EXHIBIT 99.1
COMMERCE GROUP CORP.
6001 NORTH 91ST ST.
MILWAUKEE, WI 53225-1795
414-462-5310 . FAX 414-462-5312
E-MAIL info@commercegroupcorp.com
WEBSITE www.commercegroupcorp.com
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, 2006
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 annual confirmation, disclosure and
status letter that you requested from Commerce and its affiliates to
establish and confirm the amount due and the collateral pledged along
with any other Commerce obligations or agreements made to General Lumber
& Supply Co., Inc. (GLSCO and/or Lender) as of Commerce's fiscal year
ended March 31, 2006. Today, Commerce's Directors, by unanimous consent,
approved, ratified and confirmed the contents of this letter and
authorized me to submit its understanding of your status with Commerce,
which is 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, (then Bank One; now the prime rate published in the
Wall Street Journal), 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, 2006 is $2,043,647.62.
Commerce has
<PAGE>
Mrs. Sylvia Machulak
President
General Lumber & Supply Co., Inc.
May 8, 2006
Page 2 of 13 Pages
renewed this promissory note as of March 31, 2006 and a copy is
attached (Exhibit A). A schedule includi ng all of the
transactions pertaining to the activities relating to this note
during the fiscal year ended March 31, 2006 is also attached
(Exhibit A-1).
Commerce is no longer issuing monthly Notes for the payment of
interest, etc., but pursuant to our understanding, Commerce is
augmenting all additions and advances made by GLSCO, and it will
deduct any payments or credits made by Commerce to the current
open-ended, secured, on-demand, outstanding Notes issued or
obligations owed to GLSCO.
On May 9, 2005, Commerce's Directors authorized its Officers to
issue renewed annual note(s) (Exhibit B of the May 9, 2005
confirmation letter) so that the Lender will have a current
substituted dated debt instrument. The Directors acknowledged
that the issuance of note(s) for each transaction are too
cumbersome and are not practicable to manage. Also, the length
of time involved and the number of transactions make it
impractical to devote the time and effort to issue a note for
each transaction. Therefore, the Directors have unanimously
agreed to continue to embrace this resolution, which was adopted
on May 9, 2005:
WHEREAS, in the past 20 years or more the following parties:
General Lumber & Supply Co., Inc. (GLSCO); Edward L. Machulak as
an individual and not as a Director or Officer of Commerce (ELM);
the Edward L. Machulak Rollover Individual Retirement Account
(ELM RIRA), the Sylvia Machulak Rollover Individual Retirement
Account (SM RIRA), and Sylvia Machulak, as a consultant and as an
individual (SM), hereafter collectively and individually
identified as the Lender(s), have accounted for advancing cash
funds, earning accrued interest, and for appropriate credit which
was reconciled to the open-ended, secured, on-demand notes(s);
and
WHEREAS, the Directors desire to minimize the record keeping
in these transactions without jeopardizing, diminishing,
altering, changing or losing any rights that the Lenders have by
changing the procedures in handling the recording of any notes(s)
issued or to be issued; and
<PAGE>
Mrs. Sylvia Machulak
President
General Lumber & Supply Co., Inc.
