EXHIBIT 99.2
COMMERCE GROUP CORP.
6001 NORTH 91ST ST.
MILWAUKEE, WI 53225-1795
414-462-5310
FAX 414-462-5312
E-MAIL info@commercgroupcorp.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 30, 2008
Mrs. Sylvia Machulak, Widow,
on behalf of Edward L. Machulak, deceased
903 West Green Tree Road
River Hills, Wisconsin 53217
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, its subsidiaries, its
affiliates, and the Joint Venture, and to establish and confirm the
amount due and the collateral pledged along with any other Commerce
obligations or agreements made to Edward L. Machulak (ELM and/or Lender)
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, 2008. 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 (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, and payments to ELM reduce the amount owed.
This Note, together with cash and other advances and interest as
of March 31, 2008, amounts to $13,354,280.95. Commerce has
renewed this promissory note as of March 31, 2008 and a copy is
attached (Exhibit A). A schedule including all of the
transactions pertaining to the activities relating to this Note
during the fiscal year ended March 31, 2008 is also attached
(Exhibit A-1). 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, (then
Bank One; now the prime rate published in the Wall Street
Journal), but not less than 16% per annum.
<PAGE>
Mrs. Sylvia Machulak, Widow,
on behalf of Edward L. Machulak, deceased
May 30, 2008
Page 2 of 16 Pages
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 ELM, and it will
deduct any payments or credits made by Commerce to the current
open-ended, secured, on-demand, outstanding promissory note(s)
issued or obligations owed to ELM and Commerce will provide an
annual accounting and confirmation letter.
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. However, beginning with this fiscal year
which ended March 31, 2007, the Directors are including the
following as Lender(s): John E. Machulak and Susan R.
Robertson, husband and wife (M&R), the Machulak, Robertson &
Sodos, S.C. Law Firm (Law Firm), Circular Marketing, Inc. (CMI)
and Edward A. Machulak as an individual (EAM). 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
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
<PAGE>
Mrs. Sylvia Machulak, Widow,
on behalf of Edward L. Machulak, deceased
May 30, 2008
Page 3 of 16 Pages
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).
As of March 31, 2008, the following parties are collectively and
individually identified as the Lender(s): 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), Sylvia
Machulak, as a consultant and as an individual (SM), John E.
Machulak and Susan R. Robertson, husband and
<PAGE>
Mrs. Sylvia Machulak, Widow,
on behalf of Edward L. Machulak, deceased
May 30, 2008
Page 4 of 16 Pages
wife (M&R), the Machulak, Robertson & Sodos, S.C. Law Firm (Law
Firm), Circular Marketing, Inc. (CMI) and Edward A. Machulak as an
individual (EAM).
b. Salaries, vacation pay
In addition to the promissory note, Commerce owes ELM the
following for accrued salaries and vacation:
Period Years Annual Salary Total
------ ----- ------------- -----
April 1, 1981 - March 31, 1992 11.00 67,740 $ 745,140
April 1, 1992 - Sept. 30, 1996 4.50 $114,750 516,375
Oct. 1, 1996 - October 31, 2007 11.08 $165,000 1,828,750
----- ----------
Balance 26.58 $3,090,265
Vacation Pay Months Payment
------------ ------ -------
April 1981 - October 31, 2007 26.58 $ 13,750 365,521
----------
Total Due �� $3,455,786
At Commerce's Annual Board of Directors' Meeting held on
October 19, 2001, the Directors adopted a resolution to
compensate ELM for vacation pay based on one month for each
year of service beginning on April 1, 1981, and also the
following resolution, which in part states:
"BE IT FURTHER RESOLVED, That the Directors agreed that on
the day the compensation will be paid to Edward L. Machulak, an
adjustment will be made to compensate him for the loss of the
dollar purchasing value caused by inflation and other economic
factors;"
c. ELM Bonus agreement
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.
<PAGE>
Mrs. Sylvia Machulak, Widow,
on behalf of Edward L. Machulak, deceased
May 30, 2008
Page 5 of 16 Pages
d. Share loans
To infuse funds into Commerce, Commerce from time to time
borrowed ELM's free trading common shares of Commerce 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 payment by issuing Commerce's
restricted common shares based on these borrowed shares.
