EXHIBIT 99.3
COMMERCE GROUP CORP.
6001 NORTH 91ST ST.
MILWAUKEE, WI 53225-1795
414-462-5310 . FAX 414-462-5310
E-MAIL info@commercegroupcorp.com
WEBSITE www.commercegroupcorp.com
AND/OR COMMERCE/SANSEB JOINT VENTURE (Joint Venture)
AND/OR HOMESPAN REALTY CO., INC. (Homespan)
AND/OR ECOMM GROUP INC. (Ecomm)
AND/OR SAN LUIS ESTATES, INC. (SLE)
AND/OR SAN SEBASTIAN GOLD MINES, INC. (Sanseb)
AND/OR UNIVERSAL DEVELOPERS, INC. (UDI)
ALL LOCATED AT THE SAME ADDRESS
May 8, 2006
Mr. Edward L. Machulak
Edward L. Machulak Rollover
Individual Retirement Account
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 annual confirmation, disclosure and status letter that
you requested from Commerce and its affiliates to establish and confirm the
amount due and the collateral pledged along with any other Commerce
obligations or agreements made to the Edward L. Machulak Rollover Individual
Retirement Account (ELM RIRA and/or Lender) as of Commerce's fiscal year ended
March 31, 2006. Today, Commerce's Directors, by unanimous consent, approved,
ratified and confirmed the contents of this letter and authorized me to submit
its understanding of your status with Commerce, which is as follows:
1. Promissory Notes and Other Obligations
The total amount of all of the open-ended, secured, on-demand promissory
notes (Notes), together with interest due to the ELM RIRA, amounts to
$1,099,329.70 as of March 31, 2006. Commerce has renewed this promissory
note as of March 31, 2006, 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, 2006 is also
attached (Exhibit A-1). These Notes, since April 1, 1994, bear interest,
payable monthly, at the rate of 4% 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. 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
Mr. Edward L. Machulak
Edward L. Machulak
Rollover Individual Retirement Account
May 8, 2006
Page 2 of 10 Pages
made by the ELM RIRA, and it will deduct any payments or credits made by
Commerc e to the current open-ended, secured, on-demand, outstanding
Notes issued or obligations owed to the ELM RIRA.
On May 9, 2005, Commerce's Directors authorized its Officers to issue
renewed annual note(s) (Exhibit B of the May 9, 2005 confirmation letter)
so that the Lender will have a current substituted dated debt instrument.
The Directors acknowledged that the issuance of note(s) for each
transaction are too cumbersome and are not practicable to manage. Also,
the length of time involved and the number of transactions make it
impractical to devote the time and effort to issue a note for each
transaction. Therefore, the Directors have unanimously agreed to
continue to embrace this resolution which was adopted on May 9, 2005:
WHEREAS, in the past 20 years or more the following parties:
General Lumber & Supply Co., Inc. (GLSCO); Edward L. Machulak as an
individual and not as a Director or Officer of Commerce (ELM); the
Edward L. Machulak Rollover Individual Retirement Account (ELM
RIRA), the Sylvia Machulak Rollover Individual Retirement Account
(SM RIRA), and Sylvia Machulak, as a consultant and as an individual
(SM), hereafter collectively and individually identified as the
Lender(s), have accounted for advancing cash funds, earning accrued
interest, and for appropriate credit which was reconciled to the
open-ended, secured, on-demand notes(s); and
WHEREAS, the Directors desire to minimize the record keeping in
these transactions without jeopardizing, diminishing, altering,
changing or losing any rights that the Lenders have by changing the
procedures in handling the recording of any notes(s) issued or to be
issued; and
WHEREAS, in order to provide an easier accounting facility by
renewing the notes(s) on an annual basis to coincide with the
Company's fiscal year (which presently ends on March 31) and to
incorporate said renewed note(s) with the annual confirmation
agreement(s); and
WHEREAS, prior to the change to issue substituted renewed
note(s), the initial promissory note(s) were considered to be
open-ended, secured, on-demand and the additions and deductions were
recognized by separate accounting records; therefore, be it
Mr. Edward L. Machulak
Edward L. Machulak
Rollover Individual Retirement Account
May 8, 2006
Page 3 of 10 Pages
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).
2. Other Agreements and Transactions
a. On August 14, 2000, Commerce's Directors authorized Commerce's
Officers to negotiate a sale of its non-income producing assets, in
this case, precious stones and jewelry, to the ELM RIRA at Commerce's
book value in exchange for a reduction of debt owed by Commerce to the
ELM RIRA. The ELM RIRA agreed to this purchase. The book value of
the precious stones and jewelry is $132,447.77 as of March 31, 2006.
