Bobby Harmon

Honolulu, HI 96818

June 18, 1997

Mr. Robert Katz

Torkildson, Katz, Fonseca, Jaffe, Moore & Hetherington

700 Bishop Street, 15^th Floor

Honolulu, HI 96813

RE:    P&C Insurance Company, Inc. et al v. Bobby N. Harmon

Civil No. 97-0512-02

Federal Insurance Company - Policy No. 8146-79-11

Dear Mr. Katz:

At our April 11, 1997 meeting with Sandie Wicklein, Personnel Director, KSBE, a tentative settlement of this case was proposed by you and Ms. Wicklein. I had requested further information regarding the amount of additional pension the tentative settlement would provide, and Ms. Wicklein was to check and advise me of these figures. She did provide these figures by phone at a later date.

At the close of our meeting, I indicated that I would need to review the proposal and discuss it with my wife before reaching a decision. After the meeting, in the course of my review of the case, I discovered that there had been a back-dated exclusion endorsement to the subject policy and that this back-dated endorsement was cited in order to deny me defense coverages to the referenced civil action.

Upon discovering this apparent unfair claims practice, I decided to make a counter-offer to P&C/KSBE. This was faxed to you on May 8, 1997 (copy enclosed). This counter-offer stated that I would settle my claim with KSBE, its trustees and staff, for an amount close to what you and Ms. Wicklein had proposed to present to the Trustees for their approval.

As Ms. Wicklein and the Trustees would not have the authority to approve any claim settlements for P&C due to arms-length restrictions, in my counter-offer I proposed an additional amount for settlement of my claims against P&C, its officers and directors.

As I am more accustomed to dealing with insurance claims adjusters rather than with attorneys, I was surprised that I received no response to this counter-proposal. I had expected that I would be advised that the Trustees had either accepted or rejected the KSBE settlement proposal, or that they had proposed a counter-offer. Likewise, I had expected the Board of Directors of P&C to take similar action.

As John Marshall has since withdrawn as my counsel in this matter, I have reconsidered my position and would now like to propose a revised counter-offer as follows:

1.       I will settle my claims against KSBE, its Trustees and employees for $100,000.

2.       I will settle my claims against P&C, its directors, officers and committee members for $150,000.

3.       This settlement, as set forth above, is subject to the condition that P&C/KSBE’s lawsuit against me be withdrawn, and I will likewise withdraw my Unemployment Insurance claim against P&C/KSBE.

This offer will remain open until midnight, June 25, 1997.

Very truly yours,

Bobby N. Harmon

enclosure