THE COMMERCE GROUP, INC.
211 MAIN STREET ~ WEBSTER ~ MASSACHUSETTS 01570
April 12,
1996
To Our Stockholders:
I am pleased to invite you to attend the Annual Meeting of
Stockholders of The Commerce Group, Inc., which will be held at
9:00 a.m. on Friday, May 17, 1996, on the lower level of the
Company's Claims Building, 11 Gore Road (Route 16), Webster,
Massachusetts.
Please note that we have changed our meeting location from where
it was held last year to our Gore Road Complex.
The accompanying Notice of Annual Meeting of Stockholders
and Proxy Statement set forth the business to come before this
year's Annual Meeting.
If you plan to attend the meeting, please bring a form of
personal identification with you and, if you are acting as proxy
for another, please bring written confirmation from the record
owner that you are acting as proxy.
Whether or not you expect to attend the meeting, please sign
and date the enclosed form of proxy and return it promptly in the
accompanying envelope to ensure that your shares will be
represented. If you attend the meeting, you may withdraw any
proxy previously given and vote your shares in person.
Cordially,
ARTHUR J. REMILLARD, JR.
President and
Chief Executive Officer
The Commerce Group, Inc.
211 Main Street
Webster, MA 01570
(508) 943-9000
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 17, 1996
April 12, 1996
To Our Stockholders:
You are cordially invited to attend the Annual Meeting of Stockholders
of The Commerce Group, Inc. (the "Company") at the Company's Claims Building,
11 Gore Road (Route 16), Webster, Massachusetts at 9:00 a.m. on Friday, May
17, 1996. The meeting is called for the purpose of considering and acting
upon:
1. The election of directors.
2. The transaction of such other business as may properly come before
the meeting or any
adjournment or adjournments thereof.
The close of business on March 29, 1996 was fixed by your Board of
Directors as the record date for the determination of stockholders entitled to
notice of and to vote at the meeting.
We urge you to attend and to participate at the meeting, no matter how
many shares you own. Even if you do not expect to attend the meeting
personally, we urge you to please vote, and then sign, date and return the
enclosed proxy card in the postpaid envelope provided. If you receive more
than one proxy card because your shares are registered in different names or
at different addresses, please sign and return each proxy card so that all of
your shares will be represented at the meeting.
By Order of the Board of Directors
JOHN W. SPILLANE
Clerk
Table of Contents
Page
GENERAL INFORMATION................................................... 1
VOTE REQUIRED......................................................... 1
COST OF SOLICITATION.................................................. 1
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT........ 2
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934.. 3
GOVERNANCE OF THE COMPANY............................................. 3
ELECTION OF DIRECTORS................................................. 5
EXECUTIVE COMPENSATION AND OTHER TRANSACTIONS......................... 8
Summary Compensation Table....................................... 8
SAR Grants in Last Fiscal Year................................... 9
Aggregated Fiscal Year-End SAR Values............................ 10
Long-Term Incentive Plan - Book Value Awards..................... 11
COMPENSATION COMMITTEE REPORT......................................... 12
COMMON STOCK PERFORMANCE.............................................. 14
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS........................ 15
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION........... 15
OTHER BUSINESS........................................................ 15
STOCKHOLDER PROPOSALS................................................. 15
THE COMMERCE GROUP, INC.
211 Main Street
Webster, MA 01570
(508) 943-9000
PROXY STATEMENT FOR ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 17, 1996
GENERAL INFORMATION
This Proxy Statement is furnished in connection with the solicitation of
Proxies by the Board of Directors of The Commerce Group, Inc. (the "Company").
The Proxies will be used at the Annual Meeting of the Stockholders of the
Company on Friday, May 17, 1996 at 9:00 o'clock a.m. at the Company's 11 Gore
Road (Route 16) Complex, in the lower level of the Claims Building in Webster,
Massachusetts and at any adjournment or adjournments thereof (the " Annual
Meeting"). The Company's Annual Report to Stockholders, containing the
financial statements for the year ended December 31, 1995 and the report of
Coopers & Lybrand L.L.P. thereon, is being mailed with this Proxy Statement to
the Company's stockholders of record at the close of business on March 29,
1996. Representatives of Coopers & Lybrand L.L.P. are expected to be present
at the Annual Meeting and will have the opportunity to make a statement if
they desire to do so and will be available to respond to appropriate
questions. The Company mailed this Proxy Statement and related form of Proxy
on or about April 12, 1996.
VOTE REQUIRED
A Proxy is enclosed. Unless contrary instructions are indicated on the
Proxy, or the Proxy is revoked, all shares represented by Proxy received will
be voted FOR the election of the nominees for directors named on page 5 and by
the Proxy holders in their discretion on any other business proper to come
before the Annual Meeting. If a stockholder specifies a different choice by
means of the Proxy, the shares will be voted as specified. A stockholder may
revoke a Proxy at any time prior to the time it is voted by filing with the
Clerk of the Company, or its transfer agent, a written notice of revocation or
by delivering to the Company, or its transfer agent, a duly executed Proxy
bearing a later date. Any stockholder who attends the Annual Meeting in
person will not be deemed thereby to revoke the Proxy, unless such stockholder
affirmatively indicates thereat his or her intention to vote the shares in
person.
