EXHIBIT 99.4
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
Mrs. Sylvia Machulak as an
Individual and for her Rollover
Individual Retirement Account
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 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 the Sylvia Machulak Rollover Retirement Account (SM RIRA) and to Sylvia
Machulak as an individual/consultant (SM), both referred to as Lenders, 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 series of open-ended, secured, on-demand promissory notes (Notes) are due
to the SM RIRA. Their combined amount is $503,580.95 as of March 31, 2004.
These Notes bear interest, payable monthly, at the rate of 3% 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 Notes for the payment of interest,
etc., but pursuant to our understanding, Commerce is augmenting all
additions and advances made by the SM RIRA and SM, and it will deduct any
payments or credits made by Commerce to the current open-ended, secured,
on-demand, outstanding Notes issued or obligations owed to the SM RIRA or
SM.
Mrs. Sylvia Machulak
Sylvia Machulak
Rollover Individual Retirement Account
May 10, 2004
Page 2 of 8 Pages
2. Consulting Fees Due to Sylvia Machulak as an Individual (SM)
As of September 30, 2000, a sum of $201,600 (72 months at $2,800 per month)
is due to SM for consulting services rendered pursuant to a Director
resolution adopted on October 20, 2000. The Directors further acknowledge
the continuance of SM's services at a sum of $3,000 per month beginning on
October 1, 2000, and continuing until such time as terminated by the
Directors or the President. Therefore, the amount due to SM as of March 31,
2004, is $327,600 (72 months at $2,800 and 42 months at $3,000). Reference
is made to Exhibit B included in the April 5, 1996 confirmation letter.
3. Transactions other than Notes Entered into or Confirmed During the
Fiscal Year with SM or the SM RIRA, Commerce, and its Subsidiaries
There were no known non-routine transactions during this fiscal year ended
March 31, 2004.
4. Collateral Pledged
The collateral specifically pledged to the SM RIRA or as otherwise noted is
as follows:
a. A Collateral Pledge Agreement executed by Commerce on December 31, 1981
granted to the SM RIRA by Commerce pledging 48,645 SLE common shares,
par value $0.50 a share, Certificate No. 25, dated December 31, 1981,
together with a letter agreement dated December 31, 1981. Reference is
made to Exhibit 4 in the April 9, 1990 confirmation letter.
b. Acknowledgement of previously recorded collateral provided to
the Lenders
Historical information - San Sebastian Gold Mine Concession
General Lumber & Supply Co., Inc. (GLSCO), Edward L. Machulak (ELM), as
an individual and not as a Director or Officer of Commerce the Edward
L. Machulak Rollover Individual Retirement Account (ELM RIRA) and the
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
Mrs. Sylvia Machulak
Sylvia Machulak
Rollover Individual Retirement Account
May 10, 2004
Page 3 of 8 Pages
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 4(a) 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. 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.
Mrs. Sylvia Machulak
Sylvia Machulak
Rollover Individual Retirement Account
May 10, 2004
Page 4 of 8 Pages
(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.
c. 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 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
Mrs. Sylvia Machulak
Sylvia Machulak
Rollover Individual Retirement Account
May 10, 2004
Page 5 of 8 Pages
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.
5. 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 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.
Mrs. Sylvia Machulak
Sylvia Machulak
Rollover Individual Retirement Account
May 10, 2004
Page 6 of 8 Pages
6. 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.
7. Guarantors
This agreement further confirms that Commerce and all of the following are
guarantors to the obligations due to SM and to the loans made by the SM
RIRA 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 5 included in the April 9, 1990 confirmation letter.
8. Re-Execution Agreement(s)
In the event the SM RIRA and/or SM deems that it is necessary or advisable
for the SM RIRA and/or SM 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 SM RIRA and/or SM. Commerce also acknowledges
that Commerce may be liable to pay certain costs related to any of the
transactions entered into with the SM RIRA and/or SM. If at a later date
the SM RIRA and/or SM determines that an error has been made in the payment
of such costs to the SM RIRA and/or SM, then the SM RIRA and/or SM 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 SM
RIRA's and/or SM's written request. The failure of Commerce to comply with
Commerce's obligation(s) hereunder shall constitute a default and shall
entitle the SM RIRA and/or SM to the
Mrs. Sylvia Machulak
Sylvia Machulak
Rollover Individual Retirement Account
May 10, 2004
Page 7 of 8 Pages
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).
9. Omissions
Commerce believes that it has included all of its obligations, monies due
and has listed all of the collateral due to the SM RIRA and/or SM, however,
since these transactions have taken place over a long period of time in
which changes could have taken place, it is possible that inadvertently
some item(s), particularly collateral, could have been omitted. If that
should prove to be a fact, then Commerce, the Joint Venture, Homespan,
Ecomm, SLE, Sanseb, and UDI agree that those omissions of collateral, if
any, are meant to be included as collateral under this confirmation
agreement.
If you are in agreement with the contents of this letter, please sign below and
return one copy to Commerce.
Very truly yours,
COMMERCE GROUP CORP.
/s/ Edward A. Machulak
Edward A. Machulak
Secretary
Mrs. Sylvia Machulak
Sylvia Machulak
Rollover Individual Retirement Account
May 10, 2004
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 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: Accepted by:
/s/ Sylvia Machulak /s/ Sylvia Machulak
- ----------------------------------- --------------------------------
Sylvia Machulak Rollover Individual Sylvia Machulak as an individual
Retirement Account Date: May 10, 2004
Date: May 10, 2004
EXHIBIT A TO EXHIBIT 99.4
(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
- ----------------------------- -------------------------------
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
-----------------------------------
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.]