EXHIBIT 99.2
COMMERCE GROUP CORP.
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇,
▇▇▇▇▇▇▇▇▇, ▇▇
▇▇▇▇▇-1795
414/▇▇▇-▇▇▇▇ Fax
414/462-5312
AND/OR
COMMERCE/SANSEB
JOINT VENTURE
(Joint Venture)
AND/OR HOMESPAN REALTY CO., INC. (Homespan)
AND/OR ECOMM GROUP INC. (Ecomm)
AND/OR SAN ▇▇▇▇ ESTATES, INC. (SLE)
AND/OR SAN SEBASTIAN GOLD MINES, INC. (Sanseb)
AND/OR UNIVERSAL DEVELOPERS, INC. (UDI)
ALL LOCATED AT THE SAME ADDRESS
May 14, 2001
▇▇. ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Dear ▇▇. ▇▇▇▇▇▇▇▇:
At today's Commerce Group Corp. (Commerce) Directors' meeting, the Directors
were informed about the confirmation and status letter you requested from
Commerce and its affiliates to establish and confirm the amount due and the
collateral pledged to ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ (ELM) 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, 2001.
Today, Commerce's Directors approved, ratified and confirmed the contents of
this letter and authorized me to authenticate and confirm the outstanding
obligations due to ELM and the collateral pledged to ELM as of Commerce's fiscal
year ended March 31, 2001, which are 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, 2001, amounts to
$3,676,503.17. 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, 2001, Exhibit A). Commerce is no longer issuing
monthly promissory notes for the payment
of interest, etc., but pursuant to our understanding,
Commerce is adding these liabilities or
deducting any payments to the current open-ended outstanding
promissory note(s).
b. In addition, Commerce owes ELM the sum of $2,279,015.00,
which is due for unpaid and accrued
salaries for a period of twenty (20) years beginning on
April 1, 1981 through March 31, 2001.
Commerce further acknowledges that ▇▇▇'s monthly salary
for twenty (20) years is computed as
follows: eleven years at $67,740 annually ($745,140);
four years and six months at $114,750
annually ($516,375); and four years and six months
at $165,000 annually ($742,500). In
addition, the Directors adopted a resolution on October
20, 2000 to compensate ELM for vacation
pay at the rate of one month for each year of service,
beginning on April 1, 1981 through March
31, 2001, which amounts to twenty months of pay at
$13,750.00 a month, for a total of $275,000.
c. 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 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 March 31 of each year. An accounting
of the Commerce common shares due and/or paid to ELM as
of March 31, 2001, 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 se
curities that have taken place and continue
to occur during the fiscal year ended March 31, 2001 is as
follows:
1. Share loans
110,000
2. Interest shares due on shares pledged to banks for
an open line of credit
0
3. Interest shares due on shares sold for the benefit
of Commerce 984
------ ---
Total Commerce common shares paid and issued as of
March 31, 2001 to ELM
110,984
Therefore, there were no shares due to ELM for share loans or
share interest as of March 31, 2001.
d. 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).
e. 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
▇▇▇▇▇▇▇'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 ▇▇▇▇▇▇▇'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 shareholders
authorized the sale of 210 additional common shares to the
following: ten shares to each of the four officers/directors
(40 shares), five shares to each of the remaining six
directors (30 shares), three shares to each of the ten
supplemental directors (30 shares), (the President and the
Secretary of the Company, who are directors of Misanse, had
the right and they purchased ten and three shares
respectively), and 110 shares were sold to the Company over
and above the amount of shares it was entitled to by the
rights offering so that it would retain its 52% ownership.
When the Company obtained the concession in 1987, it agreed
with the El Salvador Minister 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. 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 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, ▇▇▇ 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 to ELM
The collateral specifically pledged to ELM 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 per share. The
shares pledged are as follows: the 618 shares originally owned
by Commerce, and the 618 shares plus 110 shares purchased from
the October 23, 1993 Misanse rights offering. Reference is
made to Exhibit 4 included in the April 9, 1990 confirmation
letter.
b. A Collateral Pledge Agreement dated February 24, 1983, by
Commerce, SLE and UDI collectively
and individually, pledging the following collateral:
300 shares of no par value common shares of Homespan (formerly
known as Trade Realty Co., Inc.), Certificate No. 7 dated
January 21, 1974, being 100% of its issued and outstanding
shares. Homespan and Commerce agree that no additional shares
of Homespan will be issued as long as there are any
obligations due to ELM; 1,800 shares of no par value (UDI)
capital stock Certificate No. 17 dated September 15, 1972,
representing 100% of the shares issued and outstanding. UDI
and Commerce agree that no additional shares of UDI will be
issued as long as there are any outstanding obligations due to
ELM. Reference is made to Exhibit 5 included in the April 9,
1990 confirmation letter.
c. Collateral Pledge Agreement dated July 13, 1983 granted to
General Lumber & Supply Co., Inc.
(GLSCO) and ELM by Commerce, SLE, and UDI,
individually and collectively, pledging the
following collateral:
419,000 shares of fully paid and nonassessable shares with a
par value of $.05 each of the capital stock of International
Property Exchange, Inc. (IPE), formerly known as Capital
Funding & Development Corp., Certificate 2885 dated June 30,
1983; and it was verified during Commerce's fiscal year ended
March 31, 2000, that the State of Nevada IPE Charter was
cancelled because IPE did not comply with the Secretary of the
State of Nevada annual filing requirements.
