AMENDMENT NO. 1 TO SUBORDINATION AND RELEASE AGREEMENT

Exhibit 10.68

AMENDMENT NO. 1 TO SUBORDINATION AND RELEASE AGREEMENT

THIS AMENDMENT NO. 1 TO SUBORDINATION AND RELEASE AGREEMENT is executed as of April 25, 2002, by and between PORT LUDLOW ASSOCIATES LLC, a Washington limited liability company, as Grantor, and XXXX RESOURCES, a Delaware limited partnership, as Beneficiary.

RECITALS

A.  Beneficiary and Grantor are parties to that certain Subordination and Release Agreement dated as of August 8, 2001 (the “Original Subordination”) pertaining to the subordination of the lien of a security instrument identified as the “Xxxx Deed of Trust” and partial releases from the lien of such Xxxx Deed of Trust.  In connection with its development and construction of residential lots encumbered by the Xxxx Deed of Trust, Grantor has asked Beneficiary to execute and deliver that certain Subordination Agreement of even date herewith in favor of Grantor’s construction lender, Prism Mortgage Company (the “Prism Subordination”).  Under the Prism Subordination, the lien of the Xxxx Deed of Trust and certain other rights of Beneficiary would be subordinated to liens and rights of Prism Mortgage Company.  Beneficiary contends that Beneficiary has no legal obligation to execute or deliver the Prism Subordination because it is inconsistent with the Original Subordination; Grantor disagrees with Beneficiary’s contention.

B.  The parties wish to execute this Amendment for the purpose of amending and supplementing the terms and provisions of the Original Subordination and implementing various loan tests and standards set forth in the Original Subordination in conjunction with the execution and delivery of the Prism Subordination and other documents in favor of Prism Mortgage Company.  Beneficiary has executed the Prism Subordination concurrently with execution of this Amendment in reliance upon the supplemental terms and protections set forth below in this Amendment.

NOW, THEREFORE, in consideration of Beneficiary’s execution and delivery of the Prism Subordination and the mutual covenants set forth herein, the parties do agree as follows:

AGREEMENT

1.  Terms.  As used below, the terms “Senior Loan Agreement,” “Senior Loan Documents,” “Junior Obligation Documents,” and “Junior Deed of Trust” shall have the meaning set forth in the Prism Subordination.  “Property” means the residential lots and any related property encumbered by the Xxxx Deed of Trust from time to time.  All other capitalized terms below not otherwise defined in this Amendment shall have the meaning set forth in the Original Subordination.

2.  Xxxx Note.  Reference is hereby made to that certain Promissory Note dated August 8, 2001, given by Grantor as maker to Beneficiary as holder, in the original principal amount of

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US$5,814,742.00 (the “Xxxx Note”).  As of April 17, 2002, the unpaid principal balance due under the Note was US$3,666,301.91, and the unpaid accrued interest due under the Xxxx Note was US$2,008.92.  In partial consideration of Beneficiary’s execution and delivery of the Prism Subordination, Grantor agrees to pay Beneficiary upon the recordation of the Prism Subordination the sum of US$120,000.00 (the “Prepayment”) in partial payment of amounts due under the Xxxx Note.  The Prepayment shall be applied first to accrued interest and secondly to the unpaid principal balance due under the Xxxx Note.

3.  Grantor’s Covenants.  Grantor hereby covenants to Beneficiary and agrees as follows:

(a)  As used in this Amendment, “Aggregate Secured Indebtedness” means the total dollar amount of all monetary obligations secured by liens against the Property subject to the Xxxx Deed of Trust (other than liens for non-delinquent property taxes and assessments and homeowners association dues), including without limitation all principal, interest, late charges, and other sums due under the Senior Loan Documents and Junior Obligations.

