COMMERCE GROUP CORP.
6001 N. 91st Street
Milwaukee, Wisconsin 53225-1795
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To Be Held On Friday, September 27, 1996
To the Shareholders of Commerce Group Corp.:
The Annual Meeting of Shareholders of Commerce Group Corp. (The
"Company") will be held at the Tripoli Country Club, 7401 N.
43rd Street, Milwaukee, Wisconsin 53209, on Friday, September
27, 1996, at 1:30 p.m. (local time) for the following
purposes:
1. To elect one director to serve for the period specified
herein and until his successor is elected and qualified;
2. To ratify the selection of Redlin and Associates as the
Company's independent accountants for the fiscal year
ended March 31, 1997; and
3. To transact such other business as may be properly brought
before the meeting or any adjournment thereof.
The Board of Directors has fixed the close of business on
August 1, 1996 as the record date for determination of
shareholders entitled to notice of and to vote at the Annual
Meeting or any adjournment thereof.
YOU ARE INVITED TO ATTEND THIS MEETING IN PERSON. WHETHER OR
NOT YOU PLAN TO ATTEND, IT IS IMPORTANT THAT YOUR SHARES BE
REPRESENTED AT THE MEETING. THEREFORE, YOU ARE URGED TO
PROMPTLY SIGN AND RETURN THE ACCOMPANYING PROXY CARD IN THE
ENCLOSED ENVELOPE, WHICH REQUIRES NO POSTAGE IF MAILED WITHIN
THE UNITED STATES. YOU MAY REVOKE YOUR PROXY AT ANY TIME PRIOR
TO ITS EXERCISE BY GIVING WRITTEN NOTICE TO THE SECRETARY OF
THE COMPANY. IF YOU RETURN AN EXECUTED PROXY AND THEN ATTEND
THE MEETING, YOU MAY REVOKE YOUR PROXY AND VOTE IN PERSON.
ATTENDANCE AT THE MEETING WILL NOT BY ITSELF REVOKE A PROXY.
By Order of the Board of Directors
Edward A. Machulak
Executive Vice President
and Corporate Secretary
August 2, 1996
Milwaukee, Wisconsin
<PAGE>
COMMERCE GROUP CORP.
6001 North 91st Street
Milwaukee, Wisconsin 53225-1795
PROXY STATEMENT
August 2, 1996
______________
This Proxy Statement is furnished by the Board of Directors of
Commerce Group Corp. (respectively the "Board" and the
"Company" or "Commerce") in connection with the solicitation of
proxies for use at the Annual Meeting of Shareholders to be
held at 1:30 p.m. on Friday, September 27, 1996, or at any
adjournment thereof (the "Annual Meeting" or "Meeting")
pursuant to the Notice of said Meeting. This Proxy Statement
and the proxies solicited hereby are being first mailed to
shareholders of the Company on or about August 2, 1996.
SHAREHOLDERS ARE URGED, WHETHER OR NOT THEY EXPECT TO ATTEND
THE ANNUAL MEETING, TO COMPLETE, SIGN AND DATE THE ACCOMPANYING
PROXY AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE. You may
revoke your proxy at any time prior to its exercise by giving
written notice to the Secretary of the Company. If you return
an executed proxy and then attend the Annual Meeting, you may
revoke your proxy and vote in person. Attendance at the Annual
Meeting will not by itself revoke a proxy.
Unless otherwise directed in the accompanying proxy, persons
named therein will vote FOR the election of the one director
nominee listed herein and FOR the ratification of the selection
of Redlin and Associates as the Company's independent
accountants for the fiscal year ended March 31, 1997. As to
any other business that may properly come before the Meeting,
the proxy holders will vote in accordance with the
recommendations of the Board of Directors.
VOTING SECURITIES
August 1, 1996 has been fixed as the record date for
determination of shareholders entitled to notice of and to vote
at the Annual Meeting or any adjournment thereof. As of August
1, 1996, there were issued, outstanding and entitled to vote
8,096,765 shares of Commerce's common stock, $.10 par value
"common stock." Each share of common stock entitles the
shareholder to one vote on all matters presented at the
meeting.
PRINCIPAL SHAREHOLDERS AND OWNERSHIP BY MANAGEMENT
The following table sets forth certain information regarding
the beneficial ownership of Commerce's Common Stock as of July
15, 1996, by each of its directors who own Commerce common
stock, all directors and officers as a group, and each
shareholder who beneficially owns more than 5% of Commerce's
outstanding Common Stock.
<PAGE>
Amount and Nature of
Beneficial Ownership (1)(2)
Name and Address ---------------------------
of Beneficial Owner* Position Shares Percent
- ---------------------- -------- ------- -------
Edward L. Machulak Chairman 1,548,174(3) 19.12%
of the Board,
Director,
President,
Treasurer,
Director
Emeritus,
Member of
the Executive
Committee
Edward A. Machulak Director, 82,858(4) 1.02%
Executive Vice
President,
Secretary and
Member of the
Executive
Committee
Clayton H. Tebo Director 17,538 .22%
General Lumber & Supply 800,000(3) 9.88%
Co., Inc.
All Directors, Officers 2,448,570 30.24%
and Affiliates as a
Group (4)
*All directors and beneficial owners listed above can be
contacted through Commerce's offices located at 6001 N. 91st
Street, Milwaukee, Wisconsin 53225-1795.
