EXHIBIT 99.7
COMMERCE GROUP CORP.
6001 NORTH 91ST ST.
MILWAUKEE, WISCONSIN 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
March 29, 2010
Mr. John E. Machulak
Machulak, Robertson & Sodos, S.C. (Law Firm)
1733 North Farwell Avenue
Milwaukee, Wisconsin 53202
Dear Mr. Machulak:
At today's Commerce Group Corp. (Commerce) Directors' meeting, the
Directors were informed about the annual confirmation, disclosure and
status letter 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 Machulak, Robertson & Sodos, S.C. (Law Firm) referred
to as Lender, as of Commerce's fiscal year ended March 31, 2010. 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. Accrued Legal Fees
The Law Firm which represents Commerce in which the brother of the
President is a principal is owed the sum of $546,232.50 for 2,427.7
hours of legal services rendered from July 1980 through February 28,
2010. By agreement on the date of payment, these fees are to be
adjusted to commensurate with the current hourly fees charged by the
Law Firm. Such adjustment was made during this fiscal period to
correspond with the current hourly rate change.
<PAGE>
Mr. John E. Machulak
Machulak, Robertson & Sodos, S.C. (Law Firm)
March 29, 2010
Page 2 of 8 Pages
As of March 31, 2010, 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 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).
2. Collateral Pledged as of March 31, 2010
The following collateral has been previously assigned to certain
Lenders pursuant to resolutions adopted by the Directors, and from
March 31, 2007 forward includes 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):
(a) 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.
(b) 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. The Company has complied as
required by
<PAGE>
Mr. John E. Machulak
Machulak, Robertson & Sodos, S.C. (Law Firm)
March 29, 2010
Page 3 of 8 Pages
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.
(c) 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.
(d) 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 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.
<PAGE>
Mr. John E. Machulak
Machulak, Robertson & Sodos, S.C. (Law Firm)
March 29, 2010
Page 4 of 8 Pages
(e) 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.
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 with an option
to subsequently renew it for additional three-month periods.
The Company chose to exercise this option and renewed the lease
until it was terminated in October of 2009. 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.
(f) Nueva Esparta Exploration Concession/License (Nueva Esparta) -
45 square kilometers (11,115 acres) Resolution No. 271
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 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 is attached to Exhibit C and referred to as Exhibit
1.
<PAGE>
Mr. John E. Machulak
Machulak, Robertson & Sodos, S.C. (Law Firm)
March 29, 2010
Page 5 of 8 Pages
(g) Acknowledgment of collateral provided through March 31, 2010
Commerce's Directors have on March 29, 2010 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, 2010, including all future advances of any kind.
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, SM and from March 31, 2007
to include M&R, the Law Firm, CMI and EAM, 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)
<PAGE>
Mr. John E. Machulak
Machulak, Robertson & Sodos, S.C. (Law Firm)
March 29, 2010
Page 6 of 8 Pages
mentioned herein, that it will automatically cancel any
inter-company debts owed toCommerce 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 the Law Firm and
to the loans made by the Law Firm 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,
SM, and from March 31, 2007 to include M&R, the Law Firm, CMI and
EAM. Reference is made to Exhibit 5 included in the April 9, 1990
confirmation letter.
6. Re-Execution Agreement(s)
In the event the Law Firm deems that it is necessary or advisable
for the Law Firm 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 the Law Firm. Commerce also acknowledges
that Commerce may be liable to pay certain costs related to any of
the transactions entered into with the Law Firm. If at a later date
the Law Firm determines that an error has been made in the payment
of such costs to the Law Firm, then the Law Firm 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 the Law Firm's
written request. The failure of Commerce to comply with Commerce's
obligation(s) hereunder shall constitute a default and shall entitle
the Law Firm 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).
<PAGE>
Mr. John E. Machulak
Machulak, Robertson & Sodos, S.C. (Law Firm)
March 29, 2010
Page 7 of 8 Pages
7. Omissions
Commerce believes that it has included all of its obligations,
monies due and has listed all of the collateral due to the Law
Firm, 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/ Christine M. Wolski
Christine M. Wolski
Secretary
<PAGE>
Mr. John E. Machulak
Machulak, Robertson & Sodos, S.C. (Law Firm)
March 29, 2010
Page 8 of 8 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:
MACHULAK, ROBERTSON & SODOS, S.C. (Law Firm)
/s/ John E. Machulak
--------------------------------------------
By: John E. Machulak, Authorized Signer
Date: March 29, 2010