(b)  As used in this Amendment, “Aggregate Value” means the aggregate value of the Property subject to the Xxxx Deed of Trust determined from time to time as follows:

(i)  The value of each of the 49 detached single-family residential lots within the Property except any lots within the Plat of Ludlow Bay Village shall be as set forth under the column “Wholesale Value” on the attached Exhibit B (“Wholesale Value of Single Family Residential Lots (Excluding Ludlow Bay Village Lots)”).

(ii)  The value of each of the 4 detached single-family residential lots within the Plat of Ludlow Bay Village shall be US$87,500.00.

(iii)  The value of each of the 40 townhome lots within the Plat of Ludlow Bay Village shall be as set forth under the column “Wholesale Value” on the attached Exhibit C (“Wholesale Value of Ludlow Bay Village Townhome Lots”).

(iv)  All construction labor and materials provided to any lot within the Property after the date hereof shall increase the value of that lot by an amount equal to the actual cost to Grantor of such labor and materials

(v)  The value of any lot containing either a detached single-family residence or attached townhome that is substantially completed after the date hereof shall be increased by 15 percent.

(vi)  Notwithstanding the foregoing, if any lot within the Property is subject to a bona fide sales contract negotiated at arm’s length with an unrelated party, the value of such lot shall be the contract sales price.

The Aggregate Value of the Property as of the date hereof shall be US$12,204,000.  At the request of either Grantor or Beneficiary, any dispute under this

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subsection 3(b) regarding the Aggregate Value of the Property after the date hereof shall be resolved by binding arbitration before the Seattle, Washington, office of JAMS.  Prior to such arbitration, each party shall submit to the other their assertion of Aggregate Value of the Property as of the date of the written request for arbitration.  The parties shall cooperate and make diligent good faith efforts to cause such arbitration to take place within 15 days after written request by either party, and the party whose assertion of Aggregate Value is furthest from the actual Aggregate Value as determined by the JAMS arbitrator shall pay the fees and costs payable to JAMS.

(c)  The Aggregate Secured Indebtedness shall not exceed at any time eighty percent (80%) of the Aggregate Value.  If at any time the Aggregate Secured Indebtedness exceeds eighty percent (80%) of the Aggregate Value, then Grantor shall be in default under the Junior Obligation Documents unless cured within five (5) business days.

(d)  Except with respect to the initial construction draw request, Grantor shall deliver to Beneficiary at least five (5) business days prior written notice of all construction draw requests under the Senior Loan Agreement, copies of all draw request documents, and a certificate executed by Grantor in the form of Exhibit A (the “Draw Certificate”) that the amount to be drawn in addition to all other monetary obligations secured by liens against the Property shall not cause the Aggregate Secured Indebtedness to exceed eighty percent (80%) of the Aggregate Value of the Lots.  Grantor shall give Beneficiary copies of all notices received from Prism within three (3) business day after Grantor’s receipt.  Grantor shall prepare and deliver to Beneficiary on or before the first day of each calendar month a certificate executed by Grantor containing the following descriptions, amounts, and statements as such date: (a) a description of each lot within the Property subject to a pending purchase and sale agreement and the expected date of closing, (b) a description of each lot within the Property sold within the prior month, (c) the value of each lot within the Property, measured in the same manner as the Aggregate Value of all of the lots, (d) the Aggregate Value, (e) the Aggregate Secured Indebtedness, (f) the amounts of any draw requests under the Senior Loan Agreements anticipated within the following month, (g) a description of the lots within the Property to which such draws will be applied, and (h) a statement in the form of the Draw Certificate that the Aggregate Secured Indebtedness does not exceed eighty percent (80%) of the Aggregate Value.

(e)  Grantor shall suspend borrowing under the Senior Loan Agreement upon Beneficiary’s written request if Beneficiary reasonably determines at any time, under the documents provided by Grantor or otherwise, that the Aggregate Secured Indebtedness exceeds eighty percent (80%) of the Aggregate Value, until such time as Grantor can show to Beneficiary’s reasonable satisfaction that the Aggregate Secured Indebtedness does not (or, in connection with any anticipated draw request, will not) exceed the Aggregate Value.

