AN ORDINANCE relating to economic and community development; authorizing a loan of federal Section 108 loan proceeds to finance acquisition and development of 9800 40th Avenue South and refinance existing debt; appropriating and authorizing the disbursement of Brownfields Economic Development Initiative grant ("BEDI Grant") funds to provide loan loss reserves on the loan and to finance project costs; authorizing loan documents, amendments, replacements and related documents and actions; appropriating and authorizing the collection of loan origination fees associated with the loan; and authorizing amendments to the City's 2005-2008 Consolidated Plan to reflect the transactions contemplated by this ordinance; all by a three-fourths vote of the City Council.

WHEREAS, pursuant to Ordinance 122139, in order to support certain eligible activities under the federal Section 108 program, including the acquisition and development of certain properties within the city, the City is authorized to issue a note in the principal amount not to exceed Ten Million Dollars ($10,000,000), or multiple notes in a total principal amount not exceeding that sum, without recourse to general funds, and enter into a contract ("Contract") with the United States Department of Housing and Urban Development ("HUD") for a Section 108 guaranty of the note(s) and agreements with a custodian (the "Custodian") to establish separate accounts to handle disbursements and receipts, which documents allow the City to request funds under the note from time to time; and

WHEREAS, Ordinance 122139 also authorized acceptance of a companion Brownfields Economic Development Initiative ("BEDI") Grant in the amount of Two Million Dollars ($2,000,000); and

WHEREAS, Ordinance 122139 also authorized the City to cause the disbursement of Three Million Three Hundred Fifty-four Thousand Dollars ($3,354,000) of note proceeds to finance the development of projects known as the Alps Hotel and Hong Kong Building; however, the City and loan applicant have mutually agreed not to proceed with the loan for these two projects; and

WHEREAS, pursuant to authorization under Ordinance 122487, the City issued a non-recourse promissory note in the principal amount of Two Million Three Hundred Ninety-eight Thousand Dollars ($2,398,000) and caused the disbursement of note proceeds to the 17th & Jackson Investment Fund LLC; and

WHEREAS, the Director of the Office of Economic Development and the City's Loan Committee have approved a loan in the amount up to Three Million Seven Hundred Eighty-five Thousand Dollars ($3,785,000) from proceeds of a note to be guaranteed pursuant to the City's Contract with HUD and approved the use of companion BEDI Grant funds in the amount up to Seven Hundred Fifty-seven Thousand Dollars ($757,000), to finance acquisition and development costs of 9800 40th Avenue South and to refinance existing debt; and

WHEREAS, the City's participation in the Section 108 loan guaranty program and the expenditure of guaranteed loan proceeds thereunder is authorized by RCW 35.21.735; and

WHEREAS, the Office of Economic Development has given public notice of the proposed loan and the City Council has held a public hearing with respect to the proposed loan;

NOW, THEREFORE,

BE IT ORDAINED BY THE CITY OF SEATTLE AS FOLLOWS:

Section 1. The Mayor or the Director of the Office of Economic Development ("OED Director") is authorized, on behalf of The City of Seattle, to issue a non-recourse promissory note ("Note") in the principal amount not to exceed Three Million Seven Hundred Eightyfive Thousand Dollars ($3,785,000), based on the form attached as Exhibit C to this ordinance, and with such modifications, additions or amendments as HUD may require or the Mayor or the OED Director may deem necessary or advisable to carry out the purposes of this Ordinance. The Note shall provide for a schedule of maturities of principal approximately as stated in Exhibit A, with such modifications and amendments as HUD may require or the Mayor or OED Director deem necessary or advisable to carry out the purposes of this Ordinance. The Mayor or OED Director is further authorized, on behalf of the City, to lend and cause the disbursement of the Note proceeds to Lake Dell, Inc., a Washington corporation doing business as Alpha Cine Labs, or a substitute entity approved by the Mayor or OED Director ("Obligor"). The Mayor or OED Director is further authorized, on behalf of The City of Seattle, to cause there to be drawn from the federal treasury and deposited in the Special Purpose Grants Fund, No. 17820, companion Brownfields Economic Development Initiative ("BEDI") Grant funds in the amount of Seven Hundred Fiftyseven Thousand Dollars ($757,000), and pursuant to the appropriation in Section 4 of this ordinance, to cause the disbursement of such amount for the purpose of financing project costs. A portion of such BEDI Grant funds may constitute a loan to Obligor on the terms described in Section 7.16 of the Loan Agreement authorized under Section 2 of this Ordinance, with such modifications of terms as HUD may require or the OED Director may deem appropriate to carry out the intent of this ordinance. The OED Director shall determine the allocation of BEDI funds among loan loss reserves, grant for project costs, and any loan for project costs, based on the final project budget and the OED Director's determination that payment obligations on the BEDI loan would not cause the projected debt service coverage ratio to fall below 1.2. The amount of such BEDI Grant funds is based on the ratio of the maximum amount of the Section 108 loan ($3,785,000) to the maximum amount available under the City's Contract (i.e., $10,000,000).

Section 2. The Mayor or the OED Director is authorized, on behalf of The City of Seattle, to execute, deliver, administer and cause to be performed: (1) a Loan Agreement with the Obligor based on the form attached as Exhibit B to this ordinance and the Project Description attached as Attachment B to Exhibit B, with such additions and modifications as HUD may require or the Mayor or OED Director may deem necessary or advisable to carry out the purposes of this ordinance; and (2) such amendments and related documents as the Mayor or OED Director may deem necessary or advisable to carry out the purposes of this ordinance. The Section 108 loan shall be secured by a deed of trust against the property being financed with such loan ("Property"); liens against Obligor's machinery, equipment and accounts receivable; a deed of trust against residential property owned by W. Donald Jensen, the principal shareholder of Obligor, and his spouse; and an unconditional guaranty of payment and performance from W. Donald Jensen, signed by his spouse to confirm that it obligates the marital community. Such security shall be in form and content acceptable to the OED Director. The OED Director is authorized to subordinate the security and the City's rights under loan documents on such terms as the OED Director may deem appropriate to facilitate other financing for the project. The OED Director may agree to terms of a guaranty or other security documents, or both, providing for release or modification based on such criteria as the Director determines are reasonably calculated to ensure that remaining security will be adequate.

Section 3. The Loan Agreement shall provide, consistent with HUD regulations, that the Obligor shall take affirmative steps to assure that minority and women's business enterprises are used when possible, that Obligor shall maintain records of those steps, and that nothing in the Loan Agreement shall be construed to require or authorize any discrimination or preferential treatment contrary to applicable law.

Section 4. To the extent that BEDI Grant funds are received by the City in the Special Purpose Grants Fund in excess of amounts thereof required for prior appropriations, the appropriation for the following in the 2008 Budget is increased from the fund shown, as follows:

Fund Department Budget Control Level Amount

Special Office of Economic OED HUD Special $757,000 Purpose Development Grants (6XD20) (BEDI Grant Grants Fund funds) (17820)

Section 5. The Mayor or OED Director may require the Obligor to pay a loan origination fee of no more than one percent (1%) of the loan amount, i.e., no more than Thirty-seven Thousand Eight Hundred Fifty Dollars ($37,850), which shall be deposited in the Special Purpose Grants Fund. The OED Director is authorized to cause all or a portion of such fee to be applied to legal and other costs related to the administration of the transaction authorized by this ordinance, that are not paid by Obligor pursuant to the Loan Agreement; and/or applied to payment of expenses incurred in the administration of any federally funded economic development loan projects or programs administered by the OED Director. To the extent that such loan origination fee is received by the City in the Special Purpose Grants Fund in excess of amounts therein required for prior appropriations, the appropriation for the following in the 2008 Budget is increased from the fund shown, as follows:

Fund Department Budget Control Level Amount

Special Office of Economic OED HUD Special $37,850 Purpose Development Grants (6XD20) (loan Grants Fund origination (17820) fee)

The appropriation in this section is made to meet actual necessary expenditures of the City for which insufficient appropriation has been made due to causes which could not reasonably have been foreseen at the time of the making of the 2008 budget, in accordance with RCW 35.32A.060.

Section 6. The Director of the Human Services Department ("HSD Director") is authorized to (a) further amend the City's 2005-2008 Consolidated Plan, including the 2008 Table of Proposed Projects, to reflect the transactions contemplated by this ordinance and (b) provide OED with technical assistance to ensure compliance with Community Development Block Grant ("CDBG") regulations applicable to the Section 108 loan program. The Mayor, OED Director and the HSD Director are authorized to take such other actions as they shall deem necessary to implement the actions authorized by this ordinance.

Section 7. This ordinance is not intended to create, and shall not be construed to create, any contractual or otherwise binding obligation upon, or commitment by, the City for the benefit of Obligor or any other party. The commitments to the Obligor authorized by this ordinance, subject to the limitations herein and under applicable law, shall become effective only if and when the agreements authorized hereby are duly executed and delivered by the City and other necessary parties.

Section 8. Unexpended and unencumbered appropriations in the 2008 adopted budget that are authorized in this ordinance are hereby carried over for expenditure in 2009 and future budget years until spent or expressly abandoned by ordinance.

Section 9. Any act pursuant to the authority of this ordinance taken after the passage of this ordinance is hereby ratified and confirmed. If any provision of this ordinance is determined to be invalid or unenforceable the remainder shall nonetheless remain in full force and effect.

Section 10. This ordinance shall take effect and be in force thirty (30) days from and after its approval by the Mayor, but if not approved and returned by the Mayor within ten (10) days after presentation, it shall take effect as provided by Municipal Code Section 1.04.020.

Passed by the City Council the ____ day of ________________________, 2008, and signed by me in open session in authentication of its passage this

_____ day of ___________________, 2008.

_________________________________

President __________of the City Council

Approved by me this ____ day of _____________________, 2008.

_________________________________

Gregory J. Nickels, Mayor

Filed by me this ____ day of __________________________, 2008.

____________________________________

City Clerk

(Seal)

Exhibits:

A. Schedule of Maturities

B. Form of Loan Agreement

Attachment A Legal Description for Property [omitted]

Attachment B Description of Project

Attachment C Form of Obligor Note

Exhibit 1: Schedule of Obligor Note Payment Dates

Exhibit 2: City Note [see Exhibit C]

Attachment D Project Budget [omitted]

C. Form of City Note

Appendix A Special Pre-Conversion Interest Rates

EXHIBIT A

Schedule of Maturities

Year

2008 0

2009 210,000

2010 210,000

2011 210,000

2012 210,000

2013 210,000

2014 210,000

2015 210,000

2016 210,000

2017 210,000

2018 214,484

2019 167,000

2020 167,000

2021 167,000

2022 167,000

2023 167,000

2024 167,000

2025 167,000

2026 167,000

2027 167,000

2028 177,516

3,785,000

OED Exhibit A to Ordinance

Ken Takahashi/KT

OED Alpha 108 Loan ORD

Aug. 20, 2008

Version 7

Exhibit B to Ordinance Form of Loan Agreement

LOAN AGREEMENT between LAKE DELL, INC. and THE CITY OF SEATTLE

TABLE OF CONTENTS

RECITALS 1

ARTICLE I THE LOAN 3 1.1 The Loan 3 1.2 Purpose of Loan 3 1.3 Loan Documentation; Payment of Principal and Interest 3

1.4 Security 4 1.5 Loan Fee 6 1.6 Obligor's Payment of Costs and Fees 7 1.7 City Funds Not Obligated 7 1.8 Application of Payments 8 1.9 Acceleration on Certain Events 8

ARTICLE II OBLIGOR'S REPRESENTATIONS, WARRANTIES AND COVENANTS 8 2.1 Organization of Obligor; Authority to Enter into Agreement 8 2.2 Nondiscrimination, Fair Contracting Practices, WMBE 9 2.3 No Litigation 10 2.4 Title 10 2.5 Covenants, Zoning, Codes and Permits 11 2.6 Description of the Project 12 2.7 Compliance With Documents 12 2.8 Taxes Are Paid 12 2.9 TIN 12

ARTICLE III CONDITIONS PRECEDENT TO LOAN CLOSING 12 3.1 Documents 12 3.2 Survey 12 3.3 Appraisal 13 3.4 Environmental Reports 13 3.5 Evidence of Establishment of BEDI Account 13 3.6 Evidence of Authority; Officer's Certificate 13 3.7 Insurance 13 3.8 Title Insurance; Other Confirmation of No Liens 13 3.9 Legal Opinions 14 3.10 Additional Conditions Precedent to Each Advance of Funds 15

ARTICLE IV LOAN DISBURSEMENTS AND REPAYMENTS; RESERVE ACCOUNTS 16 4.1 Single Disbursement 16 4.2 Other Conditions to Disbursement 16 4.3 Costs Related to Public Offering 16 4.4 Request for Interim Funding Advance; Interest to Run from City Note Funding; Cancellation upon Failure to Satisfy Closing Conditions; Payment of City's Costs 16 4.5 Loan Repayment Account 17 4.6 Application of Payments 19

ARTICLE V OBLIGOR'S LOAN COVENANTS 19 5.1 General 19 5.2 Reserved 19 5.3 Compliance with Laws 19 5.4 Inspections 19 5.5 Notify City of Litigation or Complaints 20 5.6 Waiver of Immunity 20 5.7 Federal Regulations 20 5.8 Reports 25 5.9 Liens or Claims of Liens 25 5.10 Political Activity 26 5.11 Further Actions 26 5.12 Other Agreements 26 5.13 Payment of Compensation of Custodian 26 5.14 Payment of Other Indebtedness 26 5.15 Transfer of Property 26

ARTICLE VI DEFAULT AND REMEDIES 26 6.1 Events of Default 26 6.2 Declaration of Event of Default 27 6.3 Remedies 28 6.4 No Default Prior to Declaration 28

ARTICLE VII MISCELLANEOUS 29 7.1 No Waiver 29 7.2 Successors and Assigns; Delegation to Custodian; Changes in Custodian and Custodial Agreement 29 7.3 No Defense Based on City Regulatory Actions 29 7.4 Time 30 7.5 Entire Agreement; Amendments 30 7.6 Headings 30 7.7 Number and Gender; Joint and Several Obligations 30 7.8 Validity 30 7.9 Governing Law 30 7.10 Survival 30 7.11 Venue and Forum 31 7.12 Attorney's Fees 31 7.13 Duplicate Originals; Counterparts 31 7.14 Construction 31 7.15 Notices; Administration by City 31 7.16 Additional Terms and Conditions 32

Attachment A Legal Description for Property Attachment B Description of Project Attachment C Form of Obligor Note

LOAN AGREEMENT

THIS LOAN AGREEMENT (as supplemented or amended from time to time, and including all documents and terms incorporated herein by reference, the "Agreement"), dated as of ____________, 2008, is entered into by and between LAKE DELL, INC., a Washington corporation (hereinafter called "Obligor") doing business as Alpha Cine Labs, and THE CITY OF SEATTLE, a Washington municipal corporation (hereinafter called "City").

RECITALS

This Agreement is entered into upon the basis of the following facts and circumstances:

A. Obligor intends to lease real property described in Attachment A, attached hereto and made a part hereof by this reference (the "Property"), which has been acquired by The 9800 Company, LLC, a Washington limited liability company ("LLC") affiliated with Obligor. Obligor intends to cause the rehabilitation of the Property and refinance prior debt incurred by Obligor prior to acquisition of the Property, in addition to debt incurred by LLC for the acquisition. The acquisition, rehabilitation and refinance are described in Attachment B, attached hereto and incorporated herein by this reference ("the Project").

B. Obligor has requested from City a loan of federal Section 108 loan proceeds in the amount of Three Million Seven Hundred Eighty-five Thousand Dollars ($3,785,000) in order to refinance the property acquisition and other debt, and to pay non-construction development soft costs of the Project.

C. The United States Department of Housing and Urban Development ("HUD") has agreed, subject to certain conditions, to guarantee a nonrecourse note or notes (collectively, as supplemented or amended from time to time, and together with any replacements thereof issued by the City and guaranteed by HUD pursuant to the HUD Contract described below, the "City Note") issued by City to fund the Loan (described in Section 1.1 below), in accordance with Section 108 of the Housing and Community Development Act of 1974, as amended (such Act and the federal regulations promulgated thereunder are hereinafter collectively called the "Act"). The City Note will be a Variable/Fixed Rate Note, no. in the maximum commitment amount of $3,785,000, which will be one of a series issued pursuant to a Contract for Loan Guarantee Assistance between the City and HUD dated (as it may be further supplemented or amended from time to time, the "HUD Contract") and certain Letter Agreements for Section 108 Guarantee Program Custodial Account (as supplemented or amended from time to time, the "Letter Agreements") among the City, HUD and The Bank of New York (hereinafter referred to, with any successors under such agreement or successor agreement, and in its capacity as trustee in connection with the BEDI Account, as "Custodian"). City has also entered into an Indenture of Trust and Custodial Agreement dated as of ______________________with the Custodian (as supplemented or amended from time to time, together with any substitute therefor in accordance with Section 7.2 below, the "Custodial Agreement"), which provides for, among other things, the Custodian to hold certain security for the City Note on behalf of HUD and for the establishment and management of certain accounts pursuant to the HUD Contract and Letter Agreements. The City Note is to be guaranteed pursuant to an application submitted to HUD by the City dated __________________, 2008, a copy of which Obligor has received and reviewed (as supplemented or amended from time to time, the "Application"). The Application, HUD Contract, Letter Agreements and Custodial Agreement are incorporated herein by this reference. Unless the context otherwise requires, capitalized terms used herein and not otherwise defined herein shall have the meanings assigned to them in the HUD Contract or City Note, as applicable.

D. The Office of Economic Development of the City ("OED") is responsible within The City of Seattle for making, subject to City Council approval, loans of funds obtained from HUD by pledges of Community Development Block Grant ("CDBG") funds to be made available to the City by HUD, pursuant to the Act. Unless the City otherwise notifies Obligor, in writing, OED shall be responsible for performance of the obligations of the City under this Agreement and the other Loan Documents, and for oversight of performance of such agreements by Obligor, and references hereinafter made to the City shall be deemed to mean the City, acting through OED. The Director of OED, or his or her duly authorized designee, and any official of the City succeeding to the functions of such Director, is referred to herein as the "OED Director."

E. The Loan shall be evidenced by this Agreement and by Obligor's Promissory Note ("Obligor Note") in the form attached hereto as Attachment C and hereby incorporated by reference, and together with Obligor's other obligations under the Loan Documents, secured by: (i) a Deed of Trust, Assignment of Leases and Rents and Security Agreement with Fixture Filing in form and content acceptable to the City (as supplemented or amended from time to time, the "Deed of Trust") on the Property executed by the LLC as well as Obligor; (ii) a lien against Obligor's machinery and equipment pursuant to a Security Agreement in the form and content acceptable to the City (as supplemented or amended from time to time, the "Machinery and Equipment Lien"); (iii) a lien against Obligor's accounts receivable pursuant to a Security Agreement in the form and content acceptable to the City (as supplemented or amended from time to time, the "Accounts Receivables Lien"); and (iv) a deed of trust in form and content acceptable to the City (as supplemented or amended from time to time, the "Residential Mortgage") on residential property owned by W. Donald Jensen, principal shareholder of Obligor and his spouse, on real property located at 108 Lake Dell Avenue, Seattle, WA. The Obligor Note, this Agreement, the Deed of Trust, the Certificate and Indemnity (defined in Section 3.1 of this Agreement), the Machinery and Equipment Lien, the Accounts Receivable Lien, the Residential Mortgage; the BEDI Note referred to in Section 7.16(d); and any other documents or instruments executed by Obligor in favor of City pursuant hereto, are collectively referred to herein as the "Loan Documents". Where the context so requires, to the extent that the Loan Documents provide that Obligor's obligations or duties thereunder are determined by reference to any terms or provisions of documents incorporated by reference in any of the Loan Documents, any reference to the "Loan Documents" shall include such terms or provisions.

F. Obligor's obligations under this Agreement and the other Loan Documents shall be unconditionally guaranteed under a Guaranty (defined in Section 1.4(b) of this Agreement), executed by W. Donald Jensen, and by his spouse to confirm that the marital community is obligated thereon, and delivered to the City as a material inducement to the City's agreement to make the Loan in accordance with this Agreement.

G. The portion of principal on the City Note that is scheduled to become due and payable in any year, equal to that portion of principal on the Obligor Note scheduled to become due in the same year, is referred to as the "Corresponding Advance" to such portion of principal on the Obligor Note, and the aggregate of all Corresponding Advances is referred to as the "Corresponding Portion" of the City Note.

H. The City will transfer funds in the maximum aggregate amount of Seven Hundred Fifty-seven Thousand Dollars ($757,000), derived solely from a Brownfields Economic Development Initiative ("BEDI") Grant from HUD, to the Custodian, for deposit into one or more accounts to be established by the Custodian at Closing (collectively, the "BEDI Accounts") for disbursement to cover non-construction development soft costs of the Project, with the remainder to be held as loan loss reserves .

NOTICE: ORAL AGREEMENTS OR ORAL COMMITMENTS TO LOAN MONEY, EXTEND CREDIT, OR TO FORBEAR FROM ENFORCING REPAYMENT OF A DEBT, ARE NOT ENFORCEABLE UNDER WASHINGTON LAW.

NOW, THEREFORE, in consideration of the foregoing Recitals and the covenants, conditions, representations and warranties contained herein, the parties hereto agree as follows:

ARTICLE I THE LOAN

1.1 The Loan. In reliance upon Obligor's representations and warranties, and subject to the terms and conditions contained in this Agreement, the other Loan Documents, the HUD Contract, the Letter Agreements and the Custodial Agreement, the City hereby agrees to cause funds to be advanced to Obligor through the Custodian (which advances collectively shall constitute the "Loan") in a maximum aggregate principal amount equal to Three Million Seven Hundred Eighty-five Thousand Dollars ($3,785,000), solely for the purposes set forth in Section 1.2 below. Loan disbursements shall be made only to the extent of available funds received by the Custodian for such purposes through issuance by the City of the City Note, and except with respect to the payment of project costs from BEDI Grant funds allocated for such purpose as more particularly described in this Agreement and the Custodial Agreement, the City shall have no obligation to make disbursements to or for the benefit of Obligor for payment of costs of the Project or otherwise, from any other source. Obligor shall have the right to receive Loan funds only pursuant to the terms and conditions of this Agreement and in accordance with the Act.

1.2 Purpose of Loan. Loan proceeds shall be used by Obligor solely to finance acquisition and other non-construction costs of the Project, and to refinance prior debt owing by Obligor, in accordance with this Agreement.

1.3 Loan Documentation; Payment of Principal and Interest.

(a) Loan Documentation. The Loan shall be evidenced by this Agreement and by the Obligor Note and, together with Obligor's other obligations under the Loan Documents, shall be secured by the Deed of Trust and other security described in Section 1.4 below.

(b) Principal and Interest. The principal of and interest on this Loan shall be due and payable in accordance with the terms set forth in the Obligor Note.

1.4 Security.

(a) Deed of Trust. The obligations of Obligor under the Loan Documents at all times shall be secured by the Deed of Trust, which shall be a lien on the Property, and by a security interest in all personal property associated with the Property, subject only to encumbrances permitted in accordance with Sections 2.4 and 7.16 below, and subject to any other encumbrances, modifications, partial releases or substitutions of security that the OED Director may authorize in writing, in the discretion of the OED Director. The liens and security interests granted pursuant to the Deed of Trust shall be perfected, to the extent possible, by recording in the real property records of King County, Washington, and by filing with the Department of Licensing of the State of Washington, and Obligor agrees to take all action reasonably requested by the City or Custodian, and to pay all fees and costs reasonably required to continue such perfection so long as the Loan or any of Obligor's other obligations under the Loan Documents remain outstanding. The Deed of Trust shall include an assignment of leases and rents; however, upon request by the City, the Obligor agrees to obtain, execute and deliver such additional assignments of leases, and consents to assignment and subordination and attornment agreements from tenants of the Property as the City may reasonably request prior or subsequent to Closing (defined in Section 4.1 of this Agreement).

(b) Machinery and Equipment Lien. The obligations of Obligor under the Loan Documents at all times shall be secured by the Machinery and Equipment Lien, which shall be a lien against all machinery and equipment held by Obligor, subject only to encumbrances permitted in accordance with Sections 2.4 and 7.16 below, and subject to any other encumbrances, modifications, partial releases or substitutions of security that the OED Director may authorize in writing, in the discretion of the OED Director. The Machinery and Equipment Lien shall be perfected, to the extent possible, by filing with the Department of Licensing of the State of Washington, and Obligor agrees to take all action reasonably requested by the City or Custodian, and to pay all fees and costs reasonably required to continue such perfection so long as the Loan or any of Obligor's other obligations under the Loan Documents remain outstanding.

(c) Accounts Receivable Lien. The obligations of Obligor under the Loan Documents at all times shall be secured by the Accounts Receivable Lien, which shall be a lien against all accounts receivables held from time to time by Obligor, subject only to encumbrances permitted in accordance with Sections 2.4 and 7.16 below, and subject to any other encumbrances, modifications, partial releases or substitutions of security that the OED Director may authorize in writing, in the discretion of the OED Director. The Accounts Receivable Lien shall be perfected, to the extent possible, by filing with the Department of Licensing of the State of Washington, and Obligor agrees to take all action reasonably requested by the City or Custodian, and to pay all fees and costs reasonably required to continue such perfection so long as the Loan or any of Obligor's other obligations under the Loan Documents remain outstanding.

(d) Residential Mortgage. The obligations of Obligor under the Loan Documents at all times shall be secured by the Residential Mortgage, which shall be a lien on residential property owned by W. Donald Jensen, principal shareholder of Obligor, and his spouse, subject only to encumbrances permitted in accordance with Sections 2.4 and 7.16 below, and subject to any other encumbrances, modifications, partial releases or substitutions of security that the OED Director may authorize in writing, in the discretion of the OED Director.

(e) Unconditional Guaranty. The obligations under the Loan Documents, at all times shall be secured by an unconditional guaranty of payment and performance (as supplemented or amended from time to time, the "Guaranty") from W. Donald Jensen, and by his spouse to confirm that it obligates the marital community, in form and content acceptable to the City.

(f) Reserve Accounts. Obligor's obligations under the Loan Documents also shall be secured by all funds and investments in all of the accounts now or hereafter established under the Loan Documents, including without limitation, the Custodial Agreement, relating to the Obligor and specifically including without limitation, the respective subaccounts related to the Obligor Note in the Guaranteed Loan Funds Account, the Guaranteed Loan Funds Investment Account, the Loan Repayment Account, the Loan Repayment Investment Account, and the BEDI Accounts (all such accounts are collectively referred to herein as the "Reserve Accounts," and to the extent that the Custodian maintains any account for the purpose of more than one loan, all references to any such account, unless the context clearly requires otherwise, shall refer to the subaccount thereof related to the Obligor Note). Obligor hereby pledges to the City, and grants the City a security interest in, all right, title and interest of Obligor, if any, in and to the funds and investments now or hereafter in the Reserve Accounts, and all earnings thereon and proceeds thereof. Obligor agrees that such funds and other assets shall constitute "cash collateral" as described in the United States Bankruptcy Code. Obligor shall promptly take such actions as shall be reasonably requested by the City or Custodian, and pay all fees and costs reasonably required in order to perfect and continue perfection as a first priority lien and security interest, so long as the Loan remains outstanding, the City's security interest in such accounts, the funds and investments therein, and the proceeds thereof. Obligor agrees that, in addition to all other rights and remedies with respect to Reserve Accounts and otherwise under the Loan Documents, immediately upon acceleration of the balance owing on the Loan, whether upon an Event of Default or any other circumstance permitting acceleration, the City shall have the absolute right, without notice or demand, to apply all funds and assets pledged under this Section to amounts owing under the Loan Documents, and for such purpose to liquidate or cause to be liquidated any investments in any commercially reasonable manner, and irrevocably authorizes any Custodian, upon notice from the City of an Event of Default or any other circumstance permitting acceleration, to comply with the City's directions to so apply any or all such funds and assets and to liquidate investments for such purpose.

(g) Recourse Loan. The Loan shall be made with full recourse to the Obligor, and the corporate assets of Obligor.

(h) Proceeds of Transfers. Upon any transfer of any interest in the Property permitted by the City pursuant to this Loan Agreement, the City shall have a security interest in all proceeds, rents, receivables, notes, and security for any of the foregoing, resulting from such transfer, and/or resulting from any use of proceeds, and Obligor shall execute and deliver promptly to the City all documents requested by the City in order to establish, continue, perfect, or protect such security interests. Obligor hereby pledges to the City, and grants the City a security interest in, all right, title and interest of Obligor in any and all such proceeds, rents, receivables, notes and security, and all earnings thereon and proceeds thereof.

(i) Rights of City With Respect to Security. Obligor irrevocably agrees that, to the full extent permitted by applicable law, the City may realize upon any security for the Loan in any order, either before, concurrently with, or after either (1) any action to realize upon any other form of security, including without limitation the Property or (2) any suit or other proceeding on the Obligor Note, in each case without affecting the status of or waiving any rights or remedies under the Loan Documents or with respect to any security. Obligor consents to any and all actions that the City or Custodian may take to release, subordinate, accept substitution for, modify, compromise or waive any or all security with respect to the Loan, and Obligor agrees that no such action shall impair any rights or remedies of the City or Custodian under the Loan Documents. Obligor understands and agrees that City may assign the Deed of Trust and other security granted under this Section to HUD as security for HUD's rights in connection with its guarantee of the City Note.

(j) Collateral Assignments. The Loan shall be further secured under Collateral Assignments of Interest in Accounts and Assignments of Leases and Revenues with respect to the Property, in form and substance acceptable to HUD and acceptable to the City (the "Collateral Assignments").

(k) Perfection of Security Interests. Obligor shall promptly take such actions as shall be reasonably requested by the City or Custodian, and pay all fees and costs reasonably required, in order to perfect and continue the perfection and priority of any and all security interests granted hereunder or pursuant to this Agreement, so long as the Loan remains outstanding. Obligor agrees that, in addition to all other rights and remedies otherwise under the Loan Documents, immediately upon acceleration of the balance owing on the Loan, whether upon an Event of Default or any other circumstance permitting acceleration, the City shall have the absolute right, without notice or demand, to apply all funds and assets granted as security hereunder or otherwise for the Loan, to amounts owing under the Loan Documents, and for such purpose to liquidate or cause to be liquidated any investments in any commercially reasonable manner, and irrevocably authorizes any Custodian, upon notice from the City of an Event of Default or any other circumstance permitting acceleration, to comply with the City's directions to so apply any or all such funds and assets and to liquidate investments for such purpose.

1.5 Loan Fee. Obligor shall pay to City a loan fee of Thirty-Seven Thousand Eight Hundred Fifty Dollars ($37,850), representing one percent (1%) of the amount of the Loan, payable to or as directed by the City upon and from the first disbursement of Loan funds hereunder, payment of which loan fee is in addition to Obligor's duty to pay City's costs and fees pursuant to Section 1.6 of this Agreement.

1.6 Obligor's Payment of Costs and Fees. Obligor shall pay to City or at City's direction, as and when due, all other costs and fees of whatever nature incurred by City (whether or not with recourse to the City) in connection with the Loan, including without limitation, fees and costs incurred by the City pursuant to the HUD Contract and City Note (except for those items estimated below, to be allocated on a pro rata basis according to the total principal amount outstanding on the Obligor Note and the City Note at the time fees or costs are incurred from time to time). The costs and fees payable by Obligor shall include, without limitation, (i) any and all charges and costs billed by the Fiscal Agent in respect of the Corresponding Portion of the City Note under the Amended and Restated Master Fiscal Agency Agreement among HUD and The Chase Manhattan Bank (now known as JPMorgan Chase Bank) as Fiscal Agent ("Fiscal Agent") dated as of May 17, 2000; (ii) on and after the Conversion Date, any charges and costs in respect of the Corresponding Portion of the City Note billed by the trustee under that certain Trust Agreement by and between HUD and Chemical Bank, as Trustee, dated as of January 1, 1995, as now and hereafter amended and supplemented, and under any other trust agreement or similar instrument that may be executed by HUD in connection with a public offering conducted with respect to notes guaranteed by HUD under the Section 108 program (each such offering is referred to herein as a "Public Offering") that involves the City Note, (iii) fees and costs of the Custodian in connection with the Custodial Agreement, Letter Agreements and BEDI Account; (iv) fees and costs of the City's outside counsel and the Custodian's outside counsel; and (v) title insurance and escrow fees and costs in connection with Closing, the Deed of Trust and the Residential Mortgage. Such fees and costs as of the date of Closing are estimated (but not guaranteed) to be as follows: Custodian's initial fee and first annual fee: $356.16; City's counsel fees and costs: $_______; Custodian's outside counsel fees and costs: $N/A; Fiscal Agent fee: $70; title insurance: $_______; escrow and other costs: $_____; Bank fees and costs: $_______. These estimates do not include the following, which shall also be paid by Obligor: the fees described in Section 1.5; fees and costs of the Custodian, if any, other than the initial set-up fee; and any fees or costs of the City's outside counsel or Custodian's outside counsel incurred after the date of Closing, including without limitation, in connection with a Public Offering, and as may be incurred in case of breach or failure to perform by Obligor or in case of any litigation arising in connection with this Agreement.

1.7 City Funds Not Obligated. The Loan will be made only from nonCity funds that the Custodian receives under the HUD Contract and City Note, and the BEDI Grant Agreement, dated December 19, 2007. In accordance with RCW 35.21.735, the City Note, and any payments or obligations under the HUD Contract and any documents or agreements relating thereto, including without limitation this Loan Agreement shall be a valid claim only against and payable solely from, the Accounts held by the Custodian and from the security pledged under the HUD Contract, and shall not be an obligation of The City of Seattle or the State of Washington, and neither the faith and credit nor the taxing power of the City or State or any municipal corporation or subdivision of the State or any agency of any of the foregoing is pledged to the payment of principal, interest or premium, if any, on the City Note or for any amounts due under the HUD Contract or any documents or agreements relating thereto including without limitation this Agreement. Nothing herein shall constitute a debt or indebtedness of the City payable from public funds within the meaning of any constitutional or statutory limitation on the incurrence of debt. Obligor agrees and acknowledges that this Agreement does not create any recourse to or claim upon the City's general fund, or any other funds of the City, and Obligor hereby disclaims any such claim.

1.8 Application of Payments. So long as the City or the Custodian shall have received, in immediately available funds and in the manner required hereunder, timely payments of interest and principal on the Obligor Note in the amounts required thereunder, the City shall apply or cause the Custodian to apply such payments to payment of interest on and the principal of the City Note, as such interest and principal shall become due.

1.9 Acceleration on Certain Events. The City shall have the absolute right, in its discretion, to declare all or any part of the principal balance owing on the Loan immediately due and payable in the event that:

(a) HUD or any court of competent jurisdiction shall determine that the Loan or the issuance of the City Note must be terminated, canceled or rescinded for failure to comply with the Act or other applicable law, or that for any reason any City Note cannot be issued or cannot be guaranteed by HUD; or

(b) HUD shall notify the City that any or all of the City Note cannot be included in the pool of notes for purposes of a scheduled Public Offering for any reason, and that HUD or the holder of the City Note is not willing to allow the interim terms of the City Note to remain in effect pending a later public offering;

provided, that unless otherwise required by HUD or by the effect of a court order, Obligor shall be allowed a period of ninety (90) days after notice to Obligor thereof to seek to have such determination reversed or rescinded, or the effect thereof stayed, prior to acceleration of all or any part of the principal balance. If any such stay is obtained, then the City shall have the right to accelerate all or part of the principal balance immediately upon the lifting or termination of such stay.

ARTICLE II OBLIGOR'S REPRESENTATIONS, WARRANTIES AND COVENANTS

In order to induce City to make the Loan and to cause the Custodian to draw funds subject to the HUD Contract, Obligor represents, warrants and covenants as set forth below in this Article II as of the date hereof, as of the date of Closing, and at all times any of the principal of or interest on the Loan remain outstanding. These representations, warranties and covenants shall survive the execution, delivery and performance of the Loan Documents.

2.1 Organization of Obligor; Authority to Enter into Agreement. Obligor is a for profit corporation, duly organized and validly existing pursuant to the laws of the State of Washington, doing business as Alpha Cine Labs. Obligor has the right and power to own all of its properties and to transact the business in which it is currently engaged or proposes to engage, and has full power and authority to enter into this Agreement, to borrow money and encumber its assets as security therefor as contemplated herein, and to execute and perform the provisions of the Loan Documents. The LLC is a limited liability company, duly organized and validly existing pursuant to the laws of the State of Washington, of which the sole member is W. Donald Jensen. The LLC has the right and power to own all of its properties and to transact the business in which it is currently engaged or proposes to engage, and the LLC has full power and authority to execute and deliver the Deed of Trust. The execution, delivery and performance of this Agreement, and the other Loan Documents have been duly authorized by all necessary corporate action, and no other action of Obligor, LLC or any other party is required for the execution, delivery and performance of this Agreement or the other Loan Documents. The Loan Documents constitute valid and binding obligations of Obligor, each enforceable in accordance with their respective terms.

2.2 Nondiscrimination, Fair Contracting Practices, WMBE.

(a) During the performance of this Loan Agreement, Obligor and any party contracting with Obligor in connection with the Project (whether or not to be paid from Loan funds) shall not discriminate on the basis of race, color, sex, religion, national origin, creed, marital status, sexual orientation, gender identity, age or the presence of any sensory, mental or physical handicap in employment or application for employment or in the administration or delivery of services or any other benefits under this Loan Agreement. The Obligor shall comply fully with, and ensure that each such other party complies fully with, all applicable federal, state and local laws,

ordinances, executive orders and regulations that prohibit such discrimination. These laws include, but are not limited to, Chapter 49.60 of the Revised Code of Washington, Titles VI and VII of the Civil Rights Act of 1964 and Chapter 14.04 of the Seattle Municipal Code.

(b) Each party is required to comply with the Fair Contracting Practices Ordinance of The City of Seattle (Ordinance 119601), as amended. Conduct made unlawful by that ordinance constitutes a breach of contract. Engaging in an unfair contracting practice may also result in the imposition of a civil fine or forfeiture under the Seattle Criminal Code as well as various civil remedies.

(c) Affirmative Efforts to Utilize WMBEs. The City encourages the utilization of minority owned businesses ("MBEs") and women-owned businesses ("WBEs") (collectively, "WMBEs"), in contracts funded by the City. The City encourages, and Obligor shall encourage with respect to the Project, the following practices to open competitive opportunities for WMBEs:

(1) Attending a pre-bid or pre-solicitation conference, if scheduled by the City or Obligor, to provide project information and to inform WMBEs of contracting and subcontracting opportunities.

(2) Placing all qualified WMBEs attempting to do business in the City on solicitation lists, and providing written notice of subcontracting opportunities to WMBEs capable of performing the work, including without limitation all businesses on any list provided by the City, in sufficient time to allow such businesses to respond to the written solicitations.

(3) Breaking down total requirements into smaller tasks or quantities, where economically feasible, in order to permit maximum participation by small businesses including WMBEs.

(4) Establishing delivery schedules, where the requirements of this contract permit, that encourage participation by WMBEs.

(5) Providing WMBEs that express interest with adequate and timely information about plans, specifications, and requirements of the contract.

(6) Utilizing the services of available minority community organizations, minority contractor groups, local minority assistance offices, the City, and other organizations that provide assistance in the recruitment and placement of WMBEs.

Obligor shall maintain, for at least twelve (12) months after completion of the Project, all bids or proposals from general contractors for the Project, and relevant records and information necessary to document level of utilization of WMBEs and other businesses as subcontractors and suppliers on the Project. Obligor shall require that the general contractor maintain and provide to the City on request all written quotes, bids, estimates, or proposals submitted to the contractor by all businesses seeking to participate as subcontractors or suppliers on the Project. The City shall have the right to inspect and copy such records. Obligor and the general contractor shall comply with all record-keeping requirements set forth in any federal rules, regulations or statutes included or referenced in this Agreement or the contract documents. Nothing in this Section shall be construed to require or authorize any discrimination or preferential treatment contrary to applicable law.

2.3 No Litigation. There are no actions, suits or proceedings pending, or to the knowledge of Obligor threatened, against or affecting Obligor, LLC or the Property in any court of law or in equity, or before or by any governmental or municipal authority.

2.4 Encumbrances.

(a) Upon and after the date of first disbursement of the Loan, the City and Grow America Fund ("GAF") loans shall be secured pari passu, pursuant to documents acceptable to the City, with each lender sharing the same seniority security position with respect to the Property, the Machinery and Equipment Lien, the Accounts Receivable Lien and the Residential Mortgage. Proceeds from the foreclosure and/or liquidation of collateral shall be apportioned between the City and GAF to each in a percentage equal to the then outstanding principal amount of that party's loan divided by the combined loan amounts then outstanding from the City and GAF. References to liens or security interests of GAF in this Section refer only to GAF's pari passu position as described in this subsection (a), securing a loan in the principal amount not to exceed $1,310,710.

(b) Upon and after the date of first disbursement on the Loan, the Property and shall be owned in fee simple absolute by the LLC, and shall be subject to no liens or encumbrances except:

(i) The Deed or Deeds of Trust held by GAF;

(ii) Any other encumbrances in favor of the City;

(iii) Liens for property taxes or assessments on the Property not yet due; and

(iv) Any other liens approved in writing by the City and, to extent required by the HUD Contract, HUD.

(c) The Machinery and Equipment Lien is and shall be subject to no liens or encumbrances except a security interest held by GAF and any other liens approved in writing by the City and, to extent required by the HUD Contract, HUD.

(d) The Accounts Receivable Lien is and shall be subject to no liens or encumbrances except a security interest held by GAF and any other liens approved in writing by the City and, to extent required by the HUD Contract, HUD.

(e) The property subject to the Residential Mortgage is owned in fee simple absolute solely by W. Donald Jensen and his spouse,______________ and shall be subject to no liens or encumbrances except:

(i) The Deeds or Deeds of Trust held by _________________, a ____________, in the cumulative amount not to exceed $480,883;

(ii) Liens for property taxes or assessments on the Property not yet due;

(iii) The Deed or Deeds of Trust held by GAF; and

(iv) Any other liens approved in writing by the City and, to extent required by the HUD Contract, HUD.

2.5 Covenants, Zoning, Codes and Permits. Obligor covenants that the Property and its uses will at all times comply in all material respects with, all applicable zoning and land use codes, building and construction codes, fire codes, environmental statutes and regulations, and other laws, ordinances, and regulations applicable to the development and operation of the Property, including without limitation, the Americans with Disabilities Act. All permits, consents, approvals or authorizations by, or registrations, declarations, withholding of objections or filings with any governmental body necessary in connection with the valid execution, delivery and performance of this Agreement, or necessary for the present and intended operations of the Property, have been obtained or will be obtained in due course as required to permit timely completion and continuous operation of the Project thereafter, and shall be valid, adequate and in full force and effect.

2.6 Description of the Project. The description of the Project set forth in Attachment B hereto is accurate and complete in all material respects.

2.7 Compliance With Documents. Obligor is and will remain in full compliance with all of the terms and conditions of this Agreement and the other Loan Documents, and any and all other material agreements, instruments or other documents affecting the Property, and no occurrence has or shall have occurred and be continuing, which, with the passage of time or the giving of notice, or both, would constitute a default under any of the foregoing.

2.8 Taxes Are Paid. Obligor has filed all material tax returns that are required and has paid or made provision for the payment prior to the last day on which payment may be made without interest or penalty of all taxes that have or may become due pursuant to said returns or pursuant to any assessments levied against the Obligor or its personal or real property by any taxing agency, federal, state or local, and Obligor has withheld any paid over to proper authorities all withholding taxes required by law. No due or overdue tax liability or lien has been asserted by the Internal Revenue Service or other taxing agency, federal, state or local, and the Obligor knows of no basis for any such deficiency assessment or lien.

2.9 TIN. Obligor's federal tax identification number is .

ARTICLE III CONDITIONS PRECEDENT TO LOAN CLOSING

The City's obligation to perform its duties under this Agreement, including without limitation causing disbursement of any funds, shall be subject to the full and complete satisfaction of the following conditions precedent:

3.1 Documents. City shall have received fully executed originals of each of the following, each of which shall have been duly authorized, executed (and acknowledged where appropriate) and delivered by the parties thereto, and shall be in form required by this Agreement, with such modifications as may be approved by the City in accordance with the Ordinance: this Agreement; the Obligor Note; the Deed of Trust, a Certificate and Indemnity Regarding Building Laws and Hazardous Substances from Obligor and the LLC, in form and content acceptable to the City, with respect to the Property (as supplemented or amended from time to time, the "Certificate and Indemnity"); the Machinery and Equipment Lien, the Accounts Receivable Lien; the Collateral Assignments; the Residential Mortgage, the Guaranty; the promissory note for the BEDI Loan as described in Section 7.16(d); any other security documents required by the City pursuant to Section 1.4 hereof, and such other documents as City shall reasonably request.

3.2 Survey. If requested by the City in its sole discretion or the title insurer identified in Section 3.8, below, the City and such title insurer shall have received a recent survey of the Property by a registered surveyor, in form and substance acceptable to the City and title insurer, respectively.

3.3 Appraisal. The City shall have received an MAI appraisal for the Property, in form and content reasonably acceptable to the City and establishing the value for the Property acceptable to the City in its sole discretion.

3.4 Environmental Reports. The City shall have received a Phase I Environmental Report (and such additional environmental reports as the City may reasonably request), establishing that the Property is free from contamination by Hazardous Substances, except contamination that is to be remediated, either in connection with the Project or in connection with a written remediation plan satisfactory to the City in its sole discretion (and receipt of a true and complete, fully executed copy of which shall also be a condition to disbursement hereunder). In addition, if there is an underground storage tank on the Property, the City shall have received evidence of compliance with all applicable requirements of federal, state and local laws, rules, regulations and ordinances including without limitation the financial responsibility requirements of applicable state and/or federal law and/or regulations, together with a certificate of completion approved by the City from the engineering firm responsible for the removal of any storage tanks from the Property if it is to be removed.

3.5 Evidence of Establishment of BEDI Accounts. The City shall have received evidence satisfactory to it that the BEDI Accounts have been established in the amount of $_______________, under terms consistent with the provisions of Section 4.5 of this Agreement and otherwise satisfactory to the City in form and substance.

3.6 Evidence of Authority; Officer's Certificate. City shall have received evidence satisfactory to it that Obligor, LLC and the persons signing on behalf of Obligor and LLC have the capacity and authority to execute and deliver Loan Documents on behalf of Obligor and LLC, including, but not limited to, a copy of Obligor's articles and bylaws and appropriate resolutions authorizing the transactions contemplated hereby, all as certified by an officer of Obligor as true, complete and in full force and effect. City shall have received a Certificate of Obligor executed by a duly authorized officer of Obligor, in form and content acceptable to the City.

3.7 Insurance. The Obligor shall have provided to the City evidence of insurance coverage as required by the Deed of Trust.

3.8 Title Insurance; Other Confirmation of No Liens.

(a) Obligor shall have caused to be furnished to the City, at Obligor's expense, from Chicago Title Insurance Company or another title insurance company acceptable to City ("Title Company"), an ALTA 2006 Form Extended Coverage lender's policy of title insurance in the amount of the maximum principal of the Loan, showing City as an insured mortgagee, that fee title to the Property is vested in LLC and that Obligor holds a valid leasehold interest, and that the Deed of Trust is a valid lien upon Obligor's and LLC's interests in the Property, subject only to such encumbrances and exceptions as may be explicitly permitted by the Loan Documents, including Section 2.4 of this Agreement, and any others that may be acceptable to City in its sole discretion. The title policy shall be in form, and shall include the endorsements, satisfactory to the City, shall limit exceptions for taxes limited to those not yet due and payable, and shall show no additional exceptions or encumbrances, whether senior or junior to the Deed of Trust, except as permitted pursuant to this Loan Agreement. In addition, the City shall have received form UCC-11Rs dated within five days of the date of Closing, showing no liens against the Property or the personal property of the Obligor or LLC, other than liens permitted in accordance with Section 2.4. Finally, the City shall have received such other evidence reasonably requested and satisfactory to the City that all security instruments, guaranties and assignments contemplated by this Agreement are in full force and effect and have the priority contemplated hereby.

(b) Obligor shall have caused to be furnished to the City, at Obligor's expense, from the Title Company, an ALTA 2006 Form Extended Coverage lender's policy of title insurance in the amount of the maximum principal of the Loan (but with a combined limit endorsements tied into the policy required in subsection (a) of this Section), showing City as an insured mortgagee, that fee title to the property subject to the Residential Mortgage is vested in the Guarantor and his spouse, and that the Residential Mortgage is a valid lien upon that property, subject only to such encumbrances and exceptions as may be explicitly permitted by the Loan Documents, including Section 2.4 of this Agreement, and any others that may be acceptable to City in its sole discretion. The title policy shall be in form, and shall include the endorsements, satisfactory to the City, shall limit exceptions for taxes limited to those not yet due and payable, and shall show no additional exceptions or encumbrances, whether senior or junior to the Residential Mortgage, except as permitted pursuant to this Loan Agreement.

3.9 Legal Opinions.

(a) City shall have received a legal opinion, containing reasonable and customary exclusions and qualifications, and in form and content reasonably satisfactory to City and the City's counsel, and sufficient to support such counsel's opinion as required by HUD, from Obligor's counsel, who shall be satisfactory to City, confirming among other matters reasonably requested by the City, that:

(1) Obligor is duly organized and validly existing as a for profit corporation in the State of Washington, and LLC is duly organized and validly existing as a limited liability company in the State of Washington;

(2) Obligor has the corporate power and authority to execute and deliver the Loan Documents and to perform all of its obligations thereunder, and LLC has the corporate power and authority to execute and deliver the Deed of Trust and Certificate and Indemnity;

(3) The execution and delivery of the Loan Documents by Obligor and, where applicable, LLC, do not, and the transactions contemplated by the Loan Documents will not, violate any laws or regulations applicable to Obligor or LLC and will not conflict with and will not cause a default under (i) any provisions of the Obligor's articles, bylaws or other governing documents or the governing documents of LLC, or (ii) any other material agreements, instruments, judgments, decrees, orders or undertakings known to such counsel after reasonable inquiry by which Obligor or LLC is bound or to which the Property is subject; and

(4) The Loan Documents have been duly authorized, executed and delivered by Obligor, and by LLC where applicable, and constitute the legal, valid, binding obligations of Obligor, enforceable in accordance with their terms.

(b) The City shall have received such additional items as may be required pursuant to the HUD Contract, including without limitation, an opinion of counsel to the City.

3.10 Additional Conditions Precedent to Each Advance of Funds.

As conditions to any right of Obligor to any advance hereunder:

(a) The City shall have received such additional documents and further assurances as it may reasonably request or which are required by HUD or any federal, state or county regulatory agency.

(b) Obligor shall be in full compliance with, and shall not be in breach or default under, this Agreement, any of the other Loan Documents; provided, however, that City may, in its discretion, elect to make advances notwithstanding the existence of Obligor's noncompliance or default, and any advance so made shall be deemed to have been made pursuant to this Agreement and secured by the Deed of Trust, Machinery and Equipment Lien, Accounts Receivable Lien and Residential Mortgage.

(c) Neither the Property nor any part thereof, nor any property subject to the Residential Mortgage, shall have been materially damaged, destroyed, condemned or threatened with condemnation.

(d) No order or notice shall have been made by, or received from, any governmental agency having jurisdiction stating that the Property, its current or intended uses, or the Project, is or will be in violation of any law, ordinance, code or regulation affecting the Property.

(e) The representations and warranties of Obligor contained herein shall remain accurate in all material respects as of the date of the requested disbursement.

(f) Neither HUD nor any court of competent jurisdiction shall have determined that the issuance of the City Note or the making of the Loan must be terminated, canceled or rescinded for failure to comply with the Act or other applicable law, or that for any reason any City Note cannot be issued or cannot be guaranteed by HUD.

(g) Obligor shall have submitted to the City a draw request in such form as the City shall require identifying all costs to be reimbursed and uses of funds consistent with the terms of this Loan Agreement, and such other documents and materials as are required pursuant to the terms of this Loan Agreement or as the City may reasonably require in order to support such request and to document the costs incurred, and the City shall be satisfied that the amount requested does not exceed the Project costs eligible to be paid from Loan funds, not covered by any prior disbursement.

ARTICLE IV LOAN DISBURSEMENTS AND REPAYMENTS; RESERVE ACCOUNTS

4.1 Single Disbursement. Conditioned upon receipt of proceeds of the City Note and satisfaction of all other applicable conditions to Loan disbursements under this Agreement, the City shall cause disbursement of Loan funds in the amount of Three Million Seven Hundred Eighty-five Thousand Dollars ($3,785,000), less the Loan fee payable to the City in accordance with Section 1.5 of this Agreement, the fee charged by HUD or the Fiscal Agent for such disbursement and other fees and costs due and payable pursuant to Section 1.6 of this Agreement. The disbursement of Loan funds and the delivery of all documents required by the City, which shall occur through a closing agent if so required by the City, is referred to as the "Closing." To the extent that final information as to any costs payable by Obligor hereunder is not available at the time of Closing, the City may instruct the closing agent or Custodian to hold back a reasonable amount, as determined by the City, to cover such costs when known, and after such costs have been determined and paid, to disburse any remainder first to the Obligor to reimburse any eligible acquisition or Closing costs paid by Obligor from other funds, and then the residue, if any, to the Loan Repayment Account.

4.2 Other Conditions to Disbursement. Each of following is a condition to any right of Obligor to disbursement of Loan funds (along with all other applicable conditions to Loan disbursements under this Agreement):

(a) Documentation satisfactory to the City that Obligor has entered into a sublease agreement with a tenant regarding approximately 10,000 square feet of warehouse space in the Property on terms acceptable to the OED Director.

4.3 Costs Related to Public Offering. Obligor irrevocably agrees, that the entire Corresponding Portion of the City Note be included shall be included in the next available Public Offering, unless the Obligor requests otherwise in writing and the City, in its discretion (subject to any requirement of HUD), elects to exclude the City Note from such Public Offering, in which case this sentence shall apply to each subsequent Public Offering until the City Note is so included. Obligor shall deliver to the Custodian, by the later of the date thirty (30) days prior to the date set for the Public Offering that includes the City Note, or five (5) days after the date of notice thereof to Obligor, the Obligor's pro rata share of Public Offering costs as determined by the City or Custodian based on information from HUD. If Obligor does not timely deliver such amount, then the City may direct the Custodian to pay the Obligor's share of Public Offering costs from any of the Reserve Accounts, any other provision of the Loan Documents notwithstanding, and the Obligor shall replenish such Reserve Account(s) on demand.

4.4 Request for Interim Funding Advance; Interest to Run from City Note Funding; Cancellation upon Failure to Satisfy Closing Conditions; Payment of City's Costs. Obligor acknowledges and confirms that it has requested that the City request of HUD an advance on the City Note to be made in the maximum amount of the Loan hereunder at the earliest possible date. The City has submitted a request for funds to HUD, but the City shall not be liable or responsible for any failure or delay by HUD, the Fiscal Agent or the interim purchaser of the City Note, or for any delay in the process of transferring funds to the Custodian and to the escrow agent. Regardless of the actual date of funding of

the Loan, interest shall run from the date of the advance on the City Note. If funds are disbursed by HUD on the City Note, but the conditions to disbursement of funds to Obligor are not fully satisfied within fifteen (15) days thereafter, then the City shall have the right to cancel this Agreement, and Obligor shall then pay on demand all fees and costs of the Custodian and Fiscal Agent, and shall reimburse the City for all reasonable fees and costs of its outside counsel and consultants incurred in connection with this Loan, but shall not be liable for the Loan fee described in Section 1.5 of this Agreement. In addition, if this Loan Agreement shall be canceled under this Section after proceeds of the City Note shall have been disbursed to the Custodian, then the Obligor shall pay to the Custodian on demand an amount equal to all interest that shall accrue on the Corresponding Portion of the City Note from the date of such disbursement to the date of redemption thereof, less net earnings actually received (if any) by the Custodian on the proceeds of the City Note disbursed to the Custodian for this Loan, prior to such redemption.

4.5 Loan Repayment Account.

(a) Monthly Deposits. Commencing in the first month disbursement of principal of the City Note in respect of the Obligor Note is to be made, Obligor shall make monthly installment payments to the Custodian for deposit in an account maintained by the Custodian for the accumulation of funds for payments on the Obligor Note (the "Loan Repayment Account," established under the Custodial Agreement and Letter Agreements), in order that the Custodian shall have sufficient funds to pay installments on the Obligor Note as they come due (each such due date being an "Obligor Note Payment Date"). Obligor shall make monthly deposits to the Custodian for deposit in Loan Repayment Account, in order that the Custodian shall have sufficient funds to pay installments on the Obligor Note on each Obligor Note Payment Date. Obligor shall pay to the Custodian on each Deposit Day, the Interest Component and the Principal Component, each for deposit into the Loan Repayment Account. Funds in the Loan Repayment Account shall be used to make payments on the City Note as they come due. Each such monthly deposit shall be due and payable, in immediately available funds, on the "Deposit Day," which shall be the fifteenth (15th) day of the month, or if such day is not a Business Day, then on the previous Business Day; subject to adjustment in respect of any Conversion Date. Subject to the provisions of Section 4.5(b) hereof, the Interest Component payable each month shall be in an amount equal to the interest accrued and to accrue on the Obligor Note during that entire calendar month, except that the Interest Component shall be adjusted ratably in any month the Loan is not outstanding for the entire month. Each Principal Component shall be one-twelfth (1/12th) of the total principal coming due on the Obligor Note on the next Obligor Note Payment Date on which principal shall become due, except that the Principal Component for each Deposit Day after July 15, 2026 shall be limited (but not reduced below zero) so that the total of the Principal Component and Interest Component does not exceed the total of such amounts required on the last Deposit Day falling on or before July 15, 2027. Except as provided in Section 4.5(c) below, Obligor shall not be entitled to any reductions in, or credits against, deposits to the Loan Repayment Account based upon interest or earnings credited to the Loan Repayment Account, the Loan Repayment Investment Account or the BEDI Accounts. The Obligor hereby irrevocably assigns all of its right, title and interest, if any, in funds deposited in the subaccounts of the Loan Repayment Account, Loan Repayment Investment Account and BEDI Accounts related to the Obligor Note, to the Custodian and the City, and shall have no residual interest in any portion of such Reserves.

(b) Transfers Authorized; Crediting Payments on Obligor Note. The Custodian is hereby irrevocably authorized to transfer from the Loan Repayment Investment Account to the Loan Repayment Account on each Obligor Note Payment Date, funds in the full amount due on the Obligor Note on each such date. The Custodian is then authorized and directed to apply funds in the Loan Repayment Account to the timely payment of amounts due on the Corresponding Portion of the City Note. The Obligor further agrees that upon direction of the City, the Custodian may apply funds in the BEDI Accounts to make any payments on the Corresponding Portion for which there are insufficient funds in the Loan Repayment Account as a result of failure by Obligor to pay funds to the Custodian for deposit therein as required hereunder, but no application of any funds in any account to payments on the Obligor Note shall waive or reduce any such required payments from Obligor. Obligor's monthly installment payments into the Loan Repayment Account shall not constitute payments under the Obligor Note. Obligor shall be credited with the payment of interest and principal on the Obligor Note only when and solely to the extent that funds on deposit and/or transferred to the Loan Repayment Account under this Section 4.5(b), not including any amounts in the BEDI Grant Reserve Account, are applied to the payment of the Corresponding Portion of the City Note, except that if all amounts necessary to pay all amounts owing on the Obligor Note are on deposit in the Loan Repayment Account on the final maturity date of the Obligor Note, such amounts shall be credited on such maturity date. The Custodian is further irrevocably authorized by Obligor to liquidate investments in the Loan Repayment Investment Account and BEDI Accounts, in the Custodian's discretion, and without liability for any loss on any such liquidation, for the purposes described in this Section 4.5(b). The authorization by Obligor in this Section 4.5(b) is in addition to, and not in limitation of, the authorization in Section 1.4 above.

(c) Investment of Funds; Earnings Remain on Deposit. Funds in the Loan Repayment Account and BEDI Accounts shall be invested at the direction of City, but only in instruments that mature (or are redeemable without penalty) within six (6) months and in any event no later than five (5) Business Days before the next Obligor Note Payment Date, and that are guaranteed as to payment of principal by the United States Government, or in money market funds that invest solely in such instruments. All earnings in the Loan Repayment Account and BEDI Accounts shall remain therein until applied in accordance with this Agreement, or until all amounts owing under the Loan Documents have been paid in full, or in the case of the BEDI Accounts, until any earlier date when any right of the Obligor to have amounts in such Account applied for its benefit shall have terminated hereunder. When all amounts owing under the Loan Documents have been paid in full, then the remaining balance shall be disbursed to or upon the order of the City.

(d) Late Charge. If any deposit required to be made into the Loan Repayment Account is not received within ten (10) days after the date when such deposit is due, in addition to additional interest required to be paid in accordance with the Obligor Note, Obligor agrees to pay a late charge equal to five percent (5.0%) of the amount past due, as compensation to the City and Custodian for the staff time and resources required to handle such delinquencies, and not as a penalty. Such late charges shall not be credited to the Loan Repayment Account, but shall be retained by the City and/or Custodian. Late charges under this Section are in addition to, and not in substitution for, the other remedies provided in the Loan Documents.

4.6 Application of Payments. Any amounts to be applied to the Obligor Note in accordance with this Agreement shall be applied first to accrued interest on the Obligor Note, next to any premium then due, and the balance, if any, to reduction of principal.

ARTICLE V OBLIGOR'S LOAN COVENANTS

In addition to other obligations of the Obligor hereunder, Obligor covenants and agrees as follows:

5.1 General. From and after the date hereof and so long as any amount remains unpaid on the Obligor Note, or for so long as any commitment exists to extend credit hereunder, Obligor covenants and agrees that it will:

(a) Promptly pay principal, interest and premium (if any) pursuant to the Obligor Note as and when the same becomes due and payable, and make any and all other payments and deposits required by the Loan Documents;

(b) Preserve and keep in full force and effect its existence as a corporation under the laws of the State of Washington;

(c) Maintain, preserve and keep the Property, improvements thereon, and all equipment used in connection therewith in good repair, working order and condition, ordinary wear and tear excepted, and from time to time make all necessary repairs, renewals, replacements and additions thereto so that at all times the efficiency thereof shall be fully preserved and maintained.

5.2 Commencement and Completion of Construction. Subject to the terms and conditions of this Agreement and applicable laws and regulations, Obligor shall carry out the Project in accordance with Attachment B. Obligor shall commence construction of the Project no later than December 1, 2008 and will complete construction, as evidenced by permanent certificates of occupancy issued by the City, no later than May 1, 2009.

5.3 Compliance with Laws. All use and operation of the Property and Project, and all work performed in connection with the Property and Project shall comply in all material respects with all applicable laws, ordinances, rules and regulations and executive orders of federal, state, county or municipal governments or agencies now in force or which may be enacted hereafter.

5.4 Inspections. City and its representatives shall have the right, subject to the rights of tenants on the Property, at all reasonable times after three (3) days' prior written notice during regular business hours (and at any time in the event of an emergency) to enter upon the Property and inspect the Property to determine that the same is in conformity with this Agreement and all laws, ordinances, rules and regulations. City shall have the further right, from time to time, to inspect and copy Obligor's books and records relating to the Property. Without limiting the foregoing, Obligor shall permit City to examine and copy all books, records and other papers relating to Obligor's use of the Loan proceeds and to Obligor's compliance with this Agreement, the Act and applicable provisions of federal, state, and local laws, ordinances, rules and regulations.

5.5 Notify City of Litigation or Complaints. Obligor shall promptly notify City in writing of all litigation or threatened litigation involving the Property or any part of the Property, and any other litigation that reasonably could have a material adverse affect on the financial condition of Obligor, and of all complaints or charges made by any governmental authority affecting the Property or Obligor which may require changes in the development or use of the Property.

5.6 Waiver of Immunity.

Obligor waives, after mutual negotiation, and with respect to the City only, its immunity under RCW Title 51, Industrial Insurance.

Initials: Obligor: ____ City: _____

5.7 Federal Regulations. Obligor acknowledges that the Loan is to be made with funds received by the Custodian under the Section 108 program of the Act and that such funds are subject to CDBG program regulations of HUD, and certain other federal laws and regulations. Accordingly, Obligor agrees, represents and warrants that Obligor shall comply with all applicable requirements under HUD regulations for the CDBG program and under other laws and regulations applicable to loans of such federal funds, including without limitation those cited in this Section 5.7, and to comply with all of the provisions below, some of which extend beyond federal requirements:

(a) Benefit to Lowand Moderate Income Persons. Loan funds shall be used for acquisition and non-construction soft costs of the Project, and to refinance prior debt held by Obligor. Use of funds shall satisfy the CDBG national objective of benefit to lowand moderate-income persons (as defined by HUD for CDBG purposes) and the eligible activity criteria of acquisition under 24 CFR 570.703(i)(2) and 570.203(b) as an economic development project.

Pursuant to 24 CFR 570.208(a)(4), the Project must "create or retain permanent jobs where at least 51 percent of the jobs, computed on a full time equivalent basis, involve the employment of low-and moderate-income persons." The Project is being carried out pursuant to a HUD designated Neighborhood Revitalization Strategy Area ("NRSA") and, as such, all jobs created for the Project will be presumed to benefit lowand moderate-income individuals, pursuant to 24 CFR Section 570.208(d)(5) and 570.208(a)(1)(vii). The project will result in the creation of at least 1 new permanent job from Obligor's sublease of 10,000 square feet to another tenant.

(b) Nondiscrimination. No person shall on the grounds of race, color, national origin, religion or sex be excluded from participation in, be denied the benefits of, or be subjected to discrimination under any program or activity funded in whole or in part with CDBG funds. requirements of Title VI of the Civil Rights Act of 1964, 42 U.S.C. 2000d et seq., which provides that no person in the United States shall on the ground of race, color or national origin, be excluded from participation in, denied the benefits of, or be subjected to discrimination under any program or activity receiving Federal financial assistance; and with Department of Housing and Urban Development ("HUD") regulations implementing such requirements, 24 C.F.R. Part 1.

Obligor shall comply with all of the requirements and prohibitions of 24 C.F.R. Section 570.602, implementing the nondiscrimination requirements of Section 109 of the Housing and Community Development Act of 1974, as amended; those of the Americans with Disabilities Act, and regulations at 28 C.F.R. Parts 35 and 36 thereunder; those of HUD regulations under the Age Discrimination Act of 1975, 42 U.S.C. Section 6101 et seq., at 24 C.F.R. Part 146; and those of Section 504 of the Rehabilitation Act of 1973 (29 U.S.C. Section 794), and implementing regulations at 24 C.F.R. Part 8. Obligor shall include, in any instrument effecting or recording any transfer of its interest in the Property, and shall ensure that the LLC includes in any transfer of its interest in the Property, the covenant required by 24 C.F.R. Section 8.50 with regard to compliance with regulations under Section 504 of the Rehabilitation Act of 1973.

Obligor shall ensure compliance with Executive Order 11246, entitled "Equal Opportunity", as amended, and the regulations issued pursuant thereto, 41 C.F.R. Part 60, which provide that no person shall be discriminated against because of race, color, religion, sex or national origin in all phases of employment during the performance of federal contracts and subcontracts, and Obligor shall take affirmative action to ensure fair treatment in employment, upgrading, demotion or transfer, recruitment or recruitment advertising, layoff or termination, rates of pay, or other forms of compensation and selection for training or apprenticeship. The "equal opportunity clause" set forth in 41 C.F.R. Section 60-1.4(a) is hereby incorporated by reference as though fully set forth, with Obligor as "Contractor" thereunder. Obligor shall cause the appropriate "equal opportunity clause" to be set forth in each "federally assisted construction contract" (as defined in 41 CFR Section 60-1.3, including subcontracts) for the Project, except as expressly exempted under 41 C.F.R. Part 60.

No otherwise qualified handicapped individual in the United States shall, solely by reason of handicap, be excluded from the participation in, be denied the benefits, or be subjected to discrimination under any program or activity receiving Federal financial assistance.

In connection with the operation of the Property, Obligor:

(1) shall not discriminate against any person on the basis of religion or religious belief and will not limit any benefits or services or give preference to persons on the basis of religion or religious belief; and

(2) shall not engage in inherently religious activities, such as worship, religious instruction, or proselytization.

(c) Conflict of Interest. Obligor shall ensure compliance with the provisions of 24 CFR Section 570.611, which provide generally that no officer, agent, employee, consultant or elected or appointed official of The City of Seattle, or of a designated public agency, or of any subrecipient receiving CDBG funds, who exercises or has exercised any functions or responsibilities with respect to activities assisted by CDBG funds or who is in a position to participate in a decision-making process or gain inside information with respect to these activities, shall obtain any financial interest or benefit from, or have any financial interest in, the activity funded under this Loan Agreement or any contract or subcontract or agreement with respect thereto or the proceeds thereof, for himself or herself or those with whom he or she has business or immediate family ties; nor shall (s)he for one year after completion of his or her tenure with the City or such agency or subrecipient obtain or have any such financial interest or benefit. Obligor shall incorporate in all such contracts or subcontracts a provision prohibiting any conflict of interest prohibited by this subsection.

(d) Debarred Contractors. No portion of the Loan shall be used directly or indirectly to employ, award contracts to, or otherwise engage the services of, or fund, any contractor or subrecipient during any period of debarment, suspension, or placement in ineligibility status of such contractor or subrecipient under the provisions of 24 C.F.R. Part 24. Obligor represents and warrants that neither Obligor nor its principals is debarred, suspended, proposed for debarment, declared ineligible, or voluntarily excluded from participation in federal assistance programs under such regulations or Executive Order 12549, "Debarment and Suspension." Obligor shall obtain, and shall require contractors and subcontractors to obtain, the certification required by appendix B of 24 CFR part 24 from each prospective contractor or subcontractor on the Project.

(e) Lobbying. Obligor hereby certifies and agrees as follows, in accordance with 31 U.S.C. Section 1352, to the best of its knowledge and belief:

(1) No Federal appropriated funds have been paid or will be paid, by or on behalf of Obligor, to any person for influencing or attempting to influence an officer or employee of any agency, a member of Congress, an officer or employee of Congress, or an employee of a member of Congress in connection with the awarding of any Federal contract, the making of any Federal loan, the entering into of any cooperative agreement, and the extension, continuation, renewal, amendment, or modification of any Federal contract, grant, loan, or cooperative agreement;

(2) If any funds other than Federal appropriated funds have been paid or will be paid to any person for influencing or attempting to influence an officer or employee of any agency, a member of Congress, an officer or employee of Congress, or an employee of a member of Congress in connection with this Federal loan, it will complete and submit Standard Form-LLL, "Disclosure Form to Report Lobbying," in accordance with its instructions; and

(3) It will require that the language of this Section be included in the award documents for subawards at all tiers (including subcontracts, subgrants, and contracts under grants, loans and cooperative agreements) and that all subrecipients shall certify and disclose accordingly.

This certification is a material representation of fact upon which reliance was placed when this transaction was made or entered into. Submission of this certification is made a prerequisite for making or entering into this transaction by section 1352, title 31, U. S. Code. Any person who fails to file the required certification shall be subject to a civil penalty of not less than $10,000 and not more than $100,000 for each such failure.

(f) Davis-Bacon and Related Acts. Obligor shall ensure compliance with any and all applicable requirements of the Davis-Bacon Act and related acts. These requirements include, but are not limited to: language within each contract for construction work; payment of prevailing wages and fringe benefits; the submittal of various documents as evidence of compliance; withholding of funds; equal employment opportunity; and work hours.

The requirements are defined in the: Davis-Bacon Act, 40 U.S.C. Section 3141 et seq.; Contract Work Hours and Safety Standards Act, 40 U.S.C. Section 3701 et seq.; Copeland Act (Anti-Kickback Act), 18 U.S.C. Section 874; the Fair Labor Standards Act, and regulations under such Acts, including 29 C.F.R. Parts 3 and 5. If under other

applicable law or any other agreement with respect to the Project, minimum levels of wages or benefits are required, then Obligor shall ensure compliance with such levels, and if both Davis-Bacon Act requirements and any other such requirements shall apply, then Obligor shall ensure compliance with higher of the applicable levels.

(g) Economic Opportunities for Lowand Very Low-Income Persons. Obligor shall comply, and cause all contractors and subcontractors to comply, with any and all applicable provisions of Section 3 of the Housing and Urban Development Act of 1968, as amended, 12 U.S.C. 1701u, the purpose of which is to ensure that employment and other economic opportunities generated by Federal financial assistance for housing and community development programs shall, to the greatest extent feasible, be directed toward lowand very low-income persons, particularly those who are recipients of government assistance for housing. Obligor shall comply, and shall require all contractors and subcontractors to comply, with all applicable provisions of regulations issued pursuant thereto by the Secretary of HUD and set forth in 24 C.F.R. Part 135, and with all applicable rules and orders of HUD issued thereunder.

(h) Relocation and Acquisition. Obligor represents, warrants and agrees that no residential tenants have been or will be displaced in connection with the Project and the Obligor has taken and shall take all reasonable steps to minimize the displacement of persons (families, individuals, businesses, nonprofit organizations, and farms) in connection with the Project. If the Obligor or its affiliate has acquired or entered into an agreement to acquire real property for the Project, then Obligor represents and warrants that prior to making an offer for such property, (1) Obligor or such affiliate clearly advised the owner in writing that it lacked the power of eminent domain and therefore was unable to acquire the property in the event negotiations failed to reach an amicable agreement, and (2) it informed the owner in writing of what Obligor or such affiliate believed to be the fair market value of the property. Obligor represents and warrants that Obligor has provided to City a complete and accurate list of all occupants of the Property as of the date that Obligor obtained site control, and Obligor shall provide a complete and accurate list of all persons occupying the Property at any time after site control and through the date of full occupancy after Project completion. Obligor shall comply fully, at Obligor's sole expense, with the City's Residential Anti-displacement and Relocation Assistance Plan ("RARAP"). If the Project involves the temporary and/or permanent displacement of persons, Obligor represents, warrants and agrees that Obligor has provided and shall provide, at a minimum, all relocation assistance required by 24 CFR Section 42; the federal Uniform Relocation Act and regulations thereunder, 49 CFR Part 24; 24 CFR Section 570.606 and any other applicable federal laws or regulations, and shall maintain complete and accurate records demonstrating such compliance. Obligor agrees that any determination by City of the amount of relocation assistance due to any person shall be final and binding upon Obligor, unless a different determination is made by HUD at the request of such person, in which case the HUD determination shall be final and binding on Obligor. Obligor agrees that the City may, at its option, provide relocation assistance directly to any person in connection with the Project and that any payment by the City for such person shall, at City's option, constitute an advance on the Loan, without any requirement for a draw request by, or consent of, Obligor. If, as a result of any such direct payments, the amount advanced by City shall exceed the maximum Loan amount stated herein, then the excess shall be immediately due and payable by Obligor to City, at City's demand. Obligor represents and warrants that, except as expressly stated in a relocation plan submitted by Obligor to City in connection with this Loan, no residential tenants have been required to vacate or will be required to vacate the Property permanently because of the Project. Obligor shall carry out the terms of any relocation plan approved by City, but the terms of any such plan shall not limit Obligor's obligations under this Loan Agreement or applicable laws or regulations, and no such approval by City shall be construed as a waiver or modification of any requirement of this Agreement or applicable laws or regulations.

(i) Architectural Barriers. Obligor shall ensure that the Property, upon completion of the Project, shall comply with the applicable requirements of the Architectural Barriers Act of 1968 (see 42 U.S.C. Sections 4151-57), and shall comply with the Uniform Federal Accessibility Standards (Appendix A to 24 CFR part 40 for residential structures, and Appendix A to 41 CFR part 101-19, subpart 101-19.6, for general type buildings).

(j) Flood Insurance Protection. If the Property is in a special flood hazard area as identified by the Federal Emergency Management Agency, then Obligor represents, warrants and agrees that flood insurance is and shall remain in effect, at Obligor's expense, in accordance with Section 102(a) of the Flood Disaster Protection Act of 1973 (42 U.S.C. Section 4001), so long as any amount is outstanding on the Obligor Note.

(k) Records. Obligor shall maintain and make available to the City and HUD all records reasonably required to demonstrate compliance with all of the requirements of this Agreement, for at least four (4) years after full repayment of the Loan.

(l) Disclosures. Obligor represents, warrants and agrees that it has provided to the City any and all disclosures required by the HUD Reform Act, 42 U.S.C. Section 3545, and regulations thereunder, 24 CFR Part 4; that it will provide timely updated disclosures to OH to the extent required by such act and regulations; and that all such disclosures are and shall be complete and accurate.

(m) Prior Actions. Obligor represents and warrants that in all actions related to the Project to date Obligor and each of its affiliates involved in the acquisition of the Property or financing and development of the Project, each has complied with all requirements referred to in this Section 5.7.

(n) Indemnity. Obligor shall indemnify and hold harmless the City from any loss, damage, expense, claim or demand resulting from Obligor's failure to comply with any federal requirement to be complied with pursuant to this Agreement or failure to maintain adequate records to demonstrate such compliance. This provision shall survive expiration of this Agreement.

5.8 Reports. Obligor shall deliver to the City reports and information as City may require for purposes of monitoring and evaluating the performance of the Obligor, which may include copies of tenant certifications, rent rolls, leases, property management agreements and any other contracts affecting the Property.

5.9 Liens or Claims of Liens. Obligor shall keep the Property and its interest therein free from liens and encumbrances of all kinds, superior or inferior to the Deed of Trust, except for those permitted pursuant to Section 2.4 above and any of the following:

(a) Liens for property taxes on the Property not yet due and payable;

(b) The rights of tenants as tenants only under leases entered into in the ordinary course of Obligor's operation of the Property and in accordance with this Agreement and the other Loan Documents, but only to the extent that such leases are subordinate to the liens of the Deed of Trust, to the Leases (as defined herein), and to any other material leases, which subordinate status shall be insured by endorsement to the City's title insurance policy, at Obligor's expense, within thirty (30) days of request to Obligor by the City; and

(c) Liens subordinate to the lien of the Deed of Trust, Machinery and Equipment Lien, Accounts Receivable Lien and Residential Mortgage, created after the date of Closing with the prior written consent of the OED Director, in his or her discretion.

If any claims of lien shall be asserted against the Property other than as permitted by this Section, Obligor, regardless of any action that City may otherwise be authorized to take, shall obtain a release and satisfaction of such lien claim, bond the lien claim, procure title insurance satisfactory to City protecting City from any loss relating to such lien claim, or otherwise provide to City assurances and security satisfactory to City that the lien claim will be paid or satisfied not later than ten (10) days after a judgment on the lien claim. Provided Obligor complies with the previous sentence, Obligor may in good faith contest any worker's or material supplier's lien in legal proceedings that will prevent enforcement of the lien claim and prevent foreclosure of the Property. If such a lien claim is not released or satisfied or a bond or other security satisfactory to City provided within forty-five (45) days of written request from City to Obligor, then the failure to do so shall allow the City to declare an Event of Default (as defined in Section 6.1 below) regardless of whether such lien claim is or is not superior to the Deed of Trust or other lien in favor of City.

5.10 Political Activity. No portion of the Loan shall be used for any political activity or to further the election or defeat of any candidate for public office or to influence the approval or defeat of any ballot issue or legislation.

5.11 Further Actions. Obligor will at any time and from time to time upon request of City take or cause to be taken any action, execute, acknowledge, deliver or record any further documents, opinions, or other instruments or obtain such additional insurance as City is required to do or obtain by HUD or other federal, state or county regulatory agency.

5.12 Other Agreements. Obligor shall fully comply in a timely manner with all other agreements for the financing of the Project, including without limitation construction loans, bridge loans, and equity investment contracts ("Other Agreements"), and to the extent that any Other Agreements are the obligations of the LLC, the Obligor shall ensure that the LLC complies in a timely manner with the terms thereof, but nothing in this Section shall be construed to waive, or excuse noncompliance with, and provisions of this Agreement or any applicable City ordinances or permits.

5.13 Payment of Compensation of Custodian. Obligor shall be responsible for and pay its prorata portion of the fees of the Custodian as provided under the Custodial Agreement. The Custodian's acceptance fee, prorated first annual fee and counsel fees and expenses shall be disbursed to Custodian from the Guaranteed Loan Funds Account at the time of initial Loan disbursement. Thereafter, Obligor shall promptly pay the Custodian's fees and expenses directly to the Custodian.

5.14 Payment of Other Indebtedness. Obligor shall ensure the timely payment of principal, interest and all other amounts due on any other indebtedness or liability, whether or not owed by Obligor, now or hereafter secured by the Property or by other collateral for the Loan; provided, that nothing in this Section shall authorize Obligor to make any payment from any funds or assets pledged to the City hereunder.

5.15 Transfer of Property. Obligor shall not cause or permit any transfer of the Property or any interest of Obligor therein, voluntary or involuntary, without the advance written consent of the City, except for the creation of liens, encumbrances or leases that are expressly permitted under the Loan Documents without the City's consent.

ARTICLE VI DEFAULT AND REMEDIES

6.1 Events of Default. Upon the occurrence of any of the following events and prior to the complete cure thereof by Obligor in a manner satisfactory to the City, the City shall have the right to declare an Event of Default hereunder, without notice or demand by City, except as expressly provided in this Section:

(a) Any failure to pay when due any deposit into the Loan Repayment Account in respect of principal or interest on the Obligor Note;

(b) Any failure to make a payment or deposit of money required by any of the Loan Documents, other than amounts referred to in Section 6.1(a) above, that is not cured within ten (10) days of the due date of such payment or deposit (or within ten (10) days of demand in case of amounts due on demand);

(c) Any transfer of the Property or any interest therein, voluntary or involuntary, contrary to Section 5.15 of this Loan Agreement;

(d) Any failure to comply with the terms of Section 5.9 of this Loan Agreement (relating to lien claims) within the time period permitted by such Section;

(e) Any breach or nonperformance by Obligor of any provision of any of the Loan Documents not included within any of Subsections (a)(d) above that is not cured within sixty (60) days after notice to Obligor of such breach or nonperformance, or such longer cure period as may be permitted under the specific terms of the Loan Document; provided, however, that unless HUD shall otherwise require, if (1) such breach or nonperformance is susceptible to cure but cannot reasonably be cured within such cure period, (2) Obligor shall commence to cure such breach or nonperformance within such cure period and shall thereafter diligently and expeditiously proceed to cure the same, and (3) Obligor shall inform the City in writing of the status of the cure at the expiration of such cure period and every thirty days thereafter, then such cure period may be extended in the sole discretion of the OED Director for such time as the OED Director determines is reasonably necessary for Obligor to cure such breach or nonperformance;

(f) A petition in bankruptcy or for reorganization or for an arrangement under any bankruptcy or insolvency law or for a receiver or trustee for any of Obligor's property is filed by Obligor, or is filed against Obligor and is not dismissed within ninety (90) days, or if Obligor makes an assignment for the benefit of creditors or becomes insolvent or unable to pay its debts as they mature or any attachment or execution is levied against a substantial portion of the property of Obligor and is not discharged within ninety (90) days, or if any law or court order shall require the City, Custodian or any other party to refund or otherwise relinquish any portion of any amount paid under the Obligor Note or this Agreement as a preference or for any other reason except refund of duplicative payment;

(g) Any representation, warranty or disclosure made to City by Obligor, or contained in any information submitted by Obligor to City or to any government agency in connection with the Loan, proves to be materially false or misleading as of the date when made or reaffirmed, whether or not such representation or disclosure appears in this Agreement;

(h) Any default by Obligor of its obligations under the Certificate and Indemnity, giving effect to any applicable notice and cure provisions thereunder.

6.2 Declaration of Event of Default. City's declaration of an Event of Default hereunder shall be made by notice to Obligor pursuant to Section 7.15 of this Agreement and shall be effective as provided therein.

6.3 Remedies.

(a) Upon declaring an Event of Default, City may, in addition to any other remedies which City may have hereunder or under the Loan Documents or by law, at its option and without prior demand or notice take any or all of the following actions:

(1) Immediately terminate any further advances of Loan funds hereunder and revoke any instructions to any third party holding any such funds;

(2) Declare the Loan immediately due and payable in full;

(3) Foreclose under the Deed of Trust, judicially or nonjudicially;

(4) Demand payment from the Guarantor and pursue any remedies against the Guarantor;

(5) Apply any or all funds in the Reserve Accounts to amounts due under the Loan Documents, whether by reason of acceleration or otherwise, and cause investments in such accounts to be liquidated for such purpose;

(6) Apply or realize on any other collateral or security;

(7) Set off any amounts then owing from the City to Obligor;

(8) Give notice to any person owing any obligation to the Obligor that has been assigned as security for the Loan, that further payments are to be made to the City; and

(9) Seek judicial appointment of a receiver.

(b) All remedies of City provided for herein and in any other Loan Documents are cumulative and shall be in addition to all other rights and remedies provided by law. The exercise of any right or remedy by City hereunder shall not in any way constitute a cure or waiver of default hereunder or under any other Loan Document or invalidate any act done pursuant to any notice of default, or prejudice City in the exercise of any of its rights hereunder or under any other Loan Documents unless, in the exercise of said rights, City realizes all amounts owed to it under such Loan Documents.

6.4 No Default Prior to Declaration. No default or Event of Default shall exist under this Agreement or the Obligor Note until the same shall have been declared by the City or other party authorized to make such declaration; provided, that failure to declare, or delay in declaring, a default hereunder shall not constitute a waiver of any rights or remedies or excuse any failure by Obligor to strictly comply with its obligations under all of the Loan Documents.

ARTICLE VII MISCELLANEOUS

7.1 No Waiver. No waiver of any noncompliance or breach by Obligor hereunder shall be implied from any failure by City to take action on account of such noncompliance or breach, and no express waiver shall affect any breach or noncompliance other than as specified in the waiver. Any waiver shall be operative only for the time and to the extent therein stated. Waivers of any covenant, term or condition contained herein shall not be construed as a waiver of any subsequent breach of the same covenant, term or condition. The consent or approval by City to, or of, any act by Obligor requiring further consent or approval shall not be deemed to waive or render unnecessary the consent or approval to, or of, any subsequent similar act.

7.2 Successors and Assigns; Delegation to Custodian; Changes in Custodian and Custodial Agreement. This Agreement is made and entered into for the sole protection and benefit of City, HUD, and Obligor, their successors and assigns, and no other person or persons shall have any right of action hereunder. The terms hereof shall inure to the benefit of the successors and assigns of the parties hereto; provided, however, that the Obligor's interest hereunder cannot be assigned or otherwise transferred without the prior written consent of City. Obligor acknowledges and agrees that City may assign to HUD or any custodian or trustee for HUD any or all of City's rights under this Agreement and any of the Loan Documents and may direct that any payment or performance be provided directly to HUD or such custodian or trustee, whether or not the Obligor Note or this Agreement have been assigned. Obligor agrees that City may delegate to the Custodian the right to make demands and give directions on behalf of City under the Loan Documents, but that the scope of any such delegation shall be strictly limited to the terms of a written instrument duly signed on behalf of the City. Obligor further acknowledges that the Custodial Agreement may be modified or terminated, or a substitute Custodial Agreement executed, or a successor Custodian appointed, in each case without the consent of Obligor so long as the obligations of Obligor are not increased and the rights of the Obligor under the Loan Documents are not adversely affected in any material respect. Except for minor modifications to the Custodial Agreement not affecting Obligor, City agrees to give reasonable advance notice to the Obligor of any action as described in the preceding sentence, and agrees in each case to provide a copy of any modification or substitute Custodial Agreement to Obligor within fifteen (15) days after the execution thereof.

7.3 No Defense Based on City Regulatory Actions. Obligor understands that (a) the operations of Obligor in the Property and elsewhere are subject to numerous laws, regulations, ordinances and permits, including those of City and other governmental bodies relating to land use, environmental hazards, and other regulatory matters, and (b) the modification, interpretation, application, or revocation of such laws, regulations, rules or permits could adversely

affect economic return to Obligor from the Property. Obligor has conducted its own investigation and relied on the advice of its own counsel and experts as to all such matters in connection with Obligor's acquisition of the Property. Obligor acknowledges that by entering into this Agreement the City does not make, and that the City expressly disclaims, any representation or assurance whatever as to (1) the present or future status of the Property or the uses thereof under applicable laws or regulations, including those of the City; or (2) the availability, issuance or continuation of any permits, approvals, or interpretations of any kind that may be required or desired by Obligor or any other party in connection with the Property. Obligor agrees that notwithstanding any regulatory action or omission of City affecting Obligor or affecting the use or development of the Property (whether or not such action or omission shall be determined to be consistent with applicable law in any proceeding), no defense, offset or reduction of liability shall be available to Obligor, at law or in equity.

7.4 Time. Time is of the essence of all provisions of the Loan Documents.

7.5 Entire Agreement; Amendments. This Agreement, the other Loan Documents, and the documents, laws and regulations incorporated by reference herein constitute the entire agreement of the parties hereto with respect to the Loan and supersede any prior agreements or understandings, written or oral, with respect to the Loan. Obligor is not relying upon any promises, representations or understandings, written or oral, in entering into the Loan Documents, other than as expressly set forth in the Loan Documents. The obligations of Obligor under the Loan Documents are not conditioned upon, and shall not be affected by, any other agreement, understanding, performance or nonperformance by the City or any other party, and in any proceeding to enforce any of Obligor's obligations under the Loan Documents, Obligor shall not be entitled to assert, by way of excuse, offset, counterclaim, grounds for equitable relief, or otherwise, any actual or alleged action or inaction by or on behalf of the City except to the extent that any such action or inaction is expressly required of the City by, and is made a condition of Obligor's obligation by, the Loan Documents. No amendment, modification, or termination of any provisions of this Agreement or of any of the Loan Documents shall in any event be effective unless the same shall be in writing and signed by a duly authorized officer of City and by Obligor, and no such writing shall be construed to modify, waive, or affect the terms of the Loan Documents except to the extent that such document expressly so provides.

7.6 Headings. The article and section headings in no way define, limit, extend or interpret the scope of this Agreement or of any particular article or section.

7.7 Number and Gender; Joint and Several Obligations. When the context in which the words are used in this Agreement indicates that such is the intent, words in the singular number shall include the plural and vice-versa. References to any one gender shall also include the other gender if applicable under the circumstances. If Obligor comprises more than one person or entity, then each such person or entity shall be bound jointly and severally by this Agreement and the Loan Documents except to the extent otherwise expressly provided therein.

7.8 Validity. In the event that any provision of this Agreement shall be held to be invalid, the same shall not affect in any respect whatsoever the validity of the remainder of this Agreement.

7.9 Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Washington, and The City of Seattle, except to the extent federal law applies.

7.10 Survival. All agreements, representations and warranties made herein and in the Obligor Note shall survive the execution and delivery of this Agreement and of the Loan Documents and the making of the Loan hereunder and continue in full force and effect until the obligations of Obligor hereunder and the indebtedness evidenced by the Obligor Note have been fully paid and satisfied, and thereafter to the extent provided in the Loan Documents, regardless of whether the Obligor Note is surrendered or marked as canceled or paid in full.

7.11 Venue and Forum. In the event that any legal action should be filed by either party against the other, the venue and forum for such action shall be the Superior Court of the State of Washington for the County of King.

7.12 Attorney's Fees. In the event either party shall bring an action to enforce the terms and conditions of this Agreement, the prevailing party shall be entitled to recover all of its costs and expenses, including, but not limited to, reasonable attorney's fees as determined by the court.

7.13 Duplicate Originals; Counterparts. This Agreement shall be executed in duplicate and each of the parties hereto shall receive an original. Each original shall constitute one and the same agreement. This Agreement may be executed in counterparts, and each such counterpart shall be deemed to be an original.

7.14 Construction. The Loan Documents shall be construed so as to conform to the requirements of the HUD Contract and applicable federal laws and regulations. The Loan Documents are the product of negotiation between the parties and therefore shall not be construed strictly in favor of, or against, either party except as may be specifically provided in the Loan Documents with respect to particular provisions thereof.

7.15 Notices; Administration by City. Any notice, demand or request required hereunder shall be given in writing at the addresses set forth below by personal service, by facsimile transmission, or by first class mail. The addresses may be changed by notice to the other party given in the same manner as provided above. Notices personally served or sent be facsimile shall be effective when actually received during normal business hours, and otherwise on the following Business Day. If notice is given by mail, it shall be deemed received on the earlier of: (i) if by certified mail, the date of receipt as shown on the return receipt, or (ii) three (3) days after its deposit in the U.S. mail.

If to Obligor:

If to City: Office of Economic Development City of Seattle P.O. Box 94708 Seattle, Washington 98124-4708 Attn: Director fax: (206) 684-0379

Unless the City otherwise notifies Obligor, in writing, the OED shall be responsible for performance of the obligations of the City under this Agreement and the other Loan Documents, and for oversight of performance of such agreements by Obligor, and references hereinafter made to the City shall be deemed to mean the City, acting through OED.

7.16 Additional Terms and Conditions

The terms of this Section are intended to be in addition to, and not in substitution for, the terms and conditions set forth above, but in case of any irreconcilable conflict, the terms of this Section shall control. The inability of Obligor to satisfy any condition below for any reason shall not excuse any failure to comply in a timely manner with any other provision hereof. All provisions and conditions in this Section, and all other conditions to disbursement set forth in this Agreement, are for the benefit only of the City (and where applicable, HUD) and may be waived in whole or in part by the OED Director in his or her discretion, but no waiver shall be valid unless in writing signed by the OED Director.

(a) Asset Management and Loan Monitoring. Obligor acknowledges that it has reviewed the City's Section 108 loan monitoring and asset management policies, and agrees to provide information and otherwise comply with the requirements of such policies. Furthermore, no later than February 1st of each year of the Loan, Obligor agrees to pay an asset management and loan monitoring fee, in the annual amount of Three Thousand Dollars ($3,000), until all amounts owing hereunder shall have been paid in full. It is anticipated that the loan monitoring and asset management duties will be performed by a private entity under contract to OED, and Obligor shall make payment directly to such private entity according to instructions provided by OED.

(c) Release of Machinery and Equipment Lien. Prior to the end of the Loan term, Obligor and the City anticipate that Obligor will desire to release the City's Machinery and Equipment Lien. Upon request of Obligor, the City shall grant a release of its security interest in the Machinery and Equipment Lien, provided that (i) the Obligor is not then in default hereunder; (ii) the Obligor demonstrates to the satisfaction of the City that the Property's loan to value ratio does not exceed eighty percent (80%); and (iii) the Obligor demonstrates to the satisfaction of the City that the Property has a minimum 1.2 debt coverage service ratio. The loan to value ratio shall be computed by dividing the sum of the maximum principal amount of debt that may be secured by senior mortgages and deeds of trust, plus the principal amount of the Section 108 loan, by the total fair market value of the Property (as such value is determined by an appraisal approved by the City and prepared in the same year of the request for release). The 1.2 debt coverage service ratio requirement will be met if, in the year of the request, the Obligor has received, over the previous 12 months, net operating income from the Project in an amount of at least 1.2 times the actual debt service payable in that year on the Loan.

(d) BEDI Grant and Loan. Subject to satisfaction by Obligor of all conditions to disbursement of Loan funds and compliance with all terms of this Loan Agreement, and subject to receipt by the City from HUD of BEDI funds not otherwise encumbered, the City shall cause disbursement of funds from the BEDI Accounts to finance Project costs. A portion of such BEDI Grant funds in an amount up to $__________ will constitute an unsecured loan to Obligor for purposes set forth on Attachment B ("BEDI Loan"), another portion, up to $__________, shall constitute a grant to finance Project Costs, and the remainder in the BEDI Accounts shall constitute a loan loss reserve for the sole benefit of the City. The BEDI Loan shall be evidenced by a promissory note in form satisfactory to Obligor ("BEDI Note"); shall bear no interest prior to delinquency, and shall require payment of one-tenth of the principal on each 15th day of July beginning 2009. Unless otherwise agreed by Obligor and City, BEDI funds shall be disbursed upon disbursement of Loan funds to Obligor. Any default in payment on the BEDI Loan shall be a breach of this Loan Agreement.

IN WITNESS WHEREOF, Obligor and City have executed this Agreement as of the date first written above by and through their duly authorized representatives.

CITY:

THE CITY OF SEATTLE, a Washington municipal corporation By: __________________________ Susan C. Shannon Director of Office of Economic Development

OBLIGOR:

LAKE DELL, INC. By: __________________________ Name:_______________________________ Title:

Attachment A Legal Description for Property Attachment B Description of Project Attachment C Form of Obligor Note Exhibit 1: Schedule of Obligor Note Payment Dates Exhibit 2: City Note

17 September 2008 t

ATTACHMENT A

LEGAL DESCRIPTION FOR PROPERTY

ATTACHMENT B

DESCRIPTION OF PROJECT

Description of Project

Lake Dell, Inc., d/b/a Alpha Cine Labs ("Alpha Cine") is a motion picture lab currently located in the Denny Triangle neighborhood. Alpha Cine has more than 40 years of experience providing services ranging from processing motion picture film, producing prints and transferring digital film to 35mm film for display at theaters. It is the only film lab in the Pacific Northwest and has a national reputation for providing services to independent filmmakers.

Alpha Cine will be the lessee of property containing a warehousing and offices of approximately 28,000 square feet of space, located at 9800 40th Avenue South in Southeast Seattle, Washington, acquired by its affiliate, The 9800 Company, LLC. Following acquisition, Alpha Cine will rehabilitate the warehouse to include the following work items: 1) new flooring; 2) addition of an acoustic ceiling on the first floor; 3) new doors, windows and cabinetry; 4) new interior paint; and 5) upgraded electrical system. Alpha Cine will use approximately 18,000 square feet of the warehouse as its new manufacturing facility and offices, and it will sublease the remaining space of approximately 10,000 square feet to a tenant for use as warehouse space.

Obligor has requested from the City a loan of federal Section 108 loan proceeds in the amount up to Three Million Seven Hundred Eightyfive Thousand Dollars ($3,785,000) in order to finance acquisition and non-construction development soft costs of the Project, and to refinance prior private debt owed by Obligor.

Subject to receipt and HUD approval, BEDI funds in the amount of $757,000 will be used to provide loan loss reserves on the loan and to cover project costs.

ATTACHMENT C

FORM OF OBLIGOR NOTE

VARIABLE/FIXED RATE PROMISSORY NOTE

Seattle, Washington $3,785,000.00

, 2008

FOR VALUE RECEIVED, Lake Dell, Inc., a Washington corporation ("Obligor"), promises to pay to THE CITY OF SEATTLE, WASHINGTON ("Payee"), a Washington municipal corporation, or order, at the time or times provided herein, in lawful money of the United States, the sum of Three Million Seven Hundred Eighty-five Thousand Dollars ($3,785,000), with interest as provided herein.

This Note is given to evidence a loan (the "Loan") made pursuant to the Loan Agreement dated as of __________________ (as supplemented or amended from time to time, the "Loan Agreement"), between the Obligor and the Payee. The funds used by the Payee to make the Loan have been obtained by Payee exclusively through the issuance of a note in the maximum commitment amount of $3,785,000 issued by the Payee, a copy of which note, with a schedule of Principal Due Dates as established by agreement of the City and HUD, is attached hereto as Exhibit 2 and incorporated herein by this reference (including any note issued in replacement therefor or for a portion thereof that includes the amount disbursed in order to fund the Loan evidenced hereby, the "City Note") pursuant to Section 108 of the Housing and Community Development Act of 1974, as amended (42 USC section5308) and 24 CFR 570.700, et seq., pursuant to which the Payee has entered into certain agreements, including, but not limited to, (a) with the United States Department of Housing and Urban Development ("HUD"), a Contract for Loan Guarantee Assistance (as it may be amended, the "HUD Contract") which contract incorporates by reference an Amended and Restated Master Fiscal Agency Agreement between HUD and JPMorgan Chase Bank (formerly known as The Chase Manhattan Bank), (b) with HUD, the BEDI Grant Agreement, B-04-BD-530004, (which documents, as amended or amended from time to time, may be referred to collectively as the "Master Agreement"); and (c) with The Bank of New York Trust Company, N.A., an Indenture of Trust and Custodial Agreement (as it may be amended, the "Custodial Agreement"). The Obligor acknowledges and agrees that the Loan is made subject to all of the terms and conditions of the HUD Contract, Master Agreement and the City Note. Any capitalized terms not defined herein shall have the meanings provided in the City Note, the Loan Agreement, the Custodial Agreement or the Master Agreement as applicable.

Each portion of principal outstanding on this Note shall bear interest from the date hereof at the rate applicable to the Corresponding Advance of principal under the City Note. For each installment of principal shown on Exhibit 1 hereto, the Corresponding Advance consists of an equal amount of principal on the City Note maturing in the same year as such installment of principal hereunder.

Interest on this Note shall be due and payable on the 15th day of each calendar month next preceding each of the following dates if interest on the City Note is scheduled to become due and payable on such date: February 1, May 1, August 1, and November 1 of each year. The amount of interest payable on this Note on each such 15th day shall include interest accrued through such date and interest to accrue through the end of the month in which the interest payment becomes due under this Note. Interest on this Note also shall be due 15 days before any other date when interest shall become due on the Corresponding Portion of the City Note, and the amount of interest then payable on this Note shall include interest accrued and to accrue up to such date when interest shall become due on the City Note. Interest on the City Note is due and payable quarterly in arrears prior to the Conversion Date, on the Conversion Date, and semiannually thereafter. Principal on this Note is due and payable as set out on Exhibit 1 attached hereto and incorporated herein by this reference. Each date upon which principal or interest, or both, is due and payable hereunder is an "Obligor Note Payment Date."

The principal amount due under this Note on each Obligor Note Payment Date shall be as set forth on the attached Exhibit 1, except to the extent such principal amount shall have been reduced by prepayment before such Obligor Note Payment Date as provided herein.

On and after the Conversion Date (whether conversion to a fixed rate or rates is effected with the consent of the Obligor or otherwise), as more fully set forth in the City Note, each Corresponding Advance will accrue interest on the City Note at the fixed rate that the underwriters of the City Note, or securities representing participation interests in a pool of notes guaranteed by HUD, including the City Note, determine will enable them to sell the City Note or such participation interests under then prevailing market conditions as of the Conversion Date at one hundred percent (100%) of the aggregate amount thereof.

Notwithstanding the foregoing, following the occurrence of any default hereunder or under the Loan Agreement, which default is not cured as permitted by the Loan Agreement, the outstanding principal balance of the Loan and this Note shall bear interest at the greater of the rate set as provided above or twelve percent (12%) per annum.

Interest payable on or before the Conversion Date shall be calculated on the basis of a 360-day year and the actual number of days elapsed. Interest after the Conversion Date shall be calculated on the basis of a 360-day year consisting of twelve 30-day months.

Anything herein to the contrary notwithstanding, all principal, interest, fees, costs and other charges that Obligor is obligated to pay in connection with this Note and the Loan shall be due and payable, in full, no later than July 15, 2028.

This Note and other obligations of Obligor under the Loan Documents are secured by a Deed of Trust, Assignment of Leases and Rents, and Security Agreement with Fixture Filing (as supplemented or amended from time to time, the "Deed of Trust"), of even date herewith, from the Obligor for the benefit of the Payee. This Note and other obligations of Obligor under the Loan Documents are secured by other collateral, including without limitation security interests in the monies and investments held in certain Reserves established in accordance with the Loan Agreement and Master Agreement, and other collateral described in the Loan Agreement. This Note is further secured by a Guaranty of even date, executed and delivered by W. Donald Jensen, and by his spouse to confirm that the marital community is bound thereby.

The principal hereof and any interest accrued hereon may be prepaid, subject in the case of principal to approval by HUD of prepayment by the Payee of an equal amount of each respective Corresponding Advance on the City Note, and provided, however, that any prepayment shall be applied to the principal installment(s) with latest maturity unless otherwise agreed in writing by the holder hereof and by HUD, and provided, further:

(a) On or before the Conversion Date, this Note may be prepaid in whole or in part upon thirty (30) days prior written notice to the Payee and with, and only with, the consent of HUD. Any prepayment of the principal hereof shall be accompanied by all accrued interest thereon to the date of prepayment, and partial prepayments shall be credited against the principal amount last becoming due hereunder.

(b) After the Conversion Date, Obligor shall give 90 days prior written notice of its intention to make any prepayment. No partial prepayment shall relieve the Obligor of the obligation to make any future payments due after the date of any prepayment. Obligor shall pay, in addition to the principal amount of any prepayment, a premium sufficient so that the total amount paid is sufficient to defease the Corresponding Advances on the City Note, as provided in the Master Agreement. If in the event of any prepayment, the Payee incurs any costs, expenses, fees, charges, premiums or losses, the Obligor shall pay such items upon demand in addition to the principal and interest due hereunder.

After default, any payment by Obligor or any third party, or recovery from the disposition of any collateral, to the extent applied to amounts of principal that were not yet scheduled to fall due according to Exhibit 1, may be applied to such installments of principal as the holder hereof shall elect in its discretion, and shall be deemed a prepayment of such installment for purposes of the premium and other obligations set forth in paragraph (b) above, and Obligor shall pay all such amounts on demand, or the holder hereof may apply amounts so paid or collected to such other obligations, in the holder's discretion.

In the event of any default by Obligor in any term or condition of this Note, the Loan Agreement, the Deed of Trust, the Certificate and Indemnity, or any other document executed in connection herewith, which default is not cured as permitted by the applicable document, the entire principal and accrued interest hereunder shall become immediately due and payable without notice or demand at the option of the holder of this Note. If the entire balance of principal and interest shall be declared due and payable after the Conversion Date, then the Obligor shall pay to the holder hereof, in addition to all other amounts owing, any further amount required in order that the holder is able to fully defease, solely from the payments by Obligor hereunder and without costs to such holder, all of the outstanding Corresponding Advances under the City Note. Obligor acknowledges that such additional amount, if any, is intended to protect the holder hereof from potential loss resulting from the enforcement of the terms hereof after default, and not as a penalty.

If Obligor is in default under the provisions of this Note, the Loan Agreement, the Deed of Trust, the Certificate and Indemnity, or any other document executed in connection herewith and Payee or other holder of this Note commences any action to enforce collection hereof or foreclosure under any security document or guaranty given in connection herewith or therewith, the Obligor agrees to pay all costs and expenses incurred by Payee or such holder, including but not limited to Payee's or such holder's reasonable attorneys' fees.

Demand, protest, and notice of demand and protest are hereby waived, and the Obligor, to the extent authorized by law hereby waives any and all homestead or other exemption rights which otherwise might apply to the obligation evidenced by this Note, and/or any property covered by any security document given in connection herewith. The Obligor executes this Note as a principal and not as a surety.

ORAL AGREEMENTS, OR ORAL COMMITMENTS TO LEND MONEY, EXTEND CREDIT, OR TO FORBEAR FROM ENFORCING REPAYMENT OF A DEBT ARE NOT ENFORCEABLE UNDER WASHINGTON LAW.

OBLIGOR:

LAKE DELL, INC.

By:

Name:_______________________________

Title:

STATE OF WASHINGTON )

) ss.

County of KING )

I certify that I know or have satisfactory evidence that _____________________ is the person who appeared before me, and said person acknowledged that he/she signed this instrument, on oath, stated that he/she was authorized to execute the instrument and acknowledged it as the ___________________ of , to be the free and voluntary act of such for the uses and purposes mentioned in the instrument.

DATED: _________________, 2008.

NOTARY PUBLIC

Print Name:

Residing at:

My appointment expires:

Exhibit 1 to Obligor Note

Principal repayment schedule.

Principal Due Date Amount of Principal

July 15, 2009 210,000 July 15, 2010 210,000 July 15, 2011 210,000 July 15, 2012 210,000 July 15, 2013 210,000 July 15, 2014 210,000 July 15, 2015 210,000 July 15, 2016 210,000 July 15, 2017 210,000 July 15, 2018 214,484 July 15, 2019 167,000 July 15, 2020 167,000 July 15, 2021 167,000 July 15, 2022 167,000 July 15, 2023 167,000 July 15, 2024 167,000 July 15, 2025 167,000 July 15, 2026 167,000 July 15, 2027 167,000 July 15, 2028 177,516 3,785,000

Exhibit B to Ordinance Form of Loan Agreement

Exhibit B to Ordinance Form of Loan Agreement

34

Exhibit B to Ordinance Form of Loan Agreement

A-1

Loan Agreement, Attachment B

Project Description B-1

Loan Agreement, Attachment C

Form of Obligor Note C-6

Principal Principal Interest Rate Optional Redemption Available Amount Due Date

YES NO

$ August 1, 2008 X

August 1, 2009 X

August 1, 2010 X

August 1, 2011 X

August 1, 2012 X

August 1, 2013 X

August 1, 2014 X

August 1, 2015 X

August 1, 2016 X

August 1, 2017 X

August 1, 2018 X

August 1, 2019 X

August 1, 2020 X

August 1, 2021 X

August 1, 2022 X

August 1, 2023 X

August 1, 2024 X

August 1, 2025 X

August 1, 2026 X

August 1, 2027 X

August 1, 2028 X

$ = Aggregate Principal Amount