COMMERCE GROUP CORP.
6001 North 91st Street
Milwaukee, Wisconsin 53225-1795
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To Be Held On Friday, September 26, 1997
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 26, 1997, 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, 1998;
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 July 31, 1997
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 1, 1997
Milwaukee, Wisconsin
<PAGE>
COMMERCE GROUP CORP.
6001 North 91st Street
Milwaukee, Wisconsin 53225-1795
PROXY STATEMENT
August 1, 1997
______________
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. C.D.T. on Friday, September 26,
1997, 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 1, 1997.
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, 1998. 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
July 31, 1997 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 July 31, 1997, there were issued,
outstanding and entitled to vote 10,307,174 shares of Commerce's common
stock, $0.10 par value (common stock). Each share of common stock
entitles the shareholder to one vote on all matters presented at the
meeting.
<PAGE>
PRINCIPAL SHAREHOLDERS AND OWNERSHIP BY MANAGEMENT
The following table sets forth certain information regarding the
beneficial ownership of Commerce's common stock as of June 30, 1997, 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.
Amount and Nature of
Beneficial Ownership (1)(2)
Name and Address of ---------------------------
Beneficial Owner* Position Shares Percent
- ------------------- ----------------------- ------ -------
Edward L. Machulak Chairman of the Board,
Director, President,
Treasurer, Director
Emeritus, Member of
the Executive Committee 1,570,222(3) 15.24%
Edward A. Machulak Director, Executive Vice
President, Secretary and
Member of the Executive
Committee 88,058(4) .85%
Clayton H. Tebo Director 19,751 .19%
General Lumber & Supply Co., Inc.
(General Lumber) 868,000(3) 8.42%
------------ ------
All Directors, Officers and
Affiliates as a Group (4) 2,546,031 24.70%
*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 1,570,222 common shares owned directly by him as of July 13,
1997 include the 97,161 shares held jointly with his wife, but do
not include the 85,000 shares borrowed by the Company, the 6,914
shares due for interest on the shares borrowed or pledged on behalf
of the Company, and the 868,000 shares owned by General Lumber, a
privately-held company in which he owns 55% of the common shares.
If these 959,914 shares were added to the 1,570,222 common shares
owned by him directly, then the total shares under his control
amount to 2,530,136 and would represent a 24.55% ownership of shares
based on 10,307,174 shares issued and outstanding. This total
number of shares does not assume the exercise of the 1,531,360
existing stock options of which 83,900 option shares are owned by
his wife, 68,000 shares are owned by General Lumber, and the balance
are 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,
1997, is 115,967. The number of shares owned by the Sylvia Machulak
Rollover Individual Retirement Account as of June 30, 1997, is
250,000. If the shares owned by Sylvia Machulak and her Rollover
Individual Retirement Account were added to the 2,530,136 above
described shares owned by him, then the total shares would amount to
2,896,103, or a 28.10% ownership. Mr. Machulak disclaims any
beneficial interest in these shares owned by Sylvia Machulak, except
the 97,161 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.
<PAGE>
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 II Director, will be elected to serve
until the next election of the Class II 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.
The nominee for election as a Class II 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.
The Board of Directors recommend a vote FOR the nominee listed below.
Class Expiration of
Nominee Age Position Director Since Term of Office
------- --- -------- -------------- -------------------
Edward A. Machulak 45 Director October 28, 1985 Class II, 2000
Edward A. Machulak (son of the Chairman and President) has been a
Director since October 28, 1985, and he was elected as a member of the
Directors' Executive Committee on March 11, 1991; Executive Vice
President as of October 16, 1992; Secretary as of January 12, 1987; and
he was the Assistant Secretary from April 15, 1986 through January 12,
1987. His business experience is as follows: Director and Corporate
Secretary of General Lumber & Supply Co., Inc., a building material
wholesale and retail distribution center from April 1, 1970 to November
1983; Director and President of Gamco, Inc., a marketing and advertising
company, from November 1983 to present; Director and President of
Circular Marketing, Inc., an advertising and marketing business, from
March 1986 to present; Director and President of Edjo, Ltd., a company
involved in the development, subdividing and sale of land and real estate
from June 7, 1973 to present; Director and President of Landpak, Inc., a
corporation which owns, operates, manages and sells real estate from
September 1985 to present; and he was involved in other corporate real
estate ventures and business activities since 1976.