Mr. Edward L. Machulak
Edward L. Machulak
Rollover Individual Retirement Account
May 8, 2006
Page 4 of 10 Pages
b. On March 29, 2006, the ELM RIRA purchased from Commerce 600,000 of
Commerce's restricted common shares, $.10 par value, at a unit price
of $.16883 a share, for a total of $101,298. The share price was
established by using the same formula used by the Directors and others
who purchased common shares on the same date. The average close bid
price for the period beginning December 1, 2005 through February 13,
2006 was used. The payment for these shares was made by reducing the
outstanding promissory note balance due to the ELM RIRA by Commerce.
3. Acknowledgement of previously recorded collateral provided to the Lenders
a. 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
ELM RIRA and the Sylvia Machulak Rollover Individual Retirement
Account (SM RIRA) collectively and individually identified as the
Lender(s), have been assigned on October 19, 1987, all of the
rights, titles, claims, remedies and interest in the Joint Venture,
and to the mine concession granted by the Government of El Salvador
to Mineral San Sebastian, S.A. de C.V. (Misanse) on July 23, 1987,
and thereafter from time to time amended, and which Misanse then
assigned to the Joint Venture on September 22, 1987. This
collateral specifically includes, but is not limited to, all of the
San Sebastian Gold Mine (SSGM) precious metal ore reserves.
Commerce and the Joint Venture have the right to assign this and any
subsequent concession agreement. Reference is made to Exhibit 2
included in the April 9, 1990 confirmation letter.
The following collateral has been previously assigned to the Lenders
pursuant to resolutions adopted by the Directors:
(1) Commerce/Sanseb Joint Venture (Joint Venture)
Both Commerce and San Sebastian Gold Mines, Inc. have assigned
all of the rights, title, claims, remedies and interest that
each has in the Joint Venture to the Lenders. Reference is made
to Historical information - San Sebastian Gold Mine Concession.
(2) New SSGM Exploration Concession/License (New SSGM) -
approximately 40.7694 square kilometers (10,070 acres)
Government of El Salvador, Resolution No. 27
On October 20, 2002, the Company applied for the New SSGM, which
covers an area of 42 square kilometers and includes
approximately 1.2306 square kilometers of the Renewed SSGM. The
New SSGM is in the jurisdiction of the City of Santa Rosa de
Lima in the Department of La Union and in the Nueva Esparta in
the Department of Morazan, Republic of El Salvador, Central
America. On February 24, 2003, the El Salvador Department of
Hydrocarbons and Mines (DHM) issued the New SSGM for a period of
four years starting from the date following the notification of
this resolution which was received on March 3, 2003. The New
SSGM may be extended for two two-year periods, or for a total of
eight years. Besides the San Sebastian Gold Mine, three other
formerly operative gold and silver mines known as the La Lola
Mine, the Santa Lucia Mine, and the Tabanco Mine are included in
the New SSGM and are being explored. The Company has complied
as required by filing its annual activity report and it paid the
annual surface tax. This concession had been assigned
collectively to all of the Lenders named herein on May 12, 2003
and the assignment was included in the May 12, 2003 confirmation
agreement as Exhibit B.
(3) Lease agreement by and between Mineral San Sebastian Sociedad
Anomina de Capital Variable (Misanse) and Commerce dated January
14, 2003
The term of this lease agreement coincides with the term of the
Renewed San Sebastian Gold Mine Exploitation Concession and
consists of 1,470 acres owned by Misanse. This lease agreement
has been assigned to all of the Lenders named herein on May 12,
2003 and the assignment was included in the May 12, 2003
confirmation agreement as Exhibit B.
(4) Renewed San Sebastian Gold Mine Exploitation Concession/License
(Renewed SSGM) - approximately 1.2306 square kilometers (304
acres), Department of La Union, El Salvador, Central America
(pledged and assigned as collateral on May 10, 2004) Government
of El Salvador Agreement No. 591
On September 6, 2002, at a meeting held with the El Salvadoran
Minister of Economy and the DHM, it was agreed to submit an
application for the
Mr. Edward L. Machulak
Edward L. Machulak
Rollover Individual Retirement Account
May 8, 2006
Page 6 of 10 Pages
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 No. 591,
extended the exploitation concession for a period of 30 years.
A copy of the assignment dated May 10, 2004, is attached to the
May 10, 2004 confirmation letter as Exhibit B and the Renewed
SSGM agreement is attached to Exhibit B and referred to as
Exhibit 1.
(5) San Cristobal Mill and Plant (SCMP) three-year lease by and
between Commerce and Corporacion Salvadorena de Inversiones
(Corsain), an El Salvadoran governmental agency, executed on
Monday, April 26, 2004, retroactive to November 13, 2003.
Pledged and assigned as collateral on May 10, 2004.
The renewed three-year SCMP lease for the property located near
the City of El Divisadero was finalized and executed on Monday,
April 26, 2004, and is retroactive to November 13, 2003. This
May 10, 2004 assignment is included in the May 10, 2004
confirmation letter as Exhibit B and the lease agreement is
attached to Exhibit B and referred to as Exhibit 2.