(1) Unless otherwise indicated, shares shown as beneficially
owned are those as to which the named person possesses
sole voting and investment power.
(2) All shares indicated are based on Common Stock, after the
exercise of rights.
(3) The 1,548,174 common shares owned directly by him as of
June 30, 1996, do not include the 112,161 shares held
jointly with his wife, the 15,200 shares borrowed by the
Company, the 1,995 shares due for interest on the shares
borrowed or pledged on behalf of the Company, and the
800,000 shares owned by General Lumber & Supply Co., Inc.,
a privately-held company in which he owns 55% of the
common shares. If these 929,356 shares were added to the
1,548,174 common shares owned by him directly, then the
total shares under his control amount to 2,477,530 and
would represent a 30.60% ownership of shares based on
8,096,765 shares issued and outstanding. This total
number of shares does not assume the exercise of the
83,960 existing stock options owned by others.
The number of common shares owned by Sylvia Machulak, wife
of Edward L. Machulak, the President of the Company,
personally as of June 30, 1996, is 32,067. The number of
shares owned by the Sylvia Machulak Rollover Individual
Retirement Account as of June 30, 1996, is 250,000. If
the shares owned by Sylvia Machulak and her Rollover
Individual Retirement Account were added to the 2,477,530
above described shares owned by him, then the total shares
would amount to 2,759,597, or a 34.08% ownership. Mr.
Machulak disclaims any beneficial interest in these shares
owned by Sylvia Machulak, except the 112,161 shares held
jointly.
(4) Does not include 1,000 shares owned by Carol A. Machulak,
Edward A. Machulak's wife, in which he disclaims any
beneficial interest.
PROPOSAL NO. 1--ELECTION OF A DIRECTOR
Nominee for Election
The Company's Directors, for continuity, are divided into three
Classes: I, II and III, to permit staggered terms for each
class of Directors. They are elected by class at each annual
meeting. At this annual meeting, one director, a Class I
Director, will be elected to serve until the next election of
the Class I Director, for which such Director shall have been
chosen and until his successor shall be elected and qualified.
The Director elected is for a three-year term. The nominees
receiving the greatest number of votes at this annual meeting
for the one Director vacancy position will be elected. Three
Directors constitute the total number of Directors.
<PAGE>
The nominee for election as a Class I Director at this Annual
Meeting set forth in the table below is an incumbent Director
who was elected at the 1994 Annual Meeting of Shareholders for
a three-year term. The nominee has consented to serve as a
Director if elected. Unless authority to vote for any Director
is withheld in a proxy, it is intended that each proxy will be
voted FOR such nominee. In the event that the nominee for
Director should before the Meeting become unable to serve, it
is intended that shares represented by proxies which are
executed and returned will be voted for such substitute nominee
as may be recommended by the Company's existing Board of
Directors, unless other directions are given in the proxies.
To the best of the Company's knowledge, the nominee will be
available to serve.
Director Class Expiration
Nominee Age Position Since of Term of Office
- ------------- --- -------- -------- -----------------
Clayton H. Tebo 83 Director March 11, 1991 Class I, 1999
Clayton H. Tebo, a founding Director, was a Director from
September 1962 through March 1, 1969. He then retired from his
governmental position on March 6, 1969. He did serve as a
special assistant to the President prior to his retirement and
after his retirement he has been retained from time to time by
the Company as a consultant for special projects. On March 11,
1991, he was elected as a Director and has served that post
since.
Committees and Meetings
The Board of Directors has an Executive Committee. It does not
have an Audit Committee, nor a Compensation or Investment
Committee as the Board of Directors in its entirety or the
Executive Committee act on those matters.
The Executive Committee of the Board of Directors currently
consists of Messrs. Edward L. Machulak and Edward A. Machulak
(son of the President). The Executive Committee was formulated
to provide the authority to act on behalf of the Directors
during such time when the Directors are not in session; two
members of the Directors are elected to this committee. The
Executive Committee provides additional resources to assist
management in making strategic decisions, consults with
management on technical, tactical, organizational and
administrative matters, acquisitions and dispositions,
exploration targets, mergers and policies regarding the
long-term growth of the Company. The fee paid to the
Directors, except the President, is $250 for each meeting
attended.
During the Company's fiscal year ended March 31, 1996, the
Board of Directors met four times at the regularly scheduled
quarterly meetings, and the Executive Committee met eight
times. All of the nominees holding office attended all of the
board meetings; 100% of the Executive Committee Meetings were
attended.
The Director's fees (excluding the President) are based on a
minimum of four quarterly scheduled meetings held in February,
May, August and November of each year at $750 for each meeting
($3,000 per year). These fees, together with travel and
out-of-pocket expenses, if any, are payable quarterly on the
date of each quarterly scheduled meeting or if no quarterly
meeting is held then such fees are payable on the second Monday
of each month following the quarterly meeting. On January 1,
1981, the Directors unanimously agreed by resolution that cash
payment of Directors' fees will be deferred until such time as
the Company has adequate annual operating profits and a cash
flow to make such payments. This resolution was reconfirmed on
October 16, 1992. On September 16, 1994, at the Annual
Directors' Meeting, the Directors unanimously adopted a
resolution that in lieu of a cash payment, the Directors have a
right to obtain the Company's common shares based on the lowest
bid price during the twelve-month period preceding the issuance
of the common shares.
