independent and

objective party to assist the Board in fulfilling its oversight responsibilities, except those that are specifically related to the responsibilities of another committee of the Board, by overseeing and monitoring:

 

            1.         The quality and objectivity of financial reports and other financial

information provided by the Company to any governmental body or the public and the independent audit thereof.

2.         The Company’s system of internal controls regarding finance, accounting and regulatory compliance.

3.         Material aspects of the Company’s accounting and financial reporting process generally.

4.         The independence and performance of the Company’s independent accountants.

            5.         Compliance by the Company with legal and regulatory requirements.

            6.         Performance of the Company’s internal audit function.

 

The Committee will primarily fulfill these responsibilities by carrying out the activities enumerated in Section II of this Charter.

 

II.        RESPONSIBILITIES AND DUTIES

 

A.                General Responsibilities

 

To carry out its purposes, the responsibilities of the Committee shall be as follows:

 

1. Retain, compensate, and oversee any registered public accounting firm engaged

 for the purpose of preparing or issuing an audit report or

 performing any other audit, review, or attestation service for the Company.

 Although Company management will be involved in the selection process, the

 Committee shall have the ultimate authority and responsibility to select, evaluate

 and replace the independent auditor. The Committee shall also establish

 procedures for the pre-approval of all non-audit services provided by the

 Company’s independent auditors.

 

2. In discharging its duties hereunder, the Committee shall have the authority to the extent it deems necessary or appropriate, to retain independent legal, accounting or other advisors. The Company shall provide for appropriate funding, as determined by the Committee, for payment of compensation to the independent accountants for the purpose of rendering or issuing an audit report and to any advisors employed by the Committee.

 

3. At least annually, review with the independent auditor the auditor’s internal

 control procedures, including any material issues raised in the most recent

 quality control  review, peer review or investigation conducted by any

 governmental or  professional authority.

 

4. The Committee shall review, at least annually, the committee’s charter and

 recommend any proposed changes to the Board for approval. The Committee

 shall conduct, and report to the Board the results of, and annual performance

 evaluation of the Committee, which evaluation shall compare the performance of

 the committee with the requirements of this charter.

 

5. The Committee shall report regularly to the Board, including review of any

 issues that arise with respect to the quality or integrity of the company’s financial

 statements, compliance with legal or regulatory requirements, or the performance

 and independence of the independent registered public accounting firm.

 

6. The Committee shall establish procedures for the receipt, retention, and

 treatment of complaints received by the Company regarding accounting, internal

 accounting controls, or auditing matters. Procedures shall also be developed for

 the confidential, anonymous submission by Company employees of concerns

 regarding questionable accounting or auditing matters.

 

7. Prior to commencement of each annual audit of the Company, meet and review

 with the independent auditor the scope of their audit procedures to be provided to

 the Company. Consider the need for expansion of the audit into areas of

 particular concern to the Board.

 

8. The Committee shall prepare the Audit Committee report required for inclusion

 in the Company’s annual proxy statement.

 

9. Maintain open communications with the independent accountants, management

 and the Board. Resolve any disagreements between Company management and

 the independent auditor regarding financial reporting.

 

10. Require the independent accountant to annually deliver to the Committee a

formal written statement delineating all relationships between the independent accountants and the Company and addressing at least the matters set forth in Independence Standards Board Standard No. 1 to help determine whether such relationships would impact the objectivity and independence of the Company’s independent accountants.

 

11. The Committee shall set clear hiring policies for employees or former

employees of the independent accounting firm and for audit partner rotation in compliance with applicable laws and regulations. The Committee shall consider whether, in order to ensure continuing auditor independence, there should be a regular rotation of the independent accounting firm.

 

12.Take any other actions required of the Committee by law, applicable

regulations, or the Board.

 

B.                 Financial Reporting and Internal Controls

 

1.      Review and discuss with management and the independent accounting firm

the Company’s annual financial statements and the independent accountant’s opinion rendered with respect to such financial statements.

