THE COMMERCE GROUP, INC.
211 MAIN STREET ~ WEBSTER ~ MASSACHUSETTS 01570
April 23, 1999
To Our Stockholders:
I am pleased to invite you to attend the 1999 Annual Meeting of
Stockholders of The Commerce Group, Inc., which will be held at 9:00
a.m. on Friday, May 21, 1999, 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, Chief Executive Officer
and Chairman of the Board
<PAGE>
Table of Contents
<TABLE>
<CAPTION>
Page
<S> <C>
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS......................... -
GENERAL INFORMATION.............................................. 1
VOTE REQUIRED.................................................... 1
COST OF SOLICITATION............................................. 2
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT................................................. 2
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE.......... 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.................................... 13
COMMON STOCK PERFORMANCE......................................... 15
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS................... 16
OTHER BUSINESS................................................... 16
STOCKHOLDER PROPOSALS............................................ 16
</TABLE>
<PAGE>
The Commerce Group, Inc.
211 Main Street
Webster, MA 01570
(508) 943-9000
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 21, 1999
April 23, 1999
To Our Stockholders:
You are cordially invited to attend the 1999 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 21, 1999. The
meeting is called for the purpose of considering and acting upon:
1. A proposal to fix at 19, the number of directors of the Company
and to elect such 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 26, 1999 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>
THE COMMERCE GROUP, INC.
211 Main Street
Webster, MA 01570
(508) 943-9000
PROXY STATEMENT
FOR ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 21, 1999
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 21, 1999 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, 1998 and the report of the Company's independent
auditors, 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 26, 1999. 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 23, 1999.
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 a proposal to fix at 19 the number of
directors of the Company and 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 properly 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 26, 1999 will be entitled to receive notice of and
to vote at the Annual Meeting. At the close of business on March 26,
1999, the Company had 34,856,752 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 26,
1999 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 (1)
<S> <C> <C>
(a) Security ownership of
certain beneficial owners:
The Commerce Group, Inc. 3,344,986 9.6%
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 246,646 *
Gerald Fels 567,379 (2) 1.6%
David R. Grenon 343,252 1.0%
Robert W. Harris 113,897 (3) *
Robert S. Howland 84,474 (4) *
John J. Kunkel 1,181,061 3.4%
Raymond J. Lauring 860,378 2.5%
Roger E. Lavoie 417,230 (5) 1.2%
Normand R. Marois 228,119 *
Suryakant M. Patel 598,532 1.7%
Arthur J. Remillard, Jr. 786,340 (6) 2.3%
Arthur J. Remillard, III 882,537 (7) 2.5%
Regan P. Remillard 522,100 (8) 1.5%
Antranig Sahagian 553,586 (9) 1.6%
Gurbachan Singh 558,092 1.6%
John W. Spillane 762,882 (10) 2.2%
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
Name and address Amount of shares
Percentage
of beneficial owner beneficially owned(1) of
shares (1)
<S> <C> <C>
(c) Security ownership of named
executive officers:
Arthur J. Remillard, Jr. 786,340 (6) 2.3%
Gerald Fels 567,379 (2) 1.6%
Regan P. Remillard 522,100 (8) 1.5%
Arthur J. Remillard, III 882,537 (7) 2.5%
David H. Cochrane 10,679 (11) *
(d) All executive officers and 9,695,568 (12) 27.8%
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 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 directly into an
IRA
or other retirement account eligible to accept direct rollovers,
up to 75% of the
sum of the stock in their account, plus all prior year
diversification withdrawals.
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. The percentage of shares is calculated using 34,856,752
shares outstanding at March 26, 1999.
(2) Includes 89,667 shares held by the ESOP and the 401(k) Plan.
(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 564 shares held by the ESOP.
(7) Includes 125,153 shares held by the ESOP, 99,050 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 4,931 shares held by the ESOP.
(9) Includes 20,832 shares held by a trust of which Mr. Sahagian's
wife is the trustee.
(10) Includes 32,440 shares held by trusts for the benefit of Mr.
Spillane's children and 6,212 shares held by his son who is
trustee of a trust. Mr. Spillane disclaims any beneficial
interest in such trusts or such shares.
(11) Includes 10,679 shares held by the ESOP.
(12) Includes 332,716 shares held by the ESOP and the 401(k) Plan.
3
<PAGE>
SECTION 16(a)
BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
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, 1998, all Section 16(a) filing requirements applicable to
its executive officers, directors and greater than ten percent
beneficial owners were complied with, except that Normand R. Marois,
Antranig Sahagian and Gurbachan Singh, directors of the Company, each
filed one late report.
GOVERNANCE OF THE COMPANY
Proxies are solicited for the 1999 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
1998, and the attendance of directors as a group was 92.1%. The Board
has a standing Audit Committee which held four meetings during 1998, a
standing ESOP Committee which held thirteen meetings during 1998, a
standing Compensation Committee which held one meeting in 1998 and a
standing Nominating Committee which held one meeting during 1998. 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 except
for Mr. Lavoie and Mr. Sahagian.