May 8, 2006
Page 3 of 13 Pages
WHEREAS, in order to provide an easier accounting facility
by renewing the notes(s) on an annual basis to coincide with the
Company's fiscal year (which presently ends on March 31) and to
incorporate said renewed note(s) with the annual confirmation
agreement(s); and
WHEREAS, prior to the change to issue substituted renewed
note(s), the initial promissory note(s) were considered to be
open-ended, secured, on-demand and the additions and deductions
were recognized by separate accounting records; therefore, be it
RESOLVED, That the Directors authorize and empower the
Officers to substitute and issue renewed consolidated
promissory note(s) at the end of each fiscal year beginning
with the Company's fiscal year ended March 31, 2005 to the
following: General Lumber & Supply Co., Inc. (GLSCO); Edward
L. Machulak as an individual and not as a Director or
Officer of Commerce (ELM); the Edward L. Machulak Rollover
Individual Retirement Account (ELM RIRA), the Sylvia
Machulak Rollover Individual Retirement Account (SM RIRA),
and Sylvia Machulak, as a consultant and as an individual
(SM), hereafter collectively and individually identified as
the Lender(s); and
BE IT FURTHER RESOLVED, That the Officers of the
Company are authorized and empowered to assure the Lender(s)
that by substituting and consolidating the existing note(s)
and issuing the renewed note(s) on the last day of the
Company's fiscal year beginning with March 31, 2005 with the
understanding that the intention is that the Lender(s) will
not jeopardize, lose, diminish, risk, alter or change any
rights, including the pledge of collateral, that are
inherent with the initial note(s) by the issuance of annual
renewed open-ended, secured, on-demand promissory note(s);
and
BE IT FURTHER RESOLVED, That the Directors acknowledge
that the only purpose of the change and substitution to
issue annual renewed notes(s) is for the convenience,
reduced accounting and reducing the paperwork involved; and
BE IT FURTHER RESOVED, That the Officers are authorized
and empowered to perform any act that they deem necessary to
accommodate the purpose of issuing annual renewed note(s).
<PAGE>
Mrs. Sylvia Machulak
President
General Lumber & Supply Co., Inc.
May 8, 2006
Page 4 of 13 Pages
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 5, 1996 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, 2006, there is nothing due
on this open account.
d. GLSCO from time to time has canceled part of its debt by the
purchase of restricted Commerce common shares based on a price
determined by the Directors or at a price sold to third party
purchasers at an arms-length transaction. There were no
transactions consummated during this fiscal year.
e. In order to provide continuity and to make an orderly transition
of the Standing Rock Campground (SRC) operations, the parties
agreed that Commerce would operate the SRC until such time that
GLSCO would terminate this agreement.
<PAGE>
Mrs. Sylvia Machulak
President
General Lumber & Supply Co., Inc.
May 8, 2006
Page 5 of 13 Pages
Commerce retained the profits earned from the SRC operations and
the following describes the transactions that took place:
Revenues Expenses Profit
-------- -------- ------
Fiscal year end
March 31, 2002 $ 73,364.97 $40,202.17 $33,162.80
March 31, 2003 68,304.07 41,009.24 27,294.83
----------- ---------- ----------
Balances $141,669.04 $81,211.41 $60,457.63
Interest July 1, 2001
through March 31, 2003 11,918.31
----------
April 1, 2003 Total
Addition to GLSCO Note
(GJ4-P2; Entry 4-2) $72,375.94
==========
March 31, 2004 $ 58,548.87 $37,956.32 $20,592.55
==========
April 1, 2004 Entry GJ4-P1;
Addition to GLSCO Note $20,592.55
==========
March 31, 2005 $ 58,182.12 $37,093.47 $21,088.65
April 1, 2005 Entry GJ4-P1; ==========
Addition to GLSCO Note $21,088.65
==========
March 31, 2006 $ 52,827.38 $39,217.48 $13,609.90
==========
March 31, 2006 Entry GJ3-P25;
Addition to GLSCO Note $13,609.90
==========
f. On March 31, 2006, the amount due of $13,609.90 by Commerce to
GLSCO was transferred to the notes payable due to GLSCO.
2. Collateral Pledged
The collateral specifically pledged to GLSCO or as otherwise noted 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 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
<PAGE>
Mrs. Sylvia Machulak
President
General Lumber & Supply Co., Inc.
May 8, 2006
Page 6 of 13 Pages
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 4 included in the April 9, 1990 confirmation letter.
