THE COMMERCE GROUP, INC.
211 MAIN STREET ~ WEBSTER ~ MASSACHUSETTS 01570
April 14, 2000
To Our Stockholders:
I am pleased to invite you to attend the 2000 Annual Meeting of
Stockholders of The Commerce Group, Inc., which will be held at 9:00
a.m. on Friday, May 19, 2000, 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
Option Grants in Last Fiscal Year........................... 9
Aggregated Fiscal Year-End Option/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 19, 2000
April 14, 2000
To Our Stockholders:
You are cordially invited to attend the 2000 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 19, 2000. The
meeting is called for the purpose of considering and acting upon:
1. A proposal to fix at 18, 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 meeting or any adjournment or adjournments
thereof.
The close of business on March 24, 2000 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 19, 2000
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 19, 2000 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, 1999 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 24, 2000. 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 14, 2000.
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 18 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 24, 2000 will be entitled to receive notice of and
to vote at the Annual Meeting. At the close of business on March 24,
2000, the Company had 34,191,052 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 24,
2000 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. 3,398,557 9.9%
Employee Stock Ownership Plan
211 Main Street
Webster, MA 01570
(b) Security ownership of directors and
nominees:
Herman F. Becker 503,000 1.5%
Joseph A. Borski, Jr. 66,752 *
Eric G. Butler 177,424 *
Henry J. Camosse 242,176 *
Gerald Fels 562,678 (2) 1.6%
David R. Grenon 343,252 1.0%
Robert W. Harris 112,397 (3) *
Robert S. Howland 84,474 (4) *
John J. Kunkel 1,177,981 3.4%
Raymond J. Lauring 860,378 2.5%
Roger E. Lavoie 417,230 (5) 1.2%
Normand R. Marois 207,719 *
Suryakant M. Patel 598,532 1.8%
Arthur J. Remillard, Jr. 748,299 (6) 2.2%
Arthur J. Remillard, III 897,945 (7) 2.6%
Regan P. Remillard 524,595 (8) 1.5%
Gurbachan Singh 558,092 1.6%
John W. Spillane 760,987 (9) 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>
(c) Security ownership of named
executive officers:
Arthur J. Remillard, Jr. 748,299 (6) 2.2%
Gerald Fels 562,678 (2) 1.6%
Regan P. Remillard 524,595 (8) 1.5%
Arthur J. Remillard, III 897,945 (7) 2.6%
David H. Cochrane 12,330 (10) *
(d) All executive officers and 9,091,456 (11) 26.6%
directors as a group
(22 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,
grossed-up for 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 34,191,052 shares
outstanding at March 24, 2000.
(2) Includes 94,966 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 hares held by a trust of which Mr. Harris'
wife is the trustee.
(4) Includes 48,474 shares held by a trust of which Mr. Howland is a
co-trustee with his son, 20,000 shares held by a trust of which
Mr. Howland's wife is the trustee, 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 1,748 shares held by the ESOP.
(7) Includes 132,091 shares held by the ESOP, 102,635 shares held by
a trust of which Mr. Remillard, III is the trustee and 30,067
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 6,641 shares held by the ESOP.
(9) Includes 32,440 shares held by trusts for the benefit of Mr.
Spillane's children and 6,212 shares held by a trust of which Mr.
Spillane's son is the trustee. Mr. Spillane disclaims any
beneficial interest in such trusts or such shares.
(10) Includes 12,330 shares held by the ESOP.
(11) Includes 355,590 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, 1999, all Section 16(a) filing requirements applicable to
its executive officers, directors and greater than ten percent
beneficial owners were complied with, except that Herman F. Becker and
Normand R. Marois, directors of the Company, each filed one late report.
GOVERNANCE OF THE COMPANY
Proxies are solicited for the 2000 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
1999, and the attendance of directors as a group was 92.1%. The Board
has a standing Audit Committee which held six meetings during 1999, a
standing ESOP Committee which held twelve meetings during 1999, a
standing Compensation Committee which held one meeting in 1999 and a
standing Nominating Committee which held one meeting during 1999. 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, administers the Management Incentive Plan and has the
authority to grant awards. 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 directors
attended 75% or more of the aggregate of their respective Board and
Committee Meetings except for 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 and
$1,000 for each committee meeting of the Board of Directors attended.
AHC is an 80% owned subsidiary of Commerce.