So long as a quorum is present at the Annual Meeting, the Directors
shall be elected by a plurality of the votes cast at the Annual Meeting by the
holders of shares entitled to vote thereat. With regard to the election of
directors, votes may be cast in favor or withheld; votes that are withheld
will have no effect on the outcome of the election of directors.
Only the holders of record of shares of Common Stock at the close of
business on March 29, 1996 will be entitled to receive notice of and to vote
at the Annual Meeting. At the close of business on March 29, 1996, the
Company had 36,356,252 shares of Common Stock outstanding and entitled to be
voted. Every stockholder will be entitled to one vote for each share of
Common Stock recorded in his or her name on the books of the Company as of
that date.
COST OF SOLICITATION
The cost of soliciting Proxies for the Annual Meeting will be borne by
the Company. Proxies may be solicited by directors, officers or employees of
the Company without additional compensation in person or by telephone or
telegram. The Company will use the services of Corporate Investor
Communications, Inc. to aid in the solicitation of Proxies at a fee of $3,350
plus expenses. The Company will also request persons, firms and corporations
holding shares in their names, or in the names of their nominees, which shares
are beneficially owned by others, to send this proxy material to and obtain
Proxies from such beneficial owners and will reimburse such holders for their
reasonable expenses in so doing.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of March 1, 1996
with respect to the beneficial ownership of shares of the Company's Common
Stock by the following individuals: (a) each person who is known to the
Company to own beneficially more than 5% of the outstanding shares of such
stock; (b) the Company's directors and nominees; (c) each of the executive
officers named in the Summary Compensation Table; and, (d) all of the
Company's directors and executive officers as a group. The information in the
tables and in the related notes has been furnished by or on behalf of the
indicated owners.
Name and address Amount of shares Percentage
of beneficial owner beneficially owned(1) of shares
(a) Security ownership of
certain beneficial owners:
The Commerce Group, Inc. 4,405,610 12.1%
Employee Stock Ownership Plan
211 Main Street
Webster, MA 01570
(b) Security ownership of directors and
nominees:
Herman F. Becker 510,388 1.4%
Joseph A. Borski, Jr. 609,088 (2) 1.7%
Eric G. Butler 177,424 *
Henry J. Camosse 256,366 *
Gerald Fels 890,731 (3) 2.4%
David R. Grenon 378,452 1.0%
Robert W. Harris 116,597 *
Robert S. Howland 90,158 *
John J. Kunkel 1,257,022 3.4%
Raymond J. Lauring 1,088,175 3.0%
Roger E. Lavoie 421,679 1.2%
Normand R. Marois 253,730 *
Suryakant M. Patel 609,282 1.7%
Arthur J. Remillard, Jr. 1,524,737 (4) 4.2%
Arthur J. Remillard, III 852,960 (5) 2.3%
Regan P. Remillard 520,495 (6) 1.4%
Antranig A. Sahagian 568,586 1.6%
Gurbachan Singh 564,292 1.5%
John W. Spillane 776,900 (7) 2.1%
(c) Security ownership of named
executive officers:
Arthur J. Remillard, Jr. 1,524,737 (4) 4.2%
Gerald Fels 890,731 (3) 2.4%
Arthur J. Remillard, III 852,960 (5) 2.3%
David H. Cochrane 26,849 (8) *
Joyce B. Virostek 165,806 (9) *
(d) All executive officers and 11,728,380 (10) 32.2%
directors as a group
(23 persons)
(footnotes on following page)
2
* Less than 1%.
<FN>
(1) The indicated shares are those as to which the beneficial owner has sole
voting and
investment power except as follows. As to the shares held by the
Company's Employee
Stock Ownership Plan ("ESOP") and allocated to participants' accounts,
the beneficial
owner has no investment power and shared voting power in that, if he
does not exercise his
power to vote his ESOP shares, the ESOP trustees will vote said shares
at the direction of
the committee administering the ESOP (the "ESOP Committee"). All
Company Stock allocated
to participants' accounts can only be voted by said participants. All
other stock not yet
allocated to participants will be voted by the ESOP Committee. One of
the provisions of
the ESOP allows participants, who are 100% vested, to diversify up to
75% of the sum of
the stock in their account, plus all prior year withdrawals, directly
into an IRA or other
retirement account eligible to accept direct rollovers. Of the persons
named in the
table, only Joseph A. Borski, Jr. and Gerald Fels are members of the
ESOP Committee.
The indicated shares not held by the ESOP also include shares owned
beneficially by
spouses, parents, children and relatives who share the same home, trusts
in which the
named individual serves as a trustee and corporations of which the named
individual is
an executive officer or principal shareholder; the named individuals
disclaim any
beneficial interest in shares so included.
(2) Includes 540,336 shares currently held by the Muriel C. McCann B Trust.
Mr. Borski is
the Trustee of the Trust and he disclaims any beneficial interest in
such Trust or
such shares.
(3) Includes 77,419 shares held by the ESOP.
(4) Includes 311,937 shares held by the ESOP.
(5) Includes 109,843 shares held by the ESOP, 74,847 shares held by a trust
of which Mr.
Remillard, III is the trustee and 25,372 shares held by two trusts of
which
Mr. Remillard, III is a co-trustee. Mr. Remillard, III disclaims any
beneficial
interest in such trusts or such shares.
(6) Includes 2,646 shares held by the ESOP.