On August 14, 2000, with the Directors' approval, this property,
via an agreement, was conveyed to GLSCO in consideration of the
cancellation of $1,249,050 of debt owed to GLSCO and for other
consideration contained in the said agreement.
c. Commerce/Sanseb Joint Venture (Joint Venture)
Commerce and Sanseb agree that ELM (the other Lenders were
included later) 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 5 included in the April 9, 1990
confirmation letter.
d. Uniform Commercial Code Filing - all other specific assets
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, the 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 Wisconsin Department of Financial
Institutions Uniform Commercial Code filing, Exhibit 6, included
in
<PAGE>
Mrs. Sylvia Machulak
President
General Lumber & Supply Co., Inc.
May 8, 2006
Page 7 of 13 Pages
the April 9, 1990 confirmation letter, the renewed UCC-1
filing on December 23, 1996, Exhibit B, included in the April 14,
1997 confirmation letter, and the UCC-4 continuation filing on
June 27, 2001 at 8:55 a.m., Filing #02078155 (Exhibit B of the
May 13, 2002 confirmation letter).
e. Acknowledgement of previously recorded collateral provided to the
Lenders
Historical information - San Sebastian Gold Mine Concession
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 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, but
is not limited to, all of the San Sebastian Gold Mine (SSGM)
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 5 included in the April 9, 1990
confirmation letter.
The following collateral has been previously assigned to the
Lenders pursuant to resolutions adopted by the Directors:
(1) Commerce/Sanseb Joint Venture (Joint Venture)
Both Commerce and San Sebastian Gold Mines, Inc. have
assigned all of the rights, title, claims, remedies and
interest that each has in the Joint Venture to the Lenders.
Reference is made to Historical information - San Sebastian
Gold Mine Concession.
(2) New SSGM Exploration Concession/License (New SSGM) -
approximately 40.7694 square kilometers (10,070 acres)
Government of El Salvador Resolution No. 27.
On October 20, 2002, the Company applied for the New SSGM,
which covers an area of 42 square kilometers and includes
approximately 1.2306
<PAGE>
Mrs. Sylvia Machulak
President
General Lumber & Supply Co., Inc.
May 8, 2006
Page 8 of 13 Pages
square kilometers of the Renewed SSGM. The New SSGM is in
the jurisdiction of the City of Santa Rosa de Lima in the
Department of La Union and in the Nueva Esparta in the
Department of Morazan, Republic of El Salvador, Central
America. On February 24, 2003, the El Salvador Department of
Hydrocarbons and Mines (DHM) issued the New SSGM for a period
of four years starting from the date following the
notification of this resolution which was received on March
3, 2003. The New SSGM may be extended for two two-year
periods, or for a total of eight years. Besides the San
Sebastian Gold Mine, three other formerly operative gold and
silver mines known as the La Lola Mine, the Santa Lucia Mine,
and the Tabanco Mine are included in the New SSGM and are
being explored. The Company has complied as required by
filing its annual activity report and it paid the annual
surface tax. This concession had been assigned collectively
to all of the Lenders named herein on May 12, 2003 and the
assignment was included in the May 12, 2003 confirmation
agreement as Exhibit B.
(3) Lease agreement by and between Mineral San Sebastian Sociedad
Anomina de Capital Variable (Misanse) and Commerce dated
January 14, 2003
The term of this lease agreement coincides with the term of
the Renewed San Sebastian Gold Mine Exploitation Concession
and consists of 1,470 acres owned by Misanse. This lease
agreement has been assigned to all of the Lenders named
herein on May 12, 2003 and the assignment was included in the
May 12, 2003 confirmation agreement as Exhibit B.
(4) Renewed San Sebastian Gold Mine Exploitation
Concession/License (Renewed SSGM) - approximately 1.2306
square kilometers (304 acres), Department of La Union, El
Salvador, Central America (pledged and assigned as collateral
on May 10, 2004) Government of El Salvador Agreement No. 591.