4
<PAGE>
Directors, who are non-employee members of the ESOP Committee, receive
$26,000 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 1999, each director received a number of
BVAs approximately equal to 10% of the compensation paid to him as a
director of the Company during 1998. Each 1999 BVA entitles the
director to receive a cash payment equal to the book value of a share of
Common Stock on December 31, 2001, less the base price of such BVA. The
base price for the 1999 BVAs ($25.36) is the book value of a share of
Common Stock on December 31, 1998 ($19.58) increased at the rate of 9%
per annum compounded annually through December 31, 2001. For the
purpose of this calculation, the December 31, 2001 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 1999 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 18, 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 69 1972
Officer, Chairman of
the Board, Director
Gerald Fels (2),(3) Executive Vice President, 57 1976
Chief Financial Officer,
Director
Arthur J. Remillard, III (3) Senior Vice President - 44 1983
Policyholder Benefits,
Assistant Clerk, Director
John W. Spillane (3) Clerk, Director 67 1972
Regan P. Remillard Senior Vice President,
Director 36 1993
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
Director
Name Position with the Company Age since
<S> <C> <C> <C>
Herman F. Becker (3) Director 71 1972
Joseph A. Borski, Jr. (1),(2),(4) Director 66 1972
Eric G. Butler Director 72 1988
Henry J. Camosse Director 69 1972
David R. Grenon (4) Director 60 1972
Robert W. Harris Director 68 1975
Robert S. Howland Director 80 1972
John J. Kunkel Director 88 1972
Raymond J. Lauring Director 74 1972
Roger E. Lavoie Director 74 1972
Normand R. Marois (1) Director 64 1972
Suryakant M. Patel (3),(4) Director 59 1983
Gurbachan Singh Director 61 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."). Mr.
Remillard, Jr. is also Chairman of the Governing Committee and a member
of the Budget Committee, Executive Committee and Nominating Committee 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.
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 of the Company in 1995.
Mr. Remillard was General Counsel of the Company from 1995 to February
,2000. 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 is retired. Prior to retirement, Dr. Patel was
a physician specializing in internal medicine since 1966.
Gurbachan Singh is retired. Prior to retirement, Dr. Singh was 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, 1999, 1998 and 1997, of those persons who were, at December 31, 1999, the Chief Executive Officer and the other
four most highly compensated executive officers of the Company.
Summary Compensation Table
</TABLE>
<TABLE>
<CAPTION>
Long-term compensation
Awards Payments
Securities
Annual Underlying
Name and Compensation Options/ LTIP All Other
Principal Position Year Salary SARs(#)(1) Payouts(2) Compensation(3)
<S> <C> <C> <C> <C> <C>
Arthur J. Remillard, Jr. 1999 $600,563 147,463 $1,674,632 $57,077
President, Chief Executive 1998 577,464 152,512 3,853,779 58,820
Officer and Chairman of 1997 550,460 160,835 1,372,869 50,820
the Board
Gerald Fels 1999 300,301 147,462 841,661 69,478
Executive Vice President and 1998 288,757 76,256 1,937,047 53,150
Chief Financial Officer 1997 275,505 80,418 686,526 44,016
Regan P. Remillard 1999 212,946 83,660 271,401 107,268
Senior Vice President 1998 204,756 32,446 664,443 50,569
1997 183,634 23,882 10,287 48,376
Arthur J. Remillard, III 1999 161,269 23,755 298,986 50,429
Senior Vice President- 1998 155,065 24,569 688,212 50,515
Policyholder Benefits and 1997 148,185 25,905 252,845 42,483
Assistant Clerk
David H. Cochrane 1999 157,597 23,214 281,094 24,679
Senior Vice President- 1998 151,537 24,010 646,872 24,856
Underwriting 1997 144,825 25,319 227,339 16,471
</TABLE>
______________________
(1) The 1999 amount represents stock options granted. The 1998 and
1997 amounts represent stock appreciation rights granted.
(2) 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 1999
on Book Value Awards were tied to increases in book value which
matured in 1999. Payments made in 1999 on Stock Appreciation
Rights were tied to increases in the average daily high and low
market value of the Company's common stock for the three months
ended March 31, 1999.