(7) Includes 1,212 shares held by trusts for the benefit of Mr. Spillane's
children and
5,000 shares held by his son who is trustee of a trust. Mr. Spillane
disclaims any
beneficial interest in such trusts or such shares.
(8) Includes 26,849 shares held by the ESOP.
(9) Includes 42,529 shares held by the ESOP.
(10) Includes 607,803 shares held by the ESOP.
</FN>
___________________________
COMPLIANCE WITH SECTION 16(a)
OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's directors, executive officers and persons who own more than ten
percent of a registered class of the Company's equity securities to file with
the Securities and Exchange Commission initial reports of ownership and
reports of changes in ownership of Common Stock and other equity securities,
if any, of the Company. Officers, directors and greater than ten percent
beneficial owners are required to furnish the Company with copies of all
Section 16(a) forms they file.
To the Company's knowledge, based solely on review of the copies of such
reports furnished to the Company and written representations that no other
reports were required, during the fiscal year ended December 31, 1995, all
Section 16(a) filing requirements applicable to its executive officers,
directors and greater than ten percent beneficial owners were complied with,
except one report was filed late by a trust of which Mr. Arthur J. Remillard,
III, a director of the Company, is the trustee.
GOVERNANCE OF THE COMPANY
Proxies are solicited for the Annual Meeting to give all holders of
Common Stock a chance to vote for the persons who are to be their
representatives in the governance of the Company.
The Company's directors are elected annually by the stockholders and
hold office for a term of one year or until their successors, if any, are
elected and duly qualified.
3
The Board of Directors (the "Board") held four meetings during 1995, and
the attendance of directors as a group was 96.1%. The Board has a standing
Audit Committee which held four meetings during 1995, a standing ESOP
Committee which held twelve meetings during 1995, a standing Compensation
Committee which held one meeting in 1995 and a standing Nominating Committee
which held one meeting during 1995. The Audit Committee reviews the adequacy
of the Company's system of internal controls, including the activities of the
Internal Audit Department. The Audit Committee also reviews the activities
of, and meets periodically with, the Company's independent accountants,
Coopers & Lybrand L.L.P. The Compensation Committee reviews the salary
recommendations and performance evaluations prepared by management for all
officers and makes recommendations to the Board for the salaries of the five
highest paid executive officers. This Committee also makes recommendations to
the Board regarding incentive compensation programs for officers and directors
and administers the Management Incentive Plan. The ESOP Committee administers
the ESOP. The Nominating Committee reviews the qualifications of prospective
directors and provides recommendations to the Board for the nomination of
directors. The Nominating Committee considers stockholder proposals for
directors which should be sent to the attention of the Assistant to the
President at the Company's principal office. All of the incumbent directors
attended 75% or more of the aggregate of their respective Board and Committee
Meetings, except for Mr. Lauring.
Directors, including those who are employees of the Company, receive
$1,500 for each meeting of the Board of Directors of the Company attended.
Directors, who are not employees of the Company, are paid $500 for each
committee meeting of the Board of Directors of the Company attended.
Directors, who are not employees of the Company and serve as a director of
Commerce Holdings, Inc. ("CHI"), a subsidiary of the Company, or CHI's
subsidiaries, The Commerce Insurance Company ("Commerce") and Citation
Insurance Company ("Citation"), are paid $500 for each meeting of the Board of
Directors of CHI or any of its subsidiaries, which he attends. Directors, who
are non-employee members of the ESOP Committee, receive $20,000 annually in
lieu of per-meeting fees. Certain directors also serve as directors of Bay
Finance Company, Inc. and Clark-Prout Insurance Agency, Inc. Directors, who
are not employees of the Company, are paid $50 for each Board of Directors
meeting of Bay Finance Company, Inc. and Clark Prout Insurance Agency, Inc.
attended. All directors of the Company receive an annual stipend of $15,000.
In addition, all directors of CHI, who are not directors of the Company,
receive an annual stipend of $15,000.
Directors also receive an annual Book Value Award ("BVA"), which
entitles the recipient to receive a cash payment for each BVA based upon the
increase in the book value of a share of Common Stock in excess of a specified
minimum target. In 1995, each director received a number of BVAs
approximately equal to 20% of the compensation paid to him as a director of
the Company during 1994. Each 1995 BVA entitles the director to receive a
cash payment equal to the book value of a share of Common Stock on December
31, 1997, less the base price of such BVA. The base price for the 1995 BVAs
($14.88) is the book value of a share of Common Stock on December 31, 1994
($10.88) increased at the rate of 11% per annum compounded annually through
December 31, 1997. The book value of a share of Common Stock is increased for
all cash dividends and the fair market value of all distributions of property
made by the Company which the director would have been entitled to receive had
he owned, from the date of the BVA grant until the expiration date, that
number of shares of Common Stock equal to the number of BVAs under such award.
It is a condition to the receipt of any payment that may be due under a 1995
BVA to a director, that the recipient has been a director of the Company
continuously through April 30, 1998, unless his term shall have been
terminated because of death or for any reason approved by the Board of
Directors of the Company. Payments under the BVAs are accelerated in the
event of the sale of the Company. See "Executive Compensation and Other
Transactions" and "Compensation Committee Report" for a description of BVAs
granted to the Company's executive officers.