On September 6, 2002, at a meeting held with the El
Salvadoran Minister of Economy and the DHM, it was agreed to
submit an application for the Renewed SSGM for a 30-year term
and to simultaneously cancel the concession obtained on July
23, 1987. On September 26, 2002, the Company filed this
application. On February 28, 2003 (received March 3, 2003)
the DHM admitted to the receipt of the application and the
Company proceeded to file public notices as required by
Article 40 of the El Salvadoran Mining Law and its Reform
(MLIR). On April 16, 2003, the
<PAGE>
Mrs. Sylvia Machulak
President
General Lumber & Supply Co., Inc.
May 8, 2006
Page 9 of 13 Pages
Company's El Salvadoran legal counsel filed with the DHM
notice that it believed that it complied with the
requirements of Article 40, and that there were no
objections; and requested that the DHM make its inspection as
required by MLIR Article 42. The Company then provided a
bond which was required by the DHM to protect third parties
against any damage caused from the mining operations, and it
simultaneously paid the annual surface t ax. On August 29,
2003 the Office of the Ministry of Economy formally presented
the Company with the twenty-year Renewed SSGM which was dated
August 18, 2003. This Renewed SSGM replaces the collateral
that the same parties held with the previous concession. On
May 20, 2004 (delivered June 4, 2004) the Government of El
Salvador, under their Agreement Number 591, extended the
exploitation concession for a period of 30 years. A copy of
the assignment dated May 10, 2004, is attached to the May 10,
2004 confirmation letter as Exhibit B and the Renewed SSGM
agreement is attached to Exhibit B and referred to as Exhibit
1.
(5) San Cristobal Mill and Plant (SCMP) three-year lease by and
between Commerce and Corporacion Salvadorena de Inversiones
(Corsain), an El Salvadoran governmental agency, executed on
Monday, April 26, 2004, retroactive to November 13, 2003.
Pledged and assigned as collateral on May 10, 2004.
The renewed three-year SCMP lease for the property located
near the City of El Divisadero was finalized and executed on
Monday, April 26, 2004, and is retroactive to November 13,
2003. This May 10, 2004 assignment is included in the May
10, 2004 confirmation letter as Exhibit B and the lease
agreement is attached to Exhibit B and referred to as Exhibit
2.
(6) Nueva Esparta Exploration Concession/License (Nueva Esparta)
- 45 square kilometers (11,115 acres) Resolution No. 271 -
pledged and assigned as collateral on May 9, 2005
On or about October 20, 2002, the Company filed an
application with the DHM for the Nueva Esparta Exploration
Concession/License which consists of 45 square kilometers and
is located north and adjacent to the New SSGM. On May 25,
2004 the Government of El Salvador, under their Resolution
No. 271, issued the Nueva Esparta Exploration
Concession/License for a period of four years starting from
the date following the notification of this resolution which
was received on June
<PAGE>
Mrs. Sylvia Machulak
President
General Lumber & Supply Co., Inc.
May 8, 2006
Page 10 of 13 Pages
4, 2004. This concession/license may be
extended for two two-year periods or for a total of eight
years. This rectangular area is in the Departments of La
Union (east) and Morazan (west) and in the jurisdiction of
the City of Santa Rosa de Lima, El Salvador, Central America.
Included in the Nueva Esparta are eight other formerly
operated gold and silver mines known as: the Banadero Mine,
the Carrizal Mine, the Copetillo Mine, the Grande Mine, the
La Joya Mine, the Las Pinas Mine, the Montemayor Mine, and
the Or o Mine. A copy of the assignment dated May 9, 2005
was attached to the May 9, 2005 confirmation letter as
Exhibit C and the Nueva Esparta Exploration Concession was
attached to Exhibit C and referred to as Exhibit 1.