(3) The 1999 amounts under "All Other Compensation" consist of
directors fees of $26,000 each to Arthur J. Remillard, Jr. and
Arthur J. Remillard, III, $43,000 to Gerald Fels and $45,000 to
Regan P. Remillard; 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
$7,077, to Gerald Fels of $2,478, to Regan P. Remillard of $420,
to Arthur J. Remillard, III of $429, and to David H. Cochrane of
$679; cash bonus of $8,000 to each of the named executive
officers; contributions of $16,000 made or accrued by the Company
to the ESOP for each of the named executive officers; and, $39,848
to Regan P. Remillard representing reimbursement of additional
state income tax expense incurred due to dual tax status in
California and Massachusetts. 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>
<TABLE>
<CAPTION>
The following table contains information concerning certain stock options ("Options") granted to the Chief Executive
Officer and the other named executive officers during fiscal 1999:
Option Grants in Last Fiscal Year (1)
Individual Grants
Number of % of Total Potential Realizable Value at
Securities Options Granted Assumed Annual Rates of
Underlying to Employees Initial Stock Price Appreciation
Options in Fiscal Exercise Expiration for Terms of Options
Name Granted(#)(2) Year Price (3) Date 5%(4) 10%(4)
<S> <C> <C> <C> <C> <C> <C>
Arthur J. Remillard, Jr. 147,463 22.7% $32.81 May 1, 2007 $123,869 $847,912
Gerald Fels 147,462 22.7% 32.81 May 1, 2007 123,868 847,907
Regan P. Remillard 83,660 12.9% 32.81 May 1, 2007 70,274 481,045
Arthur J. Remillard, III 23,755 3.7% 32.81 May 1, 2007 19,954 136,591
David H. Cochrane 23,214 3.6% 32.81 May 1, 2007 19,500 133,481
</table
(1) See "Compensation Committee Report" for additional information
regarding the Company's current incentive compensation program,
consisting of tandem Options and BVA grants under the Company's
Management Incentive Plan approved by the stockholders in 1994
("Management Incentive Plan").
(2) During 1999, the Company granted Options for the first time under
the Management Incentive Plan. The Options entitle the recipient
to purchase Common Stock at the adjusted exercise price, on April
30, 2002, the vesting date. Options vest immediately in the event
of the sale of the Company. The adjusted exercise price is
calculated by subtracting from the initial exercise price of
$32.81 the following: (a) the amount of all cash dividends which
the recipient would have been entitled to receive had the
recipient owned shares of Common Stock throughout the period
beginning April 30, 1999 and ending April 30, 2002, and (b) the
fair market value of all distributions of property made by the
Company to holders of Common Stock which the recipient would have
been entitled to receive had the recipient owned shares of Common
Stock throughout the period beginning April 30, 1999 and ending
April 30, 2002. It is a condition to any exercise of the Option
granted that the participant has been in the continuous employ of
the Company through January 31, 2002, unless such employment shall
have terminated due to the participant's death or for any reason
approved by the Company. Unexercised Options shall terminate
after the close of business on May 1, 2007.
(3) The initial exercise price ($32.81) is the average of the daily
high and low price for a share of Common Stock for the three
months ended March 31, 1999 ($28.34) 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 above
the $28.34 average price notd in (3) and are not intended to
indicate actual or projected future price appreciation, if any, of
the Company's Common Stock. Payment of future dividends is not
assumed in these figures.
9
<PAGE>
</TABLE>
<TABLE>
<CAPTION>
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, 1999 and the aggregate
number and value of Options and SARs held as of December 31, 1999. Stock options were outstanding at December 31, 1999 but
none were exercised during 1999. The Company granted stock options for the first time in 1999.
Aggregated SAR Exercises in Last Fiscal Year
and Option/SAR Values at December 31, 1999 (1)
Number of Securities
Underlying Unexercised Value of Unexercised In-
Number of Value of SARs Option/SARs at the-Money Options/SARs at
SARs Redeemed Realized December 31, 1999(#)(3)(4) December 31, 1999(5)(6)
NAME in 1999(#)(2) in 1999 Exercisable Unexercisable Exercisable Unexercisable
<S> <C> <C> <C> <C> <C> <C>
Arthur J. Remillard, Jr. 165,107 $1,461,197 0 460,810 $ 0 $ 0
Gerald Fels 82,553 730,594 0 304,136 0 0
Regan P. Remillard 24,064 212,966 0 139,988 0 0
Arthur J. Remillard, III 26,591 235,330 0 74,229 0 0
David H. Cochrane 25,749 227,879 0 72,543 0 0
</table
(1) See "Compensation Committee Report" for additional information
regarding the Company's current incentive compensation program,
consisting of Option, 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, 1999 reflect two
SAR grants awarded in 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.