4
ELECTION OF DIRECTORS
It is the intention of the persons named as Proxies in the accompanying
form of Proxy (unless otherwise indicated) to vote such Proxies (a) to fix the
number of directors for the ensuing year at 19, and (b) to elect the persons
named in the following table, all of whom are now members of the Board of
Directors, to serve until the next scheduled annual meeting and until their
successors are chosen and qualified. In the event, however, that any of the
nominees for membership on the Board of Directors becomes unavailable (which
is not now anticipated by the Company), the persons named as Proxies have
discretionary authority to vote for a substitute or to reduce the number of
directors to be determined and elected. The Board of Directors of the Company
has no reason to believe that any of said persons will be unwilling or unable
to serve if elected.
Director
Name Position with the Company Age since
Arthur J. Remillard, Jr. President, Chief Executive 65 1972
Officer, Director, Chairman
of the Board
Gerald Fels (2),(3) Executive Vice President, 53 1976
Chief Financial Officer,
Director
Arthur J. Remillard, III (3) Senior Vice President - 40 1983
Policyholder Benefits,
Assistant Clerk, Director
John W. Spillane (1),(3) Clerk, Director 63 1972
Regan P. Remillard Senior Vice President -
General Counsel, Director 32 1993
Herman F. Becker (3) Director 67 1972
Joseph A. Borski, Jr. (1),(2),(4) Director 62 1972
Eric G. Butler Director 68 1988
Henry J. Camosse Director 65 1972
David R. Grenon (4) Director 56 1972
Robert W. Harris Director 64 1975
Robert S. Howland Director 76 1972
John J. Kunkel Director 84 1972
Raymond J. Lauring (1) Director 70 1972
Roger E. Lavoie Director 70 1972
Normand R. Marois Director 60 1972
Suryakant M. Patel (3),(4) Director 55 1983
Antranig A. Sahagian Director 71 1972
Gurbachan Singh Director 57 1991
_________________________________
<FN>
(1) Member of the Compensation Committee.
(2) Member of the ESOP Committee.
(3) Member of the Nominating Committee.
(4) Member of the Audit Committee.
</FN>
5
Arthur J. Remillard, Jr. has been the President, Chief Executive Officer
and Chairman of the Board of the Company since 1972 and has been in the
insurance business for more than 30 years. Mr. Remillard, Jr. is also
Chairman of the Governing Committee, Chairman of the Actuarial Committee, and
is a member of the Personnel and Servicing Carrier Committees of the
Commonwealth Automobile Reinsurers ("C.A.R.").
Gerald Fels, a certified public accountant, was elected Executive Vice
President of the Company in November, 1989. From 1981 to November, 1989, Mr.
Fels had been Senior Vice President of the Company. Mr. Fels was the
Treasurer of the Company from 1975 to 1995. Mr. Fels has also been Chief
Financial Officer since 1975. Mr. Fels also serves on the C.A.R. Audit
Committee.
Arthur J. Remillard, III was elected Senior Vice President-Policyholder
Benefits in 1988. From 1981 to 1988, Mr. Remillard, III had been Vice
President-Mortgage Operations. In addition, Mr. Remillard, III has also
served on the Board of Governors of the Insurance Fraud Bureau of the
Automobile Insurers Bureau of Massachusetts ("A.I.B.")since 1991, the C.A.R.
Claims Advisory Committee since 1990 and the A.I.B. Claims Committee since
1991.
John W. Spillane has been counsel to the Company since its incorporation
and a practicing attorney since 1957. He is also a director of Rovac
Corporation, a seller of air conditioning equipment.
Regan P. Remillard was elected Senior Vice President - General Counsel
of the Company in 1995. From 1994-1995, Mr. Remillard was a practicing
attorney at Hutchins, Wheeler & Ditmar, a Massachusetts law firm specializing
in corporate law and litigation. From 1989-1993, Mr. Remillard was Government
Affairs Monitor of the Company. Mr. Remillard is a member of the
Massachusetts Bar. Effective March 6, 1996, Mr. Remillard was elected
President of Western Pioneer Insurance Company, a subsidiary of the Company.
Herman F. Becker has been the owner of Sterling Realty, a real estate
agency, since 1962, as well as owner of ABCO Development Co. In addition,
since 1971, Mr. Becker has been the principal stockholder, President and
Treasurer of Huguenot Development Corp., a real estate development
corporation.
Joseph A. Borski, Jr. has been a self-employed certified public
accountant since 1960.
Eric G. Butler had been Vice President-Claims of Commerce and Citation
since 1981 and the General Claims Manager of Commerce and Citation until his
retirement in 1992.
Henry J. Camosse was the President of Henry Camosse & Sons Co., Inc., a
building and masonry supplies company from 1964 until his retirement in 1992.
David R. Grenon is an Assistant Clerk and Chairman of the Advisory Board
of The Protector Group Insurance Agency, Inc., a property and casualty
insurance agency located in Worcester, Massachusetts. Mr. Grenon previously
was the President of several property and casualty insurance agencies located
in Massachusetts, including The Protector Group Insurance Agency, Inc., of
which he was President and Chief Executive Officer from 1981 to 1994. Mr.
Grenon also is a director of Safety Fund Corporation, a holding company, and
its subsidiary First Safety Fund National Bank.
Robert W. Harris is retired. Prior to retirement, Mr. Harris was the
Treasurer of H.C. Bartlett Insurance Agency, Inc. from 1958 until 1987.
