THE COMMERCE GROUP, INC.
211 MAIN STREET ~ WEBSTER ~ MASSACHUSETTS 01570
April 9, 1998
To Our Stockholders:
I am pleased to invite you to attend the 1998 Annual Meeting of
Stockholders of The Commerce Group, Inc., which will be held at 9:00
a.m. on Friday, May 15, 1998, in the Company's Underwriting Building, 11
Gore Road (Route 16), Webster, Massachusetts.
The accompanying Notice of the 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
<PAGE>
The Commerce Group, Inc.
211 Main Street
Webster, MA 01570
(508) 943-9000
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 15, 1998
April 9, 1998
To Our Stockholders:
You are cordially invited to attend the 1998 Annual Meeting of
Stockholders of The Commerce Group, Inc. (the "Company") at the
Company's Underwriting Building located at 11 Gore Road (Route 16),
Webster, Massachusetts at 9:00 a.m. on Friday, May 15, 1998. 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 March 27, 1998 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
<PAGE>
Table of Contents
<TABLE>
<CAPTION>
Page
<S> <C>
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
INDEPENDENT AUDITORS............................................. 15
OTHER BUSINESS................................................... 15
STOCKHOLDER PROPOSALS............................................ 15
</TABLE>
<PAGE>
THE COMMERCE GROUP, INC.
211 Main Street
Webster, MA 01570
(508) 943-9000
PROXY STATEMENT
FOR ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 15, 1998
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 15, 1998 at 9:00 o'clock
a.m. at the Company's Underwriting Building located at 11 Gore Road
(Route 16) 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, 1997 and the report of Ernst & Young LLP thereon, is
being mailed with this Proxy Statement to the Company's stockholders of
record at the close of business on March 27, 1998. Representatives of
Ernst & Young LLP 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
9, 1998.
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 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. Broker non-votes and shares represented by
any Proxy as to which the vote for each director nominee has been
withheld will be treated as shares present or represented at the Annual
Meeting for quorum purposes. (A "broker non-vote" occurs when a
registered broker holding a customer's shares in the name of the broker
has not received voting instructions on a matter from the customer and
is barred from exercising discretionary authority to vote on the matter,
which the broker indicates on the proxy.)
Only the holders of record of shares of Common Stock at the close
of business on March 27, 1998 will be entitled to receive notice of and
to vote at the Annual Meeting. At the close of business on March 27,
1998, 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
<PAGE>
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 $3,500 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,
1998 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.
<TABLE>
<CAPTION>
Name and address Amount of shares
Percentage
of beneficial owner beneficially owned(1) of
shares
<S> <C> <C> <C>
(a) Security ownership of
certain beneficial owners:
The Commerce Group, Inc. 3,310,673 9.2%
Employee Stock Ownership Plan
211 Main Street
Webster, MA 01570
(b) Security ownership of directors and
nominees:
Herman F. Becker 503,000 1.4%
Joseph A. Borski, Jr. 66,752 *
Eric G. Butler 177,424 *
Henry J. Camosse 249,306 *
Gerald Fels 573,324 (2) 1.6%
David R. Grenon 343,252 1.0%
Robert W. Harris 114,897 (3) *
Robert S. Howland 84,474 (4) *
John J. Kunkel 1,181,736 3.3%
Raymond J. Lauring 866,697 2.4%
Roger E. Lavoie 417,230 (5) 1.2%
Normand R. Marois 253,730 *
Suryakant M. Patel 598,532 1.7%
Arthur J. Remillard, Jr. 1,004,644 (6) 2.8%
Arthur J. Remillard, III 874,134 (7) 2.4%
Regan P. Remillard 523,797 (8) 1.5%
Antranig Sahagian 553,586 1.5%
Gurbachan Singh 563,492 1.6%
John W. Spillane 765,475 (9) 2.1%
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
Name and address Amount of shares
Percentage
of beneficial owner beneficially owned(1) of
shares
<S> <C> <C> <C> <C>
(c) Security ownership of named
executive officers:
Arthur J. Remillard, Jr. 1,004,644 (6) 2.8%
Gerald Fels 573,324 (2) 1.6%
Arthur J. Remillard, III 874,134 (7) 2.4%
David H. Cochrane 9,825 (10) *
Joyce B. Virostek 163,146 (11) *
(d) All executive officers and 9,954,686 (12) 27.6%
directors as a group
(23 persons)
</TABLE>
* 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 85,612 shares held by the ESOP.