Options granted in 1999 were also unexercisable at December 31,
1999. Options entitle the recipient to purchase Common Stock at
the adjusted exercise price, on or after April 30, 2002, the
vesting date. The adjusted exercise price is calculated by
subtracting from the initial exercise price the following: (a)
the amount of all cash dividends which the recipient would gave
been entitled to receive had the recipient owned shares of Common
Stock throughout the period beginning April 30, 1999 and ending
April 30, 2002, and (b) the fair market value of all distributions
of property made by the Company to holders of Common Stock which
the recipient would have been entitled to receive had the
recipient owned shares of Common Stock throughout the period
beginning April 30, 1999 and ending April 30, 2002.
(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,
1997 and 1998 was $25.04 and $34.23, respectively. Therefore, the
Base Prices of the SARs that become exercisable in 2000 and 2001
are $28.99 and $39.63, respectively.
10
<PAGE>
(5) The estimated value of the unexercisable SARs and options,
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, 1999 of $25.21 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 $1.12 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 1997, which matured on March 31, 2000 and are
payable by April 30, 2000. The ultimate value of the
unexercisable SARs which mature on March 31, 2001, 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, 1999.
(6) Based upon the actual Redemption Price of $30.53, the value (and
number) of SARs that matured on March 31, 2000 and are payable by
April 30, 2000 for the named executive officers will be as
follows: Arthur J. Remillard, Jr. - $247,686, (160,835); Gerald
Fels - $123,844, (80,418); Regan P. Remillard - $36,778, (23,882);
Arthur J. Remillard, III - $39,894, (25,905); and David H.
Cochrane - $38,991, (25,319).
</TABLE>
<TABLE>
<CAPTION>
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 1999:
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. 61,641 April 30, 2002 $ 56,710
Gerald Fels 32,149 April 30, 2002 29,577
Regan P. Remillard 23,571 April 30, 2002 21,685
Arthur J. Remillard, III 18,493 April 30, 2002 17,014
David H. Cochrane 15,476 April 30, 2002 14,238
(1) See "Compensation Committee Report" for additional information regarding the Company's current incentive compensation
program, consisting of tandem Option and BVA grants under the Company's Management Incentive Plan.
</TABLE
11
<page
(2) During 1999, the Company granted BVAs which entitle the recipient
to receive by April 30, 2002, a cash payment for each BVA equal to
the book value of a share of Common Stock of the Company on
December 31, 2001, less the base price of such BVA. The base
price for the 1999 BVAs ($25.36) is the book value of a share of
Common Stock on December 31, 1998 ($19.58), increased at the rate
of 9% per annum compounded annually through December 31, 2001.
For the purpose of this calculation, 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, 2002, 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 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 $2.54 in each of the years
ended 2000 and 2001. This amount represents an average of net
earnings per weighted average common share for 1997, 1998 and 1999
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
1999
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 the base compensation of
the Company's officers, to grant awards under the Company's incentive
compensation plan and, as appropriate, to recommend changes in that plan
or the pattern of incentive compensation awards.
The Company's compensation program is designed to reward
executives for strategic management and enhancement of stockholder
value. In general, the same compensation policies are applied to the
chief executive officer and to all of the other executive officers of
the Company.
The Management Incentive Plan adopted by the stockholders in 1994,
provides incentive compensation based on Book Value Awards ("BVAs") and
Stock Appreciation Rights ("SARs"). 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 71.8% of total
compensation paid to the chief executive officer during 1999 was
performance related. Approximately 61.1% of total executive
compensation paid during 1999 to the other named executive officers,
except for the chief executive officer, was performance related as
further explained below.