(f)  Grantor shall not submit to Prism Mortgage Company, its successors and assigns, any draw request not approved in advance by Beneficiary.  Beneficiary shall be deemed to have approved any draw request received by it at least five (5) business days prior to delivery to Prism Mortgage Company if Beneficiary does not deliver to Grantor written notice of disapproval within five (5) business days after its receipt of such draw request.

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(g)  Grantor covenants and agrees, in the case of any sale, transfer, or conveyance of title to any lot, parcel, or tract within the Property in a bona fide sales transaction, to pay to Beneficiary upon the closing of such sale, transfer, or conveyance a sum equal to the Release Price applicable to such lot as set forth in the Original Subordination as amended herein, in partial repayment of accrued interest, principal, and other amounts due under the Junior Note.  Any failure by Grantor to pay to Beneficiary any Release Price due under the Original Subordination as amended herein upon closing of a sale, transfer, or conveyance of any portion of the Property shall (i) not release Grantor from liability for payment of such Release Price and for all other sums payable under the Junior Obligation Documents, regardless whether Beneficiary has released the lien of the Junior Deed of Trust as to such portion, and (ii) shall (if not cured within the time allowed under Section 4 of the Original Subordination) constitute a default under the Junior Obligation Documents.

(h)  Any default by Grantor in the performance of any obligation owing to Beneficiary under this Amendment also shall constitute a default by Grantor under the Original Subordination and each of the other Junior Obligation Documents (subject to any cure rights under the Junior Obligation Documents).

4.  Revised Partial Release Prices.  In consideration of the need to make post-closing adjustments under the Real Estate Purchase and Sale Agreement dated January 12, 2001, between Grantor as Buyer-Assignee and Beneficiary as Seller, as amended, and for other good and valuable consideration, the Release Prices described in Section 2 of the Original Subordination, which are set forth on Exhibit B to the Original Subordination, shall be increased as set forth on Exhibit D hereto.

5.  Performance of Obligations.  Each of the parties agrees and acknowledges that to its actual present knowledge both parties have satisfactorily performed their respective obligations under the Original Subordination.

6.  Interpretation.  This Amendment amends and modifies the Original Subordination.  In the event of any conflict between the terms and provisions of this Amendment and the terms and provisions of the Original Subordination, the terms and provisions of this Amendment shall control.  Except as otherwise provided herein, all terms and provisions of the Original Subordination remain unmodified and in full force and effect.

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IN WITNESS WHEREOF, the parties have executed this Amendment as of the date first written above.

Grantor

PORT LUDLOW ASSOCIATES LLC,
a Washington limited liability company

By:  Olympic Pacific Partners LLC, as its Manager

By:

Its: President

Beneficiary

XXXX RESOURCES,
a Delaware limited partnership

By: Xxxx MGP, Inc.,

a Delaware corporation,
as its managing general partner

By:

Its: President

EXHIBITS:

A		-		Form of Draw Certificate
B		-		Wholesale Value of Single Family Residential Lots (Excluding Ludlow Bay Village Lots)
C		-		Wholesale Value of Ludlow Bay Village Townhome Lots
D		-		Revised Release Prices

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EXHIBIT A

Form of Draw Certificate

CERTIFICATE

THIS CERTIFICATE (this “Certificate”) is dated and effective as of                                        , 200        .  Reference is hereby made to that certain Subordination and Release Agreement dated August 8, 2001, as amended by Amendment No. 1 dated April 25, 2002 (the “Agreement”), between Port Ludlow Associates LLC, a Washington limited liability company (“Borrower”) and Xxxx Resources, a Delaware limited partnership (“Junior Lien Holder”).  This Certificate is given by Borrower to Junior Lien Holder under the Agreement in connection with a construction loan draw request by Borrower.  Capitalized terms not otherwise defined herein shall have the meanings given them under the Agreement.