(3) Includes 56,849 shares held by a trust of which Mr. Harris is the
trustee and 39,228 shares held by a trust of which Mr. Harris'
wife is the trustee.
(4) Includes 68,474 shares held by a trust of which Mr. Howland is a
co-trustee with his son and 16,000 shares held by a limited
partnership of which Mr. Howland is a general partner.
(5) Includes 293,538 shares held by a trust of which Mr. Lavoie is the
trustee.
(6) Includes 43 shares held by ESOP.
(7) Includes 120,644 shares held by the ESOP, 93,887 shares held by a
trust of which Mr.
Remillard, III is the trustee and 21,772 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.
(8) Includes 4,249 shares held by the ESOP.
(9) 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.
(10) Includes 9,825 shares held by the ESOP.
(11) Includes 44,288 shares held by the ESOP.
(12) Includes 318,745 shares held by the ESOP.
3
<PAGE>
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, 1997, 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.
GOVERNANCE OF THE COMPANY
Proxies are solicited for the 1998 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.
The Board of Directors (the "Board") held four meetings during
1997, and the attendance of directors as a group was 97.4%. The Board
has a standing Audit Committee which held four meetings during 1997, a
standing ESOP Committee which held twelve meetings during 1997, a
standing Compensation Committee which held one meeting in 1997 and a
standing Nominating Committee which held one meeting during 1997. 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 auditors, Ernst & Young
LLP. 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 $25,000 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 $20,000. In addition, all directors of CHI, who are
not directors of the Company, receive an annual stipend of $20,000.
4
<PAGE>
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 1997, each director received a number of
BVAs approximately equal to 12 % of the compensation paid to him as a
director of the Company during 1996. Each 1997 BVA entitles the
director to receive a cash payment equal to the book value of a share of
Common Stock on December 31, 1999, less the base price of such BVA. The
base price for the 1997 BVAs ($21.08) is the book value of a share of
Common Stock on December 31, 1996 ($16.28) increased at the rate of 9%
per annum compounded annually through December 31, 1999. The December
31, 1999 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. The book value of a share of the
Company's Common Stock excludes changes in unrealized gains and losses
of bonds and preferred stocks. It is a condition to the receipt of any
payment that may be due under a 1997 BVA to a director, that the
recipient has been a director of the Company continuously through April
30, 2000, 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 specified by the
stockholder granting the proxy) 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.
<TABLE>
<CAPTION>
Director
Name Position with the Company Age
since
<S> <C> <C>
<C>
Arthur J. Remillard, Jr. President, Chief Executive 67
1972
Officer, Director, Chairman
of the Board
Gerald Fels (2),(3) Executive Vice President, 55
1976
Chief Financial Officer,
Director
Arthur J. Remillard, III (3) Senior Vice President - 42
1983
Policyholder Benefits,
Assistant Clerk, Director
John W. Spillane (3) Clerk, Director 65
1972
Regan P. Remillard Senior Vice President -
General Counsel, Director 34
1993
Herman F. Becker (3) Director 69
1972
Joseph A. Borski, Jr. (1),(2),(4) Director 64
1972
Eric G. Butler Director 70
1988
Henry J. Camosse Director 67
1972
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
Director
Name Position with the Company Age
since
<S> <C> <C>
<C>
David R. Grenon (4) Director 58
1972
Robert W. Harris Director 66
1975
Robert S. Howland Director 78
1972
John J. Kunkel Director 86
1972
Raymond J. Lauring Director 72
1972
Roger E. Lavoie Director 72
1972
Normand R. Marois (1) Director 62
1972
Suryakant M. Patel (3),(4) Director 57
1983
Antranig Sahagian Director 73
1972
Gurbachan Singh Director 59
1991
</TABLE>
(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 and has been Assistant Clerk of the
Company since 1982. 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 and Clerk of 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.
6
<page
Joseph A. Borski, Jr. has been a self-employed certified public
accountant since 1960.
Eric G. Butler had been Vice President-Claims and the General
Claims Manager of Commerce and Citation from 1981 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 Chairman Emeritus and Assistant Clerk of The
Protector Group Insurance Agency, Inc., a property and casualty
insurance agency headquartered 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 CFX
Corporation and Safety Fund National Bank, a subsidiary of CFX
Corporation.
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. Bartlett Insurance Agency,
Inc.