 

2. Review the interim financial information and disclosures before the filing of

 the quarterly reports on Form 10-Q with the Securities and Exchange

 Commission and discuss such with management of the Company and the

 independent accounting firm. The chair of the Committee may represent the

 entire Committee for purposes of this discussion with management and the

 independent accountants.

 

3. Discuss with the independent accounting firm the matters required by SAS 61,

and an explanation from the independent accountant of the factors considered by

the independent accountant in determining the audit’s scope. The independent

accountant should confirm that no limitations have been placed on the scope or

nature of the audit.

 

4. Receive and review any disclosure from the Company’s CEO or CFO made in

connection with the certification of the Company’s quarterly and annual reports

filed with the SEC of (i) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Company’s ability to record, process, summarize, and report financial data; and (ii) any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal controls.

 

5. Review the audit and management internal control reports rendered by the independent accountant or internal audit with particular concern for any qualifications or significant findings noted in their reports. Ascertain that Company management has replied to issues raised in such reports and obtain satisfaction that corrective action is taken when deemed necessary.

 

6. Request the independent accountants to confirm that they are accountable to the

Committee and that they will provide the Committee with timely analyses of significant financial reporting and internal control issues.

 

7. The Committee shall receive and review communications and presentations on significant operating and control issues in internal audit reports, management letter, and regulatory authorities’ examination reports, and on the initiation and status of significant special investigations; and initiate such other inquiries into the affairs of the Company as it deems necessary or appropriate.

 

8. The Committee shall determine the adequacy and effectiveness of accounting

and financial controls within the Company and elicit any recommendations for any areas in which new or more detailed control procedures are desirable. Particular emphasis should be given to reviewing the adequacy of such controls in the areas of ethical conduct and conflicts of interest, regulatory requirements, and financial reporting procedures.

 

9. The Committee shall discuss with the independent auditor their judgments about the quality of the Company’s accounting principles as applied in its financial reporting, including matters relating to the consistency of application of the Company’s accounting policies and the clarity, consistency, and completeness of the accounting information contained in the financial statements and related disclosures.

 

10. The Committee shall discuss with the independent auditor any significant

difficulties or disputes with management encountered during the course of the

audit.

 

11.  Obtain from the independent accountants assurance that Section 10A(b) of the

Exchange Act has not been implicated.

 

     III.         INTERNAL AUDIT

 

1.      Review and concur in the appointment, replacement, or dismissal of the Director of Internal Audit, or any vendor providing internal audit services.

 

2.      Establish the duties and responsibilities of the Director of Internal Audit and provide oversight for the Internal Audit function.

 

3.      Approve the risk assessment methodology and scope of the annual Internal Audit plan of the Company for the ensuing year and concur with significant changes in planned activities. Consider the need for expansion of audits into areas of particular concern to the directors.

 

4.      Periodically review the adequacy of Internal Audit resources and the performance of the Director of Internal Audit and any vendor performing Internal Audit services.

 

5.      Periodically review Internal Audit reports, including management’s responses, or summaries thereof.

 

6.      Periodically review the follow-up of significant Internal Audit, External Audit, and regulatory findings. To ensure that all such findings are addressed in a sufficient and timely manner, a log shall be maintained that reflects these findings, along with any follow-up efforts and an assignment of responsibility for addressing the finding. This log shall be maintained by employee(s) of the Company, as designated by the Committee.

 

7.      Provide an open avenue of communication between the independent auditor, Internal Audit, and the Board in order to maintain their independence from management of the Company and assist them in performing their respective functions.

 

8.      Periodically review and update the Company’s Internal Audit Policy as necessary.

           

IV.             COMMITTEE MEMBERSHIP AND MEETINGS

 

A. Membership

 

The Committee shall be comprised of three or more directors as determined by the Board, each of whom:

 

1.         Shall be independent directors, and free from any relationship that, in the opinion of the Board, would interfere with the exercise of his or her independent judgment as a member of the Committee. It shall be the responsibility of each director to immediately disclose to the Committee chairman any relationship that, either in fact or in appearance, might impact the independent judgment of the director in their service as a member of the Committee.

