37211-0001

Robert Fabella, Esq.
San Jose City Attorney's Office
151 W. Mission St.
San Jose, CA 95110

Re: Settlement Negotiations in California Hearths & Homes, et al. v. City of San Jose, Santa Clara County Superior Court, Case No. CV791269.

Dear Mr. Fabella:

I am writing on behalf of California Hearths and Homes and Jim Buckley (the ÒPlaintiffsÓ) to outline a possible means to settle the above entitled litigation (the ÒLitigationÓ). This letter and all other settlement communications regarding the Litigation comprise settlement negotiations within the meaning of Cal. Evid. Code ¤ 1152 and analogous common law principles, and are therefore confidential and inadmissible.

Briefly, we propose the following settlement terms. The Plaintiffs would dismiss the Litigation without prejudice upon the execution of a settlement agreement that would toll for one year any limitations to the Plaintiffs refilling of the Litigation within 30 days of the expiration of the tolling period. During the tolling period, the Plaintiffs intend to submit an application with the CityÕs Chief Building Official for approval of alternative materials, alternate design and methods of construction of a specified masonry wood-burning fireplace design pursuant to SJMC 24.01.420 (California Building Code Section 104.2.8) (the ÒApplicationÓ). In the Application, the Plaintiffs would have to demonstrate to the satisfaction of the CityÕs Chief Building Official that the proposed masonry wood-burning fireplace design would meet emission standards equivalent to those set forth by the U.S. EPA in 40 C.F.R. Ð Part 60. It is anticipated that the one year tolling period will be sufficient for the administrative consideration of the Application. The Settlement and the tolling agreement will not be tied to any particular outcome of the Application process, although we anticipate in the settlement agreement that the City will agree to consider and to make a determination whether to approve or deny the Application in a timely and good-faith manner.

Call me with any comments or questions you have regarding this settlement proposal. Thank you for your attention to this matter.

Very truly yours,
Kenneth B. Finney

cc: Jim Buckley
Jeff McNear, CH&H
Michael Gersick, CH&H
554579 v01.SF (BVWZ01!.DOC)
10/16/01 10:26 AM (37211.0001)