Directors, including those who are employees of the Company,
receive $1,500 for each meeting of the Board of Directors of the
Company attended. Directors, who are not employees of the Company, are
paid $500 for each committee meeting of the Board of Directors of the
Company attended. Directors, who are not employees of the Company and
serve as a director of Commerce Holdings, Inc. ("CHI"), a subsidiary of
the Company, or CHI's subsidiaries, The Commerce Insurance Company
("Commerce") and Citation Insurance Company ("Citation"), are paid $500
for each meeting of the Board of Directors of CHI, Commerce and
Citation, which he attends. Directors, including those who are
employees of the Company and serve as a Director of ACIC Holding Co.,
Inc. ("AHC"), or its subsidiary, American Commerce Insurance Company
("ACIC"), are paid $2,000 for each AHC or ACIC meeting attended. AHC is
an 80% owned subsidiary of Commerce.
4
<PAGE>
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.
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 1998, each director received a number of
BVAs approximately equal to 11% of the compensation paid to him as a
director of the Company during 1997. Each 1998 BVA entitles the
director to receive a cash payment equal to the book value of a share of
Common Stock on December 31, 2000, less the base price of such BVA. The
base price for the 1998 BVAs ($23.35) is the book value of a share of
Common Stock on December 31, 1997 ($18.03) increased at the rate of 9%
per annum compounded annually through December 31, 2000. The December
31, 2000 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
on bonds and preferred stocks. It is a condition to the receipt of any
payment that may be due under a 1998 BVA to a director, that the
recipient has been a director of the Company continuously through April
30, 2001, 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 68
1972
Officer, Chairman of
the Board, Director
Gerald Fels (2),(3) Executive Vice President, 56
1976
Chief Financial Officer,
Director
Arthur J. Remillard, III (3) Senior Vice President - 43
1983
Policyholder Benefits,
Assistant Clerk, Director
John W. Spillane (3) Clerk, Director 66
1972
Regan P. Remillard Senior Vice President -
General Counsel, Director 35
1993
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
Director
Name Position with the Company Age
since
<S> <C> <C>
<C>
Herman F. Becker (3) Director 70
1972
Joseph A. Borski, Jr. (1),(2),(4) Director 65
1972
Eric G. Butler Director 71
1988
Henry J. Camosse Director 68
1972
David R. Grenon (4) Director 59
1972
Robert W. Harris Director 67
1975
Robert S. Howland Director 79
1972
John J. Kunkel Director 87
1972
Raymond J. Lauring Director 73
1972
Roger E. Lavoie Director 73
1972
Normand R. Marois (1) Director 63
1972
Suryakant M. Patel (3),(4) Director 58
1983
Antranig Sahagian Director 74
1972
Gurbachan Singh Director 60
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 1976 and of The
Commerce Insurance Company ("Commerce") since 1972. Mr. Remillard, Jr.
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, a member of the Governing Committee Review
Panel, Chairman of the Budget Committee and a member of the Personnel
Committee of the Commonwealth Automobile Reinsurers ("C.A.R."), and
Chairman of the Automobile Insurers Bureau of Massachusetts ("A.I.B.").
Gerald Fels, a certified public accountant, was appointed
Executive Vice President of the Company in November, 1989. From 1981 to
November, 1989, Mr. Fels was Senior Vice President of the Company. Mr.
Fels was the Treasurer of the Company from 1976 to 1995 and of Commerce
from 1975 to 1995. Mr. Fels has also been Chief Financial Officer of
the Company since 1976 and of Commerce since 1975. Mr. Fels also serves
on the C.A.R. Audit Committee.
Arthur J. Remillard, III was appointed Senior Vice President-
Policyholder Benefits in 1988 and has been Assistant Clerk of the
Company since 1982. From 1981 to 1988, Mr. Remillard, III was Vice
President-Mortgage Operations. In addition, Mr. Remillard, III has also
served on the Board of Governors of the Insurance Fraud Bureau of the
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.
6
<PAGE>
Regan P. Remillard was appointed President of ACIC Holding Co.,
Inc. in 1998 and Vice Chairman of the Board and Chief Executive Officer
of American Commerce Insurance Company in 1999. Mr. Remillard was
appointed President of Commerce West Insurance Company in 1996. Mr.
Remillard was appointed 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 was 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 was a director of CFX
Corporation and Safety Fund National Bank, a subsidiary of CFX
Corporation. CFX Corporation was acquired by People's Heritage
Financial Group, Inc.