Robert S. Howland has been retired since 1985. Prior to retirement, Mr.
Howland was the Clerk of H.C. Barlett Insurance Agency, Inc.
John J. Kunkel is retired. Prior to retirement, Mr. Kunkel was
President and Treasurer of Kunkel Buick & GMC Truck and Treasurer of Kunkel
Bus Company.
Raymond J. Lauring has been retired since 1983. Prior to retirement,
Mr. Lauring was the President of Lauring Construction Company.
6
Roger E. Lavoie is retired. Prior to retirement, Mr. Lavoie was the
President and Treasurer of Lavoie Toyota-Dodge, Inc. since 1980.
Normand R. Marois has been Chairman of the Board of Marois Bros., Inc.,
a contracting firm, since 1984.
Suryakant M. Patel has been a physician specializing in internal
medicine since 1966.
Antranig A. Sahagian has been retired since before 1982. Prior to
retirement, Mr. Sahagian was the owner of A. Sahagian Service Center.
Gurbachan Singh has been a physician engaged in the practice of general
surgery for more than 25 years.
The only family relationships among any of the executive officers or
directors of the Company is that Arthur J. Remillard, III and Regan P.
Remillard are the sons of Arthur J. Remillard, Jr.
7
EXECUTIVE COMPENSATION AND OTHER TRANSACTIONS
The following table contains a summary of the annual, long-term and
other compensation for each of the fiscal years ended December 31, 1995, 1994
and 1993, of those persons who were, at December 31, 1995, the Chief Executive
Officer and the other four most highly compensated executive officers of the
Company.
Summary Compensation Table
Long-term compensation
Awards Payments
Annual Securities
Name and compensation Underlying LTIP All other
Principal position Year Salary SARs Payouts(1) Compensation(2)
Arthur J. Remillard, Jr. 1995 $494,000 211,397 $ 800,548 $52,320
President, Chief Executive Officer 1994 460,000 210,605 493,178 48,214
and Chairman of the Board 1993 425,000 - 1,345,874 58,464
Gerald Fels 1995 247,000 105,699 354,057 45,516
Executive Vice President and 1994 230,000 104,063 215,793 45,316
Chief Financial Officer 1993 210,000 - 588,668 55,566
Arthur J. Remillard, III 1995 132,625 34,164 183,356 43,921
Senior Vice President-Policyholder 1994 123,925 34,287 111,808 43,550
Benefits and Assistant Clerk 1993 115,320 - 306,681 53,785
David H. Cochrane 1995 128,425 33,088 175,115 22,905
Senior Vice President-Underwriting 1994 120,025 32,932 96,963 22,869
1993 110,760 - 219,801 30,342
Joyce B. Virostek 1995 119,725 20,559 168,871 23,545
Senior Vice President-Management 1994 111,865 20,908 103,542 23,465
Information Services 1993 105,480 - 283,535 30,913
<FN>
(1) Represents payments on rights tied to increases in the book value of a
share of the
Company's Common Stock. Payments made in 1995 include (i) payments made
on rights tied to
increases in book value which matured in 1995 (to the extent the
compensation attributable
to such rights exceeded advance payments made in 1993 and 1994) and (ii)
advance payments
on rights tied to increases in book value which will mature in 1996. The
advance
payments were approved by the Company's Board of Directors. See "Long-
Term Incentive
Plan - Book Value Awards" and "Compensation Committee Report" for a
description of the
book value awards.
(2) The 1995 amounts under "All Other Compensation" consist of directors fees
of $21,000
each to Arthur J. Remillard, Jr., Gerald Fels and Arthur J. Remillard,
III; the cost
of group-term life insurance (based on the Internal Revenue Service
Uniform Cost
Table) provided by the Company in excess of $50,000 to Arthur J.
Remillard, Jr. of
$8,820, to Gerald Fels of $2,016, to Arthur J. Remillard, III of $421, to
David H.
Cochrane of $405 and to Joyce B. Virostek of $1,045; and contributions of
$22,500 made
or accrued by the Company to the ESOP for each of the named executive
officers. The
aggregate amount of the Company's contribution to the ESOP is determined
annually by
the Company's Board of Directors. Benefits under the ESOP become
partially vested
when a participant has completed three years of service.
</FN>
8
The following table contains information concerning certain stock
appreciation rights ("SARs") granted to the Chief Executive Officer and the
other named executive officers during fiscal 1995:
SAR Grants in Last Fiscal Year (1)
Individual Grants
Number of % of Total Potential Realizable Value at
Securities SARs Granted Assumed Annual Rates of
Underlying to Employees Stock Price Appreciation
SARs in Fiscal Base Expiration for Terms of SAR
Name Granted (2) Year Price (3) Date 5%(4) 10%(4)
Arthur J. Remillard, Jr. 211,397 31.1% $20.50 April 30, 1998 $0 $120,496
Gerald Fels 105,699 15.5% 20.50 April 30, 1998 0 60,248
Arthur J. Remillard, III 34,164 5.0% 20.50 April 30, 1998 0 19,473
David H. Cochrane 33,088 4.9% 20.50 April 30, 1998 0 18,860
Joyce B. Virostek 20,559 3.0% 20.50 April 30, 1998 0 11,719
<FN>
(1) See "Compensation Committee Report" for additional information regarding
the Company's
current incentive compensation program, consisting of tandem SAR and BVA
grants under
the Company's Management Incentive Plan approved by the stockholders in
1994
("Management Incentive Plan").