(7) Acknowledgment of collateral provided through May 8, 2006
Commerce's Directors have on May 8, 2006 authorized and
directed Commerce's Officers to assign all of the rights,
titles, claims, remedies and interest in all of its assets
that it has to GLSCO, ELM, the ELM RIRA, the SM RIRA and SM,
collectively and individually referred to as Lenders, as
additional collateral for all of the outstanding loans and
obligations as of March 31, 2006, including all future
advances of any kind. Collateral that has been provided
through May 8, 2006 is:
3. Cross Pledge Collateral Agreement
GLSCO, ELM, the ELM RIRA, the SM RIRA and SM 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, then GLSCO, ELM, the ELM RIRA, the SM RIRA and SM 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, the SM RIRA and SM. The
purpose and the intent of the cross pledge of collateral is to
assure GLSCO, ELM, the ELM RIRA, the SM RIRA, and SM, 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 deduc ting the payments made from the specific
collateral) is to total all of the debts due to GLSCO, ELM, the ELM
RIRA, the SM RIRA and SM, and then to divide this total debt into
each individual debt to establish each individual's percentage of
the
<PAGE>
Mrs. Sylvia Machulak
President
General Lumber & Supply Co., Inc.
May 8, 2006
Page 11 of 13 Pages
outstanding debt due. This percentage then will be multiplied by
the total of the excess collateral to determine the amount of
proceeds each party should receive from the excess collateral. Then
the amount due to each of them would be distributed accordingly.
4. Cancellation of Inter-Company Debts Upon Default
Since certain of the collateral specifically or collectively pledged
to GLSCO, ELM, the ELM RIRA, the SM RIRA and SM consists of 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 obligations due to GLSCO and 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, the SM RIRA, and SM. Reference
is made to Exhibit 7 included in the April 9, 1990 confirmation
letter.
6. Re-Execution Agreement(s)
In the event GLSCO deems that it is necessary or advisable for GLSCO
to have Commerce re-execute any document(s) entered into, including,
but not limited to the promissory note(s) or collateral
agreement(s), Commerce will re-execute such document(s) reasonably
required by GLSCO. Commerce also acknowledges that Commerce may be
liable to pay certain costs related to any of the transactions
entered into with GLSCO. If at a later date GLSCO determines that
an error has been made in the payment of such costs to it then it
may demand payment and Commerce does hereby agree to make such
payment forthwith. All requests for corrections of any errors
and/or payment of costs shall be complied with by Commerce within
seven (7)
<PAGE>
Mrs. Sylvia Machulak
President
General Lumber & Supply Co., Inc.
May 8, 2006
Page 12 of 13 Pages
days of GLSCO's written request. The failure of Commerce to comply
with Commerce's obligation(s) hereunder shall constitute a default
and shall entitle GLSCO to the remedies available for default under
any provisions of the agreements including, but not limited to the
promissory note(s) and/or the collateral pledge agreement(s) and/or
any other Commerce obligation(s).
7. 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 under this confirmation agreement.
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
Edward A. Machulak
Secretary
<PAGE>
Mrs. Sylvia Machulak
President
General Lumber & Supply Co., Inc.
May 8, 2006
Page 13 of 13 Pages
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, President 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, 2006
<PAGE>
Exhibit A to Exhibit 99.1
RENEWED PROMISSORY NOTE
Borrower: Commerce Group Corp. Lender: General Lumber & Supply Co., Inc.
6001 North 91st Street 6001 North 91st Street.
Milwaukee, WI 53225 Milwaukee, WI 53225
Principal Amount: $2,043,647.62
Initial Rate: 4.000% + prime rate, but not less than 16.000%
Date of Renewed Note: March 31, 2006
PROMISE TO PAY. COMMERCE GROUP CORP. ("Borrower") promises to pay to GENERAL
LUMBER & SUPPLY CO., INC. ("Lender"), or order, in lawful money of the United
States of America, the principal amount of Two Million Forty Three Thousand
Six Hundred Forty Seven and 62/100 Dollars ($2,043,647.62), together with
interest, paid monthly, on the unpaid principal balance from March 31, 2006,
until paid in full.
PAYMENT. This is an open-ended, secured, on-demand payment, renewed
promissory note. Interest is to be paid monthly. The Lender, at its
discretion, can add the monthly interest due to the principal balance. Unless
otherwise agreed or required by applicable law, payments will be applied first
to any accrued unpaid interest; and then to principal. The annual interest
rate for this Note is computed on a 365/360 basis; that is, by applying the
ratio of the annual interest rate over a year of 360 days, multiplied by the
outstanding principal balance, multiplied by the actual number of days the
principal balance is outstanding and the interest is payable monthly.
