EXHIBIT 99.2
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 10, 2004
Mr. Edward L. Machulak
903 West Green Tree Road
River Hills, Wisconsin 53217
Dear Mr. Machulak:
At today's Commerce Group Corp. (Commerce) Directors' meeting, the Directors
were informed about the confirmation, disclosure and status letter 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 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, 2004. 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, 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. This Note, together with cash and other
advances and interest as of March 31, 2004, amounts to
$6,565,816.75. This Note bears interest, payable monthly, at
the rate of 2% over the prime rate established from time to time
by the First National Bank of Chicago, Chicago, Illinois, (now
Bank One), but not less than 16% per annum (Schedule of
Principal and Interest as of March 31, 2004, Exhibit A).
Commerce is no longer issuing monthly promissory 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.
Mr. Edward L. Machulak
May 10, 2004
Page 2 of 12 Pages
b. Salaries, vacation pay
In addition, Commerce owes ELM the following for accrued salaries and
vacation:
Annual
Period Years 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 - March 31, 2004 7.50 $165,000 1,237,500
----- ----------
Balance 22.00 $2,499,015
Vacation Pay Months Payment
------------ ------ -------
April 1981 - March 31, 2004 23 $ 13,750 316,250
----------
Total Due $2,815,265
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.
d. Share loans
To infuse funds into Commerce, Commerce borrowed ELM's Commerce shares
and ELM sold these shares as designee for Commerce's benefit with
Commerce receiving all of the proceeds. For these share loans, Commerce
has agreed to
Mr. Edward L. Machulak
May 10, 2004
Page 3 of 12 Pages
pay ELM interest at the rate of prime plus 3%, payable monthly with
Commerce's restricted common shares and based on the Commerce shares
due to ELM. Interest is also due and payable monthly with Commerce's
restricted common shares for the shares pledged by ELM as collateral to
others, all for the Company's interest and benefit. All share loans and
interest are to be paid annually on 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, 2004, 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, 2004 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 as of March 31, 2004 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 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
Mr. Edward L. Machulak
May 10, 2004
Page 4 of 12 Pages
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.
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.
Mr. Edward L. Machulak
May 10, 2004
Page 5 of 12 Pages
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 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,
Mr. Edward L. Machulak
May 10, 2004
Page 6 of 12 Pages
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 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).
Mr. Edward L. Machulak
May 10, 2004
Page 7 of 12 Pages
g. 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 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.
(2) New SSGM Exploration Concession/License (New SSGM) approximately
40.7694 square kilometers (10,070 acres)
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.
Mr. Edward L. Machulak
May 10, 2004
Page 8 of 12 Pages
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.
h. Acknowledgment of collateral provided during the current fiscal
year March 31, 2004
Commerce's Directors have on May 10, 2004 authorized and directed
Commerce's Officers to assign all of the rights, titles, claims,
remedies and interest it has to GLSCO, ELM, the ELM RIRA, the SM RIRA
and SM, collectively and individually referred to as Lenders, as
collateral for all of the outstanding loans and obligations as of March
31, 2004, including all future advances of any kind as follows:
(1) 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)
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
Mr. Edward L. Machulak
May 10, 2004
Page 9 of 12 Pages
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. A copy of the assignment dated May
10, 2004, is attached to this document (Exhibit B) and the Renewed
SSGM agreement is attached to it and referred to as Exhibit 1.
(2) 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 Exhibit B and the lease agreement is
attached to it and referred to as Exhibit 2.
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 and SM, 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
Mr. Edward L. Machulak
May 10, 2004
Page 10 of 12 Pages
collateral to determine the amount of proceeds derived from the excess
collateral and 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 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 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).
Mr. Edward L. Machulak
May 10, 2004
Page 11 of 12 Pages
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 adjacent to
and bordering the north boundary line of the SSGM located in the Republic
of El Salvador, Central America, and that Comseb is performing certain
exploration and exploitation on this property. These costs are to be
payable by an offset to the amounts due to ELM. (Reference is made to
Exhibit B, "Concesion de Exploracio El Paraiso" - plat map that identifies
the ELM (Macay) "92.13 Hectareas," (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/ Edward A. Machulak
Edward A. Machulak
Secretary
Mr. Edward L. Machulak
May 10, 2004
Page 12 of 12 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, By: Edward L. Machulak,
Auth. Designee 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, By: Edward L. Machulak,
President 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, By: Edward L. Machulak,
President President
Accepted by:
/s/ Edward L. Machulak
- ------------------------------------------
Edward L. Machulak, as an Individual and not as a Director or Officer of any of
the Corporations mentioned in this letter.