Since 1994, performance for purposes of the Company's compensation
program has been measured by a combination of (1) the increase in the
book value of the Company's stock, through the use of BVAs, and (2) the
increase in market value of a share of the Company's stock through the
use of SARs and, beginning in 1999, through the use of Stock Options
("Options") (collectively, the "Program"). The BVAs and Options granted
for 1999 were determined by dividing the base compensation of each
officer by the Company's book value of $19.58 at December 31, 1998. The
number of BVAs was then weighted by a factor of two. The number of
Options was weighted by a factor ranging from one to five, based on an
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 1999, under the book value portion of the
calculation, provide that no incentive compensation will be payable
unless the book value of the Company's Common Stock at December 31,
2001, plus the value of dividends paid on the Common Stock between that
date and December 31, 1998, exceeds $25.36, which represents an
approximately 29.5% increase from the Company's book value per share of
$19.58 at December 31, 1998. Increases or decreases in book value per
share related to changes in the value of bonds and preferred stocks, on
an after-tax- basis, are excluded from this calculation. The minimum
growth in the book value of the Common Stock required for incentive
compensation under the 1999 BVAs equates to a compounded annual rate of
growth of 9.0% from $19.58. For the 1998 and 1997 BVAs, the targeted
compounded annual growth rate was also 9.0%, or 29.5% for the three-year
period. The Committee continued to recommend the 9.0% growth rate to
the Board of Directors as being in line with the Massachusetts insurance
marketplace.
13
<PAGE>
Under the market value portion of the Program, incentive
compensation will be realized by the officers under the stock options
only if and to the extent that the market price of the Company's common
stock, at the time of exercise, exceeds the initial exercise price of
$32.81, less dividends paid on the Common Stock between the date of
grant, April 30, 1999, and April 30, 2002, the vesting date. Options
granted in 1999 become exercisable on April 30, 2002 and terminate after
the close of business on May 1, 2007. The $32.81 initial exercise price
represents an approximately 15.8% increase from $28.34, the average of
the daily high and low market prices for the Common Stock for the three-
month period ended March 31, 1999. The minimum growth in the market
value of Common Stock required for the 1999 Options to attain the
initial exercise price equates to a compounded annual rate of growth of
5.0% for three years from the $28.34 average daily high and low price
for the three months ended March 31, 1999. SARs granted in 1997 and
1998 were also granted at a 5.0% compounded annual rate. For the 1999
Options, the Committee continued to recommend the 5.0% growth rate to
the Board as being in line with the Massachusetts insurance marketplace.
The stock options granted in 1999 were intended to qualify as incentive
stock options to the maximum extent permissible under the Internal
Revenue Code. No advance payments of incentive compensation are
contemplated in the SAR or BVA portions of the Program.
The Company maintains an Employee Stock Ownership Plan and a
401(k) Plan. See "Executive Compensation and Other Transactions".
The base salary for each officer other than the chief executive
officer is recommended by the Company's management and reviewed and
approved by the Committee. The 1999 base salaries for the Company's
executive officers, other than the chief executive officer, increased on
the average approximately 4.0% from 1998 base salaries. These increases
were intended to reflect increases in the cost of living and job
performance during 1998, considered in the context of the officers'
total compensation. The Committee established the chief executive
officer's base salary for 1999, an approximate 4.0% increase, after
taking into account increases in the cost of living and the chief
executive officer's job performance during 1998, considered in the
context of the Chief Executive Officer's total compensation. Company
management and the Committee review industry salary surveys when
establishing base salaries for all officers.
The Committee will continue during 2000 to carefully consider
officer compensation, and the components thereof, 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, 1994
and ending with December 31, 1999. The Y-axis lists the dollar values
starting with $100 and ending with $375 representing cumulative total
return. The information in the subsequent paragraph is the data plotted
within the graph.
</TABLE>
<TABLE>
<CAPTION>
12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
<S> <C> <C> <C> <C> <C> <C>
The Commerce Group, Inc. $100 $125 $159 $213 $240 $185
Property and Casualty Peer
Group 100 152 180 315 364 184
New York Stock Exchange Index 100 130 156 205 245 268
</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, 1994 and
reinvestment of all dividends.
15
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The immediate family of Raymond J. Lauring, a director of the
Company, owns more than a 10% equity interest in Lauring Construction
Company. Mr. Lauring has no ownership interest in Lauring Construction
Company. During 1999, Lauring Construction Company, acting as general
contractor, provided construction and construction management services
in connection with the construction of a new office building. Terms of
the contract provide for a guaranteed maximum payment to Lauring
Construction Company of $448,000 including a management fee of $111,000.
Payments to the general contractor in connection with this contract were
$245,000 in 1999.
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.
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 2001
Annual Meeting must be received at the Company's principal office by
December 15, 2000 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 19, 2000 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, 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>
