THE COMMERCE GROUP, INC.
211 MAIN STREET ~ WEBSTER ~ MASSACHUSETTS 01570
April 18, 1997
To Our Stockholders:
I am pleased to invite you to attend the 1997 Special Meeting in
Lieu of the Annual Meeting of Stockholders of The Commerce Group,
Inc., which will be held at 9:00 a.m. on Friday, May 30, 1997, in the
Company's Underwriting Building, 11 Gore Road (Route 16), Webster,
Massachusetts.
The accompanying Notice of the Special Meeting in Lieu of the
Annual Meeting of Stockholders and Proxy Statement set forth the
business to come before this year's Special 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 SPECIAL MEETING IN LIEU OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 30, 1997
April 18, 1997
To Our Stockholders:
You are cordially invited to attend the 1997 Special Meeting in
Lieu of the Annual Meeting of Stockholders of The Commerce Group, Inc.
(the "Company") at the Company's Underwriting Building, 11 Gore Road
(Route 16), Webster, Massachusetts at 9:00 a.m. on Friday, May 30, 1997.
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 meet-
ing or any adjournment or adjournments thereof.
The close of business on April 4, 1997 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............................................. 2
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT................................................. 2
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES
EXCHANGE ACT OF 1934........................................... 4
GOVERNANCE OF THE COMPANY........................................ 4
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 SPECIAL MEETING IN LIEU OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 30, 1997
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 Special Meeting
in Lieu of the Annual Meeting of the Stockholders of the Company on
Friday, May 30, 1997 at 9:00 o'clock a.m. at the Company's 11 Gore Road
(Route 16) Complex, in the Underwriting Building in Webster,
Massachusetts and at any adjournment or adjournments thereof (the
"Special Meeting"). The Company's Annual Report to Stockholders,
containing the financial statements for the year ended December 31, 1996
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 April 4, 1997. Representatives of Coopers &
Lybrand, L.L.P. are expected to be present at the Special 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
18, 1997.
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 pages 5 and 6 by the Proxy holders in their discretion on any
other business proper to come before the Special 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 Special 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 Special Meeting, the
Directors shall be elected by a plurality of the votes cast at the
Special 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 April 4, 1997 will be entitled to receive notice of and
to vote at the Special Meeting. At the close of business on April 4,
1997, the Company had 36,042,652 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.
1
COST OF SOLICITATION
The cost of soliciting Proxies for the Special 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,
1997 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. 3,622,322 10.1%
Employee Stock Ownership Plan
211 Main Street
Webster, MA 01570
(b) Security ownership of directors and
nominees:
Herman F. Becker 505,838 1.4%
Joseph A. Borski, Jr. 68,752 *
Eric G. Butler 177,424 *
Henry J. Camosse 252,306 *
Gerald Fels 676,107 (2) 1.9%
David R. Grenon 343,252 1.0%
Robert W. Harris 116,097 *
Robert S. Howland 86,334 *
John J. Kunkel 1,182,636 3.3%
Raymond J. Lauring 1,033,191 2.9%
Roger E. Lavoie 417,875 1.2%
Normand R. Marois 254,175 *
Suryakant M. Patel 601,282 1.7%
Arthur J. Remillard, Jr. 1,271,091 3.5%
Arthur J. Remillard, III 864,810 (3) 2.4%
Regan P. Remillard 522,360 (4) 1.4%
Antranig Sahagian 561,586 1.6%
Gurbachan Singh 564,292 1.6%
John W. Spillane 772,900 (5) 2.1%
2
(c) Security ownership of named
executive officers:
Arthur J. Remillard, Jr. 1,271,091 3.5%
Gerald Fels 676,107 (2) 1.9%
Arthur J. Remillard, III 864,810 (3) 2.4%
David H. Cochrane 8,979 (6) *
Joyce B. Virostek 164,261 (7) *
(d) All executive officers and 10,518,281 (8) 29.2%
directors as a group
(23 persons)
* Less than 1%.
(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 diversification 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 81,795 shares held by the ESOP.
(3) Includes 115,448 shares held by the ESOP, 89,347 shares held by a
trust of which Mr.
Remillard, III is the trustee and 18,172 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.
(4) Includes 3,712 shares held by the ESOP.
(5) 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.
(6) Includes 8,979 shares held by the ESOP.
(7) Includes 43,843 shares held by the ESOP.