John J. Kunkel is President and Treasurer of Kunkel Buick & GMC
Truck and Treasurer of Kunkel Bus Company. He is also a licensed real
estate broker and licensed auto damage appraiser.
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
<PAGE>
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,
1997, 1996 and 1995, of those persons who were, at December 31, 1997,
the Chief Executive Officer and the other four most highly compensated
executive officers of the Company.
<TABLE>
<CAPTION>
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)
<S> <C> <C> <C> <C>
<C>
Arthur J. Remillard, Jr. 1997 $550,460 160,835
$1,372,869 $50,820
President, Chief Executive 1996 523,680 165,107
791,267 57,320
Officer and Chairman of 1995 494,000 211,397
800,548 52,320
the Board
Gerald Fels 1997 275,505 80,418
686,526 44,016
Executive Vice President and 1996 261,865 82,553
354,726 50,516
Chief Financial Officer 1995 247,000 105,699
354,057 45,516
Arthur J. Remillard, III 1997 148,185 25,905
252,845 42,483
Senior Vice President- 1996 140,605 26,591
185,335 48,955
Policyholder Benefits and 1995 132,625 34,164
183,356 43,921
Assistant Clerk
David H. Cochrane 1997 144,825 25,319
227,339 16,471
Senior Vice President- 1996 137,425 25,749
175,903 22,941
Underwriting 1995 128,425 33,088
175,115 22,905
Joyce B. Virostek 1997 133,785 15,590
156,392 17,885
Senior Vice President- 1996 126,925 16,003
168,681 23,632
Management Information 1995 119,725 20,559
168,871 23,545
Services
</TABLE>
______________________
(1) Represents payments on Book Value Awards tied to increases in the
book value of a share of the Company's Common Stock and payments
on Stock Appreciation Rights tied to increases in the market value
of a share of the Company's Common Stock. Payments made in 1997
on Book Value Awards were tied to increases in book value which
matured in 1997. Payments made in 1997 on Stock Appreciation
Rights were tied to increases in market value for the three months
ended March 31, 1997. There were no payments of Stock
Appreciation Rights prior to 1997.
(2) The 1997 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 $483, to David H. Cochrane of $471 and to Joyce
B. Virostek of $1,885; and, contributions of $16,000 made or
accrued by the Company to the ESOP for each of the named executive
officers. The 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
<PAGE>
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 1997:
<TABLE>
<CAPTION>
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 Maturity
for Terms of SAR
Name Granted (2) Year Price (3) Date
5%(4) 10%(4)
<S> <C> <C> <C> <C>
<C> <C>
Arthur J. Remillard, Jr. 160,835 32.6% $28.99 April
30, 2000 $0 $698,024
Gerald Fels 80,418 16.3% 28.99 April
30, 2000 0 349,014
Arthur J. Remillard, III 25,905 5.2% 28.99 April
30, 2000 0 112,428
David H. Cochrane 25,319 5.1% 28.99 April
30, 2000 0 109,884
Joyce B. Virostek 15,590 3.2% 28.99 April
30, 2000 0 67,661
</TABLE>
(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 1997, the Company granted SARs under the Management
Incentive Plan. The SARs entitle the recipient to receive by
April 30, 2000 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, 2000 ("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 has been in the continuous employ of the Company
through April 30, 2000, 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 ($28.99) is the average of the high and low price
for a share of Common Stock for the three months ended March 31,
1997 ($25.04) increased at the rate of 5% per annum compounded
annually for three years.
(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
<PAGE>
The following table shows information for the Chief Executive
Officer and the other named executive officers concerning the number of
SARs redeemed and the value realized upon redemption during the year
ended December 31, 1997 and the aggregate number and value of SARs held
as of December 31, 1997. No stock options were outstanding or exercised
during 1997 and the Company has not granted stock options in the past.
<TABLE>
<CAPTION>
Aggregated SAR Exercises in Last Fiscal Year
and SAR Values at December 31, 1997 (1)
Number of
Securities Value of Unexercised In-
Number of Value of SARs Underlying
Unexercised the-Money SARs at
SARs Redeemed Realized SARs at December 31,
1997(2)(3) December 31, 1997(4)(5)
NAME in 1997 in 1997 Exercisable
Unexercisable Exercisable Unexercisable
<S> <C> <C> <C>
<C> <C> <C>
Arthur J. Remillard, Jr. 210,605 $1,210,979 0
537,339 $ 0 $6,094,764
Gerald Fels 104,063 598,362 0
268,670 0 3,047,387
Arthur J. Remillard, III 34,287 197,150 0
86,660 0 983,226
David H. Cochrane 32,932 189,359 0
84,156 0 953,767
Joyce B. Virostek 20,908 120,221 0
52,152 0 591,703
</TABLE>
(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) The SARs that were unexercisable at December 31, 1997 reflect
three SAR grants awarded in 1995, 1996 and 1997, respectively.