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 best interest and
benefit. All share loans and interest are to be paid annually
on or before March 31 of each of Commerce's fiscal years. An
accounting of the Commerce common shares due and/or paid to ELM
as of March 31, 2008, 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 continued to occur during the fiscal
year ended March 31, 2008 is as follows:
1. Share loans None
2. Interest shares due on shares pledged
to banks for an open line of credit None
3. Interest shares due on shares sold for
the benefit of Commerce None
Total Commerce restricted common shares
paid and issued for the fiscal period
ended March 31, 2008 to ELM None
e. Open ended loan agreements
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).
f. Misanse share ownership disclosure
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
<PAGE>
Mrs. Sylvia Machulak, Widow,
on behalf of Edward L. Machulak, deceased
May 30, 2008
Page 6 of 16
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. In addition to the rights offering, the Misanse
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 after the
issuance of the shares under the rights offering. When the
Company obtained the concession in 1987, it agreed with the El
Salvador Ministry 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 in the remaining unsold shares. 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 named 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.
<PAGE>
Mrs. Sylvia Machulak, Widow,
on behalf of Edward L. Machulak, deceased
May 30, 2008
Page 7 of 16 Pages
2. Collateral Pledged
The collateral specifically pledged to ELM or as otherwise noted is
as follows:
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 ($11.43) 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 Ecomm, individually and collectively, pledging the
following collateral:
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
<PAGE>
Mrs. Sylvia Machulak, Widow,
on behalf of Edward L. Machulak, deceased
May 30, 2008
Page 8 of 16 Pages
due to ELM. Reference is made to Exhibit 6 included in the
April 9, 1990 confirmation letter.
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. 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.
e. 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 C included in the April
8, 1991 confirmation letter.
f. Uniform Commercial Code Filing - all other specific assets
ELM's 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, the
<PAGE>
Mrs. Sylvia Machulak, Widow,
on behalf of Edward L. Machulak, deceased
May 30, 2008
Page 9 of 16 Pages
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 10, included in 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).
A UCC Financing Statement was electronically filed with the
Wisconsin Department of Financial Institutions on January 5,
2007 (Filing #070000277016).
g. Acknowledgement of previously recorded collateral provided to
the Lenders
Historical information - San Sebastian Gold Mine Concession
GLSCO, ELM, ELM RIRA, SM RIRA, and SM 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 9 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.
<PAGE>
Mrs. Sylvia Machulak, Widow,
on behalf of Edward L. Machulak, deceased
May 30, 2008
Page 10 of 16 Pages
(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 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.
<PAGE>
Mrs. Sylvia Machulak, Widow,
on behalf of Edward L. Machulak, deceased
May 30, 2008
Page 11 of 16 Pages
(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 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 tax. 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.
<PAGE>
Mrs. Sylvia Machulak, Widow,
on behalf of Edward L. Machulak, deceased
May 30, 2008
Page 12 of 16 Pages
On March 25, 2008 a nineteen-month lease retroactive to
November 12, 2006 was executed by and between Corsain and
Commerce. The lease was renewed on June 12, 2008 for a
six-month period to expire on December 11, 2008. Reference
is made to Exhibit 10.16 of Commerce's Form 10-K for its
fiscal year ended March 31, 2008 for a copy of this lease.
(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 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 Oro 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 March 31, 2008
Commerce's Directors have on May 14, 2007 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 including any assets owned by the Joint
Venture, to GLSCO, ELM, the ELM RIRA, the SM RIRA, SM, and
from March 31, 2007 to include M&R, the Law Firm, CMI and
EAM, collectively and individually referred to as Lenders,
as additional collateral for all of the outstanding loans
and obligations as of March 31, 2008, including all future
advances of any kind.
<PAGE>
Mrs. Sylvia Machulak, Widow,
on behalf of Edward L. Machulak, deceased
May 30, 2008
Page 13 of 16 Pages
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 deducting the payments made from the specific
collateral) is to total all of the debts due to GLSCO, ELM, the ELM
RIRA, the SM RIRA, SM and from March 31, 2007 to include M&R, the
Law Firm, CMI and EAM, 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 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 ELM and 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 they caused to be issued and also agree that these
note(s) may be accelerated in accordance with the provisions
contained in the agreement
<PAGE>
Mrs. Sylvia Machulak, Widow,
on behalf of Edward L. Machulak, deceased
May 30, 2008
Page 14 of 16 Pages
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, SM, and from March
31, 2007 to include M&R, the Law Firm, CMI and EAM. Reference is
made to Exhibit 12 included in the April 9, 1990 confirmation
letter.