(8) Includes 294,427 shares held by the ESOP.
3
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. Executive 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, 1996, 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 Herman Becker, a director of the Company, and one report was filed
late by John Kunkel, a director of the Company.
GOVERNANCE OF THE COMPANY
Proxies are solicited for the 1997 Special 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.
The Board of Directors (the "Board") held four meetings during
1996, and the attendance of directors as a group was 96.1%. The Board
has a standing Audit Committee which held four meetings during 1996, a
standing ESOP Committee which held twelve meetings during 1996, a
standing Compensation Committee which held one meeting in 1996 and a
standing Nominating Committee which held one meeting during 1996. 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.
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
$1,500 for each meeting of the Board of Directors of CHI and 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. All directors of the
Company, including those who are employees of the Company, receive an
annual stipend of $25,000. In addition, all directors of CHI, who are
not directors of the Company, receive an annual stipend of $20,000.
4
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 1996, each director received a number of
BVAs approximately equal to 20% of the compensation paid to him as a
director of the Company during 1995. Each 1996 BVA entitles the
director to receive a cash payment equal to the book value of a share of
Common Stock on December 31, 1998, less the base price of such BVA. The
base price for the 1996 BVAs ($19.37) is the book value of a share of
Common Stock on December 31, 1995 ($14.96) increased at the rate of 9%
per annum compounded annually through December 31, 1998. 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
1996 BVA to a director, that the recipient has been a director of the
Company continuously through April 30, 1999, 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.
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 66
1972
Officer, Director, Chairman
of the Board
Gerald Fels (2),(3) Executive Vice President, 54
1976
Chief Financial Officer,
Director
Arthur J. Remillard, III (3) Senior Vice President - 41
1983
Policyholder Benefits,
Assistant Clerk, Director
John W. Spillane (1),(3) Clerk, Director 64
1972
Regan P. Remillard Senior Vice President -
General Counsel, Director 33
1993
Herman F. Becker (3) Director 68
1972
Joseph A. Borski, Jr. (1),(2),(4) Director 63
1972
Eric G. Butler Director 69
1988
Henry J. Camosse Director 66
1972
David R. Grenon (4) Director 57
1972
Robert W. Harris Director 65
1975
Robert S. Howland Director 77
1972
5
Director
Name Position with the Company Age
since
John J. Kunkel Director 85
1972
Raymond J. Lauring (1) Director 71
1972
Roger E. Lavoie Director 71
1972
Normand R. Marois Director 61
1972
Suryakant M. Patel (3),(4) Director 56
1983
Antranig Sahagian Director 72
1972
Gurbachan Singh Director 58
1991
(1) Member of the Compensation Committee.
(2) Member of the ESOP Committee.
(3) Member of the Nominating Committee.
(4) Member of the Audit Committee.
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 a member of the Governing Committee, Chairman of the Actuarial
Committee, Vice Chairman of the Governing Committee Review Panel, and is
a member of the Budget and Personnel 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 President of Western Pioneer
Insurance Company in 1996. Mr. Remillard was elected Senior Vice
President - General Counsel of the Company in 1995. From 1994 to 1995,
Mr. Remillard was a practicing attorney at Hutchins, Wheeler & Dittmar,
a Massachusetts law firm specializing in corporate law and litigation.
From 1989 to 1993, Mr. Remillard was Government Affairs Monitor of the
Company. Mr. Remillard is a member of the Massachusetts Bar.
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 from 1981 until his retirement in 1992.
6
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.
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 is retired. Prior to retirement, Mr. Marois was
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 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,
1996, 1995 and 1994, of those persons who were, at December 31, 1996,
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. 1996 $523,680 165,107 $791,267
$57,320
President, Chief Executive 1995 494,000 211,397 800,548
52,320
Officer and Chairman of 1994 460,000 210,605 493,178
48,214
the Board
Gerald Fels 1996 261,865 82,553 354,726
50,516
Executive Vice President and 1995 247,000 105,699 354,057
45,516
Chief Financial Officer 1994 230,000 104,063 215,793
45,316
Arthur J. Remillard, III 1996 140,605 26,591 185,335
48,955
Senior Vice President- 1995 132,625 34,164 183,356
43,921
Policyholder Benefits and 1994 123,925 34,287 111,808
43,550
Assistant Clerk
David H. Cochrane 1996 137,425 25,749 175,903
22,941
Senior Vice President- 1995 128,425 33,088 175,115
22,905
Underwriting 1994 120,025 32,932 96,963
22,869
Joyce B. Virostek 1996 126,925 16,003 168,681
23,632
Senior Vice President- 1995 119,725 20,559 168,871
23,545
Management Information 1994 111,865 20,908 103,542
23,465
Services
______________________
(1) Represents payments on rights tied to increases in the book value
of a share of the
Company's Common Stock. Payments made in 1996 represented
payments made on rights
tied to increases in book value which matured in 1996 (to the
extent the
compensation attributable to such rights exceeded advance payments
made in 1995).