Date: May 10, 2004
EXHIBIT A TO EXHIBIT 99.2
(Schedule of Principal and Interest as of March 31, 2004
has been purposely omitted as it only reflects
the calculations of the principal and interest.)
EXHIBIT B
Assignment
For and in consideration of the sum of One Dollar ($1.00) and other good
and valuable consideration such as, but not limited to, the continuance of
extending the open-ended, secured, on-demand promissory note(s) issued by
Commerce Group Corp. (Commerce), a Wisconsin corporation located at 6001 North
91st Street, Milwaukee, Wisconsin 53225, in hand paid, the receipt of which is
hereby acknowledged, Commerce does hereby sell, assign and transfer to General
Lumber & Supply Co., Inc., a Wisconsin corporation, Edward L. Machulak, as an
individual and not as a Director or Officer of Commerce, the Edward L. Machulak
Rollover Individual Retirement Account, the Sylvia Machulak Rollover Individual
Retirement Account, and Sylvia Machulak, as an individual, and their heirs,
successors and assigns, all who reside in the County of Milwaukee, State of
Wisconsin, United States of America, individually and collectively referred to
as "Lenders," all of Commerce's rights, titles, claims, remedies, a nd interests
whatsoever in and to the Renewed San Sebastian Gold Mine Exploitation Concession
consisting of 1.2306 kilometers located on the Hacienda San Sebastian and San
Sebastian El Coyolar under the jurisdiction of Santa Rosa de Lima, Department of
La Union, Republic of El Salvador, Central America, identified on the
cartographic sheet number 2656-IV pursuant to Agreement No. 741 dated August 18,
2003 (delivered on August 29, 2003) granted by the El Salvador Minister of
Economy of the Republic of El Salvador, Central America for a period of twenty
years commencing from the date of publication in the El Salvador Federal
Register (Diario Oficial) and more fully described in the attached
Spanish/English document made an integral part of this Assignment (Exhibit 1).
In addition, this Assignment includes all of Commerce's rights, title,
claims, remedies and interests whatsoever of a three-year lease agreement
entered into on the 26th day of April, 2004, retroactive to November 13, 2003,
by and between Corporacion Salvadorena de Inversiones (Corsain) and Commerce
Group Corp., more fully described in the attached copy of the lease made an
integral part of this Assignment (Exhibit 2).
Said claims, rights, title and interest are pledged, sold, assigned and
transferred to the Lenders as collateral security for loans made and for loans
to be made by the Lenders to Commerce and also as collateral security for any
and all liabilities, direct or indirect, absolute or contingent, due or to
become due, now existing or hereafter arising from Commerce to the Lenders.
Commerce further acknowledged that Commerce's Directors unanimously adopted
this Assignment by a resolution on May 10, 2004, and that the purpose of this
Assignment is to provide collateral to the above-described Lenders.
This Assignment shall extend to the full term remaining on the above
concession and license or lease and in any amendments, renewals, changes or
extensions thereof.
In Witness Whereof, Commerce has caused this instrument to be signed,
sealed and delivered by its proper officers thereunto duly authorized this 10th
day of May 2004.
ATTEST:
COMMERCE GROUP CORP. COMMERCE GROUP CORP.
/s/ Edward L. Machulak /s/ Edward A. Machulak
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Edward L. Machulak, President Edward A. Machulak, Secretary
State of Wisconsin )
) ss.
County of Milwaukee )
On this 10th day of May, 2004, before me, personally appeared Edward L.
Machulak, President and Edward A. Machulak, Secretary of Commerce Group Corp.,
to me known to be the persons described in, and who executed the foregoing
instrument, and acknowledged that they executed the same as their free act and
deed.
/s/ Sylvia Machulak
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Sylvia Machulak
Notary Public, Milwaukee County, WI
My commission expires June 11, 2006
[Note: Exhibit 1 of Exhibit B is incorporated by reference to Exhibit
10.17 of the Company's S.E.C. Form 10-Q for the quarterly period ended
September 30, 2003 and Exhibit 2 of Exhibit B is incorporated by
reference to Exhibit 10.15 of the Company's S.E.C. Form 10-K for the
fiscal year ended March 31, 2004.]