Each SAR entitles the recipient to receive a cash payment by April
30 in the third year after the year in which the SAR is granted.
This cash payment is equal to the difference between (a) the
average of the daily high and low market price per share of the
Company's Common Stock for the three months ending March 31 in the
year the SAR matures, plus all dividend distributions received by
holders of the Common Stock for the three year period ending as of
that March 31 (collectively, the "Redemption Price") and (b) the
Base Price (as defined below) of such SAR. The Base Price of an
SAR is the average of the daily high and low market price per
share of the Company's Common Stock for the three months ended as
of March 31 in the year the grant increased at the rate of 9% (for
those SARs granted in 1995) and 5% (for those SARs granted in 1996
and 1997) per annum compounded annually for the three years.
(3) The average of the daily high and low market price per share of
the Company's Common Stock for the three months ended March 31,
1995, 1996 and 1997 was $15.83, $19.53 and $25.04, respectively.
Therefore, the Base Prices of the SARs that become exercisable in
1998, 1999 and 2000 are $20.50, $22.61 and $28.99, respectively.
(4) The estimated value of the unexercisable SARs, presented above,
was calculated assuming the Redemption Price would be equal to the
average daily high and low market price per share of the Company's
Common Stock for the three months ended December 31, 1997 of
$32.32 as reported by the New York Stock Exchange plus dividend
distributions received by holders of the Common Stock since the
date of grant. Dividends are currently payable at a rate of $1.04
per annum on a share of the Company's Common Stock. Set forth in
note 5 below is the actual value of the SARs granted in 1995,
which matured on March 31, 1998 and are payable by April 30, 1998.
The ultimate value of the unexercisable SARs which mature on March
31, 1999 and 2000, respectively, will likely be different than the
estimate presented above because the actual Redemption Price will
likely be different than the average daily high and low market
price per share of the Company's Common Stock for the three months
ended December 31, 1997.
10
<PAGE>
(5) Based upon the actual Redemption Price of $36.51, the value (and
number) of SARs that matured on March 31, 1998 and are payable by
April 30, 1998 for the named executive officers will be as
follows: Arthur J. Remillard, Jr. - $3,384,466, (211,397); Gerald
Fels - $1,692,241, (105,699); Arthur J. Remillard, III - $546,966,
(34,164); David H. Cochrane - $529,739, (33,088); and Joyce B.
Virostek - $329,150, (20,559).
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 1997:
<TABLE>
<CAPTION>
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)
<S> <C> <C>
<C>
Arthur J. Remillard, Jr. 67,528 April 30, 2000
$200,558
Gerald Fels 35,361 April 30, 2000
105,022
Arthur J. Remillard, III 20,464 April 30, 2000
60,778
David H. Cochrane 16,880 April 30, 2000
50,134
Joyce B. Virostek 15,921 April 30, 2000
47,285
</TABLE>
(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 1997, the Company granted BVAs which entitle the recipient
to receive by April 30, 2000, a cash payment for each BVA equal to
the book value of a share of Common Stock of the Company on
December 31, 1999, less the base price of such BVA. The base
price for the 1997 BVAs ($21.08) is the book value of a share of
Common Stock on December 31, 1996 ($16.28), increased at the rate
of 9% per annum compounded annually through December 31, 1999.
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,
2000, 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 $2.45 in each of
the years ended 1998 and 1999. This amount represents an average
of net earnings per weighted average common share for 1995, 1996
and 1997 exclusive of the after-tax impact of realized gains. The
book value of a share of the Company's Common Stock excludes
changes in unrealized gains and losses of bonds and preferred
stocks. Although realized 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.
11
<PAGE>
COMPENSATION COMMITTEE REPORT
1997
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 69.5% of total compensation paid to
the chief executive officer during 1997 was performance related.
Approximately 61.6% of total executive compensation paid during 1997 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 1996 affected the comparison
between 1995 and 1996 compensation.