Other Directors Whose Terms of Office Have Not Expired
Class I Director - term expires in 1999
Clayton H. Tebo, age 84, has been a Director of the Company since March
11, 1991. Mr. Tebo had been a Director of the Company from the Company's
inception, September 1962 through March 1, 1969. Mr. Tebo has been
retired since March 6, 1969, however, he has been retained from time to
time by the Company as a consultant for special projects. He also was
the special assistant to the President prior to and after his 1969
retirement.
<PAGE>
Class III Director - term expires in 1998
Edward L. Machulak, age 71, has been employed by the Company since
September 1962. Mr. Machulak has served as the President, Director, and
Chairman of the Board of Directors of the Company since 1962, Treasurer
since 1978, and on March 11, 1991, he was elected as a Member of the
Directors' Executive Committee.
He is a Director and the President for each of the Company's
subsidiaries: Homespan Realty Co., Inc.; Piccadilly Advertising Agency,
Inc.; San Luis Estates, Inc.; San Sebastian Gold Mines, Inc.; and
Universal Developers, Inc. He is the authorized representative of the
Commerce/Sanseb Joint Venture. He is a Director and Treasurer of Mineral
San Sebastian S.A. de C.V. Also, he is involved in various capacities
with the following companies: General Lumber & Supply Co., Inc.,
Director; Edjo, Ltd., Director and Secretary; and Landpak, Inc., Director
and Secretary.
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, was $250 for each meeting attended, and
this fee was increased to $400 for each meeting attended effective
October 1, 1996.
During the Company's fiscal year ended March 31, 1997, the Board of
Directors met five times at the regularly scheduled meetings, and the
Executive Committee met eight times. All of the Directors holding office
attended 100% of the Board and Executive Committee Meetings.
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 held. Effective October
1, 1996, these fees were increased to $1,200 for each quarterly meeting
held. 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 said month that the meeting was to be held. 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 cash payment of
Directors' fees, the Directors have a right to obtain the Company's
common shares on or before the close of each fiscal year based on the
lowest bid price during the twelve-month period preceding the issuance of
the common shares. The Directors are encouraged to own the Company's
common shares.
During March 1997, two Directors exercised their rights to convert the
sum due to them for Director fees and Officer compensation which combined
amounted to $16,149 for 8,613 of the Company's common shares. The
conversion price on these shares was based on the lowest bid price
($1.875) during the twelve-month period preceding the issuance of said
shares.
<PAGE>
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 1997 $139,875 (None Paid) (1)&(1)(a) None
(Chairman, Chief 1996 $114,750 (None Paid) (1)&(1)(a) None
Executive Officer 1995 $114,750 (None Paid) (1)&(1)(a) None
and Treasurer)
(1) The salaries payable to Edward L. Machulak amount to $1,344,015
and were accrued since April 1, 1981, or for a period of 16
years:11 years at $67,740, four and one-half years at $114,750,
and six months at $13,750. 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) 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 regular 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) received a $250 compensation fee for each meeting
attended. From October 1, 1996 the fees were increased to $400 a
meeting. There was a 100% attendance at the Executive Committee
meetings.
(3) 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 a Director Emeritus.
(4) 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.
<PAGE>
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, 1997, 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 attracting, developing, rewarding and
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 a 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 whose 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.
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.
<PAGE>
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, thus undeterminable profits, 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 as follows: Director fees, including
accumulated fees from prior years, 26,152; due to Officers, 17,148;
employee bonuses, 76,886; consulting fees, 20,200; and for services
rendered, 118,361; for a total of 258,747 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 best 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 16 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
The following Performance Graph shall not be deemed incorporated by
reference by any general statement incorporating by reference this proxy
statement into any filing under the Securities Act of 1933 or the
Securities Exchange Act of 1934, except to the extent that the Company
specifically incorporates this information by reference, and shall not
otherwise be deemed filed under such Acts.