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 1996 amounts under "All Other Compensation" consist of
directors fees of $26,000
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
$455, to David H.
Cochrane of $441 and to Joyce B. Virostek of $1,132; 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.
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 1996:
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. 165,107 30.9% $22.61 April
30, 1999 $0 $558,062
Gerald Fels 82,553 15.5% 22.61 April
30, 1999 0 279,029
Arthur J. Remillard, III 26,591 5.0% 22.61 April
30, 1999 0 89,878
David H. Cochrane 25,749 4.8% 22.61 April
30, 1999 0 87,032
Joyce B. Virostek 16,003 3.0% 22.61 April
30, 1999 0 54,090
(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 1996, the Company granted SARs under the Management
Incentive Plan. The SARs
entitle the recipient to receive by April 30, 1999 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, 1999 (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, 1999,
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 ($22.61) is the average of the high and low price
for a share of
Common Stock for the three months ended March 31, 1996 ($19.53)
increased at the
rate of 5% per annum compounded annually through March 31, 1999.
(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. Payment
of dividends is not assumed in these figures.
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, 1996. No payments
were made under any SARs during 1996, and no options were outstanding or
exercised during 1996.
Aggregated Fiscal Year-End SAR Values (1)
Number of Securities Value
of Unexercised In-
Underlying Unexercised the-Money
SARs at
SARs at December 31, 1996
December 31, 1996(2)
Name Exercisable/Unexercisable
Exercisable/Unexercisable
Arthur J. Remillard, Jr. 0/587,109
$0/0
Gerald Fels 0/292,315
0/0
Arthur J. Remillard, III 0/95,042
0/0
David H. Cochrane 0/91,769
0/0
Joyce B. Virostek 0/57,470
0/0
(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 $22.61 for the year ended December 31, 1996. This base price
is the average of the high and low price of a share of Common
Stock for the three months ended March 31, 1996 ($19.53) increased
at the rate of 5% per annum compounded annually through March 31,
1999. The base price of each of the other outstanding SARs is
$20.50 and $20.73 for the years ended 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, 1998 and 1997,
respectively. The closing price for a share of Common Stock was
$25-1/4 on December 31, 1996 and $20-5/8 on December 29, 1995 as
reported by the New York Stock Exchange and $16-11/16 on December
30, 1994 as reported by Nasdaq.
(2) The SARs entitle the recipient to receive by April 30, 1999, 1998
and 1997 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, 1999, 1998 and 1997 plus all dividend
distributions, less the base price of each SAR. The value of SARs
was therefore not currently determinable at December 31, 1996.
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 1996:
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. 68,850 April 30, 1999
$203,108
Gerald Fels 35,828 April 30, 1999
105,693
Arthur J. Remillard, III 20,534 April 30, 1999
60,575
David H. Cochrane 17,166 April 30, 1999
50,640
Joyce B. Virostek 16,003 April 30, 1999
47,209
(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 1996, the Company granted BVAs which entitle the recipient
to receive by April 30, 1999, a cash payment for each BVA equal to
the book value of a share of Common Stock on December 31, 1998,
less the base price of such BVA. The base price for the 1996 BVAs
($19.37) is the book value of a share of Common Stock on December
31, 1995 ($14.96), increased at the rate of 9% per annum
compounded annually through December 31, 1998. 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, 1999, 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 plus dividends increased by $2.52 in each of
the years ended 1997 and 1998. This amount represents an average
of net earnings per weighted average common share for 1994, 1995
and 1996 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.
11
COMPENSATION COMMITTEE REPORT
1996
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 grew over the
last several years. Approximately 57.7% of total compensation paid to
the chief executive officer during 1996 was performance related.
Approximately 52.1% of total executive compensation paid during 1996 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 BVAs paid in 1995 affected the comparison
between 1994 and 1995 compensation.