<PAGE>
During March 1996, two Directors exercised their rights to
convert the sum due to them for Director fees and Officer
compensation which combined amounted to $13,251 for 5,048 of
the Company's common shares. The conversion price on these
shares was based on the lowest bid price ($2.625) during the
twelve-month period preceding the issuance of said shares.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table discloses compensation for the three fiscal
years ended March 31, earned but not received by the Company's
Chief Executive Officer; there was no other Company Executive
Officer who was paid in excess of $100,000 in compensation in
this fiscal year:
All Other
Name and Principal Annual Compensation(1) Compensation
Position Year Salary($) Bonus($) ($)(2)(3)
- ------------------ ---- ---------- ---------- -------------
Edward L. Machulak 1996 $114,750 (None Paid) (1)(a) None
(Chairman, Chief 1995 $114,750 (None Paid) (1)(a) None
Executive Officer 1994 $114,750 (None Paid) (1)(a) None
and Treasurer)
(1) The salaries payable to Edward L. Machulak amount to
$1,204,140 and were accrued since April 1, 1981, or for a
period of fifteen years: eleven years at $67,740 and four
years at $114,750. The accrual of salaries is at the
request of the Company to assist the Company with its cash
preservation. The salaries do not include the value of
perquisites and other personal benefits because the
aggregate amount of such compensation, if any, does not
exceed the lesser of $50,000 or ten percent of the total
amount of accrued annual salary and bonus owed to him.
(1)(a) On February 16, 1987, by a Consent Resolution of all of
the Directors, Edward L. Machulak, the President, was
awarded as a bonus compensation the following: For a
period of twenty (20) years, commencing the first day of
the month following the month in which the Company begins
to produce gold from its El Salvadoran gold mining
operations, the Company will pay annually to the President
two percent (2%) of the pre-tax profits earned from these
operations. Since the Company, through its Joint Venture,
is in the exploration, exploitation and development stage,
there were no reported earned pre-tax profits.
(2) In accordance with the transition provisions of rules of
the Securities and Exchange Commission, information with
respect to 1994 is omitted.
(3) On March 11, 1991, the Directors decided that it would be
in the best interest of the Company to reactivate its
Executive Committee with authority to act on behalf of the
Directors during such time when the Directors are not in
session; two members were elected to this committee. The
Executive Committee meets each month or more often when a
Directors' meeting is not held. The members of the
Executive Committee (excluding the President of the
Company, who is a Director and a member of the committee)
receive a $250 compensation fee for each meeting attended.
There was a 100% attendance at the Executive Committee
meetings.
<PAGE>
(4) Members of the Board of Directors who were Directors as of
December 5, 1979, and Directors thereafter who have been a
Director for a period of 15 years or more and do not stand
for re-election shall become Directors Emeriti. Such
Directors are entitled to receive notice of all Board
meetings, to attend such meetings, and to receive
Directors' fees; regardless of attendance at any meeting,
at a fee of not less than that provided prior to becoming
a Director Emeritus. An individual serving solely as a
Director Emeritus is not entitled to vote on any matter
before the Board nor to be counted as a member of the
Board for the purpose of determining a quorum. At
present, there is no person who is not a Director, that
qualifies as Director Emeritus.
(5) There have never been any arrangements or understandings
between any Director and any other person pursuant to
which any Director was selected as a Director.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR VALUES
There were no Options/SAR benefits provided to any Officers for
compensation during this fiscal period.
Board Compensation Committee Report on Executive Compensation
The Company's executive compensation program is administered by
all of the Directors; presently Edward L. Machulak, Edward A.
Machulak and Clayton H. Tebo. During the fiscal year ended
March 31, 1996 the Directors have considered many factors such
as business performance, cash preservation, Company goals, and
whatever other component that was necessary to arrive at a just
compensation for the Company's Officers. They also considered
the needs of retaining highly qualified and productive
individuals by providing them with attractive compensation
awards. The Directors want to ensure compensation levels that
are externally competitive and internally equitable, therefore,
the Directors agreed to provide an encouraging executive stock
ownership program to enhance a mutuality of interest with other
shareholders. The Directors are committed to strong, positive
link between the Company's achievement of its goals, taking
into consideration its financial condition and compensation and
benefits plans.
Base Salary
The Directors review each executive officer's salary annually.
In determining appropriate salary levels, they consider the
level and scope of responsibility, experience, Company and
individual performance, internal equity, as well as pay
practices of other companies relating to executives of similar
responsibility. By design, they strive to set executives'
salaries at competitive market levels.
They believe maximum performance can be encouraged through the
use of appropriate incentive programs. Incentive programs for
executives are as follows:
Annual Incentives
Annual incentive awards are made to executives to recognize and
reward corporate and individual performance. The Directors'
plan provides an incentive fund. A portion of the available
bonus is reserved for discretionary performance awards by the
Company's President for other employees who efforts and
performance are judged to be exceptional. Due to the Company's
preservation of cash and because the Company has limited
revenues and it is not in full gold production, the incentives
have been deferred, but are expected to be payable at some
future date.
<PAGE>
The amount individual executives may earn is directly dependent
upon the individual's position, responsibility, and ability to
impact the Company's financial success. External market data
is reviewed periodically to determine competitive incentive
opportunities for individual executives.
