415 982-9390; FACSIMILE 415 982-4328

May 20, 1996

Mr. Rod Welch
The Welch Company
440 Davis Court, No. 1602
San Francisco, Ca 94111

Re:  United Pacific Insurance Company
        Rod Welch Company - State of California
        Claim No.: 074-74-01278
        Bond No. : U-781979
        Our File No.: 89002
Dear Mr. Welch:

Per our discussion this afternoon, my client, United has agreed to extend the date set forth on the promissory note and the "Agreement Concerning Repayment of Expenses" for an additional six months, which would extend the date to February 6, 1997. Enclosed you will find a re-drafted promissory note and a re-drafted "Agreement Concerning Repayment of Expenses" which I have amended in this regard. Please sign, and have your original signature notarized on, the promissory note and sign the agreement. Please return the originals to me, I will procure United Pacific's signature and return full-executed copies to you.

As always, should you have any questions or comments, please do not hestiate to call.

Very truly yours,


Michael J. Timpane



Copy to:

  1. Marc Brown

N:\DOCS\89002\LTR16071 .MJT


May 22, 1996

On or before February 6, 1997, I promise to pay to United Pacific Insurance Company or its successors or assigns, or to order, the principal sum of $527,154.88.

I agree that, if this Note is not paid in full when it becomes due, the unpaid amount will bear interest at the maximum legal rate until paid.

I agree to pay the expenses incurred in any attempt to collect the amount due pursuant to this Note.

I waive presentment for payment, notice of nonpayment, notice of dishonor, and any notices in connection with the delivery, presentment, acceptance, performance, default, or enforcement of this Note.

I agree that if any action or proceeding is necessary to enforce this Note, the prevailing party will be entitled to costs, including attorneys' fees, in addition to any other relief to which that party may be entitled.


ROD WELCH, both individually



N: \DOCS\89002\LTR16073 .MJT



    The parties to this Agreement Concerning Repayment of Expenses (hereafter "this Agreement") are Rod Welch, individually and doing business as Rod Welch Company (hereafter "Welch"), on the one hand, and United Pacific Insurance Company and Reliance Surety Company (collectively "Reliance"), on the other hand. The parties' addresses are:

    Rod Welch
    440 Davis Court, #1602
    San Francisco, CA 94111

    Reliance Surety Company
    2505 South 320th Street
    Federal Way, WA 98003


    2.1 In partial consideration for premiums received and in consideration for and in reliance upon a Continuing Agreement of Indemnity, Reliance executed on Welch's behalf, at Welch's request, contract surety bonds in favor of the State of California ("the Bonds") in connection with Welch's construction contract with the State for the Pier 11 Fender Reconstruction Project (hereafter "the Project").

    2.2 In partial consideration for and as an inducement to issue the Bonds, Welch executed a Continuing Agreement of Indemnity (hereafter the "Indemnity Agreement") which, in part, provided that the signatories thereto agree, jointly and severally, to hold harmless and indemnify Reliance from all loss, cost and expense which may be incurred by Reliance by virtue of having executed the Bonds.

    2.3 Reliance incurred losses, costs and expenses in the amount of $227,920.28 by virtue of having executed the Bonds, and Welch owes Reliance that amount pursuant to the Indemnity Agreement. As of October 4, 1995, Welch also owed Reliance $254,969.69 in interest, which continues to accrue at the legal rate of 10% per annum.

    2.4 At Welch's request, Reliance previously agreed to forebear from pursuing its indemnity rights against him to give him an opportunity to develop a software product conceived by him, known as SDS. Welch has asked that the period of forbearance be extended to February 6, 1997.


    3.1 Welch agrees that, on February 6, 1997, he will pay Reliance the sum of $527,154.88. If that amount is not paid on February 6, 1997, Welch will pay interest on the unpaid balance thereafter, at the rate of 10% per annum, until paid. Welch agrees that, at the time he executes this Agreement, he will execute a promissory note providing for the payment set forth in this paragraph 3.1.

    3.2 Reliance agrees that it will not pursue any indemnity or other rights against Welch to collect the amounts Welch owes to Reliance before February 6, 1997.

    3.3 Upon the happening of any event of default by Welch under this Agreement, any and all indebtedness under this Agreement, the Indemnity Agreement or any other obligations of Welch to Reliance shall become immediately due and payable and Reliance may exercise some or any or all of its rights and remedies under this Agreement, the Indemnity Agreement, any security agreement, pledge agreement, assignment agreement, or any other agreements which have been or which hereafter may be executed and delivered to Reliance by Welch, as well as any and all rights and remedies Reliance may have under any the Uniform Commercial Code in effect in the State of California, as well as any other applicable law or statute.

    3.4 The parties agree that the terms, conditions and covenants of this Agreement shall remain in full force and effect until such time as all obligations of Welch to Reliance have been fully repaid and satisfied.

    3.5 The parties hereto, and each of them, represent that they have full power and authority to make and perform all of the obligations and undertakings of this Agreement.


    4.1 This Agreement and each and every other agreement with respect to the obligations of the parties hereto shall be interpreted, construed and enforced in accordance with and governed by the provisions and laws of the State of California.

    4.2 The parties hereto stipulate that they have had full opportunity to consult counsel of their choice and that the terms and provisions of this Agreement are fair and reasonable as of the time of the signing of this Agreement.

    4.3 It is further understood that all the covenants, agreements, conditions and terms contained in this Agreement shall be binding upon, apply and inure to the benefit of the successors and assigns of the respective parties hereto.

    4.4 Neither this Agreement nor any course of conduct of the parties pursuant thereto shall be construed to establish rights of any party not a party to this Agreement. Time is of the essence of this Agreement.

    4.5 Any notice required to be sent hereunder shall be sent to the respective parties at the addresses listed on the first page of this document.

    4.6 This Agreement represents the whole and complete agreement among the parties and shall not be changed, modified or abridged, except by subsequent written agreement executed by the parties hereto.

    4.7 Should litigation between the parties ensue with regard to any of their respective obligations under this Agreement, the prevailing party shall be awarded costs and attorneys' fees.

    4.8 This Agreement may be executed in one or more counterparts, each of which shall be an original as against any party who signed it, and all of which shall constitute one and the same document.

DATED: May 29, 1996 By: Mark A. Brown, Bond Claim Attorney

DATED: May 22, 1996 By: Rod Welch

DATED: May 22, 1996 By: Rod Welch

N: \DOCS\89002\AGM16074 .MJT