Media General Financial Services of Richmond, Virginia prepared the
Company's Performance Graph assuming that $100 was invested on April 1,
1992, by the purchase of the Company's shares and it then compares the
Company's performance over a five-year period against two measurements:
the NASDAQ Market Index (used as the Broad Market Index) and the Peer
Group Index (Industry SIC Code Index 1041--Gold Ores). It also assumes
the reinvestment of dividends, if any, for each measurement period.
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 1992 1993 1994 1995 1996 1997
- ------- ---- ---- ---- ---- ---- ----
COMMERCE GROUP CORP. 100 106.25 68.75 225.00 137.50 106.25
NASDAQ MARKET INDEX 100 111.91 129.33 137.21 184.56 206.47
PEER GROUP INDEX 100 73.97 149.10 112.81 233.28 172.76
The Broad Market Index chosen was the NASDAQ Market Index.
<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, 1997:
The Company, in an attempt to preserve cash, had prevailed on its
President to accrue his salary for the past 16 years: 11 years at $67,740
annually ($745,140); four and one-half years at $114,750 annually
($516,375); and six months at $13,750 ($82,500) for a total of
$1,344,015.
The amount of funds which the Company has borrowed from its President
from time to time, together with accrued interest, amounts to $1,839,465.
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.
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
(58,900) borrowed from him and issued 26,887 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 16, 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
20 years commencing on the first day of the month following the month in
which gold production commences.
<PAGE>
President's Ownership of Mineral San Sebastian S.A. de C.V. (Misanse)
Common Shares
Prior proxy statements have detailed the circumstances in which the
President has acquired on December 10, 1993, the ownership of 203 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, 100 colones par value; (3) 300 Homespan
Realty Co., Inc. no par value common shares; (4) 1,800 Universal
Developers, Inc. no par value common shares; (5) 419,000 International
Property Exchange, Inc. $0.05 par value common shares; (6) one voting
membership certificate of San Luis Valley Irrigation Well Owners, Inc.;
(7) certificate no. 312 consisting of .001447 units of Augmentation Plan
Number One of San Luis Valley Irrigation Well Owners, Inc.; (8) 100
Piccadilly Advertising Agency, Inc. $0.10 par value common shares; (9)
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; (10) 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; (11) assignment with others,
the concession granted to Misanse which was assigned by Misanse to the
Joint Venture; (12) all of its current investment holdings; (13) all
other miscellaneous assets owned by the Company filed under the Uniform
Commercial Code requirements, and all other assets owned by the Joint
Venture and/or its subsidiaries; (14) 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
(15) the cross-pledge collateral rights.
(2) Edward L. Machulak Rollover Individual Retirement Account (ELM RIRA)
The Company had borrowed an aggregate of $400,919, including accrued
interest, from the Company's President's ELM 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.
The following collateral is held by the ELM RIRA: (1) assignment with
others, the concession granted to Misanse which was assigned by Misanse
to the Joint Venture; (2) 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 (3) the cross-pledge
collateral rights.
(3) 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, 1997.
This related company has been issued an open-ended, secured, on-demand
promissory note which at March 31, 1997 amounts to $963,152; the annual
interest rate is 4% plus the prime rate, but not less than 16%, and it is
payable monthly.
<PAGE>
The Company leases approximately 4,032 square feet on a month-to-month
basis for its corporate headquarters office; the monthly rental charge is
$2,789, and the annual amount charged for the past three fiscal years is
as follows: 1997, $33,468; 1996, $28,316; and 1995, $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: 1997, $7,950; 1996, $7,920; and 1995, $7,620.
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.
On June 10, 1996, in consideration for the partial cancellation of the
Company's debt due ($292,500) to this related party, 130,000 restricted
common shares were issued to it.
On January 10, 1997, this related party purchased 68,000 of the Company's
restricted common shares at a price of $2.00 a share. It also received a
four-year stock option expiring on January 9, 2001, to purchase 68,000 of
the Company's restricted common shares at a price of $3.00 for each
share. This transaction had the same terms as were entered into with
other third party arms-length transactions.