Equity-Based Compensation
Non-Statutory Stock Option ("NSO")
and Stock Appreciation Rights ("SAR") Plans
The purpose of these plans is to provide additional incentives
to employees to work to maximize shareholder value. The NSO
and SAR plans generally utilize a vesting period to encourage
key employees to continue in the employ of the Company. The
Directors are charged with responsibility for administering and
granting non-statutory stock options and stock appreciation
rights. Due to the Company not being in full gold production,
no NSOs or SARs have ever been granted, but it is intended to
provide these benefits at such time in the future as determined
by the Directors.
Commerce Group Corp.'s 1994 Services and Consulting
Compensation Plan
A Securities and Exchange Commission Form S-8 Registration
Statement under the Securities Act of 1933 had been filed and
was effective as of April 4, 1994, Registration No. 33-77226,
registering a total of 500,000 of the Company's common shares,
$0.10 par value. The purpose of this filing is to provide
employees, consultants and others that perform services for the
Company, its common shares in lieu of cash for services
rendered. The Plan also provides that the Directors may
provide stock and/or option grants under the terms and
conditions of this agreement. Since April 4, 1994, the Company
has issued under this Plan its common shares in payment for
compensation for the three fiscal years as follows: Director
fees, including accumulated fees from prior years, 20,419; due
to Officers, 10,268; employee bonuses, 42,936; consulting fees,
20,000; and for services rendered, 98,561; for a total of
192,184 shares. None were issued to the President.
Chief Executive Officer
In order to induce the President of the Company, Mr. Edward L.
Machulak, to continue using his efforts to place the gold mines
into production, the Directors have assured him that he will be
adequately compensated for his achievements. This additional
recompense is to make certain that the Company's goal to
produce gold is realized. The Directors believe that the
maximum performance will be achieved due to the assurance of
this promise.
The fact that the President of the Company has not received any
cash payment for salaries for more than 15 years and that the
value of the amount due to him has deteriorated due to
inflation and other factors, the Directors have agreed to
justly take these conditions into consideration at such time
when the Company will be in a position to make a cash payment
or any other mutually satisfactory payment arrangement.
The Directors believe that the Company's President is achieving
the Company's objective considering that the funding
arrangements continue to be problematic.
Employment Agreements
With the exception of the disclosure made herein relative to
Mr. Edward L. Machulak's bonus compensation, and because the
Directors have agreed that he will be adequately compensated at
such time as the Company's Joint Venture will be producing
gold, he has no separate employment agreements, but he has a
general understanding of the incentive compensation to be
provided to him. There are no termination or severance
arrangements.
<PAGE>
PERFORMANCE GRAPH
Media General Financial Services of Richmond, Virginia prepared
the Company's Performance Graph assuming that $100 was invested
on April 1, 1991, by the purchase of the Company's shares and
it then compares the Company's performance over a five-year
period against three measurements: the NASDAQ Market Index
(used as the Broad Market Index), the Industry SIC Code Index
(Code 1041--Gold Ores) and a Peer Group Index. It also assumes
the reinvestment of dividends, if any, for each measurement
period.
The Company has overall out performed the two groups over the
past five years despite the fact that its Joint Venture has not
been in full production of gold because it is believed that the
value of the gold ore reserves far exceed the market value of
the shares. The potential of three other mining prospects
should add more value after confirmatory drilling takes place
and additional gold ore reserves are proved. The Company's
major asset, the SSGM, is located in the Republic of El
Salvador. El Salvador was engaged in civil unrest for more
than 14 years. The war officially ended in December, 1992;
most of the war-to-peace transition occurred during the 1993
and 1995 period. The Company's Joint Venture is in a gold
pre-production stage and has not reached the full production
capacity. Its first pouring of gold since March 1978 occurred
on March 31, 1995.
The information shown on the chart below is historical and does
not reflect the value of the gold ore reserves.
[The chart/graph could not be converted into ASCII. The data
used to make the chart/graph is listed below.]
COMPARISON OF 5-YEAR CUMULATIVE TOTAL RETURN
OF COMPANY, PEER GROUP AND BROAD MARKET
- --------------------------FISCAL YEAR ENDING MARCH 31---------------
COMPANY 1991 1992 1993 1994 1995 1996
- -------------------- ---- ------ ------ ------ -------- ------
COMMERCE GROUP CORP. 100 639.80 679.78 439.86 1,439.54 879.72
NASDAQ MARKET INDEX 100 104.83 108.33 159.13 165.85 208.34
PEER GROUP INDEX 100 105.40 117.95 136.32 144.62 194.52
The Broad Market Index chosen was the NASDAQ Market Index. The
Peer Group is made up of 85 gold mining companies.
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
(a) Transactions with Management and Others
The Company's past revenues have been insufficient to meet its
financial obligations when they became due. Various
transactions with management on an individual basis and with
the affiliates were entered into by the Company in order to
utilize assets whenever possible, other than cash to meet its
or its affiliates' obligations when due and thereby preserve
the Company's cash resources for use in meeting its other
liabilities. These disclosures are updated herein as follows:
(1) Edward L. Machulak Transactions (President of the Company)
With the consent and approval of the Directors, the President
of the Company, as an individual and not as a Director or
Officer of the Company, entered into the following financial
transactions with the Company, the status of which is reflected
as of March 31, 1996:
The Company, in an attempt to preserve cash, had prevailed on
its President to accrue his salary for the past 15 years: 11
years at $67,740 annually ($745,140); and four years at
$114,750 annually ($459,000)for a total of $1,204,140.