The potential for incentive compensation was provided during 1995,
1996 and 1997 through the use of a "Book Value Awards 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 1997 were determined by
dividing the base compensation of each officer by the Company's book
value of $16.28 at December 31, 1996. 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 1995,
1996 or 1997.
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 1997, 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, 1999, plus the value
of dividends paid on the Common Stock between that date and December 31,
1996, exceeds $21.08, which represents an approximately 29.5% increase
from the Company's book value per share of $16.28 at December 31, 1996.
The minimum growth in the book value of the Common Stock required for
the 1997 BVAs equates to a compounded annual rate of growth of 9.0% from
$16.28. For the 1996 BVAs, the targeted compounded annual growth rate
was also 9.0%, or 29.5% for the three-year period. For the 1995 BVA's,
the targeted compounded annul growth rate was 11.0%, or 36.8% for the
three year period. For the 1997 BVAs, the Committee continued to
recommend 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 1997 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, 2000,
plus dividends paid on the Common Stock between that date and March 31,
1997, exceeds $28.99. The $28.99 benchmark represents an approximately
15.8% increase from $25.04, the average of the daily high and low market
prices for the Common Stock for the three-month period ended March 31,
1997.
12
<PAGE>
The minimum growth in the market value of Common Stock required
for the 1997 SARs equates to a compounded annual rate of growth of 5.0%
from $25.04. SARs granted in 1996 were also granted at a 5.0%
compounded annual rate. SARs granted in 1995 were granted at 9.0%
compounded annual rate. For the 1997 SARs, the Committee continued to
recommend 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.
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 1997 base salaries for the Company's
executive officers, other than the chief executive officer, increased on
the average approximately 5.0% from 1996 base salaries. These increases
were primarily intended to reflect increases in the cost of living and
job performance during 1996. The Committee established the chief
executive officer's base salary for 1997, an approximate 5.0% increase,
after taking into account increases in the cost of living and the chief
executive officer's job performance during 1996. Company management and
the Committee review industry salary surveys when establishing base
salaries for all officers.
The Committee will continue during 1998 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
Normand R. Marois
13
<PAGE>
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 group of six peer property and casualty
insurance companies and with the broad equity market index where the
Company's Common Stock is traded. The X-axis lists the "measurement
period" of the last five fiscal years beginning with December 31, 1992
and ending with December 31, 1997. 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
within the graph.
<TABLE>
<CAPTION>
12/31/92 12/31/93 12/31/94 12/31/95
12/31/96 12/31/97
<S> <C> <C> <C> <C>
<C> <C>
The Commerce Group, Inc. $100 $326 $249 $311
$392 $516
Property and Casualty Peer
Group 100 115 91 139
162 283
New York Stock Exchange Index 100 114 111 144
174 229
</TABLE>
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, 1992 and
reinvestment of all dividends.
14
<PAGE>
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 Emeritus and
Assistant Clerk. 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 1997, Protector Group received from the Company
commissions of $834,443, in the aggregate, for policies written. The
Company also purchased certain insurance coverages through Protector
Group and paid premiums for these policies of $367,210 in 1997.
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.
INDEPENDENT AUDITORS
On May 30, 1997, the Company's directors adopted the
recommendation of the Company's Audit Committee and engaged Ernst &
Young LLP as independent auditors for the fiscal year ended December 31,
1997. The responsibilities of Coopers & Lybrand, L.L.P. were terminated
effective June 11, 1997.
During the two fiscal years ended December 31, 1996 and the
interim period ended June 11, 1997, there were no disagreements with
Coopers & Lybrand, L.L.P. on any matter of accounting principles or
practices, financial statement disclosure or auditing scope or
procedure.
The reports of Coopers & Lybrand, L.L.P. on the financial
statements for the years ended December 31, 1995 and 1996 contained no
adverse opinion or disclaimer of opinion and was not qualified as to
uncertainty, audit scope or accounting principles.
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 1999
Annual Meeting must be received at the Company's principal office by
December 9, 1998 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
<PAGE>
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 15, 1998 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
_ 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
ALL 0 FROM ALL 0
NOMINEES NOMINEES
0
For all nominees except as noted above
MARK HERE IF YOU PLAN TO ATTEND THE MEETING
0
MARK HERE FOR ADDRESS CHANGE AND NOTE AT LEFT
0
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:
<PAGE>
