SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) June 11, 1996
Commerce Group Corp.
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(Exact name of registrant as specified in its charter)
Delaware 1-7375 39-605862
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(State or other jurisdiction (Commission File Number) (IRS Employer
of incorporation) Identification No.)
6001 North 91st Street, Milwaukee, Wisconsin 53225-1795
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (414) 462-5310
fax: (414) 462-5312
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Item 5. Other Events Material Disclosure
On June 11, 1996, the Registrant/Company accepted a letter of intent
with National Securities Corporation of Seattle, Washington, to act
as the exclusive placement agent (the "Placement Agent") in
connection with the proposed placement of debentures of Commerce
Group Corp. (the "Company") in the aggregate principal amount of
$20,000,000 (the "Debentures") and 1,500,000 warrants (the
"Warrants"), secured by gold ore reserves of equal value. The
Debentures and the Warrants shall hereinafter be referred to
collectively as the "Securities." The Securities will only be
offered to "accredited investors" pursuant to Regulation D of the
General Rules and Regulations under the Securities Act of 1933, as
amended. The Debentures will mature 5 years after issuance and
shall have an interest rate of 12% per annum payable annually in
arrears.
The Warrants issued to Debenture holders may be exercised to
purchase 1,500,000 of its common shares at a price equal to 110% of
the closing bid price of the common stock one day prior to the
closing date of the private placement, but not less than $3.00 a
share. The "closing date" is the date the first proceeds of the
private placement contemplated hereby are distributed to the Company
in exchange for the Company's Securities. Each Warrant shall be
exercisable for a period of 60 months commencing upon the date of
issuance.
Commencing 18 months after issuance, the Debentures are redeemable
(at face value plus accrued interest) by the Company, at its option,
in whole and not in part, provided that the average closing bid
price of the Company's Common Stock equals or exceeds 150% of the
closing bid price of the Common Stock one day prior to the closing
date of the private placement for any 20 trading days within a
period of 30 consecutive trading days ending on the fifth trading
day prior to the date of the notice of redemption to the Debenture
holders. The "closing date" is the date the first proceeds of the
private placement contemplated hereby are distributed to the Company
in exchange for the Company's Securities.
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The proceeds of the private placement contemplated hereby shall be
held in escrow until $5,000,000 shall have been received in which
event such proceeds, less the Placement Agent's commission and
non-accountable expense allowance as hereinafter referred to shall
be paid to the Company against delivery of the proportional amount
of Securities. In the event that less than $5,000,000 is received
during the Offering Period (as defined herein) (and any extensions
thereof) such amount shall be returned to the subscribers without
interest or deduction. The Placement Agent acting as placement
agent in connection with the proposed private placement shall be
subject to the following general terms and qualifications.
It is contemplated that the Placement Agent shall enter into a
placement agreement (the "Placement Agreement") with the Company in
form and substance satisfactory to counsel for the Placement Agent
and the Company within 45 days of the date of this letter, which
period may be mutually extended by the parties. The parties
acknowledge that if the Placement Agent is unable to close the
financing contemplated by this placement agreement within seven
months from the date of this letter, the Company, may at its option,
terminate this agreement, provided that for a period of one year
from the date hereof, should the Company sell any Securities to
persons introduced to it by the Placement Agent, the Placement Agent
will be entitled to payment of the commission provided for herein on
such sales.
The Placement Agreement will provide that the Placement Agent shall
act as exclusive placement agent for the Company in connection with
the offer and sale of the Securities on a best efforts basis and
that the Placement Agent shall receive a commission equaling eight
percent (8%) of the purchase price of the Securities sold, except
for those Securities which are not placed by the Placement Agent
(and where consequently, no commission will be paid to the Placement
Agent). This exception will not apply to Commonwealth Development
Corporation (CDC), where the Placement Agent's compensation shall be
as is set forth below. The Placement Agreement, which shall be
entered into upon completion of and delivery to the Placement Agent
of final offering material, shall provide for an offering period
(the "Offering Period") of up to sixty (60) days which may be
extended by agreement between the Company and the Placement Agent
for an additional period of up to thirty (30) days.
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It shall be the Company's obligation, whether or not the offering is
consummated, to bear all expenses in connection with the proposed
offering, including (by way of example), but not limited to the
following: filing fees, printing costs, postage and mailing
expenses with respect to the transmission of offering material,
meals with potential investors, Company counsel and accounting fees,
issue and transfer taxes, if any, Blue Sky counsel fees and
expenses. It is agreed that the Placement Agent's counsel shall
perform the required Blue Sky legal services. In this connection,
Blue Sky applications shall be made in such states and jurisdictions
as shall be requested by the Placement Agent provided that such
states and jurisdictions do not require the Company to qualify as a
foreign corporation or to file a general consent to service of
process. Blue Sky counsel fees will not exceed the aggregate sum of
$15,000.00. With the exception of these Blue Sky counsel fees and
expenses, the Placement Agent will bear its own expenses, including
travel and experts.
In addition to the compensation paid, the Company agrees to pay the
Placement Agent a non-accountable expense allowance equal to 2% of
the gross proceeds of the private placement, payable upon the
closing(s) of the private placement contemplated hereby, $50,000 of
which will be paid by the transfer of 15,000 shares of the Company's
stock upon execution and delivery of this letter.