Borrower hereby certifies, represents, and warrants to Junior Lien Holder that the Aggregate Secured Indebtedness as of the date hereof, together with the amount to be drawn under the draw request accompanying this Certificate, does not exceed eighty percent (80%) of the Aggregate Value of the Lots subject to the Xxxx Deed of Trust as of the date hereof.

	“Borrower”
	PORT LUDLOW ASSOCIATES LLC,a Washington limited liability company
	By:	Olympic Pacific Partners LLC,a Washington limited liability company,its manager
			By:
				Xxxxxxx X. Xxxxxx, its president

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EXHIBIT B

Wholesale Value of Single Family Residential Lots

(Excluding Ludlow Bay Village Plat)

		Appraised Value
Lot Number		Base lot		Lot Premiums		Total		Wholesale Discount		Wholesale Value
Woodridge Village
19		50,000		55,000		105,000		66.5	%	69,825
23		50,000		55,000		105,000		66.5	%	69,825
24		50,000		55,000		105,000		66.5	%	69,825
25		50,000		55,000		105,000		66.5	%	69,825
26		50,000		55,000		105,000		66.5	%	69,825
Teal Lake Village
17		50,000		0		50,000		66.5	%	33,250
74		50,000		10,000		60,000		66.5	%	39,900
75		50,000		0		50,000		66.5	%	33,250
76		50,000		0		50,000		66.5	%	33,250
78		50,000		10,000		60,000		66.5	%	39,900
Xxxxxxxxx Xxxxx
00		50,000		2,500		52,500		66.5	%	34,913
28		50,000		2,500		52,500		66.5	%	34,913
29		50,000		2,500		52,500		66.5	%	34,913
30		50,000		12,500		62,500		66.5	%	41,563
31		50,000		17,500		67,500		66.5	%	44,888
37		50,000		52,500		102,500		66.5	%	68,163
38		50,000		37,500		87,500		66.5	%	58,188
39		50,000		22,500		72,500		66.5	%	48,213
40		50,000		2,500		52,500		66.5	%	34,913
46		50,000		2,500		52,500		66.5	%	34,913
51		50,000		7,500		57,500		66.5	%	38,238
52		50,000		7,500		57,500		66.5	%	38,238
54		50,000		7,500		57,500		66.5	%	38,238
55		50,000		7,500		57,500		66.5	%	38,238
57		50,000		2,500		52,500		66.5	%	34,913
58		50,000		2,500		52,500		66.5	%	34,913
Timberton Heights
61		50,000		65,000		115,000		66.5	%	76,475
62		50,000		65,000		115,000		66.5	%	76,475
63		50,000		65,000		115,000		66.5	%	76,475
64		50,000		65,000		115,000		66.5	%	76,475
65		50,000		85,000		135,000		66.5	%	89,775
66		50,000		100,000		150,000		66.5	%	99,750
67		50,000		115,000		165,000		66.5	%	109,725
68		50,000		135,000		185,000		66.5	%	123,025
69		50,000		15,000		65,000		66.5	%	43,225
70		50,000		25,000		75,000		66.5	%	49,875
71		50,000		20,000		70,000		66.5	%	46,550
72		50,000		125,000		175,000		66.5	%	116,375
73		50,000		10,000		60,000		66.5	%	39,900
74		50,000		10,000		60,000		66.5	%	39,900
76		50,000		10,000		60,000		66.5	%	39,900
77		50,000		15,000		65,000		66.5	%	43,225
78		50,000		20,000		70,000		66.5	%	46,550
Miscellaneous
PL 7 - 5		50,000		5,000		55,000		66.5	%	36,575
PL 7 - 6		50,000		5,000		55,000		66.5	%	36,575
PL 7 - 15		50,000		85,000		135,000		66.5	%	89,775
PL 7 - 20		50,000		15,000		65,000		66.5	%	43,225
LPV 4 - 1		50,000		25,000		75,000		66.5	%	49,875
LPV 4 - 2		50,000		25,000		75,000		66.5	%	49,875
Totals						4,040,000				2,686,608