 

2.         Shall have a basic understanding of finance and accounting practices and

      shall be able to read and understand financial statements. Committee

      members may enhance their familiarity with finance and accounting by

      participating in educational programs conducted by the Company or an

      outside consultant.

 

            At least one member of the Committee shall have past employment

experience in finance or accounting, requisite professional certification in

            accounting, or any other comparable experience or background that results

            in the individual’s financial sophistication.

 

The members of the Committee shall be elected by the Board annually or until their successors shall be duly elected and qualified. Unless a Chairman is elected by the full Board, the members of the Committee may designate a Chairman by majority vote of the full Committee membership.

 

B. MEETINGS

 

The Committee shall meet at least four times each year, or more frequently as circumstances require. The Chairman of the Committee may call a Committee meeting whenever deemed necessary and shall be responsible for meeting with the independent accountants at their request to discuss the interim financial results.

 

 

In carrying out its mission, the Committee shall have the following goals, responsibilities and authority:

 

 Board of Directors

 

A.    Evaluate periodically the desirability of and recommend to the Board any changes in the size and composition of the Board.

 

B.     Evaluate and recommend directors to the Board in accordance with the general and specific criteria set forth below or determined as provided below:

 

·                     General Criteria.  Director selection should include at least enough Independent Directors (as defined in and determined pursuant to the rules and regulations of the NASDAQ) to satisfy the minimum number of Independent Directors required to fill all Board and Board committee positions required to be filled by Independent Directors, and such Independent Directors should have appropriate skills, experiences and other characteristics.  Subject to the right of the Corporate Governance/Nominating Committee and the Board to decide otherwise when deemed appropriate, the Chief Executive Officer of the Company generally should be a director and, depending on the circumstances, certain other members of management, as well as certain individuals having relationships with the Company that prevent them from being Independent Directors, may be appropriate members of the Board. Each director should:

 

-Be an individual of the highest character and integrity and have an inquiring mind, vision, a willingness to ask hard questions and the ability to work well with others;

 

-Be free of any conflict of interest that would violate any applicable law or regulation or interfere with the proper performance of the responsibilities of a director;

 

- Be willing and able to devote sufficient time to the affairs of the Company and be diligent in fulfilling the responsibilities of a director and Board committee member (including developing and maintaining sufficient knowledge of the Company and its industry; reviewing and analyzing reports and other information important to Board and committee responsibilities; preparing for, attending and participating in Board and committee meetings; and satisfying appropriate orientation and continuing education guidelines); and

 

-Have the capacity and desire to represent the balanced, best interests of the shareholders as a whole and not primarily a special interest group or constituency. 

 

·                     Specific Criteria. In addition to the foregoing general criteria, the Committee shall develop, reevaluate at least annually and modify as appropriate a set of specific criteria outlining the skills, experiences (whether in business or in other areas such as public service, academia or scientific communities), particular areas of expertise, specific backgrounds and other characteristics that should be represented on the Board to enhance the effectiveness of the Board and Board committees.

 

-          These specific criteria should take into account any particular needs of the Company based on its business, size, ownership, growth objectives, community, customers and other characteristics and will need to be adjusted and refocused as these Company characteristics change and evolve.

 

-          These specific criteria also should reflect the Company’s belief that gender and ethnic diversity provide additional perspectives that are helpful.

 

-          The Committee should prepare at least annually a list of any specific criteria so identified that are not adequately represented on the Board, including when practical, an indication of the most significant deficiencies that the Committee should give the highest priority to remedying by identifying and assisting in recruiting new director candidates possessing the missing criteria.

 

-          The pros and cons of having a former Chief Executive Officer of the Company serve on the Board should be decided based on the facts and circumstances in each individual instance.  When the Chief Executive Officer resigns from that position, he/she should submit his/her resignation at the same time from the Board and, if applicable, from any Board committee permitting non-independent members and on  which he/she serves.  Whether the individual continues to serve on the Board and on any Board committee should be determined by the Committee and the Board based on all relevant circumstances. A former Chief Executive Officer shall never be considered an Independent Director.

