EXHIBIT 99.1
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COMMERCE GROUP CORP.
6001 NORTH 91ST STREET
MILWAUKEE, WI 53225-1795
414/462-5310 . FAX 414/462-5312
Stock Symbols: CGCO (OTC BB) CMG OR CMG.BN (Boston Stock Exchange)
AND/OR COMMERCE/SANSEB JOINT VENTURE (Joint Venture)
AND/OR HOMESPAN REALTY CO., INC. (Homespan)
AND/OR ECOMM GROUP INC. (Ecomm)
AND/OR SAN LUIS ESTATES, INC. (SLE)
AND/OR SAN SEBASTIAN GOLD MINES, INC. (Sanseb)
AND/OR UNIVERSAL DEVELOPERS, INC. (UDI)
ALL LOCATED AT THE SAME ADDRESS
May 8, 2000
Mrs. Sylvia Machulak
President
General Lumber & Supply Co., Inc.
6001 North 91st Street
Milwaukee, Wisconsin 53225
Dear Mrs. Machulak:
At today's Commerce Group Corp. (Commerce) Directors' meeting, the
Directors were informed about the confirmation and status letter you
requested from Commerce and its affiliates to establish and confirm the
amount due and the collateral pledged to General Lumber & Supply Co.,
Inc. (GLSCO) as of Commerce's fiscal year ended March 31, 2000. Today,
Commerce's Directors approved, ratified and confirmed the contents of
this letter and authorized me to authenticate and confirm the outstanding
obligations due to GLSCO, and to describe the collateral pledged to GLSCO
as of Commerce's fiscal year ended March 31, 2000, which are as follows:
1. Promissory Notes and Other Obligations
a. An open-ended, secured, on-demand promissory note no. 3 which was
originally issued to GLSCO on December 31, 1981 in the sum of
$16,836.37 and has been open-ended since that date and is to
include all future advances, services, charges and interest on a
monthly basis. Pursuant to Commerce's Directors' approval on
October 1, 1990, the interest rate on this note was increased to
a rate of 4% over the prime rate base established by the First
National Bank of Chicago, Chicago, Illinois. Beginning with
April 1, 1994, the interest rate is 4% over the prime rate base
established by the First National Bank of Chicago, Chicago,
Illinois, (now Bank One), but not less than 16% per annum. The
interest is payable monthly and the total amount due to GLSCO on
this promissory note as of March 31, 2000 is $1,808,513.83.
(Schedule of Principal and Interest as of March 31, 2000, Exhibit
A)
<PAGE>
Commerce is no longer issuing monthly promissory notes for the
payment of interest, purchases, rent, etc., but pursuant to our
understanding, Commerce is adding these liabilities or deducting
any payments to the current open-ended outstanding promissory
note(s).
b. Commerce leased approximately 3,100 square feet on a
month-to-month basis for its corporate headquarter's office; the
monthly rental charge was $2,145 since October 1, 1992. As of
December 1, 1995, Commerce increased the space it rents to 4,032
square feet, and the monthly rental charge was increased to
$2,789. All other terms and conditions of the Amended October 1,
1992 Lease Agreement remain the same. (Reference is made to
Exhibit B, December 1, 1995 Amended Lease Agreement, included in
April 13, 1998 confirmation letter.) (Reference is made to
Exhibit B, Lease Agreement, included in April 12, 1993
confirmation letter.)
c. Commerce also acknowledges that it purchases on an open account
from GLSCO from time to time materials, supplies etc. that it
needs for itself or for the Joint Venture. Some of the purchases
are made through GLSCO because Commerce does not have the credit
availability from the various sellers of goods, merchandise, etc.
that is required by it or the Joint Venture. The amount due from
time to time varies. As of March 31, 2000, the amount due on
this open account is $0.00.
d. GLSCO from time to time has canceled part of its debt by the
purchase of restricted Commerce common shares at a price as sold
to third party purchasers on an arms-length transaction. There
were no such transactions consummated during this fiscal year.
e. On January 22, 1997, four-year stock options to purchase 68,000
restricted Commerce common shares, $0.10 par value, at a price of
$3.00 per share, were issued to GLSCO based on arms-length
transactions that had taken place at that time.
f. On July 12, 1999, two-year stock options to purchase 500,000
restricted Commerce common shares, $0.10 par value, at a price of
$0.50 per share were issued to GLSCO based on arms-length
transactions that had taken place at that time. These options
were given in view of the credit granted to Commerce by GLSCO.
<PAGE>
2. Collateral Pledged to GLSCO
The collateral specifically pledged to GLSCO is as follows:
a. San Luis Estates, Inc. (SLE) Certificate No. 24 which is dated
December 31, 1981, consisting of 48,645 common shares, $0.50 par
value, being 50% of the total issued and outstanding shares. SLE
and Commerce agree that no additional shares of any kind
whatsoever of SLE will be issued as long as any monies are due to
GLSCO. Reference is made to Exhibit 3 included in the April 9,
1990 confirmation letter.
b. A Deed of Trust dated November 3, 1983 by and between Homespan,
as party of the first part, and Ronald K. Carpenter, Esq.
(Trustee), as party of the second part, for the benefit of Edward
L. Machulak (ELM), as an individual, and not as a Director or
Officer of Commerce and GLSCO, as party of the third part. The
Deed of Trust is in favor of ELM and GLSCO and is open-ended to
secure the promissory note(s) due to ELM and GLSCO and to further
secure any future obligations that Commerce or Homespan may incur
from them. This Deed of Trust is issued to Ronald K. Carpenter,
Esq., Trustee for the benefit of ELM and GLSCO and is a lien on
the 331-acre Standing Rock Campground located in Camdenton,
Missouri. The Deed of Trust was filed for record on November 5,
1984 in Camden County, Missouri at 1:24 p.m. in Book 122, Page
200. Reference is made to Exhibit 4 included in the April 9,
1990 confirmation letter.
c. GLSCO, ELM, the Edward L. Machulak Rollover Individual Retirement
Account (ELM RIRA) and the Sylvia Machulak Rollover Individual
Retirement Account (SM RIRA) collectively and individually
identified as the lender(s), have been assigned on October 19,
1987, all of the rights, titles, claims, remedies and interest in
and to the mine concession granted by the Government of El
Salvador to Mineral San Sebastian, S.A. de C.V. (Misanse) on
July 23, 1987, and thereafter from time to time amended, and
which Misanse then assigned to the Joint Venture on September 22,
1987. This collateral specifically includes all of the San
Sebastian Gold Mine precious metal ore reserves. Commerce and
the Joint Venture have the right to assign this and any
subsequent concession agreement. Commerce and the Joint Venture
have the right to assign this and any subsequent concession
agreement. Reference is made to Exhibit 5 included in the April
9, 1990 confirmation letter. Effective February 1996, the
Government of El Salvador approved a revised version of the
mining law. Therefore, Commerce applied for the San Sebastian
Gold Mine mining concession applicable to this mining law. This
concession is subject to compliance requirements which have been
presented to the El Salvador Director of Mines and Hydrocarbons.
Therefore, it is clearly understood that this concession, and all
of the rights thereunder, in addition to the concession granted
on July 23, 1987, together with all precious metal ore reserves,
is pledged as collateral to all of the parties herein mentioned.
<PAGE>
d. An interest with ELM in filing financing statements under the
Uniform Commercial Code by an assignment and pledge of all
corporate assets, such as but not limited to the property of
Commerce, Joint Venture, SLE, and Homespan, wherever located, now
owned or hereafter acquired is as follows: all accounts, all
land contract receivables, contract rights, instruments and
chattel paper; all inventory, all jewelry and precious stones,
and all documents relating to inventory, including all goods held
for sale, lease or demonstration, to be furnished under contracts
of service, and raw materials, work in process and materials and
supplies used or consumed in the business of Commerce, Joint
Venture, SLE, and Homespan; all office furniture, fixtures and
all other equipment; all general intangibles, all stock and
securities of any kind, and all rights, titles, and interest in
the Commerce Group Corp./San Sebastian Gold Mines, Inc. Joint
Venture, and all additions and accessions to, all spare and
repair parts, special tools, equipment and replacements for all
returned or repossessed goods the sale or lease of which gave
rise to, and all proceeds and products of the foregoing.
Reference is made to the Uniform Commercial Code filing, Exhibit
6, included in the April 9, 1990 confirmation letter and the
renewed UCC-1 filing on December 17, 1996, Exhibit B, included in
the April 14, 1997 confirmation letter.
3. Cross Pledge Collateral Agreement
GLSCO, ELM, the ELM RIRA and the SM RIRA individually are entitled to
specific collateral that has been pledged to them by Commerce, its
subsidiaries, affiliates and the Joint Venture. Upon default by
Commerce, or its subsidiaries or affiliates or the Joint Venture,
GLSCO, ELM, the ELM RIRA and the SM RIRA have the first right to the
proceeds from the specific collateral pledged to each of them.
Commerce, its subsidiaries, affiliates and Joint Venture also have
cross-pledged the collateral without diminishing the rights of the
specific collateral pledged to each of the following: GLSCO, ELM,
the ELM RIRA and the SM RIRA. The purpose and the intent of the
cross pledge of collateral is to assure GLSCO, ELM, the ELM RIRA and
the SM RIRA, that each of them would be paid in full; thus, 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
GLSCO, ELM, the ELM RIRA and the SM RIRA, and then to divide this
total debt into each individual debt to establish each individual's
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 and then the
amount due to each of them would be distributed.
<PAGE>
4. Cancellation of Inter-Company Debts Upon Default
Since part of the collateral pledged to GLSCO, ELM, the ELM RIRA and
the SM RIRA is the common stock of Homespan, Ecomm, Sanseb, SLE,
Misanse, UDI and the interest in the ownership of the Joint Venture,
Commerce agreed, upon default of the payment of principal or interest
to any of the individual lender(s) mentioned herein, that it will
automatically cancel any inter-company debts owed to Commerce by any
of its wholly-owned subsidiaries or affiliates or the Joint Venture
at such time as any of the stock or Joint Venture ownership is
transferred to the collateral holders as a result of default of any
promissory note.
5. Guarantors
This agreement further confirms that Commerce and all of the
following are guarantors to the loans made by GLSCO to Commerce:
Joint Venture, Homespan, Ecomm, SLE, Sanseb and UDI. They jointly
and severally guarantee payment of the note(s) that 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 mortgages securing these notes. Also, Commerce, all of
its subsidiaries and the Joint Venture agree to the cross pledge of
collateral for the benefit of GLSCO, ELM, the ELM RIRA and the SM
RIRA. Reference is made to Exhibit 7 included in the April 9, 1990
confirmation letter.
6. Omissions
Commerce believes that it has included all of its obligations, monies
due and has listed all of the collateral due to GLSCO, however, since
these transactions have taken place over a long period of time in
which changes could have taken place, it is possible that
inadvertently some item(s), particularly collateral, could have been
omitted. If that should prove to be a fact, then Commerce, the Joint
Venture, Homespan, Ecomm, SLE, Sanseb, and UDI agree that those
omissions of collateral, if any, are meant to be included as
collateral with this confirmation and agreement.
<PAGE>
If you are in agreement with the contents of this letter, please sign
below and return one copy to Commerce.
Very truly yours,
COMMERCE GROUP CORP.
/s/ Edward A. Machulak
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Edward A. Machulak
Secretary
<PAGE>
The contents of this letter are agreed by the following:
COMMERCE/SANSEB JOINT VENTURE HOMESPAN REALTY COMPANY, INC.
as Guarantor (Joint Venture) as Guarantor (Homespan)
/s/ Edward L. Machulak /s/ Edward L. Machulak
______________________________________ __________________________________
By: Edward L. Machulak, Auth. Designee By: Edward L. Machulak, President
ECOMM GROUP INC. SAN LUIS ESTATES, INC.
as Guarantor (Ecomm) as Guarantor (SLE)
/s/ Edward A. Machulak /s/ Edward L. Machulak
__________________________________ __________________________________
By: Edward A. Machulak, Secretary By: Edward L. Machulak, President
SAN SEBASTIAN GOLD MINES, INC. UNIVERSAL DEVELOPERS, INC.
as Guarantor (Sanseb) as Guarantor (UDI)
/s/ Edward L. Machulak /s/ Edward L. Machulak
__________________________________ ____________________________________
By: Edward L. Machulak, President By: Edward L. Machulak, President
Accepted by:
GENERAL LUMBER & SUPPLY CO., INC.
/s/ Sylvia Machulak
____________________________________
By: Sylvia Machulak, President
Date: May 8, 2000
<PAGE>
Exhibit A to Exhibit 99.1
(Schedule of Principal and Interest as of March 31, 2000
has been purposely omitted as it only reflects
the calculations of the principal and interest.)