(2) During 1995, the Company granted SARs under the Management Incentive
Plan. The
SARs entitle the recipient to receive by April 30, 1998 a cash payment
for each SAR
equal to the average of the high and low price for a share of Common
Stock for the three
months ending March 31, 1998 (average market price), less the base price
of each SAR on
the date of grant. The average market price of a share of Common Stock
is increased for
all cash dividends and the fair market value of all distributions of
property made by
the Company which the recipient would have been entitled to receive had
he or she owned
shares of Common Stock equal to the number of SARs held by him or her
from the date of
grant until the date of maturity. It is a condition to the receipt of
any payment that
may be due under the SARs that the participant have been in the
continuous employ of the
Company through April 30, 1998, unless such employment shall have
terminated due to the
participant's death or for any reason approved by the Board of Directors
of the Company.
Payments under the SARs are accelerated in the event of the sale of the
Company.
(3) The base price ($20.50) is the average of the high and low price for a
share of Common
Stock for the three months ended March 31, 1995 ($15.83) increased at
the rate of 9%
per annum compounded annually through March 31, 1998.
(4) The dollar amounts set forth under these columns are the result of calculations made
at assumed 5% and 10% appreciation rates and are not intended to indicate actual or
projected future price appreciation, if any, of the Company's Common Stock.
</FN>
9
The following table shows certain information concerning the aggregate
number of SARs held by the Chief Executive Officer and the other named
executive officers as of December 31, 1995. No payments were made under any
SARs during 1995, and no options were outstanding or exercised during 1995.
Aggregated Fiscal Year-End SAR Values (1)
Number of Securities Value of Unexercised In-
Underlying Unexercised the-Money SARs at
SARs at December 31, 1995 December 31, 1995(2)
Name Exercisable/Unexercisable Exercisable/Unexercisable
Arthur J. Remillard, Jr. 0/422,002 $0/0
Gerald Fels 0/209,762 0/0
Arthur J. Remillard, III 0/68,451 0/0
David H. Cochrane 0/66,020 0/0
Joyce B. Virostek 0/41,467 0/0
<FN>
(1) See "Compensation Committee Report" for additional information regarding
the Company's
current incentive compensation program, consisting of tandem SAR and BVA
grants under
the Company's Management Incentive Plan. The base price of each
outstanding SAR is
$20.50 and $20.73 for the years ending December 31, 1995 and 1994,
respectively. The
base price is the average of the high and low price for a share of
Common Stock for the
three months ended March 31, 1995 ($15.83) and 1994 ($16.01), increased
at the rate of
9% per annum compounded annually through March 31, 1997 and 1998,
respectively. The
closing price for Common Stock was $16-11/16 on December 30, 1994 as
reported by
Nasdaq and $20-5/8 on December 29, 1995 as reported by the New York
Stock Exchange.
(2) The SARs entitle the recipient to receive by April 30, 1997 and 1998
cash payments for
each SAR equal to the average of the high and low price for a share of
Common Stock for
the three months ending March 31, 1997 and 1998 plus all dividend
distributions, less
the base price of each SAR. The value of SARs is therefore not
currently determinable.
</FN>
10
The following table contains information concerning certain long-term
incentive awards granted in the form of book value awards ("BVAs") under the
Management Incentive Plan to the Chief Executive Officer and the other named
executive officers during fiscal 1995:
Long-Term Incentive Plan - Book Value Awards (1)
Estimated
future payouts
under non-stock
Number of price-based plans
Name rights(2) Maturity date Target(3)
Arthur Remillard, Jr. 88,383 April 30, 1998 $496,712
Gerald Fels 46,103 April 30, 1998 259,099
Arthur J. Remillard, III 26,600 April 30, 1998 149,492
David H. Cochrane 22,059 April 30, 1998 123,972
Joyce B. Virostek 20,559 April 30, 1998 115,542
<FN>
(1) See "Compensation Committee Report" for additional information regarding
the Company's
current incentive compensation program, consisting of tandem SAR and BVA
grants under
the Company's Management Incentive Plan.
(2) During 1995, the Company granted BVAs which entitle the recipient to
receive by April
30, 1998, a cash payment for each BVA equal to the book value of a share
of Common
Stock on December 31, 1997, less the base price of such BVA. The base
price for the
1995 BVAs ($14.88) is the book value of a share of Common Stock on
December 31, 1994
($10.88), increased at the rate of 11% per annum compounded annually
through December
31, 1997. The book value of a share of Common Stock is increased for
all cash dividends
and the fair market value of all distributions of property made by the
Company which the
recipient would have been entitled to receive had he or she owned shares
of Common Stock
equal to the number of BVAs held by him or her from the date of grant
until the
expiration date. It is a condition to the receipt of any payment that
may be due under
a BVA that the participant has been in the continuous employ of the
Company through
April 30, 1998, unless such employment shall have terminated due to the
participant's
death or for any reason approved by the Board of Directors of the
Company. Payments
under the BVAs are accelerated in the event of the sale of the Company.