The amount of funds which the Company has borrowed from its
President from time to time, together with accrued interest,
amounts to $1,346,304. To evidence this debt, the Company had
issued its President a series of open-ended, secured, on-demand
promissory notes, with interest payable monthly at the prime
rate plus 2%, but not less than 16% per annum.
The Company had borrowed an aggregate of $342,002, including
accrued interest, from the Company's President's Rollover
Individual Retirement Account (RIRA). These loans are
evidenced by the Company's open-ended, secured, on-demand
promissory note, with interest payable monthly at the prime
rate plus 4% per annum, but not less than 16% per annum.
In order to satisfy the Company's cash requirements from time
to time, the Company's President has sold or pledged as
collateral for loans, shares of the Company's common stock
owned by him. In order to compensate its President for selling
or pledging his shares on behalf of the Company, the Company
has made a practice of issuing him the number of restricted
shares of common stock equivalent to the number of shares sold
or pledged, plus an additional number of shares equivalent to
the amount of accrued interest calculated at the prime rate
plus 3% per annum and payable monthly.
The Company received all of the net cash proceeds from the sale
or from the pledge of these shares. The Company returned all
of the shares (70,100) borrowed from him and issued 24,096
restricted common shares in full payment for the interest
during this fiscal period. It may owe additional common shares
for such shares loaned or pledged by him for collateral
purposes to others for the benefit of the Company, all in
accordance with the terms and conditions of Director approved
open-ended loan agreements dated June 20, 1988, October 14,
1988, May 17, 1989, and April 1, 1990.
On February 15, 1987, the Company granted its President, by
unanimous consent of the Board of Directors, compensation in
the form of a bonus in the amount of 2% of the pre-tax profits
realized by the Company from its gold mining operations in El
Salvador, payable annually over a period of twenty years
commencing on the first day of the month following the month in
which gold production commences.
<PAGE>
President's Loan Participation with Others
On or about February 23, 1993, the Company borrowed from its
President, one of the President's sons, a shareholder that at
one time owned more than 5% of the Company's common shares and
two non-related persons, the sum of $245,000; $100,000 was from
the President. Each of the five lenders had a promissory note
issued in the sum loaned with an interest rate of 15% per
annum, beginning on February 23, 1993, payable monthly, and
based on a 360-day year. All principal and interest due was to
be paid in installments beginning 30 days after written demand
was made at any time after February 23, 1994. After demand was
made, the Company agreed to pay the lender all principal and
interest due amortized over that number of equal monthly
installments which equaled the number of whole months remaining
between the date of demand and February 23, 1998. All
principal and interest due is to be paid in full on or before
February 23, 1998.
These promissory notes are secured by the lenders' interest in
SCMP pursuant to the terms of a Security Agreement dated
February 23, 1993.
In addition to the interest payable on this $245,000 borrowing,
each lender received at no cost, 1,000 shares of the Company's
"restricted" common shares for each $10,000 loaned to the
Company. A total of 24,500 of the Company's common shares were
or are to be issued. Also, for each $10,000 loaned to the
Company, the lenders received a two-year option to purchase
1,000 of the Company's common shares at a cost of $1.00 each.
Upon advice of special legal counsel, the President , on
December 29, 1994, exercised his option to purchase 10,000 of
the Company's restricted common shares and accordingly canceled
$10,000 of his debt. During March , 1995, two of the note
holders, in lieu of payment of interest and principal
($151,310), plus payment of $947 in cash, canceled such payment
and were issued 45,604 restricted common shares. On March 22,
1996, the President, and his son, in lieu of a cash payment in
the sum of $146,250 and $13,265 respectively due for the unpaid
principal and interest, were issued 65,000 and 6,056 of the
Company's restricted common shares.
President's Ownership of Misanse's Shares
Prior proxy statements have detailed the circumstances in which
the President has acquired on December 10, 1993, the ownership
of 203 Mineral San Sebastian S.A. de C.V. (Misanse) common
shares. In addition, as of June, 1995, he personally, for his
own account, purchased an additional 264 Misanse common shares
from a Misanse shareholder in an arms-length transaction.
There are a total of 2,600 Misanse shares issued and
outstanding. The Company has agreed in connection with the
issuance of the mining concession from the Government of El
Salvador not to exceed its 52% Misanse stock ownership.
Collateral Pledged to Secure the Promissory Notes
The following collateral is held by him: (1) 2,002,037 shares
of the Sanseb $0.10 par value common stock; (2) 1,346 Mineral
San Sebastian, S.A. de C.V. common shares, $0.40 par value; (3)
300 Homespan Realty Co., Inc. no par value common shares; (4)
1,800 Universal Developers, Inc. $0.05 par value common shares;
(5) 419,000 International Property Exchange, Inc. $0.05 par
value common shares; (6) two Deeds of Trust to Colorado Public
Trustee granted by San Luis Estates, Inc. to Edward L. Machulak
are described as follows: one Deed of Trust is dated March 20,
1984, and includes four parcels of land; and the other Deed of
Trust is dated October 4, 1982, and consists of six parcels of
land located in the San Luis North Estates Subdivision,
Costilla County, Colorado; (7) a deed of trust (jointly held
with a related company in which he is involved) which contains
approximately 331 acres of real estate known as the "Standing
Rock Campground" located in the Lake of the Ozarks, Camden
County, Missouri; (8) assignment with others, the concession
granted to Misanse which was assigned by Misanse to the Joint
Venture; (9) all of its current investment holdings; (10) all
other miscellaneous assets owned by the Company or its
subsidiaries; (11) the assignment and pledge of all the rights,
titles, claims, remedies, and interest held by the
Commerce/Sanseb Joint Venture which was formed on September 22,
1987; and (12) all other miscellaneous assets owned by the
Company, its subsidiaries, and the Joint Venture.