One voting membership certificate of San ▇▇▇▇ 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 ▇▇▇▇ 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
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, 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 ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, Esq., Trustee for the benefit
of ELM and GLSCO and is a first lien on
the 331-acre Standing Rock Campground located in
Camdenton, Missouri. The Deed of Trust was
recorded on November 5, 1984 in Camden County, Missouri
at 1:24 p.m. in Book 122, Page 200.
Reference is made to Exhibit 7 included in the April 9,
1990 confirmation letter. On August
14, 2000, with the Directors' approval, this property,
via an agreement, was conveyed to GLSCO
in consideration of the cancellation of $1,249,050
of debt owed to GLSCO and for other
consideration contained in the said agreement.
e. Two Deeds of Trust to a Colorado Public Trustee granted by
SLE to ELM are described as follows:
A Deed of Trust dated March 20, 1984, consisting of four lots
in the San ▇▇▇▇ North Estates Subdivision, ▇▇▇▇▇▇▇▇, Colorado,
and recorded at 9:01 a.m. on August 2, 1984, in Book 238, Page
600, Reception No. 157128;
A Deed of Trust dated October 4, 1982, consisting of six
parcels of land in the San ▇▇▇▇ North Estates Subdivision,
▇▇▇▇▇▇▇▇, Colorado, and recorded at 8:40 a.m. on October 6,
1982, in Book 228, Pages 300-301, Reception No. 148981.
Reference is made to Exhibit 8 included in the April 9, 1990
confirmation letter. All ten lots were conveyed with the
Directors' approval to the ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ Rollover Individual
Retirement Account (▇▇ ▇▇▇▇) on October 3, 2000, in
consideration of a partial cancellation of debt due from
Commerce to the ▇▇ ▇▇▇▇.
f. GLSCO, ELM, the ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ Individual
Retirement Account (ELM RIRA) and the
▇▇ ▇▇▇▇ 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 Misanse on July
23, 1987, and thereafter from time to time amended,
and which ▇▇▇▇▇▇▇ then assigned to the
Joint Venture on September 22, 1987. This collateral
specifically includes all of the San
Sebastian Gold Mine 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.
Effective February 1996, the Government of
El Salvador approved a revised version of the mining law.
Therefore, Commerce applied for the
San Sebastian Gold Mine mining concession applicable
to this mining law. This concession is
subject to compliance requirements which have been
presented to the El Salvador Director of
Mines and Hydrocarbons. Therefore, it is clearly
understood that this concession, and all of
the rights thereunder, in addition to the concession
granted on July 23, 1987, together with
all of the precious metal ore reserves, is pledged as
collateral to the above named parties.
g. An 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, Commerce/Sanseb
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 Uniform Commercial Code filing,
Exhibit 10, included in the April 9,
1990 confirmation letter and the renewed UCC-1 filing on
December 17, 1996, Exhibit B, included
in the April 14, 1997 confirmation letter.
h. Commerce and ▇▇▇▇▇▇ agree that ELM 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.
3. Cross Pledge Collateral Agreement
GLSCO, ELM, the ELM RIRA and the ▇▇ ▇▇▇▇ 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,
GLSCO, ELM, the ELM RIRA and the ▇▇ ▇▇▇▇ 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 and the ▇▇ ▇▇▇▇. The purpose and the intent of the cross
pledge of collateral is to assure GLSCO, ELM, the ELM RIRA and the ▇▇
▇▇▇▇, 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 and the ▇▇ ▇▇▇▇, 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.
4. Bonus
On February 16, 1987, by a Consent Resolution of all of the Directors,
▇▇▇ 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.
5. Cancellation of Inter-Company Debts Upon Default
Since part of the collateral pledged to GLSCO, ELM, the ELM RIRA and
the ▇▇ ▇▇▇▇ is 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 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 were issued to ELM 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 and the ▇▇ ▇▇▇▇. Reference is made to Exhibit
12 included in the April 9, 1990 confirmation letter.
7. Re-Execution Agreement
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 or collateral agreement, 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 ▇▇▇'s written request. The failure of Commerce
to comply with Commerce's obligation 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 and/or the collateral pledge agreement.
8. 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 with this confirmation
and agreement.
9. Real Estate Ownership Adjacent to San Sebastian Gold Mine, Inc. (SSGM)
Commerce acknowledges that ▇▇▇ 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," 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/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Secretary
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/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
------------------------------------ ------------------------------------
By: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Auth. Designee By: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, President
ECOMM GROUP INC. SAN ▇▇▇▇ ESTATES, INC.
as Guarantor (Ecomm) as Guarantor (SLE)
/s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
------------------------------------ ------------------------------------
By: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, President By: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, President
SAN SEBASTIAN GOLD MINES, INC. UNIVERSAL DEVELOPERS, INC.
as Guarantor (Sanseb) as Guarantor (UDI)
/s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
------------------------------------ ------------------------------------
By: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, President By: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, President
Accepted by:
/s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
------------------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, as an Individual and not as a Director or Officer of any of
the Corporations mentioned in this letter.
Date: May 14, 2001
Exhibit A to Exhibit 99.2
(Schedule of Principal and Interest as of March 31, 2001
has been purposely omitted as it only reflects
the calculations of the principal and interest.)