(3) Future payouts, if any, under the BVAs are tied to increases in the book
value of a
share of Common Stock and other factors. Therefore, it is not possible
to determine the
targeted future payouts. The amounts set forth in this column are the
amounts that
would be paid if the book value of a share of the Common Stock of the
Company increased
by $2.41 in each of the years ended 1996 and 1997. This amount
represents an average of
net earnings per weighted average common share for 1993, 1994 and 1995
exclusive of the
after-tax impact of realized gains. Although realized gains or losses
and changes in
unrealized gains or losses are included in the calculation of book
value, these items
have been excluded due to the uncertainty of their re-occurrence and,
therefore, the
impact on the Company's future book value. There can be no assurance
that the Company's
performance will continue with the same or similar trends. Also, there
can be no
assurance as to the changes in the unrealized gains or losses in the
future.
</FN>
11
COMPENSATION COMMITTEE REPORT
1995
The Compensation Committee (the "Committee") is responsible for
recommending to the Board of Directors the establishment of policies which
govern both annual compensation and the incentive compensation plan for the
chief executive officer and other officers of the Company.
The Committee meets each year to review base compensation and incentive
compensation plans and make appropriate recommendations to the Board of
Directors for implementation.
The Company's compensation program is designed to reward executives for
strategic management and enhancement of stockholder value, and is highly
leveraged on the basis of performance. In general, the same compensation
policies are applied to the chief executive officer and to all of the other
executive officers of the Company.
Prior to the Management Incentive Plan adopted by the stockholders in
1994, incentive compensation was based on BVAs. The Company paid more
incentive compensation with good performance, as measured by the growth in the
book value of the Company and paid less incentive compensation, or no
incentive compensation, if the Company's book value had not achieved targeted
annual growth. As can be seen from the Summary Compensation Table, the
Company has made significant incentive compensation payments because the
Company's book value has grown over the last several years. Approximately
63.5% of total compensation paid to the chief executive officer during 1995
was performance related. Approximately 53.7% of total executive compensation
paid during 1995 to the other named executive officers, except for the chief
executive officer, was performance related as further explained below. The
timing of advance payments for BVA's paid in 1995 affected the comparison
between 1994 and 1995 compensation.
The potential for Incentive compensation was provided during 1994 and
1995 through the use of a "Phantom Book Value and Market Value Rights Program"
(the "Program"). As detailed below, performance for "Phantom Rights" granted
in 1994 and 1995 will now be measured by a combination of the increase in the
market value of a share of the Company's stock through the use of SARs, and
the increase in the book value of the Company's stock through the use of BVAs.
The BVAs and SARs granted for 1995 were determined by dividing the base
compensation of each officer by the book value of $10.88 at December 31, 1994.
The number of BVAs was then weighted by a factor of two. The number of SARs
was weighted by a factor ranging from one to five, based on the officer's
relative level of responsibility and potential to affect the Company's overall
performance under a formula determined by the Compensation Committee. No
advance payments have been made for the SARs or BVAs granted in 1994 or 1995.
The Committee reviews and determines the targeted minimum increase in
book value and market value for purposes of the Program. Awards made under
the Program in 1995, under the book value part of the calculation, provide
that no incentive compensation will be payable unless the book value of the
Company's Common Stock has grown at a compounded annual rate in excess of 11%
per year between December 31, 1994 and December 31, 1997. This translates to
a total required minimum growth in book value of 36.8% over the three-year
period before the officers are entitled to any incentive compensation under
this part of the calculation. For the 1994 BVA's, the targeted compounded
annual growth rate was 12%, or 40.5% for the three-year period. The Committee
recommended the 11% rate to the Board as being more in line with Massachusetts
insurance industry experience. Under the market value part of the calculation
for the 1995 Program, no incentive compensation will be payable unless the
market value of a share of the Company's stock has grown at a compounded
annual rate in excess of 9% per year between December 31, 1994 and December
31, 1997. This translates to a total required minimum increase in the price
of a share of the Company's stock of approximately 29% over the three year
period before the officers are entitled to any incentive compensation. The
average of the high and low price per share of the Company's Common Stock,
adjusted for stockholder dividends, for the three month period ending March
31, 1995 was $15.83 which will require an average high and low price per share
for the three months ended March 31, 1998 of $20.50 before any market value
incentive compensation will be paid. SAR's granted in 1994 were also granted
at a 9% compounded annual rate. No advance payments of incentive compensation
are contemplated in the market value calculation until the end of the three
year measuring period.
12
The Company historically has not paid bonuses or maintained a stock
option plan. The Company does maintain, however, an Employee Stock Ownership
Plan. See "Executive Compensation and Other Transactions".
Base salary for all officers other than the chief executive officer is
recommended by the Company's management and reviewed and approved by the
Committee. The 1995 base salaries for the Company's executive officers other
than the chief executive officer increased on the average approximately 6.7%
from 1994 base salaries. These increases were primarily intended to reflect
increases in the cost of living and job performance during 1994. The
Committee established the chief executive officer's base salary for 1995, an
approximate 7.4% increase, after taking into account increases in the cost of
living and the chief executive officer's job performance during 1994. Company
management and the Committee review industry salary surveys when establishing
base salaries for all officers.
The Committee will continue during 1996 to carefully consider officer
compensation in relation to the Company's performance compared to that of
industry performance levels for comparable companies and the performance
history of the Company itself.