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 are 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,
1998, 1997 and 1996, of those persons who were, at December 31, 1998,
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. 1998 $577,464 152,512
$3,853,779 $58,820
President, Chief Executive 1997 550,460 160,835
1,372,869 50,820
Officer and Chairman of 1996 523,680 165,107
791,267 57,320
the Board
Gerald Fels 1998 288,757 76,256
1,937,047 53,150
Executive Vice President and 1997 275,505 80,418
686,526 44,016
Chief Financial Officer 1996 261,865 82,553
354,726 50,516
Regan P. Remillard 1998 198,193 32,446
664,443 50,569
Senior Vice President- 1997 183,634 23,882
10,287 48,376
General Counsel 1996 129,625 24,064 -
42,215
Arthur J. Remillard, III 1998 155,065 24,569
688,212 50,515
Senior Vice President- 1997 148,185 25,905
252,845 42,483
Policyholder Benefits and 1996 140,605 26,591
185,335 48,955
Assistant Clerk
David H. Cochrane 1998 151,537 24,010
646,872 24,856
Senior Vice President- 1997 144,825 25,319
227,339 16,471
Underwriting 1996 137,425 25,749
175,903 22,941
</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 1998
on Book Value Awards were tied to increases in book value which
matured in 1998. Payments made in 1998 on Stock Appreciation
Rights were tied to increases in the average high and low market
value of the Company's common stock for the three months ended
March 31, 1998. There were no payments of Stock Appreciation
Rights prior to 1997.
(2) The 1998 amounts under "All Other Compensation" consist of
directors fees of $26,000 each to Arthur J. Remillard, Jr., Gerald
Fels, Regan P. Remillard 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 $3,150,
to Regan P. Remillard of $369, to Arthur J. Remillard, III of
$515, and to David H. Cochrane of $856; cash bonus of $8,000 to
each of the named executive officers; 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 1998:
<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. 152,512 29.9% $39.63 April
30, 2001 $0 $904,396
Gerald Fels 76,256 15.0% 39.63 April
30, 2001 0 452,198
Regan P. Remillard 32,446 6.4% 39.63 April
30, 2001 0 192,405
Arthur J. Remillard, III 24,569 4.8% 39.63 April
30, 2001 0 145,694
David H. Cochrane 24,010 4.7% 39.63 April
30, 2001 0 142,379
</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 1998, the Company granted SARs under the Management
Incentive Plan. The SARs entitle the recipient to receive by
April 30, 2001 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, 2001 ("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 owned shares of Common Stock equal to
the number of SARs held by him 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, 2001,
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 ($39.63) is the average of the high and low price
for a share of Common Stock for the three months ended March 31,
1998 ($34.23) 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, 1998 and the aggregate number and value of SARs held
as of December 31, 1998. No stock options were outstanding or exercised
during 1998 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, 1998 (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,
1998(3)(4) December 31, 1998(5)(6)
NAME in 1998(2) in 1998 Exercisable
Unexercisable Exercisable Unexercisable
<S> <C> <C> <C>
<C> <C> <C>
Arthur J. Remillard, Jr. 211,397 $3,384,466 0
478,454 $ 0 $2,499,392
Gerald Fels 105,699 1,692,241 0
239,227 0 1,249,692
Regan P. Remillard 33,088 529,739 0
80,392 0 365,908
Arthur J. Remillard, III 34,164 546,966 0
77,065 0 402,543
David H. Cochrane 33,088 529,739 0
75,078 0 390,661
</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.
(2) SAR awards provide solely for cash payments.
(3) The SARs that were unexercisable at December 31, 1998 reflect
three SAR grants awarded in 1996, 1997 and 1998 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 potential 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 granted, increased at the rate of 5% per
annum compounded annually for the three years.
(4) 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,
1996, 1997 and 1998 was $19.53, $25.04 and $34.23, respectively.
Therefore, the Base Prices of the SARs that become exercisable in
1999, 2000 and 2001 are $22.61, $28.99 and $39.63, respectively.
(5) 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, 1998 of
$32.08 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 $1.08
per annum on a share of the Company's Common Stock. Set forth in
note 6 below is the actual value of the SARs granted in 1996,
which matured on March 31, 1999 and are payable by April 30, 1999.
The ultimate value of the unexercisable SARs which mature on March
31, 2000 and 2001, 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, 1998.
10
<PAGE>
(6) Based upon the actual Redemption Price of $31.46, the value (and
number) of SARs that matured on March 31, 1999 and are payable by
April 30, 1999 for the named executive officers will be as
follows: Arthur J. Remillard, Jr. - $1,461,197, (165,107); Gerald
Fels - $730,594, (82,553); Regan P. Remillard - $212,966,
(24,064); Arthur J. Remillard, III - $ 235,330, (26,591); and
David H. Cochrane - $227,879, (25,749).