The collateral specifically pledged to General Lumber securing the
Promissory Note is as follows: (1) 48,645 San Luis Estates, Inc. common
shares, $0.50 par value; (2) 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; (3) 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; (4)
assignment with others, the concession granted to Misanse which was
assigned by Misanse to the Joint Venture; (5) 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
(6) the cross-pledge collateral rights.
The Company purchased during its fiscal year ended March 31, 1997, on
behalf of its Joint Venture, various items that it required from time to
time. These purchases are believed to have been at a price and at terms
equal to or better than generally offered to others.
(4) 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
$207,475 which bears interest at an annual rate of prime plus three
percent, but not less than 16% and the interest is payable monthly. The
President's wife on December 14, 1996, purchased 83,900 restricted common
shares, $0.10 par value, for a sum of $167,800. She simultaneously
acquired a four-year stock option to purchase 83,900 of the Company's
restricted common shares at a price of $3.00 each which expires December
13, 2001. This transaction had the same terms as were entered into with
other third party arms-length transactions.
<PAGE>
This IRA has as collateral the following: (1) 48,645 San Luis Estates,
Inc. common shares, $0.50 par value; (2) 12 lots located in Fort Garland,
Costilla County, Colorado; (3) 30 lots located in the San Luis North
Estates Subdivision, Costilla County; (4) assignment with others, the
concession granted to Misanse which was assigned by Misanse to the Joint
Venture; (5) 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 (6) the cross-pledge collateral
rights.
(5) 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 proceeds
derived from the excess collateral due to each of them.
(6) 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.
(7) Guarantors
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
mentioned above: 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 agreed 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>
(8) 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 were $750 for each quarterly meeting and $250 for
attendance at any other Directors' meeting. Beginning with October 1,
1996, the Director fees are $1,200 for each quarterly meeting and $400
for the attendance of any other Directors' meeting. The Executive
Director fees were fixed at $250 for each meeting; however, beginning on
October 1, 1996, the fees were increased to $400 a 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
during March of each fiscal year. During March 1997, the
Directors/Officers exercised their rights to purchase 8,613 shares at a
price of $1.875 per share in payment of all compensation due to them as
of March 31, 1997.
(9) 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 $137,069 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. Also, the
son of the President and his son's wife have the Company's open-ended,
on-demand promissory note in the sum of $50,518 which bears interest at
an annual rate of 16% payable monthly.
(10) 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.
<PAGE>
(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 operations 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.
Company Advances to the Joint Venture Total Advances Interest 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 4,303,045 1,286,739
Year ended March 31, 1997 4,864,413 1,567,375
---------- ----------
Gross advances $17,253,501 $5,234,795
Less proceeds received from gold sales:
Year ended March 31, 1996 $1,180,279
Year ended March 31, 1997 969,721 (2,150,000)
--------- -----------
Balance $15,103,501
Advances by three of the Company's
wholly-owned subsidiaries 590,265 0
----------- ----------
Total advances through March 31, 1997 $15,693,766 $5,234,795
=========== ==========
(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 requirements 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 was not effected, however it is
intended to effectuate the plan as soon as it is able to fund it.
(d) Transactions with Promoters
The Company has entered into several consulting agreements with
finders of funds. These finders may be deemed to be promoters.
(e) Termination of Employment--None
<PAGE>
(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, 1997. 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, 1998. 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,
1997. Mr. Bruce Redlin, principal of Redlin and Associates, has been
conducting audits for the Company beginning with the March 31, 1982
audit. 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.
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 26,
1998, must be received at the office of the Secretary of the Company by
January 9, 1998, 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, 1997 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, 1997, 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. A copy
of the Annual Report will be furnished without charge upon written
request to: Investor Relations, Commerce Group Corp., 6001 North 91st
Street, Milwaukee, Wisconsin 53225.
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 1, 1997
<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 July 31, 1997, at the annual meeting of shareholders to be
held on September 26, 1997, 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
Edward A. Machulak, Class II Director, term expiring at the 2000 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 _____________________1997
_______________________________
Signature
_______________________________
Signature if held jointly
(Please mark, sign, date and return the proxy card promptly, using the
enclosed envelope.)