<PAGE>
(2) General Lumber & Supply Co., Inc. ("General Lumber")
Also with the consent and approval of the Directors, a company
in which the President has a 55% ownership entered into the
following agreements, and the status is reflected as of March
31, 1996.
The Company leases approximately 3,100 square feet on a
month-to-month basis for its corporate headquarters office; the
monthly rental charge is $2,145, and the annual amount charged
for the past three fiscal years is as follows: 1996, $28,316;
1995, $25,740; and 1994, $25,740.
The same related company provides consulting, administrative
services, use of data processing equipment, use of its vehicles
and other property as required by the Company. Total charges
for these services were as follows: 1996, $7,920; 1995, $7,620;
and 1994, $4,320.
In lieu of cash payments for the office space rental and for
the consulting, administrative services, etc., these amounts
due are added each month to this related company's open-ended,
secured, on-demand promissory note issued by the Company.
In addition, this related company does use its credit
facilities to purchase items needed for the Joint Venture's
mining needs.
This related company has been issued an open-ended, secured,
on-demand promissory note which at March 31, 1996 amounts to
$1,175,984; the annual interest rate is 4% plus the prime rate,
but not less than 16%, and it is payable monthly.
The collateral specifically pledged to General Lumber securing
the Promissory Note is as follows: 48,645 San Luis Estates,
Inc. common shares, $0.50 par value; a deed of trust issued
jointly with the President of the Company dated November 3,
1983, by and between Homespan Realty Co., Inc., as party of the
first part, which is a lien on the 331-acre Standing Rock
Campground located in Camdenton, Missouri. Also this company
has an interest with the President of the Company in an
assignment and pledge of all of the corporate assets and on all
of its subsidiaries' assets which has been filed under the
Uniform Commercial Code requirements. It also has an interest
in the assignment of all rights, titles, claims, remedies and
interest in and to the SSGM concession granted by the
Government of El Salvador to Mineral San Sebastian, S.A. de
C.V. on July 23, 1987, which had then been assigned to the
Joint Venture on September 22, 1987. Also it has cross-pledge
collateral rights.
(3) Sylvia Machulak Rollover Individual Retirement Account
The President's wife's Individual Retirement Account ("IRA")
has the Company's open-ended, secured, on-demand promissory
note in the sum of $176,985 which bears interest at an annual
rate of prime plus 3%, but not less than 16% and the interest
is payable monthly.
This IRA has as collateral 48,645 San Luis Estates, Inc. common
shares, $0.50 par value; 12 lots located in Fort Garland,
Costilla County, Colorado; and 30 lots located in the San Luis
North Estates Subdivision, Costilla County. The IRA also has a
joint right, title, claim, remedy, and interest to the SSGM
concession granted by the Government of El Salvador to Misanse
and it has cross-pledge collateral rights.
<PAGE>
(4) Cross-Pledge Collateral Agreement
The President, Edward L. Machulak, as an individual and not as
a Director or Officer of the Company, the Edward L. Machulak
Rollover Individual Retirement Account, General Lumber, and the
Sylvia Machulak Rollover Individual Retirement Account,
individually are entitled to specific collateral that has been
pledged to them by the Company, its subsidiaries, affiliates,
and the Joint Venture. Upon default by the Company, or its
subsidiaries, affiliates, or the Joint Venture, Edward L.
Machulak, the Edward L. Machulak Rollover Individual Retirement
Account, General Lumber, and the Sylvia Machulak Rollover
Individual Retirement Account have the first right to the
proceeds from the specific collateral pledged to each of them.
The Company, its subsidiaries, its affiliates, and the Joint
Venture also have cross-pledged the collateral without
diminishing the rights of the specific collateral pledged to
each of the following: Edward L. Machulak, the Edward L.
Machulak Rollover Individual Retirement Account, General
Lumber, and the Sylvia Machulak Rollover Individual Retirement
Account. The purpose and the intent of the cross-pledge of
collateral is to assure Edward L. Machulak, the Edward L.
Machulak Rollover Individual Retirement Account, General
Lumber, and the Sylvia Machulak Rollover Individual Retirement
Account, that each of them would be paid in full; and, any
excess collateral that would be available is for the purpose of
satisfying any debts and obligations due to each of the named
parties. The formula to be used (after deducting the payments
made from the specific collateral is to total all of the debts
due to Edward L. Machulak, the Edward L. Machulak Rollover
Individual Retirement Account, General Lumber, and the Sylvia
Machulak Rollover Individual Retirement Account, and then to
divide the total debt into each individual debt to establish
each individual percentage of the outstanding debt due. This
percentage then will be multiplied by the total of the excess
collateral to determine the amount of excess collateral due to
each of them.