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EXHIBIT C

Values of Ludlow Bay Village Townhome Lots

Appraised Value
Lot Number		Base Lot		Lot Premiums		Total		Wholesale Discount		Wholesale Value
Xxxxxx Xxx Xxxxxxx
Xxxxxxxx 000
00		150,000		90,000		240,000		69	%	165,600
15		150,000		75,000		225,000		69	%	155,250
16		150,000		75,000		225,000		69	%	155,250
17		150,000		75,000		225,000		69	%	155,250
18		150,000		90,000		240,000		69	%	165,600
Building 500
19		150,000		15,000		165,000		69	%	113,850
20		150,000		0		150,000		69	%	103,500
21		150,000		15,000		165,000		69	%	113,850
Building 600
22		150,000		65,000		215,000		69	%	148,350
23		150,000		50,000		200,000		69	%	138,000
24		150,000		50,000		200,000		69	%	138,000
25		150,000		65,000		215,000		69	%	148,350
Building 700
26		150,000		90,000		240,000		69	%	165,600
27		150,000		75,000		225,000		69	%	155,250
28		150,000		75,000		225,000		69	%	155,250
29		150,000		75,000		225,000		69	%	155,250
30		150,000		90,000		240,000		69	%	165,600
Building 800
31		150,000		0		150,000		69	%	103,500
32		150,000		15,000		165,000		69	%	113,850
Building 900
33		150,000		15,000		165,000		69	%	113,850
34		150,000		15,000		165,000		69	%	113,850
Building 1000
35		150,000		65,000		215,000		69	%	148,350
736		150,000		50,000		200,000		69	%	138,000
37		150,000		50,000		200,000		69	%	138,000
38		150,000		65,000		215,000		69	%	148,350
Building 1100
39		150,000		65,000		215,000		69	%	148,350
40		150,000		50,000		200,000		69	%	138,000
41		150,000		50,000		200,000		69	%	138,000
42		150,000		65,000		215,000		69	%	148,350
Building 1200
43		150,000		65,000		215,000		69	%	148,350
44		150,000		50,000		200,000		69	%	138,000
45		150,000		65,000		215,000		69	%	148,350
Building 1300
46		150,000		15,000		165,000		69	%	113,850
47		150,000		0		150,000		69	%	103,500
48		150,000		0		150,000		69	%	103,500
49		150,000		0		150,000		69	%	103,500
Building 1400
50		150,000		0		150,000		69	%	103,500
51		150,000		0		150,000		69	%	103,500
52		150,000		0		150,000		69	%	103,500
53		150,000		15,000		165,000		69	%	113,850
Totals						7,785,000				5,371,650