6. Re-Execution Agreement(s)
In the event ELM deems that it is necessary or advisable for him 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 ELM. Commerce also acknowledges that Commerce may be
liable to pay certain costs related to any of the transactions
entered into with ELM. If at a later date ELM determines that an
error has been made in the payment of such costs to him then he 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)
days of ELM's written request. The failure of Commerce to comply
with Commerce's obligation(s) hereunder shall constitute a default
and shall entitle ELM 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 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 under this confirmation agreement.
8. Real Estate Ownership Adjacent to San Sebastian Gold Mine, Inc. (SSGM)
Commerce acknowledges that ELM personally owns the real estate he
purchased in January of 1988 which is 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. Commerce also
agrees to sell, assign and transfer at no cost to ELM, the
exploration concession rights included in the New
<PAGE>
Mrs. Sylvia Machulak, Widow,
on behalf of Edward L. Machulak, deceased
May 30, 2008
Page 15 of 16 Pages
SSGM Exploration
Concession/License rights granted by the GOES under Resolution No.
27 dated February 24, 2003 (delivered March 3, 2003) and the
exploitation rights granted by the GOES under Agreement No. 591
dated May 20, 2004 (delivered June 4, 2004) pertaining to this
parcel of land. (Reference is made to Exhibit B, "Concesion de
Exploracio El Paraiso" - plat map that identifies the ELM (Macay)
"92.13 Hectareas," (more or less) 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/ Christine M. Wolski
Christine M. Wolski
Secretary
<PAGE>
Mrs. Sylvia Machulak, Widow,
on behalf of Edward L. Machulak, deceased
May 30, 2008
Page 16 of 16 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 A. Machulak /s/ Edward A. Machulak
--------------------------------------- -----------------------------------
By: Edward A. Machulak, Auth. Designee By: Edward A. Machulak, President
ECOMM GROUP INC. SAN LUIS ESTATES, INC.
as Guarantor (Ecomm) as Guarantor (SLE)
/s/ Edward A. Machulak /s/ Edward A. Machulak
-------------------------------------- -----------------------------------
By: Edward A. Machulak, President By: Edward A. Machulak, President
SAN SEBASTIAN GOLD MINES, INC. UNIVERSAL DEVELOPERS, INC.
as Guarantor (Sanseb) as Guarantor (UDI)
/s/ Edward A. Machulak /s/ Edward A. Machulak
--------------------------------------- -----------------------------------
By: Edward A. Machulak, President By: Edward A. Machulak, President
Accepted by:
/s/ Sylvia Machulak
-------------------------------------------
Sylvia Machulak, Widow,
on behalf of Edward L. Machulak (deceased),
as an Individual and not as a Director or
Officer of any of the
Corporations mentioned in this letter.
Date: May 30, 2008
<PAGE>
EXHIBIT A TO EXHIBIT 99.2
RENEWED PROMISSORY NOTE
Borrower: Commerce Group Corp. Lender: Edward L. Machulak
6001 North 91st Street 903 West Green Tree Rd.
Milwaukee, WI 53225 Milwaukee, WI 53217
Principal Amount: $13,354,280.95
Initial Rate: 2.000% + prime rate, but not less than 16.000%
Date of Renewed Note: March 31, 2008
PROMISE TO PAY. COMMERCE GROUP CORP. ("Borrower") promises to pay to
EDWARD L. MACHULAK ("Lender"), or order, in lawful money of the United
States of America, the principal amount of Thirteen Million Three Hundred
Fifty Four Thousand Two Hundred Eighty and 95/100 Dollars
($13,354,280.95), together with interest, paid monthly, on the unpaid
principal balance from March 31, 2008, 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 two 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 5.250% per annum. The interest rate to be applied to the unpaid
principal balance of this Note will be at a rate of 2.000 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
anyone. 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 A. Machulak
----------------------------------------------
By: Edward A. Machulak, President
/s/ Christine M. Wolski
-----------------------------------------------------
By: Christine M. Wolski, Secretary
<PAGE>
EXHIBIT A-1 TO EXHIBIT 99.2
(Schedule of all transactions pertaining to
the activities relating to Exhibit A to
Exhibit 99.2 for the fiscal year ending March 31, 2008
has been purposely omitted as it only reflects
the calculations of the principal and interest.)