(5) Cancellation of the Inter-Company Debts Upon Default
Since part of the collateral pledged to Edward L. Machulak, the
Edward L. Machulak Rollover Individual Retirement Account,
General Lumber and the Sylvia Machulak Rollover Individual
Retirement Account is the common stock of Homespan Realty Co.,
Inc., Piccadilly Advertising Agency, Inc., San Sebastian Gold
Mines, Inc., San Luis Estates, Inc.; Mineral San Sebastian,
S.A. de C.V., Universal Developers, Inc, and the interest in
the Commerce/Sanseb Joint Venture, the Company agreed, upon
default of the payment of principal or interest to any of the
lenders mentioned herein, that it will cancel any inter-company
debts owed to the Company by any of its wholly-owned
subsidiaries or affiliates at such time as any of the stock or
Joint Venture ownership is transferred as a result of default
of any promissory note.
(6) Guarantors and Cross-Pledge of Collateral
The agreement among the lenders further confirms that the
Company and all of the following are guarantors of loans made
to each of the lenders above mentioned: Commerce/Sanseb Joint
Venture; Homespan Realty Co., Inc.; Piccadilly Advertising
Agency, Inc.; San Luis Estates, Inc.; San Sebastian Gold Mines,
Inc.; and Universal Developers, Inc. They jointly and
severally guaranteed payment of the note(s) that the Company
and they caused to be issued and also agree that these note(s)
may be accelerated in accordance with the provisions contained
in the agreement and/or any collateral or mortgage/deeds of
trust securing these notes. Also, the Company and all of its
subsidiaries and affiliates, including the Commerce/Sanseb
Joint Venture, agreed to the cross-pledge of the collateral for
the benefit of Edward L. Machulak, the Edward L. Machulak
Rollover Individual Retirement Account, General Lumber, and the
Sylvia Machulak Rollover Individual Retirement Account.
<PAGE>
(7) Directors' Transactions
The Directors, by their agreement, have deferred cash payment
of their Director fees beginning on January 1, 1981, until such
time as the Company's operations are profitable. In the past,
Directors were allowed to cancel the payment for fees earned by
them by accepting the Company's restricted common shares. Said
pricing of shares varied and were dependent partially on the
market value of the tradable common shares. The Director fees
are $750 for each quarterly meeting and $250 for attendance at
any other Directors' meeting. The Executive Director fees are
fixed at $250 for each meeting. The Directors and Officers
have a right to exchange the amount due to them for the
Company's common shares. The Director/President of the Company
does not receive any Director fees.
On September 16, 1994, the Directors adopted a resolution
offering the Directors and Officers of the Company (President
not included) a right to exchange the compensation due to them
for the Company's common shares valued at the lowest bid quote
reflected in the NASD Monthly Statistical Report during a
twelve-month period preceding the exercise of this right. On
March 31, 1996, the Directors/Officers exercised their rights
to purchase 5,048 shares at a price of $2.625 per share in
payment of all compensation due to them as of March 31, 1996.
(8) Machulak, Hutchinson, Robertson, Dwyer & O'Dess, S.C. ("Law
Firm")
The Law Firm which represents the Company in which a son of the
President is a principal is owed the sum of $76,883 for legal
services rendered some of which dates back to the amount due
from July, 1984. The amount due is based on the present
current hourly rate charged to the Company. By agreement,
these fees are to be adjusted to commensurate with the hourly
fees charged by the Law Firm on the date of payment. All of
the stock options issued to the Law Firm were exercised.
(9) Intercompany Transactions and Other Transactions
(a) In addition to the transactions between the Company and
General Lumber, and certain individuals who also are
Directors and Officers of the Company and between the
Company and its Officers, Directors and affiliates, the
Company has had transactions with its majority-owned
subsidiaries, San Luis Estates, Inc., Universal
Developers, Inc., Homespan Realty Co., Inc., Piccadilly
Advertising Agency, Inc., San Sebastian Gold Mines, Inc.,
Mineral San Sebastian S.A. de C.V., and substantial
transactions with the Commerce/Sanseb Joint Venture.
(b) The Company advances funds, allocates and charges its
expenses to the Joint Venture. The Joint Venture in turn
capitalizes all of these advances, costs and expenses
until such time as it resumes its gold mine operation into
full production. When full production commences, these
capitalized costs will be charged as an expense based on a
per ton production basis. The Company also charges
interest for its advances to the Joint Venture which
interest rate is established to be the prime rate quoted
on the first day of each month plus four percent and said
interest is payable monthly.
<PAGE>
Company Advances Total Interest
to the Joint Venture Advances Charges
- --------------------------- ----------- ------------
Balance April 1, 1990 $ 1,625,163 $ 252,060
Year Ended March 31, 1991 718,843 266,107
Year Ended March 31, 1992 698,793 312,004
Year Ended March 31, 1993 1,003,617 347,941
Year Ended March 31, 1994 1,155,549 451,180
Year Ended March 31, 1995 2,884,078 751,389
Year Ended March 31, 1996 3,122,766 1,286,739
----------- ----------
Balance March 31, 1996 $11,208,809 $3,667,420
Advances by three of the 590,265 0
Company's wholly-owned ----------- ----------
subsidiaries
Total Advances March 31, 1996 $11,799,074 $3,667,420
=========== ==========
(c) Transaction with Pension or Similar Plans
During December 1983, the Company's Board of Directors
authorized the Company to establish a Cash or Deferred
Profit Sharing Plan and Trust to meet the requirement for
a qualified employee benefit plan as set forth in Section
401 et seq of the 1954 Internal Revenue Code, Section
401(k) and further authorized that, in lieu of cash,
certain assets could be placed in this plan for those who
qualify. Since all of the Company's assets are pledged as
collateral, in connection with outstanding loans, and
because of the Company's limited cash position, this plan
could not be effected, however it is intended to
effectuate the plan as soon as it is able.