The Company shall issue and sell, at the closing of the private
placement, to the Placement Agent and/or its designees, five (5)
year warrants to purchase 500,000 shares of Common Stock of the
Company (the "Warrants") if the aggregate principal amount of
$20,000,000 of the Securities has been sold, or such lesser
proportionate number of shares if less than the aggregate principal
amount of $20,000,000 has been sold. The Warrants shall be
exercisable at any time during a period of four (4) years commencing
at the beginning of the second year after their issuance and sale at
a price equaling 110% of the closing bid price of the Common Stock
one day prior to closing of the private placement, but not less than
$3 per share. The Company agrees that, for a period of seven (7)
years from the date of the closing of the private placement (the
"Closing"), if the Company intends to file a Registration Statement
or Statements for the public sale of securities for cash (other than
a Form S-8, S-4 or comparable Registration Statement), it will
notify all of the registered holders of the Warrants and/or
underlying securities and if so requested it will include therein
material to permit a public offering of the securities underlying
said Warrants at the expense of the Company (excluding fees and
expenses of such requesting holder's counsel and any underwriting or
selling commissions). In addition, for a period of five (5) years
from such date, upon the written demand of holder(s) representing a
majority of the Warrants, the Company agrees, on one occasion, after
reasonable notice and on a best efforts basis, to register the
underlying securities at the expense of the Company (excluding fees
and expenses of the holder's counsel and any underwriting or selling
commissions). In addition, for a period of five (5) years from such
date, upon the written demand of any holder, the Company agrees, on
one occasion, to register the underlying securities at the expense
of such holder (inclusive of the Company's legal, accounting, and
underwriting fees).
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As long as the Placement Agent is proceeding in good faith, the
Company covenants and agrees not to negotiate with any other
placement agent or other person relating to a possible private
placement of securities to obtain funding pending the completion of
the private placement contemplated herein. Notwithstanding the
foregoing:
The Company and the Placement Agent acknowledge that the Company has
had discussions with third parties who are contemplating loans to
the Company and/or investment in the Company and/or the Company's
assets. If the Placement Agent obtains bridge financing for the
Company on mutually acceptable terms, the Company will forebear
discussions with such third parties for one year from the date of
this letter of intent.
The Company may, in its sole discretion, enter into any
transaction(s) of its choosing to obtain up to $5 million in
financing outside of this private placement agreement, without
compensation to the Placement Agent. This financing is intended to
supplement (and not reduce) the total $20,000,000 contemplated
hereunder with the proposed placement of debentures.
In addition, the Company and the Placement Agent acknowledge that
the Company, through its own efforts, is engaged in discussions with
Commonwealth Development Corporation (CDC) regarding financing 35%
to 40% of the project costs outside of this private placement
agreement, without compensation to the Placement Agent. This
financing is intended to supplement (and not reduce) the total
$20,000,000 contemplated hereunder with the proposed placement of
debentures. If, however, CDC elects to purchase some of the
$20,000,000 in debentures to be offered under this Placement
Agreement, the Placement Agent will be entitled to its commission on
the sale.
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If, as a result of an introduction made by the Placement Agent, the
Company enters into an agreement to sell or merge the Company, any
significant subsidiary or any significant assets thereof
(hereinafter, a "Transaction") during the period from the date
hereof until the earlier to occur of (i) the closing of the proposed
placement and (ii) one year from the date of this letter of intent,
the Company shall pay the Placement Agent all of its actual
out-of-pocket expenses, including but not limited to legal fees (on
an accountable basis), provided that the $50,000 advance referred to
herein shall be first offset against such expenses. In addition,
the Company shall pay the Placement Agent one percent (1%) of the
"Legal Consideration" (as defined herein) of the Transaction. All
amounts payable pursuant to this paragraph are due and payable to
the Placement Agent, in cash or by certified check, at the closings
or closings of any Transaction; provided that such closing or
closings occur within 9 months of the date of the agreement entering
into such Transaction. In addition, the Company shall remain liable
for all Blue Sky counsel fees and expenses and Blue Sky filing fees,
subject to the limitations herein.
For purposes of this Agreement, "Legal Consideration" is defined as
the total value of all property (real or personal), cash,
securities, or other benefits received, or receivable by the Company
or its officers, directors or shareholders, including without
limitation, the aggregate of all amounts payable pursuant to any
warrants, options, stock appreciation rights, convertible or
straight securities, stock purchase rights, whether or not vested.
Property shall be valued at the fair market value thereof as agreed
to by the parties hereto or if the parties are unable to agree, as
determined by a mutually acceptable independent appraiser, the cost
of which shall be borne equally by the parties. Securities which
are publicly traded shall be valued at the closing price of such
securities as reported on a national exchange or the Nasdaq
National Market if so listed or quoted, or if not so listed or
quoted, the average of the closing bid prices, as reported by
Nasdaq, in either event for the last day prior to the closing date
of such Transaction; if the securities are not so listed or quoted,
the securities shall be valued in the same manner as property
described above. All debt instruments or evidences thereof shall be
valued at the aggregate amount payable thereunder, whether such
payments are absolute or contingent, and irrespective of the period
or uncertainty of payment, the rate of interest, if any, or the
contingent nature thereof.
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Item 7. Financial Statements and Exhibits
The exhibit numbers in the following list correspond to the numbers
assigned to such exhibits in Item 601 of Regulation S-K.
Exhibit No. Description of Exhibit Page
1 Letter of Intent to Enter into a Private 7
Placement Agreement dated June 3, 1996,
received June 10, 1996 and accepted on
June 11, 1996
99 News Release dated June 11, 1996 14
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its
behalf by the undersigned hereunto duly authorized.
COMMERCE GROUP CORP.
(Registrant)
Date: June 11, 1996 ___________________________________
By: Edward L. Machulak, President