(6) Nueva Esparta Exploration Concession/License (Nueva Esparta) -
45 square kilometers (11,115 acres) Resolution No. 271
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
Mr. Edward L. Machulak
Edward L. Machulak
Rollover Individual Retirement Account
May 8, 2006
Page 7 of 10 Pages
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 was attached to Exhibit C and referred to
as Exhibit 1.
(7) Acknowledgment of collateral provided through May 8, 2006
Commerce's Directors have on May 8, 2006 authorized and directed
Commerce's Officers to assign all of the rights, titles, claims,
remedies and interest in all of its assets that it has to GLSCO,
ELM, the ELM RIRA, the SM RIRA and SM, collectively and
individually referred to as Lenders, as additional collateral
for all of the outstanding loans and obligations as of March 31,
2006, including all future advances of any kind. Collateral
that has been provided through May 8, 2006 is:
4. 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
Mr. Edward L. Machulak
Edward L. Machulak
Rollover Individual Retirement Account
May 8, 2006
Page 8 of 10 Pages
obligations due to each of the named parties. The formula to be used
(after deduct ing 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 each party should receive from the
excess collateral. Then the amount due to each of them would be
distributed accordingly.
5. 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.
6. Guarantors
This agreement further confirms that Commerce and all of the following
are guarantors to the obligations due to the ELM RIRA and to the loans
made by the ELM 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 3 included in the April
9, 1990 confirmation letter.
7. Re-Execution Agreement(s)
In the event the ELM RIRA deems that it is necessary or advisable for the
ELM RIRA 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 ELM RIRA. Commerce also acknowledges that Commerce may
be liable to pay certain costs related to any of the transactions
Mr. Edward L. Machulak
Edward L. Machulak
Rollover Individual Retirement Account
May 8, 2006
Page 9 of 10 Pages
entered into with the ELM RIRA. If at a later date the ELM RIRA
determines that an error has been made in the payment of such costs to
the ELM RIRA, then the ELM RIRA 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 ELM RIRA's written request.
The failure of Commerce to comply with Commerce's obligation(s) hereunder
shall constitute a default and shall entitle the ELM RIRA to the remedies
available for default und er 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).
8. Omissions
Commerce believes that it has included all of its obligations, monies due
and has listed all of the collateral due to the ELM RIRA, 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
Mr. Edward L. Machulak
Edward L. Machulak
Rollover Individual Retirement Account
May 8, 2006
Page 10 of 10 Pages
The contents of this letter are agreed by the following:
COMMERCE/SANSEB JOINT VENTURE HOMESPAN REALTY COMPANY, INC.
as Guarantor (Joint Venture) as Guarantor (Homespan)
/s/ Edward L. Machulak /s/ Edward L. Machulak
_______________________________________ __________________________________
By: Edward L. Machulak, Auth. Designee By: Edward L. Machulak, President
ECOMM GROUP INC. SAN LUIS ESTATES, INC.
as Guarantor (Ecomm) as Guarantor (SLE)
/s/ Edward A. Machulak /s/ Edward L.Machulak
____________________________________ __________________________________
By: Edward A. Machulak, President By: Edward L. Machulak, President
SAN SEBASTIAN GOLD MINES, INC. UNIVERSAL DEVELOPERS, INC.
as Guarantor (Sanseb) as Guarantor (UDI)
/s/ Edward L. Machulak /s/ Edward L. Machulak
____________________________________ __________________________________
By: Edward L. Machulak, President By: Edward L. Machulak, President
Accepted by:
/s/ Edward L. Machulak
_______________________________________
Edward L. Machulak Rollover Individual
Retirement Account
Date: May 8, 2006
Exhibit A to Exhibit 99.3
RENEWED PROMISSORY NOTE
Borrower: Commerce Group Corp. Lender: Edward L. Machulak RIRA
6001 North 91st Street 903 West Green Tree Rd.
Milwaukee, WI 53225 Milwaukee, WI 53217
Principal Amount: $1,099,329.70
Initial Rate: 4.000% + prime rate, but not less than 16.000%
Date of Renewed Note: March 31, 2006
PROMISE TO PAY. COMMERCE GROUP CORP. ("Borrower") promises to pay to the
EDWARD L. MACHULAK ROLLOVER INDIVIDUAL RETIREMENT ACCOUNT ("Lender"), or
order, in lawful money of the United States of America, the principal amount
of One Million Ninety Nine Thousand Three Hundred Twenty Nine and 70/100
Dollars ($1,099,329.70), together with interest, paid monthly, on the unpaid
principal balance from March 31, 2006, until paid in full.