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EXHIBIT D

Revised Release Prices

		Subdivision and Lot #		Revised Release Prices (in US$)
1		Ludlow Point Div 4 Lot 1		21,182.21
2		Ludlow Point Div 4 Lot 2		21,182.21
3		Port Ludlow 7 lot 5		16,141.40
4		Port Ludlow 7 Lot 6		20,175.70
5		Port Ludlow 7 Lot 15		174,361.89
6		Port Ludlow 7 Lot 20		30,264.60
7		Port Xxxxxx 0 Xxx 00		18,158.55
8		Teal Lake Village Lot 17		260,000.00
9		Teal Lake Village Lot 74		17,836.65
10		Teal Lake Village Lot 75		22,608.98
11		Teal Lake Village Lot 76		22,608.98
12		Teal Lake Village Lot 77		22,608.98
13		Teal Lake Village Lot 78		64,304.07
14		Timberton Lot 17		29,390.09
15		Timberton Lot 28		28,071.68
16		Timberton Lot 29		28,336.40
17		Timberton Lot 30		28,071.68
18		Timberton Lot 31		28,071.68
19		Timberton Lot 37		49,390.96
20		Timberton Lot 38		42,108.06
21		Timberton Lot 39		35,089.87
22		Timberton Lot 40		28,071.68
23		Timberton Lot 46		31,611.48
24		Timberton Lot 50		260,000.00
25		Timberton Lot 51		270,000.00
26		Timberton Lot 52		35,120.58
27		Timberton Lot 54		28,102.39
28		Timberton Lot 55		28,367.11
29		Timberton Lot 57		28,367.11
30		Timberton Lot 58		24,593.30
31		Timberton Ph 3 Lot 60		50,281.01
32		Timberton Ph 3 Lot 61		46,507.59
33		Timberton Ph 3 Lot 62		48,394.30
34		Timberton Ph 3 Lot 63		42,734.17
35		Timberton Ph 3 Lot 64		38,960.76
36		Timberton Ph 3 Lot 65		44,620.88
37		Timberton Ph 3 Lot 66		45,543.05
38		Timberton Ph 3 Lot 67		47,429.76
39		Timberton Ph 3 Lot 68		49,316.47
40		Timberton Ph 3 Lot 69		28,300.63
41		Timberton Ph 3 Lot 70		28,300.63
42		Timberton Ph 3 Lot 71		32,074.05
43		Timberton Ph 3 Lot 72		30,187.34
44		Timberton Ph 3 Lot 73		28,300.63
45		Timberton Ph 3 Lot 74		28,300.63
46		Timberton Ph 3 Lot 75		185,687.10
47		Timberton Ph 3 Lot 76		24,527.21
48		Timberton Ph 3 Lot 77		24,527.21
49		Timberton Ph 3 Lot 78		24,527.21
50		Woodridge Village Xxx 00		00,000.00
00		Xxxxxxxxx Xxxxxxx Xxx 00		00,000.00
00		Xxxxxxxxx Xxxxxxx Xxx 00		00,000.00
00		Xxxxxxxxx Xxxxxxx Lot 25		90,000.00
54		Woodridge Village Lot 26		59,778.56
55		LBV Townhome 400		62,026.87
56		LBV Townhome 400		62,026.87
57		LBV Townhome 400		62,026.87
58		LBV Townhome 400		62,026.87
59		LBV Townhome 400		62,026.87
60		LBV Townhome 500		40,182.35
61		LBV Townhome 500		40,182.35
62		LBV Townhome 500		40,182.35
63		LBV Townhome 600		21,973.41
64		LBV Townhome 600		21,973.41
65		LBV Townhome 600		21,973.41
66		LBV Townhome 600		21,973.41
67		LBV Townhome 700		79,004.71
68		LBV Townhome 700		79,004.71
69		LBV Townhome 700		79,004.71
70		LBV Townhome 700		79,004.71
71		LBV Townhome 700		79,004.71
72		LBV Townhome 800		18,922.67
73		LBV Townhome 800		18,922.67
74		LBV Townhome 900		18,922.67
75		LBV Townhome 900		18,922.67
76		LBV Townhome 1000		20,976.08
77		LBV Townhome 1000		20,976.08
78		LBV Townhome 1000		20,976.08
79		LBV Townhome 1000		20,976.08
80		LBV Townhome 1100		19,454.67
81		LBV Townhome 1100		19,454.67
82		LBV Townhome 1100		19,454.67
83		LBV Townhome 1100		19,454.67
84		LBV Townhome 1200		20,068.70
85		LBV Townhome 1200		20,068.70
86		LBV Townhome 1200		20,068.70
87		LBV Townhome 1300		14,390.66
88		LBV Townhome 1300		14,390.66
89		LBV Townhome 1300		14,390.66
90		LBV Townhome 1300		14,390.66
91		LBV Townhome 1400		15,075.21
92		LBV Townhome 1400		15,075.21
93		LBV Townhome 1400		15,075.21
94		LBV Townhome 1400		15,075.21
95		LBV SFL		71,185.51
96		LBV SFL		71,185.51
97		LBV SFL		71,185.51
98		LBV SFL		71,185.51
		TOTAL		4,520,910.07

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