(d) Transactions with Promoters
The Company has entered into several consulting agreements
with finders of funds on a non-exclusive basis. These
finders may be deemed to be promoters.
(e) Termination of Employment--None
(f) Compliance with Section 16(a) of the 1934 Act
The Company believes that each Director and/or Officer has
not intentionally been remiss in filing Securities and
Exchange Commission Forms 3, 4, or 5 and amendments
thereto on a timely basis during the fiscal year ended
March 31, 1996. The Company is not responsible for
incorrect information supplied to it by its Directors or
Officers in regard to compliance with Section 16(a) of the
1934 Act.
PROPOSAL NO. 2--RATIFICATION OF SELECTION OF INDEPENDENT PUBLIC
ACCOUNTANTS
The Board of Directors has selected the certified public
accounting firm of Redlin and Associates as the Company's
independent accountants for the fiscal year ended March 31,
1997. Shareholders will be asked to ratify the selection of
Redlin and Associates at the Annual Meeting. Ratification will
require the favorable vote of the holders of a majority of the
common stock represented and voting at the Meeting. Although
ratification of the accountants by the shareholders is not
legally required, the Company's Board of Directors believes
such ratification to be in the best interest of the Company.
If the shareholders do not ratify this appointment, other firms
of certified public accountants will be considered by the Board
of Directors. Redlin and Associates were the Company's
independent accountants for the fiscal year ended March 31,
1996. A representative of Redlin and Associates is expected to
attend the Annual Meeting with the opportunity to make a
statement if they desire to do so and be available at that time
to respond to appropriate questions.
<PAGE>
SHAREHOLDERS' PROPOSAL FOR NEXT ANNUAL MEETING
Any proposal of a shareholder intended to be presented at the
next annual meeting of shareholders, expected to be held on
Saturday, September 20, 1997, must be received at the office of
the Secretary of the Company by January 10, 1997, if such
proposal is to be considered for inclusion in the Company's
proxy statement and form of proxy relating to that meeting.
ANNUAL REPORT
The Company's fiscal year ended March 31, 1996 Annual Report to
Shareholders has been mailed to shareholders concurrently
herewith, but such report is not incorporated in this Proxy
Statement and is not deemed to be a part of this proxy
solicitation material.
On or about June 27, 1996, the Company filed with the
Securities and Exchange Commission its Annual Report on Form
10-K. This Report contains detailed information concerning the
Company and its operations, supplementary financial information
and certain schedules which, except for exhibits, are included
in the Annual Report to Shareholders.
EXPENSES OF SOLICITATION
The total cost of this solicitation will be borne by the
Company. In addition to use of the mails, certain officers,
directors and regular employees of the Company, without
receiving additional compensation, may solicit proxies
personally by telephone or facsimile. The Company may
reimburse persons holding shares in their own names or in the
names of their nominees for expenses they incur in obtaining
instructions from beneficial owners of such shares.
OTHER MATTERS
Management knows of no other business to be presented at the
Meeting, but if other matters do properly come before the
Meeting, it is intended that the persons named in the proxy
will vote on said matters in accordance with their best
judgment.
The above Notice, Proxy Statement and Form of Proxy are sent by
Order of the Board of Directors. The Directors urge you to
attend this meeting and if you are not able to attend, please
submit your proxy. Your interest and cooperation is greatly
appreciated.
Edward A. Machulak
Executive Vice President
and Corporate Secretary
August 2, 1996
<PAGE>
PROXY COMMERCE GROUP CORP. PROXY
6001 North 91st Street
Milwaukee, Wisconsin 53225-1795
This Proxy is Solicited on Behalf of the Board of Directors
The undersigned hereby appoints Edward L. Machulak and Edward
A. Machulak as Proxies each with the power to appoint his
substitute, and hereby authorizes them to represent and to
vote, as designated below, all the shares of common stock of
Commerce Group Corp. held of record by the undersigned on
August 1, 1996, at the annual meeting of shareholders to be
held on September 27, 1996, or any adjournment or adjournments
thereof.
1. ELECTION OF ONE DIRECTOR: ___ FOR the nominee listed below
___ WITHHOLD AUTHORITY to vote
for the nominee listed below
Clayton H. Tebo, Class I Director, term expiring at the 1999
Annual Shareholders' Meeting
2. Proposal to approve the appointment of REDLIN AND ASSOCIATES
as independent public accountants of the corporation.
___ FOR ___ AGAINST ___ ABSTAIN
3. In their discretion on any other matter which may properly
come before the meeting or any adjournment or adjournments
thereof.
(Continued and to be signed on reverse side)
<PAGE>
(Continued from other side)
This proxy, when properly executed, will be voted in the manner
directed herein by the undersigned stockholder. If no
direction is made, this proxy will be voted for the election of
the listed director, and for the appointment of Redlin and
Associates as independent public accountants of Commerce Group
Corp.
Please sign exactly as name appears below. When shares are
held by joint tenants, both should sign. When signing as
attorney, as executor, administrator, trustee or guardian,
please give full title as such. If a corporation, please sign
as full corporate name by President or other authorized
officer. If a partnership, please sign in partnership name by
authorized person.
Dated ________________________1996
__________________________________
Signature
__________________________________
Signature if held jointly
(Please mark, sign, date and return the proxy card promptly,
using the enclosed envelope.)