PAYMENT. This is an open-ended, secured, on-demand payment, renewed
promissory note. Interest is to be paid monthly. The Lender, at its
discretion, can add the monthly interest due to the principal balance. Unless
otherwise agreed or required by applicable law, payments will be applied first
to any accrued unpaid interest; and then to principal. The annual interest
rate for this Note is computed on a 365/360 basis; that is, by applying the
ratio of the annual interest rate over a year of 360 days, multiplied by the
outstanding principal balance, multiplied by the actual number of days the
principal balance is outstanding and the interest is payable monthly.
Borrower will pay Lender at Lender's address shown above or at such other
place as Lender may designate in writing.
VARIABLE INTEREST RATE. The interest rate on this Note is subject to change
from time to time based on changes in the prime rate as quoted in the Wall
Street Journal plus four percent, but not less than sixteen percent per annum.
Borrower understands that Lender may make loans to the Borrower based on other
rates as well. The prime rate as of this date is 7.750% per annum. The
interest rate to be applied to the unpaid principal balance of this Note will
be at a rate of 4.000 percentage points over the prime rate, but not less than
16.000% per annum. NOTICE: Under no circumstances will the interest rate on
this Note be less than 16.000% per annum or more than the maximum rate allowed
by applicable law.
PREPAYMENT. Borrower may pay without penalty all or a portion of the amount
owed earlier than it is due. Early payments will not, unless agreed to by
Lender in writing, relieve Borrower of Borrower's obligation to pay on demand,
the entire amount due. Rather, any payment will reduce the principal balance
due. Borrower agrees not to send Lender payments marked "paid in full,"
"without recourse," or similar language. If Borrower sends such a payment,
Lender may accept it without losing any of Lender's rights under this Note,
and Borrower will remain obligated to pay any further amount owed to Lender.
INTEREST AFTER DEFAULT. Upon default, including failure to pay on demand,
Lender, at its option, may, if permitted under applicable law, increase the
variable interest rate on this Note to 6.000 percentage points over the prime
rate or over the 16.000% rate, whichever is higher. The interest rate will
not exceed the maximum rate permitted by applicable law.
DEFAULT. Each of the following shall constitute an event of default ("Event
of Default") under this Note:
Payment Default. Borrower fails to make any payment when demand is made
under this Note.
Other Defaults. Borrower fails to comply with or to perform any other
term, obligation, covenant or condition contained in this Note or in any
of the related documents or to comply with or to perform any term,
obligation, covenant or condition contained in any other agreement
between Lender and Borrower.
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.
OTHER LOAN AGREEMENTS. If Borrower and Lender have either previously or
contemporaneously entered into a Loan or Confirmation Agreements, it is agreed
that this Note is subject to the terms and conditions of such Loan or
Confirmation Agreements. For purpose of this provision, Loan or Confirmation
Agreements shall include, but not be limited to, a Business Loan Agreement or
any other Loan or Confirmation Agreements.
SUCCESSOR INTERESTS. The terms of this Note shall be binding upon Borrower,
and upon Borrower's successors and assigns, and shall inure to the benefit of
Lender and Lender's heirs, executors, administrators, successors and assigns.
GENERAL PROVISIONS. This Note benefits Lender and its successors and assigns,
and binds Borrower and Borrower's successors, assigns, and representatives.
Lender may delay or forgo enforcing any of its rights or remedies under this
Note without losing them. Borrower and any other person or corporation who
signs, guarantees or endorses this Note, to the extent allowed by law, waive
presentment, demand for payment, and notice of dishonor. Upon any change in
the terms of this Note, and unless otherwise expressly stated in writing, no
party who signs this Note, whether as maker, guarantor, accommodation maker or
endorser, shall be released from liability. All such parties agree that
Lender may renew or extend (repeatedly and for any length of time) this loan
or release any party or guarantor or collateral; or impair, fail to realize
upon or perfect Lender's security interest in the collateral; and take any
other action deemed necessary by Lender without the consent of or notice to an
yone. All such parties also agree that Lender may modify this loan without
the consent of or notice to anyone other than the party with whom the
modification is made. The obligations under this Note are joint and several.
PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS OF
THIS NOTE, INCLUDING THE INTEREST RATE PROVISIONS. BORROWER AGREES TO THE
TERMS OF THE NOTE.
BORROWER ACKNOWLEDGES RECEIPT OF A COMPLETED COPY OF THIS PROMISSORY NOTE.
BORROWER:
COMMERCE GROUP CORP.
/s/ Edward L. Machulak
______________________________________________
By: Edward L. Machulak, President
/s/ Edward A. Machulak
_____________________________________________________
By: Edward A. Machulak, Vice President and Secretary
Exhibit A-1 to Exhibit 99.3
(Schedule of all transactions
pertaining to the activities
relating to Exhibit A to
Exhibit 99.3 for the fiscal
year ending March 31, 2006
has been purposely omittd as
it only reflects the calculations
of the principal and interest.)