Respectively submitted,
Joseph A. Borski, Jr.,
Chairman
Raymond J. Lauring
John W. Spillane
13
COMMON STOCK PERFORMANCE
The graph below compares the cumulative total stockholder return on the
shares of Common Stock of the Company for the last five years with the
cumulative total return of the New York Stock Exchange Index and a group of
six peer property and casualty insurance companies. The peer group consists
of Baldwin & Lyons, Inc., W.R. Berkley, Mercury General Corporation,
Progressive Insurance Group, Selective Insurance Group, Inc. and Twentieth
Century Industries.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN AMONG THE COMMERCE
GROUP, INC., PROPERTY AND CASUALTY INSURANCE PEER GROUP AND
THE NEW YORK STOCK EXCHANGE INDEX.
The line graph, appearing on Page 14, compares the yearly percentage
change in the Company's cumulative total shareholder return on common stock
with that of a peer issuer and of a board equity market index where the
Company trades their equity securities. The X-axis lists the "measurement
period" of the last five fiscal years beginning with December 31, 1990 and
ending with December 31, 1995. The Y-axis lists the dollar values starting
with $0 and ending with $700 representing cumulative total return. The
information in the subsequent paragraph is the data plotted along the graph.
12/31/90 12/31/91 12/31/92 12/31/93 12/31/94 12/31/95
The Commerce Group, Inc. $100 $138 $208 $677 $518 $642
Property and Casualty Peer Group 100 126 193 227 180 272
New York Stock Exchange Index 100 129 136 154 151 196
This line graph assumes an investment of $100 in the Company's Common
Stock, the New York Stock Exchange Index and the group of six peer property
and casualty insurance companies on December 31, 1990 and reinvestment of all
dividends.
14
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During 1995, the Company insured a mortgage note in the principal amount
of $28,750,000 issued by a corporation to a bank. Henry J. Camosse and
Raymond J. Lauring, directors of the Company, were, with others, guarantors of
this note. The Company's liability under this insurance policy, which expired
on October 15, 1995, was $12,000,000. For this insurance, the Company
received a premium of $1,080,000 in 1992.
Mr. Remillard, Jr. spends considerable time in Boston, Massachusetts in
furtherance of the Company's business interests and, because of this, the
Company provides office and part-time living accommodations to him at a
condominium owned by the Company in Boston and the use, for business purposes,
of an automobile owned by the Company. The Company believes the non-business
connected economic benefit (if any) to Mr. Remillard, Jr. to be minimal.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
John W. Spillane, a director of the Company and a member of the
Compensation Committee, serves as the Clerk of the Company. Mr. Spillane has
been counsel to the Company since its organization.
OTHER BUSINESS
The Proxy confers discretionary authority with respect to any other
business which may come before the Annual Meeting. The Board knows of no
other matters to be presented at the Annual Meeting. The persons named in the
Proxy will vote according to their best judgment if any matter not included in
this Proxy Statement does properly come before the Annual Meeting.
STOCKHOLDER PROPOSALS
Any stockholder proposal intended to be presented at the 1997 Annual
Meeting must be received at the Company's principal office by December 12,
1996 for inclusion in the Proxy Statement and form of Proxy related to that
Meeting. The proposal must comply in all respects with the rules and
regulations of the Securities and Exchange Commission.
15
PROXY
THE COMMERCE GROUP, INC.
11 GORE ROAD (ROUTE 16)
WEBSTER, MASSACHUSETTS 01570
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned stockholder of The Commerce Group, Inc. hereby appoints
Gerald Fels, Arthur J. Remillard, III and John W. Spillane (each with power to
act without the other and with power of substitution) as proxies to represent
the undersigned at the Annual Meeting of the Common Stockholders of The
Commerce Group, Inc. to be held at 9:00 a.m. on Friday, May 17, 1996 and at
any adjournment thereof, with all the power the undersigned would possess if
personally present, and to vote all shares of Common Stock of the Company
which the undersigned may be entitled to vote at said Meeting, hereby revoking
any proxy heretofore given.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED AS SPECIFIED ON THE
REVERSE SIDE. IF NO SPECIFICATION IS MADE, IT IS THE INTENTION OF THE PROXIES
TO VOTE FOR ALL NOMINEES FOR DIRECTOR LISTED ON THE REVERSE SIDE.
CONTINUED, AND TO BE SIGNED, ON REVERSE SIDE
DETACH HERE
DETACH HERE
0 Please mark
votes as in
this example.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" ALL NOMINEES.
1. Election of Directors
Nominees: Herman F. Becker, Joseph A. Borski, Jr., Eric G. Butler, Henry J.
Camosse, Gerald Fels, David A. Grenon, Robert W. Harris, Robert S. Howland,
John J. Kunkel, Raymond J. Lauring, Roger E. Lavoie, Normand A. Marois,
Suryakant M. Patel, Arthur J. Remillard, Jr., Arthur J. Remillard, III, Regan
P. Remillard, Antranig A. Sahagian, Gurbachan Singh and John W. Spillane.
FOR WITHHELD
0 ALL 0 FROM ALL
NOMINEES NOMINEES
For except vote withheld from the following nominees:
MARK HERE
MARK HERE
FOR ADDRESS 0
IF YOU PLAN 0
CHANGE AND
TO ATTEND
NOTE AT LEFT
THE MEETING.
Please sign exactly as your name appears on this proxy
card and return promptly in the envelope provided. When
signing as attorney, executor, trustee or guardian, please
give your full title.
Signature Date: Signature:
Date: