EXHIBIT 99.2
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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
Mr. Edward L. Machulak
903 West Green Tree Road
River Hills, Wisconsin 53217
Dear Mr. 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 Edward L. Machulak (ELM) as an
individual and not as a Director or Officer of Commerce or its
subsidiaries or as the authorized designee of the Joint Venture 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 ELM and the collateral pledged to ELM 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 (Note) dated
October 1, 1989 in which all of the prior promissory notes were
consolidated into this single Note amounted to $490,217.19 as of
that date. All future advances and interest, not paid, are added
to this Note. This Note, together with cash and other advances
and interest as of March 31, 2000, amounts to $3,072,267.94.
This Note bears interest, payable monthly, at the rate of 2% over
the prime rate established from time to time by the First
National Bank of Chicago, Chicago, Illinois, (now Bank One), but
not less than 16% per annum (Schedule of Principal and Interest
as of March 31, 2000, Exhibit A). Commerce is no longer issuing
monthly promissory notes for the payment of interest, etc., but
pursuant to our understanding, Commerce is adding these
liabilities or deducting any payments to the current open-ended
outstanding promissory note(s).
<PAGE>
b. In addition, Commerce owes ELM the sum of $1,839,015 which is due
for unpaid and accrued salaries for a period of nineteen (19)
years beginning on April 1, 1981 through March 31, 2000.
Commerce further acknowledges that ELM's monthly salary for
nineteen (19) years is as follows: eleven years at $67,740
annually ($745,140); four years and six months at $114,750
annually ($516,375); and three years and six months at $165,000
annually ($577,500).
c. To infuse funds into Commerce, Commerce borrowed ELM's Commerce
shares and ELM sold these shares as designee for Commerce's
benefit with Commerce receiving all of the proceeds. For these
share loans, Commerce has agreed to pay ELM interest at the rate
of prime plus 3%, payable monthly with Commerce's restricted
common shares and based on the Commerce shares due to ELM.
Interest is also due and payable monthly with Commerce's
restricted common shares for the shares pledged by ELM as
collateral to others, all for the Company's interest and benefit.
All share loans and interest are to be paid annually on March 31
of each year. An accounting of the Commerce common shares due
and/or paid to ELM as of March 31, 2000, pursuant to a series of
Director-approved, open-ended, on-demand loan and promissory note
agreements by and between Commerce and ELM dated April 1, 1990,
May 17, 1989, October 14, 1988 and June 20, 1988, and for certain
continuous loans and/or pledges of ELM's securities that have
taken place and continue to occur during the fiscal year ended
March 31, 2000 is as follows:
1. Share loans 375,566
2. Interest shares due on shares pledged to banks
for an open line of credit 21,964
3. Interest shares due on shares sold for the
benefit of Commerce 13,774
Total Commerce common shares paid and issued -------
as of March 31, 2000 to ELM 411,304
=======
Therefore, there were no shares due to ELM for share loans as of
March 31, 2000.
d. Reference is made to four Director-approved, open-ended loan
agreements dated June 20, 1988, October 14, 1988, May 17, 1989
(Exhibits B, C and D of the April 12, 1993, confirmation letter)
and April 1, 1990 (Exhibit 2 of the April 9, 1990 confirmation
letter).
e. On October 23, 1993, in order to comply with the El Salvador
Government's minimum capital requirements, the shareholders of
Mineral San Sebastian S.A. de C.V. (Misanse) voted to increase
Misanse's capitalization from 119,500 colones to 260,000 colones.
This was accomplished via a shareholders' rights offering on the
basis of purchasing one share for each share owned with the
rights expiring on December 10, 1993. According to Misanse's
by-laws, the rights not exercised would be offered
proportionately to the shareholders who did exercise their
rights.
<PAGE>
In addition to the rights offering, the shareholders authorized
the sale of 210 additional common shares to the following: ten
shares to each of the four officers/directors (40 shares), five
shares to each of the remaining six directors (30 shares), three
shares to each of the ten supplemental directors (30 shares),
(the President and the Secretary of the Company, who are
directors of Misanse, had the right and they purchased ten and
three shares respectively), and 110 shares were sold to the
Company over and above the amount of shares it was entitled to by
the rights offering so that it would retain its 52% ownership.
When the Company obtained the concession in 1987, it agreed with
the El Salvador Minister of Economy's office not to increase its
52% ownership of Misanse. Therefore, after the rights offering,
the Company owned approximately 52%.
On the closing date of December 10, 1993 of this rights offering,
there were 264 shares that were not subscribed and purchased.
The Company would have been entitled to purchase 137 shares (264
x 52%). However, the Company had been prohibited to purchase
these shares as it would have exceeded its 52% ownership of
Misanse shares. The 137 shares were acquired by ELM with prior
approval of Commerce's directors. He acquired an additional four
shares by virtue of his proportionate ownership. A Misanse
Director-approved drawing was held to sell the unsubscribed
shares. In order to close the sales, 52 shares were purchased by
ELM which he agreed in writing to hold these shares in escrow for
a period of one year for the purpose of providing certain El
Salvador Misanse shareholders time to obtain funds to purchase
these shares at his cost. None were purchased by the Misanse
shareholders.
During June 1995, ELM personally purchased an additional 264
Misanse common shares from a Misanse shareholder in an
arms-length transaction. Therefore ELM presently owns a total of
467 Misanse common shares or approximately 17.96% of the total
2,600 Misanse common shares issued and outstanding.
2. Collateral Pledged to ELM
The collateral specifically pledged to ELM is as follows:
<PAGE>
a. A Collateral Pledge Agreement dated October 14, 1981 granted to
ELM by Commerce pledging the following collateral: 2,002,037
shares of Sanseb common stock, par value $0.10 per share and
1,346 shares of Mineral San Sebastian, S.A. de C.V. common stock,
par value one hundred colones per share. The shares pledged are
as follows: the 618 shares originally owned by Commerce, and the
618 shares plus 110 shares purchased from the October 23, 1993
Misanse rights offering. Reference is made to Exhibit 4 included
in the April 9, 1990 confirmation letter.
b. A Collateral Pledge Agreement dated February 24, 1983, by
Commerce, SLE and UDI collectively and individually, pledging the
following collateral:
300 shares of no par value common shares of Homespan (formerly
known as Trade Realty Co., Inc.), Certificate No. 7 dated January
21, 1974, being 100% of its issued and outstanding shares.
Homespan and Commerce agree that no additional shares of Homespan
will be issued as long as there are any obligations due to ELM;
1,800 shares of no par value (UDI) capital stock Certificate No.
17 dated September 15, 1972, representing 100% of the shares
issued and outstanding. UDI and Commerce agree that no
additional shares of UDI will be issued as long as there are any
outstanding obligations due to ELM. Reference is made to Exhibit
5 included in the April 9, 1990 confirmation letter.
c. Collateral Pledge Agreement dated July 13, 1983 granted to
General Lumber & Supply Co., Inc. (GLSCO) and ELM by Commerce,
SLE, and UDI, individually and collectively, pledging the
following collateral:
419,000 shares of fully paid and nonassessable shares of the par
value of $.05 each of the capital stock of International Property
Exchange, Inc. (IPE), formerly known as Capital Funding &
Development Corp., Certificate 2885 dated June 30, 1983; and it
was verified during Commerce's fiscal year that the State of
Nevada Charter was cancelled because IPE did not comply with the
Secretary of the State of Nevada annual filing requirements.
One voting membership certificate of San Luis Valley Irrigation
Well Owners, Inc., Membership Certificate No. 871, dated November
27, 1979;
Certificate No. 312, Membership No. 871, consisting of .001447
units of Augmentation Plan Number One of San Luis Valley
Irrigation Well Owners, Inc. dated February 8, 1980;
100 common shares of $0.10 par value, Piccadilly (now Ecomm),
Certificate No. 1, dated July 23, 1974. Ecomm and Commerce agree
that no additional shares of Ecomm will be issued as long as
there are any outstanding obligations due to ELM. Reference is
made to Exhibit 6 included in the April 9, 1990 confirmation
letter.
<PAGE>
d. 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 ELM
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 first lien on the 331-acre
Standing Rock Campground located in Camdenton, Missouri. The
Deed of Trust was recorded on November 5, 1984 in Camden County,
Missouri at 1:24 p.m. in Book 122, Page 200. Reference is made
to Exhibit 7 included in the April 9, 1990 confirmation letter.
e. Two Deeds of Trust to a Colorado Public Trustee granted by SLE to
ELM are described as follows:
A Deed of Trust dated March 20, 1984, consisting of four lots in
the San Luis North Estates Subdivision, Costilla, Colorado, and
recorded at 9:01 a.m. on August 2, 1984, in Book 238, Page 600,
Reception No. 157128;
A Deed of Trust dated October 4, 1982, consisting of six parcels
of land in the San Luis North Estates Subdivision, Costilla,
Colorado, and recorded at 8:40 a.m. on October 6, 1982, in Book
228, Pages 300-301, Reception No. 148981. Reference is made to
Exhibit 8 included in the April 9, 1990 confirmation letter.
f. 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
the Joint Venture, and to the mine concession granted by the
Government of El Salvador to 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. Reference is made to Exhibit 9 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 of the precious metal ore
reserves, is pledged as collateral to the above named parties.
<PAGE>
g. An interest with GLSCO 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,
Commerce/Sanseb 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 10, 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.
h. Commerce and Sanseb agree that ELM has as collateral, the
assignment and pledge of all of their rights, titles, claims,
remedies, and interest whatsoever in the Joint Venture which was
formed on September 22, 1987. In the event of default, whatever
interest Commerce and Sanseb have in the Joint Venture will be
transferred to ELM and it will include whatever assets are owned
by the Joint Venture, including, but not limited to the precious
metal ore reserves. Reference is made to Exhibit C included in
the April 8, 1991 confirmation letter.
<PAGE>
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 the 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.
4. Bonus
On February 16, 1987, by a Consent Resolution of all of the
Directors, ELM was awarded as a bonus compensation, the following:
for a period of 20 years, commencing the first day of the month
following the month in which Commerce begins to produce gold from its
El Salvadoran gold mining operations, Commerce will pay annually to
ELM, 2% of the pre-tax profits earned from these operations.
Reference is made to Exhibit 11 included in the April 9, 1990
confirmation letter.
5. 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.
<PAGE>
6. Guarantors
This agreement further confirms that Commerce and all of the
following are guarantors to the loans made by ELM to Commerce: Joint
Venture, Homespan, Ecomm, SLE, Sanseb and UDI. They jointly and
severally guarantee payment of the note(s) that were issued to ELM
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 12 included in the April 9, 1990
confirmation letter.
7. Omissions
Commerce believes that it has included all of its obligations, monies
due and has listed all of the collateral due to ELM, 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.
8. Real Estate Ownership Adjacent to San Sebastian Gold Mine, Inc.
(SSGM)
Commerce acknowledges that ELM personally owns the real estate
adjacent to and bordering the north boundary line of the SSGM located
in the Republic of El Salvador, Central America, and that Comseb is
performing certain exploration and exploitation on this property.
These costs are to be payable by an offset to the amounts due to ELM.
(Reference is made to Exhibit B, "Concesion de Exploracio El Paraiso"
- plat map that identifies the ELM (Macay) "92.13 Hectareas," in the
April 13, 1998 confirmation letter).
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 L. 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:
/s/ Edward L. Machulak
__________________________________________
Edward L. Machulak, as an Individual and
not as a Director or Officer of any of the
Corporations mentioned in this letter.
Date: May 8, 2000
Exhibit A to Exhibit 99.2
(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).