Borrower will pay Lender at Lender's address shown above or at such other
place as Lender may designate in writing.
VARIABLE INTEREST RATE. The interest rate on this Note is subject to change
from time to time based on changes in the prime rate as quoted in the Wall
Street Journal plus four percent, but not less than sixteen percent per annum.
Borrower understands that Lender may make loans to the Borrower based on other
rates as well. The prime rate as of this date is 7.750% per annum. The
interest rate to be applied to the unpaid principal balance of this Note will
be at a rate of 4.000 percentage points over the prime rate, but not less than
16.000% per annum. NOTICE: Under no circumstances will the interest rate on
this Note be less than 16.000% per annum or more than the maximum rate allowed
by applicable law.
PREPAYMENT. Borrower may pay without penalty all or a portion of the amount
owed earlier than it is due. Early payments will not, unless agreed to by
Lender in writing, relieve Borrower of Borrower's obligation to pay on demand,
the entire amount due. Rather, any payment will reduce the principal balance
due. Borrower agrees not to send Lender payments marked "paid in full,"
"without recourse," or similar language. If Borrower sends such a payment,
Lender may accept it without losing any of Lender's rights under this Note,
and Borrower will remain obligated to pay any further amount owed to Lender.
INTEREST AFTER DEFAULT. Upon default, including failure to pay on demand,
Lender, at its option, may, if permitted under applicable law, increase the
variable interest rate on this Note to 6.000 percentage points over the prime
rate or over the 16.000% rate, whichever is higher. The interest rate will
not exceed the maximum rate permitted by applicable law.
DEFAULT. Each of the following shall constitute an event of default ("Event
of Default") under this Note:
Payment Default. Borrower fails to make any payment when demand is made
under this Note.
Other Defaults. Borrower fails to comply with or to perform any other
term, obligation, covenant or condition contained in this Note or in any
of the related documents or to comply with or to perform any term,
obligation, covenant or condition contained in any other agreement
between Lender and Borrower.
<PAGE>
Default in Favor of Third Parties. Borrower or any Grantor defaults
under any loan, extension of credit, security agreement, purchase or
sales agreement, or any other agreement, in favor of any other creditor
or person that may materially affect any of Borrower's property or
Borrower's ability to repay this Note or perform Borrower's obligations
under this Note or any of the related documents.
False Statements. Any warranty, representation or statement made or
furnished to Lender by Borrower or on Borrower's behalf under this Note
or the related documents is false or misleading in any material respect,
either now or at the time made or furnished or becomes false or
misleading at any time thereafter.
Insolvency. The dissolution or termination of Borrower's existence as a
going business, the insolvency of Borrower, the appointment of a receiver
for any part of Borrower's property, any assignment for the benefit of
creditors, any type of creditor workout, or the commencement of any
proceeding under any bankruptcy or insolvency laws by or against
Borrower.
Creditor or Forfeiture Proceedings. Commencement of foreclosure or
forfeiture proceedings, whether by judicial proceeding, self-help,
repossession or any other method, by any creditor of Borrower or by any
governmental agency against any collateral securing the loan. However,
this Event of Default shall not apply if there is a good faith dispute by
Borrower as to the validity or reasonableness of the claim which is the
basis of the creditor or forfeiture proceeding and if Borrower gives
Lender written notice of the creditor or forfeiture proceeding and
deposits with Lender monies or a surety bond for the creditor or
forfeiture proceeding, in an amount determined by Lender, in its sole
discretion, as being an adequate reserve or bond for the dispute.
Events Affecting Guarantor. Any of the preceding events occurs with
respect to any Guarantor of any of the indebtedness or any Guarantor
disputes the validity of, or liability under, any guaranty of the
indebtedness evidenced by this Note.