 

C.     Evaluate each new director candidate and each incumbent director before recommending that the Board nominate or re-nominate such individual for election or reelection (or that the Board elect such individual on an interim basis) as a director based on the extent to which such individual meets the general criteria above and will contribute significantly to satisfying the overall mix of specific criteria identified above and remedying any deficiencies therein.

 

            ●Each annual decision to re-nominate incumbent directors should be based on a careful consideration of each such individual’s contributions, including the value of his/her experience as a director of the Company, the availability of new director candidates who may offer unique contributions, and the Company’s changing needs.

 

 

D.  Diligently seek to identify potential director candidates who will strengthen the Board and remedy and perceived deficiencies in the specific criteria identified above.  This should include establishing procedures for soliciting and reviewing potential nominees from directors and shareholders and for advising those who suggest nominees of the outcome of such review.

 

●The Committee shall have sole authority to retain and terminate any search firm used to identify director candidates and to approve any such search firm’s fees and other terms of retention.

 

E.     Recommend to the Board the candidates for director to be recommended by the Board for election at each annual meeting of shareholders and to be added to the Board at any other times due to Board expansions, director resignations or retirements or otherwise.

 

F.      Monitor performance of directors based on the general criteria and the specific criteria applicable to each such director.  If any serious problems are identified, work with such director to resolve such problems or, if necessary, seek such director’s resignation or recommend to the Board such person’s removal.

 

G.    Develop and periodically evaluate initial orientation guidelines and continuing education guidelines for each member of the Board and each member of each Board Committee regarding his/her responsibilities as a director generally and as a member of any applicable Board committee, and monitor and evaluate annually (and at any additional time a new member joins the Board or any Board committee) each director’s cooperation in fulfilling such guidelines.  Such guidelines shall take into account all relevant factors, including the nature of each individual’s responsibilities and related background and any particular complexities relating to the Company’s business, financial statements or other characteristics.  These guidelines may impose higher requirements for directors who are members of certain Board committees than for those who are not and may, in appropriate circumstances, impose higher or lower requirements for a particular director based on his/her background and/or occupation.

 

Board Committees

 

    H.    Evaluate at least annually the performance, authority, operations, charter and composition of each standing or ad hoc Board committee (including any authority of a committee to delegate to a subcommittee) and the performance of each committee member and recommend any changes considered appropriate in the authority, operations, charter, number or membership of each committee.  If any serious problems are identified with a committee member, the Committee shall work with such person to resolve such problems or, if necessary, seek such person’s resignation or recommend to the Board such person’s removal from the applicable committee(s). 

 

     I.     Submit to the Board annually (and at any additional times that any committee members are to be selected) candidates for membership on each Board committee (and for the chairman of each committee.)  The Committee will coordinate closely with the full Board as to the selection of an Independent Director who will qualify to serve on the Audit Committee as a designated “audit committee financial expert.”

 

Corporate Governance

 

      J.    Develop and recommend to the Board a Corporate Governance Policy and any changes therein, setting forth the corporate governance principles applicable to the Company.

 

     K.   Monitor and make recommendations to the Board on other matters of Board policies and practices relating to corporate governance.

 

     L.    Review and make recommendations to the Board regarding proposals of shareholders that relate to corporate governance.

 

Other Matters

 

    M.    The Committee also shall undertake such additional activities within the scope of its primary functions as the Committee may from time to time determine.

 

5. Additional Resources

 

The Committee shall have the right to use reasonable amounts of time of the Company’s internal and independent accountants, internal and outside lawyers and other internal staff and also shall have the right to hire independent experts, lawyers and other consultants to assist and advise the Committee in connection with its responsibilities.  The Committee shall keep the Company’s Finance Department advised as to the general range of anticipated expenses for outside consultants.

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