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 1998:
<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. 63,889 April 30, 2001
$ 31,945
Gerald Fels 33,386 April 30, 2001
16,693
Regan P. Remillard 24,515 April 30, 2001
12,258
Arthur J. Remillard, III 19,263 April 30, 2001
9,632
David H. Cochrane 16,007 April 30, 2001
8,004
</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 1998, the Company granted BVAs which entitle the recipient
to receive by April 30, 2001, a cash payment for each BVA equal to
the book value of a share of Common Stock of the Company on
December 31, 2000, less the base price of such BVA. The base
price for the 1998 BVAs ($23.35) is the book value of a share of
Common Stock on December 31, 1997 ($18.03), increased at the rate
of 9% per annum compounded annually through December 31, 2000.
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 owned shares of Common Stock equal to
the number of BVAs held by him from the date of grant until the
expiration date. 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 BVA that the participant has
been in the continuous employ of the Company through April 30,
2001, 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.
11
<PAGE>
(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 $2.33 in each of
the years ended 1999 and 2000. This amount represents an average
of net earnings per weighted average common share for 1996, 1997
and 1998 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.
12
<page
COMPENSATION COMMITTEE REPORT
1998
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 and market value
grew over the last several years. Approximately 85.8% of total
compensation paid to the chief executive officer during 1998 was
performance related. Approximately 80.2% of total executive
compensation paid during 1998 to the other named executive officers,
except for the chief executive officer, was performance related as
further explained below.
The potential for incentive compensation was provided during 1996,
1997 and 1998 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 1998 were determined by
dividing the base compensation of each officer by the Company's book
value of $18.03 at December 31, 1997. 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.
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 1998, 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, 2000, plus the value
of dividends paid on the Common Stock between that date and December 31,
1997, exceeds $23.35, which represents an approximately 29.5% increase
from the Company's book value per share of $18.03 at December 31, 1997.
The minimum growth in the book value of the Common Stock required for
the 1998 BVAs equates to a compounded annual rate of growth of 9.0% from
$18.03. For the 1997 and 1996 BVAs, the targeted compounded annual
growth rate was also 9.0%, or 29.5% for the three-year period. For the
1998 BVAs, the Committee continued to recommend the 9.0% growth rate to
the Board as being in line with Massachusetts insurance industry
experience. Under the market value part of the calculation for the 1998
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, 2001, plus dividends paid on the Common
Stock between that date and March 31, 1998, exceeds $39.63. The $39.63
benchmark represents an approximately 15.8% increase from $34.23, the
average of the daily high and low market prices for the Common Stock for
the three-month period ended March 31, 1998.
13
<PAGE>
The minimum growth in the market value of Common Stock required
for the 1998 SARs equates to a compounded annual rate of growth of 5.0%
from $34.23. SARs granted in 1997 and 1996 were also granted at a 5.0%
compounded annual rate. For the 1998 SARs, the Committee continued to
recommend the 5.0% growth rate to the Board as being 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 granted stock options to its
executive officers. The Company does maintain, however, an Employee
Stock Ownership Plan and a 401(k) 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 1998 base salaries for the Company's
executive officers, other than the chief executive officer, increased on
the average approximately 5.0% from 1997 base salaries. These increases
were primarily intended to reflect increases in the cost of living and
job performance during 1997. The Committee established the chief
executive officer's base salary for 1998, an approximate 5.0% increase,
after taking into account increases in the cost of living and the chief
executive officer's job performance during 1997. Company management and
the Committee review industry salary surveys when establishing base
salaries for all officers.
The Committee will continue during 1999 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
14
<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 15, 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, 1993
and ending with December 31, 1998. The Y-axis lists the dollar values
starting with $0 and ending with $300 representing cumulative total
return. The information in the subsequent paragraph is the data plotted
within the graph.
<TABLE>
<CAPTION>
12/31/93 12/31/94 12/31/95 12/31/96
12/31/97 12/31/98
<S> <C> <C> <C> <C>
<C> <C>
The Commerce Group, Inc. $100 $ 77 $ 96 $123
$163 $183
Property and Casualty Peer
Group 100 80 121 143
250 290
New York Stock Exchange Index 100 98 127 153
202 240
</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, 1993 and
reinvestment of all dividends.
15
<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 1998, Protector Group received from the Company
commissions of $940,021, in the aggregate, for policies written. The
Company also purchased certain insurance coverages through Protector
Group and paid premiums for these policies of $520,600 in 1998.
Arthur J. 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.
David H. Cochrane, Senior Vice President - Underwriting of the
Company, has two mortgage loans outstanding with the Company totaling
$76,485 (6 1/4% and 7 5/8% interest rates). These loans were made in
the ordinary course of the Company's mortgage business, on the same
terms of similar mortgage transactions with non-related persons and do
not involve other than normal risk of collectibility or contain any
features unfavorable to the Company.
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 2000
Annual Meeting must be received at the Company's principal office by
December 17, 1999 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.
16
<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 21, 1999 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>