Adverse Change. A material adverse change occurs in Borrower's financial
condition, or Lender believes the prospect of payment or performance of
this Note is impaired.
Insecurity. Lender in good faith believes itself insecure.
LENDER'S RIGHTS. Upon default or upon demand, the Lender may declare the
entire unpaid principal balance on this Note and all accrued unpaid interest
immediately due, and then Borrower will pay that amount.
COLLATERAL. Borrower acknowledges this Note is secured by all security
agreements, guarantees, mortgages, and other security instruments previously
granted, contemporaneously granted, and granted in the future, and it has the
collateral and other rights all as contained in a certain confirmation
agreement dated May 10, 2004 between all parties contained therein, and as
subsequently amended and updated from time to time.
ATTORNEYS' FEES; EXPENSES. Lender may hire or pay someone else to help
collect this Note if Borrower does not pay. Borrower will pay Lender that
amount. This includes, subject to any limits under applicable law, Lender's
attorneys' fees and Lender's legal expenses, whether or not there is a
lawsuit, including attorneys' fees, expenses for bankruptcy proceedings
(including efforts to modify or vacate any automatic stay or injunction), and
appeals. If not prohibited by applicable law, Borrower also will pay any
court costs, in addition to all other sums provided by law.
GOVERNING LAW. This Note will be governed by, construed and enforced in
accordance with the laws of the State of Wisconsin. This Note has been
accepted by Lender in the State of Wisconsin.
<PAGE>
OTHER LOAN AGREEMENTS. If Borrower and Lender have either previously or
contemporaneously entered into a Loan or Confirmation Agreements, it is agreed
that this Note is subject to the terms and conditions of such Loan or
Confirmation Agreements. For purpose of this provision, Loan or Confirmation
Agreements shall include, but not be limited to, a Business Loan Agreement or
any other Loan or Confirmation Agreements.
SUCCESSOR INTERESTS. The terms of this Note shall be binding upon Borrower,
and upon Borrower's successors and assigns, and shall inure to the benefit of
Lender and Lender's heirs, executors, administrators, successors and assigns.
GENERAL PROVISIONS. This Note benefits Lender and its successors and assigns,
and binds Borrower and Borrower's successors, assigns, and representatives.
Lender may delay or forgo enforcing any of its rights or remedies under this
Note without losing them. Borrower and any other person or corporation who
signs, guarantees or endorses this Note, to the extent allowed by law, waive
presentment, demand for payment, and notice of dishonor. Upon any change in
the terms of this Note, and unless otherwise expressly stated in writing, no
party who signs this Note, whether as maker, guarantor, accommodation maker or
endorser, shall be released from liability. All such parties agree that
Lender may renew or extend (repeatedly and for any length of time) this loan
or release any party or guarantor or collateral; or impair, fail to realize
upon or perfect Lender's security interest in the collateral; and take any
other action deemed necessary by Lender without the consent of or notice to an
yone. All such parties also agree that Lender may modify this loan without
the consent of or notice to anyone other than the party with whom the
modification is made. The obligations under this Note are joint and several.
PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS OF
THIS NOTE, INCLUDING THE INTEREST RATE PROVISIONS. BORROWER AGREES TO THE
TERMS OF THE NOTE.
BORROWER ACKNOWLEDGES RECEIPT OF A COMPLETED COPY OF THIS PROMISSORY NOTE.
BORROWER:
COMMERCE GROUP CORP.
/s/ Edward L. Machulak
______________________________________________
By: Edward L. Machulak, President
/s/ Edward A. Machulak
_____________________________________________________
By: Edward A. Machulak, Vice President and Secretary
<PAGE>
Exhibit A-1 to Exhibit 99.1
(Schedule of all transactions pertaining to
the activities relating to Exhibit A to
Exhibit 99.1 for the fiscal year ending March 31, 2006
has been purposely omitted as it only reflects
the calculations of the principal and interest.)