The potential for Incentive compensation was provided during 1994,
1995 and 1996 through the use of a "Book Value and Market Value Rights
Program" (the "Program"). Since 1994, performance for purposes of the
program has been 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 1996 were determined by dividing
the base compensation of each officer by the Company's book value of
$14.96 at December 31, 1995. 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, 1995 or 1996.
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 1996, 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 at December 31, 1998, plus the value
of dividends paid on the Common Stock between that date and December 31,
1995, exceeds $19.37, which represents an approximately 29.5% increase
from the Company's book value per share of $14.96 at December 31, 1995.
The minimum growth in the book value of the Common Stock required for
the 1996 BVAs equates to a compounded annual rate of growth of 9.0% from
$14.96. For the 1995 BVAs, the targeted compounded annual growth rate
was 11.0%, or 36.8% for the three-year period. For the 1996 BVAs, the
Committee recommended the 9.0% growth rate to the Board as being more in
line with Massachusetts insurance industry experience. Under the market
value part of the calculation for the 1996 Program, incentive
compensation will be payable if the average of the daily high and low
market prices for the Common Stock for the three-month period ending
March 31, 1999, plus dividends paid on the Common Stock between that
date and March 31, 1996, exceeds $22.61. The $22.61 benchmark
represents an approximately 15.8% increase from $19.53, the average of
the daily high and low market prices for the Common Stock for the three-
month period ended March 31, 1996. The minimum growth in the market
value of Common Stock required for the 1996 SARs equates to a compounded
annual rate of growth of 5.0% from $19.53. SARs granted in 1995 were
granted at a 9.0% compounded annual rate. For the 1996 SARs, the
Committee recommended the 5.0% growth rate to the Board as being more in
line with the Massachusetts insurance marketplace. No advance payments
of incentive compensation are contemplated in the SAR or BVA portions of
the Program.
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 1996 base salaries for the Company's
executive officers, other than the chief executive officer, increased on
the average approximately 6.6% from 1995 base salaries. These increases
were primarily intended to reflect increases in the cost of living and
job performance during 1995. The Committee established the chief
executive officer's base salary for 1996, an approximate 6.0% increase,
after taking into account increases in the cost of living and the chief
executive officer's job performance during 1995. Company management and
the Committee review industry salary surveys when establishing base
salaries for all officers.
The Committee will continue during 1997 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 broad 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, 1991 and ending with December 31, 1996. The Y-axis
lists the dollar values starting with $0 and ending with $600
representing cumulative total return. The information in the subsequent
paragraph is the data plotted along the graph.
12/31/91 12/31/92 12/31/93 12/31/94
12/31/95 12/31/96
The Commerce Group, Inc. $100 $150 $489 $374
$467 $588
Property and Casualty Peer
Group 100 154 179 143
214 252
New York Stock Exchange Index 100 105 119 117
151 182
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, 1991 and
reinvestment of all dividends.
14
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
David R. Grenon, a director of the Company, is the former
President and principal owner of The Protector Group Insurance Agency,
Inc., ("Protector Group"), one of the Company's independent insurance
agencies. Mr. Grenon sold his ownership interest in that agency in
1994, although he remains associated with it under an
employment/consulting agreement and serves as Chairman of an Advisory
Board. He also continues to receive payments under non-competition and
loan agreements. Mr. Grenon receives no direct or indirect compensation
based on the commissions paid to Protector Group by the Company. In
1996, Protector Group received from the Company commissions of $906,361,
in the aggregate, for policies written. The Company also purchased
certain insurance coverages through Protector Group and paid premiums
for these policies of $359,949 in 1996.
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 Special Meeting. The Board
knows of no other matters to be presented at the Special 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 Special Meeting.
STOCKHOLDER PROPOSALS
Any stockholder proposal intended to be presented at the 1998
Annual Meeting must be received at the Company's principal office by
December 18, 1997 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 Special
Meeting of the Common Stockholders of The Commerce Group, Inc. to be
held at 9:00 a.m. on Friday, May 30, 1997 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 R. Grenon, Robert W. Harris, Robert
S. Howland, John J. Kunkel, Raymond J. Lauring, Roger E. Lavoie, Normand
R. Marois, Suryakant M. Patel, Arthur J. Remillard, Jr., Arthur J.
Remillard, III, Regan P. Remillard, Antranig 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: