AN ORDINANCE relating to the sale of the Arctic Building, located at 700 Third Avenue, under the jurisdiction of the Fleets and Facilities Department, declaring the same to be surplus to the City's needs; authorizing the sale and a temporary leaseback of certain portions of the building; designating the disposition of sale proceeds; and making appropriations of sale proceeds; all by a three-fourths vote of the City Council.

WHEREAS, in March 1988, Ordinance 113875 authorized the acquisition of the historic Alaska and Arctic Buildings; and

WHEREAS, in July 1995, Ordinance 117739 authorized the purchase of Key Tower, now Seattle Municipal Tower, for housing general government, City Light, and other utility offices; and

WHEREAS, in July, 1998, Resolution 29795 provided guidance for the creation of a Municipal Civic Center Master Plan, which included researching re-use strategies for the Alaska and Arctic Buildings, including schedules and disposition strategies; and

WHEREAS, the City of Seattle established a Civic Center Client Group, which includes three Councilmembers, the Deputy Mayor, the Finance Director, and the Director of the Fleets and Facilities Department, to oversee the implementation of the Civic Center Master Plan; and

WHEREAS, the Master Plan envisioned the sale of the Alaska Building and upgrade of the Arctic Building for City occupancy; and

WHEREAS, a 2004 analysis of the Arctic Building indicated the building would require more seismic upgrades and major maintenance than previously contemplated, resulting in a Civic Center Client Group recommendation that it was prudent to sell both the Alaska and Arctic Buildings; and

WHEREAS, one of the Civic Center Master Plan's goals is to realize revenue from the sale or lease of assets that are no longer needed to meet the City's space needs; and

WHEREAS, the Fleets and Facilities Department offered the Alaska and Arctic Buildings for sale through an open, competitive process; and

WHEREAS, a 2004 review of City space requirements resulted in a Civic Center Client Group recommendation that space needs for those City offices currently occupying the Alaska and Arctic Buildings be served through a combination of City-owned space in the Seattle Municipal Tower and privately owned and leased space in the Second or Third Avenue corridor; and

WHEREAS, as a result of the City's competitive process, The Arctic Club Hotel, LLC entered into the Purchase & Sale Agreement attached hereto as Attachment 1, agreeing to pay a purchase price of $5,6000,000, subject to reasonable due diligence investigation of the building; and

WHEREAS, the purchaser Arctic Club Hotel LLC, intends to renovate the building from the presently existing office use to a hotel use subject to the historic preservation requirements associated with the building; and

WHEREAS, as a result of certain seismic and building other conditions discovered during due diligence which affected the value of the building as well as the nature and cost of renovations necessary to convert the building from office to hotel use, Arctic Club Hotel, LLC has agreed to pay a purchase price of $5,100,000 in cash at closing and intends to redevelop the Arctic Building into a hotel all as reflected in the Purchase & Sale Agreement and its amendment attached to this Ordinance as Attachment 2; and

WHEREAS, the schedule for relocating City departments from the Arctic Building contemplates that the City will execute leases with the purchaser of this Building and continue to occupy certain portions of the Building for certain temporary periods after the sale closes; and

WHEREAS, a portion of the proceeds from the sale of the Arctic Building should be reserved and used to pay a portion of the 2005/2006 occupancy costs for downtown office space, to address expense and revenue adjustments associated with the sale of the Building which could not be anticipated in the development of the 2005 Adopted Budget and 2006 Endorsed Budget; and

WHEREAS, a portion of the proceeds from the sale of the Arctic Building should be reserved to pay those costs associated with relocating City departments that are not already budgeted in the Municipal Civic Center Fund; and

WHEREAS, that portion of the proceeds from the sale of the Arctic Building that is required to defease outstanding tax-exempt bonds issued by the City to refinance the City's purchase of the Arctic Building should be reserved and applied for that purpose; NOW, THEREFORE,

BE IT ORDAINED BY THE CITY OF SEATTLE AS FOLLOWS:

Section 1. The real property located at 700 Third Avenue, commonly known as the Arctic Building, is hereby declared to be surplus.

Section 2. The Director of the Fleets and Facilities Department or designee is authorized to sell to the Arctic Club Hotel, LLC the property located at 700 Third Avenue, and legally described as follows:

Lots 5 and 8, Block 27, addition to the Town of Seattle, as laid out on the claims of C.D. Boren and A.A. Denny and H.L. Yesler (commonly known as C.D. Boren's addition to the City of Seattle), according to the Plat thereof, recorded in volume 1 of Plats, Page 25, in King County, Washington;

Together with the southwesterly half of the vacated alley in said Block 27 abutting on said lots, as vacated under Ordinance number 2005 of the City of Seattle;

Except the southwesterly 9 feet of said lots condemned in King County Superior Court case number 54135 under Ordinance number 14345 of the City of Seattle for widening of 3rd Avenue,

for the gross sales price of FIVE MILLION ONE HUNDRED THOUSAND DOLLARS ($5,100,000) in all cash paid at closing.

Section 3. The Director of the Fleets and Facilities Department or designee is authorized to execute the Purchase and Sale Agreement for the Arctic Building, which is attached hereto and labeled "Attachment 1." In addition, the Director of the Fleets and Facilities Department is authorized to amend the said Purchase and Sale Agreement, before or after execution, prior to the closing of the Building's sale, as agreed with the buyer(s), to modify time deadlines and to make minor modifications, so long as the City's rights with respect to the gross sale price of the Building are not reduced and the City's financial liabilities are not increased. The Director is also authorized to execute such other documents as she reasonably determines are necessary to effectuate the sale of the Arctic Building consistent with the remainder of this ordinance.

Section 4. The Director of the Fleets and Facilities Department or designee is authorized to execute, for and on behalf of The City of Seattle, the lease agreement with the buyer(s) of the Arctic Building substantially in the form of the lease attached hereto and labeled "Attachment 2" providing for occupancy by The City of Seattle of a portion of the real property identified in Section 2. The Director of Fleets and Facilities Department is further authorized to execute such minor amendments to such lease, before or after its execution, as she reasonably determines to be necessary.

Section 5. The distribution of proceeds and appropriations shall be as follows:

A. The cash proceeds received from escrow shall be distributed to the funds shown, in the following order, as follows:

Fund Amount Fleets and Facilities Fund (50300) $132,000 Municipal Civic Center Non-Bond Subfund (34225) $382,700 General Bond Interest and Redemption Fund (20110) $3,455,100 Total $3,969,800

Any proceeds received in excess of the total $3,969,800 shall be deposited in the Cumulative Reserve Subfund, Capital Projects Account, Unrestricted Subaccount.

B. Contingent on the closing of the sale of the property pursuant to the agreement authorized in Section 3, and in order to pay for necessary costs and expenses incurred or to be incurred, but for which insufficient appropriations were made, the appropriations for the following in the 2005 Budget are increased from the funds shown, as follows:

Fund Department Budget Control Amount Level

Fleets & Facilities Fund Fleets and Technical Services $97,000 (50300) Facilities (A3100) Department

Municipal Civic Center Fleets and Civic Center Plan $382,700 Non-Bond Subfund (34225) Facilities Key Tower, Park Department 90/5, and Other Projects (A34200-2)

General Bond Interest and Finance General Reserves $3,455,100 Redemption Fund (20110) (Q5972010)

Total $3,934,800

Of the additional $382,700 appropriated from the Municipal Civic Center Non-bond Subfund, $250,000 is appropriated solely for the purpose of making capital improvements, including but not limited to electrical system upgrades, heating and ventilation enhancements, and installation of finished walls and doors, to the portion of Seattle City Hall's L1 level that has been identified throughout the building's planning and design process as the Cultural Cafe, for the sole purpose of making the space a suitable location for artistic performances, artistic displays and cultural gatherings, and may be spent for no other purpose.

Section 6. Any acts pursuant to the authority and prior to the effective date of this ordinance are hereby ratified and confirmed.

Section 7. 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 a three-fourths vote of all the members of the City Council the ____ day of _________, 2005, and signed by me in open session in authentication of its passage this _____ day of __________, 2005. _________________________________ President __________of the City Council

Approved by me this ____ day of _________, 2005. _________________________________ Gregory J. Nickels, Mayor

Filed by me this ____ day of _________, 2005. ____________________________________ City Clerk

Attachments Attachment 1: Purchase and Sale Agreement for Sale of Real Property Attachment 2: Amendment No. 3 to Purchase Agreement Attachment 3: Lease Agreement 4/20/05 version 6 t

PURCHASE AND SALE AGREEMENT

FOR SALE OF REAL PROPERTY

THIS AGREEMENT is entered into as of January ____, 2005, (the "Effective Date") between THE CITY OF SEATTLE ("Seller"), a first class city of the State of Washington, and THE ARCTIC CLUB HOTEL LLC, a Washington limited liability company and/or assigns ("Purchaser"). The Effective Date is the date that Seller and Purchase have each delivered to escrow and to the other fully executed counterparts of this Agreement.

In consideration of the payment and receipt of the Purchase Price in exchange for the Property, and in reliance on the parties' mutual promises and undertakings and the mutual benefits to be derived from the promises contained in this Agreement, the parties agree as follows:

1. PROPERTY AND INTERESTS

1.1 Seller owns the parcel of real property described on Exhibit A, and has determined that the real property is no longer necessary for City of Seattle purposes.

1.2 Seller's real property and improvements described on Exhibit A are located at 306 Cherry Street/700 Third Avenue in Seattle, King County, Washington, consisting of land totaling approximately 13,708 square feet, and an existing multi-story building with a total gross floor area of approximately 96,197 square feet, commonly known as the Arctic Building (the "Building"). In general, the land and building are as depicted on the site map attached hereto as Exhibit B. The land and building are collectively referred to herein as the "Property".

2. SALE OF PROPERTY. Upon execution of this Agreement by the duly authorized representatives of Purchaser and Seller, and upon payment of the Purchase Price defined in Section 3 of this Agreement, Seller shall convey the Property to Purchaser, subject to: (a) all taxes, assessments, restrictions, easements, agreements and other matters affecting the Property deemed acceptable by Purchaser; (b) all applicable zoning rules, restrictions, regulations, resolutions and ordinances and building restrictions and governmental regulations now or hereafter in effect; (c) the right of the public in any street or highway forming a boundary of the Property; together with all improvements and fixtures thereon. The Parties recognize that this transaction is subject to approval of this Agreement by Ordinance adopted by the Seattle City Council.

3. PURCHASE PRICE.

3.1 Purchase Price. The total purchase price for the Property ("Purchase Price") shall be Five Million Six Hundred Thousand Dollars and No/100 Dollars ($5,600,000.00). The Purchase Price, less the Earnest Money and all accrued interest, shall be paid in cash at Closing.

3.2 Earnest Money. Within two (2) business days after the Effective Date, Purchaser shall deliver to the downtown Seattle office of Chicago Title Insurance Company ("Title Company") 701 5th Avenue Suite 1800, or such other escrow agent as may be satisfactory to both Purchaser and Seller ("Escrow Agent"), an earnest money deposit ("the Earnest Money") in an amount equal to Two Hundred Eighty Thousand Dollars ($280,000.00) by wire transfer or check, which sum shall be deposited in an interest bearing account and held until Closing and which sum (together with all accrued interest thereon) shall be applied to the Purchase Price at Closing, unless forfeited or refunded to Purchaser as provided in accordance with this Agreement. Following completion of the "Due Diligence Period" (as defined below) the Earnest Money will be non-refundable absent a default by Seller, except as expressly provided otherwise in this Agreement.

4. TITLE, SURVEY, AND INSPECTIONS; LEASES.

4.1 Title. Closing shall be conditioned upon Chicago Title Insurance Company ("Title Company") issuing or committing to issue to Purchaser an extended coverage ALTA owner's policy of title insurance (Form B 1970) in the amount of the Purchase Price ("the Title Policy"). The Title Policy shall insure that title to the Property is free and clear of all monetary encumbrances or other encumbrances of record except those listed in the title commitment and not objected to by Purchaser, which exceptions shall be the "Permitted Exceptions" The lien of any current real property taxes not yet due and payable, and those matters excluded from coverage by the standard exceptions and exclusions contained in the form of title insurance policy required hereby, together with any endorsements reasonably required by Purchaser are Permitted Exceptions. Title shall be conveyed by bargain and sale deed.

4.1.1 Title Commitment. Within five (5) days after execution of this Agreement, Seller shall deliver a copy of the current title commitment ("Title Commitment") for the Property to Purchaser, along with legible and complete copies of all documents referenced as title exceptions in the Title Commitment.

4.1.2 Purchaser shall have twenty (20) days after receipt of the Title Commitment to notify Seller of any objections Purchaser has to the condition of title. Seller shall then have ten (10) days after receipt of Purchaser's objections to notify Purchaser whether Seller will remove the exceptions objected to by Purchaser. If Seller provides no such notice within the ten (10) day period, then Seller shall be deemed to agree to remove all of the exceptions objected to by Purchaser, prior to Closing.

4.1.3 In the event that Seller provides notice that it will not remove all exceptions objected to by Purchaser prior to Closing, and the Parties cannot agree on an adjustment to the Purchase Price and/or other terms of this Agreement, then within ten (10) days of notice by Seller of Seller's intent not to remove one or more of the exceptions, Purchaser may, at its sole option:

(i) Notify Seller of Purchaser's intent to waive any exceptions which Seller has not agreed to remove and accept title to the Property subject to such exceptions, or

(ii) Terminate this Agreement by written notice to Seller and Escrow Agent, in which event this Agreement shall terminate, the Earnest Money deposit and all interest earned thereon shall be promptly refunded to Purchaser, and neither party shall have any further rights, duties or obligations under this Agreement.

4.1.4 Cost of Title Report. In the event that this Agreement is terminated without closing, the cost of the title insurance contemplated by this Agreement shall be borne by Seller. Except that in the event that this transaction terminates due to fault of Purchaser, Purchaser shall bear the costs of title insurance.

4.2 License for Entry onto Property for Inspection, Study and Survey Purposes; Documents In general, as it applies to this Section and its subsections, Purchaser shall exercise its rights granted herein at all times in such a manner as shall not result in the Property becoming subject to any lien arising out of Purchaser's exercise of rights. Any lien arising out of Purchaser's conduct of any right granted under this Agreement shall be removed immediately and at Purchaser's expense.

4.2.1 License. Seller grants to Purchaser and its agents, a license to enter the Property upon prior notice to Seller, who shall arrange such access as Purchaser shall reasonably require, for the purpose of conducting any investigation, inspection, analysis, study or survey of the Property. The time, place and manner of inspection shall be fully described to Seller prior to entry and no investigation, inspection, analysis, study or survey shall be made which has not been approved in advance by Seller or which unreasonably disturbs the quiet use and enjoyment of the building by its tenants. Seller shall not unreasonably withhold approval and shall endeavor to make access to the building available for inspections which Seller has determined would disturb the quiet use and enjoyment of the building, at times when building tenants use will not be disturbed. The license granted in this section shall expire on the date of Closing or the date this Agreement is terminated, whichever is earlier.

4.2.2 Survey. In the event that Purchaser elects to survey the boundaries of the Property, the survey shall be made by a licensed surveyor or Registered Professional Engineer in detail that is sufficient to permit the Title Company to delete the standard printed "survey" exception from the Title Policy pertaining to discrepancies in area or boundary lines, encroachments, overlapping improvements or similar matters, and to show the total square footage and the boundaries of the Property together with the location of any and all easements and rights-of-way, the location of any utilities, and topographic elevations at the Property corners ("Survey"). In the event that Purchaser elects to have a survey made, the 20 day period for objections to condition of title described and related deadlines for response and election of remedies in Section 4.12 above shall be extended to the 20th day after receipt of the survey by Purchaser.

4.2.3 Environmental Reports. Within five (5) days of the mutual execution of this Agreement, Seller shall furnish Purchaser with copies of all environmental reports or hazardous materials abatement reports, along with any abatement bids or estimates received by Seller, and all other information in the possession of Seller, which reflects conditions on the Property, including environmental conditions, or the potential for same and which pertain to the condition and/or any present or potential development and/or use of the Property.

(i) At any period of time prior to expiration of the Due Diligence Period, the Purchaser shall have the right, at its own expense, to commence any investigation of the Property, including but not limited to such environmental studies as it deems necessary to determine that the Property is free from Hazardous Materials. In general, all such investigations or studies occurring on the premises shall be conducted in a manner consistent with best practices of the industry and shall not expose any person to any condition potentially hazardous to that person's health. In the event that any accidental discharge or exposure of a hazardous condition should occur, Purchaser and its agents shall promptly take all steps reasonably calculated to minimize the effect of such exposure, and protect life, health and property and shall promptly notify the Seller. Purchaser shall notify Seller of the results of any studies it conducts.

(ii) Any environmental study which Purchaser elects to undertake which requires invasive or destructive testing, may be performed upon 2 days notice to Seller and upon proof of insurance adequate to the risk of damage or loss occurring during the testing to cover the cost of repair necessitated by such testing on the Property or any adjacent property owned by Seller. Purchaser acknowledges that the City is a public agency subject to the requirements of RCW 42.17 (Public Disclosure Act). Purchaser shall disclose such environmental information only to (1) those of its agents or contractors who require the information for business purposes relating to the investigation, analysis or development of the Property, provided that those agents or contractors (a) shall be informed of the confidential nature of the information and (b) shall agree in advance in writing to be bound by the confidentiality requirements set forth herein; and (2) those persons requesting pursuant to RCW Ch. 42.17 information that is not exempt from public disclosure.

(iii) Any invasive or destructive testing shall be conducted at an agreed time and in a manner intended to minimize disruption to Seller's use of the property. In the event that this Agreement terminates without Closing, Purchaser covenants and agrees to repair any damage to the Property occasioned by the Purchaser's entry upon the Property or the conduct of any inspection, study or survey by or for Purchaser; provided however that Purchaser shall not be required to correct any conditions of the Property related to the presence of Hazardous Materials. Such repair shall be to the condition in which the Property existed immediately prior to Purchaser's initial entry upon the Property pursuant to the license granted herein. Purchaser shall indemnify and hold harmless Seller for any costs, loss or damage whatsoever incurred as a result of Purchaser's entry upon the Property and conduct of the inspection, study or survey.

4.2.4 Seller's Cooperation. Seller agrees that Seller and its employees will cooperate with Purchaser during Purchaser's investigation and survey and provide such access to the premises and such information about the premises as Purchaser shall reasonably require:

(i) Within five (5) days after mutual execution of this Agreement, Seller shall have provided to Purchaser a complete copy of the following to the extent they are in Seller's possession, custody or control: information relating to any proposal or commitment by Seller to alter existing improvements or structures or construct additional improvements or structures, or to dedicate any portion of the Property to any governmental entity; and all other reports, records, diagrams, photographs, maps or other Documents relating to the Property, as listed at Exhibit C attached hereto.

4.3 Purchaser shall indemnify and hold Seller harmless from any costs, loss and damage whatsoever incurred as a result of Purchaser's entry upon the Property prior to the date of Closing or the date this Agreement is terminated, whichever is earlier; provided however that in no event shall Purchaser be liable for any Hazardous Material cleanup or remediation for any condition which may have been discovered in Purchaser's non-negligent investigation of the Property. If Purchaser does not purchase the Property, Purchaser covenants and agrees to repair any damage caused by Purchaser in the conduct of any inspection, study or survey, however, Purchaser shall have no liability for any existing condition of the Property including any condition related to Hazardous Materials which may have been discovered during Purchaser's non-negligent investigation.

4.4 Existing Leases. Within five (5) days after mutual execution of this Agreement, Seller shall provide Purchaser with complete copies of all leases and any amendments thereto (the "Leases") and service contracts affecting the property, along with any amendments thereto, including a current list of lease termination dates, extension options and current rent roll (the "Rent Roll") and the Rent Roll shall represent a true and complete list of all tenants of the Real Property as of the date of this Agreement, and correctly shows the rent schedule and the amount of security and other deposits held by Seller pursuant to the Leases. The Leases shall not be amended or terminated prior to the Closing without the prior written consent of Purchaser and no new leases shall be entered into that affect the Building or the Property. Except for any delinquency noted on said rent roll, Seller knows of no other defaults or delinquencies by tenants.

4.5 Expense Reports. Within five (5) days after mutual execution of this Agreement, Seller shall provide Purchaser with copies of all expense reports for the Property for the last 36 months.

4.6 City Lease. A lease will be executed between the Purchaser and the Seller (as tenant) for approximately 7,889 RSF rentable square feet (located on the 2nd floor) and 10,077 RSF (in the basement, 3rd and 4th floors) at an annual rental rate of $13.00 FSG per rentable square foot (the "City Lease"). The form of the City Lease shall be approved by Purchaser and Seller prior to the expiration of the Due Diligence Period. The term of the lease shall be four (4) months from the Closing date. Seller acknowledges that construction work may be commencing in the Building during the term of the City Lease.

4.7 Assignments. On or before Closing, Seller shall duly complete, execute or obtain, and deposit into the Escrow with Title Company an assignment and assumption of: (a) the Leases; (b) the Documents; and (c) any operating contracts which Purchaser has agreed shall survive Closing; all in form and content to be mutually agreed to by Seller and Purchaser prior to Closing.

4.8 Seller Cooperation in Approvals Process. Seller agrees to reasonably cooperate with Purchaser in its pursuit of approvals from City of Seattle and other applicable authorities with jurisdiction over building and site improvement permitting and approvals, both preClosing and post-Closing, in connection with Purchaser's Building renovations and site improvements.

5. REPRESENTATIONS AND WARRANTIES.

5.1 Purchaser's Warranties. Purchaser represents and warrants as follows:

5.1.1 Purchaser is a Washington limited liability company duly organized, validly existing and in good standing under the laws of the State of Washington and has the power to own its property and assets.

5.1.2 At the time this Agreement is presented to Seller as an offer, this Agreement has been duly authorized, executed and delivered by Purchaser; will constitute the legal, valid and binding obligation of Purchaser; and will be enforceable against Purchaser in accordance with its terms.

5.1.3 The purchase of the Property will not conflict with or result in a material breach affecting Purchaser's ability to perform under this Agreement, of any other agreement or instrument to which Purchaser is a party or by which it is or may be bound or constitute a default under any of the foregoing, or violate any state or federal governmental law, statute, ordinance or regulation in effect on the date of execution of this Agreement.

5.1.4 Purchaser acknowledges that the building is designated as a historic landmark, that there is historic easement on the buildings facade, and that the historic status of the building may affect or limit the Purchaser's ability to develop the property. Purchaser acknowledges they will further investigate any limits on the property required by the historic status, and are satisfied with these limitations.

5.1.5 The representations and warranties made by Purchaser in this Agreement are true on and as of the date of Closing with the same effect as though such representations and warranties had been made on and as of the date of Closing. Purchaser's representations set forth in this Section 5.1 shall survive Closing as set forth in Section 24 (Survival).

5.2 Seller's Warranties. Seller represents and warrants as follows:

5.2.1 Seller is a municipal corporation duly organized, validly existing and in good standing under the laws of the State of Washington and has the power to own its property and assets. Seller warrants that the Acting Director of the Fleets and Facilities Department is authorized on behalf of the Seller to execute this Agreement, subject to the approval of this Agreement by ordinance adopted by the Seattle City Council.

5.2.2 Seller is aware of no condition on or affecting the title to the Property, including but not limited to any material defect or material adverse fact relating to the Property, which will not be reflected as a matter of record title.

5.2.3 Seller is the owner of the Property. On receipt of the Title Commitment, Seller will review the same. At Closing, Seller will warrant that there are no claims affecting title to the Property, other than those disclosed by the Title Commitment as of Closing.

5.2.4 To Seller's knowledge, other than as disclosed in the Documents provided by Seller to Purchaser, there are no Hazardous Materials (as defined in Section 22 hereof) on or in the Property. If any additional Hazardous Material is discovered by Purchaser on the Property prior to Closing, Purchaser shall have the right to terminate this Agreement.

5.2.5 To Seller's knowledge, there is no action, suit, investigation or proceeding (administrative or otherwise) pending or, to Seller's knowledge, threatened, against or affecting the Property or any portion of it, the transactions contemplated hereby, the Seller, or otherwise, which might affect the right of Purchaser to own, operate, develop or possess the Property or which might result in any liability of Purchaser with respect thereto. There is no pending condemnation or similar proceeding affecting the Property or any portion thereof, and Seller has not received any notice and has no knowledge that any such proceeding is contemplated.

5.2.6 There are no contracts, leases or other agreements which affect the Property or any portion thereof (except for the Leases) which would survive Closing, and Seller agrees not to enter into any such contracts, leases or other agreements, or to amend any of the Leases, between the date of this Agreement and the Closing. Except as shown in the Leases and rent roll delivered to Purchaser, no rental or other concessions of any nature have been granted to any tenants of the Property, and no rental or other concessions will be granted from the date of this Agreement to the Closing without the prior written consent of Purchaser. There are no oral or other terms or agreements with any of the tenants or occupants except as expressly set forth in the Leases. The Leases are in full force and effect, to the best of Seller's knowledge there are no uncured defaults by the landlord or, to the knowledge of Seller, by the tenant thereunder. There are no tenant improvement obligations or obligations to pay commissions in connection with any Lease which will not be fully satisfied by Seller prior to Closing. Neither Seller nor any other party to an operating contract is in default under any operating contract, and all operating contracts are valid, binding and enforceable in accordance with their terms. As of Closing, all operating contracts shall be terminable at Purchaser's election.

5.2.7 Other than as expressly disclosed by Seller to Purchaser in the Documents, the Property does not violate any applicable environmental, zoning, or building restrictions, insurance company guidelines, fire codes, or other governmental statutes, ordinances, rules, regulations or orders relating to health, safety or welfare or any orders by any governmental agency or known insurance company requirement corrective action for any of the foregoing.

5.2.8 No representation or warranty by Seller contained in this Agreement or any exhibit hereto or in any document, statement, certificate, financial information, or schedule given to or to be given to Purchaser as a result of or in connection with this Agreement, contains or on Closing will contain, an untrue statement of material fact, or knowingly omits or on Closing will knowingly omit to state a material fact necessary to make the statements and facts contained therein not misleading.

5.2.9 Seller shall not remove any of the architectural ornamentation, architectural features, doors, windows, hardware or any historical architectural building materials from the Building or the Property. Any architectural materials originating from the Building that have been stored shall be deemed part of the Property and shall become the property of Purchaser upon Closing.

5.2.10 Seller shall diligently manage and operate the Property and shall perform maintenance and replacements in accordance with customary schedules and perform repairs or replacements to any broken, defective or dysfunctioning portion of the Property as the relevant condition occurs, and otherwise operate and maintain the Property in a manner consistent with the manner in which Seller has previously maintained the Property, which maintenance shall include the continued employment of an experienced real estate management firm to provide full time professional management of the Property; not violate or breach any zoning ordinance, fire code or building permit, nor commit any waste, damage, or nuisance; and promptly advise Purchaser of any litigation, arbitration, or administrative hearing affecting the Property.

5.2.11 Seller at Seller's expense shall continue to insure the Building and Property against damage by fire or any other destructive forces in the amounts and coverages in place as of the date of mutual execution of this Agreement and Seller shall retain such insurance in full force and effect until Closing or any earlier termination of this Agreement. Seller has not received any notice from any insurance company of any defects or inadequacies in the Property or any part thereof which would adversely affect the insurability of the Property or the premiums for insurance thereof, and Seller is not aware of any such defects or inadequacies.

5.2.12 The representations and warranties made by Seller in this Agreement are true on and as of the date of Closing with the same effect as though such representations and warranties had been made on and as of the date of Closing. Sellers representations set forth in this Section 5.2 shall survive Closing as set forth in Section 24 (Survival).

5.3 Purchaser's Understanding of the Property.

Based on a preliminary review of the due diligence information made available to the Purchaser, the following represents the key components of the Purchaser's understanding of the Property:

(i) The Property consists of approximately 87,467 square feet of rentable area.

(ii) There are currently five private sector tenants paying rent (for a total of 9,155 rentable square feet). The Purchaser expects to allow for the each tenant to remain in their tenant space through the expiration of their tenancies. If early termination of some or all such tenants is required, all costs of such early termination shall be borne by the Purchaser.

(iii) The Purchaser has reviewed the Marx/Okubo Property Conditions report and understands the Property's capital requirements.

(iv) The Purchaser has reviewed the ABS Seismic report and understands the structural issues at the Property.

(v) The Purchaser has reviewed the Clayton Engineering HazMat report and understands the hazardous waste issues at the Property. However, Purchaser requires Seller to provide any hazardous materials abatement bids or estimates received by Seller as part of the Documents delivery requirements.

(vi) The Purchaser has reviewed the available ADA reports and understands the current ADA issues at the Property.

(vii) The Purchaser understands that there are no construction drawings available for the Property. However, Seller shall within five (5) days after mutual execution of this Agreement deliver complete CAD files of the existing floor plans prepared by the City, hard copies of which have been previously delivered to Purchaser, along with any other existing conditions drawings for the Property that are in the possession of the City.

(viii) The Purchaser understands the current DOC-450 zoning and the historical significance of the Property.

(ix) The Purchaser has reviewed the preliminary Title Report for the Property attached as Exhibit C, however, the title review provisions set forth in Section 4 shall remain applicable to this Agreement.

6. CONDITIONS PRECEDENT TO PERFORMANCE OF AGREEMENT BY PURCHASER

6.1. Purchaser shall be obligated to complete this transaction only upon satisfaction or Purchaser's waiver of the following conditions:

6.1.1 Seller is able to convey title to the Property as described in Section 4 hereof, subject only to those Permitted Exceptions to title;

6.1.2 The title company is able to issue to Purchaser the Title Policy;

6.1.3 Within forty five (45) days after the Effective Date (the "Due Diligence Period"), Purchaser has determined in its sole discretion that the Property can be owned, operated and developed in the manner and according to terms acceptable to Purchaser in its sole discretion.

6.1.4 City Approval (as defined in Section 7.1.1 below) has been obtained by Seller, and Purchaser has approved in its discretion any terms and conditions imposed by the Mayor or in the appeal process required to obtain such City Approval. Seller shall provide the form of Ordinance (as defined in Section 7.1.1 below) to be submitted to the City Council for approval within thirty (30) days after mutual execution of this Agreement.

6.1.5 Seller will deliver to Purchaser within forty five (45) calendar days prior to the Closing Date signed tenant estoppel certificates from all tenants in the Property in the form attached hereto as Exhibit D which shall be dated no earlier than 60 days prior to the Closing Date.

6.1.6 Purchaser will have entered into the Card Check Neutrality Agreement described in Section 7.1.2. on or before expiration of the Due Diligence Period. Seller shall use its best efforts in facilitating and encouraging agreement between Purchaser and Union in finalizing the Card Check Neutrality Agreement during the Due Diligence Period.

6.1.7. Purchaser and Seller will have entered into the City Lease as described in Section 4.6.

6.1.8 All other conditions of this Agreement have been satisfied by the City or waived by Purchaser.

6.2. If any condition or contingency described in this Agreement has not been either satisfied or waived within the time period associated with such condition or contingency, this Agreement shall automatically terminate and the Earnest Money, together with interest accrued thereon, shall be released by the Escrow Agent to Purchaser within three (3) days after delivery to Seller and Escrow Agent of Purchaser's written notice of such termination.

7. CONDITIONS PRECEDENT TO PERFORMANCE OF AGREEMENT BY SELLER

7.1 Seller shall be obligated to complete this transaction only upon the following conditions:

7.1.1 City Approval. For purposes of this Agreement, "City Approval" shall mean that date upon which an ordinance acceptable in substance to Purchaser, which acceptance shall not be unreasonably withheld, approving this Agreement becomes effective1.

7.1.2 Seller shall be obligated to complete the transaction only upon the waiver by Seller or the satisfaction of each of the following:

(i) Purchaser shall have complied with all its obligations under this Agreement.

(ii) The representations and warranties made by Purchaser in this Agreement are true on and as of the date of Closing with the same effect as though such representations and warranties had been made on and as of the date of Closing.

(iii) Purchaser shall enter into a "card check neutrality agreement" ("Card Check Neutrality Agreement") and deliver a fully executed copy thereof to Seller as proof that it has met this obligation, with an employee bargaining unit ("union") representing hotel and motel workers, whereby Purchaser and any entity operating the contemplated hotel on its behalf, the "employer", waives its right to National Labor Relations Board (NLRB) conducted election and agrees to recognize and bargain with the union if the union established a majority in a card check process.

8. TERMINATION OF AGREEMENT

8.1 If any condition or contingency described in this Agreement has not been either satisfied or waived within the time period associated with such condition or contingency, this Agreement shall automatically terminate and the Earnest Money, together with all accrued interest thereon, shall be released by the Escrow Agent to Purchaser within three (3) days after delivery to Seller and Escrow Agent of Purchaser's written notice of such termination..

9. ESTABLISHMENT OF ESCROW AND CLOSING

9.1 Establishment of Escrow. Within two (2) business days after the Effective Date, Seller shall open an escrow account with the Escrow Agent identified in Section 3.2 in order to consummate the sale and purchase of the Property in accordance with the terms and provisions of this Agreement.

9.2 Escrow Instructions. The provisions of this Agreement shall constitute the joint instructions of the parties to the Escrow Agent; provided, however, that the parties may provide additional instructions to the Escrow Agent not inconsistent with the provisions of this Agreement.

9.3 Date of Closing. Closing shall occur on or before April 30, 2005 (the "Closing Date"), unless otherwise agreed to in writing by the parties. Notwithstanding the foregoing, if City Approval (as defined in 7.1.1) does not occur on or before April 30, 2005, then at Purchaser's option and sole discretion this Agreement may be terminated by Purchaser, whereupon the Earnest Money together with all interest accrued thereon shall be returned to Purchaser within three (3) days after delivery to Seller and Escrow Agent of Purchaser's notice of such termination. Seller acknowledges that Purchaser will have incurred significant costs and fees in connection with financing, appraisal fees, professional fees, and other costs and expenses incurred in anticipation of closing on or before the Closing Date and Seller's inability to obtain City Approval on or before April 30, 2005 will result in a significant financial loss for Purchaser. Accordingly, Seller shall diligently pursue and use its best efforts in obtaining City Approval on or before April 30, 2005.

9.4 Purchaser's Closing Obligations & Instruments. At Closing Purchaser shall deliver to Seller through the Escrow Agent,

9.4.1 by certified or cashier's check or wire transfer, the balance of the Purchase Price, less the Deposit and all interest earned thereon adjusted and prorated as provided in this Agreement

9.4.2 a counterpart executed real estate excise tax affidavit; and

9.4.3 such other instruments as are reasonably necessary to consummate this purchase and sale transaction

9.5 Seller's Closing Obligations & Instruments. At Closing, Seller shall deliver to Purchaser through the Escrow Agent:

(i) a fully executed and acknowledged bargain and sale deed subject only to the exceptions identified in Section 4.1 of this Agreement;

(ii) a counterpart executed real estate excise tax affidavit; and

(iii) such other instruments as are reasonably necessary to consummate this purchase and sale transaction.

10. ESCROW AGENT'S OBLIGATIONS

10.1 The Escrow Agent shall receive, hold and disburse all funds, arrange the execution, delivery and recording of all instruments necessary to this transaction and shall otherwise act in accordance with the mutual written instructions of the parties to this Agreement and in accordance with the laws of the State of Washington.

10.2 Earnest Money. The Earnest Money paid by Purchaser shall be held by Escrow Agent in a separate interest bearing account, identified to this transaction. The interest accruing thereon between the date of deposit and the date of Closing shall be applied to the Purchaser's obligations at Closing, or if this Agreement is terminated, such interest shall be returned to Purchaser together with the Earnest Money if the Earnest Money is to be returned to Purchaser in accordance with this Agreement.

10.3 Upon recording of all documents necessary to transfer title, Escrow Agent shall pay to Seller the Purchase Price, as adjusted and prorated for Seller's portion of costs of this transaction and after deduction of all applicable fees and taxes.

10.4 Proration and Expenses. Real property taxes, assessments, Lease rent, surface water management charges, conservation service charges, and utility charges constituting liens against the Property, all for the year of Closing, shall be prorated as of the date of Closing. Any documentary transfer tax, real estate excise tax, or other similar tax in accordance with the requirements of lawful authority shall be paid by Seller. All advance Lease rentals, refundable deposits and refundable fees paid by tenants to Seller, including without limitation refundable security deposits and consideration regarding future lease credits, shall be credited to Purchaser at Closing. Any rent concessions made by Seller covering rental periods occurring after closing shall be credited to Purchaser at Closing. Seller agrees to provide Purchaser with a complete and current rent roll, including without limitation, a schedule of all tenant deposits, fees, date of last rent received and description of any existing defaults actually known to Seller, within five (5) business days of mutual execution of this Agreement. Purchaser shall pay the cost of recording the deed. Seller shall pay the premium for the issuance of owners title insurance and the title policy to be issued to Purchaser at Closing, provided, however, that Purchaser shall pay the cost of extended (ALTA) coverage as well as any additional endorsement premiums. All other recording and closing costs (including the escrow fee but excluding attorneys' and brokers' fees, costs and expenses associated therewith) shall be shared equally by the parties. Each party shall pay the attorneys' fees, costs, and expenses incurred by such party with respect to the negotiation of this Agreement and the consummation of the transactions contemplated herein.

10.5 At Closing, the Escrow Agent shall have the Title Company issue to Purchaser the Title Policy insuring fee simple title to the Property subject only to exceptions approved or deemed to have been approved by Purchaser and not limited by any limitations of Purchaser's remedies against Seller contained in this Agreement.

11. DEFAULT

11.1 If either party to this Agreement shall fail or refuse to perform or satisfy a material obligation under this Agreement and the other party has fully performed all of its obligations under this Agreement, that party shall be in default and the non-defaulting party may elect from the following remedies.

11.1.1 Seller in Default. In the event that Seller is in default, Purchaser may elect to seek specific performance of this Agreement or any other remedy available at law or equity or recover its Earnest Money deposit together with accrued interest thereon and notify Seller in writing of Purchaser's intention to abandon this transaction.

11.1.2 Purchaser in Default. In the event that Purchaser is in default, Seller may retain the Earnest Money deposit as liquidated damages as Seller's sole and exclusive remedy under this Agreement, in which event Seller shall have no further rights and Purchaser shall have no further obligations under this Agreement.

12. CONDITION OF PROPERTY; RISK OF LOSS

12.1 The Property shall be delivered by Seller to Purchaser at Closing in substantially the same physical condition as of the date of Seller's execution of this agreement, excepting ordinary wear and tear.

12.2. Risk of Loss

Risk of loss or damage to the Property by fire or other casualty, from the date of this Agreement through Closing shall be on the Seller, and thereafter shall be on the Purchaser. In the event that the improvements on the Property are destroyed or materially damaged between the date this Agreement is executed by the Seller and the date title is conveyed to Purchaser, Purchaser shall have the option of recovering the Earnest Money plus accrued interest and being released from all obligations hereunder, or alternatively, closing the transaction and accepting the Property in its then present condition. If Purchaser elects to accept the Property in its then condition, any insurance proceeds payable to Seller by reason of the damage to the Property shall be paid and/or assigned, as the case may be, to Purchaser and Purchaser shall receive a credit at Closing, for the amount of any deductible applied to the loss.

13. CONDEMNATION.

13.1 If, prior to the date of Closing, all or any part of the Property is taken by condemnation by a governmental authority other than the City of Seattle or any agency, commission, department or entity in any way related thereto ("Superior Governmental Authority"), the Purchaser may elect to cancel this Agreement by giving Seller notice to that effect, whereupon the Escrow Agent shall immediately return the Earnest Money and all interest earned thereon to the Purchaser and both parties shall be relieved and released from any liability hereunder to the other. Alternatively, the Purchaser may elect to take title to the Property in accordance with the terms and conditions of this Agreement without reduction of the Purchase Price and shall be entitled to receive from the Superior Governmental Authority any condemnation award or benefit. If Purchaser purchases the Property and complies with all of the terms of this Agreement, Seller shall assign to Purchaser all of its right, title and interest in and to any such condemnation award or benefit, if any, that may be owing to the owner of the Property as a result of such condemnation or taking of, or damage or change to the Property, provided, however, that in such event, Seller's warranties, other than as to the condition of title to the Property, shall lapse. The foregoing notwithstanding, Seller does not assign to Purchaser the proceeds from any insurance policy maintained by Seller with regard to the Property and retains any and all such proceeds.

13.2 If, prior to the date of Closing, all or any part of the Property is taken by condemnation by the City of Seattle or any agency, commission, department or entity in any way related thereto ("City"), the Purchaser may elect to cancel this Agreement by giving Seller notice to that effect, whereupon the Escrow Agent shall immediately return the Earnest Money and all interest earned thereon to the Purchaser, Purchaser shall be relieved and released from any liability hereunder, and Seller shall reimburse Purchaser for any costs Purchaser has incurred as of the date of such cancellation of the Agreement

14. BROKERS; INDEMNIFICATION

14.1 Purchaser and Seller each warrant and represent that they will each be solely responsible for any and all commissions due their respective real estate broker, salesman, finder or similar intermediary in connection with the purchase of the Property; and each shall hold harmless, indemnify and defend the other from and against any claim based on any alleged fact inconsistent with such party's warranty and representation contained in this paragraph 14.1. The Seller is represented by Meriwether Partners LLC, and the Seller shall be responsible for any commission due Meriwether Partners. The Purchaser represents that it has not been represented by any broker in connection with the purchase of the Property. This indemnification obligation shall survive the Closing and the termination of this Agreement.

15. ASSIGNMENT; BINDING EFFECT

15.1 This Agreement may be assigned by the Purchaser subject to approval by Seller which approval will not be unreasonably withheld. Notwithstanding the foregoing, Purchaser may assign this Agreement at Closing to any entity in which Purchaser has an ownership interest, without Seller's consent.

15.2 This Agreement shall not be assigned by Seller without the prior written consent of Purchaser.

15.3 Subject to the foregoing, this Agreement shall be binding upon each party and its assigns and successors.

16. NOTICES

16.1 All notices, requests, demands and other communications under this Agreement shall be in writing and shall either be delivered in person, sent via facsimile or sent by Federal Express or by registered or certified mail through the U.S. Postal Service with postage prepaid as follows:

SELLER:

THE CITY OF SEATTLE

c/o Facility Services Section

Executive Services Department

14th Floor

618 Second Avenue Seattle, WA 98104

Facsimile: (206) 684-0525

PURCHASER:

Arctic Club Hotel LLC

c/o Conover Bond LLC

Att: Robert C. Brewster

157 S. Howard, Suite 600

Spokane, WA 99201

Facsimile: (509) 747-1915

With a copy to:

Real Property Law Group

Att: Stephen J. Day

1218 Third Avenue, Suite 1900

Seattle, WA 98101

Facsimile: (206) 374-2370

or to such other address as shall be furnished in writing with fifteen (15)-days prior notice by either party.

16.2 Notices shall be deemed to have been given upon the earlier of actual receipt, as evidenced by the deliverer's affidavit, the recipient's acknowledgment of receipt, or the Federal Express receipt, and in the event of attempted delivery during normal business hours at the proper address by an agent of a party or by Federal Express or the U.S. Postal Service but refused acceptance, shall be deemed to have been given upon attempted delivery, as evidenced by an affidavit of inability to deliver stating the time, date, place and manner in which such delivery was attempted and the manner in which such delivery was refused.

17. GOVERNING LAW JURISDICTION AND VENUE

17.1 This Agreement shall be governed by the law of the State of Washington.

17.2 In the event that litigation is commenced by either party, the parties to this Agreement agree that jurisdiction shall lie solely in the King County Superior Court, with venue at Seattle, King County, Washington.

17.3 In the event of litigation between the parties hereto, declaratory or otherwise, in connection with or arising out of this Agreement, the prevailing party shall recover from the non-prevailing party all actual costs, actual damages and actual expenses, including attorneys' fees and charges, paralegal and clerical fees and charges and other professional or consultants' fees or charges, expended or incurred in connection therewith, as set by the court, including for appeals, which shall be determined and fixed by the court as part of the judgment.

18. TIME OF THE ESSENCE; CALCULATION OF TIME PERIODS

18.1 Time is of the essence of this Agreement and of all acts required to be done and performed by either and both of the parties hereto, including but not limited to the proper delivery of all documents, and the tender of all amounts of money, required by the terms hereof to be delivered or paid, respectively. Any extension of time granted for performance of any obligation to this Agreement shall not be considered an extension of time for the performance of any other obligation under this Agreement.

18.2 Unless otherwise specified, in computing any period of time described in this Agreement, the day of the act or event after which the designated period of time begins to run is not to be included and the last day of the period so computed is to be included, unless such last day is a Saturday, Sunday or legal holiday. The final day of any such period shall be deemed to end at 5:00 p.m., Pacific time.

19. COUNTERPARTS

19.1 This Agreement may be executed in counterparts and by facsimile, if so, only when counterparts are delivered to the Escrow Agent, with the signatures of each and every one of the parties constituting the Purchaser and Seller, shall it be deemed a binding Agreement.

19.2 It is understood, agreed and acknowledged that if both Purchaser and Seller have not executed a counterpart of this Agreement and deposited signed copies, accompanied by the deposit with the escrow agent as provided for in this Agreement and to each other, this Agreement shall be of no force and effect.

20. WAIVER

20.1 Any waiver under this Agreement must be in writing. A waiver of any right or remedy in the event of a default shall not constitute a waiver of such right or remedy in the event of any subsequent default.

20.2 No writing other than a document signed by the Seller's Fleets and Facilities Department Director specifically so stating that it is a waiver shall constitute a waiver by Seller of any particular breach or default by Purchaser, nor shall such a writing waive Purchaser's failure to fully comply with any other term or condition of this Agreement, irrespective of any knowledge that any officer or employee of Seller may have of such breach, default, or noncompliance.

21. ENTIRE AGREEMENT; MODIFICATIONS; NEGOTIATED UNDER-STANDING

21.1 This Agreement, including all exhibits (which by this reference are incorporated herein), represents the entire agreement of the parties with respect to the Property and any and all agreements, oral or written, entered into prior to the date hereof are revoked and superceded by this Agreement.

21.2 This Agreement may not be changed, modified or rescinded except in writing signed by both parties and any attempt at oral modification of this Agreement shall be of no effect.

21.3 The parties to this Agreement acknowledge that it is a negotiated agreement, that they have had the opportunity to have this Agreement reviewed by their respective legal counsel, and that the terms and conditions of this Agreement are not to be construed against any party on the basis of such party's draftsmanship thereof.

22. DEFINITIONS

For the purposes of this Agreement, the following terms and phrases are defined as specified below:

22.1 "Document..." means and includes information stored in any form; any written, recorded or graphic matter, however produced or reproduced; and copies and drafts thereof. Without limiting the foregoing, "Document" includes correspondence; telegrams; memoranda; reports; notes; drafts; minutes; contracts; agreements; books; records; vouchers; invoices; diaries; calendar notes; logs; computer print-outs; e-mails; voice mails; memory programs; information stored in any data processing or word processing system, in whatever form; back-up materials of any kind; card files; press clippings; newspapers or newsletters; sworn or unsworn statements of employees; lists; audits; tables of organization; monthly or other periodic statements; journals; notices; affidavits; court papers; appointment books; minutes or records of conferences or telephone calls; brochures; written reports or opinions of investigators or experts; status reports; drawings; charts; photographs; negatives; or tape recordings.

22.2 "Environmental report..." means and includes but is not limited to any document relating to the physical condition of the Property or such adjacent property or the presence on the Property or such adjacent property of any Hazardous Materials, as that term is defined in Subparagraph in Section 22.3.

22.3 "Hazardous Materials..." means and includes any hazardous or toxic substance or container therefor that is or becomes regulated by any governmental authority and includes, without limitation, underground storage tanks and any substance that is:

(i) Defined as a "Hazardous Substance" "Hazardous Waste," or "Extremely Hazardous Substance" pursuant to any provision of the United States Code, including United States Code sections commonly known as the Federal Water Pollution Control Act, the Federal Resource Conservation and Recovery Act, the Comprehensive Environmental Response, Compensation and Liability Act or the Superfund Amendments and Reauthorization Act of 1986;

(ii) Defined as a hazardous substance or material pursuant to any state or local law, ordinance or regulation governing the Property;

(iii) A petroleum or a petroleum by-product;

(iv) An asbestos or asbestos containing material;

(v) A pesticide;

(vi) A polychlorinated biphenyl;

(viii) A dry cleaning fluid; or

(ix) A solvent.

22.4 "In Seller's possession, custody or control..." means and includes retained or maintained by, or within the knowledge of, or to which access is available by, Seller or any of its officers, employees, attorneys, agents, consultants or storage providers.

23. FURTHER INSTRUMENTS AND ACTION

23.1 Each party shall promptly, upon the request of the other or Escrow Agent, execute, and as required, have acknowledged and deliver to the other, any and all further instruments and shall take all such further action as may be requested or appropriate to evidence or give effect to the provisions of this Agreement or to satisfy escrow agent's requirements.

24. SURVIVAL

24.1 All warranties, representations, covenants, obligations and agreements contained in or arising out of this Agreement or in any certificates or other documents required to be furnished hereunder, shall survive the Closing. All warranties and representations shall be effective regardless of any investigation made or which could have been made.

25. TAX DEFERRED EXCHANGE

25.1 Purchaser may elect to incorporate this transaction into a tax deferred exchange under Section 1031 of the Internal Revenue Code. In furtherance thereof, Seller agrees to allow Purchaser to assign this Agreement to a third party exchange intermediary for the purpose of effecting the exchange provided that such assignment will not delay closing or be interpreted to extend any deadline. Seller agrees to cooperate with the exchanging party in effecting such exchange; provided that the Seller shall not be required to incur any liability as a result of such cooperation. The failure of the exchange to qualify as an exchange under Section 1031 shall not constitute grounds for rescission by either party and shall not be deemed to be a failure of consideration.

IN WITNESS WHEREOF, Seller and Purchaser have caused this Agreement to be executed by officers thereunto duly authorized as of the day and year first above written, which shall be the date that the last of Seller and Purchaser shall have executed this Agreement.

SIGNATURES APPEAR ON THE FOLLOWING PAGE

SELLER:

THE CITY OF SEATTLE

By: _______________________________________

Brenda Bauer

Director, Fleets and Facilities Department

PURCHASER:

THE ARCTIC CLUB HOTEL LLC,

a Washington limited liability company

By: ARCTIC CLUB DEVELOPMENT LLC,

a Washington limited liability company

Its: Managing Member

By: ______________________________

Robert C. Brewster, Jr., Member

By: ______________________________

Stephen J. Day, Jr., Member

STATE OF WASHINGTON)

) ss.

COUNTY OF KING )

On this _____day of ___________________, 2005, before me, personally appeared Brenda Bauer, to me known to be the Acting Director of the Fleets and Facilities Department of The City of Seattle, who executed the foregoing agreement, and acknowledged the same to be the free and voluntary act and deed of The City of Seattle for the uses and purposes therein mentioned, and on oath stated that she was authorized to execute said agreement.

GIVEN under my hand and official seal the day and year written above in this certificate.

(Signature) _______________________

(Printed or typed name of Notary Public):

___________________________________

Notary Public in and for the State of Washington, residing at _________________________ My appointment expires __________________

STATE OF WASHINGTON )

) ss.

COUNTY OF )

On this _______day of _______________, 2005, before me, the undersigned, a Notary Public in and for the State of Washington, duly commissioned and sworn, personally appeared Robert C. Brewster, Jr., Member of Arctic Club Development LLC, managing member of The Arctic Club Hotel LLC, who executed the foregoing document, and acknowledged the same to be the free and voluntary act and deed of said corporation for the uses and purposes therein mentioned, and on oath stated that he was authorized to execute such document for and on behalf of said corporation.

WITNESS my hand and official seal hereto affixed the day and year written above in this certificate.

(Signature) _______________________

(Printed or typed name of Notary Public):

___________________________________

Notary Public in and for the State of Washington, residing at _________________________ My appointment expires __________________

STATE OF WASHINGTON )

) ss.

COUNTY OF )

On this _______day of _______________, 2005, before me, the undersigned, a Notary Public in and for the State of Washington, duly commissioned and sworn, personally appeared Stephen J. Day, Jr., member of Arctic Club Development LLC, managing member of The Arctic Club Hotel LLC, who executed the foregoing document, and acknowledged the same to be the free and voluntary act and deed of said corporation for the uses and purposes therein mentioned, and on oath stated that he was authorized to execute such document for and on behalf of said entity.

WITNESS my hand and official seal hereto affixed the day and year written above in this certificate.

(Signature) _______________________

(Printed or typed name of Notary Public):

___________________________________

Notary Public in and for the State of Washington, residing at _________________________ My appointment expires __________________

EXHIBIT A

Legal Description

[TO BE INSERTED AND CONFIRMED BY TITLE COMPANY PER LEGAL DESCRIPTION EXHIBIT ATTACHED TO CHICAGO TITLE INSURANCE COMPANY TITLE COMMITMENT DATED DECEMBER 13, 2004 UNDER ORDER NO. 1101566]

EXHIBIT B

Site Map

EXHIBIT C

Documents to be Delivered by the Seller

1. Chicago Title Insurance Policy

2. Special Warranty Deed and other title documents

3. Structural Documentation

4. Dome Room Historical Information

5. Arctic Building Insurance

6. Arctic Building Drawings/Floor Plans/As-Builts

7. Property Management Reports-monthly

8. Tenant Leases

* Wash. Federal Savings & Loan

* Tony Catering Lease

* Viet Chi Restaurant

* Film Stop

* Sumo Restaurant

9. Seismic Risk Assessment (ABS)

Seismic Hazard Program (EQE)

10. Project Worksheet Report Earthquake

Federal Emergency

Management Agency

11. Asbestos Hazard and Risk Assessment

Asbestos Sampling

12. Power Survey

Power Riser Diagram

Facility Assessment (FA)

Lighting Improvement

13. Basement Problems various documents

14. Replacement Roofing

Limited Asbestos Survey

Reroof/Plans/Specs/Cost Estimate

15. Public Address System Dome Room

16. Property Condition Assessments

Evaluation of Arctic Building Upgrades

17. CADD Drawings and CADD files on disk in AUTOCAD

18. 1982 Building Plans

EXHIBIT D

Form of Tenant Estoppel Certificate

TENANT ESTOPPEL CERTIFICATE

_____________________, 2005

To: The City of Seattle ("City") and The Arctic Hotel LLC and/or its Assigns ("Buyer")

Re: Lease Dated: _________________, ______

Landlord: ______________________________________ ("Landlord")

Tenant: ______________________________________ ("Tenant")

Premises: ______________________________________ ("Premises")

The undersigned hereby certifies to The City of Seattle and Buyer as of the date hereof as follows:

The undersigned is the "Tenant" under the above-referenced lease ("Lease") covering the above referenced Premises. A true, correct and complete copy of the Lease (including all addenda, riders, amendments, modifications and supplements thereto) is attached hereto as Exhibit A.

The Lease constitutes the entire agreement between Landlord and Tenant with respect to the Premises and the Lease has not been modified, changed, altered or amended in any respect.

The term of the Lease commenced on ___________________, ___, and, including any presently exercised option or renewal term, expired[s] on _____________________, ________, [and [by the terms of that Lease or by holdover], Tenant now occupies the premises on a month-to-month basis.] Tenant has accepted full and complete possession of the Premises and is the actual occupant in possession and has not sublet, assigned or hypothecated or otherwise transferred all or any portion of Tenant's leasehold interest. All improvements to be constructed on the Premises by Landlord have been completed to the satisfaction of Tenant and accepted by Tenant and any tenant construction allowances have been fulfilled. All of the Landlord's obligations which have accrued prior to the date hereof have been performed.

There exists no breach or default, nor state of facts nor conditions presently or which, with notice, the passage of time, or both, would result in a breach or default on the part of either Tenant or Landlord. To the best of Tenant's knowledge, no claim, controversy, dispute, quarrel or disagreement exists between Tenant and Landlord.

Tenant is currently obligated to pay base annual rental in monthly installments of $______________ per month and monthly installments of annual rental have been paid through _____________________. No other rent has been paid in advance and Tenant has no claim or defense against Landlord under the Lease and is asserting no offsets or credits against either the rent or Landlord. Tenant has no claim against Landlord for any security, rental, cleaning or other deposits [, except for a security deposit in the amount of $________________ which was paid pursuant to the Lease].

The Lease is in full force and effect in accordance with its terms and is a binding obligation of the undersigned and tenant has not violated any provision of this lease including but not limited to unauthorized modifications of the property.

The undersigned has received no notice of prior sale, transfer, assignment, hypothecation or pledge of the Lease or of the rents secured therein, except to Buyer.

Tenant has no option or preferential right to purchase all or any part of the Premises (or the real property of which the Premises are a part) nor any right or interest with respect to the Premises or the real property of which the Premises are a part other than as Tenant under the Lease. Tenant has no right to renew or extend the terms of the Lease or expand the Premises.

Tenant has made no agreement with Landlord or any agent, representative or employee of Landlord concerning free rent, partial rent, rebate of rental payments or any other type of rental or other economic inducement or concession except as expressly set forth in the Lease.

All insurance required of Tenant by the Lease has been provided by Tenant and all premiums paid.

Tenant has not advised the Landlord that it intends to terminate the Lease or vacate the Premises prior to the end of the term of the Lease nor does it intend to do so.

The undersigned acknowledges that:

Buyer or Buyer's assignee is purchasing Landlord's interest in the property which includes the Premises and, in connection with that purchase, will be receiving an assignment of Landlord's interest under the Lease;

Buyer will be relying upon each of the statements contained herein in connection with Buyer's purchase of the property of which the Premises is a part and but for the assurances and agreements contained herein Buyer would not purchase the property of which the Premises is a part; and

The undersigned will attorn to and recognize Buyer as the Landlord under the Lease and will pay all rents and other amounts due thereunder to Buyer upon notice to the undersigned that Buyer has become the owner of Landlord's interest in the Premises under the Lease.

Tenant has not received notice of any violation of any federal, state or local law, regulation, rule, ordinance, order or other governmental requirement which relates to the use of condition of the Premises, and no hazardous wastes or toxic substances, as such terms are defined by all applicable environmental protection laws, have been disposed of, stored or used by Tenant in the Premises in violation of any such laws.

Tenant is not the subject of any bankruptcy, insolvency, reorganization or similar proceeding.

All notices to Tenant should be sent to the following address:

______________________________________________________________________ ________.

Tenant is not aware of any defects in the physical condition of the Premises except as follows: __________________________________________________.

TENANT: _______________________________________

By: __________________________________

Name: ________________________________

Title: ___________________________________

1 An ordinance becomes law in the City of Seattle by adoption by the requisite vote of the City Council and either the signature of the Mayor or the passage of 10 days after adoption, after the later of which thirty (30) days must expire without challenge for the ordinance to be effective.

ATTACHMENT 1

Attachment 1 to FFD Arctic Ordinance

Page 1 of 1

LEASE AGREEMENT

PART A SIGNATURE FORM

1. PARTIES

THIS LEASE AGREEMENT, entered into by and between ARCTIC CLUB HOTEL LLC (hereinafter referred to as the "Lessor"), and THE CITY OF SEATTLE, as Lessee (hereinafter referred to as the "City"), a municipal corporation of the State of Washington, WITNESSES THAT:

2. PREMISES

The Lessor hereby leases to the City, and the City hereby leases from the Lessor, a certain portion of real property commonly known as the Arctic Building located at 306 Cherry Street/700 Third Avenue in Seattle, King County, Washington that may be further described as follows:

A portion of the 2nd Floor which consists of approximately 7,889 square feet and portions of the basement, 3rd and 4th Floors which consist of approximately 10,077 square feet, as shown on Exhibit A attached hereto and incorporated herein (hereinafter referred to as the "Premises").

3. PURPOSES

Premises shall be used as general office and storage and for such other municipal purposes as the City may deem consistent therewith. The City may permit other governmental agencies and community groups approved by the City to use and occupy the Premises under City supervision and control, for which expanded use the written consent of Lessor shall not be required.

4. TERM

The term of this lease shall commence on June 1, 2005, and expire on August 31, 2005.

5. RENT

In consideration of this lease and the Lessor's performance of all covenants and agreements contained herein, the City shall pay to the Lessor as the monthly rental for said Premises, the sum of Nineteen Thousand Four Hundred Sixty Three and 17/100 Dollars ($19,463.17) upon receipt from the Lessor of an invoice for said rental.

6. UTILITIES

AND OTHER SERVICES

The City shall not pay for any utilities and other services.

7. AGREEMENT CONTENTS

This lease consists of this Part A Signature Form, Part B General Terms and Conditions, and Exhibit A, all of which, by this reference, are incorporated herein, and embodies the entire agreement of the parties hereto. There are no other understandings or agreements, written or oral, between the parties relating to the subject matter hereof.

8. EFFECTUATION OF AGREEMENT

In order to be effective, this lease must be (1) signed by an authorized representative of the Lessor and returned to the City at the address set forth below and (2) signed by the City's Director of the Fleets & Facilities Department pursuant to ordinance authority.

IN WITNESS WHEREOF, the parties hereto have affixed their signature below:

LESSEE, THE CITY OF SEATTLE

By__________________________________

Brenda Bauer, Director

Fleets & Facilities Department

Authorizing Ordinance _________________

Lessee's address for all communications:

Fleets & Facilities Department

618 Second Avenue, 14th Floor

Seattle, Washington 98104

LESSOR, ARCTIC CLUB HOTEL LLC

By__________________________________

(Signature)

____________________________________

(Print or Type Name)

____________________________________

(Print or Type Title)

Lessor's address for all communications:

Stephen Day

ARCTIC CLUB DEVELOPMENT LLC

c/o Real Property Law Group

1218 3rd Avenue, Suite 1900

Seattle, WA 98101

STATE OF WASHINGTON )

) ss.

COUNTY OF KING )

I certify that I know or have satisfactory evidence that Brenda Bauer is the person who appeared before me, and said person acknowledged that she signed this instrument, on oath stated that she was authorized to execute the instrument and acknowledged it as the Director of the Fleets & Facilities Department of THE CITY OF SEATTLE to be the free and voluntary act of such party for the uses and purposes mentioned in the instrument.

Dated: _____________________________

_____________________________________________

(Notary Signature)

_____________________________________________

(Print Name)

NOTARY PUBLIC in and for the State

of Washington, residing at Seattle.

My appointment expires _________.

STATE OF WASHINGTON )

) ss.

COUNTY OF ____________ )

I certify that I know or have satisfactory evidence that ____________________________ is the individual who appeared before me, and said individual acknowledged that (s)he signed this instrument, on oath stated that (s)he was authorized to execute the instrument and acknowledged it as the ________________________ of ARCTIC CLUB HOTEL LLC to be the free and voluntary act of such party for the uses and purposes mentioned in the instrument.

Dated: _____________________________

________________________________________________

(Notary Signature)

________________________________________________

(Print Name)

NOTARY PUBLIC in and for the State of Washington, residing at _________

My appointment expires ___________.

LEASE AGREEMENT

PART B GENERAL TERMS AND CONDITIONS

1. POSSESSION. The City is selling the entire Building to Lessor and leasing back the Premises from Lessor upon closing in accordance with that certain purchase and sale agreement entered into between the City and Lessor and date January 20, 2005 (the "Purchase Agreement"). Accordingly, possession of the Premises by the City shall occur immediately upon such closing of the sale under the Purchase Agreement.

2. ACCESS. The City shall allow the Lessor or the Lessor's agent free access at all reasonable times to said Premises to inspect, clean, or make repairs, additions or alterations to the Premises or any connected property owned by or under the control of the Lessor. This provision shall not be construed as an agreement on the part of the Lessor to make such repairs, additions or alterations nor a waiver of the City's right of quiet enjoyment. All such work by the Lessor shall be undertaken in a way so as to not unduly interfere with the City's use of the Premises. As stated in the Purchase Agreement, the City acknowledges and agrees that Lessor may be engaged in construction activities in the Building and adjacent to the Premises during the Tem of this Lease.

3. UTILITIES AND OTHER SERVICES. Unless otherwise specified in Part A, hereof, the Lessor, at the Lessor's sole expense, shall provide or shall otherwise pay for, when due, all costs for providing all utilities and other services on or to the Premises including but not limited to elevator service, electricity, gas, water, sewer, garbage (but not garbage or refuse collection in connection with refuse generated in the City's cleaning and moving its facilities from the Premises), heating and cooling or air conditioning, janitorial, and security. The City shall pay all charges for utility installations and modifications thereto occasioned by the City's requirements. Lessor does not warrant that any utilities or services will be free from interruption including by reason of accident, repairs, alterations or improvements. No utility interruption shall be deemed an eviction or disturbance of the City, or render Lessor liable to the City for damages, or relieve Lessor from the full and complete performance of all of the City's obligations under this Lease.

4. CARE OF PREMISES. The Premises shall at all times be kept and used in accordance with the laws of the State of Washington and ordinances of The City of Seattle, and in accordance with all duly authorized directions, rules, and regulations of the Health Officer, Fire Marshall or other proper officer of The City of Seattle; and the City will not permit any waste, damage or injury to the Premises, use or permit in said Premises anything that will increase the rate of fire insurance thereon, maintain anything that may be dangerous to life or limb, permit any objectionable noise or odor to escape or to be emitted from said Premises, or permit anything to be done upon said Premises that in any way will tend to create a nuisance. The City shall keep the interior spaces in the Premises, including all fixtures, clean and in good order, repair and condition.

5. MAINTENANCE REPAIRS. The Premises have been inspected by both parties and are accepted by the City in their existing condition as of the commencement date of this lease, without reservation. Except as otherwise provided for herein, the Lessor, at its sole expense, shall keep and preserve the Premises in good repair, including but not limited to all structural and non-structural parts thereof, elevators, plumbing, heating, cooling, and electrical, gas and other utility systems; and other equipment and appurtenances of the Premises and the structure of which the Premises form a part.

6. DAMAGE OR DESTRUCTION. In the event the Premises are damaged by fire, earthquake, act of war, or other extraordinary casualty to such an extent as to render the same untenantable in whole or in a substantial part thereof, or are destroyed, it shall be optional with the Lessor to repair or rebuild the same, and after the happening of any such event, the City shall give the Lessor or the Lessor's agent written notice thereof within forty-eight (48) hours of such occurrence. The Lessor shall have not more than ten (10) days after the date of such notification to notify the City in writing of the Lessor's intentions to repair or rebuild said Premises; and if the Lessor elects to repair or rebuild said Premises, the Lessor shall prosecute the work of such repairing or rebuilding without unnecessary delay. During any period in which the Premises are rendered unfit for occupancy because of any such casualty, the rent of said Premises shall be abated in the same ratio that the portion of the Premises rendered for the time being unfit for occupancy bears to the whole of the Premises. In the event the building in which the Premises are located is destroyed or is damaged (even though the Premises hereby leased is not damaged thereby) to such an extent that, in the opinion of the Lessor, it is not practicable to repair or rebuild, then the Lessor may, at its option, terminate the lease by providing written notice thereof to the City within thirty (30) days after such damage or destruction has been determined to be irreparable.

7. COMPLIANCE WITH LAW

(a) General Requirement. The Lessor and the City shall perform and comply with all applicable laws of the United States and the State of Washington; the Charter and ordinances of The City of Seattle; and rules, regulations, orders, and directives of their administrative agencies and the officers thereof.

(b) Licenses and Similar Authorizations. The Lessor and/or the City, when applicable, shall secure and maintain in full force and effect during the term of this Agreement, all required licenses, permits, and similar legal authorizations, and comply with all requirements thereof.

(c) Taxes. The Lessor shall pay, before delinquency, all taxes, levies and assessments on the Premises.

(d) Nondiscrimination and Affirmative Action. The Lessor shall comply with all Federal, State and local laws and ordinances prohibiting discrimination with regard to race, color, national origin, ancestry, creed, religion, political ideology, sex, sexual orientation, marital status, or the presence of any sensory, mental or physical handicap. The City acknowledges that the Premises do not comply in all respects with the Americans with Disability Act and other applicable codes, that the Premises are accepted by the City in AS-IS condition and that Lessor shall not obligated by the City to modify the Premises in any manner during the Term of this Lease.

(e) Compliance with Seattle's "Fair Contracting Practices Ordinance" Required: 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.

8. INDEMNIFICATION. The Lessor shall hold City harmless from all claims for accident or injury caused to persons or property by the fault or neglect of the Lessor or any of its employees or agents. The City will hold the Lessor harmless from all claims for accident or injury caused to persons or property by the fault or neglect of the City or any of its employees or agents, to the extent of the fault or neglect of the City. All personal property of the City on said Premises shall be at the risk of and the responsibility of the City.

9. SIGNS. The City may maintain the identification signs that exist upon the Premises The Lessor shall have the right to place and maintain "For Rent" signs in a conspicuous place on said Premises and to show the Premises to prospective tenants for thirty (30) days prior to the expiration of this lease.

10. ALTERATIONS, ADDITIONS AND IMPROVEMENTS.

(a) The City shall not make or cause to be made any alteration, addition or improvement to said Premises without first obtaining the written consent of the Lessor for such work. Any alteration, addition or improvement that is made solely for the convenience of the City or any of its employees or agents, or of the program to be conducted on the Premises shall be at the sole cost and expense of the City or the program being conducted on the Premises except for an alteration, addition or improvement occasioned by inherent damage or a latent defect in the Premises or of the structure in which the Premises are located, the cost of which alteration, addition or improvement shall be as agreed upon by the City and the Lessor.

(b) The Lessor shall pay the cost of all alterations, additions, and improvements initiated for the Lessor's convenience, and save the City free and harmless from damage, loss or expense arising out of said alterations performed by the Lessor or on its behalf.

(c) If any of the alterations, additions and improvements as installed by the City may be removed without disturbance, molestation, or injury to the Premises, the City at its option, may remove or cause to be removed said improvements at the City's own expense or may surrender the same with the Premises to remain as a part thereof and to become the property of the Lessor upon the expiration or termination of this lease. The Lessor shall accept responsibility for the minimal repair resulting from said improvement removal, although the City shall be obligated to pay for any repairs to any historic materials or any other damage in the building, including but not limited to ornamental plaster work or terra cotta. As stated in Section 5.2.9 of the Purchase Agreement, the City shall not remove any of the architectural ornamentation, architectural features, doors, windows, hardware or any historical architectural building materials from the Building or the Premises. Any architectural materials originating from the Building that have been stored shall be deemed part of the Property and shall become the property of Purchaser upon Closing under the Purchase Agreement.

(d) The City shall not without the written consent of the Lessor, operate or install any electrical equipment or machinery (other than ordinary office equipment), or replace or relocate any electric light fixtures.

11. TERMINATION.

(a) Notwithstanding any other provision herein, in the event that either party to this lease defaults in the performance of any of the terms, provisions, covenants and agreements to be kept, observed and performed as provided in the following sections:

Part A TERM Part B section3 UTILITIES AND OTHER SERVICES

RENT section4 CARE OF PREMISES

section5 MAINTENANCE-REPAIRS

and such default is not corrected within thirty (30) days after the receipt of written notice thereof from the other party, then the nonbreaching party may, at its option, immediately terminate this lease, without notice or other proceedings, and in such event the Lessor may also re-enter and take possession of the Premises. Damages may be claimed for a default in the performance of the other lease obligations, but such default shall not be cause for termination of this lease unless such default is repeated upon three or more occasions and a notice to comply is provided after each such instance.

(b) It is understood that funds for the payment of the rent herein are allocated out of monies received by the City from tax sources and/or other governmental entities and that funding for the program that occupies the Premises can be increased, changed, decreased, or eliminated by executive or legislative action. Therefore, it is agreed by the Lessor and the City that notwithstanding any other provision herein, in the event said funding and/or program is increased, changed, decreased, or eliminated, or in the judgment of the executive or legislative authority of the City, continuation of the lease to its full term would be an unnecessary expenditure of public funds, then the City may terminate this lease without further obligation to the Lessor, after the City has provided the Lessor with written notice of such termination at least ninety (90) days prior to the effective date thereof and documentation of such executive or legislative action.

12. SURRENDER OF PREMISES. Upon the expiration or termination of this lease, including any extensions thereof, whichever is earlier, the City shall quit and surrender said Premises and all keys thereto, without notice and in as good condition as received at the commencement of the term hereof except for ordinary wear and tear; damage or destruction by fire or other casualty or circumstances uncontrollable by the City; property damaged, removed, or destroyed by the Lessor or its agents; latent defects or faulty construction of the structure of which the Premises comprise a part, not discoverable by inspection at the time of taking possession; and alterations, additions or improvements made to the Premises by the City.

13. ADJUDICATION. This lease shall be construed under all of the applicable laws, statutes, ordinances, rules and regulations of the United States of America, the State of Washington, and The City of Seattle. In the case of a dispute between the parties, jurisdiction over such dispute shall be with the Superior Court of King County, Washington.

14. NOTICES. All notices to be given by either of the parties hereto to the other party, including but not limited to invoices, shall be in writing and may either be delivered personally or may be deposited in the United States Mail, postage prepaid, as either certified or regular mail, addressed as specified in Part A hereof or to such other respective addresses as either party may from time to time designate in writing.

15. RELATIONSHIP. In no event shall the City be construed or held to have become in any way or for any purpose a partner, associate, or joint venturer of the Lessor or any party associated with the Lessor in the conduct of the Lessor's business or otherwise. This lease does not constitute the Lessor as the agent or legal representative of the City for any purpose whatsoever.

16. AMENDMENTS. The parties hereto expressly reserve the right to renegotiate any and all of the provisions hereof from time to time as may be necessary and to amend this lease accordingly; Provided, however, that no alteration or modification of the terms or conditions hereof shall be valid and binding unless made in writing and signed by the authorized representative of the parties hereto.

17. NO WAIVER OF DEFAULT. The City does not waive full compliance with the terms and conditions of this lease by the payment of rent. No waiver of default by either party of any of the terms, covenants, and conditions hereof to be performed, kept and observed by the other party shall be construed as, or operated as, a waiver of any subsequent default or of any of the terms, covenants, and conditions herein contained, to be performed, kept and observed by the other party.

18. BINDING EFFECT. This lease shall be binding upon the heirs, successors, assigns, and all other parties legally empowered with signatory rights of any or all of the parties hereto.

19. INVALIDITY OF PROVISIONS. Should any term, provision, condition or other portion of this lease be held to be inoperative, invalid or void, the same shall not affect any other term, provision, condition or other portion of this lease; and the remainder of this lease shall be effective as if such term, provision, condition or portion had not been contained herein.

20. INSURANCE. At its expense, The City shall obtain and carry at all times during the term of this Lease: (i) commercial general liability insurance covering the Premises with a combined single limit of at least $2,000,000; and (ii) fire and extended coverage insurance for The City's property to its full replacement value. Such policies shall be written by insurers reasonably acceptable to Lessor and shall not contain deductible amounts in excess of $5,000 without Lessor's prior written consent. The liability policy shall name both Lessor, ground lessor and their mortgagees as additional insureds, as their interests may appear. All such insurers shall agree not to cancel or amend (including as to scope or amount of coverage) such policies without at least 30 days prior written notice to Lessor. The City shall furnish Lessor with certificates of insurance evidencing the above coverage at all times during the term of this Lease.

21. ASSIGNMENT AND SUBLETTING. The City shall not assign this Lease or sublet the whole or any part of the Premises (any of which events being a "Transfer" and any assignee or sublessee being a "Transferee") without Lessor's prior written consent which shall not be unreasonably withheld.

22. ESTOPPEL. The City shall, within 10 days of demand, execute and deliver to Lessor an estoppel certificate concerning the Premises and this Lease, in the form of estoppel certificate attached to the Purchase Agreement.

STATE OF WASHINGTON)

) ss.

COUNTY OF KING )

On this _____day of ___________________, 2005, before me, personally appeared Brenda Bauer, to me known to be the Acting Director of the Fleets and Facilities Department of The City of Seattle, who executed the foregoing agreement, and acknowledged the same to be the free and voluntary act and deed of The City of Seattle for the uses and purposes therein mentioned, and on oath stated that she was authorized to execute said agreement.

GIVEN under my hand and official seal the day and year written above in this certificate.

(Signature) _______________________

(Printed or typed name of Notary Public):

___________________________________

Notary Public in and for the State of Washington, residing at _________________________ My appointment expires __________________

STATE OF WASHINGTON )

) ss.

COUNTY OF )

On this _______day of _______________, 2005, before me, the undersigned, a Notary Public in and for the State of Washington, duly commissioned and sworn, personally appeared Stephen J. Day, Jr., member of Arctic Club Development LLC, managing member of The Arctic Club Hotel LLC, who executed the foregoing document, and acknowledged the same to be the free and voluntary act and deed of said corporation for the uses and purposes therein mentioned, and on oath stated that he was authorized to execute such document for and on behalf of said entity.

WITNESS my hand and official seal hereto affixed the day and year written above in this certificate.

(Signature) _______________________

(Printed or typed name of Notary Public):

___________________________________

Notary Public in and for the State of Washington, residing at _________________________ My appointment expires __________________

ATTACHMENT 3

EXHIBIT A TO ATTACHMENT 2

(See Attachment 3 to the Ordinance)

EXHIBIT B TO ATTACHMENT 2

MEMORANDUM OF AGREEMENT

THIS AGREEMENT is made and entered into by and between Artic Club Hotel LLC, a Washington limited liability company (hereinafter the "Employer"), and the UNITE HERE, Local 8, AFL-CIO (the "Union").

1. This Agreement shall cover all employees employed in classifications listed in Exhibit A, or in classifications called by different names when performing similar duties, (referred to hereinafter as "Employees") at a hotel to be located at 700 Third Avenue and Cherry Street in Seattle, Washington (hereinafter referred to as the "Hotel") which during the term of this Agreement is owned by, operated by or substantially under the control of the Employer. The Hotel is to be located within the Arctic Building (the "Building"). The term "Employer" shall be deemed to include any person, firm, partnership, corporation, joint venture or other legal entity substantially under the control of: (a) the Employer covered by this Agreement; (b) one or more principal(s) of the Employer covered by this Agreement; (c) a subsidiary of the Employer covered by this Agreement; or (d) any person, firm, partnership, corporation, joint venture or other legal entity which substantially controls the Employer covered by this Agreement.

2. The parties hereby establish the following procedure for the purpose of ensuring an orderly environment for the exercise by the Employees of their rights under Section 7 of the National Labor Relations Act and to avoid picketing and/or other economic action directed at the Employer in the event the Union decides to conduct an organizing campaign among Employees.

3. The parties mutually recognize that national labor law guarantees employees the right to form or select any labor organization to act as their exclusive representative for the purpose of collective bargaining with their employer, or to refrain from such activity.

4. The Employer will take an approach of strict neutrality to the unionization of Employees. The Employer will not do any action nor make any statement that will directly or indirectly state or imply any opposition by the Employer to the selection by such Employees of a collective bargaining agent, or preference for or opposition to any particular union as a bargaining agent.

5. The Union and its representatives will not coerce or threaten any Employee in an effort to obtain authorization cards or otherwise.

6. The Employer may hire any Employees at any time at its sole and absolute discretion and regardless of whether or not any such Employee applicant has been provided by the Union. Subject to the foregoing, if the Employer finds it necessary to hire new Employees for vacancies in job classifications covered by this Agreement at the Hotel, the Employer shall notify the Union to request applicants for such vacancies, provided that if time constraints require rapid hiring decisions, the Employer may in its sole discretion hire Employees without such notification. When requesting applicants, the Employer shall state the qualifications applicants are expected to possess. The Union may furnish applicants for the job vacancies specified by the Employer. The Union's selection of applicants for referral shall be on a non-discriminatory basis and shall not be based upon or in any way affected by membership in the Union or the Union's bylaws, rules, regulations, constitutional provisions, or any other aspects or obligation of Union membership policies or requirements, or upon personal characteristics of an applicant where discrimination based upon such characteristics is prohibited by law. The Employer agrees that any interest demonstrated by an applicant in joining the Union shall not constitute grounds for discriminatory or disparate treatment nor adversely impact the applicant's ability to be hired by the Employer. The Employer shall be the sole judge of an applicant's suitability, competence and qualifications to perform the work of any job to be filled and the above understanding shall not be the exclusive means of Employer recruitment.

7. If the Union provides written notice to the Employer of its intent to organize Employees covered by this Agreement, the Employer shall provide access to its premises and to such Employees by the Union. Notwithstanding the foregoing, the Union may engage in organizing efforts only in non-public areas of the Hotel during Employees' non-working times (before work, after work, and during meals and breaks) and/or during such other periods as the parties may mutually agree upon in writing in advance.

8. Within ten (10) days following receipt of written notice of intent to organize Employees, the Employer will furnish the Union with a complete list of such Employees, including both full and part-time Employees, showing their job classifications and departments. Within two (2) weeks thereafter, the Employer will furnish a second list of such Employees to the Union, including the home addresses of all Employees. Thereafter, the Employer will provide updated complete lists quarterly or not more than monthly upon specific request from the Union.

9. The Union may request recognition as the exclusive collective bargaining agent for such Employees. The Arbitrator identified in Paragraph 13, or another person mutually agreed to by Employer and Union, will conduct a review of Employees' authorization cards and membership information submitted by the Union in support of its claim to represent a majority of such Employees. If that review establishes that a majority of such Employees has designated the Union as their exclusive collective bargaining representative or joined the Union, the Employer will recognize the Union as such representative of such Employees. The Employer will not file a petition with the National Labor Relations Board for any election in connection with any demands for recognition provided for in this agreement. The Union and the Employer will not file any charges with the National Labor Relations Board in connection with any act or omission occurring within the context of this agreement; arbitration under Paragraph 13 shall be the exclusive remedy.

10. During the life of this Agreement, the Union will not engage in picketing or other economic activity at the Hotel, and the Employer will not engage in a lockout of the Employees. This paragraph will expire with respect to any group of Employees upon recognition of the Union as the representative of such Employees pursuant to paragraph 9. Notwithstanding the termination provision above, if the Employer recognizes any union besides Union as the exclusive collective bargaining representative of Employees, or any of them, this paragraph shall terminate immediately and without notice.

11. In the event that the Employer sells, transfers, or assigns all or any part of its right, title, or interest in the Hotel or substantially all of the assets used in the operation of the Hotel, or in the event there is a change in the form of ownership of the Employer, the Employer shall give the Union reasonable advance notice thereof in writing, and the Employer further agrees that as a condition to any such sale, assignment, or transfer, the Employer will obtain from its successor or successors in interest a written assumption of this Agreement and furnish a copy thereof to the Union, in which event the assignor shall be relieved of its obligations hereunder to the extent that the assignor has fully transferred its right, title, or interest.

12. The Employer shall incorporate the entirety of paragraphs 4,6, 7, 8, 9, and 10 of this of Agreement in any contract, subcontract, lease, sublease, operating agreement, franchise agreement or any other agreement or instrument (except as provided otherwise in this paragraph or this Agreement) giving a right to any person to operate any enterprise in the Hotel employing employees in classifications listed in Exhibit A, or in classifications called by different names when performing similar duties, and shall obligate any person taking such interest, and any and all successors and assigns of such person, to in turn incorporate said paragraphs in any further agreement or instrument giving a right as described above. This Agreement and the provisions of this paragraph 12 shall apply only to Employees of the Hotel. This Agreement and the provisions of this paragraph 12 shall not apply to any lease of space in the Building or employees of any lessee of space in the Building, including but not limited to restaurant workers or retail workers hired by lessees operating under any lease of space within the Building, provided that the lessee is in an arm's-length relationship with the Employer. The Employer shall enforce such provisions, or at its option, assign its rights to do so to the Union. The Employer shall give the Union written notice of the execution of such agreement or instrument and identify the other party(ies) to the transaction within 15 days after the agreement or instrument is signed. The terms "Employer" and "Hotel" shall be modified in such agreement or instrument to conform to the terminology in such agreement or instrument but retain the same meaning as in this Agreement, and the terms "Employer" and "Employees" as used herein shall be modified to refer, respectively, to the person or persons receiving a right to operate an enterprise in the Hotel and the employees of such person or persons.

13. The parties agree that any disputes over the interpretation or application of this Agreement shall be submitted to expedited and binding arbitration, with Philip Kienast serving as the arbitrator. If he is unavailable to serve within thirty (30) calendar days of notification then another mutually acceptable person shall be the arbitrator. The arbitrator shall have the authority to determine the arbitration procedures to be followed. The arbitrator shall also have the authority to order the non-compliant party to comply with this Agreement. The parties hereto agree to comply with any order of the arbitrator, which shall be final and binding, and furthermore consent to the entry of any order of the arbitrator as the order or judgment of the United States District Court for the Western District of Washington, without entry of findings of fact and conclusions of law.

14. This Agreement shall be in full force and effect from the date it is fully executed on behalf of the Employer and the Union until the earlier of the following dates: (a) the date that is Two years from the full public opening of the hotel or (b) December 1, 2010. The Employer estimates, but is not bound to, an opening date in Summer 2006.

IN WITNESS WHEREOF, the parties hereto by their duly designated representatives have hereunto set their hands.

FOR THE EMPLOYER: FOR THE UNION:

ARCTIC CLUB HOTEL LLC

____________________________ UNITE HERE, Local 8, AFL-CIO

[fill in company name]

By: _________________________ By:_________________________

Its: _________________________ Its: _________________________

Date: _______________________ Date: _______________________

EXHIBIT A

All regular full-time and regular part-time hotel service, housekeeping, food and beverage, and laundry employees (including room cleaners, housepersons, bell persons, telephone operators, kitchen employees, servers, bussers, bartenders, cashiers, hosts, concierges, and laundry workers, and front desk, recreational, and parking employees) employed by the Employer at the Hotel, but excluding all secretarial, office clerical, sales, and maintenance employees and all managers, supervisors, and guards as defined in the National Labor Relations Act.

1

Artic Club/UNITE HERE Local 8

4/11/05